1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A (Amendment No. 1) Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act Date of Report (Date of earliest event reported): May 16, 2001 (March 2, 2001) ---------------------------- GREIF BROS. CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 1-566 31-4388903 - ---------------------------- ----- ---------- (State or other jurisdiction (Commission (I.R.S. Employer of incorporation) File No.) Identification No.) 425 Winter Road, Delaware, Ohio 43015 --------------------------------------- ----- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code 740-549-6000 ------------ Not Applicable - -------------------------------------------------------------------------------- (Former name or former address, if changed since last report) Index to Exhibits on Page 14
2 GREIF BROS. CORPORATION ----------------------- FORM 8-K/A ---------- Dated May 16, 2001 ------------------ (Amendment No. 1), ------------------ Amending the ------------ CURRENT REPORT ON FORM 8-K -------------------------- Dated March 15, 2001 -------------------- Greif Bros. Corporation (the "Company") hereby amends its Current Report on Form 8-K dated March 15, 2001 to include the financial statements and pro forma financial information set forth below which was omitted from the original filing pursuant to Items 7(a)(4) and 7(b)(2) of Form 8-K. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS - ------------------------------------------ (a) Financial Statements of Business Acquired. As previously reported, on March 2, 2001, pursuant to the terms of a Share Purchase Agreement, dated October 27, 2000, as amended on January 5, 2001 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 Holding 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 Company Inc., a U.S. corporation (collectively, "Van Leer Industrial Packaging"), for $555 million less the amount of Van Leer Industrial Packaging's debt and certain other obligations (approximately $206 million) as of the closing date. The following financial statements of Van Leer Industrial Packaging are included as Exhibit 99.3 to this Current Report on Form 8-K/A: (1) Audited financial statements of Van Leer Industrial Packaging for the years ended December 31, 1999, 1998 and 1997. (2) Unaudited financial statements of Van Leer Industrial Packaging for the year ended December 31, 2000. 2
3 (b) Pro Forma Financial Information. The following Pro Forma Condensed Combined Balance Sheet as of January 31, 2001 and Pro Forma Condensed Combined Statements of Income for the quarter ended January 31, 2001 and for the year ended October 31, 2000 give effect to the purchase of Van Leer Industrial Packaging and considers the financing obtained to effect the transaction. The Pro Forma Condensed Combined Financial Information should be read in conjunction with: (1) the accompanying Notes to Pro Forma Condensed Combined Balance Sheet and Notes to Pro Forma Condensed Combined Income Statements; (2) the audited and unaudited financial statements of Van Leer Industrial Packaging included as Exhibit 99.3 to this Current Report on Form 8-K/A; and (3) the Company's Annual Report on Form 10-K for the year ended October 31, 2000 and the Company's Quarterly Report on Form 10-Q for the quarter ended January 31, 2001. Adjustments have been made to reflect the financial statements of Van Leer Industrial Packaging in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). The acquisition of Van Leer Industrial Packaging will use the purchase method of accounting in accordance with U.S. GAAP. Accordingly, the purchase consideration for acquiring Van Leer Industrial Packaging will be allocated to the tangible and intangible assets acquired and the liabilities assumed, with the excess cost being allocated to goodwill and presented as an intangible asset. A preliminary allocation of the purchase price of Van Leer Industrial Packaging has been reflected in the Pro Forma Condensed Combined Financial Information. A final allocation of the purchase price of Van Leer Industrial Packaging is ongoing and is dependent on the completion of certain valuations and other studies which are expected to be completed prior to the end of fiscal 2001. The Pro Forma Condensed Combined Financial Statements are provided for illustrative purposes only and do not purport to represent what actual results of operations or financial position would have been had the acquisition of Van Leer Industrial Packaging occurred on the respective dates assumed, nor are they necessarily indicative of the Company's future operating results. 3
4 GREIF BROS. CORPORATION AND SUBSIDIARY COMPANIES ------------------------------------------------ PRO FORMA CONDENSED COMBINED BALANCE SHEET ------------------------------------------ JANUARY 31, 2001 ---------------- (UNAUDITED) (U.S. Dollars in Thousands) Van Leer Greif Bros. Industrial Pro Forma Pro Forma Corporation Packaging Adjustments Notes Results -------------- -------------- ------------- ----------- -------------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 21,072 $ 33,164 $ -- $ 54,236 Trade accounts receivable 110,115 186,040 -- 296,155 Inventories 41,305 122,769 (2,221) a,b 161,853 Net assets held for sale 8,169 -- -- 8,169 Prepaid expenses and other 13,028 48,237 -- 61,265 -------------- -------------- ------------- -------------- Total current assets 193,689 390,210 (2,221) 581,678 -------------- -------------- ------------- -------------- LONG-TERM ASSETS Properties, plants and equipment, net 476,754 331,998 52,875 a,b 861,627 Goodwill and other intangibles 134,534 9,249 19,095 a 162,878 Investment in affiliates 135,801 -- -- 135,801 Other long-term assets 18,021 45,289 16,530 e,f,g 79,840 -------------- -------------- ------------- -------------- Total long-term assets 765,110 386,536 88,500 1,240,146 -------------- -------------- ------------- -------------- Total assets $ 958,799 $ 776,746 $ 86,279 $ 1,821,824 ============== ============== ============= ============== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 37,802 $ 113,467 $ -- $ 