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, 2010
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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
Act. 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
Exchange
Act. 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 þ 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
Exchange). 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) -
$1,405,354,258
Voting common equity (Class B Common Stock) -
$393,745,476
The number of shares outstanding of each of the
Registrants classes of common stock, as of
December 17, 2010, was as follows:
Class A Common Stock - 24,804,789
Class B Common Stock - 22,412,266
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 28, 2011 (the 2011 Proxy
Statement), portions of which are incorporated by
reference into Parts II and III of this
Form 10-K.
The 2011 Proxy Statement will be filed within 120 days of
October 31, 2010.
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,
on track 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.
The risks described in this
Form 10-K
are not all inclusive, and given these and other possible risks
and uncertainties, investors should not place undue reliance on
forward-looking statements as a prediction of actual results.
All forward-looking statements made in this
Form 10-K
are expressly qualified in their entirety by reference to such
risk factors. 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, 2010
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PART I
ITEM 1. BUSINESS
(a) General
Development of Business
We are a leading global producer of industrial packaging
products and services with manufacturing facilities located in
over 50 countries. We offer a comprehensive line of rigid
industrial packaging products, such as steel, fibre and plastic
drums, rigid intermediate bulk containers, closure systems for
industrial packaging products, transit protection products,
water bottles and reconditioned containers, and services such as
container lifecycle management, blending, filling and other
packaging services, logistics and warehousing. We are also a
leading global producer of flexible intermediate bulk containers
and North American provider of industrial and consumer multiwall
bag products. 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 our acquisition of Van Leer in
2001, a global steel and plastic drum manufacturer, we changed
our name 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 2010, 2009 or 2008, 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, Company, our
company, we, us, and
our refer to Greif, Inc. and its subsidiaries.
(b) Financial
Information about Segments
We operate in four business segments: Rigid Industrial
Packaging & Services; Flexible Products &
Services; Paper Packaging; and Land Management. Information
related to each of these segments is included in Note 17 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 Rigid Industrial Packaging & Services segment,
we are a leading global provider of rigid industrial packaging
products, including steel, fibre and plastic drums, rigid
intermediate bulk containers, closure systems for industrial
packaging products, transit protection products, water bottles
and reconditioned containers, and services, such as container
lifecycle management, blending, filling and other packaging
services, logistics and warehousing. We sell our industrial
packaging products to customers in industries such as chemicals,
paints and pigments, food and beverage, petroleum, industrial
coatings, agricultural, pharmaceutical and mineral, among others.
In the Flexible Products & Services segment, we are a
leading global producer of flexible intermediate bulk containers
and a North American provider of industrial and consumer
multiwall bag products. Our flexible intermediate bulk
containers consist of a polypropylene-based woven fabric that is
partly produced at our production sites, as well as sourced from
strategic regional suppliers. Our flexible products are sold
globally and service customers and market segments similar to
those served by
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our Rigid Industrial Packaging & Services segment.
Additionally, our flexible products significantly expand our
presence in the agricultural and food industries, among others.
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.
In the Paper Packaging segment, we sell containerboard,
corrugated sheets and other corrugated products 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. Operations related to our industrial and consumer
multiwall bag products have been reclassified to our Flexible
Products & Services segment.
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.
As of October 31, 2010, we owned approximately
267,150 acres of timber property in the southeastern United
States and approximately 24,700 acres of timber property 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 maintain 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 both the rigid industrial packaging industry and flexible
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, 2010.
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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 2011.
Refer also to 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 2010, 2009 and 2008, and our reserves for
environmental liabilities at October 31, 2010.
Raw
Materials
Steel, resin and containerboard are the principal raw materials
for the Rigid Industrial Packaging & Services segment,
resin is the primary raw material for the Flexible
Products & Services 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 is 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, 2010, we had approximately 12,250 full
time employees, which has increased significantly from the prior
year as a result of twelve acquisitions completed during 2010,
particularly in the Flexible Products & Services
segment. 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 North and South America, Europe,
the Middle East, Africa and the Asia Pacific region. Information
related to each of these areas is included in Note 17 to
the Notes to Consolidated Financial Statements included in
Item 8 of this
Form 10-K.
Refer to Quantitative and Qualitative Disclosures about Market
Risk, included in Item 7A of this
Form 10-K.
(e) Available
Information
We maintain a website at www.greif.com. We file reports with the
Securities and Exchange Commission (the SEC) and
make available, free of charge, on or through our website, our
annual reports on
Form 10-K,
quarterly reports on
Form 10-Q
or
Form 10-Q/A,
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.
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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 a website that contains reports, proxy and
information statements, and other information regarding issuers
that file electronically with the SEC at www.sec.gov.
(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. Refer to
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
and/or
operational performance.
The Current and
Future Challenging Global Economy may Adversely Affect Our
Business.
The current global economic downturn 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 products and services 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.
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Our Operations
are Subject to Currency Exchange and Political Risks that could
Adversely Affect Our Results of Operations.
We have operations in over 50 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.
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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The Continuing
Consolidation of Our Customer Base for Industrial Packaging,
Containerboard and Corrugated Products, as well as the
Continuing Consolidation of Our Suppliers of Raw Materials, 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. In addition, many of our suppliers of raw
materials such as steel, resin and paper, have undergone a
similar process of consolidation. This consolidation has
increased the concentration of our largest customers, resulting
in increased pricing pressures from our customers. The
consolidation of our largest suppliers has resulted in increased
cost pressures from our suppliers. Any future consolidation of
our customer base or our suppliers could negatively impact our
financial performance.
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, design 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.
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
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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 transportation 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. Potential legislation, regulatory action and
international treaties related to climate change, especially
those related to the regulation of greenhouse gases, may result
in significant increases in raw material and energy 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.
We may Encounter
Difficulties Arising from Acquisitions.
We have invested a substantial amount of capital in
acquisitions, joint ventures or strategic investments, and we
expect that we will continue to do so in the foreseeable future.
We are continually evaluating acquisitions, joint ventures and
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 projected synergies are not 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.
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, particularly 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
company what 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.
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.
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Several
Operations are Conducted by Joint Ventures that we cannot
Operate Solely for Our Benefit.
Several operations, particularly in emerging markets, are
conducted through joint ventures, such as a significant joint
venture in our Flexible Products & Services segment.
In joint ventures, we share ownership and, in some instances,
management of a company with one or more parties who may or may
not have the same goals, strategies, priorities or resources as
we do. In general, joint ventures are intended to be operated
for the benefit of all co-owners, rather than for our exclusive
benefit. Operating a business as a joint venture often requires
additional organizational formalities as well as time-consuming
procedures for sharing information and making decisions. In
certain cases, our joint venture partners must agree in order
for the applicable joint venture to take certain actions,
including acquisitions, the sale of assets, budget approvals,
borrowing money and granting liens on joint venture property.
Our inability to take unilateral action that we believe is in
our best interests may have an adverse effect on the financial
performance of the joint venture and the return on our
investment. In joint ventures, we believe our relationship with
our co-owners is an important factor to the success of the joint
venture, and if a co-owner changes, our relationship may be
adversely affected. In addition, the benefits from a successful
joint venture are shared among the co-owners, so that we do not
receive all the benefits from our successful joint ventures.
Finally, we may be required on a legal or practical basis or
both, to accept liability for obligations of a joint venture
beyond our economic interest, including in cases where our
co-owner becomes bankrupt or is otherwise unable to meet its
commitments. For additional information with respect to the
joint venture relating to our Flexible Products &
Services segment, refer to Item 7, Managements
Discussion and Analysis of Financial Condition and Results of
Operation Business Acquisitions.
Our Ability to
Attract, Develop and Retain Talented Employees, Managers and
Executives is Critical to Our Success.
Our ability to attract, develop and retain talented employees,
including executives and other key managers, is important to our
business. The loss of certain key officers and employees, or the
failure to attract and develop talented new executives and
managers, could have a materially adverse effect on our business.
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 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 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.
11
Our Business
Depends on the Uninterrupted Operations of Our Facilities,
Systems and Business Functions, including Our Information
Technology and Other Business Systems.
Our business is dependent upon our ability to execute, in an
efficient and uninterrupted fashion, necessary business
functions, such as accessing key business data, order
processing, invoicing and the operation of information
technology dependent manufacturing equipment. A shut-down of or
inability to access one or more of our facilities, a power
outage, a pandemic, or a failure of one or more of our
information technology, telecommunications or other systems
could significantly impair our ability to perform such functions
on a timely basis.
Our information technology systems exist on platforms in more
than 50 countries, many of which have been acquired in
connection with business acquisitions, resulting in a complex
technical infrastructure. Such complexity creates difficulties
and inefficiencies in monitoring business results and
consolidating financial data and could result in a material
adverse effect on our business operations and financial
performance.
A security breach of our computer systems could also interrupt
or damage our operations or harm our reputation. In addition, we
could be subject to liability if confidential customer
information is misappropriated from our computer system. Despite
the implementation of security measures, these systems may be
vulnerable to physical break-ins, computer viruses, programming
errors or similar disruptive problems.
We have established a business continuity plan in an effort to
ensure the continuation of core business operations in the event
that normal operations could not be performed due to a
catastrophic event. While we continue to test and assess our
business continuity plan to ensure it meets the needs of our
core business operations and addresses multiple business
interruption events, there is no assurance that core business
operations could be performed upon the occurrence of such an
event.
Legislation/Regulation
Related to Climate Change and Environmental and Health and
Safety Matters and Product Liability Claims Could Negatively
Impact Our Operations and Financial Performance.
We must comply with extensive U.S. and
non-U.S. laws,
rules and regulations regarding environmental matters, such as
air, soil and water quality, waste disposal and climate change.
We must also comply with extensive laws, rules and regulations
regarding safety and health matters. There can be no assurance
that compliance with existing and new laws, rules and
regulations will not require significant expenditures. For
example, the passage of the Health Care Reform Act in 2010 could
significantly increase the cost of the health care benefits
provided to our U.S. employees. In addition, the failure to
comply materially with such existing and new laws, rules and
regulations could adversely affect our operations and financial
performance.
We believe it is also likely that the scientific and political
attention to issues concerning the extent and causes of climate
change will continue, with the potential for further regulations
that could affect our operations and financial performance. As
an update to legislation and regulatory activity that impacts or
could impact our business:
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The U.S. EPA issued a finding in 2009 that greenhouse gases
contribute to air pollution that endangers public health and
welfare. The endangerment finding and EPAs determination
that greenhouse gases are subject to regulation under the Clean
Air Act, will lead to widespread regulation of stationary
sources of greenhouse gas emissions.
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Congress may continue to consider legislation on greenhouse gas
emissions, which may include a cap and trade system for
stationary sources and a carbon fee on transportation fuels.
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The Canadian government has added bisphenol A (BPA), a chemical
monomer used primarily in the production of plastic and epoxy
resins, to the list of toxic substances in Schedule 1 of the
Canadian Environmental Protection Act, 1999. Such designation
may lead to additional regulation of the use of BPA in food
contact applications.
|
Although there may be adverse financial impact (including
compliance costs, potential permitting delays and increased cost
of energy, raw materials and transportation) associated with any
such legislation, regulation or other action, the extent and
magnitude of that impact cannot be reliably or accurately
estimated due to the fact that some requirements have only
recently been adopted and the present uncertainty regarding
other additional measures and how they will be implemented.
Furthermore, litigation or claims against us with respect to
such matters could adversely affect our operations and financial
performance. We may also become subject to product liability
claims that could adversely affect our operations and financial
performance.
12
Changing Climate
Conditions May Adversely Affect Our Operations and Financial
Performance.
Climate change, to the extent it produces rising temperatures
and sea levels and changes in weather patterns, could impact the
frequency or severity of weather events, wildfires and flooding.
These types of events may adversely impact our suppliers, our
customers and their ability to purchase our products and our
ability to manufacture and transport our products on a timely
basis and could result in a material adverse effect on our
business operations and financial performance.
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 59,150 acres of special use
properties in the United States and Canada as of
October 31, 2010. 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.
ITEM 1B. UNRESOLVED
STAFF COMMENTS
None.
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.
