UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended April 30, 2009
OR
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the transition period from
to
Commission
File Number 001-00566
GREIF,
INC.
(Exact
name of registrant as specified in its charter)
|
|
Delaware
|
31-4388903
|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer
Identification
No.)
|
|
|
425
Winter Road, Delaware, Ohio
|
43015
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Registrant’s
telephone number, including area code (740) 549-6000
Not
Applicable
Former
name, former address and former fiscal year, if changed since last
report.
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes ¨ No ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer, or a smaller reporting company.
See definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer x
|
Accelerated
filer ¨
|
|
|
Non-accelerated filer ¨ (Do not check if a smaller reporting company)
|
Smaller
reporting company ¨
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨ No x
The
number of shares outstanding of each of the issuer’s classes of common stock at
the close of business on April 30, 2009 was as follows:
Class A
Common Stock
|
24,360,723
shares
|
Class
B Common Stock
|
22,462,266
shares
|
PART I. FINANCIAL
INFORMATION
ITEM 1.
CONSOLIDATED FINANCIAL
STATEMENTS
GREIF, INC. AND SUBSIDIARY
COMPANIES
CONSOLIDATED STATEMENTS OF
INCOME
(UNAUDITED)
(Dollars
in thousands, except per share amounts)
|
|
Three
months ended
|
|
|
Six
months ended
|
|
|
|
April
30,
|
|
|
April
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Net
sales
|
|
$ |
647,897 |
|
|
$ |
918,019 |
|
|
$ |
1,314,157 |
|
|
$ |
1,764,311 |
|
Cost
of products sold
|
|
|
533,816 |
|
|
|
758,851 |
|
|
|
1,099,521 |
|
|
|
1,456,819 |
|
Gross
profit
|
|
|
114,081 |
|
|
|
159,168 |
|
|
|
214,636 |
|
|
|
307,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
65,695 |
|
|
|
83,431 |
|
|
|
124,129 |
|
|
|
163,943 |
|
Restructuring
charges
|
|
|
20,295 |
|
|
|
7,337 |
|
|
|
47,471 |
|
|
|
17,812 |
|
Timberland
disposals, net
|
|
|
- |
|
|
|
100 |
|
|
|
- |
|
|
|
190 |
|
Gain
on disposal of properties, plants and equipment, net
|
|
|
2,237 |
|
|
|
12,971 |
|
|
|
4,554 |
|
|
|
49,745 |
|
Operating
profit
|
|
|
30,328 |
|
|
|
81,471 |
|
|
|
47,590 |
|
|
|
175,672 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense, net
|
|
|
13,403 |
|
|
|
13,296 |
|
|
|
25,602 |
|
|
|
25,052 |
|
Debt
extinguishment charge
|
|
|
782 |
|
|
|
- |
|
|
|
782 |
|
|
|
- |
|
Other
income (expense), net
|
|
|
1,957 |
|
|
|
(3,780 |
) |
|
|
170 |
|
|
|
(7,110 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income tax expense and equity in earnings (losses) of affiliates
and minority interests
|
|
|
18,100 |
|
|
|
64,395 |
|
|
|
21,376 |
|
|
|
143,510 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
|
5,960 |
|
|
|
14,748 |
|
|
|
6,926 |
|
|
|
33,438 |
|
Equity
in earnings (losses) of affiliates and minority interests
|
|
|
2 |
|
|
|
(993 |
) |
|
|
(1,042 |
) |
|
|
(731 |
) |
Net
income
|
|
$ |
12,142 |
|
|
$ |
48,654 |
|
|
$ |
13,408 |
|
|
$ |
109,341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class
A Common Stock
|
|
$ |
0.21 |
|
|
$ |
0.84 |
|
|
$ |
0.24 |
|
|
$ |
1.88 |
|
Class
B Common Stock
|
|
$ |
0.31 |
|
|
$ |
1.25 |
|
|
$ |
0.34 |
|
|
$ |
2.81 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class
A Common Stock
|
|
$ |
0.21 |
|
|
$ |
0.82 |
|
|
$ |
0.24 |
|
|
$ |
1.85 |
|
Class
B Common Stock
|
|
$ |
0.31 |
|
|
$ |
1.25 |
|
|
$ |
0.34 |
|
|
$ |
2.81 |
|
See
accompanying Notes to Consolidated Financial Statements
GREIF, INC. AND SUBSIDIARY
COMPANIES
CONSOLIDATED BALANCE
SHEETS
(Dollars
in thousands)
ASSETS
|
|
April
30, 2009
|
|
|
October
31, 2008
|
|
|
|
(Unaudited)
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
66,775 |
|
|
$ |
77,627 |
|
Trade
accounts receivable, less allowance of $14,400 in 2009 and $13,532 in
2008
|
|
|
309,296 |
|
|
|
392,537 |
|
Inventories
|
|
|
244,074 |
|
|
|
303,994 |
|
Deferred
tax assets
|
|
|
28,307 |
|
|
|
33,206 |
|
Net
assets held for sale
|
|
|
24,188 |
|
|
|
21,321 |
|
Prepaid
expenses and other current assets
|
|
|
83,027 |
|
|
|
93,965 |
|
|
|
|
755,667 |
|
|
|
922,650 |
|
|
|
|
|
|
|
|
|
|
Long-term
assets
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
531,581 |
|
|
|
512,973 |
|
Other
intangible assets, net of amortization
|
|
|
102,630 |
|
|
|
104,424 |
|
Assets
held by special purpose entities (Note 8)
|
|
|
50,891 |
|
|
|
50,891 |
|
Other
long-term assets
|
|
|
106,659 |
|
|
|
88,563 |
|
|
|
|
791,761 |
|
|
|
756,851 |
|
|
|
|
|
|
|
|
|
|
Properties,
plants and equipment
|
|
|
|
|
|
|
|
|
Timber
properties, net of depletion
|
|
|
203,154 |
|
|
|
199,701 |
|
Land
|
|
|
117,061 |
|
|
|
119,679 |
|
Buildings
|
|
|
339,247 |
|
|
|
343,702 |
|
Machinery
and equipment
|
|
|
1,043,859 |
|
|
|
1,046,347 |
|
Capital
projects in progress
|
|
|
108,195 |
|
|
|
91,549 |
|
|
|
|
1,811,516 |
|
|
|
1,800,978 |
|
Accumulated
depreciation
|
|
|
(761,814 |
) |
|
|
(734,581 |
) |
|
|
|
1,049,702 |
|
|
|
1,066,397 |
|
|
|
$ |
2,597,130 |
|
|
$ |
2,745,898 |
|
See accompanying Notes to
Consolidated Financial Statements
GREIF, INC. AND SUBSIDIARY
COMPANIES
CONSOLIDATED BALANCE
SHEETS
(Dollars
in thousands)
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
April
30, 2009
|
|
|
October
31, 2008
|
|
|
|
(Unaudited)
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
195,146 |
|
|
$ |
384,648 |
|
Accrued
payroll and employee benefits
|
|
|
50,613 |
|
|
|
91,498 |
|
Restructuring
reserves
|
|
|
25,327 |
|
|
|
15,147 |
|
Short-term
borrowings
|
|
|
57,862 |
|
|
|
44,281 |
|
Other
current liabilities
|
|
|
76,286 |
|
|
|
136,227 |
|
|
|
|
405,234 |
|
|
|
671,801 |
|
|
|
|
|
|
|
|
|
|
Long-term
liabilities
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
828,162 |
|
|
|
673,171 |
|
Deferred
tax liabilities
|
|
|
183,654 |
|
|
|
183,021 |
|
Pension
liabilities
|
|
|
13,431 |
|
|
|
14,456 |
|
Postretirement
benefit liabilities
|
|
|
25,246 |
|
|
|
25,138 |
|
Liabilities
held by special purpose entities (Note 8)
|
|
|
43,250 |
|
|
|
43,250 |
|
Other
long-term liabilities
|
|
|
98,794 |
|
|
|
75,521 |
|
|
|
|
1,192,537 |
|
|
|
1,014,557 |
|
|
|
|
|
|
|
|
|
|
Minority
interest
|
|
|
4,762 |
|
|
|
3,729 |
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity
|
|
|
|
|
|
|
|
|
Common
stock, without par value
|
|
|
94,412 |
|
|
|
86,446 |
|
Treasury
stock, at cost
|
|
|
(115,511 |
) |
|
|
(112,931 |
) |
Retained
earnings
|
|
|
1,124,734 |
|
|
|
1,155,116 |
|
Accumulated
other comprehensive loss:
|
|
|
|
|
|
|
|
|
-
foreign currency translation
|
|
|
(78,025 |
) |
|
|
(39,693 |
) |
-
interest rate derivatives
|
|
|
(1,014 |
) |
|
|
(1,802 |
) |
-
energy and other derivatives
|
|
|
(2,382 |
) |
|
|
(4,299 |
) |
-
minimum pension liabilities
|
|
|
(27,617 |
) |
|
|
(27,026 |
) |
|
|
|
994,597 |
|
|
|
1,055,811 |
|
|
|
$ |
2,597,130 |
|
|
$ |
2,745,898 |
|
See
accompanying Notes to Consolidated Financial Statements
GREIF, INC. AND SUBSIDIARY
COMPANIES
CONSOLIDATED STATEMENTS OF
CASH FLOWS
(UNAUDITED)
(Dollars
in thousands)
For
the six months ended April 30,
|
|
2009
|
|
|
2008
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$ |
13,408 |
|
|
$ |
109,341 |
|
Adjustments
to reconcile net income to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation,
depletion and amortization
|
|
|
49,518 |
|
|
|
52,638 |
|
Asset
impairments
|
|
|
11,620 |
|
|
|
10,236 |
|
Deferred
income taxes
|
|
|
5,532 |
|
|
|
(77,659 |
) |
Gain
on disposals of properties, plants and equipment, net
|
|
|
(4,554 |
) |
|
|
(49,745 |
) |
Timberland
disposals, net
|
|
|
- |
|
|
|
(190 |
) |
Equity
in losses of affiliates and minority interests
|
|
|
1,042 |
|
|
|
731 |
|
Increase
(decrease) in cash from changes in certain assets and
liabilities:
|
|
|
|
|
|
|
|
|
Trade
accounts receivable
|
|
|
81,917 |
|
|
|
(40,544 |
) |
Inventories
|
|
|
54,957 |
|
|
|
(29,004 |
) |
Prepaid
expenses and other current assets
|
|
|
8,595 |
|
|
|
(6,763 |
) |
Other
long-term assets
|
|
|
(12,044 |
) |
|
|
(3,401 |
) |
Accounts
payable
|
|
|
(242,598 |
) |
|
|
(19,162 |
) |
Accrued
payroll and employee benefits
|
|
|
(40,581 |
) |
|
|
(13,294 |
) |
Restructuring
reserves
|
|
|
10,180 |
|
|
|
(4,235 |
) |
Other
current liabilities
|
|
|
(54,041 |
) |
|
|
31 |
|
Pension
and postretirement benefit liabilities
|
|
|
(917 |
) |
|
|
(2,101 |
) |
Other
long-term liabilities
|
|
|
23,453 |
|
|
|
107,041 |
|
Other
|
|
|
41,595 |
|
|
|
(84,393 |
) |
Net
cash used in operating activities
|
|
|
(52,918 |
) |
|
|
(50,473 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Acquisitions
of companies, net of cash acquired
|
|
|
(19,201 |
) |
|
|
(66,605 |
) |
Purchases
of properties, plants and equipment
|
|
|
(53,472 |
) |
|
|
(69,500 |
) |
Purchases
of timber properties
|
|
|
(600 |
) |
|
|
(1,300 |
) |
Proceeds
from the sale of properties, plants, equipment and other
assets
|
|
|
5,249 |
|
|
|
51,440 |
|
Purchases
of land rights and other
|
|
|
- |
|
|
|
(308 |
) |
Receipt
of notes receivable
|
|
|
- |
|
|
|
33,178 |
|
Net
cash used in investing activities
|
|
|
(68,024 |
) |
|
|
(53,095 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of long-term debt
|
|
|
1,974,879 |
|
|
|
1,156,574 |
|
Payments
on long-term debt
|
|
|
(1,819,597 |
) |
|
|
(1,072,834 |
) |
Proceeds
from short-term borrowings
|
|
|
14,361 |
|
|
|
29,996 |
|
Dividends
paid
|
|
|
(43,790 |
) |
|
|
(32,391 |
) |
Acquisitions
of treasury stock and other
|
|
|
(3,145 |
) |
|
|
(10,899 |
) |
Exercise
of stock options
|
|
|
272 |
|
|
|
3,152 |
|
Debt
issuance cost
|
|
|
(8,309 |
) |
|
|
- |
|
Net
cash provided by financing activities
|
|
|
114,671 |
|
|
|
73,598 |
|
Effects
of exchange rates on cash
|
|
|
(4,581 |
) |
|
|
3,249 |
|
Net
decrease in cash and cash equivalents
|
|
|
(10,852 |
) |
|
|
(26,721 |
) |
Cash
and cash equivalents at beginning of period
|
|
|
77,627 |
|
|
|
123,699 |
|
Cash
and cash equivalents at end of period
|
|
$ |
66,775 |
|
|
$ |
96,978 |
|
See accompanying Notes to Consolidated
Financial Statements
GREIF, INC. AND SUBSIDIARY
COMPANIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
April 30,
2009
NOTE 1 — BASIS OF
PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
information furnished herein reflects all adjustments which are, in the opinion
of management, necessary for a fair presentation of the consolidated balance
sheets as of April 30, 2009 and October 31, 2008 and the consolidated statements
of income and cash flows for the three-month and six-month periods ended April
30, 2009 and 2008 of Greif, Inc. and subsidiaries (the “Company”). These
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company’s
Annual Report on Form 10-K for its fiscal year ended October 31, 2008 (the
“2008 Form 10-K”).
The
Company’s fiscal year begins on November 1 and ends on October 31 of
the following year. Any references to the year 2009 or 2008, or to any quarter
of those years, relates to the fiscal year or quarter, as the case may be,
ending in that year.
The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States (“GAAP”) requires management
to make certain estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying notes. Actual amounts
could differ from those estimates.
Certain
prior year amounts have been reclassified to conform to the 2009
presentation.
Industrial
Packaging and Paper Packaging Acquisitions and Divestitures
During
the first six months of 2009, the Company completed acquisitions of two small
North America industrial packaging companies and made a contingent purchase
price payment related to a 2005 acquisition for an aggregate purchase price of
$19.2 million. Both acquisitions occured in February 2009 and are expected
to complement the Company’s existing product lines. These acquisitions, included
in operating results from the acquisition dates, were accounted for using the
purchase method of accounting and, accordingly, the purchase prices were
allocated to the assets purchased and liabilities assumed based upon their
estimated fair values at the dates of acquisition. The estimated fair values of
the net assets acquired were $4.2 million (including $4.0 million of accounts
receivable and $0.2 million of inventory) and liabilities assumed were $1.3
million. Identifiable intangible assets, with a combined fair value of $4.3
million, including trade-names, customer relationships, and certain non-compete
agreements, have been recorded for these acquisitions. The excess of the
purchase prices over the estimated fair values of the net tangible and
intangible assets acquired of $12.0 million was recorded as goodwill. The final
allocation of the purchase prices may differ due to additional refinements in
the fair values of the net assets acquired as well as the execution of
consolidation plans to eliminate duplicate operations, in accordance with
Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business
Combinations.” This is due to the valuation of certain other assets and
liabilities that are subject to refinement and therefore the actual fair value
may vary from the preliminary estimates. Adjustments to the acquired net assets
resulting from final valuations are not expected to be significant. The Company
is finalizing certain closing date adjustments with the sellers, as well as the
allocation of income tax adjustments.