151,269 Accrued payrolls and employee benefits 7,720 8,767 -- 16,487 Restructuring reserves -- -- 12,052 a,c 12,052 Income taxes payable 3,438 -- -- 3,438 Current portion of long-term obligations -- 19,408 -- 19,408 Other current liabilities 4,368 85,898 -- 90,266 -------------- -------------- ------------- -------------- Total current liabilities 53,328 227,540 12,052 292,920 -------------- -------------- ------------- -------------- LONG-TERM LIABILITIES Long-term obligations 215,000 22,577 544,911 a,d,e,f,g 782,488 Deferred tax liability 75,529 48,349 -- 123,878 Postretirement benefit liability 20,449 2,699 -- 23,148 Other long-term liabilities 17,407 174,939 (170,042) e 22,304 -------------- -------------- ------------- -------------- Total long-term liabilities 328,385 248,564 374,869 951,818 -------------- -------------- ------------- -------------- SHAREHOLDERS' EQUITY Capital stock, without par value 10,383 -- -- 10,383 Treasury Stock, at cost (58,011) -- -- (58,011) Retained earnings 633,599 300,642 (300,642) a,b 633,599 Accumulated other comprehensive income - foreign currency translation (7,485) -- -- (7,485) - interest rate swaps (1,400) -- -- (1,400) -------------- -------------- ------------- -------------- Total shareholders' equity 577,086 300,642 (300,642) 577,086 -------------- -------------- ------------- -------------- Total liabilities and shareholders' equity $ 958,799 $ 776,746 $ 86,279 $ 1,821,824 ============== ============== ============= ============== See accompanying Notes to Pro Forma Condensed Combined Balance Sheet 4
5 GREIF BROS. CORPORATION AND SUBSIDIARY COMPANIES ------------------------------------------------ NOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET --------------------------------------------------- (U.S. Dollars in Thousands) Note 1 - Basis of Presentation - ------------------------------ The Pro Forma Condensed Combined Balance Sheet as of January 31, 2001 has been prepared assuming the Company's acquisition of all of the issued share capital of Van Leer Industrial Packaging, more fully described in Item 2 and Exhibit 2 to the Company's previously filed Current Report on Form 8-K dated March 15, 2001, had occurred on January 31, 2001. The Company has a fiscal year that ends October 31, whereas Van Leer Industrial Packaging has a fiscal year that ends December 31. As such, the Pro Forma Condensed Combined Balance Sheet at January 31, 2001 includes the unaudited balance sheet of Van Leer Industrial Packaging as of December 31, 2000. The historical financial statements of Van Leer Industrial Packaging contained in Item 7(a) to this Current Report on Form 8-K/A are denominated in Euros and have been prepared in accordance with accounting principles generally accepted in The Netherlands ("Dutch GAAP"). As explained in the accompanying notes to Van Leer Industrial Packaging's historical financial statements, Dutch GAAP varies in certain significant respects from U.S. GAAP. The amounts shown for Van Leer Industrial Packaging in the Pro Forma Condensed Combined Balance Sheet have been derived from Van Leer Industrial Packaging's unaudited balance sheet as of December 31, 2000, included in Item 7(a) to this Current Report on Form 8-K/A, as adjusted to give effect to these Dutch GAAP to U.S. GAAP differences. In addition, the amounts are presented in U.S. Dollars using the December 31, 2000 exchange rate of .9421 U.S. Dollar per Euro. Note 2 - Pro Forma Adjustments - ------------------------------ Pro forma adjustments to reflect the acquisition of Van Leer Industrial Packaging are described below. The pro forma adjustments do not include a restructuring charge resulting from the acquisition of Van Leer Industrial Packaging that are related to the Company's locations existing prior to the acquisition date. The amount of this charge, as well as the anticipated savings from these consolidation activities, will be reported in the Company's Quarterly Report on Form 10-Q dated April 30, 2001. 5
6 a. EXCESS OF PURCHASE PRICE OVER FAIR VALUE OF NET ASSETS ACQUIRED: Cash consideration paid to Huhtamaki $ 348,839 Estimated transaction expenses 9,500 --------- Total purchase price 358,339 Estimated fair value of net assets of Van Leer Industrial Packaging (see Note 2(b)) (351,296) Restructuring reserve (see Note 2 (c)) 12,052 --------- Excess of purchase price over fair value of net assets acquired $ 19,095 ========= Amount allocated to goodwill and other intangible assets $ 19,095 ========= Certain intangible assets , such as the Van Leer tradename, certain customer relationships, trademarks, patents and other proprietary information associated with the Tri-Sure Closure system and certain noncompete agreements, have been identified and will be assigned a fair value as part of the ongoing purchase price allocation exercise. b. ESTIMATED FAIR VALUE OF NET ASSETS OF VAN LEER INDUSTRIAL PACKAGING: Net assets acquired $ 300,642 Preliminary fair value adjustments 50,654 --------- Estimated fair value of net assets of Van Leer Industrial Packaging at acquisition $ 351,296 ========= The allocation of purchase price is based upon preliminary estimates of the fair value. The actual allocation of the purchase price may differ from the preliminary allocation due to adjustments to the purchase price and refinements of the fair values of the net assets acquired. c. The restructuring reserve of $12,052 primarily relates to the closing of duplicate facilities in North America, the shutdown of the operation in Japan, and the elimination of certain other duplicate support functions. As noted above, this reserve only relates to the Van Leer Industrial Packaging operations. 6
