e10vk
UNITED
STATES
SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON, D.C.
20549
FORM 10-K
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For
the fiscal year ended October 31, 2009
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or
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For
the transition period from
to
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Commission file number:
001-00566
Greif,
Inc.
(Exact name of Registrant as
specified in its charter)
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State
of Delaware
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31-4388903
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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425
Winter Road, Delaware, Ohio
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43015
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(Address of principal executive offices)
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(Zip Code)
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Registrants telephone number,
including area code
740-549-6000
Securities registered pursuant to
Section 12(b) of the Act:
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Title of Each
Class
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Name of Each
Exchange on Which Registered
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Class A Common Stock
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New York Stock Exchange
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Class B Common Stock
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New York Stock Exchange
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Securities registered pursuant to
Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Exchange Act of
1934. Yes þ No o
Indicate by check mark if the Registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of
1934. Yes o No þ
Indicate by check mark whether the Registrant (1) has filed
all reports 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 þ No o
Indicate by check mark whether the Registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the Registrant was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of the Registrants knowledge, in the definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the Registrant is a shell company
(as defined in
Rule 12b-2
of the Securities Exchange Act of
1934). Yes o No þ
The aggregate market value of voting and non-voting common
equity held by non-affiliates computed by reference to the price
at which the common equity was last sold as of the last business
day of the Registrants most recently completed second
fiscal quarter was as follows:
Non-voting common equity (Class A Common Stock) -
$1,088,310,674
Voting common equity (Class B Common Stock) -
$398,107,596
The number of shares outstanding of each of the
Registrants classes of common stock, as of
December 18, 2009, was as follows:
Class A Common Stock - 24,610,594
Class B Common Stock - 22,462,266
Listed hereunder are the documents, portions of which are
incorporated by reference, and the parts of this
Form 10-K
into which such portions are incorporated:
1. The Registrants Definitive Proxy Statement for use
in connection with the Annual Meeting of Stockholders to be held
on February 22, 2010 (the 2010 Proxy
Statement), portions of which are incorporated by
reference into Part III of this
Form 10-K.
The 2010 Proxy Statement will be filed within 120 days of
October 31, 2009.
IMPORTANT
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
All statements, other than statements of historical facts,
included in this Annual Report on
Form 10-K
of Greif, Inc. and subsidiaries (this
Form 10-K)
or incorporated herein, 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, as
amended (the Exchange Act). 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-K
are based on information currently available to our management.
Forward-looking statements speak only as the date the statements
were made. 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 our actual results to differ
materially from those projected, see Risk Factors in
Item 1A of this
Form 10-K.
Except to the limited extent required by applicable law, we
undertake no obligation to update or revise any forward-looking
statements, whether as a result of new information, future
events or otherwise.
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Index to
Form 10-K
Annual Report for the year ended October 31, 2008
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PART I
(a) General
Development of Business
General
We are a leading global producer of industrial packaging
products with manufacturing facilities located in over 45
countries. We offer 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, and polycarbonate water
bottles, and services, such as blending, filling and other
packaging services, logistics and warehousing. We also produce
containerboard and corrugated products for niche markets in
North America. We sell timber to third parties from our
timberland in the southeastern United States that we manage to
maximize long-term value. We also own timberland in Canada that
we do not actively manage. In addition, we sell, from time to
time, timberland and special use land, which consists of surplus
land, higher and better use (HBU) land, and
development land. Our customers range from Fortune
500 companies to medium and small-sized companies in a
cross section of industries.
We were founded in 1877 in Cleveland Ohio, as Vanderwyst
and Greif, a cooperage shop co-founded by one of four
Greif brothers. One year after our founding, the other three
Greif brothers were invited to join the business, renamed Greif
Bros. Company, making wooden barrels, casks and kegs to
transport post-Civil War goods nationally and internationally.
We later purchased nearly 300,000 acres of timberland to
provide raw materials for our cooperage plants. We still own
significant timber properties located in the southeastern United
States and in Canada. In 1926, we incorporated as a Delaware
corporation and made a public offering as The Greif Bros.
Cooperage Corporation. In 1951, we moved our headquarters from
Cleveland, Ohio to Delaware, Ohio, which is in the Columbus
metro-area, where our corporate headquarters are currently
located. Since the latter half of the 1900s, we have
transitioned from our keg and barrel heading mills, stave mills
and cooperage facilities to a global producer of industrial
packaging products. Following the Van Leer acquisition in 2001,
we changed our name from Greif Bros. Corporation to Greif, Inc.
Our fiscal year begins on November 1 and ends on October 31 of
the following year. Any references in this
Form 10-K
to the years 2009, 2008 or 2007, or to any quarter of those
years, relate to the fiscal year ending in that year.
As used in this
Form 10-K,
the terms Greif, our company,
we, us, and our refer to
Greif, Inc. and its subsidiaries.
(b) Financial
Information about Segments
We operate in three business segments: Industrial Packaging;
Paper Packaging; and Land Management (formerly referred to as
Timber). Information related to each of these segments is
included in Note 15 to the Notes to Consolidated Financial
Statements included in Item 8 of this
Form 10-K.
(c) Narrative
Description of Business
Products and
Services
In the Industrial Packaging segment, we offer 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, and
polycarbonate water bottles, and services, such as blending,
filling and other packaging services, logistics and warehousing.
We sell our industrial packaging products to customers in over
45 countries in industries such as chemicals, paints and
pigments, food and beverage, petroleum, industrial coatings,
agricultural, pharmaceutical and mineral, among others.
In the Paper Packaging segment, we sell containerboard,
corrugated sheets and other corrugated products and multiwall
bags to customers in North America in industries such as
packaging, automotive, food and building products. Our
corrugated container products are used to ship such diverse
products as home appliances, small machinery, grocery products,
building products, automotive components, books and furniture,
as well as numerous other applications. Our industrial and
consumer multiwall bag products are used to ship a wide range of
industrial and consumer products, such as seed, fertilizers,
chemicals,
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concrete, flour, sugar, feed, pet foods, popcorn, charcoal and
salt, primarily for the agricultural, chemical, building
products and food industries.
In the Land Management segment, we are focused on the active
harvesting and regeneration of our United States timber
properties to achieve sustainable long-term yields. While timber
sales are subject to fluctuations, we seek to maintain a
consistent cutting schedule, within the limits of market and
weather conditions. We also sell, from time to time, timberland
and special use land, which consists of surplus land, HBU land,
and development land. We changed the name of our Timber segment
to Land Management to reflect a broader focus to pursue
conscientiously the full range of opportunities our forest lands
present, including timberland management, wildlife stewardship,
recreation and development.
As of October 31, 2009, we owned approximately
256,700 acres of timber properties in the southeastern
United States and approximately 25,050 acres of timber
properties in Canada.
Customers
Due to the variety of our products, we have many customers
buying different types of our products and due to the scope of
our sales, no one customer is considered principal in our total
operations.
Backlog
We supply a cross-section of industries, such as chemicals, food
products, petroleum products, pharmaceuticals and metal
products, and must make spot deliveries on a
day-to-day
basis as our products are required by our customers. We do not
operate on a backlog to any significant extent and maintains
only limited levels of finished goods. Many customers place
their orders weekly for delivery during the week.
Competition
The markets in which we sell our products are highly competitive
with many participants. Although no single company dominates, we
face significant competitors in each of our businesses. Our
competitors include large vertically integrated companies as
well as numerous smaller companies. The industries in which we
compete are particularly sensitive to price fluctuations caused
by shifts in industry capacity and other cyclical industry
conditions. Other competitive factors include design, quality
and service, with varying emphasis depending on product line.
In the industrial packaging industry, we compete by offering a
comprehensive line of products on a global basis. In the paper
packaging industry, we compete by concentrating on providing
value-added, higher-margin corrugated products to niche markets.
In addition, over the past several years we have closed higher
cost facilities and otherwise restructured our operations, which
we believe have significantly improved our cost competitiveness.
Compliance
with Governmental Regulations Concerning Environmental
Matters
Our operations are subject to extensive federal, state, local
and international laws, regulations, rules and ordinances
relating to pollution, the protection of the environment, the
generation, storage, handling, transportation, treatment,
disposal and remediation of hazardous substances and waste
materials and numerous other environmental laws and regulations.
In the ordinary course of business, we are subject to periodic
environmental inspections and monitoring by governmental
enforcement authorities. In addition, certain of our production
facilities require environmental permits that are subject to
revocation, modification and renewal.
Based on current information, we believe that the probable costs
of the remediation of company-owned property will not have a
material adverse effect on our financial condition or results of
operations. We believe that we have adequately reserved for our
liability for these matters as of October 31, 2009.
We do not believe that compliance with federal, state, local and
international provisions, which have been enacted or adopted
regulating the discharge of materials into the environment, or
otherwise relating to the protection of the environment, has had
or will have a material effect upon our capital expenditures,
earnings or competitive position. We do not anticipate any
material capital expenditures related to environmental control
in 2010.
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See also Item 7 of this
Form 10-K
and Note 14 to the Notes to Consolidated Financial
Statements included in Item 8 of this
Form 10-K
for additional information concerning environmental expenses and
cash expenditures for 2009, 2008 and 2007, and our reserves for
environmental liabilities at October 31, 2009.
Raw
Materials
Steel, resin and containerboard are the principal raw materials
for the Industrial Packaging segment, and pulpwood, old
corrugated containers for recycling and containerboard are the
principal raw materials for the Paper Packaging segment. We
satisfy most of our needs for these raw materials through
purchases on the open market or under short-term and long-term
supply agreements. All of these raw materials are purchased in
highly competitive, price-sensitive markets, which have
historically exhibited price, demand and supply cyclicality.
From time to time, some of these raw materials have been in
short supply at certain of our manufacturing facilities. In
those situations, we ship the raw materials in short supply from
one or more of our other facilities with sufficient supply to
the facility or facilities experiencing the shortage. To date,
raw material shortages have not had a material adverse effect on
our financial condition or results of operations.
Research and
Development
While research and development projects are important to our
continued growth, the amount expended in any year is not
material in relation to our results of operations.
Other
Our businesses are not materially dependent upon patents,
trademarks, licenses or franchises.
No material portion of our businesses are subject to
renegotiation of profits or termination of contracts or
subcontracts at the election of a governmental agency or
authority.
The businesses of our segments are not seasonal to any material
extent.
Employees
As of October 31, 2009, we had approximately 8,200 full
time employees, which has decreased from the prior year as a
result of our Greif Business System initiatives, specific
contingency actions and restructuring activities. A significant
number of our full time employees are covered under collective
bargaining agreements. We believe that our employee relations
are generally good.
(d) Financial
Information about Geographic Areas
Our operations are located in the Americas, Europe, Middle East,
Africa and Asia Pacific. Information related to each of these
areas is included in Note 15 to the Notes to Consolidated
Financial Statements included in Item 8 of this
Form 10-K,
which Note is incorporated herein by reference. Quantitative and
Qualitative Disclosures about Market Risk, included in
Item 7A of this
Form 10-K,
is incorporated herein by reference.
(e) Available
Information
We maintain an Internet Web site at www.greif.com. We file
reports with the Securities and Exchange Commission (the
SEC) and make available, free of charge, on or
through this Internet Web site, our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
proxy and information statements and amendments to these reports
filed or furnished pursuant to Section 13(a) or 15(d) of
the Exchange Act as soon as reasonably practicable after we have
electronically filed such material with, or furnished it to, the
SEC.
Any of the materials we file with the SEC may also be read
and/or
copied at the SECs Public Reference Room at
100 F Street, NE, Washington, DC 20549. Information on
the operation of the SECs Public Reference Room may be
obtained by calling the SEC at
1-800-SEC-0330.
The SEC maintains an Internet Web site that contains reports,
proxy and information statements, and other information
regarding issuers that file electronically with the SEC at
www.sec.gov.
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(f) Other
Matters
Our common equity securities are listed on the New York Stock
Exchange (NYSE) under the symbols GEF and GEF.B.
Michael J. Gasser, our Chairman and Chief Executive Officer, has
timely certified to the NYSE that, at the date of the
certification, he was unaware of any violation by our Company of
the NYSEs corporate governance listing standards. In
addition, Mr. Gasser and Donald S. Huml, our Executive Vice
President and Chief Financial Officer, have provided certain
certifications in this
Form 10-K
regarding the quality of our public disclosures. See
Exhibits 31.1 and 31.2 to this
Form 10-K.
ITEM 1A. RISK
FACTORS
Statements contained in this
Form 10-K
may be forward-looking within the meaning of
Section 21E of the Exchange Act. Such forward-looking
statements are subject to certain risks and uncertainties that
could cause our operating results to differ materially from
those projected. The following factors, among others, in some
cases have affected, and in the future could affect, our actual
financial performance.
The Current and
Future Challenging Global Economy may Adversely Affect our
Business.
The current economic slowdown and any further economic decline
in future reporting periods could negatively affect our business
and results of operations. The volatility of the current
economic climate makes it difficult for us to predict the
complete impact of this slowdown on our business and results of
operations. Due to these current economic conditions, our
customers may face financial difficulties, the unavailability of
or reduction in commercial credit, or both, that may result in
decreased sales by and revenues to our company. Certain of our
customers may cease operations or seek bankruptcy protection,
which would reduce our cash flows and adversely impact our
results of operations. Our customers that are financially viable
and not experiencing economic distress may elect to reduce the
volume of orders for our products in an effort to remain
financially stable or as a result of the unavailability of
commercial credit which would negatively affect our results of
operations. We may also have difficulty accessing the global
credit markets due to the tightening of commercial credit
availability and the financial difficulties of our customers,
which would result in decreased ability to fund
capital-intensive strategic projects and our ongoing acquisition
strategy. Further, we may experience challenges in forecasting
revenues and operating results due to these global economic
conditions. The difficulty in forecasting revenues and operating
results may result in volatility in the market price of our
common stock.
In addition, the lenders under our Credit Agreement and other
borrowing facilities described in Item 7 of this
Form 10-K
under Liquidity and Capital Resources - Borrowing
Arrangements and the counterparties with whom we maintain
interest rate swap agreements, cross-currency interest rate
swaps, currency forward contracts and derivatives and other
hedge agreements may be unable to perform their lending or
payment obligations in whole or in part, or may cease operations
or seek bankruptcy protection, which would negatively affect our
cash flows and our results of operations.
Historically, our
Business has been Sensitive to Changes in General Economic or
Business Conditions.
Our customers generally consist of other manufacturers and
suppliers who purchase industrial packaging products and
containerboard and related corrugated products for their own
containment and shipping purposes. Because we supply a cross
section of industries, such as chemicals, food products,
petroleum products, pharmaceuticals, metal products,
agricultural and agrichemical products, and have operations in
many countries, demand for our industrial packaging products and
containerboard and related corrugated products has historically
corresponded to changes in general economic and business
conditions of the industries and countries in which we operate.
Accordingly, our financial performance is substantially
dependent upon the general economic conditions existing in these
industries and countries, and any prolonged or substantial
economic downturn in the markets in which we operate, including
the current economic downturn, could have a material adverse
affect on our business, results of operations or financial
condition.
Our Operations
are Subject to Currency Exchange and Political Risks that could
Adversely Affect our Results of Operations.
We have operations in over 45 countries. As a result of our
international operations, we are subject to certain risks that
could disrupt our operations or force us to incur unanticipated
costs.
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Our operating performance is affected by fluctuations in
currency exchange rates by:
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translations into United States dollars for financial reporting
purposes of the assets and liabilities of our international
operations conducted in local currencies; and
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gains or losses from transactions conducted in currencies other
than the operations functional currency.
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We are subject to various other risks associated with operating
in international countries, such as the following:
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political, social and economic instability;
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war, civil disturbance or acts of terrorism;
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taking of property by nationalization or expropriation without
fair compensation;
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changes in government policies and regulations;
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imposition of limitations on conversions of currencies into
United States dollars or remittance of dividends and other
payments by international subsidiaries;
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imposition or increase of withholding and other taxes on
remittances and other payments by international subsidiaries;
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hyperinflation in certain countries and the current threat of
global deflation; and
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impositions or increase of investment and other restrictions or
requirements by
non-United
States governments.
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We Operate in
Highly Competitive Industries.
Each of our business segments operates in highly competitive
industries. The most important competitive factors we face are
price, quality and service. To the extent that one or more of
our competitors become more successful with respect to any of
these key competitive factors, we could lose customers and our
sales could decline. In addition, due to the tendency of certain
customers to diversify their suppliers, we could be unable to
increase or maintain sales volumes with particular customers.
Certain of our competitors are substantially larger and have
significantly greater financial resources.
Our Business is
Sensitive to Changes in Industry Demands.
Industry demand for containerboard in the United States and
certain of our industrial packaging products in our United
States and international markets has varied in recent years
causing competitive pricing pressures for those products. We
compete in industries that are capital intensive, which
generally leads to continued production as long as prices are
sufficient to cover marginal costs. As a result, changes in
industry demands like the current economic slowdown, including
any resulting industry over-capacity, may cause substantial
price competition and, in turn, negatively impact our financial
performance.
The Continuing
Consolidation of our Customer Base for Industrial Packaging,
Containerboard and Corrugated Products may Intensify Pricing
Pressures and may Negatively Impact our Financial
Performance.
Over the last few years, many of our large industrial packaging,
containerboard and corrugated products customers have acquired,
or been acquired by, companies with similar or complementary
product lines. This consolidation has increased the
concentration of our largest customers, and resulted in
increased pricing pressures from our customers. Any future
consolidation of our customer base could negatively impact our
financial performance.
Raw Material and
Energy Price Fluctuations and Shortages Could Adversely Affect
our Ability to Obtain the Materials Needed to Manufacture our
Products and Could Adversely Affect our Manufacturing
Costs.