During
2008, the Company completed acquisitions of four industrial packaging companies
and one paper packaging company and made a contingent purchase price payment
related to an acquisition from October 2005 for an aggregate purchase price of
$90.3 million. These five acquisitions consisted of a joint venture in the
Middle East in November 2007, acquisition of a 70 percent interest in a South
American company in November 2007, the acquisition of a North American company
in December 2007, the acquisition of a company in Asia in May 2008, and the
acquisition of a North American paper packaging company in July 2008. These
industrial packaging and paper packaging acquisitions complement the Company’s
existing product lines that together will provide growth opportunities and
scale. These acquisitions, included in operating results from the acquisition
dates, were accounted for using the purchase method of accounting and,
accordingly, the purchase prices were allocated to the assets purchased and
liabilities assumed based upon their estimated fair values at the dates of
acquisition. The estimated fair values of the net assets acquired were $65.5
million (including $12.2 million of accounts receivable and $7.4 million of
inventory) and liabilities assumed were $43.2 million. Identifiable intangible
assets, with a combined fair value of $19.5 million, including trade-names,
customer relationships, and certain non-compete agreements, have been recorded
for these acquisitions. The excess of the purchase prices over the estimated
fair values of the net tangible and intangible assets acquired of $48.5 million
was recorded as goodwill. The final allocation of the purchase price of the July
2008 paper packaging acquisition may differ due to additional refinements in the
fair values of the net assets acquired, in accordance with SFAS No. 141,
“Business Combinations.” This is due to the valuation of certain other assets
and liabilities that are subject to refinement and therefore the actual fair
value may vary from the preliminary estimates. Adjustments to the acquired net
assets resulting from final valuations are not expected to be significant. The
Company is finalizing the allocation of income tax
adjustments. The Company is required to make a contingent
payment in 2009 based on a fixed percentage of EBITDA for one
acquisition. This payment is currently being negotiated.
Furthermore, in December 2010, the Company is required to pay $5.0 million
to purchase the land and building that is currently being leased from the seller
of one North American industrial packaging acquisition.
The
Company implemented various restructuring plans at certain of the 2008 acquired
businesses discussed above. The Company’s restructuring activities, which were
accounted for in accordance with Emerging Issues Task Force Issue No. 95-3,
“Recognition of Liabilities in Connection with a Purchase Business Combination”
(“EITF 95-3”), primarily have included reductions in staffing levels, other exit
costs associated with the consolidation of facilities, facility relocation, and
the reduction of excess capacity. In connection with these restructuring
activities, as part of the cost of the above acquisitions, the Company
established reserves, primarily for severance and excess facilities, in the
amount of $4.9 million, of which $2.9 million remains in the restructuring
reserve at April 30, 2009. These charges primarily reflect severance, other
exit costs associated with the consolidation of facilities, and the reduction of
excess capacity.
Had the
transactions occurred on November 1, 2007, results of operations would not
have differed materially from reported results.
During
2008, the Company sold a business unit in Australia, a 51 percent interest in a
Zimbabwean operation, three North American paper packaging operations and a
North American industrial packaging operation. The net gain from these
divestitures was $31.6 million and is included in gain on disposal of
properties, plants, and equipment, net in the accompanying 2008 consolidated
statement of income. Included in the gain calculation for the disposal in
Australia was the reclass to net income of a gain of $37.4 million of
accumulated foreign currency translation adjustments.
Stock-Based
Compensation Expense
On
November 1, 2005, the Company adopted SFAS No. 123(R), “Share-Based
Payment,” which requires the measurement and recognition of compensation
expense, based on estimated fair values, for all share-based awards made to
employees and directors, including stock options, restricted stock, restricted
stock units and participation in the Company’s employee stock purchase plan. In
adopting SFAS No. 123(R), the Company used the modified prospective
application transition method, as of November 1, 2005, the first day of the
Company’s fiscal year 2006. There was no share-based compensation expense
recognized under SFAS No. 123(R) for the first six months of 2009 and
2008.
SFAS
No. 123(R) requires companies to estimate the fair value of share-based
awards on the date of grant using an option-pricing model. The value of the
portion of the award that is ultimately expected to vest is recognized as
expense in the Company’s consolidated statements of income over the requisite
service periods. The Company will use the straight-line single option method of
expensing stock options to recognize compensation expense in its consolidated
statements of income for all share-based awards. Because share-based
compensation expense is based on awards that are ultimately expected to vest,
share-based compensation expense will be reduced to account for estimated
forfeitures. SFAS No. 123(R) requires forfeitures to be estimated at the
time of grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates. No options have been granted
in 2009 and 2008. For any options granted in the future, compensation
expense will be based on the grant date fair value estimated in accordance with
the provisions of SFAS No. 123(R).
Equity
Earnings and Minority Interests
Equity
earnings represent investments in affiliates in which the Company does not
exercise control and has a 20 percent or more voting interest. Such investments
in affiliates are accounted for using the equity method of accounting. If the
fair value of an investment in an affiliate is below its carrying value and the
difference is deemed to be other than temporary, the difference between the fair
value and the carrying value is charged to earnings. The Company has an equity
interest in six affiliates, and the equity earnings of these interests were
recorded in net income. Equity earnings (losses) for the first six months of
2009 and 2008 were ($0.6) million and $1.1 million, respectively. There were no
dividends received from our equity method subsidiaries for the six months ended
April 30, 2009 and 2008, respectively.
The
Company records minority interest expense which reflects the portion of the
earnings of majority-owned operations which are applicable to the minority
interest partners. The Company has majority holdings in various companies, and
the minority interests of other persons in the respective net income of these
companies were recorded as an expense. Minority interest expense for the first
six months of 2009 and 2008 was $0.4 million and $1.8 million,
respectively.
NOTE 2 — RECENT ACCOUNTING
STANDARDS
In
December 2007, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141(R), “Business Combinations,” which replaces SFAS No. 141. The
objective of SFAS 141(R) is to improve the relevance, representational
faithfulness and comparability of the information that a reporting entity
provides in its financial reports about a business combination and its effects.
SFAS No. 141(R) establishes principles and requirements for how the
acquirer recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed and any noncontrolling interest in the
acquiree; recognizes and measures the goodwill acquired in the business
combination or a gain from a bargain purchase; and determines what information
to disclose to enable users of the financial statements to evaluate the nature
and financial effects of the business combination. SFAS No. 141(R) applies
to all transactions or other events in which an entity (the acquirer) obtains
control of one or more businesses (the acquiree), including those sometimes
referred to as “true mergers” or “mergers of equals” and combinations achieved
without the transfer of consideration. SFAS No. 141(R) will apply to any
acquisition entered into on or after November 1, 2009, but will have no effect
on the Company’s consolidated financial statements for the fiscal year ending
October 31, 2009 or any prior fiscal years upon adoption.
In
December 2007, the FASB issued SFAS No. 160, “Accounting and Reporting of
Noncontrolling Interests in Consolidated Financial Statements, an amendment of
ARB No. 51.” The objective of SFAS No. 160 is to improve
the relevance, comparability and transparency of the financial information that
a reporting entity provides in its consolidated financial statements.
SFAS No. 160 amends Accounting Research Bulletin ARB No. 51 to
establish accounting and reporting standards for the noncontrolling interest in
a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 also
changes the way the consolidated financial statements are presented, establishes
a single method of accounting for changes in a parent’s ownership interest in a
subsidiary that do not result in deconsolidation, requires that a parent
recognize a gain or loss in net income when a subsidiary is deconsolidated and
expands disclosures in the consolidated financial statements that clearly
identify and distinguish between the parent’s ownership interest and the
interest of the noncontrolling owners of a subsidiary. The provisions of
SFAS No. 160 are to be applied prospectively as of the beginning of the
fiscal year in which SFAS No. 160 is adopted, except for the presentation
and disclosure requirements, which are to be applied retrospectively for all
periods presented. SFAS No. 160 will be effective for the Company’s
financial statements for the fiscal year beginning November 1, 2009 (2010
for the Company). The Company is currently evaluating the impact that the
adoption of SFAS No. 160 will have on its consolidated financial
statements.
In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.” This standard identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements that are presented in conformity with
GAAP. The FASB believes that the GAAP hierarchy should be directed to
entities because it is the entity, not its auditor, that is responsible for
selecting accounting principles for financial statements that are presented in
conformity with GAAP. Accordingly, the FASB concluded that the GAAP hierarchy
should reside in the accounting literature established by the FASB and issued
this Statement to achieve that result. The standard will be effective
60 days following the Securities Exchange Commission’s approval of the Public
Company Accounting Oversight Board amendment to AU Section 411. The
Company is currently evaluating the impact, if any, that the adoption of SFAS
No. 162 will have on its consolidated financial statements.
NOTE 3 — SALE OF NON-UNITED
STATES ACCOUNTS RECEIVABLE
Pursuant
to the terms of a Receivable Purchase Agreement (the “RPA”) dated
October 28, 2004, as amended, between Greif Coordination Center BVBA (the
“Seller”), an indirect wholly-owned subsidiary of Greif, Inc., and a major
international bank (the “Buyer”), the Seller agreed to sell trade receivables
meeting certain eligibility requirements that the Seller had purchased from
other indirect wholly-owned indirect European subsidiaries of Greif, Inc., under
discounted receivables purchase agreements and from an indirect
wholly-owned French subsidiary under a factoring agreement. In addition, on
October 28, 2005, an indirect wholly-owned Italian subsidiary of Greif,
Inc., entered into the Italian Receivables Purchase Agreement with the Italian
branch of the major international bank (the “Italian RPA”) and agreed to
sell trade receivables that meet certain eligibility criteria to the Italian
branch of the major international bank. The Italian RPA is similar in structure
and terms as the RPA. The maximum amount of the receivables that may
be sold under the RPA and the Italian RPA is €115.0 million ($149.9 million
at April 30, 2009).
In
October 2007, an indirect wholly-owned Singapore subsidiary of Greif Inc.,
entered into the Singapore Receivable Purchase Agreement (the “Singapore RPA”)
with a major international bank. The maximum amount of the aggregate receivables
that may be sold under the Singapore RPA is 10.0 million Singapore Dollars
($6.7 million at April 30, 2009).
In
October 2008, an indirect wholly-owned Brazil subsidiary of Greif, Inc., entered
into agreements (“the Brazil Agreements”) with Brazilian Banks. There
is no maximum amount of aggregate receivables that may be sold under the Brazil
Agreements; however, the sale of individual receivables is subject to approval
by the banks.
The
structure of the transactions provide for a legal true sale, on a revolving
basis, of the receivables transferred from the various Greif, Inc. subsidiaries
to the respective banks. The bank funds an initial purchase price of a certain
percentage of eligible receivables based on a formula with the initial purchase
price approximating 75 percent to 90 percent of eligible receivables. The
remaining deferred purchase price is settled upon collection of the receivables.
At the balance sheet reporting dates, the Company removes from accounts
receivable the amount of proceeds received from the initial purchase price since
they meet the applicable criteria of SFAS No. 140, “Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,”
and continues to recognize the deferred purchase price in its accounts
receivable. The receivables are sold on a non-recourse basis with the total
funds in the servicing collection accounts pledged to the banks between
settlement dates. At April 30, 2009 and October 31, 2008,
€60.6 million ($79.0 million) and €106.0 million ($137.8 million),
respectively, of accounts receivable were sold under the RPA and Italian RPA. At
April 30, 2009 and October 31, 2008, 5.5 million Singapore Dollars ($3.6
million) and 7.8 million Singapore Dollars ($5.3 million), respectively, of
accounts receivable were sold under the Singapore RPA. At April
30, 2009 and October 31, 2008, 7.2 million Brazilian Reais ($3.2 million) and
9.5 million Brazilian Reais ($4.5 million), respectively, of accounts receivable
were sold under the Brazil Agreements.
At the
time the receivables are initially sold, the difference between the carrying
amount and the fair value of the assets sold are included as a loss on sale in
the consolidated statements of income. Expenses, primarily related to the loss
on sale of receivables, associated with the RPA and Italian RPA totaled
€0.7 million ($0.9 million) and €1.0 million ($1.6 million) for the
three months ended April 30, 2009 and 2008, respectively. Expenses associated
with the Singapore RPA and Brazil Agreements were not material to the
consolidated financial statements for the three months ended April 30, 2009 and
2008. Additionally, the Company performs collections and administrative
functions on the receivables sold similar to the procedures it uses for
collecting all of its receivables, including receivables that are not sold under
the RPA, the Italian RPA, the Singapore RPA and the Brazil Agreements. The
servicing liability for these receivables is not material to the consolidated
financial statements.
NOTE 4 —
INVENTORIES
Inventories
are summarized as follows (Dollars in thousands):
|
|
April
30,
|
|
|
October
31,
|
|
|
|
2009
|
|
|
2008
|
|
Finished
goods
|
|
$ |
64,820 |
|
|
$ |
71,659 |
|
Raw
materials and work-in-process
|
|
|
203,129 |
|
|
|
279,186 |
|
|
|
|
267,949 |
|
|
|
350,845 |
|
Reduction
to state inventories on last-in, first-out basis
|
|
|
(23,875 |
) |
|
|
(46,851 |
) |
|
|
$ |
244,074 |
|
|
$ |
303,994 |
|
Inventories
are stated at the lower of cost or market, utilizing the first-in, first-out
basis (“FIFO”) for approximately 75 percent of consolidated inventories and the
last-in, first-out (“LIFO”) basis for approximately 25 percent of consolidated
inventories. Approximately 88 percent of inventories in the United
States utilize the LIFO basis, and approximately 12 percent utilize the FIFO
basis. All Non-United States inventories utilize the FIFO
basis.
NOTE 5 — NET ASSETS HELD FOR
SALE
Net
assets held for sale represent land, buildings and land improvements less
accumulated depreciation for locations that meet the classification requirements
of net assets held for sale as defined in SFAS No. 144, “Accounting for
Impairment or Disposal of Long-Lived Assets.” As of April 30, 2009, there were
eleven 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 facility sales within
the upcoming year.
NOTE 6 — GOODWILL AND OTHER
INTANGIBLE ASSETS
The
Company annually and on an interim basis, when considered necessary, reviews
goodwill and indefinite-lived intangible assets for impairment as required by
SFAS No. 142, “Goodwill and Other Intangible Assets.” The Company has
concluded that no impairment exists at this time.
Changes
to the carrying amount of goodwill by segment for the six-month period ended
April 30, 2009 are as follows (Dollars in thousands):
|
|
Industrial
Packaging
|
|
|
Paper
Packaging
|
|
|
Total
|
|
Balance
at October 31, 2008
|
|
$ |
480,312 |
|
|
$ |
32,661 |
|
|
$ |
512,973 |
|
Goodwill
acquired
|
|
|
12,035 |
|
|
|
- |
|
|
|
12,035 |
|
Goodwill
adjustments
|
|
|
10,287 |
|
|
|
(1,700 |
) |
|
|
8,587 |
|
Currency
translation
|
|
|
(2,014 |
) |
|
|
- |
|
|
|
(2,014 |
) |
Balance
at April 30, 2009
|
|
$ |
500,620 |
|
|
$ |
30,961 |
|
|
$ |
531,581 |
|
The
goodwill acquired of $12.0 million consists of a $2.8 million contingent
purchase price payment related to a 2005 acquisition and $9.2 million of
preliminary goodwill related to acquisitions in the Industrial Packaging segment
during the second quarter. The goodwill adjustments represent a net
increase in goodwill of $8.6 million primarily related to the final purchase
price adjustments for three of the 2008 acquisitions, the recognition of
deferred tax assets and the recording of tax contingency reserves.