7 d. The Company purchased the shares of Van Leer Industrial Packaging for $348,839 in cash and approximately $9,500 in legal and accounting fees related to the acquisition. The Company financed the purchase price from its $900 million Senior Secured Credit Agreement, as more fully described in Item 2 and Exhibit 99.2 of the Company's previously filed Current Report on Form 8-K dated March 15, 2001. In addition, the Company refinanced the $215,000 outstanding amount under its then existing revolving credit facility. e. At the assumed date of acquisition, the Company borrowed $161,080 under its $900 million Senior Secured Credit Agreement, as more fully described in Item 2 and Exhibit 99.2 of the Company's previously filed Current Report on Form 8-K dated March 15, 2001, to pay Huhtamaki the net amount of intercompany loans ($8,962 due from Huhtamaki to Van Leer Industrial Packaging and $170,042 due to Huhtamaki from Van Leer Industrial Packaging). f. To record $16,254 in deferred financing costs related to the long-term obligations incurred as a result of the acquisition of Van Leer Industrial Packaging. g. To record the purchase of a 10-year environmental insurance policy costing $9,238. The purpose of this policy is to protect the Company in the event of certain unforeseen environmental situations that could occur following the acquisition of Van Leer Industrial Packaging. 7
8 GREIF BROS. CORPORATION AND SUBSIDIARY COMPANIES ------------------------------------------------ PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME ------------------------------------------------ FOR THE QUARTER ENDED JANUARY 31, 2001 -------------------------------------- (UNAUDITED) (U.S. Dollars in Thousands, Except Per Share Amounts) Van Leer Greif Bros. Industrial Pro Forma Pro Forma Corporation Packaging Adjustments Notes Results ------------ --------- ----------- -------- --------- Net sales $ 211,641 $ 220,684 $ (754) h $ 431,571 Other income Gain on sale of timberlands 43,207 -- -- 43,207 Interest and other 1,646 9,434 (5,339) d 5,741 --------- --------- --------- --------- 256,494 230,118 (6,093) 480,519 --------- --------- --------- --------- Cost of products sold 161,269 195,458 210 b,f,h 356,937 Selling, general and administrative expenses 32,419 25,169 916 a,e 58,504 Interest expense 3,949 3,543 7,154 c,d 14,646 --------- --------- --------- --------- 197,637 224,170 8,280 430,087 --------- --------- --------- --------- Income before income taxes and equity in earnings of affiliates 58,857 5,948 (14,373) 50,432 Income taxes 22,366 426 (5,448) g 17,344 --------- --------- --------- --------- Income before equity in earnings of affiliates 36,491 5,522 (8,925) 33,088 Equity in earnings of affiliates 2,084 (33) -- 2,051 --------- --------- --------- --------- Net income $ 38,575 $ 5,489 $ (8,925) $ 35,139 ========= ========== ========= ========= Earnings per share: - ------------------- Basic: Class A Common Stock $ 1.37 $ 1.25 Class B Common Stock $ 2.04 $ 1.86 Diluted: Class A Common Stock $ 1.36 $ 1.24 Class B Common Stock $ 2.04 $ 1.86 Average number of shares outstanding: - ------------------------------------- Basic: Class A Common Stock 10,523,196 10,523,196 Class B Common Stock 11,846,778 11,846,778 Diluted: Class A Common Stock 10,552,723 10,552,723 Class B Common Stock 11,846,778 11,846,778 See accompanying Notes to Pro Forma Condensed Combined Statements of Income 8
9 GREIF BROS. CORPORATION AND SUBSIDIARY COMPANIES ------------------------------------------------ PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME ------------------------------------------------ FOR THE YEAR ENDED OCTOBER 31, 2000 ----------------------------------- (UNAUDITED) (U.S. Dollars in Thousands, Except Per Share Amounts) Van Leer Greif Bros. Industrial Pro Forma Pro Forma Corporation Packaging Adjustments Notes Results ------------ ----------- ----------- ------- ---------- Net sales $929,861 $950,890 $(2,992) h $1,877,759 Other income Gain on sale of timberlands 9,255 -- -- 9,255 Interest and other 7,511 27,596 (21,466) d 13,641 -------- -------- ------- --------- 946,627 978,486 (24,458) 1,900,655 -------- -------- ------- --------- Cost of products sold 703,391 818,149 864 b,f,h 1,522,404 Selling, general and administrative expenses 128,301 102,580 3,664 a,e 234,545 Interest expense 14,481 15,255 28,875 c,d 58,611 -------- -------- ------- --------- 846,173 935,984 33,403 1,815,560 -------- -------- ------- --------- Income before income taxes and equity in earnings of affiliates 100,454 42,502 (57,861) 85,095 Income taxes 38,027 982 (21,929) g 17,080 -------- -------- ------- --------- Income before equity in earnings of affiliates 62,427 41,520 (35,932) 68,015 Equity in earnings of affiliates 13,367 (35) -- 13,332 -------- -------- ------- --------- Net income $75,794 $ 41,485 $(35,932) $ 81,347 ======= ======== ======== ======== Earnings per share: - ------------------- Basic: Class A Common Stock $ 2.68 $ 2.87 Class B Common Stock $ 4.01 $ 4.30 Diluted: Class A Common Stock $ 2.67 $ 2.87 Class B Common Stock $ 4.01 $ 4.30 Average number of shares outstanding: - ------------------------------------- Basic: Class A Common Stock 10,557,935 10,557,935 Class B Common Stock 11,852,602 11,852,602 Diluted: Class A Common Stock 10,599,535 10,599,535 Class B Common Stock 11,852,602 11,852,602 See accompanying Notes to Pro Forma Condensed Combined Statements of Income 9
10 GREIF BROS. CORPORATION AND SUBSIDIARY COMPANIES ------------------------------------------------ NOTES TO PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME ---------------------------------------------------------- Note 1 - Basis of Presentation - ------------------------------ The Pro Forma Condensed Combined Statements of Income for the quarter ended January 31, 2001 and the year ended October 31, 2000 have been prepared assuming the Company's acquisition of all of the issued share capital of Van Leer Industrial Packaging, more fully described in Item 2 and Exhibit 2 to the Company's previously filed Current Report on Form 8-K dated March 15, 2001, had occurred on November 1, 1999. The Company has a fiscal year that ends October 31, whereas Van Leer Industrial Packaging has a fiscal year that ends December 31. As such, the Pro Forma Condensed Combined Statement of Income for the quarter ended January 31, 2001 includes the unaudited statement of income of Van Leer Industrial Packaging for the quarter ended December 31, 2000, and the Pro Forma Condensed Combined Statement