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Location
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Products or
Use
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Owned
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Leased
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RIGID INDUSTRIAL PACKAGING & SERVICES
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Algeria
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Steel drums
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1
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Argentina
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Steel and plastic drums, water bottles and distribution centers
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3
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1
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Australia
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Closures
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2
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Austria
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Steel drums and administrative office
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1
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Belgium
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Steel and plastic drums and coordination center (shared services)
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2
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1
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Brazil
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Steel and plastic drums, water bottles, closures and general
office
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6
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7
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Canada
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Fibre, steel and plastic drums, blending and packaging services
and administrative office
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6
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1
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Chile
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Steel drums, water bottles and distribution centers
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2
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China
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Steel drums, closures and general offices
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12
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Colombia
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Steel and plastic drums and water bottles
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1
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1
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Costa Rica
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Steel drums
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1
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Czech Republic
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Steel drums
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1
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Denmark
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Fibre drums, intermediate bulk containers
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1
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1
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Egypt
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Steel drums
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1
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France
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Steel and plastic drums, closures and distribution centers
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4
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2
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Germany
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Fibre, steel and plastic drums, closures and distribution centers
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3
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2
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Greece
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Steel drums
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1
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1
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Guatemala
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Steel drums
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1
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Hungary
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Steel drums
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1
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Ireland
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Warehouse
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1
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Italy
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Steel and plastic drums, water bottles and distribution center
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1
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1
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Jamaica
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Distribution center
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1
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Japan
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Steel drums
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2
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Kazakhstan
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Distribution center
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1
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Kenya
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Steel and plastic drums
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1
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13
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Location
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Products or
Use
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Owned
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Leased
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Malaysia
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Steel and plastic drums
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1
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Mexico
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Fibre, steel and plastic drums, closures and distribution centers
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2
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1
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Morocco
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Steel and plastic drums and plastic bottles
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1
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Netherlands
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Fibre, steel and plastic drums, closures, research center and
general offices
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4
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Nigeria
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Steel and plastic drums
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3
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Norway
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Steel drums
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1
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Philippines
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Steel drums and water bottles
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1
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Poland
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Steel drums and water bottles
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1
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Portugal
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Steel drums
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1
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Russia
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Steel drums, water bottles and intermediate bulk containers
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9
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1
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Saudi Arabia
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Steel drums
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1
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Singapore
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Steel drums, steel parts and distribution center
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1
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South Africa
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Steel and plastic drums and distribution centers
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5
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Spain
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Steel drums and distribution centers
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3
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Sweden
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Fibre and steel drums and distribution centers
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3
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1
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Turkey
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Steel drums and water bottles
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1
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Ukraine
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Distribution center and water bottles
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1
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United Arab Emirates
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Steel drums
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1
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United Kingdom
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|
Steel and plastic drums, water bottles and distribution centers
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3
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3
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United States
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|
Fibre, steel and plastic drums, intermediate bulk containers,
closures, steel parts, water bottles, and distribution centers
and blending and packaging services
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21
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23
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Uruguay
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Steel and plastic drums
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1
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Venezuela
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Steel and plastic drums and water bottles
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2
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Vietnam
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Steel drums
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1
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FLEXIBLE PRODUCTS & SERVICES:
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Australia
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Distribution center and administrative offices
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6
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Austria
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Distribution center
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1
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Belgium
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Manufacturing plant
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1
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China
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Manufacturing plant, administrative office, and sales offices
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1
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4
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Finland
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Manufacturing plants
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1
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1
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France
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Manufacturing plant and distribution centers
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1
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2
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Germany
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Distribution center and administrative offices
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4
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India
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Distribution center and administrative offices
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2
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Ireland
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Distribution center
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1
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Mexico
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Manufacturing plant
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1
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Netherlands
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Manufacturing plant, distribution center and administrative
offices
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3
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Pakistan
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Manufacturing plant and administrative offices
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4
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2
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Poland
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Manufacturing plant
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1
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Portugal
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Manufacturing plant
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1
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Romania
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Manufacturing plants
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2
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Spain
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Distribution center
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1
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Sweden
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Distribution center
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1
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Turkey
|
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Manufacturing plants
|
|
|
1
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|
|
3
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14
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|
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Location
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Products or
Use
|
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Owned
|
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Leased
|
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|
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United Kingdom
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Manufacturing plant and distribution centers
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2
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Ukraine
|
|
Manufacturing plants
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1
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1
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United States
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Multiwall bags and distribution centers
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2
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5
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Vietnam
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Manufacturing plant
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1
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PAPER PACKAGING:
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United States
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Corrugated sheets, containers and other products,
containerboard, investment property and distribution centers
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16
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5
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LAND MANAGEMENT:
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United States
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General offices
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4
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1
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CORPORATE:
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United States
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Principal and general offices
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2
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We also own a substantial number of timber properties comprising
approximately 267,150 acres in the states of Alabama,
Louisiana and Mississippi and approximately 24,700 acres in
the provinces of Ontario and Quebec in Canada as of
October 31, 2010.
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. (RESERVED)
15
PART II
ITEM 5. MARKET
FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
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 18 to the Notes to Consolidated Financial Statements
in Item 8 of this
Form 10-K.
We pay quarterly dividends of varying amounts computed on the
basis described in Note 15 to the Notes to Consolidated
Financial Statements included in Item 8 of this
Form 10-K.
The annual dividends paid for the last two years are as follows:
2010 Year Dividends per
Share Class A $1.60; Class B $2.39
2009 Year Dividends per
Share Class A $1.52; Class B $2.27
The terms of our current 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 our current 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 table sets forth our purchases of our shares of
Class B Common Stock during 2010. No shares of Class A
Common Stock were purchased during 2010.
Issuer Purchases
of Class B Common Stock
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Total Number
of
|
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Maximum Number
of
|
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|
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Shares Purchased
as
|
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Shares that
May
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Part of
Publicly
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Yet be
Purchased
|
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Total Number
of
|
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Average Price
|
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Announced
Plans
|
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under the
Plans
|
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Period
|
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Shares
Purchased
|
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Paid Per
Share
|
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|
or
Programs(1)
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or
Programs(1)
|
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|
November 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,166,728
|
|
December 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,166,728
|
|
January 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,166,728
|
|
February 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,166,728
|
|
March 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,166,728
|
|
April 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,166,728
|
|
May 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,166,728
|
|
June 2010
|
|
|
50,000
|
|
|
$
|
53.92
|
|
|
|
50,000
|
|
|
|
1,116,728
|
|
July 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,116,728
|
|
August 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,116,728
|
|
September 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,116,728
|
|
October 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,116,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
50,000
|
|
|
|
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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, 2010, the maximum number of shares that could
be purchased was 1,116,728 which may be any combination of
Class A or Class B Common Stock.
|
16
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, 2005. The graph does
not purport to represent our value.
The Peer Index comprises the containers and packaging index as
shown by Dow Jones.
Equity compensation plan information required by
Items 201(d) of
Regulation S-K
will be found under the caption Equity Compensation Plan
Information in the 2011 Proxy Statement, which information
is incorporated herein by reference.
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,
|
|
2010
|
|
|
2009(2)
|
|
|
2008(2)
|
|
|
2007(2)
|
|
|
2006(2)
|
|
|
|
|
Net sales
|
|
$
|
3,461,537
|
|
|
$
|
2,792,217
|
|
|
$
|
3,790,531
|
|
|
$
|
3,331,597
|
|
|
$
|
2,630,337
|
|
Net income attributable to Greif, Inc.
|
|
$
|
209,985
|
|
|
$
|
110,646
|
|
|
$
|
241,748
|
|
|
$
|
156,457
|
|
|
$
|
144,531
|
|
Total assets
|
|
$
|
3,498,445
|
|
|
$
|
2,823,929
|
|
|
$
|
2,792,749
|
|
|
$
|
2,687,537
|
|
|
$
|
2,222,683
|
|
Long-term debt, including current portion of long-term debt
|
|
$
|
965,589
|
|
|
$
|
738,608
|
|
|
$
|
673,171
|
|
|
$
|
622,685
|
|
|
$
|
481,408
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A Common Stock
|
|
$
|
3.60
|
|
|
$
|
1.91
|
|
|
$
|
4.16
|
|
|
$
|
2.70
|
|
|
$
|
2.51
|
|
Class B Common Stock
|
|
$
|
5.40
|
|
|
$
|
2.86
|
|
|
$
|
6.23
|
|
|
$
|
4.04
|
|
|
$
|
3.76
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A Common Stock
|
|
$
|
3.58
|
|
|
$
|
1.91
|
|
|
$
|
4.11
|
|
|
$
|
2.65
|
|
|
$
|
2.46
|
|
Class B Common Stock
|
|
$
|
5.40
|
|
|
$
|
2.86
|
|
|
$
|
6.23
|
|
|
$
|
4.04
|
|
|
$
|
3.76
|
|
Dividends per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A Common Stock
|
|
$
|
1.60
|
|
|
$
|
1.52
|
|
|
$
|
1.32
|
|
|
$
|
0.92
|
|
|
$
|
0.60
|
|
Class B Common Stock
|
|
$
|
2.39
|
|
|
$
|
2.27
|
|
|
$
|
1.97
|
|
|
$
|
1.37
|
|
|
$
|
0.89
|
|
|
|
|
(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.
|
|
(2)
|
|
In the first quarter of 2010, our
Company changed from using a combination of
first-in,
first-out (FIFO) and
last-in,
first-out (LIFO) inventory accounting methods to the
FIFO method for all of its businesses. All amounts included
herein have been presented on the FIFO basis.
|
17
The results of operations include the effects of pretax
restructuring charges of $26.7 million, $66.6 million,
$43.2 million, $21.2 million and $33.2 million
for 2010, 2009, 2008, 2007 and 2006, respectively; pretax debt
extinguishment charges of $0.8 million and
$23.5 million for 2009 and 2007, respectively;
restructuring-related inventory charges of $0.1 million and
$10.8 million for 2010 and 2009 respectively; timberland
gains of $41.3 million for 2006; and pretax
acquisition-related charges of $27.2 million for 2010.
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.
This discussion and analysis should be read in conjunction with
our Current Report on
Form 8-K
filed on May 27, 2010 (the May 27
Form 8-K),
which updated certain sections of our Annual Report on
Form 10-K
for the fiscal year ended October 31, 2009 to reflect
revised financial information and disclosures resulting from the
application of a change in an accounting principle from using a
combination of the
last-in,
first-out (LIFO) and the
first-in,
first-out (FIFO) inventory accounting methods to the
FIFO method for all of our businesses effective November 1,
2009. This discussion and analysis includes the financial
information and disclosures contained in the May 27
Form 8-K.
In the second quarter of 2010, we acquired one of the
worlds largest producers of flexible intermediate bulk
containers. As a result of this acquisition, we created a new
reporting segment called the Flexible Products &
Services segment. Our multiwall bag operations, previously
included in the Paper Packaging segment, have been reclassified
and included in the Flexible Products & Services
segment for all periods presented. The Industrial Packaging
segment has been renamed the Rigid Industrial
Packaging & Services segment.
During 2010, we completed the acquisition of twelve industrial
packaging companies with businesses located in North America,
South America, Europe and Asia and entered into a joint venture
with a Saudia Arabian company for the flexible industrial
packaging business. See Liquidity and Capital
ResourcesAcquisitions, Divestitures and Other Significant
Transactions for a further discussion of these
transactions.
Business
Segments
We operate in four business segments: Rigid Industrial
Packaging & Services; Flexible Products &
Services; Paper Packaging; and Land Management.
We are a leading global provider of rigid industrial packaging
products, such as steel, fibre and plastic drums, rigid
intermediate bulk containers, closure systems for industrial
packaging products, transit protection products, water bottles
and reconditioned containers, and services, such as container
lifecycle management, blending, filling and other packaging
services, logistics and warehousing. We sell our industrial
packaging products to customers in industries such as chemicals,
paints and pigments, food and beverage, petroleum, industrial
coatings, agricultural, pharmaceutical and mineral, among others.
We are a leading global producer of flexible intermediate bulk
containers and a North American provider of industrial and
consumer multiwall bag products. Our flexible intermediate bulk
containers consist of a polypropylene-based woven fabric that is
partly produced at our integrated production sites, as well as
sourced from strategic regional suppliers. Our flexible products
are sold globally and service customers and market segments
similar to those served by our Rigid Industrial
Packaging & Services segment. Additionally, our
flexible products significantly expand our presence in the
agricultural and food industries, among others. 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.
We sell containerboard, corrugated sheets and other corrugated
products 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
18
as home appliances, small machinery, grocery products, building
products, automotive components, books and furniture, as well as
numerous other applications. Operations related to our
industrial and consumer multiwall bag products have been
reclassified to our Flexible Products & Services
segment.
We own approximately 267,150 acres of timber properties in
the southeastern United States, which were actively managed, and
approximately 24,700 acres of timber properties in Canada.
Our Land Management segment is 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, higher and
better use (HBU) land, and development land.