The principal raw materials used in the manufacture of our
products are steel, resin, pulpwood, old corrugated containers
for recycling, and containerboard, which we purchase in highly
competitive, price sensitive markets. These raw materials have
historically exhibited price and demand cyclicality. Some of
these materials have been, and in the future may be, in short
supply. However, we have not recently experienced any
significant difficulty in obtaining our principal raw materials.
We have long-term supply contracts in place for obtaining a
portion of our principal raw materials. The cost of producing
our products is also sensitive to the price of energy (including
its impact on transport costs). We have, from time to time,
entered into short-term contracts to hedge certain of our energy
costs. Energy prices, in particular oil and natural gas, have
fluctuated in recent years, with a corresponding effect on our
production costs. There can be no assurance that we will be able
to recoup any past or future increases in the cost of energy and
raw materials.
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Tax Legislation
Initiatives or Challenges to our Tax Positions Could Adversely
affect our Results of Operations and Financial
Condition.
We are a large multinational corporation with operations in the
United States and international jurisdictions. As such, we are
subject to the tax laws and regulations of the
U.S. federal, state and local governments and of many
international jurisdictions. From time to time, various
legislative initiatives may be proposed that could adversely
affect our tax positions. There can be no assurance that our
effective tax rate or tax payments will not be adversely
affected by these initiatives. In addition, U.S. federal,
state and local, as well as international, tax laws and
regulations are extremely complex and subject to varying
interpretations. There can be no assurance that our tax
positions will not be challenged by relevant tax authorities or
that we would be successful in any such challenge.
We may Encounter
Difficulties Arising from Acquisitions.
We have invested a substantial amount of capital in acquisitions
or strategic investments and we expect that we will continue to
do so in the foreseeable future. We are continually evaluating
acquisitions or strategic investments that are significant to
our business both in the United States and internationally.
Acquisitions involve numerous risks, including the failure to
retain key customers, employees and contracts, the inability to
integrate businesses without material disruption, unanticipated
costs incurred in connection with integrating businesses, the
incurrence of liabilities greater than anticipated or operating
results that are less than anticipated, the inability to realize
the projected value, and the synergies projected to be realized.
In addition, acquisitions and integration activities require
time and attention of management and other key personnel, and
other companies in our industries have similar acquisition
strategies. There can be no assurance that any acquisitions will
be successfully integrated into our operations, that competition
for acquisitions will not intensify or that we will be able to
complete such acquisitions on acceptable terms and conditions.
The costs of unsuccessful acquisition efforts may adversely
affect our results of operations, financial condition or
prospects.
Environmental and
Health and Safety Matters and Product Liability Claims Could
Negatively Impact our Operations and Financial
Performance.
We must comply with extensive rules and regulations regarding
federal, state, local and international environmental matters,
such as air, soil and water quality and waste disposal. We must
also comply with extensive rules and regulations regarding
safety and health matters. The failure to materially comply with
such rules and regulations could adversely affect our operations
and financial performance. Furthermore, litigation or claims
against us with respect to such matters could adversely affect
our financial performance. We may also become subject to product
liability claims, which could adversely affect our operations
and financial performance.
Our Business may
be Adversely Impacted by Work Stoppages and other Labor
Relations Matters.
We are subject to risk of work stoppages and other labor
relations matters because a significant number of our employees
are represented by unions. We have experienced work stoppages
and strikes in the past, and there may be work stoppages and
strikes in the future. Any prolonged work stoppage or strike at
any one of our principal manufacturing facilities could have a
negative impact on our business, results of operations or
financial condition.
We may be Subject
to Losses that Might not be Covered in Whole or in Part by
Existing Insurance Reserves or Insurance Coverage. These
Uninsured Losses could Adversely Affect our Financial
Performance.
We are self-insured for certain of the claims made under our
employee medical and dental insurance programs and for certain
of our workers compensation claims. We establish reserves
for estimated costs related to pending claims, administrative
fees and claims incurred but not reported. Because establishing
reserves is an inherently uncertain process involving estimates,
currently established reserves may not be adequate to cover the
actual liability for claims made under our employee medical and
dental insurance programs and for certain of our workers
compensation claims. If we conclude that our estimates are
incorrect and our reserves are inadequate for these claims, we
will need to increase our reserves, which could adversely affect
our financial performance.
We carry comprehensive liability, fire and extended coverage
insurance on most of our facilities, with policy specifications
and insured limits customarily carried for similar properties.
However, there are certain types of losses, such as losses
resulting from
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wars, acts of terrorism, or hurricanes, tornados, or other
natural disasters, that generally are not insured because they
are either uninsurable or not economically insurable. Should an
uninsured loss or a loss in excess of insured limits occur, we
could lose capital invested in that property, as well as the
anticipated future revenues derived from the manufacturing
activities conducted at that property, while remaining obligated
for any mortgage indebtedness or other financial obligations
related to the property. Any such loss would adversely impact
our business, financial condition and results of operations.
We purchase insurance policies covering general liability and
product liability with substantial policy limits. However, there
can be no assurance that any liability claim would be adequately
covered by our applicable insurance policies or it would not be
excluded from coverage based on the terms and conditions of the
policy. This could also apply to any applicable contractual
indemnity.
The Frequency and
Volume of our Timber and Timberland Sales will Impact our
Financial Performance.
We have a significant inventory of standing timber and
timberland and approximately 58,900 acres of special use
properties in the United States and Canada as of
October 31, 2009. The frequency, demand for and volume of
sales of timber, timberland and special use properties will have
an effect on our financial performance. In addition, volatility
in the real estate market for special use properties could
negatively affect our results of operations.
We may Incur
Additional Restructuring Costs and there is no Guarantee that
our Efforts to Reduce Costs will be Successful.
We have restructured portions of our operations from time to
time in recent years, and in particular, following acquisitions
of businesses and periods of economic downturn, and it is
possible that we may engage in additional restructuring
opportunities. Because we are not able to predict with certainty
acquisition opportunities that may become available to us,
market conditions, the loss of large customers, or the selling
prices for our products, we also may not be able to predict with
certainty when it will be appropriate to undertake
restructurings. It is also possible, in connection with these
restructuring efforts, that our costs could be higher than we
anticipate and that we may not realize the expected benefits.
As discussed elsewhere, we are also pursuing a transformation to
become a leaner, more market-focused, performance-driven
companywhat we call the Greif Business System.
We believe that the Greif Business System has and will continue
to generate productivity improvements and achieve permanent cost
reductions. While we expect our cost saving initiatives to
result in significant savings throughout our organization, our
estimated savings are based on several assumptions that may
prove to be inaccurate, and as a result, we cannot assure you
that we will realize these cost savings or that, if realized,
these cost savings will be sustained. If we cannot successfully
implement and sustain the strategic cost reductions or other
cost savings plans, our financial conditions and results of
operations would be negatively affected.
ITEM 1B. UNRESOLVED
STAFF COMMENTS
None.
11
ITEM 2. PROPERTIES
The following are our principal operating locations and the
products manufactured at such facilities or the use of such
facilities. We consider our operating properties to be in
satisfactory condition and adequate to meet our present needs.
However, we expect to make further additions, improvements and
consolidations of our properties to support our business
expansion.
|
|
|
|
|
|
|
|
|
|
|
Location
|
|
Products or
Use
|
|
Owned
|
|
|
Leased
|
|
|
|
|
INDUSTRIAL PACKAGING:
|
|
|
|
|
|
|
|
|
Algeria
|
|
Steel drums
|
|
|
1
|
|
|
|
|
|
Argentina
|
|
Steel and plastic drums, water bottles and distribution center
|
|
|
3
|
|
|
|
1
|
|
Australia
|
|
Closures
|
|
|
|
|
|
|
2
|
|
Austria
|
|
Steel drums and administrative office
|
|
|
|
|
|
|
1
|
|
Belgium
|
|
Steel and plastic drums and coordination center (shared services)
|
|
|
2
|
|
|
|
1
|
|
Brazil
|
|
Steel and plastic drums, water bottles, closures and general
office
|
|
|
5
|
|
|
|
5
|
|
Canada
|
|
Fibre, steel and plastic drums, blending and packaging services
and administrative office
|
|
|
6
|
|
|
|
1
|
|
Chile
|
|
Steel drums, water bottles and distribution center
|
|
|
|
|
|
|
1
|
|
China
|
|
Steel drums, closures and general office
|
|
|
|
|
|
|
11
|
|
Colombia
|
|
Steel and plastic drums and water bottles
|
|
|
1
|
|
|
|
1
|
|
Costa Rica
|
|
Steel drums
|
|
|
|
|
|
|
1
|
|
Czech Republic
|
|
Steel drums
|
|
|
1
|
|
|
|
|
|
Denmark
|
|
Fibre drums
|
|
|
1
|
|
|
|
|
|
Egypt
|
|
Steel drums
|
|
|
1
|
|
|
|
|
|
France
|
|
Fibre, steel and plastic drums, intermediate bulk containers,
closures and distribution center
|
|
|
5
|
|
|
|
1
|
|
Germany
|
|
Fibre, steel and plastic drums and distribution center
|
|
|
3
|
|
|
|
2
|
|
Greece
|
|
Steel drums
|
|
|
1
|
|
|
|
|
|
Guatemala
|
|
Steel drums
|
|
|
1
|
|
|
|
|
|
Hungary
|
|
Steel drums
|
|
|
1
|
|
|
|
|
|
India
|
|
Closures
|
|
|
1
|
|
|
|
|
|
Ireland
|
|
Warehouse
|
|
|
|
|
|
|
1
|
|
Italy
|
|
Steel and plastic drums, water bottles and distribution center
|
|
|
1
|
|
|
|
1
|
|
Jamaica
|
|
Distribution center
|
|
|
|
|
|
|
1
|
|
Kazakhstan
|
|
Distribution center
|
|
|
|
|
|
|
1
|
|
Kenya
|
|
Steel and plastic drums
|
|
|
|
|
|
|
1
|
|
Malaysia
|
|
Steel and plastic drums
|
|
|
|
|
|
|
2
|
|
Mexico
|
|
Fibre, steel and plastic drums, closures and distribution center
|
|
|
2
|
|
|
|
1
|
|
Morocco
|
|
Steel and plastic drums and plastic bottles
|
|
|
1
|
|
|
|
|
|
Netherlands
|
|
Fibre, steel and plastic drums, closures, research center and
general office
|
|
|
4
|
|
|
|
|
|
New Zealand
|
|
Intermediate bulk containers
|
|
|
|
|
|
|
1
|
|
Nigeria
|
|
Steel and plastic drums
|
|
|
|
|
|
|
3
|
|
Philippines
|
|
Steel drums and water bottles
|
|
|
|
|
|
|
1
|
|
Poland
|
|
Steel drums and water bottles
|
|
|
2
|
|
|
|
|
|
Portugal
|
|
Steel drums
|
|
|
1
|
|
|
|
|
|
Russia
|
|
Steel drums, water bottles and intermediate bulk containers
|
|
|
8
|
|
|
|
|
|
Saudi Arabia
|
|
Steel drums
|
|
|
|
|
|
|
1
|
|
Singapore
|
|
Steel drums, steel parts and distribution center
|
|
|
|
|
|
|
2
|
|
South Africa
|
|
Steel and plastic drums and distribution center
|
|
|
|
|
|
|
5
|
|
Spain
|
|
Steel drums and distribution center
|
|
|
3
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
Location
|
|
Products or
Use
|
|
Owned
|
|
|
Leased
|
|
|
|
|
Sweden
|
|
Fibre and steel drums and distribution center
|
|
|
2
|
|
|
|
|
|
Turkey
|
|
Steel drums and water bottles
|
|
|
1
|
|
|
|
|
|
Ukraine
|
|
Distribution center and water bottles
|
|
|
|
|
|
|
1
|
|
United Kingdom
|
|
Steel and plastic drums, water bottles and distribution center
|
|
|
3
|
|
|
|
3
|
|
United States
|
|
Fibre, steel and plastic drums, intermediate bulk containers,
closures, steel parts, water bottles, and distribution centers
and blending and packaging services
|
|
|
24
|
|
|
|
26
|
|
Uruguay
|
|
Steel and plastic drums
|
|
|
|
|
|
|
1
|
|
Venezuela
|
|
Steel and plastic drums and water bottles
|
|
|
2
|
|
|
|
|
|
Vietnam
|
|
Steel drums
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
PAPER PACKAGING:
|
|
|
|
|
|
|
|
|
United States
|
|
Corrugated sheets, containers and other products,
containerboard, multiwall bags, investment property and
distribution center
|
|
|
20
|
|
|
|
5
|
|
TIMBER:
|
|
|
|
|
|
|
|
|
United States
|
|
General offices
|
|
|
5
|
|
|
|
|
|
CORPORATE:
|
|
|
|
|
|
|
|
|
United States
|
|
Principal and general offices
|
|
|
2
|
|
|
|
|
|
We also own a substantial number of timber properties comprising
approximately 256,700 acres in the states of Alabama,
Louisiana and Mississippi and approximately 25,050 acres in
the provinces of Ontario and Quebec in Canada as of
October 31, 2009.
ITEM 3. LEGAL
PROCEEDINGS
We do not have any pending material legal proceedings.
From time to time, various legal proceedings arise at the
country, state or local levels involving environmental sites to
which we have shipped, directly or indirectly, small amounts of
toxic waste, such as paint solvents. To date, we have been
classified as a de minimis participant and such
proceedings do not involve potential monetary sanctions in
excess of $100,000.
ITEM 4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders
during the fourth quarter of the year covered by this
Form 10-K.
13
PART II
Shares of our Class A and Class B Common Stock are
listed on the New York Stock Exchange under the symbols GEF and
GEF.B, respectively.
Financial information regarding our two classes of common stock,
as well as the number of holders of each class and the high, low
and closing sales prices for each class for each quarterly
period for the two most recent years, is included in
Note 16 to the Notes to Consolidated Financial Statements
in Item 8 of this
Form 10-K,
which Note is incorporated herein by reference.
We pay quarterly dividends of varying amounts computed on the
basis described in Note 9 to the Notes to Consolidated
Financial Statements included in Item 8 of this
Form 10-K,
which Note is incorporated herein by reference. The annual
dividends paid for the last two years are as follows:
2009 year dividends per
share Class A $1.52; Class B $2.27
2008 year dividends per
share Class A $1.32; Class B $1.97
The terms of our Credit Agreement limit our ability to make
restricted payments, which include dividends and
purchases, redemptions and acquisitions of our equity interests.
The payment of dividends and other restricted payments are
subject to the condition that certain defaults not exist under
the terms of the Credit Agreement and are limited in amount by a
formula based, in part, on our consolidated net income. Refer to
Liquidity and Capital ResourcesBorrowing
Arrangements in Item 7 of this
Form 10-K.
The following tables set forth our purchases of our shares of
Class B Common Stock during 2009. No shares of Class A
Common Stock were purchased during 2009.
Issuer Purchases
of Class B Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number
of
|
|
|
Maximum Number
of
|
|
|
|
|
|
|
|
|
|
Shares Purchased
as
|
|
|
Shares that
May
|
|
|
|
|
|
|
|
|
|
Part of
Publicly
|
|
|
Yet Be
Purchased
|
|
|
|
Total Number
of
|
|
|
Average Price
|
|
|
Announced
Plans
|
|
|
under the
Plans
|
|
Period
|
|
Shares
Purchased
|
|
|
Paid Per
Share
|
|
|
or
Programs(1)
|
|
|
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
|
|
May 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,166,728
|
|
June 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,166,728
|
|
July 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,166,728
|
|
August 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,166,728
|
|
September 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,166,728
|
|
October 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,166,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100,000
|
|
|
|
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 or
Class B Common Stock, or any combination thereof. As of
October 31, 2009, the maximum number of shares that could
be purchased was 1,166,728, which may be any combination of
Class A or Class B Common Stock.
|
14
Performance
Graph
The following graph compares the performance of shares of our
Class A and B Common Stock to that of the Standard and
Poors 500 Index and our industry group (Peer Index)
assuming $100 invested on October 31, 2004. The graph does
not purport to represent our value.
The Peer Index comprises the containers and packaging index as
shown by Dow Jones.
ITEM 6. SELECTED
FINANCIAL DATA
The five-year selected financial data is as follows (Dollars in
thousands, except per share amounts)(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the
years ended October 31,
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Net sales
|
|
$
|
2,792,217
|
|
|
$
|
3,790,531
|
|
|
$
|
3,331,597
|
|
|
$
|
2,630,337
|
|
|
$
|
2,424,297
|
|
Net income
|
|
$
|
132,433
|
|
|
$
|
234,354
|
|
|
$
|
156,368
|
|
|
$
|
142,119
|
|
|
$
|
104,656
|
|
Total assets
|
|
$
|
2,812,510
|
|
|
$
|
2,745,898
|
|
|
$
|
2,652,711
|
|
|
$
|
2,188,001
|
|
|
$
|
1,883,323
|
|
Long-term debt, including current portion of long-term debt
|
|
$
|
738,608
|
|
|
$
|
673,171
|
|
|
$
|
622,685
|
|
|
$
|
481,408
|
|
|
$
|
430,400
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A Common Stock
|
|
$
|
2.29
|
|
|
$
|
4.04
|
|
|
$
|
2.69
|
|
|
$
|
2.46
|
|
|
$
|
1.82
|
|
Class B Common Stock
|
|
$
|
3.42
|
|
|
$
|
6.04
|
|
|
$
|
4.04
|
|
|
$
|
3.69
|
|
|
$
|
2.73
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A Common Stock
|
|
$
|
2.28
|
|
|
$
|
3.99
|
|
|
$
|
2.65
|
|
|
$
|
2.42
|
|
|
$
|
1.78
|
|
Class B Common Stock
|
|
$
|
3.42
|
|
|
$
|
6.04
|
|
|
$
|
4.04
|
|
|
$
|
3.69
|
|
|
$
|
2.73
|
|
Dividends per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A Common Stock
|
|
$
|
1.52
|
|
|
$
|
1.32
|
|
|
$
|
0.92
|
|
|
$
|
0.60
|
|
|
$
|
0.40
|
|
Class B Common Stock
|
|
$
|
2.27
|
|
|
$
|
1.97
|
|
|
$
|
1.37
|
|
|
$
|
0.89
|
|
|
$
|
0.59
|
|
|
|
|
(1)
|
|
All share information presented in
this table has been adjusted to reflect a
2-for-1
stock split of our shares of Class A and Class B
Common Stock as of the close of business on March 19, 2007
distributed on April 11, 2007.
|
15
The results of operations include the effects of pretax
restructuring charges of $66.6 million, $43.2 million,
$21.2 million, $33.2 million, and $35.7 million
for 2009, 2008, 2007, 2006, and 2005, respectively; pretax debt
extinguishment charges of $0.8 million, $23.5 million
and $2.8 million for 2009, 2007 and 2005, respectively;
restructuring-related inventory charges of $10.8 million for
2009; and large timberland gains of $41.3 million and
$56.3 million for 2006 and 2005, respectively.