of Income for the year ended October 31, 2000 includes the unaudited statement of income of Van Leer Industrial Packaging for the year ended December 31, 2000. The historical financial statements of Van Leer Industrial Packaging contained in Item 7(a) to this Current Report on Form 8-K/A are denominated in Euros and have been prepared in accordance with Dutch GAAP. As explained in the accompanying notes to Van Leer Industrial Packaging's historical financial statements, Dutch GAAP varies in certain significant respects from U.S. GAAP. The amounts shown for Van Leer Industrial Packaging in the Pro Forma Condensed Combined Income Statements have been derived from Van Leer Industrial Packaging's unaudited income statement for the quarter ended December 31, 2000 and unaudited income statement for the year ended December 31, 2000 as adjusted to give effect to these Dutch GAAP to U.S. GAAP differences. Van Leer Industrial Packaging's unaudited income statement for the year ended December 31, 2000 is included in Item 7(a) to this Current Report on Form 8-K/A. In addition, the amounts are presented in U.S. Dollars using average exchange rates of .8706 U.S. Dollar per Euro for the quarter ended December 31, 2000 and .9249 U.S. Dollar per Euro for the year ended December 31, 2000. Note 2 - Pro Forma Adjustments - ------------------------------ Pro forma adjustments to reflect the acquisition of Van Leer Industrial Packaging and other pro forma adjustments are described below. The pro forma amounts do not include anticipated synergies from the acquisition, nor do they include the anticipated savings associated with the consolidation activities of Van Leer Industrial Packaging and the Company's 10
11 locations existing prior to the acquisition date. All of the consolidation activities result from the Company's acquisition of Van Leer Industrial Packaging. a. Adjustments relate to the estimated amortization expense for goodwill and other intangible assets, as described above, that would have been incurred had the transaction been completed on November 1, 1999. The weighted average estimated useful life for goodwill and other intangible assets created from the acquisition of Van Leer Industrial Packaging is approximately 20 years. b. Adjustments result 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 useful life of the respective asset. c. Adjustment relates to the incremental interest expense related to long-term obligations incurred to purchase Van Leer Industrial Packaging and refinance the Company's existing debt and other debt assumed. The interest rate used to calculate incremental interest expense is 7.9%. d. Adjustment relates to the elimination of intercompany interest income and expense between Van Leer Industrial Packaging and Huhtamaki. e. Adjustment for amortization expense related to deferred financing fees taken over the weighted average life of the new long-term debt (6 years). f. Adjustment for the appropriate portion of expense related to a 10-year environmental insurance policy. g. To adjust the income tax expense related to the pro forma adjustments described in (a) through (f) above. The income tax adjustments assume an effective tax rate for the Company of 37.9%. h. Adjustment to eliminate intercompany sales from American Flange & Manufacturing Company Inc. to the Company during the periods presented. 11
12 (c) Exhibits. The following documents related to the purchase of Van Leer Industrial are being filed as exhibits to this Form 8-K/A: Exhibit Number Description -------------- ----------- 2 Share Purchase Agreement, dated October 27, 2000, as amended on January 5, 2001 and February 28, 2001, between Huhtamaki Van Leer Oyj, as the seller, and Greif Bros. Corporation, as the buyer. 23 Consent of Ernst & Young Accountants, Independent Auditors, Amsterdam, The Netherlands. 99.1 Press Release issued by Greif Bros. Corporation on March 2, 2001. 99.2 $900 million Senior Secured Credit Agreement, dated as of March 2, 2001, among Greif Bros. Corporation, as U.S. Borrower, Greif Spain Holdings, S.L., as Subsidiary Borrower, Merrill Lynch & Co., as Sole Lead Arranger, Sole Book-Runner and Administrative Agent, Keybank National Association, as Syndication Agent, ABN AMRO Bank N.V., as Co-Documentation Agent, National City Bank, as Co-Documentation Agent, The Bank of Nova Scotia, as Paying Agent, and other financial institutions party hereto from time to time. 99.3 Royal Packaging Industries Van Leer N.V. audited financial statements for the years ended December 31, 1999, 1998 and 1997 and unaudited financial statements for the year ended December 31, 2000. 12
13 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. DATE: May 16, 2001 GREIF BROS. CORPORATION BY /s/ Kenneth E. Kutcher ------------------------- Kenneth E. Kutcher, Chief Financial Officer and Secretary 13
14 INDEX TO EXHIBITS ----------------- If Incorporated by Reference, the Exhibit was Previously Filed with the Exhibit Number Description SEC - -------------- ----------- --- 2 Share Purchase Agreement, dated October 27, Current Report 2000, as amended on January 5, 2001 and on Form 8-K February 28, between Huhtamaki Van Leer 2001. dated March 15, Oyj, as the seller, 2001, and Greif Bros. Corporation, as the buyer. 23 Consent of Ernst & Young Accountants, Contained Independent Auditors, Amsterdam, The herein. Netherlands. 99.1 Press Release issued by Greif Bros. Current Report Corporation on March 2, 2001. on Form 8-K dated March 15, 2001. 99.2 $900 million Senior Secured Credit Agreement, Current Report dated as of March 2, 2001, among Greif Bros. on Form 8-K Corporation, as U.S. Borrower, Greif Spain dated March 15, Holdings, S.L., as Subsidiary Borrower, 2001. Merrill Lynch & Co., as Sole Lead Arranger, Sole Book-Runner and Administrative Agent, Keybank National Association, as Syndication Agent, ABN AMRO Bank N.V., as Co-Documentation Agent, National City Bank, as Co-Documentation Agent, The Bank of Nova Scotia, as Paying Agent, and other financial institutions party hereto from time to time. 99.3 Royal Packaging Industries Van Leer N.V. Contained audited financial statements for the years herein. ended December 31, 1999, 1998 and 1997 and unaudited financial statements for the year ended December 31, 2000. 14