In 2003, we began a transformation to become a leaner, more
market-focused, performance-driven companywhat we call the
Greif Business System. We believe the Greif Business
System has and will continue to generate productivity
improvements and achieve permanent cost reductions. The Greif
Business System continues to focus on opportunities such as
improved labor productivity, material yield and other
manufacturing efficiencies, along with further plant
consolidations. In addition, as part of the Greif Business
System, we have launched a strategic sourcing initiative to more
effectively leverage our global spending and lay the foundation
for a world-class sourcing and supply chain capability. In
response to the economic slowdown that began at the end of 2008,
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.
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. At the beginning of fiscal 2010, we
changed our method of accounting for inventories at certain of
our U.S. locations from the lower of cost, as determined by
the LIFO method of accounting, or market to the lower of cost,
as determined by the FIFO method of accounting, or market. We
believe that this change is preferable because: (1) the
change conforms to a single method of accounting for all of our
inventories on a U.S. and global basis, (2) the change
simplifies financial disclosures, (3) financial statement
comparability and analysis for investors and analysts is
improved, and (4) the majority of our key competitors use
FIFO. The financial information presented has been adjusted for
all prior periods presented as if we had used FIFO instead of
LIFO for each reporting period for all of our operations. The
change in accounting principle is further discussed in
Note 4 to the Consolidated Financial Statements included in
Item 8 of this
Form 10-K.
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.
19
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 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.
Goodwill, Other Intangible Assets and Other Long-Lived
Assets. We account for goodwill in accordance with
ASC 350, IntangiblesGoodwill and Other.
Under ASC 350, 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, 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.
We performed our annual impairment tests in fiscal 2010, 2009
and 2008, which resulted in no impairment charges. Decreasing
the price/earnings ratio of competitors used for impairment
testing by 1 percent or increasing the discount rate in the
discounted cash flow analysis used for impairment testing by
1 percent would not have indicated impairment for any of
our reporting units for fiscal 2010, 2009 or 2008.
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 267,150 acres at
October 31, 2010, 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 saw timber, 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 24,700 acres at
October 31, 2010, 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.
At October 31, 2010 and 2009, we had capitalized interest
costs of $5.3 million and $2.7 million, respectively.
20
Restructuring Reserves. Restructuring reserves are
determined in accordance with appropriate accounting guidance,
including ASC 420, Exit or Disposal Cost
Obligations. Under ASC 420, a liability is measured
at its fair value and recognized as incurred.
Income Taxes. We record a tax provision for the
anticipated tax consequences of our reported results of
operations. In accordance with ASC 740, Income
Taxes the provision for income taxes is computed using the
asset and liability method, under which deferred tax assets and
liabilities are recognized for the expected future tax
consequences of temporary differences between the financial
reporting and tax bases of assets and liabilities, and for
operating losses and tax credit carryforwards. Deferred tax
assets and liabilities are measured using the currently enacted
tax rates that apply to taxable income in effect for the years
in which those tax assets are expected to be realized or
settled. We record a valuation allowance to reduce deferred tax
assets to the amount that is believed more likely than not to be
realized.
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 accordance with ASC 740, Income Taxes, we
believe it is more likely than not that forecasted income,
including income that may be generated as a result of certain
tax planning strategies, together with the tax effects of the
deferred tax liabilities, will be sufficient to fully recover
the remaining deferred tax assets. In the event that all or part
of the net deferred tax assets are determined not to be
realizable in the future, an adjustment to the valuation
allowance would be charged to earnings, in the period such
determination is made. In addition, the calculation of tax
liabilities involves significant judgment in estimating the
impact of uncertainties in the application of ASC 740 and
other complex tax laws. Resolution of these uncertainties in a
manner inconsistent with our expectations could have a material
impact on our financial condition and operating results.
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
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.
We have estimated the reasonably possible expected net change in
unrecognized tax benefits through October 31, 2010 based on
lapses of the applicable statues of limitation on unrecognized
tax benefits. The estimated net decrease in unrecognized tax
benefits for the next 12 months ranges from $0 to
$0.8 million. Actual results may differ from this estimated
range.
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 to determine pension and
postretirement benefit liabilities. Further discussion of our
pension and postretirement benefit plans and related assumptions
is contained in Note 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.
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. 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.
Environmental expenses were $0.2 million,
($2.1) million, and $0.4 million in 2010, 2009, and
2008, respectively. In 2010, we reduced the environmental
liability at three of our facilities by $5.9 million
consistent with revised third party estimates which reduced our
total estimated cleanup costs. Environmental cash expenditures
were $1.7 million, $3.4 million, and $3.2 million
in 2010, 2009 and 2008, respectively. Our reserves for
environmental liabilities at October 31, 2010 amounted to
$26.2 million, which included a reserve of
$14.5 million related to our blending facility in Chicago,
Illinois, $8.4 million related to our European drum
facilities and $1.9 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
21
those sites was not individually material. We cannot determine
the timing of payments for our environmental exposure beyond
2010.
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, 2010. 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.
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
ASC 450, Contingencies. In accordance with the
provisions of ASC 450, 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.
Transfers and Servicing of Financial Assets. We
have agreed to sell trade receivables meeting certain
eligibility requirements that the seller of those receivables
had purchased from other of our subsidiaries under a factoring
agreement. The structure of the transactions provide for a legal
true sale, on a revolving basis, of the receivables transferred
from various subsidiaries to the respective financial
institutions or their affiliates. These institutions fund an
initial purchase price of a certain percentage of eligible
receivables based on a formula with the initial purchase price
approximating 75 percent to 90 percent of eligible
receivables. The remaining deferred purchase price is settled
upon collection of the receivables. At the balance sheet
reporting dates, we remove from accounts receivable the amount
of proceeds received from the initial purchase price since they
meet the applicable criteria of ASC 860, Transfers
and Servicing. The receivables are sold on a non-recourse
basis with the total funds in the servicing collection accounts
pledged to the institutions between settlement dates.
Fair Value Measurements. ASC 820, Fair Value
Measurements and Disclosures defines fair value,
establishes a framework for measuring fair value in GAAP and
expands disclosures about fair value measurements for financial
and non-financial assets and liabilities. Additionally, this
guidance established a three-level fair value hierarchy that
prioritizes the inputs used to measure fair value. This
hierarchy requires entities to maximize the use of observable
inputs and minimize the use of unobservable inputs.
The three levels of inputs used to measure fair values are as
follows:
|
|
|
|
|
Level 1Observable inputs such as unadjusted
quoted prices in active markets for identical assets and
liabilities.
|
|
|
|
Level 2Observable inputs other than quoted
prices in active markets for identical assets and liabilities.
|
|
|
|
Level 3Unobservable inputs that are supported
by little or no market activity and that are significant to the
fair value of the assets and liabilities.
|
Equity Earnings (Losses) of Unconsolidated Affiliates and
Non-Controlling Interests. ASC 810,
Consolidation improves the relevance, comparability
and transparency of the financial information that a reporting
entity provides in its consolidated financial statements.
ASC 810 establishes accounting and reporting standards for
the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. ASC 810 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 ASC 810 have been applied
prospectively as of the beginning of 2010. However, the
presentation and disclosure requirements have been applied
retrospectively for all periods presented.
22
Equity earnings represent investments in affiliates in which we
do not exercise control and have a 20 percent or more
voting interest. Such investments in affiliates are accounted
for using the equity method of accounting. If the fair value of
an investment in an affiliate is below its carrying value and
the difference is deemed to be other than temporary, the
difference between the fair value and the carrying value is
charged to earnings.
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 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 HBU property in our
consolidated statements of income under gain on disposals
of property, plants, and equipment, net and report the
sale of development property under net sales and
cost of goods 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 our 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, timberland disposals, net and acquisition-related costs
is used throughout the following discussion of our results of
operations (except that acquisition-related costs are only
applicable to the 2010 fiscal year, restructuring-related
inventory charges are only applicable to the Rigid Industrial
Packaging & Services segment, timberland disposal, net
are only applicable to the Land Management segment, and
acquisition-related costs are only applicable to the Rigid
Industrial Packaging & Services and Flexible
Products & Services segments). Operating profit before
the impact of restructuring charges, restructuring-related
inventory charges, timberland disposals, net, and
acquisition-related costs is equal to operating profit plus
restructuring charges, restructuring-related inventory charges,
timberland losses and acquisition-related costs. We use
operating profit before the impact of restructuring charges,
restructuring-related inventory charges, timberland disposals,
net and acquisition-related costs because we believe that this
measure provides a better indication of our operational
performance since it excludes restructuring charges,
restructuring-related inventory charges and acquisition-related
costs, which are not representative of ongoing operations, and
timberland disposals, net which are volatile from period to
period, and because it provides a more stable platform on which
to compare our historical performance.
23
The following table sets forth the net sales and operating
profit for each of our business segments for 2010, 2009 and 2008
(Dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year
ended October 31,
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
(As
Adjusted)1
|
|
|
(As
Adjusted)1
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Rigid Industrial Packaging & Services
|
|
$
|
2,587,854
|
|
|
$
|
2,266,890
|
|
|
$
|
3,074,834
|
|
Flexible Products & Services
|
|
|
233,119
|
|
|
|
43,975
|
|
|
|
52,604
|
|
Paper Packaging
|
|
|
624,092
|
|
|
|
460,712
|
|
|
|
644,298
|
|
Land Management
|
|
|
16,472
|
|
|
|
20,640
|
|
|
|
18,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
|
3,461,537
|
|
|
|
2,792,217
|
|
|
|
3,790,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit, before the impact of restructuring charges,
restructuring-related inventory charges, timberland disposals,
net and acquisition-related costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Rigid Industrial Packaging & Services
|
|
$
|
291,066
|
|
|
$
|
210,908
|
|
|
$
|
325,956
|
|
Flexible Products & Services
|
|
|
18,761
|
|
|
|
8,588
|
|
|
|
8,679
|
|
Paper Packaging
|
|
|
60,640
|
|
|
|
35,526
|
|
|
|
69,967
|
|
Land Management
|
|
|
9,001
|
|
|
|
22,237
|
|
|
|
20,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating profit before the impact of restructuring
charges, restructuring-related inventory charges, timberland
disposals, net and acquisition-related costs:
|
|
|
379,468
|
|
|
|
277,259
|
|
|
|
425,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Rigid Industrial Packaging & Services
|
|
|
20,980
|
|
|
|
65,742
|
|
|
|
33,971
|
|
Flexible Products & Services
|
|
|
624
|
|
|
|
|
|
|
|
|
|
Paper Packaging
|
|
|
5,142
|
|
|
|
685
|
|
|
|
9,155
|
|
Land Management
|
|
|
|
|
|
|
163
|
|
|
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges
|
|
|
26,746
|
|
|
|
66,590
|
|
|
|
43,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring-related inventory charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Rigid Industrial Packaging & Services
|
|
|
131
|
|
|
|
10,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timberland disposals, net
|
|
|
|
|
|
|
|
|
|
|
|
|
Land Management
|
|
|
|
|
|
|
|
|
|
|
340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition-related costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Rigid Industrial Packaging & Services
|
|
|
7,672
|
|
|
|
|
|
|
|
|
|
Flexible Products & Services
|
|
|
19,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition-related costs
|
|
|
27,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Rigid Industrial Packaging & Services
|
|
|
262,283
|
|
|
|
134,394
|
|
|
|
291,985
|
|
Flexible Products & Services
|
|
|
(1,367
|
)
|
|
|
8,588
|
|
|
|
8,679
|
|
Paper Packaging
|
|
|
55,498
|
|
|
|
34,841
|
|
|
|
60,812
|
|
Land Management
|
|
|
9,001
|
|
|
|
22,074
|
|
|
|
20,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating profit
|
|
$
|
325,415
|
|
|
$
|
199,897
|
|
|
$
|
382,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
(1)
|
|
Amounts presented in 2009 and 2008
reflect the change in accounting principle from using a
combination of the LIFO and FIFO inventory accounting methods to
the FIFO method for all of our businesses effective
November 1, 2009 and the realignment of the multiwall bag
operations, which was previously included in the Paper Packaging
segment, into the Flexible Products & Services segment.
|
Year 2010
Compared to Year 2009
Net
Sales
Net sales increased 24.0 percent on a year over year basis
to $3,461.5 million in 2010 from $2,792.2 million in
2009. The $669.3 million increase was due to higher sales
volumes, higher selling prices and favorable foreign currency
translation. The $669.3 million increase was due to Rigid
Industrial Packaging & Services ($321.0 million
increase), Flexible Products & Services
($189.1 million increase) and Paper Packaging
($163.4 million increase) offset by Land Management
($4.2 million decrease).