ITEM 7.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The purpose of this section is to discuss and analyze our
consolidated financial condition, liquidity and capital
resources and results of operations. This analysis should be
read in conjunction with the consolidated financial statements
and notes, which appear elsewhere in this
Form 10-K.
The terms Greif, our company,
we, us, and our as used in
this discussion refer to Greif, Inc. and subsidiaries.
Business
Segments
We operate in three business segments: Industrial Packaging;
Paper Packaging; and Land Management (formerly referred to as
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 industrial packaging products to
customers in industries such as chemicals, paint and pigments,
food and beverage, petroleum, industrial coatings, agricultural,
pharmaceutical and mineral, among others.
We sell our containerboard, corrugated sheets, other corrugated
products and multiwall bags to customers in North America in
industries such as packaging, automotive, food and building
products. Our corrugated container products are used to ship
such diverse products as home appliances, small machinery,
grocery products, building products, automotive components,
books and furniture, as well as numerous other applications. Our
industrial and consumer multiwall bag products are 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 October 31, 2009, we owned approximately
256,700 acres of timber properties in the southeastern
United States, which were actively managed, and approximately
25,050 acres of timber properties in Canada. Our land
management team 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, HBU land, and development land.
Greif Business
System
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 and contingency actions, we have launched a strategic
sourcing initiative to more effectively leverage our global
spending and lay the foundation for a world-class sourcing and
supply chain capability. In response to the current economic
slowdown, we accelerated the implementation of certain Greif
Business System initiatives.
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.
16
A summary of our significant accounting policies is included in
Note 1 to the Notes to Consolidated Financial Statements
included in Item 8 of this
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
collectability of our accounts receivable based on a combination
of factors. In circumstances where we are aware of a specific
customers 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 customers 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, inventory aging and product demand. We continuously
evaluate the adequacy of these reserves and make adjustments to
these reserves as required. We also evaluate reserves for losses
under firm purchase commitments for goods or inventories.
Net Assets Held for Sale. Net assets held for sale
represent land, buildings and land improvements less accumulated
depreciation. We record net assets held for sale in accordance
with Statement of Financial Accounting Standards
(SFAS) No. 144, Accounting for Impairment
or Disposal of Long-Lived Assets (codified under
Accounting Standards Codification (ASC) 360
Property, Plant, and Equipment), 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 facilitys 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 256,700 acres at
October 31, 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 eight 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 timber properties,
which consisted of approximately 25,050 acres at
October 31, 2009, did not have any depletion expense since
they were 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.
Derivative Financial Instruments. In accordance
with SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities (codified under ASC
815 Derivatives and Hedging), we record all
derivatives in the consolidated balance sheets as either assets
or liabilities measured at fair value. Dependent on the
designation of the derivative instrument, changes in fair value
are recorded to earnings or shareholders equity through
other comprehensive income (loss).
17
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 (codified
under ASC 420 Exit or Disposal Cost
Obligations), 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 5 to the Notes to Consolidated Financial
Statements included in Item 8 of this
Form 10-K.
Pension and Postretirement Benefits. Pension and
postretirement benefit expenses and liabilities are determined
by our actuaries using assumptions about the discount rate,
expected return on plan assets, rate of compensation increase
and health care cost trend rates. Further discussion of our
pension and postretirement benefit plans and related assumptions
is contained in Notes 12 and 13 to the Notes to
Consolidated Financial Statements included in Item 8 of
this
Form 10-K.
The results would be different using other assumptions.
Income Taxes. Our effective tax rate is based on
income, statutory tax rates and tax planning opportunities
available to us in the various jurisdictions in which we
operate. Significant judgment is required in determining our
effective tax rate and in evaluating our tax positions. In the
first quarter of fiscal 2008, we adopted the provisions of FASB
Interpretation FIN 48, Accounting for
Uncertainty in Income Taxes (codified under ASC 740
Income Taxes). FIN 48 clarifies the
accounting for uncertainty in income taxes recognized in the
financial statements in accordance with SFAS No. 109,
Accounting for Income Taxes (codified under ASC
740 Income Taxes). This standard provides that a
tax benefit from uncertain tax position may be recognized when
it is more likely than not that the position will be sustained
upon examination, including resolutions of any related appeals
or litigation processes, based on the technical merits. The
amount recognized is measured as the largest amount of tax
benefit that is greater than 50% likely of being realized upon
settlement. Our effective tax rate includes the impact of
reserve provisions and changes to reserves that we consider
appropriate as well as related interest and penalties.
A number of years may elapse before a particular matter, for
which we have established a reserve, is audited and finally
resolved. The number of years with open tax audits varies
depending on the tax jurisdiction. While it is often difficult
to predict the final outcome or the timing of resolution of any
particular tax matter, we believe that our reserves reflect the
probable outcome of known tax contingencies. Unfavorable
settlement of any particular issue would require use of our
cash. Favorable resolution would be recognized as a reduction to
our effective tax rate in the period of resolution.
Valuation allowances are established where expected future
taxable income does not support the realization of the deferred
tax assets.
We have estimated the reasonably possible expected net change in
unrecognized tax benefits through October 31, 2010 based on
lapses of the applicable statutes of limitations of unrecognized
tax benefits. The estimated net decrease in unrecognized tax
benefits for the next 12 months ranges from
$2.2 million to $2.4 million. Actual results may
differ materially from this estimated range.
Environmental Cleanup Costs. We expense
environmental expenditures related to existing conditions caused
by past or current operations and from which no current or
future benefit is discernable. Expenditures that extend the life
of the related property, or mitigate or prevent future
environmental contamination, are capitalized. The capitalized
cost at October 31, 2009, 2008, and 2007 was immaterial.
Environmental expenses were $(2.1) million,
$0.4 million, and $0.2 million in 2009, 2008, and
2007, respectively. In 2009, we reduced the environmental
liability at our blending facility in Chicago, Illinois, by
$3.2 million due to a revised third party estimate which
reduced our total estimated cleanup costs. Environmental cash
expenditures were $3.4 million, $3.2 million, and
$1.6 million in 2009, 2008 and 2007, respectively. Our
reserves for environmental liabilities at October 31, 2009
amounted to $33.4 million, which included a reserve of
$17.9 million related to our blending facility in Chicago,
Illinois, $10.9 million related to our European drum
facilities and $3.4 million related to our facility in
Lier, Belgium. 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. We cannot determine
either the timing or the amount of payments for our
environmental exposure beyond 2009. 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.
18
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
October 31, 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 $4.0 million
and $4.1 million for estimated costs related to outstanding
claims at October 31, 2009 and 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 analyses 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 was
hypothetically adjusted by a period equal to a half month, the
impact on earnings would be approximately $1.0 million.
However, we believe the reserves 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
through our captive insurance subsidiary, which had recorded
liabilities totaling $21.5 million and $20.6 million
for anticipated costs related to general liability, product,
auto and workers compensation at October 31, 2009 and
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. While the amounts
claimed may be substantial, the ultimate liability cannot
currently be determined because of the considerable
uncertainties that exist.
All lawsuits, claims and proceedings are considered by us in
establishing reserves for contingencies in accordance with
SFAS No. 5, Accounting for Contingencies
(codified under ASC 450 Contingencies). In
accordance with the provisions of SFAS No. 5, we
accrue 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 us, we believe that our 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 our financial position or results
from operations.
Goodwill, Other Intangible Assets and Other Long-Lived
Assets. We account for goodwill in accordance with
SFAS No. 142 Goodwill and Other Intangible
Assets (codified under ASC 350
IntangiblesGoodwill and Other). Under
SFAS No. 142, purchased goodwill and intangible assets
with indefinite lives are not amortized, but instead are tested
for impairment annually or when indicators of impairment exist.
Intangible assets with finite lives, primarily customer
relationships and patents and trademarks, continue to be
amortized over their useful lives. In conducting the impairment
test, the estimated fair value of our reporting units is
compared to its carrying amount including goodwill. If the
estimated fair value exceeds the carrying amount, then no
impairment exists. If the carrying amount exceeds the estimated
fair value, further analysis is performed to assess impairment.
Our determination of estimated fair value of the reporting units
is based on a discounted cash flow analysis, a multiple of
earnings before interest, taxes, depreciation and amortization
(EBITDA) and, if available, a review of the
price/earnings ratio for publicly traded companies similar in
nature, scope and size of the applicable reporting unit. The
discount rates used for impairment testing are based on the
risk-free rate plus an adjustment for risk factors. The EBITDA
multiples used for impairment testing are judgmentally selected
based on factors such as the nature, scope and size of the
applicable reporting unit. The use of alternative estimates,
peer groups or changes in the industry, or adjusting the
discount rate, EBITDA multiples or price earnings ratios used
could affect the estimated fair value of the assets and
potentially result in impairment. Any identified impairment
would result in an adjustment to our results of operations.
19
We performed our annual impairment tests in fiscal 2009, 2008
and 2007, which resulted in no impairment charges. Decreasing
the price/earnings ratio of competitors used for impairment
testing by one point or increasing the discount rate in the
discounted cash flow analysis used for impairment testing by 1%
would not have indicated impairment for any of our reporting
units for fiscal 2009, 2008 or 2007. Refer to Note 4 of the
Consolidated Financial Statements included in Item 8 of
this Form 10-K for additional information regarding
goodwill and other intangibles.
Revenue Recognition. We recognize revenue when
title passes to customers or services have been rendered, with
appropriate provision for returns and allowances. Revenue is
recognized in accordance with Staff Accounting
Bulletin No. 104, Revenue Recognition
(codified under ASC 605 Revenue Recognition).
Timberland disposals, timber and special use property revenues
are recognized when closings have occurred, required down
payments have been received, title and possession have been
transferred to the buyer, and all other criteria for sale and
profit recognition have been satisfied.
We report the sale of surplus and higher and better use
(HBU) property in our consolidated statements of
income under gain on disposals of properties, plants and
equipment, net and report the sale of development property
under net sales and cost of products
sold. All HBU and development property, together with
surplus property, is used by us to productively grow and sell
timber until sold.
Other Items. Other items that could have a
significant impact on the financial statements include the risks
and uncertainties listed in Item 1A under Risk
Factors. Actual results could differ materially using
different estimates and assumptions, or if conditions are
significantly different in the future.
RESULTS OF
OPERATIONS
Historically, revenues and earnings may or may not be
representative of future operating results due to various
economic and other factors.
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 (except with
respect to the segment discussions for Industrial Packaging and
Paper Packaging, where timberland disposals, net are not
applicable and except with respect to Land Management where
restructuring-related inventory charges are not applicable).
Operating profit before the impact of restructuring charges,
restructuring-related inventory charges, and timberland
disposals, net is equal to operating profit plus restructuring
charges, and 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.
20
The following table sets forth the net sales and operating
profit for each of our business segments for 2009, 2008 and 2007
(Dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year
ended October 31,
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial Packaging
|
|
$
|
2,266,890
|
|
|
$
|
3,074,834
|
|
|
$
|
2,662,949
|
|
Paper Packaging
|
|
|
504,687
|
|
|
|
696,902
|
|
|
|
653,734
|
|
Land Management
|
|
|
20,640
|
|
|
|
18,795
|
|
|
|
14,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
2,792,217
|
|
|
$
|
3,790,531
|
|
|
$
|
3,331,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit, before the impact of restructuring charges,
restructuring-related inventory changes, and timberland
disposals, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial Packaging
|
|
$
|
231,723
|
|
|
$
|
315,157
|
|
|
$
|
229,361
|
|
Paper Packaging
|
|
|
58,731
|
|
|
|
77,420
|
|
|
|
67,725
|
|
Land Management
|
|
|
22,237
|
|
|
|
20,571
|
|
|
|
14,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating profit before the impact of restructuring
charges, restructuring-related inventory changes, and timberland
disposals, net
|
|
|
312,691
|
|
|
|
413,148
|
|
|
|
311,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial Packaging
|
|
|
65,742
|
|
|
|
33,971
|
|
|
|
16,010
|
|
Paper Packaging
|
|
|
685
|
|
|
|
9,155
|
|
|
|
5,219
|
|
Land Management
|
|
|
163
|
|
|
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring charges
|
|
|
66,590
|
|
|
|
43,202
|
|
|
|
21,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring-related inventory charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial Packaging
|
|
|
10,772
|
|
|
|
|
|
|
|
|
|
Paper Packaging
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timberland disposals, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
Land Management
|
|
|
|
|
|
|
340
|
|
|
|
(648
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial Packaging
|
|
|
155,209
|
|
|
|
281,186
|
|
|
|
213,351
|
|
Paper Packaging
|
|
|
58,046
|
|
|
|
68,265
|
|
|
|
62,506
|
|
Land Management
|
|
|
22,074
|
|
|
|
20,835
|
|
|
|
13,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating profit
|
|
$
|
235,329
|
|
|
$
|
370,286
|
|
|
$
|
289,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year 2009
Compared to Year 2008
Overview
Net sales decreased 26.3% on a year over year basis to
$2,792.2 million in 2009 from $3,790.5 million in
2008. The $998.3 million decrease was due to lower sales
volumes (16.7%), foreign currency translation (6.0%), and lower
selling prices (3.6%). The 20.3% constant-currency decrease was
primarily due to lower sales volumes resulting from the sharp
decline in the global economy and lower selling prices primarily
resulting from the pass-through of lower raw material costs.
Operating profit was $235.3 million and $370.3 million
in 2009 and 2008, respectively. Operating profit before the
impact of restructuring charges, restructuring-related inventory
charges and timberland disposals, net was $312.7 million
for 2009 compared to $413.1 million for 2008. The
$100.4 million decrease in operating profit before the
impact of restructuring
21
charges, restructuring-related inventory charges and timberland
disposals, net was principally due to decreases in Industrial
Packaging ($83.4 million) and Paper Packaging
($18.7 million) and an increase in Land Management
($1.7 million). Operating profit, expressed as a percentage
of net sales, decreased to 8.4% for 2009 from 9.8% in 2008.
Operating profit before restructuring charges,
restructuring-related inventory charges, and the impact of
timberland disposals, net, expressed as a percentage of net
sales, increased to 11.2% for 2009 from 10.9% in 2008.
Segment
Review
Industrial
Packaging
Our Industrial Packaging segment offers a comprehensive line of
industrial packaging products and services, 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.
The key factors influencing profitability in the Industrial
Packaging segment are:
|
|
|
|
|
Selling prices, customer demand and sales volumes;
|
|
|
|
Raw material costs and availability, primarily steel, resin and
containerboard;
|
|
|
|
Energy and transportation costs;
|
|
|
|
Benefits from executing the Greif Business System;
|
|
|
|
Restructuring charges and restructuring-related inventory
charges;
|
|
|
|
Contributions from recent acquisitions;
|
|
|
|
Divestiture of business units and disposals of assets and
facilities; and
|
|
|
|
Impact of foreign currency translation.
|
In this segment, net sales decreased 26.3% to
$2,266.9 million in 2009 compared to $3,074.8 million
in 2008 due to lower sales volume, foreign currency translation,
and lower selling prices. The Industrial Packaging segment was
directly impacted by lower sales volumes resulting from the
sharp decline in the global economy and lower selling prices
primarily resulting from the pass-through of lower raw material
costs.
Gross profit margin for the Industrial Packaging segment was
18.8% in 2009 compared to 18.6% in 2008, primarily due to the
continued implementation of the Greif Business System and
specific contingency actions (lower labor, transportation, and
other manufacturing costs).
Operating profit was $155.2 million in 2009 compared to
$281.2 million in 2008. Operating profit before the impact
of restructuring charges and restructuring-related inventory
charges decreased to $231.7 million in 2009 compared to
$315.2 million in 2008. The decrease in operating profit
was primarily due to lower net sales which were partially offset
by net gains on asset disposals, lower raw material costs and
related LIFO benefits, partially offset by lower of cost or
market steel inventory write-downs early in the year and by
increased supply chain costs caused by temporary spot steel
shortages in some of our markets later in the year.
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
|
|
|
|
Restructuring charges.
|
In this segment, net sales decreased 27.6% to
$504.7 million in 2009 from $696.9 million in 2008.
The $192.2 million decrease was primarily due to lower
sales volumes and lower selling prices.
22
Gross profit margin for the Paper Packaging segment was 19.5% in
2009 compared to 17.1% in 2008. The Paper Packaging
segments cost of products sold continue to benefit from
the Greif Business System and specific contingency initiatives.