1 EXHIBIT 23 ---------- CONSENT OF ERNST & YOUNG ACCOUNTANTS, INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-8 No. 333-26767) pertaining to the Greif Bros. Corporation 1996 Directors Stock Option Plan, (Form S-8 No. 333-26977) pertaining to the Greif Bros. Corporation Incentive Stock Option Plan, (Form S-8 No. 333-35048) pertaining to the Greif Bros. 401(k) Retirement Plan and Trust, (Form S-8 No. 333-46134) pertaining to the Greif Bros. Corporation Production Associates 401(k) Retirement Plan and Trust, and (Form S-8 No. 333-46136) pertaining to the Greif Bros. Riverville Mill Employee Retirement Savings Plan and Trust of our report dated May 10, 2001 with respect to the combined financial statements 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. for the years ended December 31, 1999, 1998 and 1997 included in the Form 8-K/A of Greif Bros. Corporation, filed with the Securities and Exchange Commission on May 15, 2001. /s/ Ernst & Young Accountants Amsterdam, The Netherlands May 15, 2001
1 EXHIBIT 99.3 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 FINANCIAL STATEMENTS FOR THE THREE YEAR PERIOD ENDED DECEMBER 31, 1999 (WITH UNAUDITED COMBINED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2000) Report of Independent Auditors 2 Combined Balance Sheets 3 Combined Statements of Operations 4 Combined Statements of Cash Flows 5 Notes to the Combined Financial Statements 6
2 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, 1999, 1998 and 1997 and the related combined statements of operations and cash flows for each of the years in the three year period ended December 31, 1999. 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, 1999, 1998 and 1997, and the results of their operations and their cash flows for each of the years in the three year period ended December 31, 1999, 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, 1999 and 1998 to the extent summarized in Note 18 to the combined financial statements. Amsterdam, May 10, 2001 /S/ ERNST & YOUNG ACCOUNTANTS
3 COMBINED BALANCE SHEETS (AMOUNTS IN THOUSANDS OF EURO) AS OF DECEMBER 31, - ------------------------------------------------------------------------------------------------------------------------------------ NOTES 2000 1999 1998 1997 (UNAUDITED) - ------------------------------------------------------------------------------------------------------------------------------------ ASSETS EMPLOYED: Tangible fixed assets At cost (3) 737,461 721,259 630,697 600,689 Accumulated depreciation (385,059) (361,575) (317,015) (315,303) ---------- ---------- ---------- ---------- 352,402 359,684 313,682 285,386 Financial fixed assets Loans and securities (4) 48,072 657,855 462,414 418,328 ---------- ----------- ----------- ------- Total fixed assets 400,474 1,017,539 776,096 703,714 Current assets Stocks (5) 130,314 110,060 95,441 107,129 Debtors (6) 248,675 234,013 192,428 204,947 Cash and banks 35,202 24,530 10,902 23,615 ---------- ---------- ---------- ---------- Total current assets 414,191 368,603 298,771 335,691 Current liabilities (7) (182,620) (196,953) (152,476) (163,897) ---------- ---------- ---------- ---------- Net working capital 231,571 171,650 146,295 171,794 ---------- ----------- ----------- ------- Net capital employed 632,045 1,189,189 922,391 875,508 ========== =========== =========== ========= FINANCED BY: Medium and long-term loans (8) 209,655 477,640 277,103 228,514 Banks 36,696 47,058 49,907 36,355 ---------- ---------- ---------- ---------- 246,351 524,698 327,010 264,869 Provisions for liabilities and Charges Unfunded pension liabilities and similar obligations (9) 33,630 41,006 42,889 47,888 Deferred tax liabilities (10) 36,669 29,660 37,848 39,430 Other provisions (11) 36,997 38,251 41,738 51,437 ---------- ---------- ---------- ---------- 107,296 108,917 122,475 138,755 Group equity Shareholders' equity 271,461 545,425 464,900 465,806 Outside shareholders' interest 6,937 10,149 8,006 6,078 ---------- ---------- ---------- ---------- Total group equity (12) 278,398 555,574 472,906 471,884 ---------- ----------- ----------- ------- Financing capital 632,045 1,189,189 922,391 875,508 ========== =========== =========== ========= SEE ACCOMPANYING NOTES.
4 COMBINED STATEMENTS OF OPERATIONS (AMOUNTS IN THOUSANDS OF EURO) FOR THE YEARS ENDED DECEMBER 31, - ----------------------------------------------------------------------------------------------------------------------- NOTES 2000 1999 1998 1997 (UNAUDITED) - ----------------------------------------------------------------------------------------------------------------------- Net sales (14) 1,028,078 921,854 919,550 972,691 Movements in stocks 1,476 (3,239) (526) (772) ------------------------------------------------------- Proceeds of production 1,029,554 918,615 919,024 971,919 Direct materials (535,813) (440,254) (460,976) (487,690) ------------------------------------------------------- Value added 493,741 478,361 458,048 484,229 Operating costs (15) (459,009) (425,673) (401,515) (432,333) ------------------------------------------------------- Operating profit before interest and taxation 34,732 52,688 56,533 51,896 Interest income/(expense) (16) 7,401 (1,647) 1,216 (2,888) Foreign exchange result (1,542) 1 (3,872) (1,555) ------------------------------------------------------- Operating profit before taxation 40,591 51,042 53,877 47,453 Tax on operating profit 230 (12,301) (9,665) (10,468) ------------------------------------------------------- Net operating profit 40,821 38,741 44,212 36,985 Net extraordinary expense (17) - (1,644) (2,380) (1,426) ------------------------------------------------------- Profit after taxation 40,821 37,097 41,832 35,559 Third party interest (724) (1,540) (457) (505) ------------------------------------------------------- Net income 40,097 35,557 41,375 35,054 ======================================================= SEE ACCOMPANYING NOTES.