Operating
Costs
Cost of products sold, as a percentage of net sales, was
79.7 percent for 2010 compared to 82.1 percent for
2009. The lower cost of products sold as a percentage of net
sales were primarily due to improved productivity in 2010,
permanent cost savings achieved during 2009 and the execution of
our Greif Business System.
SG&A expenses were $362.9 million, or
10.5 percent of net sales, in 2010 compared to
$267.6 million, or 9.6 percent of net sales, in 2009.
The dollar increase in SG&A expense was primarily due to
the inclusion of SG&A of acquired companies and higher
employment-related costs as compared to the same period in 2009,
when normal salary increases and certain employee related
benefits were curtailed. SG&A expense as a percentage of
net sales primarily increased as a result of acquisition-related
costs, which were previously capitalized. Excluding
acquisition-related costs, SG&A expenses as a percent of
net sales were 9.7 percent and 9.6 percent in 2010 and
2009, respectively.
Restructuring
and Restructuring-Related Inventory Charges
Restructuring charges were $26.7 million and
$66.6 million in 2010 and 2009, respectively.
Restructuring-related inventory charges were $0.1 million
and $10.8 million in 2010 and 2009, respectively.
Restructuring charges for 2010 consisted of $13.7 million
in employee separation costs, $2.9 million in asset
impairments, $2.4 million in professional fees and
$7.7 million in other restructuring costs. The focus of the
2010 restructuring activities was on integration of recent
acquisitions in the Rigid Industrial Packaging &
Services and Flexible Products & Services segments. In
addition, we recorded $0.1 million of restructuring-related
inventory charges as a cost of products sold in our Rigid
Industrial Packaging & Services segment. Seven plants
in the Rigid Industrial Packaging & Services segment,
two plants in the Paper Packaging segment and one plant in
Flexible Products & Services segment were closed. A
total of 232 employees were severed during 2010.
Restructuring charges for 2009 consisted of $28.4 million
in employee separation costs, $19.6 million in asset
impairments, $0.3 million in professional fees, and
$18.3 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 plants in the Rigid Industrial
Packaging & Services 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 Rigid Industrial
Packaging & Services segment related to excess
inventory adjustments of closed facilities.
See Note 7 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 both 2010 and 2009, we recorded no net gain on sale of
timberland property.
25
Acquisition-Related
Costs
There were $27.2 million of acquisition-related costs
recognized in 2010 that were included in SG&A expenses.
This amount included $19.1 million of acquisition costs
previously capitalized as part of the purchase price of
acquisitions, of which $6.1 million was incurred prior to
November 1, 2009, the date on which we adopted
ASC 805, Business Combinations. In addition, we
incurred post acquisition-related integration costs of
$8.1 million which represented costs associated with
integrating acquired companies, such as costs associated with
Greif Business System initiatives, sourcing and supply chain
initiatives, and finance and administrative reorganizations.
Operating
Profit
Operating profit was $325.4 million and $199.9 million
in 2010 and 2009, respectively. Operating profit before the
impact of restructuring charges, restructuring-related inventory
charges and acquisition-related costs was $379.5 million
for 2010 compared to $277.3 million for 2009. The
$102.2 million increase in operating profit before the
impact of restructuring charges, restructuring-related inventory
charges and acquisition-related costs was principally due to
increases in Rigid Industrial Packaging & Services
($80.2 million), Flexible Products & Services
($10.2 million) and Paper Packaging ($25.1 million)
partially offset by a decrease in Land Management
($13.2 million).
Segment
Review
Rigid
Industrial Packaging & Services
Our Rigid Industrial Packaging & Services segment
offers a comprehensive line of rigid industrial packaging
products, such as steel, fibre and plastic drums, rigid
intermediate bulk containers, closure systems for industrial
packaging products, transit protection products, water bottles
and reconditioned containers, and services, such as container
lifecycle management, blending, filling and other packaging
services, logistics and warehousing. The key factors influencing
profitability in the Rigid Industrial Packaging &
Services segment are:
|
|
|
|
|
Selling prices, customer demand and sales volumes;
|
|
|
|
Raw material costs, primarily steel, resin and containerboard;
|
|
|
|
Energy and transportation costs;
|
|
|
|
Benefits from executing the Greif Business System;
|
|
|
|
Restructuring charges;
|
|
|
|
Contributions from recent acquisitions;
|
|
|
|
Divestiture of business units; and
|
|
|
|
Impact of foreign currency translation.
|
In this segment, net sales were $2,587.9 million in 2010
compared to $2,266.9 million 2009. The 14.2 percent
increase in net sales was due to higher sales volumes and
favorable foreign currency translation, partially offset by
lower selling prices reflecting lower average raw material costs.
Gross profit margin for the Rigid Industrial
Packaging & Services segment was 21.0 percent in
2010 compared to 17.9 percent in 2009. This increase in
gross profit margin was primarily due to higher sales volume,
lower material costs and continued benefits from executing the
Greif Business System.
Operating profit was $262.3 million in 2010 compared to
$134.4 million in 2009. Operating profit before the impact
of restructuring charges, restructuring-related inventory
charges and acquisition-related costs increased to
$291.1 million in 2010 compared to $210.9 million in
2009. The increase in operating profit before the impact of
restructuring charges, restructuring-related inventory charges
and acquisition-related costs was primarily due to higher net
sales, lower material costs, higher productivity and permanent
cost savings achieved during 2009 from the execution of the
Greif Business System, partially offset by lower net gains on
asset disposals.
26
Flexible
Products & Services
Our Flexible Products & Services segment offers a
comprehensive line of flexible products, such as flexible
intermediate bulk containers and multiwall bags. The key factors
influencing profitability in the Flexible Products &
Services segment are:
|
|
|
|
|
Selling prices, customer demand and sales volumes;
|
|
|
|
Raw material costs, primarily resin and containerboard;
|
|
|
|
Energy and transportation costs;
|
|
|
|
Benefits from executing the Greif Business System;
|
|
|
|
Contributions from recent acquisitions; and
|
|
|
|
Impact of foreign currency translation.
|
In this segment, net sales were $233.1 million in 2010
compared to $44.0 million in 2009. The increase was
primarily due to acquisitions throughout 2010. Both periods
included our multiwall bag operations, which were previously
included in the Paper Packaging segment, but which have been
reclassified to conform to the current years presentation.
Gross profit margin for the Flexible Products &
Services segment was 21.1 percent in 2010 compared to
31.1 percent in 2009. This decrease in gross profit margin
was primarily due to the acquisition in 2010 of several
businesses that currently operate with lower margins.
This segment experienced an operating loss of $1.4 million
in 2010 compared to an operating profit of $8.6 million in
2009. Operating profit before the impact of restructuring
charges and acquisition-related costs increased to
$18.8 million in 2010 from $8.6 million in 2009
primarily due to acquisitions throughout 2010.
Paper
Packaging
Our Paper Packaging segment sells containerboard, corrugated
sheets, and corrugated containers 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;
|
|
|
|
Contributions from recent acquisitions;
|
|
|
|
Divestiture of business units; and
|
|
|
|
Restructuring charges.
|
In this segment, net sales were $624.1 million in 2010
compared to $460.7 million in 2009. The 35.5 percent
increase in net sales was due to higher sales volumes and higher
selling prices.
Gross profit margin for the Paper Packaging segment was
16.8 percent in 2010 compared to 15.2 percent in 2009.
This increase in gross profit margin was primarily driven by
higher sales volumes and continued benefits from executing the
Greif Business System partially offset by higher material costs.
Operating profit was $55.5 million and $34.8 million
in 2010 and 2009, respectively. Operating profit before the
impact of restructuring charges increased to $60.6 million
in 2010 compared to $35.5 million in 2009. The increase in
operating profit before the impact of restructuring charges was
primarily due to higher net sales and permanent cost savings
achieved during 2009 from the execution of the Greif Business
System, partially offset by higher material costs.
Land
Management
As of October 31, 2010, our Land Management segment
consisted of approximately 267,150 acres of timber
properties in the southeastern United States, which are actively
harvested and regenerated, and approximately 24,700 acres
in Canada. The key factors influencing profitability in the Land
Management segment are:
|
|
|
|
|
Planned level of timber sales;
|
27
|
|
|
|
|
Selling prices and customer demand;
|
|
|
|
Gains (losses) on sale of timberland; and
|
|
|
|
Gains on the sale of special use properties (surplus, HBU, and
development properties).
|
In this segment, net sales were $16.5 million in 2010
compared to $20.6 million in 2009. While timber sales are
subject to fluctuations, we seek to maintain a consistent
cutting schedule, within the limits of market and weather
conditions.
Gross profit margin for the Land Management segment was
46.7 percent in 2010 compared to 53.5 percent in 2009.
This decrease in gross profit margin was primarily driven by
changes in product mix.
Operating profit was $9.0 million and $22.1 million in
2010 and 2009, respectively. Operating profit before the impact
of restructuring charges was $9.0 million in 2010 compared
to $22.2 million in 2009. Included in these amounts were
profits from the sale of special use properties of
$3.3 million in 2010 and $14.8 million in 2009.
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:
|
|
|
|
|
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.
|
|
|
|
HBU property, meaning land that in its current state has a
higher market value for uses other than growing and selling
timber.
|
|
|
|
Development property, meaning HBU land that, with additional
investment, may have a significantly higher market value than
its HBU market value.
|
|
|
|
Timberland, meaning land that is best suited for growing and
selling timber.
|
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, 2010, we estimated that there were
approximately 59,150 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
Gain on
Disposal of Properties, Plants and Equipment, Net
For 2010, we recorded a gain on disposal of properties, plants
and equipment, net of $11.4 million, primarily consisting
of a $6.6 million pre-tax net gain on the sale of specific
Rigid Industrial Packaging & Services segment assets
and facilities in North America, $1.4 million in specific
Paper Packaging segment assets, $0.1 million in net gains
from the sale of Flexible Products and Services assets and
$3.3 million in net gains from the sale of surplus and HBU
timber properties. During 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 Rigid Industrial Packaging &
Services segment assets and facilities in North America and
$14.8 million in net gains from the sale of surplus and HBU
timber properties.
Interest
Expense, Net
Interest expense, net was $65.8 million and
$53.6 million 2010 and 2009, respectively. The increase in
interest expense, net was primarily attributable to higher
average debt outstanding and an increase in our borrowing costs.
In October 2010, we entered
28
into a new $1.0 billion senior secured credit facility
which replaced our then-existing $700 million senior
secured credit facility. See Liquidity and Capital
ResourcesBorrowing Arrangements for a further
discussion of this credit facility.
Debt
Extinguishment Charges
There were no debt extinguishment charges in 2010 and
$0.8 million in 2009.
Other Expense,
Net
Other expense, net for 2010 and 2009 was $7.1 million and
$7.2 million, respectively. The slight decrease in other
expense, net was primarily due to fees associated with the sale
of our
non-United
States accounts receivable.
Income Tax
Expense
During 2010, the effective tax rate was 16.1% compared to 17.4%
in 2009. The change in the effective tax rate was primarily due
to a change in the mix of income between the United States and
non-U.S. locations
for the respective periods as well as an incremental benefit
from an alternative fuel tax credit. The effective tax rate may
fluctuate based on the mix of income inside and outside the
United States and other factors.
Equity
Earnings (Losses) of Unconsolidated Affiliates, Net of Tax and
Net Income Attributable to Noncontrolling
Interests
Equity earnings (losses) of unconsolidated affiliates, net of
tax were $3.5 million and ($0.4) million for 2010 and
2009, respectively.
In addition, some of our subsidiaries are not wholly-owned by
us, which means we own a majority interest in those
subsidiaries, and other unrelated persons own the remaining
portion. Net income attributable to noncontrolling interests
reflect the portion of earnings or losses of operations of these
subsidiaries that are owned by persons otherwise unrelated to
us. Net income attributable to noncontrolling interests for the
year ended October 31, 2010 and 2009 were $5.5 million
and $3.2 million, respectively, and were deducted from net
income to arrive at net income attributable to Greif, Inc.
Net
Income
Based on the foregoing, net income increased $99.4 million
to $210.0 million in 2010 from $110.6 million in 2009.
Year 2009
Compared to Year 2008
Net
Sales
Net sales decreased 26.3 percent 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, unfavorable foreign currency translation, and lower
selling prices. The constant-currency decrease was primarily due
to lower sales volumes resulting from the sharp decline in the
global economy.