All other
intangible assets for the periods presented, except for $7.6 million related to
the Tri-Sure Trademark, Blagden Express Tradename, and Closed-loop Tradename,
are subject to amortization and are being amortized using the straight-line
method over periods that range from five to 20 years. The detail of other
intangible assets by class as of April 30, 2009 and October 31, 2008 are as
follows (Dollars in thousands):
|
|
Gross
Intangible Assets
|
|
|
Accumulated
Amortization
|
|
|
Net
Intangible Assets
|
|
April 30,
2009:
|
|
|
|
|
|
|
|
|
|
Trademark
and patents
|
|
$ |
29,803 |
|
|
$ |
14,202 |
|
|
$ |
15,601 |
|
Non-compete
agreements
|
|
|
17,096
|
|
|
|
4,618 |
|
|
|
12,478 |
|
Customer
relationships
|
|
|
82,798 |
|
|
|
13,292 |
|
|
|
69,506 |
|
Other
|
|
|
9,802 |
|
|
|
4,757 |
|
|
|
5,045 |
|
Total
|
|
$ |
139,499 |
|
|
$ |
36,869 |
|
|
$ |
102,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademark
and patents
|
|
$ |
29,996 |
|
|
$ |
13,066 |
|
|
$ |
16,930 |
|
Non-compete
agreements
|
|
|
16,514 |
|
|
|
3,470 |
|
|
|
13,044 |
|
Customer
relationships
|
|
|
80,017 |
|
|
|
10,741 |
|
|
|
69,276 |
|
Other
|
|
|
9,624 |
|
|
|
4,450 |
|
|
|
5,174 |
|
Total
|
|
$ |
136,151 |
|
|
$ |
31,727 |
|
|
$ |
104,424 |
|
During
the first six months of 2009, gross intangible assets increased by $3.3 million.
The increase in gross intangible assets is comprised of $4.3 million in
preliminary purchase price allocations related to current quarter acquisitions
and a $1.0 million decrease of currency fluctuations both related to the
Industrial Packaging segment. Amortization expense for the six months ended
April 30, 2009 and 2008 was $5.3 million and $4.7 million, respectively.
Amortization expense for the next five years is expected to be $13.2 million in
2010, $12.2 million in 2011, $11.2 million in 2012, $8.0 million in 2013 and
$7.1 million in 2014.
NOTE 7 — RESTRUCTURING
CHARGES
The focus
for restructuring activities in 2009 is on business realignment to address the
adverse impact resulting from the sharp decline in business throughout the
global economy and further implementation of the Greif Business System. During
the first six months of 2009, the Company recorded restructuring charges of
$47.5 million, consisting of $25.1 million in employee separation costs, $11.6
million in asset impairments and $10.8 million in other costs. In addition, the
Company recorded $9.3 million in restructuring-related inventory charges in cost
of products sold. Thirteen company-owned plants in the Industrial
Packaging segment were closed and the total employees severed that were
eligible for severance during the first six months of 2009 were
1,124. The remaining restructuring charges for the above activities
are anticipated to be approximately $25 million for the remainder of
2009.
In 2008,
the focus for restructuring activities was on integration of acquisitions in the
Industrial Packaging segment and on alignment to market-focused strategy and
implementation of the Greif Business System in the Paper Packaging
segment. During the first six months of 2008, the Company recorded
restructuring charges of $17.8 million, consisting of $5.0 million in employee
separation costs, $10.2 million in asset impairments, $0.4 million in
professional fees and $2.2 million in other costs. Two company-owned plants in
the Industrial Packaging segment were closed and the total employees
severed during the first six months of 2008 were 270.
For each
relevant business segment, costs incurred in 2009 are as follows (Dollars in
thousands):
|
|
Three
months ended April
30, 2009
|
|
|
Six
months ended April 30, 2009
|
|
|
Total
Amounts Expected to be Incurred
|
|
|
|
|
|
|
|
|
|
|
|
Industrial
Packaging
|
|
|
|
|
|
|
|
|
|
Employee
separation costs
|
|
$ |
11,180 |
|
|
$ |
23,486 |
|
|
$ |
38,351 |
|
Asset
impairments
|
|
|
6,741 |
|
|
|
11,582 |
|
|
|
19,273 |
|
Inventory
adjustments
|
|
|
7,452 |
|
|
|
9,285 |
|
|
|
9,299 |
|
Other
restructuring costs
|
|
|
1,642 |
|
|
|
9,670 |
|
|
|
19,948 |
|
|
|
|
27,015 |
|
|
|
54,023 |
|
|
|
86,871 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paper
Packaging
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
separation costs
|
|
|
9 |
|
|
|
1,451 |
|
|
|
2,343 |
|
Asset
impairments
|
|
|
- |
|
|
|
38 |
|
|
|
169 |
|
Other
restructuring costs
|
|
|
723 |
|
|
|
1,094 |
|
|
|
1,165 |
|
|
|
|
732 |
|
|
|
2,583 |
|
|
|
3,677 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timber
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
separation costs
|
|
|
- |
|
|
|
150 |
|
|
|
150 |
|
|
|
|
- |
|
|
|
150 |
|
|
|
150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
27,747 |
|
|
$ |
56,756 |
|
|
$ |
90,698 |
|
Amounts
in the column Total Amounts Expected to be Incurred above relate to
the commencement of restructuring plans which are anticipated to be
realized in 2009 and 2010.
The
following is a reconciliation of the beginning and ending restructuring reserve
balances for the six-month period ended April 30, 2009 (Dollars in
thousands):
|
|
Cash
Charges
|
|
|
Non-cash
Charges
|
|
|
|
|
|
|
Employee
Separation Costs
|
|
|
Other
Costs
|
|
|
Asset
Impairments
|
|
|
Inventory
Write-down
|
|
|
Total
|
|
Balance
at October 31, 2008
|
|
$ |
14,413 |
|
|
$ |
734 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
15,147 |
|
Costs
incurred and charged to expense
|
|
|
25,087 |
|
|
|
10,764 |
|
|
|
11,620 |
|
|
|
- |
|
|
|
47,471 |
|
Costs
incurred and charged to cost of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
products
sold
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
9,285 |
|
|
|
9,285 |
|
Reserves
established in the purchase price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
business combinations
|
|
|
320 |
|
|
|
1,294 |
|
|
|
3,209 |
|
|
|
- |
|
|
|
4,823 |
|
Costs
paid or otherwise settled
|
|
|
(18,696 |
) |
|
|
(8,589 |
) |
|
|
(14,829 |
) |
|
|
(9,285 |
) |
|
|
(51,399 |
) |
Balance
at April 30, 2009
|
|
$ |
21,124 |
|
|
$ |
4,203 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
25,327 |
|
NOTE 8 — SIGNIFICANT
NONSTRATEGIC TIMBERLAND TRANSACTIONS AND CONSOLIDATION OF VARIABLE INTEREST
ENTITIES
On
May 31, 2005, STA Timber LLC, a wholly owned subsidiary of the Company
(“STA Timber”) issued in a private placement its 5.20 percent Senior Secured
Notes due August 5, 2020 (the “Monetization Notes”) in the principal amount
of $43.3 million. In connection with the sale of the Monetization Notes, STA
Timber entered into note purchase agreements with the purchasers of the
Monetization Notes (the “Note Purchase Agreements”) and related documentation.
The Monetization Notes are secured by a pledge of the Purchase Note and the Deed
of Guarantee (as hereafter defined). The Monetization Notes may be accelerated
in the event of a default in payment or a breach of the other obligations set
forth therein or in the Note Purchase Agreements or related documents, subject
in certain cases to any applicable cure periods, or upon the occurrence of
certain insolvency or bankruptcy related events. The Monetization Notes are
subject to a mechanism that may cause them, subject to certain conditions, to be
extended to November 5, 2020. The proceeds from the sale of the
Monetization Notes were primarily used for the repayment of
indebtedness. The Purchase Note means the $50.9 million
purchase note payable by an indirect subsidiary of Plum Creek Timberlands, L.P
(“Plum Creek”) as a portion of the purchase price in connection with its
purchase from Soterra LLC, a wholly owned subsidiary of the Company, of
approximately 56,000 acres of timberland located in Florida, Georgia and
Alabama, on May 23, 2005. The Purchase Note is secured by a Deed of
Guarantee issued by Bank of America, N.A., London Branch, in an amount not to
exceed $52.3 million (the “Deed of Guarantee”), as a guarantee of the due and
punctual payment of principal and interest on the Purchase Note.
The
Company has consolidated the assets and liabilities of STA Timber in accordance
with FASB Interpretation No. 46R, “Consolidation of Variable Interest
Entities.” Because STA Timber is a separate and distinct legal entity from
Greif, Inc. and its other subsidiaries, the assets of STA Timber are not
available to satisfy the liabilities and obligations of these entities and the
liabilities of STA Timber are not liabilities or obligations of these entities.
In addition, Greif, Inc. and its other subsidiaries have not extended any form
of guaranty of the principal or interest on the Monetization Notes. Accordingly,
Greif, Inc. and its other subsidiaries will not become directly or contingently
liable for the payment of the Monetization Notes at any time.
The
Company has also consolidated the assets and liabilities of the buyer-sponsored
special purpose entity (the “Buyer SPE”) involved in these transactions as the
result of Interpretation 46R. However, because the Buyer SPE is a separate and
distinct legal entity from the Company, the assets of the Buyer SPE are not
available to satisfy the liabilities and obligations of the Company and the
liabilities of the Buyer SPE are not liabilities or obligations of the
Company.
Assets of
the Buyer SPE at April 30, 2009 and October 31, 2008 consist of restricted bank
financial instruments of $50.9 million. STA Timber had long-term debt of $43.3
million as of April 30, 2009 and October 31, 2008. STA Timber is exposed to
credit-related losses in the event of nonperformance by the issuer of the Deed
of Guarantee, but the Company does not expect that issuer to fail to meet its
obligations. The accompanying consolidated income statements for the six month
periods ended April 30, 2009 and 2008 include interest expense on STA Timber
debt of $1.1 million and interest income on Buyer SPE investments of $1.2
million.
NOTE 9 —
DEBT
Long-term
debt is summarized as follows (Dollars in thousands):
|
|
April
30,
|
|
|
October
31,
|
|
|
|
2009
|
|
|
2008
|
|
$700
Million Credit Agreement
|
|
$ |
439,475 |
|
|
$ |
- |
|
$450
Million Credit Agreement
|
|
|
- |
|
|
|
247,597 |
|
Senior
Notes
|
|
|
300,000 |
|
|
|
300,000 |
|
Trade
accounts receivable credit facility
|
|
|
84,000 |
|
|
|
120,000 |
|
Other
long-term debt
|
|
|
4,687 |
|
|
|
5,574 |
|
|
|
$ |
828,162 |
|
|
$ |
673,171 |
|
Credit
Agreement
On
February 19, 2009, the Company and Greif International Holding B.V., as
borrowers, entered into a $700 million Senior Secured Credit Agreement (the
“Credit Agreement”) with a syndicate of financial institutions. The Credit
Agreement replaced the then existing Credit Agreement (the “Prior Credit
Agreement”) that provided the Company with a $450.0 million revolving
multicurrency credit facility due 2010. At April 30, 2009, $234.6 million was
available under the Credit Agreement. As a result of this transaction, a $0.8
million debt extinguishment charge, which included the write-off of unamortized
capitalized debt issuance costs, was recorded.
The
Credit Agreement provides for a $500 million revolving multicurrency credit
facility and a $200 million term loan, both maturing in February 2012, with an
option to add $200 million to the facilities with the agreement of the lenders.
The $200 million term loan is scheduled to amortize by $2.5 million each
quarter-end for the first four quarters, $5 million each quarter-end for the
next eight quarters and $150 million on the maturity date. The Credit Agreement
is available to fund ongoing working capital and capital expenditure needs, for
general corporate purposes, to finance acquisitions, and to repay amounts
outstanding under the Prior Credit Agreement. Interest is based on a
Eurodollar rate or a base rate that resets periodically plus a calculated margin
amount. On February 19, 2009, $325.3 million borrowed under the
revolving credit facility and term loan was used to prepay the obligations
outstanding under the Prior Credit Agreement and certain costs and expenses
incurred in connection with the Credit Agreement. As of April 30, 2009, $439.5
million was outstanding under the Credit Agreement, which consisted of $242.0
million borrowed on the $500 million revolving multicurrency credit facility and
$197.5 million term loan. The weighted average interest rate on the Credit
Agreement was 3.28 percent since February 19, 2009, and the interest rate was
3.31 percent at April 30, 2009.
The
Credit Agreement contains financial covenants that require the Company to
maintain a certain leverage ratio and a fixed charge coverage ratio. At April
30, 2009, the Company was in compliance with these covenants.
Senior
Notes
On
February 9, 2007, the Company issued $300.0 million of 6 3 /4 percent
Senior Notes due February 1, 2017. Interest on the Senior Notes is payable
semi-annually. Proceeds from the issuance of Senior Notes were principally used
to fund the purchase of previously outstanding 8 7/8 percent Senior
Subordinated Notes in a tender offer and for general corporate
purposes.
The
Indenture pursuant to which the Senior Notes were issued contains certain
covenants. At April 30, 2009, the Company was in compliance with these
covenants.
United
States Trade Accounts Receivable Credit Facility
On
December 8, 2008, the Company entered into a $135.0 million trade accounts
receivable credit facility with a financial institution and its affiliate, with
a maturity date of December 8, 2013, subject to earlier termination of their
purchase commitment on December 7, 2009, or such later date to which the
purchase commitment may be extended by agreement of the parties. The
credit facility is secured by certain of the Company’s trade accounts receivable
in the United States and bears interest at a variable rate based on the
applicable commercial paper rate plus a margin or other agreed-upon rate (2.09
percent at April 30, 2009). In addition, the Company can terminate
the credit facility at any time upon five days prior written
notice. A significant portion of the proceeds from this credit
facility were used to pay the obligations under the previous credit facility,
which was terminated. The remaining proceeds will be used to pay
certain fees, costs and expenses incurred in connection with the credit facility
and for working capital and general corporate purposes. There was $84.0 million
outstanding under the United States trade accounts receivable credit facility at
April 30, 2009. The agreement for this receivables financing facility
contains financial covenants that
require the Company to maintain a certain leverage ratio and an interest
coverage ratio. At April 30, 2009, the Company was in compliance with
these covenants.
Greif
Receivables Funding LLC (“GRF”), an indirect subsidiary of the Company, has
participated in the purchase and transfer of receivables in connection with
these credit facilities and is included in the Company’s consolidated financial
statements. However, because GRF is a separate and distinct legal entity from
the Company and its other subsidiaries, the assets of GRF are not available to
satisfy the liabilities and obligations of the Company and its other
subsidiaries, and the liabilities of GRF are not the liabilities or obligations
of the Company and its other subsidiaries. This entity purchases and services
the Company’s trade accounts receivable that are subject to these credit
facilities.
Other
In
addition to the amounts borrowed against the Credit Agreement and proceeds from
the Senior Notes and the United States trade accounts receivable credit
facility, at April 30, 2009 the Company had other debt outstanding of $62.6
million, comprised of $4.7 million in long-term debt and $57.9 million in
short-term borrowings and at October 31, 2008 other debt outstanding of $49.9
million, comprised of $5.6 million in long-term debt and $44.3 million in
short-term borrowings.
At April
30, 2009, annual maturities of the Company’s long-term debt under the various
financing arrangements were $4.7 million in 2010, $439.5 million in 2012, $84.0
million in 2014 and $300.0 million thereafter.
At April
30, 2009 and October 31, 2008, the Company had deferred financing fees and debt
issuance costs of $11.6 million and $4.6 million, respectively, which are
included in other long-term assets.
NOTE 10 — FINANCIAL
INSTRUMENTS AND FAIR VALUE MEASUREMENTS
The
carrying amounts of cash and cash equivalents, trade accounts receivable,
accounts payable, current liabilities and short-term borrowings at April 30,
2009 and October 31, 2008 approximate their fair values because of the
short-term nature of these items.