Operating profit was $58.0 million and $68.3 million
in 2009 and 2008, respectively. Operating profit before the
impact of restructuring charges decreased to $58.7 million
in 2009 compared to $77.4 million in 2008. The decrease in
operating profit before the impact of restructuring charges was
primarily due to lower net sales, partially offset by lower raw
material costs, especially for old corrugated containers, and
related LIFO benefits. In addition, labor, transportation and
energy costs were lower in 2009 as compared to 2008.
Land
Management (Formerly Timber)
As of October 31, 2009, our Land Management segment
consisted of approximately 256,700 acres of timber
properties in the southeastern United States, which are actively
harvested and regenerated, and approximately 25,050 acres
in Canada. The key factors influencing profitability in the Land
Management segment are:
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Planned level of timber sales;
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Selling prices and customer demand;
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Gains (losses) on sale of timberland; and
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Sale of special use properties (surplus, HBU, and development
properties).
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In this segment, net sales were $20.6 million in 2009
compared to $18.8 million in 2008. While timber sales are
subject to fluctuations, we seek to maintain a consistent
cutting schedule, within the limits of market and weather
conditions.
Operating profit was $22.1 million and $20.8 million
in 2009 and 2008, respectively. Operating profit before the
impact of restructuring charges and timberland disposals, net
was $22.2 million in 2009 compared to $20.6 million in
2008. Included in these amounts were profits from the sale of
special use properties of $14.8 million in 2009 and
$16.8 million in 2008.
In order to maximize the value of our timber property, we
continue to review our current portfolio and explore the
development of certain of these properties in Canada and the
United States. This process has led us to characterize our
property as follows:
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Surplus property, meaning land that cannot be efficiently or
effectively managed by us, whether due to parcel size, lack of
productivity, location, access limitations or for other reasons.
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HBU property, meaning land that in its current state has a
higher market value for uses other than growing and selling
timber.
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Development property, meaning HBU land that, with additional
investment, may have a significantly higher market value than
its HBU market value.
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Timberland, meaning land that is best suited for growing and
selling timber.
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We report the sale of surplus and HBU property in our
consolidated statements of income under gain on disposals
of properties, plants and equipment, net and report the
sale of development property under net sales and
cost of products sold. All HBU and development
property, together with surplus property, continues to be used
by us to productively grow and sell timber until sold.
Whether timberland has a higher value for uses other than
growing and selling timber is a determination based upon several
variables, such as proximity to population centers, anticipated
population growth in the area, the topography of the land,
aesthetic considerations, including access to lakes or rivers,
the condition of the surrounding land, availability of
utilities, markets for timber and economic considerations both
nationally and locally. Given these considerations, the
characterization of land is not a static process, but requires
an ongoing review and re-characterization as circumstances
change.
At October 31, 2009, we estimated that there were
approximately 58,900 acres in Canada and the United States
of special use property, which we expect will be available for
sale in the next five to seven years.
23
Other Income
Statement Changes
Cost of
Products Sold
Cost of products sold, as a percentage of net sales, decreased
to 80.8% in 2009 from 81.7% in 2008 primarily as a result of
lower raw material costs, related LIFO benefits and
contributions from further execution of incremental and
accelerated Greif Business System initiatives and specific
contingency actions. These positive factors were partially
offset by $10.8 million of restructuring-related inventory
charges.
Selling,
General and Administrative (SG&A)
Expenses
SG&A expenses were $267.6 million, or 9.6% of net
sales, in 2009 compared to $339.2 million, or 9.0% of net
sales, in 2008. The dollar decrease in our SG&A expense was
primarily due to the reduction in personnel on a period over
period basis, tighter controls over SG&A expenses, and
accelerated Greif Business System and specific contingency
initiatives including reductions on both travel related programs
and professional fees. SG&A expense as a percentage of net
sales increased as a result of decreased net sales in 2009 as
compared to 2008.
Restructuring
Charges
Restructuring charges were $66.6 million and
$43.2 million in 2009 and 2008, respectively.
Restructuring charges for 2009 consisted of $28.4 million
in employee separation costs, $19.6 million in asset
impairments, and $18.6 million in other restructuring
costs. The focus of the 2009 restructuring activities was on
business realignment due to the economic downturn and further
implementation of the Greif Business System. Nineteen
company-owned plants in the Industrial Packaging segment were
closed. A total of 1,294 employees were severed during
2009. In addition, we recorded $10.8 million of
restructuring-related inventory charges as a cost of products
sold in our Industrial Packaging segment related to excess
inventory adjustments of closed facilities.
Restructuring charges for 2008 consisted of $20.6 million
in employee separation costs, $12.3 million in asset
impairments, $0.4 million in professional fees and
$9.9 million in other restructuring costs, primarily
consisting of facility consolidation and lease termination
costs. Six company-owned plants in the Industrial Packaging
segment and four company-owned plants in the Paper Packaging
segment were closed. Additionally, severance costs were incurred
due to the elimination of certain operating and administrative
positions throughout the world. A total of 630 employees
were severed during 2008.
See Note 5 to the Notes to Consolidated Financial
Statements included in Item 8 of this
Form 10-K
for additional disclosures regarding our restructuring
activities.
Timberland
Disposals, Net
For 2009, we recorded no net gain on sale of timberland property
compared to a net gain of $0.3 million in 2008.
Gain on
Disposal of Properties, Plants and Equipment, Net
For 2009, we recorded a gain on disposal of properties, plants
and equipment, net of $34.4 million, primarily consisting
of a $17.2 million pre-tax net gain on the sale of specific
Industrial Packaging segment assets and facilities in North
America and $14.8 million in net gains from the sale of
surplus and HBU timber properties. During 2008, gain on disposal
of properties, plants and equipment, net was $59.5 million,
primarily consisting of a $29.9 million pre-tax net gain on
the divestiture of business units in Australia and our
controlling interest in a Zimbabwean operation, and
$15.2 million in net gains from the sale of surplus and HBU
timber properties.
Interest
Expense, Net
Interest expense, net, was $53.6 million and
$49.6 million in 2009 and 2008, respectively. The increase
was primarily due to higher outstanding debt as a result of our
new $700 million senior secured credit facility and the
issuance of our new $250 million Senior Notes due 2019 at
7.75%
24
Debt
Extinguishment Charges
In 2009, we completed a new $700 million senior secured
credit facility. This facility 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 related to the
write-off of unamortized capitalized debt issuance costs was
recorded.
Other Expense,
Net
Other expense, net was $7.2 million in 2009 compared to
$8.8 million in 2008. The decrease was primarily due to
foreign exchange losses of $0.1 million in 2009 as compared
to losses of $1.7 million in 2008.
Income Tax
Expense
During 2009, the effective tax rate was 21.7% compared to 23.6%
in 2008. The decrease in the effective tax rate was primarily
due a change in the mix of income in the United States compared
to regions outside of the United States, where tax rates were
lower, among other factors. The effective tax rate may fluctuate
based on the mix of income inside and outside the United States
and other factors.
Equity in
Earnings of Affiliates and Minority Interests
For equity in earnings of affiliates and minority interests, we
recorded a loss of $3.6 million in 2009 compared to a loss
of $3.9 million in 2008. We have majority interests in
various companies, and the minority interests in the respective
net income of these companies have been recorded as an expense.
These expenses were partially offset by equity earnings of our
unconsolidated affiliates.
Net
Income
Based on the foregoing, net income decreased $102.0 million
to $132.4 million in 2009 from $234.4 million in 2008.
Year 2008
Compared to Year 2007
Overview
Net sales increased 14% (10% excluding the impact of foreign
currency translation) to $3,790.5 million in 2008 compared
to $3,331.6 million in 2007. The $458.9 million
increase was due to Industrial Packaging ($411.8 million),
Paper Packaging ($43.2 million) and Land Management
($3.9 million). Strong organic sales growth for industrial
packaging products and higher selling prices, principally in
response to higher raw material costs, drove the 10%
constant-currency increase.
Operating profit was $370.3 million and $289.6 million
in 2008 and 2007, respectively. Operating profit before the
impact of restructuring charges and timberland disposals, net
was $413.1 million for 2008 compared to $311.5 million
for 2007. The $101.6 million increase was principally due
to higher operating profit in Industrial Packaging
($85.7 million), Paper Packaging ($9.7 million) and
Land Management ($6.2 million). Operating profit, expressed
as a percentage of net sales, increased to 9.8% for 2008 from
8.7% in 2007. Operating profit before restructuring charges and
the impact of timberland disposals, net, expressed as a
percentage of net sales, increased to 10.9% for 2008 from 9.4%
in 2007.
Segment
Review
Industrial
Packaging
Our Industrial Packaging segment offers a comprehensive line of
industrial packaging products and services, 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.
The key factors influencing profitability in the Industrial
Packaging segment are:
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Selling prices, customer demand and sales volumes;
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Raw material costs, primarily steel, resin and containerboard;
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Energy and transportation costs;
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Benefits from executing the Greif Business System;
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25
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Restructuring charges;
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Contributions from recent acquisitions;
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Divestiture of business units; and
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Impact of foreign currency translation.
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In this segment, net sales increased 16% to
$3,074.8 million in 2008 compared to $2,662.9 million
in 2007an increase of 10% excluding the impact of foreign
currency translation. Higher sales volumes across all regions,
with particular strength in emerging markets, in addition to
higher selling prices in response to higher raw material costs,
continued to drive the segments organic growth.
Gross profit margin for the Industrial Packaging segment was
18.5% in 2008 compared to 18.3% in 2007, primarily due to the
continued implementation of the Greif Business System (lower
labor, transportation and other manufacturing costs).
Operating profit was $281.2 million in 2008 compared to
$213.4 million in 2007. Operating profit before the impact
of restructuring charges increased to $315.2 million in
2008 compared to $229.4 million in 2007. The increase in
operating profit was primarily due to improvement in sales
volumes, higher selling prices and contributions from the Greif
Business System, which were partially offset by higher input
costs.
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:
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Selling prices, customer demand and sales volumes;
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Raw material costs, primarily old corrugated containers;
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Energy and transportation costs;
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Benefits from executing the Greif Business System; and
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Restructuring charges.
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In this segment, net sales were $696.9 million in 2008
compared to $653.7 million in 2007. The increase in net
sales was principally due to higher selling prices, including a
containerboard price increase implemented in the fourth quarter
of 2007 and the realization of a containerboard price increase
implemented in the fourth quarter of 2008.
Gross profit margin for the Paper Packaging segment was 17.1% in
2008 compared to 17.4% in 2007. This decrease was primarily due
to higher input costs, including energy and transportation,
partially offset by higher selling prices from the
containerboard increase implemented in the fourth quarter of
2007 and the partial realization of an increase implemented in
the fourth quarter of 2008.
Operating Profit was $68.3 million and $62.5 million
in 2008 and 2007, respectively. Operating profit before the
impact of restructuring charges increased to $77.4 million
in 2008 compared to $67.7 million in 2007. The increase was
primarily due to higher selling prices from containerboard
increases, partially offset by higher input costs, including
increased energy costs and increased transportation costs.
Land
Management (Formerly Timber)
As of October 31, 2008, our Land Management segment
consisted of approximately 268,700 acres of timber
properties in the southeastern United States, which are actively
harvested and regenerated, and approximately 27,450 acres
in Canada. The key factors influencing profitability in the Land
Management segment are:
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Planned level of timber sales;
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Selling prices and customer demand
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Gains (losses) on sale of timberland; and
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Sale of special use properties (surplus, HBU, and development
properties).
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Net sales were $18.8 million in 2008 compared to and
$14.9 million in 2007. While timber sales are subject to
fluctuations, we seek to maintain a consistent cutting schedule,
within the limits of market and weather conditions.
26
Operating profit was $20.8 million and $13.7 million
in 2008 and 2007, respectively. Operating profit before the
impact of restructuring charges and timberland disposals, net
was $20.6 million in 2008 compared to $14.4 million in
2007. Included in these amounts were profits from the sale of
special use properties of $16.8 million in 2008 and
$9.5 million in 2007.
At October 31, 2008, we estimated that there were
approximately 61,600 acres in Canada and the United States
of special use property, which we expect will be available for
sale in the next five to seven years.
Other Income
Statement Changes
Cost of
Products Sold
Cost of products sold, as a percentage of net sales, decreased
to 81.7% in 2008 from 81.8% in 2007. Cost of products sold, as a
percentage of net sales, primarily decreased as a result of the
improvement in net sales and positive contributions from the
Greif Business System. These positive factors were partially
offset by higher raw material, transportation and energy costs
compared to 2007.
Selling,
General and Administrative Expenses
SG&A expenses were $339.2 million, or 9.0% of net
sales, in 2008 compared to $313.4 million, or 9.4% of net
sales, in 2007. The dollar increase in our SG&A expense was
primarily due to acquisition synergies and the impact of foreign
currency translation, partially offset by tighter controls over
SG&A expenses.
Restructuring
Charges
Restructuring charges were $43.2 million and
$21.2 million in 2008 and 2007, respectively.
Restructuring charges for 2008 consisted of $20.6 million
in employee separation costs, $12.3 million in asset
impairments, $0.4 million in professional fees and
$9.9 million in other restructuring costs, primarily
consisting of facility consolidation and lease termination
costs. Six company-owned plants in the Industrial Packaging
segment and four company-owned plants in the Paper Packaging
segment were closed. Additionally, severance costs were incurred
due to the elimination of certain operating and administrative
positions throughout the world. A total of 630 employees
were severed during 2008.
Restructuring charges for 2007 consisted of $9.2 million in
employee separation costs, $0.9 million in asset
impairments, $1.0 million in professional fees, and
$10.1 million in other restructuring costs, primarily
consisting of facility consolidation and lease termination
costs. Two company-owned plants in the Industrial Packaging
segment were closed. Additionally, severance costs were incurred
due to the elimination of certain operating and administrative
positions throughout the world. A total of 303 employees
were severed in 2007.
See Note 5 to the Notes to Consolidated Financial
Statements included in Item 8 of this
Form 10-K
for additional disclosures regarding our restructuring
activities.
Gain on
Disposal of Properties, Plants and Equipment, Net
For 2008, we recorded a gain on disposal of properties, plants
and equipment, net of $59.5 million, primarily consisting
of $29.9 million pre-tax net gain on divestiture of
business units in Australia and our controlling interest in a
Zimbabwean operation, and $15.2 million in net gains from
the sale of surplus and HBU timber properties. During 2007, gain
on disposals of properties, plants and equipment, net was
$19.4 million, including $8.9 million in gains from
the sale of surplus and HBU timber properties.
Interest
Expense, Net
Interest expense, net, was $49.6 million and
$45.5 million in 2008 and 2007, respectively. The increase
was primarily due to higher outstanding debt, a larger mix of
debt outside of the United States and Europe with higher
interest rates, and interest received on lower cash balances.
27
Other Income
(Expense), Net
Other expense, net was $8.8 million in 2008 compared to
$9.0 million in 2007. The decrease was primarily due to the
recording of $1.7 million in net expense related to losses
on foreign currency transactions in 2008 compared to
$2.2 million in 2007 and other infrequent non-operating
items recorded in 2007.
Income Tax
Expense
During 2008, the effective tax rate was 23.6% compared to 25.3%
in 2007. The effective tax rate decreased due to a change in the
mix of income in the United States compared to regions outside
of the United States, where tax rates were lower. In future
years, the effective tax rate may fluctuate based on the mix of
income inside and outside the United States and other factors.
Equity in
Earnings of Affiliates and Minority Interests
Equity in earnings of affiliates and minority interests was
$3.9 million in 2008 compared to $1.7 million for
2007. We have majority 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
three of our subsidiaries under the equity method, one in India
and two in North America.
Net
Income
Based on the foregoing, net income increased $78.0 million
to $234.4 million in 2008 from $156.4 million in 2007.
BALANCE SHEET
CHANGES
The $34.3 million increase in cash and cash equivalents was
primarily due to cash flows from operations, partially offset by
the cost of 2009 North America, South America, and Asia
acquisitions, capital expenditures, debt repayments, and
dividends paid.
The $55.5 million decrease in trade accounts receivable was
primarily related to lower 2009 sales as compared to 2008 sales.
The $76.6 million decrease in inventories was mainly driven
by lower raw material prices, steel costs, and lower overall
business activity levels.
The $10.3 million increase in net assets held for sale was
related to various facility closures in the Industrial Packaging
segment.
The $79.1 million increase in goodwill primarily related to
the North America, South America, and Asia acquisitions. Refer
to Note 4 to the Notes to Consolidated Financial Statements
included in Item 8 of this
Form 10-K.
The $26.9 million increase in other intangibles primarily
related to the North America, South America, and Asia
acquisitions. Refer to Note 4 to the Notes to Consolidated
Financial Statements included in Item 8 of this
Form 10-K
for our intangible asset detail by asset class.
Other long-term assets increased $23.5 million primarily
due to an increase in deferred financing costs associated with
our new senior secured credit facility and the senior notes
issuance.
Accounts payable decreased $48.8 million primarily due to
lower raw material costs, especially steel, timing of payments
and foreign currency translation.
Short-term borrowings decreased $7.2 million primarily due
to payment of debt incurred in connection with our continued
expansion and working capital needs of our China subsidiaries,
as well as the payment of debt acquired in the South America
acquisition in 2008.
Long-term debt and the current portion of long-term debt
increased by $47.9 million primarily due to acquisitions,
purchases of properties, plants and equipment, reduction of
short term borrowings, higher cash and cash equivalent balances,
partially offset by strong operating cash flows.
Pension liabilities increased by $63.5 million primarily
due to a reduction to the discount rate, which contributed to an
increase in the projected benefit obligation.
28
Other long-term liabilities increased by $50.9 million and
primarily consist of a fair value adjustment of
$38.6 million related to foreign currency swaps and an
increase to other statutory pension plans of $7.4 million.