Operating
Costs
Cost of products sold, as a percentage of net sales, increased
to 82.1 percent in 2009 from 81.4 percent in 2008
primarily as a result of higher raw material costs partially
offset by contributions from further execution of incremental
and accelerated Greif Business System initiatives and specific
contingency actions. Driving the increase further was
$10.8 million of restructuring-related inventory charges.
SG&A expenses were $267.6 million, or 9.6 percent
of net sales, in 2009 compared to $339.2 million, or
9.0 percent 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 the curtailment of
normal salary increases and certain employee related benefits
and 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.
29
Restructuring
and Restructuring-Related Inventory Charges
Restructuring charges were $66.6 million and
$43.2 million in 2009 and 2008, respectively.
Restructuring-related inventory charges were $10.8 million
in 2009 and no restructuring-related inventory charges were
incurred in 2008.
Restructuring charges for 2009 consisted of $28.4 million
in employee separation costs, $19.6 million in asset
impairments, $0.3 million in professional fees and
$18.3 million in other restructuring costs. The focus of
the 2009 restructuring activities was on business realignment
due to the global economic downturn and further implementation
of the Greif Business System. Nineteen plants in the Rigid
Industrial Packaging & Services 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 Rigid Industrial Packaging & Services
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 plants in the Rigid Industrial Packaging &
Services 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 7 to the Notes to Consolidated Financial
Statements included in Item 8 of the
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.
Operating
Profit
Operating profit was $199.9 million and $382.3 million
in 2009 and 2008, respectively. Operating profit before the
impact of restructuring charges, restructuring-related inventory
charges and timberland disposals, net was $277.3 million
for 2009 compared to $425.2 million for 2008. The
$147.9 million decrease in operating profit before the
impact of restructuring charges, restructuring-related inventory
charges and timberland disposals, net was principally due to
decreases in Rigid Industrial Packaging & Services
($115.0 million), Flexible Products & Services
($0.1 million), and Paper Packaging ($34.4 million),
offset by an increase in Land Management ($1.7 million).
Operating profit, expressed as a percentage of net sales,
decreased to 7.1 percent for 2009 from 10.1 percent 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, decreased to 9.9 percent for 2009 from
11.2 percent in 2008.
Segment
Review
Rigid
Industrial Packaging & Services
Our Rigid Industrial Packaging & Services segment
offers a comprehensive line of rigid industrial packaging
products, such as steel, fibre and plastic drums, rigid
intermediate bulk containers, closure systems for industrial
packaging products, transit protection products, and water
bottles, and services, such as blending, filling and other
packaging services, logistics and warehousing. The key factors
influencing profitability in the Rigid Industrial
Packaging & Services 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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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 decreased 26.3 percent to
$2,266.9 million in 2009 compared to $3,074.8 million
in 2008 due to lower sales volume, unfavorable foreign currency
translation, and lower selling prices. The Rigid Industrial
Packaging & Services 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 Rigid Industrial
Packaging & Services segment was 17.9 percent in
2009 compared to 18.8 percent in 2008. This decrease in
gross profit margin was primarily due to lower sales volume
partially offset by the continued benefits from executing the
Greif Business System and specific contingency actions (lower
labor, transportation, and other manufacturing costs).
Operating profit was $134.4 million in 2009 compared to
$292.0 million in 2008. Operating profit before the impact
of restructuring charges and restructuring-related inventory
charges decreased to $210.9 million in 2009 compared to
$326.0 million in 2008. The decrease in operating profit
before the impact of restructuring charges and
restructuring-related inventory charges was primarily due to
lower net sales which were partially offset by net gains on
asset disposals, lower raw material costs, 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
reductions in the supply of steel on the spot market in certain
regions later in the year.
Flexible
Products & Services
Our Flexible Products & Services segment offers a
comprehensive line of multiwall bags. The key factors
influencing profitability in the Flexible Products &
Services segment are:
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Selling prices, customer demand and sales volumes;
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Raw material costs, primarily containerboard;
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Energy and transportation costs; and
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Benefits from executing the Greif Business System.
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In this segment, net sales were $44.0 million in 2009
compared to $52.6 million in 2008. This 16.4 percent
decrease was due to lower sales volumes resulting from the sharp
decline in the global economy. Both periods included our
multiwall bag operations, which were previously included in the
Paper Packaging segment, but which have been reclassified to
conform to the current years presentation.
Gross profit margin for the Flexible Products &
Services segment was 31.1 percent in 2009 compared to
27.7 percent in 2008. This increase in gross profit margin
was primarily due to lower product costs, the continued
implementation of the Greif Business System and specific
contingency actions (lower labor, transportation, and other
manufacturing costs).
Operating profit was $8.6 million in 2009 and
$8.7 million in 2008.
Paper
Packaging
Our Paper Packaging segment sells containerboard, corrugated
sheets, and corrugated containers 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 decreased 28.5 percent to
$460.7 million in 2009 from $644.3 million in 2008.
The $183.6 million decrease was primarily due to lower
sales volumes and lower selling prices.
Gross profit margin for the Paper Packaging segment was
15.2 percent in 2009 compared to 16.4 percent in 2008.
This decrease in gross profit margin was primarily the result of
decreasing sales volume partially offset by the continued
implementation of the Greif Business System.
31
Operating profit was $34.8 million and $60.8 million
in 2009 and 2008, respectively. Operating profit before the
impact of restructuring charges decreased to $35.5 million
in 2009 compared to $70.0 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. In
addition, labor, transportation and energy costs were lower in
2009 as compared to 2008.
Land
Management
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.
Gross profit margin for the Land Management segment was
53.5 percent in 2009 compared to 39.3 percent in 2008.
This increase in gross profit margin was primarily driven by the
change in product mix.
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.
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.
Other Income
Statement Changes
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
Rigid Industrial Packaging & Services 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 and increased
borrowing costs in connection with our entering into a
$700 million senior secured credit facility and our
issuance of $250 million of Senior Notes due 2019 at 7.75%,
both of which occurred in 2009.
Debt
Extinguishment Charges
In 2009, we completed a $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. No
debt extinguishment charges were incurred in 2008.
32
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 17.4% compared to 24.2%
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
Earnings (Losses) of Unconsolidated Affiliates, Net of Tax and
Net Income Attributable to Noncontrolling
Interests
Equity earnings (losses) of unconsolidated affiliates, net of
tax were ($0.4) million in 2009 compared to a gain of
$1.6 million in 2008.
In addition, some of our subsidiaries are not wholly-owned by
us, which means we own a majority interest in those
subsidiaries, and other unrelated persons own the remaining
portion. Net income attributable to noncontrolling interests
reflect the portion of earnings or losses of operations of these
subsidiaries that are owned by persons otherwise unrelated to
us. Net income attributable to noncontrolling interests for the
year ended October 31, 2009 and 2008 were $3.2 million
and $5.6 million, respectively, and were deducted from net
income to arrive at net income attributable to Greif, Inc.
Net
Income
Based on the foregoing, net income decreased $131.1 million
to $110.6 million in 2009 from $241.7 million in 2008.
BALANCE SHEET
CHANGES
The $143.1 million increase in trade accounts receivable
was primarily related to higher 2010 sales as compared to 2009
sales, extended credit terms with customers and acquisitions in
2010 in North America, South America, Europe and Asia.
The $157.7 million increase in inventories was mainly
driven by higher raw material prices, steel costs, higher
overall business activity levels and acquisitions in 2010 in
North America, South America, Europe and Asia.
The $28.4 million increase in prepaid expenses and other
current assets was primarily due to acquisitions in 2010 in
North America, South America, Europe and Asia.
The $117.6 million increase in goodwill primarily related
to acquisitions in 2010 in North America, South America,
Europe and Asia. Refer to Note 6 to the Notes to
Consolidated Financial Statements included in Item 8 of
this
Form 10-K.
The $41.9 million increase in other intangibles primarily
related to acquisitions in 2010 in North America, South America,
Europe and Asia. Refer to Note 6 to the Notes to
Consolidated Financial Statements included in Item 8 of
this
Form 10-K
for our intangible asset detail by asset class.
The $7.5 million increase in other long-term assets
primarily related to acquisitions in 2010 in North America,
South America, Europe and Asia.
The $182.8 million increase in net property, plant and
equipment primarily related to acquisitions in 2010 in North
America, South America, Europe and Asia.
The $112.5 million increase in accounts payable primarily
related to higher raw material costs, especially steel, timing
of payments, foreign currency translation and acquisitions in
2010 in North America, South America, Europe and Asia.
The $16.4 million increase in accrued payroll and employee
benefits primarily related to the increase in headcount and
acquisitions in 2010 in North America, South America, Europe and
Asia.
The $41.3 million increase in short-term borrowings was
primarily related to acquisitions in 2010 in North America,
South America, Europe and Asia.
33
The $24.4 million increase in other current liabilities was
primarily related to acquisitions in 2010 in North America,
South America, Europe and Asia.
The $227.0 million increase in long-term debt and the
current portion of long-term debt primarily related to
acquisitions in 2010 in North America, South America, Europe and
Asia and purchases of properties, plants and equipment.
The $12.0 million decrease in pension liabilities was
primarily due to the recovering market in 2010.
The $9.5 million decrease in other long-term liabilities
primarily related to a fair value adjustment of
$14.9 million related to foreign currency swaps.
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 2010 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 2010 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. At October 31,
2010, we had $695.6 million available to borrow under our
2010 Credit Agreement, as described below.
Capital
Expenditures
During 2010, 2009 and 2008, we invested $144.1 million
(excluding $21.0 million for timberland properties),
$124.7 million (excluding $1.0 million for timberland
properties), and $143.1 million (excluding
$2.5 million for timberland properties) in capital
expenditures, respectively.
We anticipate future capital expenditures, excluding the
potential purchase of timberland properties, of approximately
$140 million through October 31, 2011. These
expenditures will be used to fund a manufacturing site for the
Flexible Products & Services segment and to replace
and improve existing equipment.
Acquisitions,
Divestitures and Other Significant Transactions
During 2010, we completed acquisitions of seven rigid industrial
packaging companies and made a contingent purchase price payment
related to a 2008 rigid industrial packaging acquisition. The
seven rigid industrial packaging companies consisted of a
European company purchased in November 2009, an Asian company
purchased in June 2010, two North American drum reconditioning
companies purchased in July and August 2010, one European
company purchased in August 2010, a 51 percent interest in
a Middle Eastern company and a South American company purchased
in September 2010.
During 2010, we completed acquisitions of five flexible products
companies. These five flexible product companies conduct
business throughout Europe, Asia and North America and were
acquired in February, June, August and September 2010. On
September 29, 2010, we entered into a joint venture
agreement with Dabbagh Group Holding Company Limited, a Saudi
Arabia corporation (Dabbagh), and National
Scientific Company Limited, a Saudi Arabia limited
liability company and a subsidiary of Dabbagh (NSC),
referred to herein as the Flexible Packaging Joint Venture
(Flexible Packaging JV). Thereafter, we contributed
the five acquired flexible product companies to the Flexible
Packaging JV. We own 50 percent of the Flexible Packaging
JV but exercise management control of its operations. The
results of the Flexible Packaging JV have been consolidated
within our 2010 results.
The aggregate purchase price for the twelve 2010 acquisitions
was $176.2 million.
During 2009, we acquired five Rigid Industrial
Packaging & Services 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 percent interest in a North American
paper packaging company in October 2009.
34
During 2010, we sold specific Paper Packaging segment assets and
facilities in North America. The net gain from these sales was
immaterial.
During 2009, we sold specific Rigid Industrial
Packaging & Services segment assets and facilities in
North America. The net gain from these sales was
$17.1 million and was included in gain on disposal of
properties, plants and equipment, net in the accompanying
consolidated statement of income.
Refer to Note 2 to the Consolidated Financial Statements
included in Item 8 of this
Form 10-K
for additional disclosures regarding our 2010 and 2009
acquisitions and other significant transactions.
Borrowing
Arrangements
Credit
Agreement
On October 29, 2010, we and two of our international
subsidiaries, as borrowers, obtained a $1.0 billion senior
secured credit facility pursuant to an Amended and Restated
Credit Agreement (the 2010 Credit Agreement) with a
syndicate of financial institutions. The 2010 Credit Agreement
replaced our then existing credit agreement (the 2009
Credit Agreement) that provided us with a
$500 million revolving multicurrency credit facility and a
$200 million term loan, both expiring in February 2012. The
revolving multicurrency credit facility under the 2009 Credit
Agreement was available for ongoing working capital and capital
expenditure needs, for general corporate purposes, and to
finance acquisitions. Interest was based on either a euro
currency rate or an alternative base rate that resets
periodically plus a calculated margin.