The
estimated fair value of the Company’s long-term debt was $805.7 million and
$619.2 million as compared to the carrying amounts of $828.2 million and $673.2
million at April 30, 2009 and October 31, 2008, respectively. The fair values of
the Company’s long-term obligations are estimated based on either the quoted
market prices for the same or similar issues or the current interest rates
offered for debt of the same remaining maturities.
The
Company uses derivatives from time to time to partially mitigate the effect of
exposure to interest rate movements, exposure to foreign currency fluctuations,
and commodity cost fluctuations. The Company records derivatives based on SFAS
No. 133, “Accounting for Derivative Instruments and Hedging Activities,”
and related amendments. This Statement requires that all derivatives be
recognized as assets or liabilities in the balance sheet and measured at fair
value. Changes in the fair value of derivatives are recognized in either net
income or in other comprehensive income, depending on the designated purpose of
the derivative.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities–Including an amendment of FASB
Statement No. 115.” SFAS No. 159 permits companies to measure many financial
instruments and certain other items at fair value at specified election dates.
SFAS No. 159 was effective for the Company on November 1, 2008. Since the
Company has not utilized the fair value option for any allowable items, the
adoption of SFAS No. 159 did not have a material impact on the Company’s
financial condition and results of operations.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value
Measurements.” SFAS No. 157 defines fair value, establishes a
framework for measuring fair value within GAAP and expands required disclosures
about fair value measurements. In November 2007, the FASB provided a one year
deferral for the implementation of SFAS No. 157 for nonfinancial assets and
liabilities. The Company adopted SFAS No. 157 on February 1,
2008, as required. The adoption of SFAS No. 157 did not have a material impact
on the Company’s financial condition and results of operations.
SFAS No.
157 established a three-tier fair value hierarchy, which prioritizes the inputs
used in measuring fair value. These tiers include: Level 1, defined as
observable inputs such as quoted prices in active markets; Level 2, defined as
inputs other than quoted prices in active markets that are either directly or
indirectly observable; and Level 3, defined as unobservable inputs in which
little or no market data exists, therefore requiring an entity to develop its
own assumptions. As of April 30, 2009, the Company held certain derivative asset
and liability positions that are required to be measured at fair value on a
Level 2 basis. The majority of the Company’s derivative instruments related to
receive fixed-rate, pay floating-rate interest rate swaps and receive
fixed-rate, pay fixed-rate cross-currency interest rate swaps. The
fair values of these derivatives have been measured in accordance with Level 2
inputs in the fair value hierarchy, and as of April 30, 2009, are as follows
(Dollars in thousands):
|
|
Notional
Amount
|
|
|
Fair
Value Adjustment
|
|
Balance
Sheet Location
|
|
|
April
30, 2009
|
|
|
April
30, 2009
|
|
April
30, 2009
|
|
|
|
|
|
|
|
|
Cross-currency
interest rate swaps
|
|
$ |
300,000 |
|
|
$ |
11,977 |
|
Other
long-term assets
|
Interest
rate derivatives
|
|
|
100,000 |
|
|
|
(1,559 |
) |
Other
long-term liabilities
|
Energy
and other derivatives
|
|
|
61,184 |
|
|
|
(4,608 |
) |
Other
current liabilities
|
Total
|
|
$ |
461,184 |
|
|
$ |
5,810 |
|
|
The
Company has entered into cross-currency interest rate swaps which are designated
as a hedge of a net investment in a foreign operation. Under these agreements,
the Company receives interest semi-annually from the counterparties equal to a
fixed rate of 6.75 percent on $300.0 million and pays interest at a fixed rate
of 6.25 percent on €219.9 million. Upon maturity of these swaps on
August 1, 2009, August 1, 2010, and August 1, 2012, the
Company will be required to pay €73.3 million to the counterparties and
receive $100.0 million from the counterparties on each of these dates. The other
comprehensive gain on these agreements was $12.0 million and $24.5 million at
April 30, 2009 and October 31, 2008, respectively.
The
Company has interest rate swap agreements with various maturities through 2011.
The interest rate swap agreements are used to fix a portion of the interest on
the Company’s variable rate debt. Under certain of these agreements, the Company
receives interest quarterly from the counterparties equal to LIBOR and pays
interest at a fixed rate (4.93 percent at April 30, 2009) over the life of the
contracts.
At April
30, 2009, the Company had outstanding foreign currency forward contracts in the
notional amount of $54.9 million ($174.0 million at October 31, 2008). The
purpose of these contracts is to hedge the Company’s exposure to foreign
currency transactions and short-term intercompany loan balances in its
international businesses. The fair value of these contracts at April 30, 2009
resulted in a loss of $0.7 million recorded in other comprehensive income and a
loss of $0.3 million recorded in the consolidated statements of income. The fair
value of similar contracts at April 30, 2008 resulted in a gain of $0.9 million
recorded in other comprehensive income and a loss of $0.1 million recorded in
the consolidated statements of income.
The
Company has entered into certain cash flow hedges to mitigate its exposure to
cost fluctuations in natural gas prices through October 31, 2010. The fair
value of the energy hedges was in an unfavorable position of $3.0 million ($2.0
million net of tax) at April 30, 2009, compared to an unfavorable position of
$5.2 million ($3.4 million net of tax) at October 31, 2008. As a result of the
high correlation between the hedged instruments and the underlying transactions,
ineffectiveness has not had a material impact on the Company’s consolidated
statements of income for the quarter ended April 30, 2009.
The
Company has entered into certain cash flow hedges to mitigate its exposure to
cost fluctuations in old corrugated containers (“OCC”) prices through July 31,
2009. The fair value of these hedges was in an unfavorable position of $0.6
million ($0.4 million net of tax). As a result of the high correlation between
the hedged instruments and the underlying transactions, ineffectiveness has not
had a material impact on the Company’s consolidated statements of income for the
quarter ended April 30, 2009.
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.
During
the next six months, the Company expects to reclassify into earnings a net loss
from accumulated other comprehensive income of approximately $3.9 million after
tax at the time the underlying hedge transactions are realized.
NOTE 11 — 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 and safety and health matters. While the amounts claimed 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.
All
lawsuits, claims and proceedings are considered by the Company in establishing
reserves for contingencies in accordance with SFAS No. 5, “Accounting for
Contingencies.” In accordance with the provisions of SFAS No. 5, the
Company accrues for a litigation-related liability when it is probable that a
liability has been incurred and the amount of the loss can be reasonably
estimated. Based on currently available information known to the Company, the
Company believes that its reserves for these litigation-related liabilities are
reasonable and that the ultimate outcome of any pending matters is not likely to
have a material adverse effect on the Company’s financial position or results
from operations.
NOTE 12 — CAPITAL
STOCK
Class A
Common Stock is entitled to cumulative dividends of 1 cent a share per year
after which Class B Common Stock is entitled to non-cumulative dividends up to
one half (1/2) cent per 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
one-half (1 ½) cents a share for Class B Common Stock. The Class A Common
Stock has no voting rights unless four quarterly cumulative dividends upon the
Class A Common Stock are in arrears or unless changes are proposed to the
Company’s certificate of incorporation. The Class B Common Stock has full voting
rights. There is no cumulative voting for the election of
directors.
The
following table summarizes the Company’s Class A and Class B common and
treasury shares at the specified dates:
|
|
Authorized
Shares
|
|
|
Issued
Shares
|
|
|
Outstanding
Shares
|
|
|
Treasury
Shares
|
|
April 30,
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
Class
A Common Stock
|
|
|
128,000,000 |
|
|
|
42,281,920 |
|
|
|
24,360,723 |
|
|
|
17,921,197 |
|
Class
B Common Stock
|
|
|
69,120,000 |
|
|
|
34,560,000 |
|
|
|
22,462,266 |
|
|
|
12,097,734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class
A Common Stock
|
|
|
128,000,000 |
|
|
|
42,281,920 |
|
|
|
24,081,998 |
|
|
|
18,199,922 |
|
Class
B Common Stock
|
|
|
69,120,000 |
|
|
|
34,560,000 |
|
|
|
22,562,266 |
|
|
|
11,997,734 |
|
NOTE 13 — DIVIDENDS PER
SHARE
The
following dividends per share were paid during the periods
indicated:
|
|
Three
Months Ended April 30
|
|
|
Six
Months Ended April 30
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Class
A Common Stock
|
|
$ |
0.38 |
|
|
$ |
0.28 |
|
|
$ |
0.76 |
|
|
$ |
0.56 |
|
Class
B Common Stock
|
|
$ |
0.57 |
|
|
$ |
0.42 |
|
|
$ |
1.13 |
|
|
$ |
0.83 |
|
NOTE 14 — 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 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 average shares used to calculate basic and diluted
earnings per share:
|
|
Three
months ended
|
|
|
Six
months ended
|
|
|
|
April
30
|
|
|
April
30
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Class A Common
Stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
shares
|
|
|
24,352,826 |
|
|
|
23,911,860 |
|
|
|
24,241,605 |
|
|
|
23,850,542 |
|
Assumed
conversion of stock options
|
|
|
270,598 |
|
|
|
535,589 |
|
|
|
266,413 |
|
|
|
525,698 |
|
Diluted
shares
|
|
|
24,623,424 |
|
|
|
24,447,449 |
|
|
|
24,508,018 |
|
|
|
24,376,240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class B Common
Stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted shares
|
|
|
22,462,266 |
|
|
|
22,882,611 |
|
|
|
22,489,148 |
|
|
|
22,912,762 |
|
NOTE 15 — 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 Company’s owners. The components of
comprehensive income, net of tax, are as follows (Dollars in
thousands):
|
|
Three
months ended
|
|
|
Six
months ended
|
|
|
|
April
30
|
|
|
April
30
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Net
income
|
|
$ |
12,142 |
|
|
$ |
48,654 |
|
|
$ |
13,408 |
|
|
$ |
109,341 |
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
(9,423 |
) |
|
|
(8,573 |
) |
|
|
(38,332 |
) |
|
|
(43,576 |
) |
Changes
in fair value of interest rate derivatives, net of tax
|
|
|
1,104 |
|
|
|
677 |
|
|
|
788 |
|
|
|
(1,785 |
) |
Changes
in fair value of energy and other derivatives, net of tax
|
|
|
2,972 |
|
|
|
342 |
|
|
|
1,917 |
|
|
|
302 |
|
Minimum
pension liability adjustment, net of tax
|
|
|
547 |
|
|
|
(728 |
) |
|
|
(591 |
) |
|
|
35 |
|
Comprehensive
income
|
|
$ |
7,342 |
|
|
$ |
40,372 |
|
|
$ |
(22,810 |
) |
|
$ |
64,317 |
|
The
following are the income tax benefit (expense) for each other comprehensive
income (loss) line items:
|
|
Three
months ended
|
|
|
Six
months ended
|
|
|
|
April
30
|
|
|
April
30
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Income
tax (benefit) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in fair value of interest rate derivatives, net of tax
|
|
|
541 |
|
|
|
201 |
|
|
|
378 |
|
|
|
(542 |
) |
Changes
in fair value of energy and other derivatives, net of tax
|
|
|
1,457 |
|
|
|
102 |
|
|
|
919 |
|
|
|
92 |
|
Minimum
pension liability adjustment, net of tax
|
|
|
268 |
|
|
|
(216 |
) |
|
|
(283 |
) |
|
|
11 |
|
NOTE 16 — INCOME
TAXES
The
Company applies FASB Interpretation No. 48 (“FIN 48”), “Accounting for
Uncertainty in Income Taxes.” FIN 48 is an interpretation of SFAS No. 109,
“Accounting for Income Taxes,” and clarifies the accounting for uncertainty in
income tax positions. FIN 48 prescribes a recognition threshold and measurement
process for recording in the financial statements uncertain tax positions taken
or expected to be taken in a tax return. Additionally, FIN 48 provides guidance
regarding uncertain tax positions relating to de-recognition, classification,
interest and penalties, accounting in interim periods, disclosure and
transition.
The
Company has estimated the reasonably possible expected net change in
unrecognized tax benefits through April 30, 2010 based on expected settlements
or payments of uncertain tax positions, and lapses of the applicable statutes of
limitations of unrecognized tax benefits. The estimated net decrease in
unrecognized tax benefits for the next 12 months is approximately $2.8 million.
Actual results may differ materially from this estimate.
There
have been no significant changes in the Company’s uncertain tax positions for
the six months ended April 30, 2009.
NOTE 17 — RETIREMENT PLANS
AND POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
The
components of net periodic pension cost include the following (Dollars in
thousands):
|
|
Three
months ended
|
|
|
Six
months ended
|
|
|
|
April
30
|
|
|
April
30
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Service
cost
|
|
$ |
1,842 |
|
|
$ |
3,151 |
|
|
$ |
3,684 |
|
|
$ |
6,302 |
|
Interest
cost
|
|
|
4,143 |
|
|
|
7,660 |
|
|
|
8,286 |
|
|
|
15,320 |
|
Expected
return on plan assets
|
|
|
(4,398 |
) |
|
|
(9,098 |
) |
|
|
(8,796 |
) |
|
|
(18,196 |
) |
Amortization
of prior service cost, initial net asset and net actuarial
gain
|
|
|
288 |
|
|
|
1,192 |
|
|
|
576 |
|
|
|
2,384 |
|
Net
periodic pension costs
|
|
$ |
1,875 |
|
|
$ |
2,905 |
|
|
$ |
3,750 |
|
|
$ |
5,810 |
|
The
Company made $4.9 million in pension contributions in the six months ended April
30, 2009. Based on minimum funding requirements including a change in
measurement date to October 31 for all defined benefit plans, $11.5 million of
pension contributions are estimated for the entire 2009 fiscal
year.
The
components of net periodic cost for postretirement benefits include the
following (Dollars in thousands):
|
|
Three
months ended
|
|
|
Six
months ended
|
|
|
|
April
30
|
|
|
April
30
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Service
cost
|
|
$ |
- |
|
|
$ |
8 |
|
|
$ |
- |
|
|
$ |
16 |
|
Interest
cost
|
|
|
374 |
|
|
|
502 |
|
|
|
748 |
|
|
|
1,004 |
|
Amortization
of prior service cost and recognized actuarial gain
|
|
|
(283 |
) |
|
|
(348 |
) |
|
|
(566 |
) |
|
|
(696 |
) |
Net
periodic cost for postretirement benefits
|
|
$ |
91 |
|
|
$ |
162 |
|
|
$ |
182 |
|
|
$ |
324 |
|
NOTE 18 — BUSINESS SEGMENT
INFORMATION
The
Company operates in three business segments: Industrial Packaging, Paper
Packaging and Timber.
Operations
in the Industrial Packaging segment involve the production and sale of
industrial packaging and related services. These products are manufactured and
sold in over 45 countries throughout the world.
Operations
in the Paper Packaging segment involve the production and sale of
containerboard, both semi-chemical and recycled, corrugated sheets, corrugated
containers and multiwall bags and related services. These products are
manufactured and sold in North America.
Operations
in the Timber segment involve the management and sale of timber and special use
properties from approximately 272,600 acres of timber properties in the
southeastern United States. The Company also owns approximately 27,400 acres of
timber properties in Canada, which are not actively managed at this time. In
addition, the Company sells, from time to time, timberland and special use land,
which consists of surplus land, higher and better use land, and development
land.
The
Company’s reportable segments are strategic business units that offer different
products. The accounting policies of the reportable segments are substantially
the same as those described in the “Description of Business and Summary of
Significant Accounting Policies” note (see Note 1) in the 2008 Form
10-K.