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 at least 12 months.
Capital
Expenditures and Business Acquisitions and
Divestitures
During 2009, 2008 and 2007, we invested $124.7 million
(excluding $1.0 million for timberland properties),
$143.1 million (excluding $2.5 million for timberland
properties), and $112.6 million (excluding
$2.3 million for timberland properties) in capital
expenditures, respectively. We anticipate future capital
expenditures, excluding the potential purchase of timberland
properties, of approximately $125 million through
October 31, 2010. These expenditures will be primarily to
replace and improve equipment.
During 2009, we acquired five industrial packaging companies and
one paper packaging company and made a contingent purchase price
payment related to a 2005 acquisition for an aggregate purchase
price of $90.8 million. These six acquisitions consisted of
the acquisition of two North American industrial packaging
companies in February 2009, a North American industrial
packaging company in June 2009, an Asian industrial packaging
company in July 2009, a South American industrial packaging
company in October 2009, and a 75% interest in a North American
paper packaging company in October 2009. See Note 2 to the
Consolidated Financial Statements included in Item 8 of
this
Form 10-K
for additional disclosures regarding our acquisitions.
During 2009, we sold specific Industrial Packaging segment
assets and facilities in North America. The net gain from these
sales was $17.1 million and is included in gain on disposal
of properties, plants, and equipment, net in the accompanying
consolidated statement of income.
During 2008, we acquired four small industrial packaging
companies and one paper packaging company and made a contingent
purchase price payment related to a 2005 acquisition for an
aggregate purchase price of $90.3 million. These five
acquisitions, one in South America (70% interest), one in the
Middle East (51% interest), one in Asia, and two in North
America, complemented our current businesses. During 2008, we
sold our Australian drum operations, sold our 51% interest in a
Zimbabwean operation, sold three North American paper packaging
operations and sold a North American industrial packaging
operation. The proceeds from these divestitures were
$36.5 million resulting in a net gain of
$31.6 million. The 2007 sales and net income from these
operations were not material to our overall operations. See
Note 2 to the Consolidated Financial Statements included in
Item 8 of this
Form 10-K
for additional disclosures regarding our acquisitions.
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.
29
The $200 million term loan is scheduled to amortize by
$2.5 million per quarter for the first four quarters,
$5.0 million per quarter for the next eight quarters and
$150.0 million on the maturity date. There was
$192.5 million outstanding under the Credit Agreement at
October 31, 2009. The Credit Agreement is available to fund
ongoing working capital and capital expenditure needs, for
general corporate purposes, and to finance acquisitions.
Interest is based on either an 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) our total consolidated
indebtedness, to (b) our 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 October 31, 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 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
As discussed below, during the third quarter 2009, we issued
$250.0 million of our 7.75% Senior Notes due 2019. In
connection with the issuance of these new Senior Notes, we
obtained a waiver from the lenders under the Credit Agreement.
Under the Credit Agreement, we would have been required to use
the proceeds of the new Senior Notes first to make a mandatory
prepayment to our term loan facility, then to make a mandatory
prepayment to certain letter of credit borrowings and finally to
cash collateralize letter of credit obligations. The lenders
waived this mandatory prepayment requirement and allowed us
instead, on a one-time basis, to use the proceeds of the new
Senior Notes to repay borrowings under the revolving credit
facility.
See Note 7 to the Consolidated Financial Statements
included in Item 8 of this
Form 10-K
for additional disclosures regarding the Credit Agreement.
New Senior
Notes
We have issued $300.0 million of our 6.75% Senior
Notes due February 1, 2017. Proceeds from the issuance of
these Senior Notes were principally used to fund the purchase of
our previously outstanding senior subordinated notes and for
general corporate purposes. These Senior Notes are general
unsecured obligations of Greif, provide for semi-annual payments
of interest at a fixed rate of 6.75%, and do not require any
principal payments prior to maturity on February 1, 2017.
These 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 these 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
30
transactions. These covenants are subject to a number of
limitations and exceptions as set forth in the Indenture. At
October 31, 2009, we were in compliance with these
covenants.
During the third quarter 2009, we issued $250.0 million of
our 7.75% Senior Notes due August 1, 2019. Proceeds
from the issuance of these Senior Notes were principally used
for general corporate purposes, including the repayment of
amounts outstanding under our revolving multicurrency credit
facility under the Credit Agreement, without any permanent
reduction of the commitments. These Senior Notes are general
unsecured obligations of Greif, provide for semi-annual payments
of interest at a fixed rate of 7.75%, and do not require any
principal payments prior to maturity on August 1, 2019.
These 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 these 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 October 31, 2009, we were in compliance with
these covenants.
See Note 7 to the Consolidated Financial Statements
included in Item 8 of this
Form 10-K
for additional disclosures regarding the Senior Notes discussed
above.
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 2010. 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. Proceeds of the Receivables Facility are available
for working capital and general corporate purposes. At
October 31, 2009, there were no outstanding amounts under
the Receivables Facility and $120 million outstanding at
October 31, 2008 under the prior receivables facility that
was terminated in connection with the Receivables Facility. See
Note 7 of the Consolidated Financial Statements included in
Item 8 of this
Form 10-K
for additional disclosures regarding the Receivable 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% to 90% 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
Transfer and Servicing of Financial Assets and Extinguishments
of Liabilities (codified under ASC 860 Transfers
and Servicing), 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
$185.3 million at October 31, 2009. At
October 31, 2009 and 2008, total accounts receivable of
$127.4 million and $147.6 million, respectively, were
sold under the various RPAs, respectively.
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
$6.5 million for the year ended October 31, 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.
31
See Note 3 to the Consolidated Financial Statements
included in Item 8 of this
Form 10-K
for additional information regarding these various RPAs.
Other
In addition to the amounts borrowed under the Credit Agreement
and proceeds from the Senior Notes and the United States and
Non-United
States trade accounts receivable credit facility, at
October 31, 2009, we had outstanding other debt of
$24.0 million, comprised of $4.4 million in long-term
debt and $19.6 million in short-term borrowings.
At October 31, 2009, annual maturities of our long-term
debt under our various financing arrangements were
$21.9 million in 2010, $24.4 million in 2011,
$155.0 million in 2012, and $541.7 million thereafter.
The current portion of the long term debt is $17.5 million.
At October 31, 2009 and October 31, 2008, we had
deferred financing fees and debt issuance costs of
$14.9 million and $4.6 million, respectively, which
are included in other long-term assets.
Contractual
Obligations
As of October 31, 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
|
|
$
|
1,064.7
|
|
|
$
|
|
|
|
$
|
311.6
|
|
|
$
|
79.3
|
|
|
$
|
673.8
|
|
Current portion of long-term debt
|
|
|
17.5
|
|
|
|
17.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowing
|
|
|
20.8
|
|
|
|
20.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligations
|
|
|
0.5
|
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
0.1
|
|
|
|
|
|
Operating leases
|
|
|
86.4
|
|
|
|
18.3
|
|
|
|
29.6
|
|
|
|
17.8
|
|
|
|
20.7
|
|
Liabilities held by special purpose entities
|
|
|
69.5
|
|
|
|
2.2
|
|
|
|
4.5
|
|
|
|
4.5
|
|
|
|
58.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,259.4
|
|
|
$
|
59.0
|
|
|
$
|
345.9
|
|
|
$
|
101.7
|
|
|
$
|
752.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts presented in the contractual obligation table
include interest
Our unrecognized tax benefits under FIN 48,
Accounting for Uncertainty in Income Taxes
(codified under ASC 740 Income Taxes) 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 and Other Share Acquisitions
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 2009,
we repurchased no shares of Class A Common Stock, and we
repurchased 100,000 shares of Class B Common Stock
(see Item 5 to this
Form 10-K
for additional information regarding these repurchases). As of
October 31, 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 October 31, 2009 was
$36.0 million.
Effects of
Inflation
The effects of inflation did not have a material impact on our
operations during 2009, 2008 or 2007.
Subsequent
Events
We adopted SFAS No. 165, Subsequent Events
(codified under ASC 855 Subsequent Events) in
2009. This standard is intended to establish general standards
of accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued.
The adoption of SFAS No. 165 had no impact to our
financial statements. We evaluated all events or transactions
that occurred after October 31, 2009 up through
December 23, 2009, the date we issued these
32
financial statements. During this period, we had two
recognizable subsequent events reported under Note 17 to
the Consolidated Financial Statements included in Item 8 of
this
Form 10-K.
Recent Accounting
Standards
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations (codified under ASC 805
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 incorporated herein. Refer to
Note 17 to the Consolidated Financial Statements included
in Item 8 of this
Form 10-K
for the financial impact on adoption of
SFAS No. 141(R) as of November 1, 2009.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements (codified under ASC 820
Fair Value Measurements and Disclosures).
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. We adopted SFAS No. 157 on
February 1, 2008, as required. The adoption of
SFAS No. 157 did not have a material impact on our
financial condition and results of operations. Refer to
Note 8 to the Consolidated Financial Statements included in
Item 8 of this
Form 10-K
for our fair value hierarchy provisions of
SFAS No. 157.
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities (codified under ASC 825 Financial
Instruments). 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 us on November 1, 2008. Since we have not
utilized the fair value option for any allowable items, the
adoption of SFAS No. 159 did not have a material
impact on our financial condition or results of operations.
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 (codified under ASC 810
Consolidation). 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 parents 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 parents
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.
We are in the process of evaluating the impact that the adoption
of SFAS No. 160 may have on our consolidated financial
statements. However, we do not anticipate a material impact on
our financial condition, results of operations or cash flows.
In December 2008, the FASB issued FASB Staff Position
FAS 132(R)-1, Employers Disclosures About
Postretirement Benefit Plan Assets (FSP
FAS 132(R)-1) (codified under ASC 715
Compensation Retirement Benefits),
to provide guidance on employers disclosures about assets
of a defined benefit pension or other postretirement plan. FSP
FAS 132(R)-1 requires employers to disclose information
about fair value measurements of plan assets similar to
SFAS 157. The objectives of
33
the disclosures are to provide an understanding of: (a) how
investment allocation decisions are made, including the factors
that are pertinent to an understanding of investment policies
and strategies, (b) the major categories of plan assets,
(c) the inputs and valuation techniques used to measure the
fair value of plan assets, (d) the effect of fair value
measurements using significant unobservable inputs on changes in
plan assets for the period and (e) significant
concentrations of risk within plan assets. The disclosures
required by FSP FAS 132(R)-1 will be effective for our
financial statements for the fiscal year beginning
November 1, 2009. We are in the process of evaluating the
impact that the adoption of FAS 132(R)-1 may have on our
consolidated financial statements. However, we do not anticipate
a material impact on our financial condition, results of
operations or cash flows.
In June 2009, the FASB issued SFAS No. 166,
Accounting for Transfers of Financial Assetsan
amendment of FASB Statement No. 140 (not yet
codified). The Statement amends SFAS No. 140 to
improve the information provided in financial statements
concerning transfers of financial assets, including the effects
of transfers on financial position, financial performance and
cash flows, and any continuing involvement of the transferor
with the transferred financial assets. The provisions of
SFAS 166 are effective for our financial statements for the
fiscal year beginning November 1, 2010. We are in the
process of evaluating the impact, if any, that the adoption of
SFAS 166 may have on our consolidated financial statements.
However, we do not anticipate a material impact on our financial
condition, results of operations or cash flows.
In June 2009, the FASB issued SFAS No. 167,
Amendments to FASB Interpretation No. 46(R)
(not yet codified). SFAS 167 amends Interpretation
46(R) to require an enterprise to perform an analysis to
determine whether the enterprises variable interest or
interests give it a controlling financial interest in a variable
interest entity. It also amends Interpretation 46(R) to require
enhanced disclosures that will provide users of financial
statements with more transparent information about an
enterprises involvement in a variable interest entity. The
provisions of SFAS 167 are effective for our financial
statements for the fiscal year beginning November 1, 2010.
We are in the process of evaluating the impact, if any, that the
adoption of SFAS 167 may have on our consolidated financial
statements. However, we do not anticipate a material impact on
our financial condition, results of operations or cash flows.
In June 2009, the FASB issued SFAS No. 168, The
FASB Accounting Standards Codification and the Hierarchy
of Generally Accepted Accounting Principles. This standard
replaces SFAS No. 162, The Hierarchy of
Generally Accepted Accounting Principles, and establishes
two levels of GAAP, authoritative and non-authoritative. The
FASB Accounting Standards Codification (the
Codification) will become the source of
authoritative, nongovernmental GAAP, except for rules and
interpretive releases of the SEC, which are sources of
authoritative GAAP for SEC registrants. All other
non-grandfathered, non-SEC accounting literature not included in
the Codification will become non-authoritative. We have adopted
the codification standards which do not have a financial impact
other than references to authoritative literature incorporated
herein.
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Interest Rate
Risk
We are subject to interest rate risk related to our financial
instruments that include borrowings under our Credit Agreement,
proceeds from our Senior Notes and trade accounts receivable
credit facility, and interest rate swap agreements. We do not
enter into financial instruments for trading or speculative
purposes. The interest rate swap agreements have been entered
into to manage our exposure to variability in interest rates and
changes in the fair value of fixed rate debt.
We had interest rate swap agreements with an aggregate notional
amount of $175.0 million and $100.0 million at
October 31, 2009 and 2008, respectively, with various
maturities through 2012. The interest rate swap agreements are
used to fix a portion of the interest on our variable rate debt.
Under certain of these agreements, we receive interest monthly
or quarterly from the counterparties equal to London InterBank
Offered Rate (LIBOR) and pay interest at a fixed
rate over the life of the contracts. A liability for the loss on
interest rate swap contracts, which represented their fair
values, in the amount of $2.3 million and $2.8 million
was recorded at October 31, 2009 and 2008, respectively.
The tables below provide information about our derivative
financial instruments and other financial instruments that are
sensitive to changes in interest rates. For the Credit
Agreement, Senior Notes and trade accounts receivable credit
facility, the tables present scheduled amortizations of
principal and the weighted average interest rate by contractual
maturity dates at October 31, 2009 and 2008. For interest
rate swaps, the tables present annual amortizations of notional
amounts and weighted
34
average interest rates by contractual maturity dates. Under the
cash flow swap agreements, we receive interest either monthly or
quarterly from the counterparties and pay interest either
monthly or quarterly to the counterparties.
The fair values of the Credit Agreement, Senior Notes and trade
accounts receivable credit facility are based on rates available
to us for debt of the same remaining maturity at
October 31, 2009 and 2008. The fair value of the interest
rate swap agreements has been determined based upon the market
settlement prices of comparable contracts at October 31,
2009 and 2008.
Financial
Instruments
As of
October 31, 2009
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected Maturity
Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After
|
|
|
|
|
|
Fair
|
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2014
|
|
|
Total
|
|
|
Value
|
|
|
|
|
Credit Agreement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scheduled amortizations
|
|
$
|
17
|
|
|
$
|
20
|
|
|
$
|
155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
192
|
|
|
$
|
192
|
|
Average interest rate(1)
|
|
|
3.19
|
%
|
|
|
3.19
|
%
|
|
|
3.19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.19
|
%
|
|
|
|
|
Senior Notes due 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scheduled amortizations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
300
|
|
|
$
|
300
|
|
|
$
|
292
|
|
Average interest rate
|
|
|
6.75
|
%
|
|
|
6.75
|
%
|
|
|
6.75
|
%
|
|
|
6.75
|
%
|
|
|
6.75
|
%
|
|
|
6.75
|
%
|
|
|
6.75
|
%
|
|
|
|
|
Senior Notes due 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scheduled amortizations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
250
|
|
|
$
|
250
|
|
|
$
|
256
|
|
Average interest rate
|
|
|
7.75
|
%
|
|
|
7.75
|
%
|
|
|
7.75
|
%
|
|
|
7.75
|
%
|
|
|
7.75
|
%
|
|
|
7.75
|
%
|
|
|
7.75
|
%
|
|
|
|
|
Trade accounts receivable credit facility:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scheduled amortizations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scheduled amortizations
|
|
$
|
50
|
|
|
$
|
50
|
|
|
$
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
175
|
|
|
$
|
(2.3
|
)
|
Average pay rate(2)
|
|
|
2.71
|
%
|
|
|
2.71
|
%
|
|
|
2.71
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.71
|
%
|
|
|
|
|
Average receive rate(3)
|
|
|
0.25
|
%
|
|
|
0.25
|
%
|
|
|
0.25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.25
|
%
|
|
|
|
|
|
|
|
(1)
|
|
Variable rate specified is based on
LIBOR or an alternative base rate plus a calculated margin at
October 31, 2009. The rates presented are not intended to
project our expectations for the future.
|
|
(2)
|
|
The average pay rate is based upon
the fixed rates we were scheduled to pay at October 31,
2009. The rates presented are not intended to project our
expectations for the future.
|
|
(3)
|
|
The average receive rate is based
upon the LIBOR we were scheduled to receive at October 31,
2009. The rates presented are not intended to project our
expectations for the future.
|
35
As of
October 31, 2008
(Dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected Maturity
Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After
|
|
|
|
|
|
Fair
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2013
|
|
|
Total
|
|
|
Value
|
|
|
|
|
Credit Agreement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scheduled amortizations
|
|
|
|
|
|
$
|
248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
248
|
|
|
$
|
248
|
|
Average interest rate(1)
|
|
|
3.98
|
%
|
|
|
3.98
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.98
|
%
|
|
|
|
|
Senior Notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scheduled amortizations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
300
|
|
|
$
|
300
|
|
|
$
|
246
|
|
Average interest rate
|
|
|
6.75
|
%
|
|
|
6.75
|
%
|
|
|
6.75
|
%
|
|
|
6.75
|
%
|
|
|
6.75
|
%
|
|
|
6.75
|
%
|
|
|
6.75
|
%
|
|
|
|
|
Trade accounts receivable credit facility:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scheduled amortizations
|
|
|
|
|
|
$
|
120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
120
|
|
|
$
|
120
|
|
Average interest rate(1)
|
|
|
4.24
|
%
|
|
|
4.24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.24
|
%
|
|
|
|
|
Interest rate swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scheduled amortizations
|
|
$
|
50
|
|
|
$
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
100
|
|
|
$
|
(2.7
|
)
|
Average pay rate(2)
|
|
|
4.93
|
%
|
|
|
4.93
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.93
|
%
|
|
|
|
|
Average receive rate(3)
|
|
|
3.11
|
%
|
|
|
3.11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.11
|
%
|
|
|
|
|
|
|
|
(1)
|
|
Variable rate specified is based on
LIBOR or an alternative base rate plus a calculated margin at
October 31, 2008. The rates presented are not intended to
project our expectations for the future.
|
|
(2)
|
|
The average pay rate is based upon
the fixed rates we were scheduled to pay at October 31,
2008. The rates presented are not intended to project our
expectations for the future.
|
|
(3)
|
|
The average receive rate is based
upon the LIBOR we were scheduled to receive at October 31,
2008. The rates presented are not intended to project our
expectations for the future.
|
The fair market value of the interest rate swaps at
October 31, 2009 was a net liability of $2.3 million.