5 COMBINED STATEMENTS OF CASH FLOWS (AMOUNTS IN THOUSANDS OF EURO) FOR THE YEARS ENDED DECEMBER 31, - ---------------------------------------------------------------------------------------------- 2000 1999 1998 1997 (UNAUDITED) - ---------------------------------------------------------------------------------------------- CASH FLOW PROVIDED BY OPERATING ACTIVITIES Net income for the year 40,097 35,557 41,375 35,054 Depreciation 39,515 33,956 32,244 32,855 -------- -------- -------- -------- OPERATING CASH FLOW 79,612 69,513 73,619 67,909 Movement in working capital (49,249) (11,727) 12,786 (1,754) Stock appreciation rights exercised -- (30,399) (15,905) (6,812) Movement in provisions (1,621) (13,558) (16,280) (16,872) -------- -------- -------- -------- CASH FLOW PROVIDED BY OPERATING ACTIVITIES 28,742 13,829 54,220 42,471 Net investments in tangible fixed assets (42,874) (64,300) (75,819) (58,025) Other 6,294 (6,064) 12,787 3,142 -------- -------- -------- -------- CASH FLOW USED IN INVESTING ACTIVITIES (36,580) (70,364) (63,032) (54,883) Loans and securities 86,783 (195,441) (44,086) (14,203) Medium and long-term loans (267,985) 200,537 48,589 16,591 Banks (10,362) (2,849) 13,552 13,050 Net transfers (to) from Parent Company 210,074 67,916 (21,956) (12,168) -------- -------- -------- -------- CASH FLOW USED/PROVIDED BY FINANCING ACTIVITIES 18,510 70,163 (3,901) 3,270 -------- -------- -------- -------- CASH FLOW 10,672 13,628 (12,713) (9,142) ======== ======== ======== ======== SEE ACCOMPANYING NOTES.
6 NOTES TO THE COMBINED FINANCIAL STATEMENTS (AMOUNTS IN THOUSANDS OF EURO) (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") and 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. Pursuant to the terms of the agreement, the Purchaser also 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. The comparative financial statements presented for periods prior to January 1, 1999 and reported in Euro depict the same trends as would have been presented if the Company had continued to present financial statements in Dutch guilders. However, the financial statements for the periods prior to January 1, 1999 will not be comparible to the financial statements of other companies that reported in Euro and that restated their prior period financial statements from a currency other then Dutch guilder. (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. UNAUDITED FINANCIAL INFORMATION Information included in the combined financial statements as of and for the year ended December 31, 2000 is unaudited.
7 NOTES TO THE COMBINED FINANCIAL STATEMENTS (AMOUNTS IN THOUSANDS OF EURO) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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. LOANS AND SECURITIES Loan and securities are valued at historical cost and represent the net realizable value.
8 NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED) (AMOUNTS IN THOUSANDS OF EURO) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) STOCKS Inventories are valued at the lower of cost of 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 POST-RETIREMENT BENEFITS 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, and 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 carryforwards. 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 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.
9 NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED) (AMOUNTS IN THOUSANDS OF EURO) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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 MACHINERY OTHER ASSETS 2000 UNAUDITED AND OPERATIONAL UNDER LAND BUILDINGS INSTALLATIONS ASSETS CONSTRUCTION NOT IN USE TOTAL - ------------------------------------------------------------------------------------------------------------------------- Book value at 01-01-2000 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 31-12-2000 18,309 72,945 194,058 16,982 47,310 2.798 352,402 At cost at 31-12-2000 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 31-12-2000 18,309 72,945 194,058 16,982 47,310 2,798 352,402 =========================================================================================== 1999 Book value at 01-01-1999 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 31-12-1999 19,138 74,270 188,592 18,527 56,830 2,327 359,684 At cost at 31-12-1999 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 31-12-1999 19,138 74,270 188,592 18,527 56,830 2,327 359,684 =========================================================================================== 1998 Book value at 01-01-1998 13,467 68,020 141,986 18,404 42,877 632 285,386 Additions 3,455 2,209 34,107 6,960 29,082 6 75,819 Depreciation -- (2,812) (22,826) (6,593) -- (13) (32,244) Other movements (156) (2,725) (7,016) (970) (4,481) 69 (15,279) - ------------------------------------------------------------------------------------------------------------------------- Book value at 31-12-1998 16,766 64,692 146,251 17,801 67,478 694 313,682 At cost at 31-12-1998 16,766 100,615 374,321 66,530 67,478 4,987 630,697 Accumulated depreciation -- (35,923) (228,070) (48,729) -- (4,293) (317,015) - ------------------------------------------------------------------------------------------------------------------------- Book value at 31-12-1998 16,766 64,692 146,251 17,801 67,478 694 313,682 ===========================================================================================
10 NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED) (AMOUNTS IN THOUSANDS OF EURO) (3) TANGIBLE FIXED ASSETS (CONTINUED) MACHINERY OTHER ASSETS AND OPERATIONAL UNDER LAND BUILDINGS INSTALLATIONS ASSETS CONSTRUCTION NOT IN USE TOTAL - ------------------------------------------------------------------------------------------------------------------------- 1997 Book value at 01-01-1997 10,218 69,540 137,694 17,650 27,025 1,664 263,791 Additions 3,729 3,902 26,099 8,012 16,230 53 58,025 Depreciation -- (3,411) (22,093) (7,090) -- (261) (32,855) Other movements (480) (2,011) 286 (168) (378) (824) (3,575) - ------------------------------------------------------------------------------------------------------------------------- Book value at 31-12-1997 13,467 68,020 141,986 18,404 42,877 632 285,386 At cost at 31-12-1997 13,467 102,792 365,481 70,628 42,877 5,444 600,689 Accumulated depreciation -- (34,772) (223,495) (52,224) -- (4,812) (315,303) - ------------------------------------------------------------------------------------------------------------------------- Book value at 31-12-1997 13,467 68,020 141,986 18,404 42,877 632 285,386 ========================================================================================== 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. (4) LOANS AND SECURITIES 2000 1999 1998 1997 ----------------------------------------------------- (UNAUDITED) Loans to third parties and securities 33,920 2,198 2,095 3,285 Loans to Parent Company 9,513 652,237 457,707 413,862 Other 4,639 3,420 2,612 1,181 ----------------------------------------------------- 48,072 657,855 462,414 418,328 ===================================================== In 2000, loans to the Parent Company were reduced by a dividend declared to the Parent Company in the amount of Euro 523,000. In February 2001, the transaction was settled in a non-cash transaction. (5) STOCKS 2000 1999 1998 1997 ----------------------------------------------------- (UNAUDITED) Direct materials 87,688 74,459 61,285 72,538 Work in progress 11,141 7,826 7,788 6,461 Finished goods 31,485 27,775 26,368 28,130 ------------------------------------------------------ 130,314 110,060 95,441 107,129 ====================================================== Provision is made for obsolete and slow-moving items.