The
following segment information is presented for the periods indicated (Dollars in
thousands):
|
|
Three
months ended
|
|
|
Six
months ended
|
|
|
|
April
30,
|
|
|
April
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Net
sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial
Packaging
|
|
$ |
527,073 |
|
|
$ |
748,009 |
|
|
$ |
1,056,589 |
|
|
$ |
1,419,287 |
|
Paper
Packaging
|
|
|
118,064 |
|
|
|
163,442 |
|
|
|
248,449 |
|
|
|
332,246 |
|
Timber
|
|
|
2,760 |
|
|
|
6,568 |
|
|
|
9,119 |
|
|
|
12,778 |
|
Total
net sales
|
|
$ |
647,897 |
|
|
$ |
918,019 |
|
|
$ |
1,314,157 |
|
|
$ |
1,764,311 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
profit, before the impact of restructuring charges,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
restructuring-related
inventory charges and timberland disposals, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial
Packaging
|
|
$ |
40,689 |
|
|
$ |
64,209 |
|
|
$ |
63,073 |
|
|
$ |
142,281 |
|
Paper
Packaging
|
|
|
14,961 |
|
|
|
14,053 |
|
|
|
35,689 |
|
|
|
34,452 |
|
Timber
|
|
|
2,425 |
|
|
|
10,446 |
|
|
|
5,584 |
|
|
|
16,561 |
|
Operating
profit, before the impact of restructuring charges,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
restructuring-related
inventory charges and timberland disposals, net:
|
|
|
58,075 |
|
|
|
88,708 |
|
|
|
104,346 |
|
|
|
193,294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial
Packaging
|
|
|
19,564 |
|
|
|
6,454 |
|
|
|
44,738 |
|
|
|
16,257 |
|
Paper
Packaging
|
|
|
731 |
|
|
|
816 |
|
|
|
2,583 |
|
|
|
1,488 |
|
Timber
|
|
|
- |
|
|
|
67 |
|
|
|
150 |
|
|
|
67 |
|
Restructuring
charges
|
|
|
20,295 |
|
|
|
7,337 |
|
|
|
47,471 |
|
|
|
17,812 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring-related
inventory charges -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial
Packaging
|
|
|
7,452 |
|
|
|
- |
|
|
|
9,285 |
|
|
|
- |
|
Timberland
disposals, net - Timber
|
|
|
- |
|
|
|
100 |
|
|
|
- |
|
|
|
190 |
|
Total
operating profit
|
|
$ |
30,328 |
|
|
$ |
81,471 |
|
|
$ |
47,590 |
|
|
$ |
175,672 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation,
depletion and amortization expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial
Packaging
|
|
$ |
17,576 |
|
|
$ |
18,312 |
|
|
$ |
35,013 |
|
|
$ |
36,060 |
|
Paper
Packaging
|
|
|
6,636 |
|
|
|
7,283 |
|
|
|
13,370 |
|
|
|
13,102 |
|
Timber
|
|
|
49 |
|
|
|
1,180 |
|
|
|
1,135 |
|
|
|
3,476 |
|
Total
depreciation, depletion and amortization expense
|
|
$ |
24,261 |
|
|
$ |
26,775 |
|
|
$ |
49,518 |
|
|
$ |
52,638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April
30,
|
|
|
October
31,
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial
Packaging
|
|
|
|
|
|
|
|
|
|
$ |
1,684,122 |
|
|
$ |
1,831,010 |
|
Paper
Packaging
|
|
|
|
|
|
|
|
|
|
|
348,181 |
|
|
|
360,263 |
|
Timber
|
|
|
|
|
|
|
|
|
|
|
259,325 |
|
|
|
254,771 |
|
Total
segments
|
|
|
|
|
|
|
|
|
|
|
2,291,628 |
|
|
|
2,446,044 |
|
Corporate
and other
|
|
|
|
|
|
|
|
|
|
|
305,502 |
|
|
|
299,854 |
|
Total
assets
|
|
|
|
|
|
|
|
|
|
$ |
2,597,130 |
|
|
$ |
2,745,898 |
|
The
following table presents net sales to external customers by geographic area
(Dollars in thousands):
|
|
Three
months ended
|
|
|
Six
months ended
|
|
|
|
April
30,
|
|
|
April
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Net
sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
|
|
$ |
361,419 |
|
|
$ |
475,780 |
|
|
$ |
755,360 |
|
|
$ |
925,850 |
|
Europe,
Middle East and Africa
|
|
|
192,374 |
|
|
|
324,883 |
|
|
|
374,711 |
|
|
|
607,074 |
|
Other
|
|
|
94,104 |
|
|
|
117,356 |
|
|
|
184,086 |
|
|
|
231,387 |
|
Total
net sales
|
|
$ |
647,897 |
|
|
$ |
918,019 |
|
|
$ |
1,314,157 |
|
|
$ |
1,764,311 |
|
The
following table presents total assets by geographic area (Dollars in
thousands):
|
|
April
30,
|
|
|
October
31,
|
|
|
|
2009
|
|
|
2008
|
|
Assets:
|
|
|
|
|
|
|
North
America
|
|
$ |
1,805,381 |
|
|
$ |
1,836,049 |
|
Europe,
Middle East and Africa
|
|
|
468,739 |
|
|
|
568,061 |
|
Other
|
|
|
323,010 |
|
|
|
341,788 |
|
Total
assets
|
|
$ |
2,597,130 |
|
|
$ |
2,745,898 |
|
ITEM 2.
MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
The terms
“Greif,” “our company,” “we,” “us” and “our” as used in this discussion refer to
Greif, Inc. and its subsidiaries. Our fiscal year begins on November 1 and
ends on October 31 of the following year. Any references in this Form 10-Q
to the years 2009 or 2008, or to any quarter of those years, relates to the
fiscal year or quarter, as the case may be, ending in that year.
The
discussion and analysis presented below relates to the material changes in
financial condition and results of operations for our consolidated balance
sheets as of April 30, 2009 and October 31, 2008, and for the consolidated
statements of income for the three-month and six-month periods ended April 30,
2009 and 2008. This discussion and analysis should be read in conjunction with
the consolidated financial statements that appear elsewhere in this Form 10-Q
and “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” included in our Annual Report on Form 10-K for the fiscal year ended
October 31, 2008 (the “2008 Form 10-K”). Readers are encouraged to review
the entire 2008 Form 10-K, as it includes information regarding Greif not
discussed in this Form 10-Q. This information will assist in your understanding
of the discussion of our current period financial results.
All
statements, other than statements of historical facts, included in this Form
10-Q, 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
within the meaning of Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements generally can be identified by the use of
forward-looking terminology such as “may,” “will,” “expect,” “intend,”
“estimate,” “anticipate,” “project,” “believe,” “continue” or “target” or the
negative thereof or variations thereon or similar terminology. All
forward-looking statements made in this Form 10-Q are based on information
currently available to our management. 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 be 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. For a discussion of the most significant risks and uncertainties
that could cause Greif’s actual results to differ materially from those
projected, see “Risk Factors” in Part I, Item 1A of the 2008 Form 10-K,
updated by Part II, Item 1A of this Form 10-Q. All forward-looking
statements made in this Form 10-Q are expressly qualified in their entirety by
reference to such risk factors. Except to the limited extent required by
applicable law, Greif undertakes no obligation to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
OVERVIEW
We
operate in three business segments: Industrial Packaging; Paper Packaging; and
Timber.
We are a
leading global provider of industrial packaging products, such as steel, fibre
and plastic drums, intermediate bulk containers, closure systems for industrial
packaging products, transit protection products and polycarbonate water bottles,
and services, such as blending, filling and other packaging services, logistics
and warehousing. 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, paint
and pigments, food and beverage, petroleum, industrial coatings, agricultural,
pharmaceutical and mineral, among others. In addition, the Company provides a
variety of blending, filling and other packaging services, logistics and
warehousing to customers in many of these same industries in North
America.
We sell
our containerboard, corrugated sheets, corrugated containers 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 multiwall bag products is used to ship a wide
range of industrial and consumer products, such as seed, fertilizers, chemicals,
concrete, flour, sugar, feed, pet foods, popcorn, charcoal and salt, primarily
for the agricultural, chemical, building products and food
industries.
As of
April 30, 2009, we owned approximately 272,600 acres of timber properties in the
southeastern United States, which are actively managed, and approximately 27,400
acres of timber properties in Canada. 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 available merchantable acreage of timber, market and weather
conditions. We also sell, from time to time, timberland and special use land,
which consists of surplus land, higher and better use (“HBU”) land, and
development land.
In 2003, we began a transformation to
become a leaner, more market-focused/performance-driven company – what we call
the “Greif Business System.” We believe the Greif Business System has and will
continue to generate productivity improvements and achieve permanent cost
reductions. The Greif Business System continues to focus on opportunities such
as improved labor productivity, material yield and other manufacturing
efficiencies, along with further plant consolidations. In addition, as part of
the Greif Business System, we have launched a strategic sourcing initiative to
more effectively leverage our global spending, including a transportation
management system, and lay the foundation for a world-class sourcing and supply
chain capability.
In response to the current economic
slowdown, we have continued to implement previously announced incremental and
accelerated Greif Business System initiatives and specific contingency
actions. These initiatives include continuation
of active portfolio management, further administrative excellence activities, a
hiring and salary freeze and curtailed discretionary
spending.
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
(“GAAP”). The preparation of these consolidated 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 consolidated financial statements.
A summary
of our significant accounting policies is included in Note 1 to the Notes to
Consolidated Financial Statements included in the 2008 Form 10-K. We believe
that the consistent application of these policies enables us to provide readers
of the consolidated financial statements with useful and reliable information
about our results of operations and financial condition. The following are the
accounting policies that we believe are most important to the portrayal of our
results of operations and financial condition 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. In addition, 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 (e.g., 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 change 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.
We record net assets held for sale in accordance with Statement of Financial
Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets,” at the lower of carrying value or fair value
less cost to sell. Fair value is based on the estimated proceeds from the sale
of the facility utilizing recent purchase 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.
We own
timber properties in the southeastern United States and in Canada. With respect
to our United States timber properties, which consisted of approximately 272,600
acres at April 30, 2009, depletion expense is computed on the basis of cost and
the estimated recoverable timber acquired. Our land costs are maintained by
tract. Merchantable timber costs are maintained by five product classes, pine
sawtimber, pine chip-n-saw, pine pulpwood, hardwood sawtimber and hardwood
pulpwood, within a “depletion block,” with each depletion block based upon a
geographic district or subdistrict. Currently, we have 11 depletion blocks.
These same depletion blocks are used for pre-merchantable timber costs. Each
year, we estimate the volume of our merchantable timber for the five product
classes by each depletion block. These estimates are based on the current state
in the growth cycle and not on quantities to be available in future years. Our
estimates do not include costs to be incurred in the future. We then project
these volumes to the end of the year. Upon acquisition of a new timberland
tract, we record separate amounts for land, merchantable timber and
pre-merchantable timber allocated as a percentage of the values being purchased.
These acquisition volumes and costs acquired during the year are added to the
totals for each product class within the appropriate depletion block(s). The
total of the beginning, one-year growth and acquisition volumes are divided by
the total undepleted historical cost to arrive at a depletion rate, which is
then used for the current year. As timber is sold, we multiply the volumes sold
by the depletion rate for the current year to arrive at the depletion cost. Our
Canadian timberland, which consisted of approximately 27,400 acres at April 30,
2009, did not have any depletion expense since it is not actively managed at
this time.
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.
Restructuring
Reserves. Restructuring reserves are determined in accordance with
appropriate accounting guidance, including SFAS No. 146, “Accounting for
Costs Associated with Exit or Disposal Activities,” and Staff Accounting
Bulletin No. 100, “Restructuring and Impairment Charges,” depending upon
the facts and circumstances surrounding the situation. Restructuring reserves
are further discussed in Note 7 to the Notes to Consolidated Financial
Statements included in this Form 10-Q.
Pension and
Postretirement Benefits. Our actuaries using assumptions about the
discount rate, expected return on plan assets, rate of compensation increase and
health care cost trend rates determine pension and postretirement benefit
expenses. Further discussion of our pension and postretirement benefit plans and
related assumptions is contained in Note 17 to the Notes to Consolidated
Financial Statements included in this Form 10-Q. The results would be different
using other assumptions.
Income
Taxes. We record a tax provision for the anticipated tax
consequences of our reported results of operations. In accordance with SFAS
No. 109, “Accounting for
Income Taxes,” the provision for income taxes is computed using the asset
and liability method, under which deferred tax assets and liabilities are
recognized for the expected future tax consequences of temporary differences
between the financial reporting and tax bases of assets and liabilities, and for
operating losses and tax credit carryforwards. Deferred tax assets and
liabilities are measured using the currently enacted tax rates that apply to
taxable income in effect for the years in which those tax assets are expected to
be realized or settled. We record a valuation allowance to reduce deferred tax
assets to the amount that is believed more likely than not to be realized. On
November 1, 2007, we adopted Financial Interpretation No. (“FIN”) 48,
“Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement
No. 109.” Further information may be found in Note 16, to the Notes to
Consolidated Financial Statements included in this Form 10-Q.
We
believe it is more likely than not that forecasted income, including income that
may be generated as a result of certain tax planning strategies, together with
the tax effects of the deferred tax liabilities, will be sufficient to fully
recover the remaining deferred tax assets. In the event that all or part of the
net deferred tax assets are determined not to be realizable in the future, an
adjustment to the valuation allowance would be charged either to earnings or to
goodwill, whichever is appropriate, in the period such determination is made. In
addition, the calculation of tax liabilities involves significant judgment in
estimating the impact of uncertainties in the application of FIN 48 and other
complex tax laws. Resolution of these uncertainties in a manner inconsistent
with our expectations could have a material impact on our financial condition
and operating results.
Environmental
Cleanup Costs. We expense environmental costs related to existing
conditions caused by 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.
Environmental
expenses were insignificant for the six months ended April 30, 2009 and 2008.
Environmental cash expenditures were $0.4 million and $1.1 for the six months
ended April 30, 2009 and 2008, respectively. Our reserves for environmental
liabilities at April 30, 2009 amounted to $32.8 million, which included reserves
of $18.2 million related to our blending facility in Chicago, Illinois (a
reduction of $3.3 million from January 31, 2009 due to expenditures made and a
reduction in cost estimates by a third party for its remediation efforts), and
$9.0 million related to our Blagden facilities. The remaining reserves were for
asserted and unasserted environmental litigation, claims and/or assessments at
manufacturing sites and other locations where we believe it is probable the
outcome of such matters will be unfavorable to us, but the environmental
exposure at any one of those sites was not individually material. Reserves for
large environmental exposures are principally based on environmental studies and
cost estimates provided by third parties, but also take into account management
estimates. Reserves for less significant environmental exposures are principally
based on management estimates.
We
anticipate that expenditures for remediation costs at most of the sites will be
made over an extended period of time. Given the inherent uncertainties in
evaluating environmental exposures, actual costs may vary from those estimated
at April 30, 2009. Our exposure to adverse developments with respect to any
individual site is not expected to be material. Although environmental
remediation could have a material effect on results of operations if a series of
adverse developments occur in a particular quarter or fiscal year, we believe
that the chance of a series of adverse developments occurring in the same
quarter or fiscal year is remote. Future information and developments will
require us to continually reassess the expected impact of these environmental
matters.
Self-Insurance. We
are self-insured for certain of the claims made under our employee medical and
dental insurance programs. We had recorded liabilities totaling $4.2 million and
$4.1 million of estimated costs related to outstanding claims at April 30, 2009
and October 31, 2008, respectively. These costs include an estimate for expected
settlements on pending claims, administrative fees and an estimate for claims
incurred but not reported. These estimates are based on our assessment of
outstanding claims, historical analysis and current payment trends. We record an
estimate for the claims incurred but not reported using an estimated lag period
based upon historical information. This lag period assumption has been
consistently applied for the periods presented. If the lag period were
hypothetically adjusted by a period equal to a half month, the impact on
earnings would be approximately $1.0 million. However, we believe the
liabilities recorded are adequate based upon current facts and
circumstances.