Based on a sensitivity analysis we performed at October 31,
2009, a 100 basis point decrease in interest rates would
increase the fair value of the swap agreements by
$1.9 million to a net liability of $4.2 million.
Conversely, a 100 basis point increase in interest rates
would decrease the fair value of the swap agreements by
$2.7 million to a net gain of $0.4 million.
Currency
Risk
As a result of our international operations, our operating
results are subject to fluctuations in currency exchange rates.
The geographic presence of our operations mitigates this
exposure to some degree. Additionally, our transaction exposure
is somewhat limited because we produce and sell a majority of
our products within each country in which we operate.
We have entered into cross-currency interest rate swaps which
are designated as a hedge of a net investment in a foreign
operation. Under these agreements, we receive interest
semi-annually from the counterparties equal to a fixed rate of
6.75% on $300.0 million and pay interest at a fixed rate of
6.25% on 219.9 million. Upon maturity of these swaps
on August 1, 2009, August 1, 2010, and August 1,
2012, we paid or 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
loss on these agreements was $14.6 million and a gain of
$24.5 million at October 31, 2009 and October 31,
2008, respectively. On August 1, 2009, we paid
73.3 million ($103.6 million) to the
counterparties and received $100.0 million from the
counterparties.
At October 31, 2009, we had outstanding foreign currency
forward contracts in the notional amount of $70.5 million
($174.0 million at October 31, 2008). The purpose of
these contracts is to hedge our exposure to foreign currency
transactions and short-term intercompany loan balances in our
international businesses. The fair value of these contracts at
October 31, 2009 resulted in loss of $0.1 million
recorded in the consolidated statements of income. The fair
value of similar contracts at October 31, 2008 resulted in
a loss of $1.5 million recorded in other comprehensive
income and an insignificant loss recorded in the consolidated
statements of income.
36
A sensitivity analysis to changes in the foreign currencies
hedged indicates that if the U.S. dollar strengthened by
10%, the fair value of these instruments would increase by
$0.7 million to a net gain of $0.6 million.
Conversely, if the U.S. dollar weakened by 10%, the fair
value of these instruments would decrease by $0.8 million
to a net loss of $0.9 million.
Commodity Price
Risk
We purchase commodities such as steel, resin, containerboard,
pulpwood, and energy. We do not currently engage in material
hedging of commodities, other than small hedges in natural gas,
because there has historically been a high correlation between
the commodity cost and the ultimate selling price of our
products. The fair value of our commodity hedging contracts
resulted in a $0.6 million loss recorded in other
comprehensive income at October 31, 2009. A sensitivity
analysis to changes in natural prices indicates that if natural
gas prices decreased by 10%, the fair value of these instruments
would decrease by $0.4 million to a net loss of
$1.0 million. Conversely, if natural gas prices increased
by 10%, the fair value of these instruments would increase by
$0.4 million to a net loss of $0.2 million.
Fair Value
Measurement
SFAS No. 157 (codified under ASC 820 Fair
Value Measurements and Disclosures) 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 October 31,
2009, we held certain derivative asset and liability positions
that lack level 1 inputs and are thus required to be
measured at fair value on a Level 2 basis. The majority of
our derivative instruments related to receive floating-rate, pay
fixed-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
October 31, 2009, are as follows (Dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
|
|
|
Notional
Amount
|
|
|
Adjustment
|
|
|
Balance Sheet
Location
|
|
|
October 31,
2009
|
|
|
October 31,
2009
|
|
|
October 31,
2009
|
|
|
Cross-currency interest rate swaps
|
|
$
|
200,000
|
|
|
$
|
(14,635
|
)
|
|
Other long-term liabilities
|
Interest rate derivatives
|
|
|
175,000
|
|
|
|
(2,283
|
)
|
|
Other long-term liabilities
|
Energy and other derivatives
|
|
|
74,536
|
|
|
|
(727
|
)
|
|
Other current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
449,536
|
|
|
$
|
(17,645
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
GREIF, INC. AND
SUBSIDIARY COMPANIES
CONSOLIDATED
STATEMENTS OF INCOME
(Dollars in
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years
ended October 31,
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
Net sales
|
|
$
|
2,792,217
|
|
|
$
|
3,790,531
|
|
|
$
|
3,331,597
|
|
Costs of products sold
|
|
|
2,257,141
|
|
|
|
3,097,760
|
|
|
|
2,726,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
535,076
|
|
|
|
692,771
|
|
|
|
605,402
|
|
Selling, general and administrative expenses
|
|
|
267,589
|
|
|
|
339,157
|
|
|
|
313,377
|
|
Restructuring charges
|
|
|
66,590
|
|
|
|
43,202
|
|
|
|
21,229
|
|
Timberland disposals, net
|
|
|
|
|
|
|
340
|
|
|
|
(648
|
)
|
(Gain) on disposal of properties, plants and equipment, net
|
|
|
(34,432
|
)
|
|
|
(59,534
|
)
|
|
|
(19,434
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
235,329
|
|
|
|
370,286
|
|
|
|
289,582
|
|
Interest expense, net
|
|
|
53,593
|
|
|
|
49,628
|
|
|
|
45,512
|
|
Debt extinguishment charge
|
|
|
782
|
|
|
|
|
|
|
|
23,479
|
|
Other expense, net
|
|
|
7,193
|
|
|
|
8,751
|
|
|
|
8,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense and equity in earnings of
affiliates and minority interests
|
|
|
173,761
|
|
|
|
311,907
|
|
|
|
211,635
|
|
Income tax expense
|
|
|
37,706
|
|
|
|
73,610
|
|
|
|
53,544
|
|
Equity in earnings of affiliates and minority interests
|
|
|
(3,622
|
)
|
|
|
(3,943
|
)
|
|
|
(1,723
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
132,433
|
|
|
$
|
234,354
|
|
|
$
|
156,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A Common Stock
|
|
$
|
2.29
|
|
|
$
|
4.04
|
|
|
$
|
2.69
|
|
Class B Common Stock
|
|
$
|
3.42
|
|
|
$
|
6.04
|
|
|
$
|
4.04
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A Common Stock
|
|
$
|
2.28
|
|
|
$
|
3.99
|
|
|
$
|
2.65
|
|
Class B Common Stock
|
|
$
|
3.42
|
|
|
$
|
6.04
|
|
|
$
|
4.04
|
|
See accompanying Notes to
Consolidated Financial Statements.
38
GREIF, INC. AND
SUBSIDIARY COMPANIES
CONSOLIDATED
BALANCE SHEETS
(Dollars in
thousands)
|
|
|
|
|
|
|
|
|
|
|
As of October
31,
|
|
|
2009
|
|
|
|
2008
|
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
$
|
111,896
|
|
|
|
$
|
77,627
|
|
Trade accounts receivable, less allowance of $12,510 in 2009 and
$13,532 in 2008
|
|
|
|
337,054
|
|
|
|
|
392,537
|
|
Inventories
|
|
|
|
227,432
|
|
|
|
|
303,994
|
|
Deferred tax assets
|
|
|
|
19,901
|
|
|
|
|
33,206
|
|
Net assets held for sale
|
|
|
|
31,574
|
|
|
|
|
21,321
|
|
Prepaid expenses and other current assets
|
|
|
|
105,904
|
|
|
|
|
93,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
833,761
|
|
|
|
|
922,650
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term assets
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
592,117
|
|
|
|
|
512,973
|
|
Other intangible assets, net of amortization
|
|
|
|
131,370
|
|
|
|
|
104,424
|
|
Assets held by special purpose entities (Note 6)
|
|
|
|
50,891
|
|
|
|
|
50,891
|
|
Other long-term assets
|
|
|
|
112,092
|
|
|
|
|
88,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
886,470
|
|
|
|
|
756,851
|
|
|
|
|
|
|
|
|
|
|
|
|
Properties, plants and equipment
|
|
|
|
|
|
|
|
|
|
|
Timber properties, net of depletion
|
|
|
|
197,114
|
|
|
|
|
199,701
|
|
Land
|
|
|
|
120,667
|
|
|
|
|
119,679
|
|
Buildings
|
|
|
|
380,816
|
|
|
|
|
343,702
|
|
Machinery and equipment
|
|
|
|
1,148,406
|
|
|
|
|
1,046,347
|
|
Capital projects in progress
|
|
|
|
70,489
|
|
|
|
|
91,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,917,492
|
|
|
|
|
1,800,978
|
|
Accumulated depreciation
|
|
|
|
(825,213
|
)
|
|
|
|
(734,581
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,092,279
|
|
|
|
|
1,066,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,812,510
|
|
|
|
$
|
2,745,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to
Consolidated Financial Statements.
39
GREIF, INC. AND
SUBSIDIARY COMPANIES
CONSOLIDATED
BALANCE SHEETS
(Dollars in
thousands)
|
|
|
|
|
|
|
|
|
|
|
As of October
31,
|
|
|
2009
|
|
|
|
2008
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
$
|
335,816
|
|
|
|
$
|
384,648
|
|
Accrued payroll and employee benefits
|
|
|
|
74,475
|
|
|
|
|
91,498
|
|
Restructuring reserves
|
|
|
|
15,315
|
|
|
|
|
15,147
|
|
Short-term borrowings
|
|
|
|
37,084
|
|
|
|
|
44,281
|
|
Other current liabilities
|
|
|
|
99,407
|
|
|
|
|
136,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
562,097
|
|
|
|
|
671,801
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term liabilities
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
721,108
|
|
|
|
|
673,171
|
|
Deferred tax liabilities
|
|
|
|
156,755
|
|
|
|
|
183,021
|
|
Pension liabilities
|
|
|
|
77,942
|
|
|
|
|
14,456
|
|
Postretirement benefit obligations
|
|
|
|
25,396
|
|
|
|
|
25,138
|
|
Liabilities held by special purpose entities (Note 6)
|
|
|
|
43,250
|
|
|
|
|
43,250
|
|
Other long-term liabilities
|
|
|
|
126,392
|
|
|
|
|
75,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,150,843
|
|
|
|
|
1,014,557
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority Interest
|
|
|
|
6,997
|
|
|
|
|
3,729
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
|
|
|
|
|
|
|
|
Common stock, without par value
|
|
|
|
96,504
|
|
|
|
|
86,446
|
|
Treasury stock, at cost
|
|
|
|
(115,277
|
)
|
|
|
|
(112,931
|
)
|
Retained earnings
|
|
|
|
1,199,592
|
|
|
|
|
1,155,116
|
|
Accumulated other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
- foreign currency translation
|
|
|
|
(6,825
|
)
|
|
|
|
(39,693
|
)
|
- interest rate derivatives
|
|
|
|
(1,484
|
)
|
|
|
|
(1,802
|
)
|
- energy and other derivatives
|
|
|
|
(391
|
)
|
|
|
|
(4,299
|
)
|
- minimum pension liabilities
|
|
|
|
(79,546
|
)
|
|
|
|
(27,026
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,092,573
|
|
|
|
|
1,055,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,812,510
|
|
|
|
$
|
2,745,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to
Consolidated Financial Statements.
40
GREIF, INC. AND
SUBSIDIARY COMPANIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Dollars in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years
ended October 31,
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
132,433
|
|
|
$
|
234,354
|
|
|
$
|
156,368
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization
|
|
|
102,627
|
|
|
|
106,378
|
|
|
|
102,295
|
|
Asset impairments
|
|
|
19,516
|
|
|
|
12,325
|
|
|
|
1,108
|
|
Deferred income taxes
|
|
|
478
|
|
|
|
4,485
|
|
|
|
(8,494
|
)
|
Gain on disposals of properties, plants and equipment, net
|
|
|
(34,432
|
)
|
|
|
(59,534
|
)
|
|
|
(19,434
|
)
|
Timberland disposals, net
|
|
|
|
|
|
|
(340
|
)
|
|
|
648
|
|
Equity in earnings (losses) of affiliates, net of dividends
received, and minority interests
|
|
|
3,622
|
|
|
|
3,943
|
|
|
|
1,723
|
|
Loss on extinguishment of debt
|
|
|
782
|
|
|
|
|
|
|
|
23,479
|
|
Increase (decrease) in cash from changes in certain assets and
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
|
|
73,358
|
|
|
|
(65,877
|
)
|
|
|
42,876
|
|
Inventories
|
|
|
91,756
|
|
|
|
(77,263
|
)
|
|
|
24,120
|
|
Prepaid expenses and other current assets
|
|
|
(151
|
)
|
|
|
(3,467
|
)
|
|
|
(11,403
|
)
|
Other long-term assets
|
|
|
(19,674
|
)
|
|
|
13,240
|
|
|
|
(49,861
|
)
|
Accounts payable
|
|
|
(92,449
|
)
|
|
|
39,827
|
|
|
|
29,051
|
|
Accrued payroll and employee benefits
|
|
|
(20,511
|
)
|
|
|
6,584
|
|
|
|
13,475
|
|
Restructuring reserves
|
|
|
168
|
|
|
|
(629
|
)
|
|
|
5,772
|
|
Other current liabilities
|
|
|
(50,117
|
)
|
|
|
16,310
|
|
|
|
55,194
|
|
Pension and postretirement benefit liabilities
|
|
|
63,744
|
|
|
|
(13,281
|
)
|
|
|
(12,136
|
)
|
Other long-term liabilities
|
|
|
50,871
|
|
|
|
(43,659
|
)
|
|
|
41,692
|
|
Other
|
|
|
(55,497
|
)
|
|
|
(33,560
|
)
|
|
|
(4,472
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
266,524
|
|
|
|
139,836
|
|
|
|
392,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions of companies, net of cash acquired
|
|
|
(90,816
|
)
|
|
|
(99,962
|
)
|
|
|
(346,629
|
)
|
Purchases of properties, plants and equipment
|
|
|
(124,671
|
)
|
|
|
(143,077
|
)
|
|
|
(112,600
|
)
|
Purchases of timber properties
|
|
|
(1,000
|
)
|
|
|
(2,500
|
)
|
|
|
(2,300
|
)
|
Receipt (issuance) of notes receivable
|
|
|
|
|
|
|
33,178
|
|
|
|
(32,248
|
)
|
Proceeds from the sale of properties, plants, equipment and
other assets
|
|
|
50,279
|
|
|
|
60,333
|
|
|
|
22,218
|
|
Purchases of land rights and other
|
|
|
(4,992
|
)
|
|
|
(9,289
|
)
|
|
|
(3,765
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(171,200
|
)
|
|
|
(161,317
|
)
|
|
|
(475,324
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt
|
|
|
3,285,343
|
|
|
|
2,293,751
|
|
|
|
2,040,111
|
|
Payments on long-term debt
|
|
|
(3,218,665
|
)
|
|
|
(2,243,482
|
)
|
|
|
(1,918,807
|
)
|
(Payments of) proceeds from short-term borrowings, net
|
|
|
(25,749
|
)
|
|
|
23,020
|
|
|
|
(14,486
|
)
|
Dividends paid
|
|
|
(87,957
|
)
|
|
|
(76,524
|
)
|
|
|
(53,335
|
)
|
Acquisitions of treasury stock and other
|
|
|
(3,145
|
)
|
|
|
(21,483
|
)
|
|
|
(11,409
|
)
|
Exercise of stock options
|
|
|
2,015
|
|
|
|
4,540
|
|
|
|
19,415
|
|
Debt issuance costs
|
|
|
(13,588
|
)
|
|
|
|
|
|
|
(2,839
|
)
|
Settlement of derivatives
|
|
|
(3,574
|
)
|
|
|
|
|
|
|
(33,935
|
)
|
Payments for premium for debt extinguishment
|
|
|
|
|
|
|
|
|
|
|
(14,303
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(65,320
|
)
|
|
|
(20,178
|
)
|
|
|
10,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effects of exchange rates on cash
|
|
|
4,265
|
|
|
|
(4,413
|
)
|
|
|
9,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
34,269
|
|
|
|
(46,072
|
)
|
|
|
(63,402
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of year
|
|
|
77,627
|
|
|
|
123,699
|
|
|
|
187,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
111,896
|
|
|
$
|
77,627
|
|
|
$
|
123,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to
Consolidated Financial Statements.