11 NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED) (AMOUNTS IN THOUSANDS OF EURO) (6) DEBTORS 2000 1999 1998 1997 ---------------------------------------------------------- (UNAUDITED) Trade debtors third party 174,448 165,233 135,862 139,292 Miscellaneous debtors third party 16,310 17,519 22,215 25,549 Other debts from Parent Company 6,716 15,621 5,009 7,798 Prepayments and accrued income 44,277 29,211 23,916 26,754 Deferred tax assets 6,924 6,429 5,426 5,554 ---------------------------------------------------------- 248,675 234,013 192,428 204,947 ========================================================== (7) CURRENT LIABILITIES 2000 1999 1998 1997 ---------------------------------------------------------- (UNAUDITED) Trade creditors third party 82,386 75,364 56,675 65,988 Taxes payable 6,892 19,209 12,065 13,161 Accruals and deferred income 69,509 80,032 57,960 63,603 Other current liabilities third party 20,391 17,644 22,344 18,683 Other current liabilities to Parent Company 3,442 4,704 3,432 2,462 ---------------------------------------------------------- 182,620 196,953 152,476 163,897 ========================================================== (8) MEDIUM AND LONG-TERM LOANS 2000 1999 1998 1997 ------------------------------------------------------------------------------------------ REPAYABLE REPAYABLE REPAYABLE REPAYABLE IN ONE IN ONE IN ONE IN ONE TOTAL YEAR TOTAL YEAR TOTAL YEAR TOTAL YEAR - --------------------------------------------------------------------------------------------------------------------------- (UNAUDITED) Loans from Parent Company 180,492 - 359,287 - 160,321 - 105,564 - Bank loans 23,964 972 112,517 3,213 110,032 3,523 116,640 574 Other loans 3,551 157 4,157 532 5,140 451 4,669 442 Finance lease liabilities 1,648 154 1,679 1,679 1,610 207 1,641 342 ------------------------------------------------------------------------------------------ 209,655 1,283 477,640 5,424 277,103 4,181 228,514 1,358 ========================================================================================= The average years to maturity and interest rate on medium and long-term debt is as follow: 2000 1999 1998 1997 ------------------------------------------- (UNAUDITED) Average years to maturity 2.1 2.1 4.0 4.3 Average interest rate on bank loans 7.1% 7.0% 7.4% 7.5%
12 NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED) (AMOUNTS IN THOUSANDS OF EURO) (9) UNFUNDED PENSION LIABILITIES AND SIMILAR OBLIGATIONS Unfunded pension liabilities and similar assets consist of the following: UNFUNDED PENSION POSTRETIREMENT LIABILITIES BENEFITS TOTAL - ------------------------------------------------------------------------------------------------------------------------------- Balance at Dec. 31, 2000 (unaudited) 21,440 12,190 33,630 =================== ==================== ==================== Balance at Dec. 31, 1999 29,425 11,581 41,006 =================== ==================== ==================== Balance at Dec. 31, 1998 29,539 13,350 42,889 =================== ==================== ==================== Balance at Dec. 31, 1997 33,503 14,385 47,888 =================== ==================== ==================== The unfunded pension and postretirement obligations are primarily long-term liabilities. (10) DEFERRED TAX LIABILITIES 2000 UNAUDITED Balance at Dec. 31, 1999 29,660 Uses (3,290) Additional provision 10,299 -------------------- Balance at Dec. 31, 2000 36,669 ==================== 1999 - ------------------------------------------------------------------------------------------------------------------------------- Balance at Dec. 31, 1998 37,848 Uses (10,315) Additional provision 2,127 -------------------- Balance at Dec. 31, 1999 29,660 ==================== 1998 - ------------------------------------------------------------------------------------------------------------------------------- Balance at Dec. 31, 1997 39,430 Uses (2,700) Additional provision 1,118 -------------------- Balance at Dec. 31, 1998 37,848 ==================== 1997 - ------------------------------------------------------------------------------------------------------------------------------- Balance at Dec. 31, 1996 43,735 Uses (4,721) Additional provision 416 -------------------- Balance at Dec. 31, 1997 39,430 ==================== The deferred tax on timing differences is primarily a long-term liability and is calculated at year-end tax rates.