We have
certain deductibles applied to various insurance policies including general
liability, product, auto and workers’ compensation. Deductible liabilities are
insured primarily through our captive insurance subsidiary. We recorded
liabilities totaling $20.1 million and $20.6 million for anticipated costs
related to general liability, product, auto and workers’ compensation at April
30, 2009 and October 31, 2008, respectively. These costs include an estimate for
expected settlements on pending claims, defense costs and an estimate for claims
incurred but not reported. These estimates are based on our assessment of
outstanding claims, historical analysis, actuarial information and current
payment trends.
Contingencies.
Various lawsuits, claims and proceedings have been or may be instituted or
asserted against us, including those pertaining to environmental, product
liability, and safety and health matters. We are continually consulting legal
counsel and evaluating requirements to reserve for contingencies in accordance
with SFAS No. 5, “Accounting for Contingencies.” 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 and
indefinite-lived intangible assets are no longer amortized, but instead are
periodically reviewed for impairment as required by SFAS No. 142, “Goodwill
and Other Intangible Assets.” The costs of acquired intangible assets determined
to have definite lives are amortized on a straight-line basis over their
estimated economic lives of five to 20 years. Our policy is to periodically
review other intangible assets subject to amortization 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.
Other
Items. Other items that could have a significant impact on the
financial statements include the risks and uncertainties listed in Part I,
Item 1A—Risk Factors, of the 2008 Form 10-K, as updated by Part II,
Item 1A of this Form 10-Q. Actual results could differ materially using
different estimates and assumptions, or if conditions are significantly
different in the future.
RESULTS
OF OPERATIONS
The
following comparative information is presented for the three-month and six-month
periods ended April 30, 2009 and 2008. Historically, revenues or earnings may or
may not be representative of future operating results due to various economic
and other factors.
The
non-GAAP financial measure of operating profit, before the impact of
restructuring charges, restructuring-related inventory charges and timberland
disposals, net, is used throughout the following discussion of our results of
operations (although restructuring-related inventory charges are applicable only
to the Industrial Packaging segment and timberland disposals, net, are
applicable only to the Timber segment). Operating profit, before the impact of
restructuring charges, restructuring-related inventory charges and timberland
disposals, net, is equal to operating profit plus restructuring charges, plus
restructuring-related inventory charges less timberland gains plus timberland
losses. We use operating profit, before the impact of restructuring charges,
restructuring-related inventory charges and timberland disposals, net, because
we believe that this measure provides a better indication of our operational
performance because it excludes restructuring charges and restructuring-related
inventory charges, which are not representative of ongoing operations, and
timberland disposals, net, which are volatile from period to period, and it
provides a more stable platform on which to compare our historical
performance.
Second
Quarter Results
Overview
Net sales
decreased 29 percent (20 percent excluding the impact of foreign currency
translation) to $647.9 million in the second quarter of 2009 compared to $918.0
million in the second quarter of 2008. The $270.1 million decline was
due to Industrial Packaging ($220.9 million), Paper Packaging ($45.3 million)
and Timber ($3.9 million). The 20 percent constant-currency decrease was due to
lower sales volumes across all product lines.
Operating
profit was $30.3 million and $81.5 million in the second quarter of 2009 and
2008, respectively. Operating profit before the impact of restructuring charges,
restructuring-related inventory charges and timberland disposals, net, was $58.1
million for the second quarter of 2009 compared to $88.7 million for the second
quarter of 2008. The $30.6 million decrease was due to Industrial
Packaging ($23.5 million) and Timber ($8.0 million), partially offset by an
increase in Paper Packaging ($0.9 million).
The
following table sets forth the net sales and operating profit for each of our
business segments (Dollars in millions):
For
the three months ended April 30,
|
|
2009
|
|
|
2008
|
|
Net
Sales
|
|
|
|
|
|
|
Industrial
Packaging
|
|
$ |
527.1 |
|
|
$ |
748.0 |
|
Paper
Packaging
|
|
|
118.1 |
|
|
|
163.4 |
|
Timber
|
|
|
2.7 |
|
|
|
6.6 |
|
Total
net sales
|
|
$ |
647.9 |
|
|
$ |
918.0 |
|
Operating
Profit:
|
|
|
|
|
|
|
|
|
Operating
profit, before the impact of restructuring charges, restructuring-related
inventory charges and timberland diposals, net:
|
|
|
|
|
|
|
|
|
Industrial
Packaging
|
|
$ |
40.7 |
|
|
$ |
64.2 |
|
Paper
Packaging
|
|
|
15.0 |
|
|
|
14.1 |
|
Timber
|
|
|
2.4 |
|
|
|
10.4 |
|
Total
operating profit before the impact of restructuring charges,
restructuring-related inventory charges and timberland disposals,
net:
|
|
$ |
58.1 |
|
|
$ |
88.7 |
|
Restructuring
charges:
|
|
|
|
|
|
|
|
|
Industrial
Packaging
|
|
$ |
19.6 |
|
|
$ |
6.4 |
|
Paper
Packaging
|
|
|
0.7 |
|
|
|
0.8 |
|
Timber
|
|
|
- |
|
|
|
0.1 |
|
Restructuring
charges
|
|
$ |
20.3 |
|
|
$ |
7.3 |
|
|
|
|
|
|
|
|
|
|
Restructuring-related
inventory charges:
|
|
|
|
|
|
|
|
|
Industrial
Packaging
|
|
$ |
7.5 |
|
|
$ |
- |
|
Timberland
disposals, net:
|
|
|
|
|
|
|
|
|
Timber
|
|
$ |
- |
|
|
$ |
0.1 |
|
|
|
|
|
|
|
|
|
|
Operating
profit (loss):
|
|
|
|
|
|
|
|
|
Industrial
Packaging
|
|
$ |
13.6 |
|
|
$ |
57.8 |
|
Paper
Packaging
|
|
|
14.3 |
|
|
|
13.3 |
|
Timber
|
|
|
2.4 |
|
|
|
10.4 |
|
Total
operating profit
|
|
$ |
30.3 |
|
|
$ |
81.5 |
|
Segment
Review
Industrial
Packaging
Our
Industrial Packaging segment offers a comprehensive line of industrial
packaging products, such as steel, fibre and plastic drums, intermediate bulk
containers, closure systems for industrial packaging products, transit
protection products, polycarbonate water bottles, and services, such as
blending, filling and other packaging services, logistics and warehousing. The
key factors influencing profitability in the Industrial Packaging segment
are:
|
•
|
Selling
prices, customer demand and sales
volumes;
|
|
•
|
Raw
material costs, primarily steel, resin and
containerboard;
|
|
•
|
Energy
and transportation costs;
|
|
•
|
Benefits
from executing the Greif Business
System;
|
|
•
|
Contributions
from recent acquisitions;
|
|
•
|
Divestiture
of business units; and
|
|
•
|
Impact
of foreign currency translation.
|
In this
segment, net sales decreased 30 percent (19 percent excluding the impact of
foreign currency translation) to $527.1 million in the second quarter of 2009
from $748.0 million in the second quarter of 2008. The 19 percent
constant-currency decrease was due to lower sales volumes across all product
lines due to the current economic slowdown, compared to the same period in
2008.
Gross
profit margin for the Industrial Packaging segment was 16.7 percent in the
second quarter of 2009 versus 18.1 percent in the second quarter of 2008 due to
lower net sales, a lower of cost or market adjustments in Asia and
restructing related inventory charge primarily
related to two closed plants in Asia which were partially
offset by related LIFO benefits and contributions from further execution and
acceleration of the Greif Business System
initiatives.
Operating
profit was $13.6 million in the second quarter of 2009 compared to operating
profit of $57.9 million in the second quarter of 2008. Operating profit before
the impact of restructuring charges and restructuring–related inventory
charges decreased to $40.7 million in the second quarter of 2009 from $64.2
million in the second quarter of 2008. The segment is aggressively implementing
plans through the Greif Business System and specific contingency
actions to mitigate the impact of the lower activity
levels.
Paper
Packaging
Our Paper
Packaging segment sells containerboard, corrugated sheets, corrugated
containers and multiwall bags in North America. The key factors influencing
profitability in the Paper Packaging segment are:
|
•
|
Selling
prices, customer demand and sales
volumes;
|
|
•
|
Raw
material costs, primarily old corrugated
containers;
|
|
•
|
Energy
and transportation costs;
|
|
•
|
Benefits
from executing the Greif Business System;
and
|
In this
segment, net sales were $118.1 million in the second quarter of 2009 compared to
$163.4 million in the second quarter of 2008. This decrease was
primarily due to lower activity levels compared to the same quarter of the
previous year, partially offset by higher containerboard selling prices
implemented in the fourth quarter of 2008.
The Paper
Packaging segment’s gross profit margin increased to 21.7 percent in the second
quarter of 2009 compared to 13.2 percent in the second quarter of 2008 due to
higher selling prices and lower input costs.
Operating
profit was $14.3 million and $13.2 million in the second quarter of 2009 and
2008, respectively. Operating profit before the impact of restructuring charges
increased to $15.0 million in the second quarter of 2009 from $14.1 million in
the second quarter of 2008. The increase was primarily due to lower
raw material costs, especially old corrugated containers, labor and
transportation costs, partially offset by lower sales volumes. In
addition, the segment is aggressively implementing plans through the Greif
Business Systems and specific contingency actions to mitigate the impact of the
lower activity levels.
Timber
As of
April 30, 2009, our Timber segment consists of approximately 272,600 acres of
timber properties in the southeastern United States, which are actively
harvested and regenerated, and approximately 27,400 acres in Canada. The key
factors influencing profitability in the Timber segment are:
|
•
|
Planned
level of timber sales;
|
|
•
|
Selling
prices and customer demand
|
|
•
|
Gains
(losses) on sale of timberland; and
|
|
•
|
Sale
of special use properties (surplus, HBU, and development
properties).
|
Net sales
were $2.7 million and $6.6 million in the second quarter of 2009 and 2008,
respectively.
Operating
profit was $2.4 million and $10.4 million in the second quarter of 2009 and
2008, respectively. Operating profit before the impact of
restructuring charges and timberland disposals, net, was $2.4 million in the
second quarter of 2009 compared to $10.4 million in the second quarter of
2008. Included in these amounts were profits from the sale of certain
special use properties of $1.3 million in the second quarter of 2009 and $9.5
million in the second quarter of 2008.
Other
Income Statement Changes
Cost
of Products Sold
The cost
of products sold, as a percentage of net sales, was 82.4 percent for the second
quarter of 2009 versus 82.7 percent for the second quarter of 2008. The slightly
lower cost of products sold was due to lower raw material cost and related
last-in, first-out (LIFO) benefits.
Selling,
General and Administrative (“SG&A”) Expenses
SG&A
expenses were $65.7 million, or 10.1 percent of net sales, in the second quarter
of 2009 compared to $83.4 million, or 9.1 percent of net sales, in the second
quarter of 2008. The decrease in SG&A expenses was primarily due to the
implementation of incremental and accelerated Greif Business
System initiatives and specific contingency actions and the impact of
foreign currency translation.
Restructuring
Charges
The focus
of the 2009 restructuring activities is on business realignment due to the
economic downturn and further implementation of the Greif Business System.
During the second quarter of 2009, we recorded restructuring charges of $20.3
million, consisting of $11.2 million in employee separation costs, $6.7 million
in asset impairments and $2.4 million in other costs.
In 2008,
our restructuring charges were primarily related to integration of acquisitions
in the Industrial Packaging segment and alignment of the market-focused strategy
and implementation of the Greif Business System in the Paper Packaging
segment. During the second quarter of 2008, we recorded
restructuring charges of $7.3 million, consisting of $1.2 million in employee
separation costs, $3.8 million in asset impairments, and $2.3 million in other
costs.
In
addition, during the second quarter of 2009, we recorded $7.5 million of
restructuring-related inventory charges as a cost of products sold in our
Industrial Packaging segment related to excess inventory adjustment primarily at
two closed facilities in Asia.
Timberland
Disposals, Net
During
the second quarter of 2009 and 2008, we recorded no net gain on sale of timber
property.
Gain
on Disposal of Properties, Plants and Equipment, Net
During
the second quarter of 2009, we recorded a gain on disposal of properties, plants
and equipment, net of $2.2 million, primarily consisting of a $0.5 million gain
on the sale of a business in Europe and a $1.3 million gain on the sale of
special use properties. During
the second quarter of 2008, we recorded a gain on disposal of properties, plants
and equipment, net of $13.0 million, primarily from the sale of surplus and HBU
timber properties of $8.3 million.
Interest
Expense, Net
Interest
expense, net was $13.4 million and $13.3 million for the second quarter of 2009
and 2008, respectively. The slight increase in interest expense, net was
primarily attributable to higher average debt outstanding partially offset by
lower interest rates.
Debt
Extinguishment Charge
In the
second quarter of 2009, we completed its new $700 million senior secured credit
facilities. The new facilities replaced an existing $450 million revolving
credit facility that was scheduled to mature in March 2010. As a result of this
transaction, a debt extinguishment charge of $0.8 million in non-cash items,
such as write-off of unamortized capitalized debt issuance costs was
recorded.
Other
Income (Expense), Net
Other
income, net during second quarter of 2009 was $2.0 million compared to other
expense, net of $3.8 million during the second quarter of 2008. The decrease in other expense, net was
primarily due to foreign exchange gains and lower fees related to trade
receivables financing facilities.
Income
Tax Expense
The
effective tax rate was 32.9 percent and 22.9 percent in the second quarter of
2009 and 2008, respectively. The higher effective tax rate resulted from an
increase in the proportion of taxable income in the United States
relative to outside the United States in the 2009 compared to the same period
last year.
Equity
in Earnings (Losses) of Affiliates and Minority Interests
During
the second quarter of 2009, we had no significant loss or gain on equity in
earnings (losses) of affiliates and minority interests. During the second
quarter of 2008, we recorded a loss of $1.0 million on equity in earnings
(losses) of affiliates and minority interests. We have minority holdings in
various companies, and the minority interests of other persons in the respective
net income of these companies have been recorded as an expense.
Net
Income
Based on
the foregoing, we recorded net income of $12.1 million for the second quarter of
2009 compared to $48.7 million in the second quarter of 2008.
Year-to-Date
Results
Overview
Net sales
decreased 26 percent (21 percent excluding the impact of foreign currency
translation) to $1,314.1 million in the first half of 2009 compared to $1,764.3
million in the first half of 2008. The $450.2 million decrease is due
to Industrial Packaging ($362.7 million), Paper Packaging ($83.8 million) and
Timber ($3.7 million). The 21 percent constant-currency decrease was due to
lower sales volumes across all product lines.
Operating profit was $47.6 million and
$175.7 million in the first half of 2009 and 2008, respectively. Operating profit before the impact of
restructuring charges, restructuring-related inventory charges, and timberland
disposals, net was $104.4 million for the first half of 2009 compared to $193.3
million for the first half of 2008. The $88.9 million decrease was
principally due to lower operating profit in Industrial Packaging ($79.1
million) and Timber ($11.0 million) and a slight increase in Paper Packaging
($1.2 million). This decrease was attributable to slower sales across all
segments compared to the same period last year and a $29.9 million pretax net
gain on the divestiture of business units in Australia and Zimbabwe, which we
recognized in the 2008 in Industrial Packaging.