41
GREIF,
INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
(Dollars and shares
in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
Capital
Stock
|
|
|
|
Treasury
Stock
|
|
|
|
Retained
|
|
|
|
Comprehensive
|
|
|
|
Shareholders
|
|
|
|
|
Shares
|
|
|
|
Amount
|
|
|
|
Shares
|
|
|
|
Amount
|
|
|
|
Earnings
|
|
|
|
Income
(Loss)
|
|
|
|
Equity
|
|
|
|
As of October 31, 2006
|
|
|
|
46,300
|
|
|
|
$
|
56,765
|
|
|
|
|
30,542
|
|
|
|
$
|
(81,643
|
)
|
|
|
$
|
901,267
|
|
|
|
$
|
(32,378
|
)
|
|
|
$
|
844,011
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
156,368
|
|
|
|
|
|
|
|
|
|
156,368
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,735
|
|
|
|
|
41,735
|
|
- interest rate derivative, net of income tax expense of $466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
864
|
|
|
|
|
864
|
|
- minimum pension liability adjustment, net of income tax
expense of $7,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,360
|
|
|
|
|
17,360
|
|
- energy derivatives, net of income tax expense of $361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,171
|
|
|
|
|
1,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
217,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to initially apply SFAS No. 158, net of
income tax benefit of $7,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,268
|
)
|
|
|
|
(16,268
|
)
|
Dividends paid (Note 10):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A - $0.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,716
|
)
|
|
|
|
|
|
|
|
|
(21,716
|
)
|
Class B - $1.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31,619
|
)
|
|
|
|
|
|
|
|
|
(31,619
|
)
|
Treasury shares acquired
|
|
|
|
(204
|
)
|
|
|
|
|
|
|
|
|
204
|
|
|
|
|
(11,409
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,409
|
)
|
Stock options exercised
|
|
|
|
559
|
|
|
|
|
7,732
|
|
|
|
|
(559
|
)
|
|
|
|
949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,681
|
|
Tax benefit of stock options
|
|
|
|
|
|
|
|
|
8,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,076
|
|
Long-term incentive shares issued
|
|
|
|
38
|
|
|
|
|
2,104
|
|
|
|
|
(38
|
)
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,168
|
|
Directors shares issued
|
|
|
|
6
|
|
|
|
|
479
|
|
|
|
|
(6
|
)
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of October 31, 2007
|
|
|
|
46,699
|
|
|
|
$
|
75,156
|
|
|
|
|
30,143
|
|
|
|
$
|
(92,028
|
)
|
|
|
$
|
1,004,300
|
|
|
|
$
|
12,484
|
|
|
|
$
|
999,912
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
234,354
|
|
|
|
|
|
|
|
|
|
234,354
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(82,953
|
)
|
|
|
|
(82,953
|
)
|
- interest rate derivative, net of income tax benefit of $433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(805
|
)
|
|
|
|
(805
|
)
|
- minimum pension liability adjustment, net of income tax
expense of $920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,979
|
|
|
|
|
2,979
|
|
- energy derivatives, net of income tax benefit of $1,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,629
|
)
|
|
|
|
(3,629
|
)
|
- commodity hedge, net of income tax benefit of $482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(896
|
)
|
|
|
|
(896
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
149,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to initially apply FIN 48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,015
|
)
|
|
|
|
|
|
|
|
|
(7,015
|
)
|
Dividends paid:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A - $1.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31,591
|
)
|
|
|
|
|
|
|
|
|
(31,591
|
)
|
Class B - $1.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(44,933
|
)
|
|
|
|
|
|
|
|
|
(44,933
|
)
|
Treasury shares acquired
|
|
|
|
(382
|
)
|
|
|
|
|
|
|
|
|
382
|
|
|
|
|
(21,476
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,476
|
)
|
Stock options exercised
|
|
|
|
283
|
|
|
|
|
3,949
|
|
|
|
|
(283
|
)
|
|
|
|
484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,433
|
|
Tax benefit of stock options
|
|
|
|
|
|
|
|
|
4,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,709
|
|
Long-term incentive shares issued
|
|
|
|
44
|
|
|
|
|
2,633
|
|
|
|
|
(44
|
)
|
|
|
|
89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of October 31, 2008
|
|
|
|
46,644
|
|
|
|
$
|
86,446
|
|
|
|
|
30,198
|
|
|
|
$
|
(112,931
|
)
|
|
|
$
|
1,155,116
|
|
|
|
$
|
(72,820
|
)
|
|
|
$
|
1,055,811
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132,433
|
|
|
|
|
|
|
|
|
|
132,433
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,868
|
|
|
|
|
32,868
|
|
- interest rate derivative, net of income tax expense of $128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
318
|
|
|
|
|
318
|
|
- minimum pension liability adjustment, net of income tax
benefit of $28,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(51,092
|
)
|
|
|
|
(51,092
|
)
|
- energy derivatives, net of income tax expense of $1,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,908
|
|
|
|
|
3,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
118,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in pension measurement date, net of income tax benefit of
$590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,428
|
)
|
|
|
|
(1,428
|
)
|
Dividends paid:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A - $1.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36,967
|
)
|
|
|
|
|
|
|
|
|
(36,967
|
)
|
Class B - $2.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(50,990
|
)
|
|
|
|
|
|
|
|
|
(50,990
|
)
|
Treasury shares acquired
|
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
100
|
|
|
|
|
(3,145
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,145
|
)
|
Stock options exercised
|
|
|
|
133
|
|
|
|
|
1,749
|
|
|
|
|
(133
|
)
|
|
|
|
266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,015
|
|
Tax benefit of stock options
|
|
|
|
|
|
|
|
|
575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
575
|
|
Long-term incentive shares issued
|
|
|
|
260
|
|
|
|
|
7,734
|
|
|
|
|
(260
|
)
|
|
|
|
533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of October 31, 2009
|
|
|
|
46,937
|
|
|
|
$
|
96,504
|
|
|
|
|
29,905
|
|
|
|
$
|
(115,277
|
)
|
|
|
$
|
1,199,592
|
|
|
|
$
|
(88,246
|
)
|
|
|
$
|
1,092,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to
Consolidated Financial Statements.
42
GREIF, INC. AND
SUBSIDIARY COMPANIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1DESCRIPTION
OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The
Business
Greif, Inc. and its subsidiaries (collectively,
Greif, our, or the Company)
principally manufacture industrial packaging products,
complemented with a variety of value-added services, including
blending, packaging, logistics and warehousing, and
containerboard and corrugated products that it sells to
customers in many industries throughout the world. The Company
has operations in over 45 countries. In addition, the Company
owns timber properties in the southeastern United States, which
are actively harvested and regenerated, and also owns timber
properties in Canada.
Due to the variety of its products, the Company has many
customers buying different products and, due to the scope of the
Companys sales, no one customer is considered principal in
the total operations of the Company.
Because the Company supplies a cross section of industries, such
as chemicals, food products, petroleum products, pharmaceuticals
and metal products, and must make spot deliveries on a
day-to-day
basis as its products are required by its customers, the Company
does not operate on a backlog to any significant extent and
maintains only limited levels of finished goods. Many customers
place their orders weekly for delivery during the same week.
The Companys raw materials are principally steel, resin,
containerboard, old corrugated containers for recycling and
pulpwood.
There are approximately 8,200 employees of the Company at
October 31, 2009.
Principles of
Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of
Greif, Inc. and all wholly-owned and majority-owned
subsidiaries. All intercompany transactions and balances have
been eliminated in consolidation. Investments in unconsolidated
affiliates are accounted for using the equity method.
The Companys consolidated financial statements are
presented in accordance with accounting principles generally
accepted in the United States (GAAP). Certain prior
year amounts have been reclassified to conform to the current
year presentation.
The Companys fiscal year begins on November 1 and ends on
October 31 of the following year. Any references to the year
2009, 2008 or 2007, or to any quarter of those years, relates to
the fiscal year ending in that year.
Use of
Estimates
The preparation of consolidated financial statements in
conformity with accounting principles generally accepted in the
United States requires management to make certain estimates,
judgments, and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying notes.
The most significant estimates are related to the allowance for
doubtful accounts, inventory reserves, expected useful lives
assigned to properties, plants and equipment, goodwill and other
intangible assets, restructuring reserves, environmental
liabilities, pension and postretirement benefits, income taxes,
derivatives, net assets held for sale, self-insurance reserves
and contingencies. Actual amounts could differ from those
estimates.
Cash and Cash
Equivalents
The Company considers highly liquid investments with an original
maturity of three months or less to be cash equivalents. The
carrying value of cash equivalents approximates fair value.
Receivables
Trade receivables represent amounts owed to us through our
operating activities and are presented net of allowance for
doubtful accounts. The allowance for doubtful accounts totaled
$12.5 million and $13.5 million at October 31,
2009 and 2008, respectively. The Company evaluates the
collectability of its accounts receivable based on a combination
of factors. In circumstances where the Company is aware of a
specific customers inability to meet its financial
obligations to the Company,
43
the Company records a specific allowance for bad debts against
amounts due to reduce the net recognized receivable to the
amount the Company reasonably believes will be collected. In
addition, the Company recognizes allowances for bad debts based
on the length of time receivables are past due with allowance
percentages, based on its historical experiences, applied on a
graduated scale relative to the age of the receivable amounts.
If circumstances such as higher than expected bad debt
experience or an unexpected material adverse change in a major
customers ability to meet its financial obligations to the
Company were to occur, the Company estimates of the
recoverability of amounts due to the Company could change by a
material amount. Amounts deemed uncollectible are written-off
against an established allowance for doubtful accounts.
Concentration of
Credit Risk and Major Customers
The Company maintains cash depository accounts with major banks
throughout the world and invests in high quality short-term
liquid instruments. Such investments are made only in
instruments issued or enhanced by high quality institutions.
These investments mature within three months and the Company has
not incurred any related losses.
Trade receivables can be potentially exposed to a concentration
of credit risk with customers or in particular industries. Such
credit risk is considered by management to be limited due to the
Companys many customers, none of which are considered
principal in the total operations of the Company and doing
business in a variety of industries throughout the world. The
Company does not have an individual customer that exceeds 10% of
total revenue. In addition, the Company performs ongoing credit
evaluations of our customers financial conditions and
maintains reserves for credit losses. Such losses historically
have been within our expectations.
Inventories
Inventories are stated at the lower of cost or market, utilizing
the
first-in,
first-out (FIFO) basis for approximately 79.5% of
consolidated inventories and the
last-in,
first-out (LIFO) basis for approximately 20.5% of
consolidated inventories. At October 31, 2009,
approximately 50.5% of inventories in the United States utilize
the FIFO basis, and approximately 49.5% utilize the LIFO basis.
The lower LIFO reserve is a result of both lower commodity
prices and lower inventory levels. All
Non-United
States inventories utilize the FIFO basis.
During 2009, the LIFO reserve decreased $21.8 million, net
of tax primarily due to declines in certain inventory prices for
the Companys primary raw materials, including steel and
resins. In addition, certain LIFO layers were exhausted which
resulted in a decrement of $2.0 million, net of tax. The
Company also evaluates reserves for inventory obsolescence and
losses under firm purchase commitments for goods or inventories.
The inventories are comprised as follows at October 31 for the
year indicated (Dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
2008
|
|
|
|
Finished goods
|
|
|
$
|
57,304
|
|
|
|
$
|
71,659
|
|
Raw materials and work-in process
|
|
|
|
181,547
|
|
|
|
|
279,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
238,851
|
|
|
|
|
350,845
|
|
Reduction to state inventories on
last-in,
first-out basis
|
|
|
|
(11,419
|
)
|
|
|
|
(46,851
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
227,432
|
|
|
|
$
|
303,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Assets Held
for Sale
Net assets held for sale represent land, buildings and land
improvements for locations that have met the criteria of
held for sale accounting, as specified by Statement
of Financial Accounting Standards (SFAS)
No. 144, Accounting for Impairment or Disposal of
Long-Lived Assets (codified under ASC 360
Property, Plant, and Equipment). As of
October 31, 2009, there were fourteen locations held for
sale (twelve in the Industrial Packaging segment and two in the
Paper Packaging segment). In 2009, the Company recorded net
sales of $5.5 million and net loss before taxes of
$3.9 million associated with these properties, primarily
related to the Industrial Packaging segment. For 2008, the
Company recorded net sales of $15.4 million and net loss
before taxes of $8.2 million, primarily related to the
Industrial Packaging segment. The effect of suspending
depreciation on the facilities held for sale is immaterial to
the results of operations. The properties classified within net
assets held for sale have been listed for sale and it is the
Companys intention to complete these sales within the
upcoming year.
44
Goodwill and
Other Intangibles
Goodwill is the excess of the purchase price of an acquired
entity over the amounts assigned to assets and liabilities
assumed in the business combination. The Company accounts for
purchased goodwill and other intangible assets in accordance
with SFAS No. 142, Goodwill and Other Intangible
Assets (codified under ASC 350
IntangiblesGoodwill and Other). Under
SFAS 142, purchased goodwill and intangible assets with
indefinite lives are not amortized, but instead are tested for
impairment at least annually. Intangible assets with finite
lives, primarily customer relationships, patents and trademarks,
continue to be amortized over their useful lives. The Company
tests for impairment during the fourth quarter of each fiscal
year, or more frequently if certain indicators are present or
changes in circumstances suggest that impairment may exist.
SFAS No. 142 requires that testing for goodwill
impairment be conducted at the reporting unit level using a
two-step approach. The first step requires a comparison of the
carrying value of the reporting units to the estimated fair
value of these units. If the carrying value of a reporting unit
exceeds its estimated fair value, the Company performs the
second step of the goodwill impairment to measure the amount of
impairment loss, if any. The second step of the goodwill
impairment test compares the estimated implied fair value of a
reporting units goodwill to its carrying value. The
estimated implied fair value of goodwill is determined in the
same manner that the amount of goodwill recognized in a business
combination is determined. The Company allocates the estimated
fair value of a reporting unit to all of the assets and
liabilities in that unit, including intangible assets, as if the
reporting unit had been acquired in a business combination. Any
excess of the estimated fair value of a reporting unit over the
amounts assigned to its assets and liabilities is the implied
fair value of goodwill.
The Companys determination of estimated fair value of the
reporting units is based on a combination of a discounted cash
flow analysis and a multiple of earnings before interest, taxes,
depreciation and amortization (EBITDA). The discount
rates used for impairment testing are based on the risk-free
rate plus an adjustment for risk factors and is reflective of a
typical market participant. The use of alternative estimates,
peer groups or changes in the industry, or adjusting the
discount rate, or EBITDA multiples used could affect the
estimated fair value of the reporting units and potentially
result in goodwill impairment. Any identified impairment would
result in an expense to the Companys results of
operations. The Company performed its annual impairment test in
fiscal 2009, 2008 and 2007, which resulted in no impairment
charges. See Note 4 for additional information regarding
goodwill and other intangible assets.
Acquisitions
From time to time, we acquire businesses
and/or
assets that augment and complement our operations. These
acquisitions are accounted for under the purchase method of
accounting. The consolidated financial statements include the
results of operations from these business combinations as of the
date of acquisition. Additional disclosure related to our
acquisitions is provided in Note 2.
Internal Use
Software
Internal use software is accounted for under Statement of
Position
98-1
Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use (codified under ASC 985
Software). Internal use software is software
that is acquired, internally developed or modified solely to
meet the Companys needs and for which, during the
softwares development or modification, a plan does not
exist to market the software externally. Costs incurred to
develop the software during the application development stage
and for upgrades and enhancements that provide additional
functionality are capitalized and then amortized over a three-
to ten- year period.
Properties,
Plants and Equipment
Properties, plants and equipment are stated at cost.
Depreciation on properties, plants and equipment is provided on
the straight-line method over the estimated useful lives of the
assets as follows:
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Years
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Buildings
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30-45
|
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Machinery and equipment
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3-19
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Depreciation expense was $88.6 million, $92.9 million,
$89.6 million, in 2009, 2008 and 2007, respectively.
Expenditures for repairs and maintenance are charged to expense
as incurred. When properties are retired or otherwise disposed
of, the cost and
45
accumulated depreciation are eliminated from the asset and
related allowance accounts. Gains or losses are credited or
charged to income as incurred. For 2009, the Company recorded a
gain on disposal of properties, plants and equipment, net of
$34.4 million, primarily consisting of a $17.2 million pre-tax
net gain on the sale of specific Industrial Packaging segment
assets and facilities in North America and $14.8 million in net
gains from the sale of surplus and HBU timber properties.
The Company owns timber properties in the southeastern United
States and in Canada. With respect to the Companys United
States timber properties, which consisted of approximately
256,700 acres at October 31, 2009, depletion expense
on timber properties is computed on the basis of cost and the
estimated recoverable timber. Depletion expense was
$2.9 million, $4.2 million and $4.3 million in
2009, 2008 and 2007, respectively. The Companys land costs
are maintained by tract. The Company begins recording
pre-merchantable timber costs at the time the site is prepared
for planting. Costs capitalized during the establishment period
include site preparation by aerial spray, costs of seedlings,
planting costs, herbaceous weed control, woody release, labor
and machinery use, refrigeration rental and trucking for the
seedlings. The Company does not capitalize interest costs in the
process. Property taxes are expensed as incurred. New road
construction costs are capitalized as land improvements and
depreciated over 20 years. Road repairs and maintenance
costs are expensed as incurred. Costs after establishment of the
seedlings, including management costs, pre-commercial thinning
costs and fertilization costs, are expensed as incurred. Once
the timber becomes merchantable, the cost is transferred from
the pre-merchantable timber category to the merchantable timber
category in the depletion block.
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, the Company has eight
depletion blocks. These same depletion blocks are used for
pre-merchantable timber costs. Each year, the Company estimates
the volume of the Companys 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. The Companys
estimates do not include costs to be incurred in the future. The
Company then projects these volumes to the end of the year. Upon
acquisition of a new timberland tract, the Company records
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, the Company multiplies the volumes sold by the depletion
rate for the current year to arrive at the depletion cost.