The 2010 Credit Agreement provides us with a $750 million
revolving multicurrency credit facility and a $250 million
term loan, both expiring October 29, 2015, with an option
to add $250 million to the facilities with the agreement of
the lenders. The $250 million term loan is scheduled to
amortize by the payment of principal in the amount of
$3.1 million each quarter-end for the first eight quarters,
$6.3 million each quarter-end for the next eleven quarters
and $156.3 million on the maturity date. The revolving
credit facility under the 2010 Credit Agreement is available to
fund ongoing working capital and capital expenditure needs, for
general corporate purposes, to finance acquisitions and to
refinance amounts outstanding under the 2009 Credit Agreement.
Interest is based on a Eurodollar rate or a base rate that
resets periodically plus an agreed upon margin amount. On
October 29, 2010, a total of $374 million was borrowed
under the 2010 Credit Agreement to pay the obligations
outstanding under the 2009 Credit Agreement in full and certain
costs and expenses incurred in connection with the 2010 Credit
Agreement. As of October 31, 2010, a total of
$273.7 million was outstanding under the 2010 Credit
Agreement, with available borrowing capacity of
$695.6 million. The weighted average interest rate on the
2010 Credit Agreement was 3.67% for the year ended
October 31, 2010 and at October 31, 2010.
The 2010 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 (adjusted EBITDA) to be greater than 3.75 to
1 (or 3.5 to 1, during any collateral release period). The fixed
charge coverage ratio generally requires that at the end of any
fiscal quarter we will not permit the ratio of (a) (i) our
adjusted EBITDA, less (ii) the aggregate amount of certain
of our cash capital expenditures, and less (iii) the
aggregate amount of our 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) our consolidated interest expense to the extent
paid or payable in cash and (ii) the aggregate principal
amount of all of our 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, during the applicable
trailing twelve month period. On October 31, 2010, we were
in compliance with these two covenants.
The terms of the 2010 Credit Agreement limit our ability to make
restricted payments, which include dividends and
purchases, redemptions and acquisitions of our equity interests.
The repayment of amounts borrowed under the 2010 Credit
Agreement are secured by a security interest in the personal
property of Greif, Inc. and certain 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. The
repayment of amounts borrowed under the 2010 Credit Agreement
will also be secured, in part,
35
by capital stock of the non-U.S. subsidiaries that are parties
to the 2010 Credit Agreement and their non-U.S. parent
companies, following the completion of a corporate
reorganization. However, in the event that we receive and
maintain an investment grade rating from either Moodys
Investors Service, Inc. or Standard & Poors
Corporation, we may request the release of such collateral. The
payment of outstanding principal under the 2010 Credit Agreement
and accrued interest thereon may be accelerated and become
immediately due and payable upon our default in its payment or
other performance obligations or its failure to comply with the
financial and other covenants in the 2010 Credit Agreement,
subject to applicable notice requirements and cure periods as
provided in the 2010 Credit Agreement.
Refer to Note 9 to the Consolidated Financial Statements
included in Item 8 of this
Form 10-K
for additional disclosures regarding the 2010 Credit Agreement.
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, Inc. only, 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 transactions. These covenants are
subject to a number of limitations and exceptions as set forth
in the Indenture. At October 31, 2010, we were in
compliance with these covenants.
We have 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 2009
Credit Agreement, without any permanent reduction of the
commitments. These Senior Notes are general unsecured
obligations of Greif, Inc. only, 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, 2010, we were in
compliance with these covenants.
Refer to Note 9 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 leverage and fixed charge ratios identical to the
2010 Credit Agreement. Proceeds of the Receivables Facility are
available for working capital and general corporate purposes. At
October 31, 2010, $135.0 million was outstanding under
the Receivables Facility.
Refer to Note 9 of the Consolidated Financial Statements
included in Item 8 of this
Form 10-K
for additional disclosures regarding the Receivables 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
36
and which meet certain eligibility requirements are sold to
certain international banks or their affiliates. The structure
of these transactions provides for a legal true sale, on a
revolving basis, of the receivables transferred from our various
subsidiaries to the respective banks. The banks fund an initial
purchase price of a certain percentage of eligible receivables
based on a formula with the initial purchase price approximating
75 percent to 90 percent of eligible receivables. The
remaining deferred purchase price is settled upon collection of
the receivables. At the balance sheet reporting dates, we remove
from accounts receivable the amount of proceeds received from
the initial purchase price since they meet the applicable
criteria of 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 $175.7 million at
October 31, 2010. The number does not account for the
Brazilian RPA which does not have a maximum. At October 31,
2010, total accounts receivable of $177.2 million were sold
under the various RPAs, of which $6.9 million related to
the Brazilian RPA.
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
operations. Expenses associated with the various RPAs totaled
$6.8 million for the year ended October 31, 2010.
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.
Refer to 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 against the 2010 Credit
Agreement and proceeds from the Senior Notes and the
United States trade accounts receivable credit facility, at
October 31, 2010, we had outstanding other debt of
$72.1 million, comprised of $11.2 million in long-term
debt and $60.9 million in short-term borrowings.
At October 31, 2010, annual maturities, including the
current portion, of long-term debt under our various financing
arrangements were $12.5 million in 2011, $23.7 million
in 2012, $160.0 million in 2013, $25.0 million in
2014, $198.7 million in 2015 and $545.7 million
thereafter.
At October 31, 2010 and 2009, we had deferred financing
fees and debt issuance costs of $19.9 million and
$14.9 million, respectively, which are included in other
long-term assets.
Financial
Instruments
Cross-Currency
Interest Rate Swaps
We entered into a cross-currency interest rate swap agreement
which was designated as a hedge of a net investment in a foreign
operation. Under this swap agreement, we received interest
semi-annually from the counterparties in an amount equal to a
fixed rate of 6.75% on $200.0 million and paid interest in
an amount equal to a fixed rate of 6.25% on
146.6 million. During the third quarter of 2010, we
terminated this swap agreement, including any future cash flows.
The termination of this swap agreement resulted in a cash gain
of $25.7 million ($15.8 million, net of tax) which is
included within foreign currency translation adjustments. At
October 31, 2009, we had recorded an other comprehensive
loss of $14.6 million as a result of this swap agreement.
Interest Rate
Derivatives
We have interest rate swap agreements with various maturities
through 2012. These interest rate swap agreements are used to
manage our fixed and floating rate debt mix. Under these swap
agreements, we receive interest monthly from the counterparties
based upon a designated LIBOR, and we pay interest based upon a
designated fixed rate over the life of the swap agreements.
We have two interest rate derivatives (floating to fixed swap
agreements recorded as cash flow hedges) with a total notional
amount of $125 million. Under these swap agreements, we
receive interest based upon a variable interest rate from the
37
counterparties (weighted average of 0.26% at October 31,
2010 and 0.25% at October 31, 2009) and pay interest
based upon a fixed interest rate (weighted average of 1.78% at
October 31, 2010 and 2.71% at October 31, 2009). The
other comprehensive loss on these interest rate derivatives was
$2.0 million at October 31, 2010 and $2.3 million
at October 31, 2009.
In the first quarter of 2010, we entered into a
$100.0 million fixed to floating swap agreement which was
recorded as a fair value hedge. Under this swap agreement, we
received interest from the counterparty based upon a fixed rate
of 6.75% and paid interest based upon a variable rate on a
semi-annual basis. In the third quarter of 2010, we terminated
this swap agreement, including any future cash flows. The
termination of this swap agreement resulted in a cash gain of
$3.6 million.
Foreign
Exchange Hedges
At October 31, 2010, we had outstanding foreign currency
forward contracts in the notional amount of $252.9 million
($70.5 million at October 31, 2009). 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, 2010 resulted in a gain of $0.8 million
recorded in the consolidated statements of operations and a loss
of $2.3 million recorded in other comprehensive income. The
fair value of similar contracts at October 31, 2009
resulted in an immaterial loss in the consolidated statements of
operations.
Energy
Hedges
We have entered into certain cash flow hedge agreements to
mitigate our exposure to cost fluctuations in natural gas prices
through October 31, 2010. Under these hedge agreements, we
have agreed to purchase natural gas at a fixed price. At
October 31, 2010, the notional amount of these hedge
agreements was $2.4 million ($4.0 million at
October 31, 2009). The other comprehensive loss on these
hedge agreements was $0.3 million at October 31, 2010
and $0.6 million at October 31, 2009. As a result of
the high correlation between the hedged instruments and the
underlying transactions, ineffectiveness has not had a material
impact on our consolidated statements of operations for the year
ended October 31, 2010.
Contractual
Obligations
As of October 31, 2010, 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
|
|
$
|
1,323.5
|
|
|
$
|
50.8
|
|
|
$
|
360.6
|
|
|
$
|
288.0
|
|
|
$
|
624.1
|
|
Current portion of long-term debt
|
|
|
12.5
|
|
|
|
12.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowing
|
|
|
64.6
|
|
|
|
64.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligations
|
|
|
11.3
|
|
|
|
1.6
|
|
|
|
4.0
|
|
|
|
5.7
|
|
|
|
|
|
Operating leases
|
|
|
9.6
|
|
|
|
3.5
|
|
|
|
3.8
|
|
|
|
2.1
|
|
|
|
0.2
|
|
Liabilities held by special purpose entities
|
|
|
67.2
|
|
|
|
2.2
|
|
|
|
4.5
|
|
|
|
2.2
|
|
|
|
58.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,488.7
|
|
|
$
|
135.2
|
|
|
$
|
372.9
|
|
|
$
|
298.0
|
|
|
$
|
682.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: Amounts presented in the contractual obligation table
include interest.
Our unrecognized tax benefits 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 2010,
we repurchased no shares of Class A Common Stock, and we
repurchased 50,000 shares of Class B Common Stock
(refer to Item 5 to this
Form 10-K
for additional information regarding these repurchases). As of
October 31, 2010, we had repurchased 2,883,272 shares,
including 1,416,752 shares of Class A Common Stock and
1,466,520 shares of Class B Common Stock, under this
program. The total cost of the shares repurchased from
November 1, 2007 through October 31, 2010 was
$27.3 million.
38
Effects of
Inflation
Inflation did not have a material impact on our operations
during 2010, 2009 or 2008.
Subsequent
Events
None.
Recent Accounting
Standards
Newly Adopted
Accounting Standards
In December 2007, the Financial Accounting Standards Board
(FASB) amended ASC 805, Business
Combinations. The objective of the new provisions of
ASC 805 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. ASC 805 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. ASC 805 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. ASC 805 applies
to any acquisition entered into on or after November 1,
2009. We adopted the new guidance beginning on November 1,
2009, which impacted our financial position, results of
operations, cash flows and related disclosures.
In December 2007, the FASB amended ASC 810,
Consolidation. The objective of the new amendment of
ASC 810 is to improve the relevance, comparability and
transparency of the financial information that a reporting
entity provides in its consolidated financial statements.
ASC 810 establishes accounting and reporting standards for
the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. ASC 810 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 ASC 810 are to be applied
prospectively as of the beginning of the fiscal year in which
ASC 810 is adopted, except for the presentation and
disclosure requirements, which are to be applied retrospectively
for all periods presented. We adopted the new guidance beginning
November 1, 2009, and the adoption of the new guidance did
not impact our financial position, results of operations or cash
flows, other than the related disclosures.
In December 2008, the FASB amended ASC 715,
CompensationRetirement Benefits, to provide
guidance on employers disclosures about assets of a
defined benefit pension or other postretirement plan.
ASC 715 requires employers to disclose information about
fair value measurements of plan assets similar to ASC 820,
Fair Value Measurements and Disclosures. 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 measurements using significant
unobservable inputs on changes in plan assets for the period and
(e) significant concentrations of risk within plan assets.
We adopted the new guidance beginning November 1, 2009, and
the adoption of the new guidance did not impact our financial
position, results of operations or cash flows, other than the
related disclosures.
Recently
Issued Accounting Standards
In June 2009, the FASB amended ASC 860, Transfers and
Servicing. The amendment to ASC 860 improves 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 ASC 860 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 the guidance
may have on our consolidated
39
financial statements and related disclosures. However, we do not
anticipate a material impact on our financial position, results
of operations or cash flows.
In June 2009, the FASB amended ASC 810,
Consolidation. The amendment to ASC 810
requires 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 requires 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 ASC 810 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 ASC 810 may have on
our consolidated financial statements and related disclosures.
However, we do not anticipate a material impact on our financial
position, results of operations or cash flows.
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 the 2010 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. We have entered into interest rate swap
agreements 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 $125.0 million and $175.0 million at
October 31, 2010 and 2009, 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
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 $2.0 million and $2.3 million was recorded
at October 31, 2010 and 2009, respectively.