The
following table sets forth the net sales and operating profit for each of our
business segments (Dollars in millions):
For
the six months ended April 30,
|
|
2009
|
|
|
2008
|
|
Net
Sales
|
|
|
|
|
|
|
Industrial
Packaging
|
|
$ |
1,056.6 |
|
|
$ |
1,419.3 |
|
Paper
Packaging
|
|
|
248.4 |
|
|
|
332.2 |
|
Timber
|
|
|
9.1 |
|
|
|
12.8 |
|
Total
net sales
|
|
$ |
1,314.1 |
|
|
$ |
1,764.3 |
|
Operating
Profit:
|
|
|
|
|
|
|
|
|
Operating
profit, before the impact of restructuring charges, restructuring-related
inventory charges and timberland diposals, net:
|
|
|
|
|
|
|
|
|
Industrial
Packaging
|
|
$ |
63.1 |
|
|
$ |
142.2 |
|
Paper
Packaging
|
|
|
35.7 |
|
|
|
34.5 |
|
Timber
|
|
|
5.6 |
|
|
|
16.6 |
|
Total
operating profit before the impact of restructuring charges,
restructuring-related inventory charges and timberland disposals,
net:
|
|
$ |
104.4 |
|
|
$ |
193.3 |
|
Restructuring
charges:
|
|
|
|
|
|
|
|
|
Industrial
Packaging
|
|
$ |
44.7 |
|
|
$ |
15.8 |
|
Paper
Packaging
|
|
|
2.6 |
|
|
|
1.9 |
|
Timber
|
|
|
0.2 |
|
|
|
0.1 |
|
Restructuring
charges
|
|
$ |
47.5 |
|
|
$ |
17.8 |
|
Restructuring-related
inventory charges:
|
|
|
|
|
|
|
|
|
Industrial
Packaging
|
|
$ |
9.3 |
|
|
$ |
- |
|
Timberland
disposals, net:
|
|
|
|
|
|
|
|
|
Timber
|
|
$ |
- |
|
|
$ |
0.2 |
|
|
|
|
|
|
|
|
|
|
Operating
profit (loss):
|
|
|
|
|
|
|
|
|
Industrial
Packaging
|
|
$ |
9.1 |
|
|
$ |
126.4 |
|
Paper
Packaging
|
|
|
33.1 |
|
|
|
32.6 |
|
Timber
|
|
|
5.4 |
|
|
|
16.7 |
|
Total
operating profit
|
|
$ |
47.6 |
|
|
$ |
175.7 |
|
Segment
Review
Industrial
Packaging
Our
Industrial Packaging segment offers a comprehensive line of industrial
packaging products, such as steel, fibre and plastic drums, intermediate
bulk containers, closure systems for industrial packaging products, transit
protection products, polycarbonate water bottles, blending, filling and other
packaging services, logistics and warehousing. The key factors influencing
profitability in the Industrial Packaging segment are:
|
•
|
Selling
prices, customer demand and sales
volumes;
|
|
•
|
Raw
material costs, primarily steel, resin and
containerboard;
|
|
•
|
Energy
and transportation costs;
|
|
•
|
Benefits
from executing the Greif Business
System;
|
|
•
|
Contributions
from recent acquisitions;
|
|
•
|
Divestiture
of business units; and
|
|
•
|
Impact
of foreign currency
translation.
|
In this
segment, net sales decreased to $1,056.6 million in the first half of 2009
compared to $1,419.3 million in the first half of 2008 — an decrease of 19
percent excluding the impact of foreign currency translation. The decrease in
net sales was primarily attributable to the lower sales volumes in most of the
industrial packaging businesses.
Industrial
Packaging segment’s gross profit margin was 14.6 percent in the first half
of 2009 compared to 17.5 percent for the first half of 2008. The decrease is
primarily due to lower net sales, lower of cost or market adjustments in Asia
and restructuring related inventory charge primarily related to two closed
plants in Asia which were offset by related LIFO benefits and contributions from
further execution and acceleration of the Greif Business System
initiatives.
Operating
profit was $9.1 million in the first half of 2009 compared to $126.4 million in
the first half of 2008. Operating profit before the impact of
restructuring charges and restructuring-related inventory charges decreased to
$63.1 million in the first half of 2009 compared to $142.2 million in the first
half of 2008. The decrease in operating profit included $44.7 million of
restructuring charges and $9.3 million of restructuring-related to inventory
charges. In addition in 2008, there was a $29.9
million pre tax net gain on the divestiture of business units, in
Australia and Zimbabwe.
Paper
Packaging
Our Paper
Packaging segment sells containerboard, corrugated sheets, corrugated
containers and multiwall bags in North America. The key factors influencing
profitability in the Paper Packaging segment are:
|
•
|
Selling
prices, customer demand and sales
volumes;
|
|
•
|
Raw
material costs, primarily old corrugated
containers;
|
|
•
|
Energy
and transportation costs;
|
|
•
|
Benefits
from executing the Greif Business System;
and
|
In this
segment, net sales were $248.4 million in the first half of 2009 compared to
$332.2 million in the first half of 2008. The decrease in net sales was
principally due to downward pressure on prices across all products and lower
sales volumes.
The Paper
Packaging segment’s gross profit margin was 22.5 percent in the first half
of 2009 compared to 16.5 percent for the first half of 2008.
Operating
Profit was $33.1 million and $32.6 million in the first half of 2009 and 2008,
respectively. Operating profit before the impact of restructuring
charges increased to $35.7 million in the first half of 2009 compared to $34.5
million in the first half of 2008. The increase in operating profit was
primarily due to lower raw material costs, especially old corrugated containers,
and related LIFO benefits. Also, labor, transportation and energy
costs were lower as compared to the same period of the previous
year. In addition, this segment continued to benefit from Grief
Business System and specific contingency initiatives.
Timber
Our
Timber segment consists of approximately 272,600 acres of timber properties in
the southeastern United States, which are actively harvested and regenerated,
and approximately 27,400 acres in Canada. The key factors influencing
profitability in the Timber segment are:
|
•
|
Planned
level of timber sales;
|
|
•
|
Selling
prices and customer demand
|
|
•
|
Gains
(losses) on sale of timberland; and
|
|
•
|
Sale
of special use properties (surplus, HBU, and development
properties).
|
Net sales
were $9.1 million in the first half of 2009 and $12.8 million in the first half
of 2008.
Operating
profit was $5.4 million and $16.7 million in the first half of 2009 and 2008,
respectively. Operating profit before the impact of restructuring
charges and timberland disposals, net was $5.6 million in the first half of 2009
compared to $16.6 million in the first half of 2008. Included in these amounts
were profits from the sale of special use properties of $1.3 million in the
first half of 2009 and $13.3 million in the first half of 2008.
Other
Income Statement Changes
Cost
of Products Sold
The cost
of products sold, as a percentage of net sales, was 83.7 percent for the first
half of 2009 versus 82.6 percent for the first half of 2008. Higher
raw material costs, a $6.1 million lower-of-cost or market inventory adjustments
in Asia and $9.3 million restructuring-related inventory charge primarily
related to two closed plants in Asia were the primary reasons for the increase
in cost of products sold, which were partially offset by contributions from
further execution of incremental and accelerated Greif Business System
initiatives.
SG&A
Expenses
SG&A
expenses were $124.1 million, or 9.4 percent of net sales, in the first half of
2009 compared to $163.9 million, or 9.3 percent of net sales, in the first half
of 2008. The dollar decrease in SG&A expense was primarily due to tighter
controls over SG&A expenses, reduction in administrative personnel as a
result of incremental and accelerated Greif Business System initiatives,
specific contingency
actions, lower reserves for incentive compensation and the impact of
foreign currency translation.
Restructuring
Charges
During
the first half of 2009, we recorded restructuring charges of $47.5 million,
consisting of $25.1 million in employee separation costs, $11.6 million in asset
impairments and $10.8 million in other costs. The focus of the 2009 restructuring
activities is on business realignment due to the economic downturn and further
implementation of the Greif Business System.
During
the first half of 2008, we recorded restructuring charges of $17.8 million,
consisting of $5.0 million in employee separation costs, $10.2 million in asset
impairments and $2.6 million in other costs. The focus of the 2008 restructuring
activities was on integration of acquisitions in the Industrial
Packaging segment and alignment of the market-focused strategy and
implementation of the Greif Business System in the Paper
Packaging segment.
In
addition, during the first six months of 2009, we recorded $9.3 million of
restructuring-related inventory charges as a cost of products sold in our
Industrial Packaging segment related to excess inventory adjustments at two
closed facilities in Asia.
Timberland
Disposals, Net
During
the first half of 2009, we recorded no net gain on sale of timber property
compared to a net gain of $0.2 million in the first half of 2008.
Gain
on Disposal of Properties, Plants, and Equipment, Net
During
the first half of 2009, we recorded a gain on disposal of properties, plants and
equipment, net of $4.6 million, primarily consisting of a $2.8 million gain on
the sale of properties in North America and a business in Europe as well as $1.6
million gain from the sale of
special use properties. During the first half of 2008, gain on disposals
of properties, plants and equipment, net was $49.7 million, primarily consisting
of a $29.9 million pre-tax net gain on divestiture of business units in
Australia and the controlling
interest in Zimbabwe, and $11.8 million in net gains from the sale of
surplus and HBU timber properties.
Interest
Expense, Net
Interest expense, net was $25.6 million
and $25.1 million for the first half of 2009 and 2008, respectively. The
increase in interest expense, net was primarily attributable to higher average
debt outstanding partially offset by lower interest rates.
Debt
Extinguishment Charge
In the
first half of 2009, we completed its new $700 million senior secured credit
facilities. The new facilities replaced an existing $450 million revolving
credit facility that was scheduled to mature in March 2010. As a result of this
transaction, a debt extinguishment charge of $0.8 million in non-cash items,
such as write-off of unamortized capitalized debt issuance costs, was
recorded.
Other
Expense, Net
Other
income, net during first half of 2009 was $0.2 million compared to other
expense, net of $7.1 million during the first half of 2008. The
decrease in other expense, net was primarily due to foreign exchange gains and
lower fees related to trade receivables financing facilities.
Income
Tax Expense
The
effective tax rate was 32.4 percent and 23.3 percent in the first half of 2009
and 2008, respectively. The higher effective tax rate resulted from an increase
in the proportion of taxable income in the United States relative
to outside the United States in the first half 2009 compared to the same
period last year.
Equity
Earnings and Minority Interests
Equity
earnings of affiliates and minority interests were a loss of $1.1 million and
$0.7 million for the first half of 2009 and 2008, respectively. We
have minority holdings in various companies, and the minority interests of other
persons in the respective net income of these companies have been recorded as an
expense. These expenses were partially offset by equity in the
earnings of our unconsolidated affiliates.
Net
Income
Based on
the foregoing, we recorded net income of $13.4 million for the first half of
2009 compared to $109.3 million in the first half of 2008.
LIQUIDITY
AND CAPITAL RESOURCES
Our primary sources of liquidity are
operating cash flows, the proceeds from our trade accounts receivable credit
facility, proceeds from the sale of our non-United States accounts receivable
and borrowings under our Credit Agreement and Senior Notes, further 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 our trade accounts receivable
credit facility, proceeds from the sale of our non-United States accounts
receivable and borrowings under our Credit Agreement and Senior Notes will be
sufficient to fund our currently anticipated working capital, capital
expenditures, debt repayment, potential acquisitions of businesses and other
liquidity needs for the foreseeable future.
Capital
Expenditures, Business Acquisitions and Divestitures
During
the first half of 2009, we invested $53.5 million in capital expenditures,
excluding timberland purchases of $0.6 million, compared with capital
expenditures of $69.5 million, excluding timberland purchases of $1.3 million,
during the same period last year.
We expect
capital expenditures, excluding timberland purchases, to be approximately $85
million in 2009. The expenditures will primarily be to replace and
improve equipment.
During
the second quarter of 2009, we acquired two small industrial packaging companies
for an aggregate purchase price of $16.4 million. These two
acquisitions, both located in North America, complimented our current
businesses.
Balance
Sheet Changes
Our trade
accounts receivable decreased $83.2 million, primarily due to lower sales and
foreign currency translation.
Inventories
decreased $59.9 million due to lower raw material cost, lower inventory
requirements and foreign currency translation.
Accounts
payable decreased $189.5 million due to lower purchase requirements, seasonality
factors, timing of payments and foreign currency translation.
Accrued
payroll and employee benefits decreased $40.9 million primarily due to workforce
reductions and reduced 2009 incentive accruals.
Other
current liabilities decreased $59.9 million due to lower income tax liabilities
and foreign currency translation.
Long-term
debt increased $155.0 million due to increased cash requirements related to
working capital, capital expenditures and acquisitions.
Other
long-term liabilities increased $23.3 million primarily due to the revaluation
of a cross-currency interest rate swap.
Accumulated
other comprehensive income (loss)—foreign currency translation increased $38.3
million, primarily due to the appreciation of the United State Dollar against
the European, Asian and Latin American currencies in 2009.
Borrowing
Arrangements
Credit
Agreements
On
February 19, 2009, we and one of our international subsidiaries, as borrowers,
and a syndicate of financial institutions, as lenders, entered into a $700
million Senior Secured Credit Agreement (the “Credit Agreement”). The
Credit Agreement replaced our then existing Credit Agreement (the “Prior Credit
Agreement”) that provided us with a $450.0 million revolving multicurrency
credit facility due 2010. The revolving multicurrency credit facility under the
Prior Credit Agreement was available to us for ongoing working capital and
general corporate purposes and provided for interest based on a euro currency
rate or an alternative base rate that reset periodically plus a calculated
margin amount.
The
Credit Agreement provides us with a $500.0 million revolving multicurrency
credit facility and a $200.0 million term loan, both maturing in February 2012,
with an option to add $200.0 million to the facilities with the agreement of the
lenders. There was $439.5 million outstanding under the Credit Agreement at
April 30, 2009. The Credit Agreement is available to fund ongoing
working capital and capital expenditure needs, for general corporate purposes,
to finance acquisitions, and to repay amounts outstanding under the Prior Credit
Agreement. Interest is based on either a Eurodollar rate or a base
rate that resets periodically plus a calculated margin amount. On
February 19, 2009, $325.3 million was borrowed under the Credit Agreement and
used to pay the outstanding obligations under the Prior Credit Agreement and
certain costs and expenses incurred in connection with the Credit Agreement. The
Prior Credit Agreement was terminated on February 19, 2009.
The
Credit Agreement contains certain covenants, which include financial covenants
that require us to maintain a certain leverage ratio and a fixed charge coverage
ratio. The leverage ratio generally requires that at the end of any fiscal
quarter we will not permit the ratio of (a) its total consolidated indebtedness,
to (b) its consolidated net income plus depreciation, depletion and
amortization, interest expense (including capitalized interest), income taxes,
and minus certain extraordinary gains and non-recurring gains (or plus certain
extraordinary losses and non-recurring losses) and plus or minus certain other
items for the preceding twelve months (“EBITDA”) to be greater than 3.5 to 1.
The fixed charge coverage ratio generally requires that at the end of any fiscal
quarter we will not permit the ratio of (a) (i) consolidated EBITDA, less (ii)
the aggregate amount of certain cash capital expenditures, and less (iii) the
aggregate amount of Federal, state, local and foreign income taxes actually paid
in cash (other than taxes related to Asset Sales not in the ordinary course of
business), to (b) the sum of (i) consolidated interest expense to the extent
paid or payable in cash during such period and (ii) the aggregate principal
amount of all regularly scheduled principal payments or redemptions or similar
acquisitions for value of outstanding debt for borrowed money, but excluding any
such payments to the extent refinanced through the incurrence of additional
indebtedness, to be less than 1.5 to 1. At April
30,2009, we were in compliance with the covenants under the Credit
Agreement.