The Companys Canadian timber properties, which consisted
of approximately 25,050 acres at October 31, 2009, are
not actively managed at this time, and therefore, no depletion
expense is recorded.
Variable Interest
Entities
Financial Accounting Standards Board (FASB)
Interpretation (FIN) 46(R), Consolidation of
Variable Interest Entities, an Interpretation of Accounting
Research Board (ARB) No. 51, (codified
under ASC 810 Consolidation), provides a
framework for identifying variable interest entities
(VIEs) and determining when a company should
include the assets, liabilities, noncontrolling interests and
results of operations of a VIE in its consolidated financial
statements. In general, a VIE is a corporation, partnership,
limited liability company, trust or any other legal structure
used to conduct activities or hold assets that either
(1) has an insufficient amount of equity to carry out its
principal activities without additional subordinated financial
support, (2) has a group of equity owners that are unable
to make significant decisions about its activities or
(3) has a group of equity owners that do not have the
obligation to absorb losses or the right to receive returns
generated by its operations. FIN 46(R) requires a VIE to be
consolidated if a party with an ownership, contractual or other
financial interest in the VIE (a variable interest holder) is
obligated to absorb a majority of the risk of loss from the
VIEs activities, is entitled to receive a majority of the
VIEs residual returns (if no party absorbs a majority of
the VIEs losses), or both.
The Company has consolidated the assets and liabilities of STA
Timber LLC (STA Timber) in accordance with
FIN 46(R), Consolidation. 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. The Company has also consolidated the assets
and liabilities of the
buyer-
sponsored special purpose entry (the Buyer SPE)
involved in these transactions as the result of FIN 46(R).
However, because
46
the Buyer SPE is a separate and distinct legal entry from Greif,
Inc. and its other subsidiaries, 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.
Asset Retirement
Obligations
The Company accounts for asset retirement obligations in
accordance with SFAS No. 143, Accounting for
Asset Retirement Obligations, and FIN 47,
Accounting for Conditional Asset Retirement
Obligations (codified under ASC 410 Asset
Retirement and Environmental Obligations). A liability
and an asset are recorded equal to the present value of the
estimated costs associated with the retirement of long-lived
assets where a legal or contractual obligation exists and the
liability can be reasonably estimated. The liability is accreted
over time and the asset is depreciated over the remaining life
of the related asset. Upon settlement of the liability, the
Company will recognize a gain or loss for any difference between
the settlement amount and the liability recorded. Asset
retirement obligations with indeterminate settlement dates are
not recorded until such dates can be reasonably estimated.
Environmental
Cleanup Costs
The Company expenses environmental expenditures related to
existing conditions resulting from past or current operations
and from which no current or future benefit is discernable.
Expenditures that extend the life of the related property or
mitigate or prevent future environmental contamination are
capitalized. The Company determines its liability on a
site-by-site
basis and records a liability at the time when it is probable
and can be reasonably estimated. The Companys estimated
liability is reduced to reflect the anticipated participation of
other potentially responsible parties in those instances where
it is probable that such parties are legally responsible and
financially capable of paying their respective shares of the
relevant costs.
Self-Insurance
The Company is self-insured with respect to certain of its
medical and dental claims and certain of its workers
compensation claims. The Company has recorded an estimated
liability for self-insured medical and dental claims incurred
but not reported and workers compensation claims and
claims incurred but not reported of $4.0 million and
$21.5 million, respectively, at October 31, 2009 and
$4.1 million and $20.6 million, respectively, at
October 31, 2008.
Income
Taxes
Income taxes are accounted for under SFAS No. 109,
Accounting for Income Taxes (codified under ASC
740 Income Taxes). In accordance with this
Statement, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases, as
measured by enacted tax rates that are expected to be in effect
in the periods when the deferred tax assets and liabilities are
expected to be settled or realized. Valuation allowances are
established where expected future taxable income does not
support the realization of the deferred tax assets.
The Companys effective tax rate is based on income,
statutory tax rates and tax planning opportunities available to
the Company in the various jurisdictions in which the Company
operates. Significant judgment is required in determining the
Companys effective tax rate and in evaluating its tax
positions.
In the first quarter of fiscal 2008, the Company adopted the
provisions of FIN 48, Accounting for Uncertainty in
Income Taxes (codified under ASC 740 Income
Taxes) which clarifies the accounting for uncertainty
in income taxes recognized in the financial statements in
accordance with SFAS No. 109, Accounting for
Income Taxes (codified under ASC 740 Income
Taxes). This standard provides that a tax benefit from
uncertain tax position may be recognized when it is more likely
than not that the position will be sustained upon examination,
including resolutions of any related appeals or litigation
processes, based on the technical merits. The amount recognized
is measured as the largest amount of tax benefit that is greater
than 50% likely of being realized upon settlement. The
Companys effective tax rate includes the impact of reserve
provisions and changes to reserves that it considers appropriate
as well as related interest and penalties.
A number of years may elapse before a particular matter, for
which the Company has established a reserve, is audited and
finally resolved. The number of years with open tax audits
varies depending on the tax jurisdiction. While it is often
difficult to predict
47
the final outcome or the timing of resolution of any particular
tax matter, the Company believes that its reserves reflect the
probable outcome of known tax contingencies. Unfavorable
settlement of any particular issue would require use of the
Companys cash. Favorable resolution would be recognized as
a reduction to the Companys effective tax rate in the
period of resolution.
Restructuring
Charges
We account for all exit or disposal activities in accordance
with SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities (codified
under ASC 420 Exit or Disposal Cost
Obligations). Under SFAS No. 146, a
liability is measured at its fair value and recognized as
incurred. Additional disclosure related to our restructuring
charges is provided in Note 5.
Stock-Based
Compensation Expense
On November 1, 2005, the Company adopted
SFAS No. 123(R), Share-Based Payment
(codified under ASC 718 CompensationStock
Compensation.) This standard 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 Companys employee
stock purchase plan. In adopting this guidance, the Company used
the modified prospective application transition method, as of
November 1, 2005, the first day of the Companys
fiscal year 2006.
SFAS No. 123(R) guidance 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 Companys consolidated statements of income
over the requisite service periods. Share-based compensation
expense recognized in the Companys consolidated statements
of income for 2007 includes compensation expense for share-based
awards granted prior to, but not yet vested as of
November 1, 2005, based on the grant date fair value
estimated in accordance with the guidance of the standard. No
options were granted in 2009, 2008, and 2007. For any options
granted in the future, compensation expense will be based on the
grant date fair value estimated in accordance with the guidance
of the standard. There was no share-based compensation expense
recognized under the standard for 2009 and 2008 and
$0.1 million was recognized for 2007.
The Company uses 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) guidance requires forfeitures to be
estimated at the time of grant and revised, if necessary, in
subsequent periods if actual forfeitures differ from those
estimates.
Equity Earnings
and Minority Interests
Equity earnings represent investments in affiliates in which the
Company does not exercise control and has a 20% 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 2009, 2008, and 2007 were
($0.4) million, $1.6 million and $0.3 million,
respectively. Dividends received from our equity method
subsidiaries were $0.5 million, $0.1 million, and
$0.2 million for the years ending October 31, 2009,
2008, and 2007, 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 2009, 2008, and 2007 was $3.2 million,
$5.6 million, and $1.7 million, respectively.
48
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 (codified under ASC 260
Earnings Per Share). In accordance with the
Statement, earnings are allocated first to Class A and
Class B Common Stock to the extent that dividends are
actually paid and the remainder allocated assuming all of the
earnings for the period have been distributed in the form of
dividends.
The following is a reconciliation of the shares used to
calculate basic and diluted earnings per share (1) :
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For the years
ended October 31,
|
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2009
|
|
|
2008
|
|
|
2007
|
|
|
|
Class A Common Stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
|
24,328,724
|
|
|
|
23,932,045
|
|
|
|
23,594,814
|
|
Assumed conversion of stock options
|
|
|
311,259
|
|
|
|
446,560
|
|
|
|
577,872
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
24,639,983
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|
|
|
24,378,605
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|
|
|
24,172,686
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|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class B Common Stock:
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|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per share
|
|
|
22,475,707
|
|
|
|
22,797,825
|
|
|
|
22,994,494
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(1)
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All share information presented in
this table has been adjusted to reflect a
2-for-1
stock split of the Companys shares of Class A and
Class B Common Stock distributed on April 11, 2007.
|
There were no Class A options that were antidilutive for
2009, 2008 and 2007.
The Company calculates Class A EPS as follows:
(i) multiply 40% times the average Class A shares
outstanding, then divide that amount by the product of 40% of
the average Class A shares outstanding plus 60% of the
average Class B shares outstanding to get a percentage,
(ii) undistributed net income divided by the average
Class A shares outstanding, (iii) multiply item
(i) by item (ii), (iv) add item (iii) to the
Class A cash dividend. Diluted shares are factored into the
Class A calculation.
The Company calculates Class B EPS as follows: (i) multiply
60% times the average Class B shares outstanding, then
divide that amount by the product of 40% of the average
Class A shares outstanding plus 60% of the average
Class B shares outstanding to get a percentage, (ii)
undistributed net income divided by the average Class B
shares outstanding, (iii) multiply item (i) by item (ii), (iv)
add item (iii) to the Class B cash dividend. Class B
diluted EPS is identical to Class B basic EPS.
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(In millions
except for per share data)
|
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2009
|
|
|
2008
|
|
|
2007
|
|
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Numerator
|
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|
|
|
|
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|
|
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Numerator for basic and diluted EPS -
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|
|
|
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|
|
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Net Income
|
|
$
|
132.4
|
|
|
$
|
234.4
|
|
|
$
|
156.4
|
|
Cash dividends
|
|
|
88.0
|
|
|
|
76.5
|
|
|
|
53.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Undistributed net income
|
|
$
|
44.4
|
|
|
$
|
157.9
|
|
|
$
|
103.1
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|
Denominator
|
|
|
|
|
|
|
|
|
|
|
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Denominator for basic EPS -
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A Common Stock
|
|
|
24.3
|
|
|
|
23.9
|
|
|
|
23.6
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|
Class B Common Stock
|
|
|
22.5
|
|
|
|
22.8
|
|
|
|
23.0
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|
Denominator for diluted EPS -
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A Common Slock
|
|
|
24.6
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|
|
|
24.4
|
|
|
|
24.2
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|
Class B Common Stock
|
|
|
22.5
|
|
|
|
22.8
|
|
|
|
23.0
|
|
EPS Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A Common Stock
|
|
$
|
2.29
|
|
|
|
S 4.04
|
|
|
$
|
2.69
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|
Class B Common Stock
|
|
$
|
3.42
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|
|
$
|
6.04
|
|
|
$
|
4.04
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|
EPS Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A Common Stock
|
|
$
|
2.28
|
|
|
$
|
3.99
|
|
|
$
|
2.65
|
|
Class B Common Stock
|
|
$
|
3.42
|
|
|
$
|
6.04
|
|
|
$
|
4.04
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49
Restricted
Stock
Under the Companys Long-Term Incentive Plan and the 2005
Outside Directors Equity Award Plan, the Company granted 243,107
and 16,568 shares of restricted stock with a weighted
average grant date fair value of $32.03 and $28.96,
respectively, in 2009. The Company granted 35,938 and
7,664 shares of restricted stock with a weighted average
grant date fair value of $62.38 and $62.58, under the
Companys Long-Term Incentive Plan and the 2005 Outside
Directors Equity Award Plan, respectively, in 2008. All
restricted stock awards are fully vested upon being awarded.
Revenue
Recognition
The Company recognizes revenue when title passes to customers or
services have been rendered, with appropriate provision for
returns and allowances. Revenue is recognized in accordance with
Staff Accounting Bulletin No. 104, Revenue
Recognition (codified under ASC 605 Revenue
Recognition).
Timberland disposals, timber and special use property revenues
are recognized when closings have occurred, required down
payments have been received, title and possession have been
transferred to the buyer, and all other criteria for sale and
profit recognition have been satisfied.
The Company reports the sale of surplus and higher and better
use (HBU) property in our consolidated statements of
income under gain on disposals of properties, plants and
equipment, net and reports the sale of development
property under net sales and cost of products
sold. All HBU and development property, together with
surplus property, is used by the Company to productively grow
and sell timber until sold.
Shipping and
Handling Fees and Costs
The Company includes shipping and handling fees and costs in
cost of products sold.
Other Expense,
Net
Other expense, net primarily represents
Non-United
States trade receivables program fees, currency translation and
remeasurement gains and losses and other infrequent
non-operating items.
Currency
Translation
In accordance with SFAS No. 52, Foreign Currency
Translation (codified under ASC 830 Foreign
Currency Matters), the assets and liabilities
denominated in a foreign currency are translated into United
States dollars at the rate of exchange existing at year-end, and
revenues and expenses are translated at average exchange rates.
The cumulative translation adjustments, which represent the
effects of translating assets and liabilities of the
Companys international operations, are presented in the
consolidated statements of changes in shareholders equity
in accumulated other comprehensive income (loss). The
transaction gains and losses are credited or charged to income.
The amounts included in other income (expense) related to
transaction gain and losses, net of tax were $(0.7) million
$(1.3) million, and $(2.8) million in 2009, 2008 and
2007, respectively.
Derivative
Financial Instruments
In accordance with SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities (codified
under ASC 815 Derivatives and Hedging), the
Company records all derivatives in the consolidated balance
sheets as either assets or liabilities measured at fair value.
Dependent on the designation of the derivative instrument,
changes in fair value are recorded to earnings or
shareholders equity through other comprehensive income
(loss).
The Company uses interest rate swap agreements for cash flow
hedging purposes. For derivative instruments that hedge the
exposure of variability in interest rates, designated as cash
flow hedges, the effective portion of the net gain or loss on
the derivative instrument is reported as a component of other
comprehensive income (loss) and reclassified into earnings in
the same period or periods during which the hedged transaction
affects earnings.
Interest rate swap agreements that hedge against variability in
interest rates effectively convert a portion of floating rate
debt to a fixed rate basis, thus reducing the impact of interest
rate changes on future interest expense. The Company uses the
variable
50
cash flow method for assessing the effectiveness of these
swaps. The effectiveness of these swaps is reviewed at least
every quarter. Hedge ineffectiveness has not been material
during any of the years presented herein.
The Company enters into currency forward contracts to hedge
certain currency transactions and short-term intercompany loan
balances with its international businesses. In addition, the
Company uses cross-currency swaps to hedge a portion of its net
investment in its European subsidiaries. Such contracts limit
the Companys exposure to both favorable and unfavorable
currency fluctuations. These contracts are adjusted to reflect
market value as of each balance sheet date, with the resulting
changes in fair value being recognized in other comprehensive
income (loss).
The Company uses derivative instruments to hedge a portion of
its natural gas. These derivatives are designated as cash flow
hedges. The effective portion of the net gain or loss is
reported as a component of other comprehensive income (loss) and
reclassified into earnings in the same period during which the
hedged transaction affects earnings.
Any derivative contract that is either not designated as a
hedge, or is so designated but is ineffective, is adjusted to
market value and recognized in earnings immediately. If a cash
flow hedge ceases to qualify for hedge accounting or is
terminated, the contract would continue to be carried on the
balance sheet at fair value until settled and future adjustments
to the contracts fair value would be recognized in
earnings immediately. If a forecasted transaction were no longer
probable to occur, amounts previously deferred in accumulated
other comprehensive income (loss) would be recognized
immediately in earnings.
Subsequent
Events
The Company adopted SFAS No. 165, Subsequent
Events (codified under ASC 855 Subsequent
Events) in 2009. This standard is intended to
establish general standards of accounting for and disclosure of
events that occur after the balance sheet date but before
financial statements are issued. The adoption of SFAS
No. 165 had no impact to the Company 2009 financial
statements. The Company evaluated all events or transactions
that occurred after October 31, 2009 up through
December 23, 2009, the date the Company issued these
financial statements.
Recent Accounting
Standards
In December 2007, the FASB issued SFAS No. 141(R),
(codified under ASC 805 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 the Companys consolidated financial statements for the
fiscal year ending October 31, 2009 incorporated herein.
Refer to Note 17 for the financial impact on adoption of
SFAS No. 141(R) as of November 1, 2009.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements (codified under ASC 820
Fair Value Measurements and Disclosures).
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
Companys financial condition and results of operations.
Refer to Note 8 for the fair value hierarchy provisions of
SFAS No. 157.
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities (codified under ASC 825 Financial
Instruments). 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 Companys financial condition
or results of operations.
51
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, (codified under ASC 810
Consolidation). 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 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 parents 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 parents
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 Companys
financial statements for the fiscal year beginning
November 1, 2009. The Company is in the process of
evaluating the impact that the adoption of
SFAS No. 160 may have on its consolidated financial
statements. However, the Company does not anticipate a material
impact on its financial condition, results of operations or cash
flows.
In December 2008, the FASB issued FASB Staff Position
FAS 132(R)-1, Employers Disclosures About
Postretirement Benefit Plan Assets (FSP
FAS 132(R)-1) (codified under ASC 715
CompensationRetirement Benefits), to
provide guidance on employers disclosures about assets of
a defined benefit pension or other postretirement plan. FSP
FAS 132(R)-1 requires employers to disclose information
about fair value measurements of plan assets similar to
SFAS No. 157, Fair Value Measurements. The
objectives of the disclosures are to provide an understanding
of: (a) how investment allocation decisions are made,
including the factors that are pertinent to an understanding of
investment policies and strategies, (b) the major
categories of plan assets, (c) the inputs and valuation
techniques used to measure the fair value of plan assets,
(d) the effect of fair value measurement