13 NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED) (AMOUNTS IN THOUSANDS OF EURO) (11) OTHER PROVISIONS Other provisions consist of the following: 2000 1999 1998 1997 -------------------------------------------------- (UNAUDITED) Litigation 2,007 2,154 2,056 2,262 Reorganizations 17,343 16,219 21,942 33,005 Release pay 2,099 2,819 3,497 1,782 Environmental 6,799 6,702 5,351 5,615 Sundry 8,749 10,357 8,892 8,773 -------------------------------------------------- 36,997 38,251 41,738 51,437 ================================================== (12) TOTAL GROUP EQUITY 2000 1999 1998 1997 ---------------------------------------------------- (UNAUDITED) Beginning balance at January 1 555,574 472,906 471,884 445,420 Net income 40,097 35,557 41,375 35,054 Goodwill (3,157) (1,205) (3,256) (2,280) Stock appreciation rights exercised -- (30,399) (15,905) (6,812) Dividend declared to the Parent Company (523,000) -- -- -- Net transfers (to) from Parent Company 210,074 67,916 (21,956) (12,168) Other (1,190) 10,799 764 12,670 ------------------------------------------------- Ending balance at December 31 278,398 555,574 472,906 471,884 ================================================= Other relates primarily to the effect of foreign currency translation adjustments. (13) CONTINGENT LIABILITIES AND OTHER COMMITMENTS 2000 1999 1998 1997 -------------------------------------------------- (UNAUDITED) Contingent liabilities (guarantees) 6,927 7,760 28,415 27,387 Rentals under lease contracts 16,864 11,968 10,064 8,368 Prospective capital expenditure 16,979 9,630 15,091 40,416 The Company is involved in several legal proceedings. It is not expected that the outcome from these legal proceedings will have a material effect on the Company. 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 1998 1997 -------------------------------------------------- (UNAUDITED) Europe 462,083 434,891 442,638 453,270 North America and Mexico 261,447 225,368 190,870 179,957 Africa 67,997 55,063 54,100 69,397 Australia and South East Asia 106,767 97,766 92,549 126,067 Central and South America 129,784 108,766 139,393 144,000 -------------------------------------------------- 1,028,078 921,854 919,550 972,691 ==================================================
14 NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED) (AMOUNTS IN THOUSANDS OF EURO) (15) OPERATING COSTS Operating costs consist of the following: 2000 1999 1998 1997 ------------------------------------------------- (UNAUDITED) Salaries and wages 158,084 148,737 142,362 143,375 Social charges 49,318 41,243 43,315 45,575 Pension costs 7,513 8,426 10,256 10,040 ------------------------------------------------- Total salaries, wages, social charges and pension costs 214,915 198,406 195,933 198,990 Depreciation of tangible fixed assets 39,515 33,956 32,244 32,855 Transport costs 69,727 61,373 54,650 53,159 Other operating costs 134,852 131,938 118,688 147,329 ------------------------------------------------- 459,009 425,673 401,515 432,333 ================================================= Other operating costs include utilities, insurance, rental, leases, 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 1998 1997 --------------------------------------------------------- (UNAUDITED) Interest expense (15,769) (18,338) (20,306) (23,671) Interest income 23,170 16,691 21,522 20,783 --------------------------------------------------------- 7,401 (1,647) 1,216 (2,888) ========================================================= (17) NET EXTRAORDINARY EXPENSE 2000 1999 1998 1997 --------------------------------------------------------- (UNAUDITED) Extraordinary income -- -- 5,945 2,919 Extraordinary expense -- (2,905) (8,325) (11,344) --------------------------------------------------------- -- (2,905) (2,380) (8,425) Tax income/(expense) -- 1,261 -- 6,999 --------------------------------------------------------- -- (1,644) (2,380) (1,426) ========================================================= Extraordinary income primarily represents the reversal of tax liabilities as a result of a change in tax law and final settlements with tax authorities. Extraordinary expenses relate primarily to costs associated with the year 2000.
15 NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED) (AMOUNTS IN THOUSANDS OF EURO) (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: YEAR ENDED DECEMBER 31, ------------------------------------------------------- 2000 1999 1998 ---------------- --------------- ---------------- (UNAUDITED) Net income under Dutch GAAP (EURO)40,097 (EURO)35,557 (EURO)41,375 Stock-appreciation rights - (13,798) (1,284) Pensions and post retirement benefit plans 2,965 (2,226) (1,151) Restructuring provisions 320 (1,791) (7,598) Year 2000 costs (1,055) (862) (1,588) Start-up costs 4,469 (2,451) (2,618) Goodwill amortization (652) (507) (309) Income tax effect of U.S. GAAP adjustments (1,292) 786 1,060 ---------------- --------------- ---------------- Net income under U.S. GAAP (EURO)44,852 (EURO)14,708 (EURO)27,887 ================ =============== ================ DECEMBER 31, -------------------------------------------------------- 2000 1999 1998 ---------------- ---------------- ---------------- (UNAUDITED) Shareholders' equity under Dutch GAAP (EURO)271,461 (EURO)545,425 (EURO)464,900 Stock-based compensation - - (4,814) Pensions and post retirement benefit plans 30,766 28,585 27,092 Restructuring provisions 8,820 8,500 10,291 Year 2000 costs - 1,055 1,917 Start-up costs 5,969 1,500 3,951 Goodwill 9,817 7,313 6,614 Income tax effect of U.S. GAAP adjustments (14,651) (13,998) (10,655) --------------- ---------------- ---------------- Shareholders' equity under U.S. GAAP (EURO)312,182 (EURO)578,380 (EURO)499,296 =============== ================ ================ 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. Stock appreciation rights issued under the SAR Plan 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 SARs is recorded each reporting period based on changes in the market price of the Company's ordinary shares. 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.
16 NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED) (AMOUNTS IN THOUSANDS OF EURO) (18) NET INCOME AND SHAREHOLDERS' EQUITY UNDER ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA (CONTINUED) 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 Nos. 87 and 106 are generally more prescriptive than Dutch GAAP. Under FASB No. 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 No. 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 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 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. 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.