The terms
of the Credit Agreement limit our ability to make “restricted payments,” which
includes dividends and purchases, redemptions and acquisitions of our equity
interests. The repayment of this facility is secured by a security interest in
our personal property and the personal property of our United States
subsidiaries, including equipment and inventory and certain intangible assets,
as well as a pledge of the capital stock of substantially all of our United
States subsidiaries and, in part, by the capital stock of all international
borrowers. The payment of outstanding principal under the Credit Agreement and
accrued interest thereon may be accelerated and become immediately due and
payable upon the default in our payment or other performance obligations or our
failure to comply with the financial and other covenants in the Credit
Agreement, subject to applicable notice requirements and cure periods as
provided in the Credit Agreement
Senior
Notes
We have
issued $300.0 million of our 6 3/4 percent Senior Notes due
February 1, 2017. Proceeds from the issuance of the Senior Notes were
principally used to fund the purchase of our previously outstanding senior
subordinated notes and for general corporate purposes. The Senior Notes are
general unsecured obligations of Greif, provide for semi-annual payments of
interest at a fixed rate of 6.75 percent, and do not require any principal
payments prior to maturity on February 1, 2017. The Senior Notes are not
guaranteed by any of our subsidiaries and thereby are effectively subordinated
to all of our subsidiaries’ existing and future indebtedness. The Indenture
pursuant to which the Senior Notes were issued contains covenants, which, among
other things, limit our ability to create liens on our assets to secure debt and
to enter into sale and leaseback transactions. These covenants are subject to a
number of limitations and exceptions as set forth in the Indenture. At April 30,
2009, we were in compliance with these covenants.
United
States Trade Accounts Receivable Credit Facility
We have a
$135.0 million trade accounts receivable facility (the "Receivables Facility")
with a financial institution and its affiliate (the
"Purchasers"). The Receivables Facility matures in December 2013,
subject to earlier termination by the Purchasers of their purchase commitment in
December 2009. In addition, we can terminate the Receivables Facility
at any time upon five days prior written notice. The Receivables
Facility is secured by certain of our United States trade receivables and bears
interest at a variable rate based on the commercial paper rate, or
alternatively, the London InterBank Offered Rate, plus a
margin. Interest is payable on a monthly basis and the principal
balance is payable upon termination of the Receivables Facility. The
Receivables Facility contains certain covenants, including financial covenants
for a
leverage ratio identical to the Credit Agreement, and an interest coverage
ratio. The interest coverage ratio generally requires that at the end of any
quarter we will not permit the ration of (a) our EBITDA to (b_ our interest
expense (including capitalized interest) for the preceding twelve months to be
less than 3 to 1. Proceeds of the Receivables Facility are available
for working capital and general corporate purposes. At April 30,
2009, $84.0 million was outstanding under the Receivables
Facility. See Note 9 to the Consolidated Financial Statements
included in Item 1 of this Form 10-Q for additional disclosures regarding this
credit facility.
Sale
of Non-United States Accounts Receivable
Certain
of our international subsidiaries have entered into discounted receivables
purchase agreements and factoring agreements (the “RPAs”) pursuant to which
trade receivables generated from certain countries other than the United States
and which meet certain eligibility requirements are sold to certain
international banks or their affiliates. The structure of these
transactions provide for a legal true sale, on a revolving basis, of the
receivables transferred from our various subsidiaries to the respective
banks. The banks fund an initial purchase price of a certain
percentage of eligible receivables based on a formula with the initial purchase
price approximating 75 percent to 90 percent of eligible receivables. The
remaining deferred purchase price is settled upon collection of the receivables.
At the balance sheet reporting dates, we remove from accounts receivable the
amount of proceeds received from the initial purchase price since they meet the
applicable criteria of SFAS No. 140, “Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities,” and continue to recognize
the deferred purchase price in our accounts receivable. The receivables are sold
on a non-recourse basis with the total funds in the servicing collection
accounts pledged to the respective banks between the settlement
dates. The maximum amount of aggregate receivables that may be sold
under our various RPAs was $156.6 million at April 30, 2009. At April
30, 2009, total accounts receivable of $85.8 were sold under the various
RPAs.
At the
time the receivables are initially sold, the difference between the carrying
amount and the fair value of the assets sold are included as a loss on sale and
classified as “other expense” in the consolidated statements of income. Expenses
associated with the various RPAs totaled $0.9 million for the three months ended
April 30, 2009. Additionally, we perform collections and
administrative functions on the receivables sold similar to the procedures we
use for collecting all of our receivables. The servicing liability
for these receivables is not material to the consolidated financial
statements. See Note 3 to the Consolidated Financial Statements
included in Item 1 of this Form 10-Q for additional information regarding these
various RPAs.
Other
In
addition to the amounts borrowed against the Credit Agreement and proceeds from
the Senior Notes and the United States trade accounts receivable credit
facility, at April 30, 2009, we had outstanding other debt of $62.6 million,
comprised of $4.7 million in long-term debt and $57.9 million in short-term
borrowings.
At April
30, 2009, annual maturities of our long-term debt under our various financing
arrangements were $4.7 million in 2010, $439.5 million in 2012, $84.0 million in
2014 and $300.0 million thereafter.
At April
30, 2009 and October 31, 2008, we had deferred financing fees and debt issuance
costs of $11.6 million and $4.6 million, respectively, which are included in
other long-term assets.
Significant
Nonstrategic Timberland Transactions
In
connection with a 2005 timberland transaction with Plum Creek Timberlands, L.P.
(“Plum Creek”), Soterra LLC (one of our wholly-owned subsidiaries) received cash
and a $50.9 million purchase note payable by an indirect subsidiary of Plum
Creek (the “Purchase Note”). Soterra LLC contributed the Purchase Note to STA
Timber LLC (“STA Timber”), one of our indirect wholly-owned subsidiaries. The
Purchase Note is secured by a Deed of Guarantee issued by Bank of America, N.A.,
London Branch, in an amount not to exceed $52.3 million (the “Deed of
Guarantee”). STA Timber has issued in a private placement 5.20 percent Senior
Secured Notes due August 5, 2020 (the “Monetization Notes”) in the
principal amount of $43.3 million. The Monetization Notes are secured by a
pledge of the Purchase Note and the Deed of Guarantee. Greif, Inc. and its other
subsidiaries have not extended any form of guaranty of the principal or interest
on the Monetization Notes. Accordingly, Greif, Inc. and its other subsidiaries
will not become directly or contingently liable for the payment of the
Monetization Notes at any time. See Note 8 to the Consolidated
Financial Statements included in Item 1 of this Form 10-Q for additional
information regarding these transactions.
Contractual
Obligations
As of
April 30, 2009, we had the following contractual obligations (Dollars in
millions):
|
|
Payments
Due By Period
|
|
|
|
Total
|
|
|
Less
than 1 year
|
|
|
1-3
years
|
|
|
3-5
years
|
|
|
After
5 years
|
|
Long-term
debt
|
|
$ |
1,054.1 |
|
|
$ |
18.4 |
|
|
$ |
541.8 |
|
|
$ |
126.4 |
|
|
$ |
367.5 |
|
Short-term
borrowings
|
|
|
59.3 |
|
|
|
59.3 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Capital
lease obligations
|
|
|
0.5 |
|
|
|
0.2 |
|
|
|
0.3 |
|
|
|
- |
|
|
|
- |
|
Operating
leases
|
|
|
122.8 |
|
|
|
11.2 |
|
|
|
33.1 |
|
|
|
22.8 |
|
|
|
55.7 |
|
Liabilities
held by special purpose entities
|
|
|
68.4 |
|
|
|
1.1 |
|
|
|
4.5 |
|
|
|
4.5 |
|
|
|
58.3 |
|
Total
|
|
$ |
1,305.1 |
|
|
$ |
90.2 |
|
|
$ |
579.7 |
|
|
$ |
153.7 |
|
|
$ |
481.5 |
|
Our
unrecognized tax benefits under FIN 48 have been excluded from the contractual
obligations table because of the inherent uncertainty and the inability to
reasonably estimate the timing of cash outflows.
Stock
Repurchase Program
Our Board
of Directors has authorized us to purchase up to four million shares of
Class A Common Stock or Class B Common Stock or any combination of the
foregoing. During the second three months of 2009, we did not repurchase any
shares of Class A Common Stock or Class B Common Stock. As of April 30,
2009, we had repurchased 2,833,272 shares, including 1,416,752 shares of
Class A Common Stock and 1,416,520 shares of Class B Common Stock, under
this program. The total cost of the shares repurchased from November 1,
2006 through April 30, 2009 was approximately $36.0 million.
Recent
Accounting Standards
In
December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 141(R), “Business Combinations,” which replaces SFAS No. 141. The
objective of SFAS No. 141(R) is to improve the relevance, representational
faithfulness and comparability of the information that a reporting entity
provides in its financial reports about a business combination and its effects.
SFAS No. 141(R) establishes principles and requirements for how the
acquirer recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed and any noncontrolling interest in the
acquiree; recognizes and measures the goodwill acquired in the business
combination or a gain from a bargain purchase; and determines what information
to disclose to enable users of the financial statements to evaluate the nature
and financial effects of the business combination. SFAS No.141(R) applies
to all transactions or other events in which an entity (the acquirer) obtains
control of one or more businesses (the acquiree), including those sometimes
referred to as “true mergers” or “mergers of equals” and combinations achieved
without the transfer of consideration. SFAS No. 141(R) will apply to any
acquisition entered into on or after November 1, 2009, but will have no effect
on our consolidated financial statements for the fiscal year ending October 31,
2009 or any prior fiscal years upon adoption.
In
December 2007, the FASB issued SFAS No. 160, “Accounting and Reporting of
Noncontrolling Interests in Consolidated Financial Statements, an amendment of
ARB No. 51.” The objective of SFAS No.160 is to improve the
relevance, comparability and transparency of the financial information that a
reporting entity provides in its consolidated financial statements.
SFAS No. 160 amends Accounting Research Bulletin No. 51 to establish
accounting and reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 also
changes the way the consolidated financial statements are presented, establishes
a single method of accounting for changes in a parent’s ownership interest in a
subsidiary that do not result in deconsolidation, requires that a parent
recognize a gain or loss in net income when a subsidiary is deconsolidated and
expands disclosures in the consolidated financial statements that clearly
identify and distinguish between the parent’s ownership interest and the
interest of the noncontrolling owners of a subsidiary. The provisions of
SFAS No. 160 are to be applied prospectively as of the beginning of the
fiscal year in which SFAS No. 160 is adopted, except for the presentation
and disclosure requirements, which are to be applied retrospectively for all
periods presented. SFAS No. 160 will be effective for our financial
statements for the fiscal year beginning November 1, 2009 (2010 for us). We
are currently evaluating the impact that the adoption of SFAS No. 160 will have
on our consolidated financial statements.
In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.” This standard identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements that are presented in conformity with
generally accepted accounting principles in the United States. FASB
believes that the accounting principles generally accepted in the United States
hierarchy should be directed to entities because it is the entity, not its
auditor that is responsible for selecting accounting principles for financial
statements that are presented in conformity with GAAP. Accordingly, FASB
concluded that the GAAP hierarchy should reside in the accounting literature
established by the FASB and issued this Statement to achieve that
result. The standard will be effective 60 days following the
Securities Exchange Commission’s approval of the Public Company Accounting
Oversight Board amendment to AU Section 411. We are currently
evaluating the impact, if any, that the adoption of SFAS No. 162 will have on
its consolidated financial statements.
ITEM 3.
QUANTITATIVE AND QUALITATIVE
DISCLOSURE ABOUT MARKET RISK
There has
not been a significant change in the quantitative and qualitative disclosures
about our market risk from the disclosures contained in the 2008 Form
10-K.
ITEM 4.
CONTROLS AND
PROCEDURES
With the
participation of our principal executive officer and principal financial
officer, Greif’s management has evaluated the effectiveness of our disclosure
controls and procedures (as defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the
period covered by this report. Based upon that evaluation, our principal
executive officer and principal financial officer have concluded that, as of the
end of the period covered by this report:
|
•
|
Information
required to be disclosed by us in the reports that we file or submit under
the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the rules and forms of the Securities and
Exchange Commission;
|
|
•
|
Information
required to be disclosed by us in the reports that we file or submit under
the Exchange Act is accumulated and communicated to our management,
including our principal executive officer and principal financial officer,
as appropriate to allow timely decisions regarding required disclosure;
and
|
|
•
|
Our
disclosure controls and procedures are
effective.
|
There has
been no change in our internal controls over financial reporting that occurred
during the most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal controls over financial
reporting.
PART II. OTHER
INFORMATION
There
have been no material changes in our risk factors from those disclosed in the
2008 Form 10-K under Part I, Item 1A – Risk Factors.
ITEM 2.
UNREGISTERED SALES OF EQUITY
SECURITIES AND USE OF PROCEEDS
Issuer
Purchases of Class A Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
Total
Number of Shares Purchased
|
|
|
Average
Price Paid Per Share
|
|
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans or Programs
(1)
|
|
|
Maximum
Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased
under the Plans or Programs (1)
|
|
November
2008
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
1,266,728 |
|
December
2008
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
1,166,728 |
|
January
2009
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
1,166,728 |
|
February
2009
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
1,166,728 |
|
March
2009
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
1,166,728 |
|
April
2009
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
1,166,728 |
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
Purchases of Class B Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
Total
Number of Shares Purchased
|
|
|
Average
Price Paid Per Share
|
|
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans or Programs
(1)
|
|
|
Maximum
Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased
under the Plans or Programs (1)
|
|
November
2008
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
1,266,728 |
|
December
2008
|
|
|
100,000 |
|
|
$ |
31.45 |
|
|
|
100,000 |
|
|
|
1,166,728 |
|
January
2009
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
1,166,728 |
|
February
2009
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
1,166,728 |
|
March
2009
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
1,166,728 |
|
April
2009
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
1,166,728 |
|
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
(1)
|
Our
Board of Directors has authorized a stock repurchase program which permits
us to purchase up to 4.0 million shares of our Class A Common
Stock or Class B Common Stock, or any combination thereof. As of April 30,
2009, the maximum number of shares that may yet be purchased is 1,166,728,
which may be any combination of Class A Common Stock or Class B
Common Stock.
|
(a.)
Exhibits
|
|
|
Exhibit No.
|
|
Description
of Exhibit
|
|
|
|
31.1
|
|
Certification
of Chief Executive Officer Pursuant to Rule 13a - 14(a) of the Securities
Exchange Act of 1934.
|
|
|
|
31.2
|
|
Certification
of Chief Financial Officer Pursuant to Rule 13a - 14(a) of the Securities
Exchange Act of 1934.
|
|
|
|
32.1
|
|
Certification
of Chief Executive Officer required by Rule 13a - 14(b) of the Securities
Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the
United States Code.
|
|
|
|
32.2
|
|
Certification
of Chief Financial Officer required by Rule 13a - 14(b) of the Securities
Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of
the United States Code.
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Company has duly
caused this report to be signed on its behalf by the undersigned thereto duly
authorized.
|
|
|
Greif,
Inc.
|
|
(Registrant)
|
|
|
Date:
June 8, 2009
|
|
|
Donald S. Huml, Executive Vice President and Chief Financial Officer
|
|
(Duly
Authorized Signatory)
|
GREIF,
INC.
Form
10-Q
For
Quarterly Period Ended April 30, 2009
EXHIBIT
INDEX
|
|
|
Exhibit No.
|
|
Description
of Exhibit
|
|
|
|
31.1
|
|
Certification
of Chief Executive Officer Pursuant to Rule 13a - 14(a) of the Securities
Exchange Act of 1934.
|
|
|
|
31.2
|
|
Certification
of Chief Financial Officer Pursuant to Rule 13a - 14(a) of the Securities
Exchange Act of 1934.
|
|
|
|
32.1
|
|
Certification
of Chief Executive Officer required by Rule 13a - 14(b) of the Securities
Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the
United States Code.
|
|
|
|
32.2
|
|
Certification
of Chief Financial Officer required by Rule 13a - 14(b) of the Securities
Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the
United States Code.
|