40
The tables below provide information about our derivative
financial instruments and other financial instruments that are
sensitive to changes in interest rates. For the 2010 and 2009
Credit Agreements, 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, 2010 and 2009. For interest
rate swaps, the tables present annual amortizations of notional
amounts and weighted average interest rates by contractual
maturity dates. Under the cash flow swap agreements, we receive
interest monthly from the counterparties and pay interest
monthly to the counterparties.
The fair values of our 2010 and 2009 Credit Agreements, 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, 2010 and 2009. The fair value of the interest
rate swap agreements has been determined based upon the market
settlement prices of comparable contracts at October 31,
2010 and 2009.
Financial
Instruments
As of
October 31, 2010
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected Maturity
Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After
|
|
|
|
|
|
Fair
|
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2015
|
|
|
Total
|
|
|
Value
|
|
|
|
|
2010 Credit Agreement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scheduled amortizations
|
|
$
|
13
|
|
|
$
|
13
|
|
|
$
|
25
|
|
|
$
|
25
|
|
|
$
|
198
|
|
|
|
|
|
|
$
|
274
|
|
|
$
|
274
|
|
Average interest rate(1)
|
|
|
3.67
|
%
|
|
|
3.67
|
%
|
|
|
3.67
|
%
|
|
|
3.67
|
%
|
|
|
3.67
|
%
|
|
|
|
|
|
|
3.67
|
%
|
|
|
|
|
Senior Notes due 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scheduled amortizations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
300
|
|
|
$
|
300
|
|
|
$
|
322.9
|
|
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
|
|
|
$
|
278.8
|
|
Average interest rate
|
|
|
7.75
|
%
|
|
|
7.75
|
%
|
|
|
7.75
|
%
|
|
|
7.75
|
%
|
|
|
7.75
|
%
|
|
|
7.75
|
%
|
|
|
7.75
|
%
|
|
|
|
|
Trade accounts receivable credit facility:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scheduled amortizations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scheduled amortizations
|
|
$
|
50
|
|
|
$
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
125
|
|
|
$
|
(2.0
|
)
|
Average pay rate(2)
|
|
|
1.78
|
%
|
|
|
1.78
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.78
|
%
|
|
|
|
|
Average receive rate(3)
|
|
|
0.26
|
%
|
|
|
0.26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.26
|
%
|
|
|
|
|
|
|
|
(1)
|
|
Variable rate specified is based on
LIBOR or an alternative base rate plus a calculated margin at
October 31, 2010. 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,
2010. 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,
2010. The rates presented are not intended to project our
expectations for the future.
|
41
As of
October 31, 2009
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected Maturity
Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After
|
|
|
|
|
|
Fair
|
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2014
|
|
|
Total
|
|
|
Value
|
|
|
|
|
2009 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.
|
The fair market value of the interest rate swaps at
October 31, 2010 was a net liability of $2.0 million.
Based on a sensitivity analysis we performed at October 31,
2010, a 100 basis point decrease in interest rates would
increase the fair value of the swap agreements by
$0.5 million to a net liability of $2.5 million.
Conversely, a 100 basis point increase in interest rates
would decrease the fair value of the swap agreements by
$1.3 million to a net loss of $0.7 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.
At October 31, 2010, we had outstanding foreign currency
forward contracts in the notional amount of $252.9 million
($70.5 million at October 31, 2009). 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, 2010 resulted in a gain of $0.8 million
recorded in the consolidated statements of income and a loss of
$2.3 million recorded in other comprehensive income. The
fair value of similar contracts at October 31, 2009
resulted in a loss of $0.1 million recorded in consolidated
statements of income.
A sensitivity analysis to changes in the foreign currencies
hedged indicates that if the U.S. dollar strengthened by
10 percent, the fair value of these instruments would
increase by $8.0 million to a net gain of
$6.5 million. Conversely, if the U.S. dollar weakened
by 10 percent, the fair value of these instruments would
decrease by $8.8 million to a net loss of
$10.3 million.
42
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 $0.3 million loss recorded in other
comprehensive income at October 31, 2010. A sensitivity
analysis to changes in natural gas prices indicates that if
natural gas prices decreased by 10 percent, the fair value
of these instruments would decrease by $0.2 million to a
net loss of $0.5 million. Conversely, if natural gas prices
increased by 10 percent, the fair value of these
instruments would increase by $0.2 million to a net loss of
$0.1 million.
43
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
GREIF, INC. AND
SUBSIDIARY COMPANIES
(Dollars in
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years
Ended October 31,
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
(As
Adjusted)1
|
|
|
(As
Adjusted)1
|
|
Net sales
|
|
$
|
3,461,537
|
|
|
$
|
2,792,217
|
|
|
$
|
3,790,531
|
|
Costs of products sold
|
|
|
2,757,875
|
|
|
|
2,292,573
|
|
|
|
3,085,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
703,662
|
|
|
|
499,644
|
|
|
|
704,796
|
|
Selling, general and administrative expenses
|
|
|
362,935
|
|
|
|
267,589
|
|
|
|
339,157
|
|
Restructuring charges
|
|
|
26,746
|
|
|
|
66,590
|
|
|
|
43,202
|
|
Timberland disposals, net
|
|
|
|
|
|
|
|
|
|
|
(340
|
)
|
(Gain) on disposal of properties, plants and equipment, net
|
|
|
(11,434
|
)
|
|
|
(34,432
|
)
|
|
|
(59,534
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
325,415
|
|
|
|
199,897
|
|
|
|
382,311
|
|
Interest expense, net
|
|
|
65,787
|
|
|
|
53,593
|
|
|
|
49,628
|
|
Debt extinguishment charge
|
|
|
|
|
|
|
782
|
|
|
|
|
|
Other expense, net
|
|
|
7,139
|
|
|
|
7,193
|
|
|
|
8,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense and equity earnings of
unconsolidated affiliates, net
|
|
|
252,489
|
|
|
|
138,329
|
|
|
|
323,932
|
|
Income tax expense
|
|
|
40,571
|
|
|
|
24,061
|
|
|
|
78,241
|
|
Equity earnings (losses) of unconsolidated affiliates, net of tax
|
|
|
3,539
|
|
|
|
(436
|
)
|
|
|
1,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
215,457
|
|
|
|
113,832
|
|
|
|
247,363
|
|
Net income attributable to noncontrolling interests
|
|
|
(5,472
|
)
|
|
|
(3,186
|
)
|
|
|
(5,615
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Greif, Inc.
|
|
$
|
209,985
|
|
|
$
|
110,646
|
|
|
$
|
241,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A Common Stock
|
|
$
|
3.60
|
|
|
$
|
1.91
|
|
|
$
|
4.16
|
|
Class B Common Stock
|
|
$
|
5.40
|
|
|
$
|
2.86
|
|
|
$
|
6.23
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A Common Stock
|
|
$
|
3.58
|
|
|
$
|
1.91
|
|
|
$
|
4.11
|
|
Class B Common Stock
|
|
$
|
5.40
|
|
|
$
|
2.86
|
|
|
$
|
6.23
|
|
|
|
|
(1)
|
|
In the first quarter of 2010, the
Company changed from using a combination of
first-in,
first-out (FIFO) and
last-in,
first-out (LIFO) inventory accounting methods to the
FIFO method for all of its businesses. All amounts included
herein have been presented on the FIFO basis.
|
Refer to the accompanying Notes
to Consolidated Financial Statements.
44
GREIF, INC. AND
SUBSIDIARY COMPANIES
(Dollars in
thousands)
|
|
|
|
|
|
|
|
|
|
|
As of October
31,
|
|
|
2010
|
|
|
|
2009
|
|
|
|
|
|
|
(As
Adjusted)1
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
$
|
106,957
|
|
|
|
$
|
111,896
|
|
Trade accounts receivable, less allowance of $13,311 in 2010 and
$12,510 in 2009
|
|
|
|
480,158
|
|
|
|
|
337,054
|
|
Inventories
|
|
|
|
396,572
|
|
|
|
|
238,851
|
|
Deferred tax assets
|
|
|
|
19,526
|
|
|
|
|
19,901
|
|
Net assets held for sale
|
|
|
|
28,407
|
|
|
|
|
31,574
|
|
Prepaid expenses and other current assets
|
|
|
|
134,269
|
|
|
|
|
105,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,165,889
|
|
|
|
|
845,180
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term assets
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
709,725
|
|
|
|
|
592,117
|
|
Other intangible assets, net of amortization
|
|
|
|
173,239
|
|
|
|
|
131,370
|
|
Assets held by special purpose entities
|
|
|
|
50,891
|
|
|
|
|
50,891
|
|
Deferred tax assets
|
|
|
|
29,982
|
|
|
|
|
25,977
|
|
Other long-term assets
|
|
|
|
93,603
|
|
|
|
|
86,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,057,440
|
|
|
|
|
886,470
|
|
|
|
|
|
|
|
|
|
|
|
|
Properties, plants and equipment
|
|
|
|
|
|
|
|
|
|
|
Timber properties, net of depletion
|
|
|
|
215,537
|
|
|
|
|
197,114
|
|
Land
|
|
|
|
121,409
|
|
|
|
|
120,667
|
|
Buildings
|
|
|
|
411,437
|
|
|
|
|
380,816
|
|
Machinery and equipment
|
|
|
|
1,302,597
|
|
|
|
|
1,148,406
|
|
Capital projects in progress
|
|
|
|
112,300
|
|
|
|
|
70,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,163,280
|
|
|
|
|
1,917,492
|
|
Accumulated depreciation
|
|
|
|
(888,164
|
)
|
|
|
|
(825,213
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,275,116
|
|
|
|
|
1,092,279
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
$
|
3,498,445
|
|
|
|
$
|
2,823,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
In the first quarter of 2010, the
Company changed from using a combination of FIFO and LIFO
inventory accounting methods to the FIFO method for all of its
businesses. All amounts included herein have been presented on
the FIFO basis.
|
Refer to the accompanying Notes
to Consolidated Financial Statements.
45
GREIF, INC. AND
SUBSIDIARY COMPANIES
(Dollars in
thousands)
|
|
|
|
|
|
|
|
|
|
|
As of October
31,
|
|
|
2010
|
|
|
|
2009
|
|
|
|
|
|
|
(As
Adjusted)1
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
$
|
448,310
|
|
|
|
$
|
335,816
|
|
Accrued payroll and employee benefits
|
|
|
|
90,887
|
|
|
|
|
74,475
|
|
Restructuring reserves
|
|
|
|
20,238
|
|
|
|
|
15,315
|
|
Current portion of long-term debt
|
|
|
|
12,523
|
|
|
|
|
17,500
|
|
Short-term borrowings
|
|
|
|
60,908
|
|
|
|
|
19,584
|
|
Deferred tax liabilities
|
|
|
|
5,091
|
|
|
|
|
380
|
|
Other current liabilities
|
|
|
|
123,854
|
|
|
|
|
99,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
761,811
|
|
|
|
|
562,097
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term liabilities
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
953,066
|
|
|
|
|
721,108
|
|
Deferred tax liabilities
|
|
|
|
180,486
|
|
|
|
|
161,152
|
|
Pension liabilities
|
|
|
|
65,915
|
|
|
|
|
77,942
|
|
Postretirement benefit obligations
|
|
|
|
21,555
|
|
|
|
|
25,396
|
|
Liabilities held by special purpose entities
|
|
|
|
43,250
|
|
|
|
|
43,250
|
|
Other long-term liabilities
|
|
|
|
116,930
|
|
|
|
|
126,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,381,202
|
|
|
|
|
1,155,240
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
|
|
|
|
|
|
|
|
Common stock, without par value
|
|
|
|
106,057
|
|
|
|
|
96,504
|
|
Treasury stock, at cost
|
|
|
|
(117,394
|
)
|
|
|
|
(115,277
|
)
|
Retained earnings
|
|
|
|
1,323,477
|
|
|
|
|
1,206,614
|
|
Accumulated other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
- foreign currency translation
|
|
|
|
44,612
|
|
|
|
|
(6,825
|
)
|
- interest rate derivatives
|
|
|
|
(1,318
|
)
|
|
|
|
(1,484
|
)
|
- energy and other derivatives
|
|
|
|
(187
|
)
|
|
|
|
(391
|
)
|
- minimum pension liabilities
|
|
|
|
(76,526
|
)
|
|
|
|
(79,546
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total Greif, Inc. shareholders equity
|
|
|
|
1,278,721
|
|
|
|
|
1,099,595
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interests
|
|
|
|
76,711
|
|
|
|
|
6,997
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
|
1,355,432
|
|
|
|
|
1,106,592
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
|
$
|
3,498,445
|
|
|
|
$
|
2,823,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
In the first quarter of 2010, the
Company changed from using a combination of FIFO and LIFO
inventory accounting methods to the FIFO method for all of its
businesses. All amounts included herein have been presented on
the FIFO basis.
|
Refer to the accompanying Notes
to Consolidated Financial Statements.
46
GREIF, INC. AND
SUBSIDIARY COMPANIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Dollars in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years
Ended October 31,
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
(As
Adjusted)1
|
|
|
(As
Adjusted)1
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
215,457
|
|
|
$
|
113,832
|
|
|
$
|
247,363
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization
|
|
|
115,974
|
|
|
|
102,627
|
|
|
|
106,378
|
|
Asset impairments
|
|
|
2,917
|
|
|
|
19,516
|
|
|
|
12,325
|
|
Deferred income taxes
|
|
|
4,596
|
|
|
|
(13,167
|
)
|
|
|
9,116
|
|
Gain on disposals of properties, plants and equipment, net
|
|
|
(11,434
|
)
|
|
|
(34,432
|
)
|
|
|
(59,534
|
)
|
Equity (earnings) losses of unconsolidated affiliates, net
|
|
|
(3,539
|
)
|
|
|
436
|
|
|
|
(1,672
|
)
|
Loss on extinguishment of debt
|
|
|
|
|
|
|
782
|
|
|
|
|
|
Timberland disposals, net
|
|
|
|
|
|
|
|
|
|
|
(340
|
)
|
Increase (decrease) in cash from changes in certain assets and
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
|
|
(54,046
|
)
|
|
|
73,358
|
|
|
|
(65,877
|
)
|
Inventories
|
|
|
(87,832
|
)
|
|
|
109,146
|
|
|
|
(102,699
|
)
|
Prepaid expenses and other current assets
|
|
|
(42,557
|
)
|
|
|
(151
|
)
|
|
|
(3,467
|
)
|
Accounts payable
|
|
|
(15,413
|
)
|
|
|
(92,449
|
)
|
|
|
39,827
|
|
Accrued payroll and employee benefits
|
|
|
18,868
|
|
|
|
(20,511
|
)
|
|
|
6,584
|
|
Restructuring reserves
|
|
|
4,923
|
|
|
|
168
|
|
|
|
(629
|
)
|
Other current liabilities
|
|
|
(38,040
|
)
|
|
|
(50,117
|
)
|
|
|
16,310
|
|
Pension and postretirement benefit liabilities
|
|
|
(15,868
|
)
|
|
|
63,744
|
|
|
|
(13,281
|
)
|
Other long-term assets, other long-term liabilities and other
|
|
|
84,105
|
|
|
|
(6,258
|
)
|
|
|
(50,568
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
178,111
|
|
|
|
266,524
|
|
|
|
139,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions of companies, net of cash acquired
|
|
|
(179,459
|
)
|
|
|
(90,816
|
)
|
|
|
(99,962
|
)
|
Purchases of properties, plants and equipment
|
|
|
(144,137
|
)
|
|
|
(124,671
|
)
|
|
|
(143,077
|
)
|
Purchases of timber properties
|
|
|
(20,996
|
)
|
|
|
(1,000
|
)
|
|
|
(2,500
|
)
|
Proceeds from the sale of properties, plants, equipment and
other assets
|
|
|
17,325
|
|
|
|
50,279
|
|
|
|
60,333
|
|
Purchases of land rights
|
|
|
|
|
|
|
(4,992
|
)
|
|
|
(9,289
|
)
|
Receipt of notes receivable
|
|
|
|
|
|
|
|
|
|
|
33,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(327,267
|
)
|
|
|
(171,200
|
)
|
|
|
(161,317
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt
|
|
|
3,731,683
|
|
|
|
3,170,212
|
|
|
|
2,271,868
|
|
Payments on long-term debt
|
|
|
(3,637,945
|
)
|
|
|
(2,983,534
|
)
|
|
|
(2,225,575
|
)
|
Proceeds (payments of) short-term borrowings, net
|
|
|
3,878
|
|
|
|
(25,749
|
)
|
|
|
23,020
|
|
Proceeds (payments of) trade accounts receivable credit
facility, net
|
|
|
135,000
|
|
|
|
(120,000
|
)
|
|
|
3,976
|
|
Dividends paid
|
|
|
(93,122
|
)
|
|
|
(87,957
|
)
|
|
|
(76,524
|
)
|
Acquisitions of treasury stock and other
|
|
|
(2,696
|
)
|
|
|
(3,145
|
)
|
|
|
(21,483
|
)
|
Exercise of stock options
|
|
|
2,002
|
|
|
|
2,015
|
|
|
|
4,540
|
|
Debt issuance costs
|
|
|
(10,902
|
)
|
|
|
(13,588
|
)
|
|
|
|
|
Settlement of derivatives, net
|
|
|
17,985
|
|
|
|
(3,574
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
145,883
|
|
|
|
(65,320
|
)
|
|
|
(20,178
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effects of exchange rates on cash
|
|
|
(1,666
|
)
|
|
|
4,265
|
|
|
|
(4,413
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(4,939
|
)
|
|
|
34,269
|
|
|
|
(46,072
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of year
|
|
|
111,896
|
|
|
|
77,627
|
|
|
|
123,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
106,957
|
|
|
$
|
111,896
|
|
|
$
|
77,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
In the first quarter of 2010, the
Company changed from using a combination of FIFO and LIFO
inventory accounting methods to the FIFO method for all of its
businesses. All amounts included herein have been presented on
the FIFO basis.
|
Refer to the accompanying Notes
to Consolidated Financial Statements.
47
GREIF,
INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
(Dollars and shares
in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
Capital
Stock
|
|
|
|
Treasury
Stock
|
|
|
|
Retained
|
|
|
|
Controlling
|
|
|
|
Comprehensive
|
|
|
|
Shareholders
|
|
|
|
|
Shares
|
|
|
|
Amount
|
|
|
|
Shares
|
|
|
|
Amount
|
|
|
|
Earnings
|
|
|
|
Interests
|
|
|
|
Income
(Loss)
|
|
|
|
Equity
|
|
|
|
As of October 31, 2007 (As
Adjusted)1
|
|
|
|
46,699
|
|
|
|
$
|
75,155
|
|
|
|
|
30,143
|
|
|
|
$
|
(92,028
|
)
|
|
|
$
|
1,025,716
|
|
|
|
$
|
6,560
|
|
|
|
$
|
12,484
|
|
|
|
$
|
1,027,887
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
241,748
|
|
|
|
|
5,615
|
|
|
|
|
|
|
|
|
|
247,363
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
162,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to initially apply FIN 48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,015
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,015
|
)
|
Noncontrolling interests, acquisitions and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,446
|
)
|
|
|
|
|
|
|
|
|
(8,446
|
)
|
Dividends paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(76,524
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(76,524
|
)
|
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 (As
Adjusted)1
|
|
|
|
46,644
|
|
|
|
$
|
86,446
|
|
|
|
|
30,198
|
|
|
|
$
|
(112,931
|
)
|
|
|
$
|
1,183,925
|
|
|
|
$
|
3,729
|
|
|
|
$
|
(72,820
|
)
|
|
|
$
|
1,088,349
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110,646
|
|
|
|
|
3,186
|
|
|
|
|
|
|
|
|
|
113,832
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in pension measurement date, net of income tax benefit of
$590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,428
|
)
|
|
|
|
(1,428
|
)
|
Noncontrolling interests, acquisitions and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82
|
|
|
|
|
|
|
|
|
|
82
|
|
Dividends paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(87,957
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(87,957
|
)
|
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 (As
Adjusted)1
|
|
|
|
46,937
|
|
|
|
$
|
96,504
|
|
|
|
|
29,905
|
|
|
|
$
|
(115,277
|
)
|
|
|
$
|
1,206,614
|
|
|
|
$
|
6,997
|
|
|
|
$
|
(88,246
|
)
|
|
|
$
|
1,106,592
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
209,985
|
|
|
|
|
5,472
|
|
|
|
|
|
|
|
|
|
215,457
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,437
|
|
|
|
|
51,437
|
|
- interest rate derivative, net of income tax expense of $67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
166
|
|
|
|
|
166
|
|
- minimum pension liability adjustment, net of income tax
benefit of $1,279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,020
|
|
|
|
|
3,020
|
|
- energy derivatives, net of income tax expense of $82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
204
|
|
|
|
|
204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
270,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interests, acquisitions and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64,242
|
|
|
|
|
|
|
|
|
|
64,242
|
|
Dividends paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(93,122
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(93,122
|
)
|
Treasury shares acquired
|
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
50
|
|
|
|
|
(2,696
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,696
|
)
|
Stock options exercised
|
|
|
|
133
|
|
|
|
|
1,729
|
|
|
|
|
(133
|
)
|
|
|
|
273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,002
|
|
Tax benefit of stock options and other
|
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
Long-term incentive shares issued
|
|
|
|
149
|
|
|
|
|
7,807
|
|
|
|
|
(149
|
)
|
|
|
|
306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of October 31, 2010
|
|
|
|
47,169
|
|
|
|
$
|
106,057
|
|
|
|
|
29,673
|
|
|
|
$
|
(117,394
|
)
|
|
|
$
|
1,323,477
|
|
|
|
$
|
76,711
|
|
|
|
$
|
(33,419
|
)
|
|
|
$
|
1,355,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
In the first quarter of 2010, the
Company changed from using a combination of FIFO and LIFO
inventory accounting methods to the FIFO method for all of its
businesses. All amounts included herein have been presented on
the FIFO basis.
|
Refer to the accompanying Notes
to Consolidated Financial Statements.
48
GREIF, INC. AND
SUBSIDIARY COMPANIES
|
|
NOTE 1
|
BASIS
OF PRESENTATION 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, reconditioning, logistics and warehousing,
flexible intermediate bulk containers and containerboard and
corrugated products, and that it sells to customers in many
industries throughout the world. The Company has operations in
over 50 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 12,250 employees of the Company at
October 31, 2010.
Principles of
Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of
Greif, Inc., all wholly-owned and majority-owned subsidiaries,
joint ventures managed by the Company including the joint
venture relating to the Flexible Products and Services segment
and equity earnings (losses) of unconsolidated affiliates. 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 and prior quarter 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
2010, 2009 or 2008, 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.
49
Allowance for
Doubtful Accounts
Trade receivables represent amounts owed to the Company through
its operating activities and are presented net of allowance for
doubtful accounts. The allowance for doubtful accounts totaled
$13.3 million and $12.5 million at October 31,
2010 and 2009, 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, 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 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 its
geographic scope of operations in a variety of industries
throughout the world. The Company does not have an individual
customer that exceeds 10 percent of total revenue. In
addition, the Company performs ongoing credit evaluations of its
customers financial conditions and maintains reserves for
credit losses. Such losses historically have been within
managements expectations.
Inventories
On November 1, 2009, the Company elected to adopt the FIFO
method of inventory valuation for all locations, whereas in all
prior years inventory for certain U.S. locations was valued
using the LIFO method. The Company believes that the FIFO method
of inventory valuation is preferable because (i) the change
conforms to a single method of accounting for all of the
Companys inventories on a U.S. and global basis,
(ii) the change simplifies financial disclosures,
(iii) financial statement comparability and analysis for
investors and analysts is improved, and (iv) the majority
of the Companys key competitors use FIFO. The comparative
consolidated financial statements of prior periods presented
have been adjusted to apply the new accounting method
retrospectively.
Inventory
Reserves
Reserves for slow moving and obsolete inventories are provided
based on historical experience, inventory aging and product
demand. The Company continuously evaluates the adequacy of these
reserves and makes adjustments to these reserves as required.
The Company also evaluates 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 for locations that have met the criteria of
held for sale accounting, as specified by Accounting
Standards Codification (ASC) 360,
Property, Plant, and Equipment. As of
October 31, 2010, there were sixteen locations held for
sale (twelve in the Rigid Industrial Packaging &
Services segment and four in the Paper Packaging segment). In
2010, the Company recorded net sales of $91.2 million and
net loss before taxes of $1.3 million associated with these
properties, primarily related to the Rigid Industrial
Packaging & Services segment. For 2009, the Company
recorded net sales of $5.5 million and net loss before
taxes of $3.9 million associated with held for sale
properties, primarily related to the Rigid Industrial
Packaging & Services 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.
50
Goodwill and
Other Intangibles
Goodwill is the excess of the purchase price of an acquired
entity over the amounts assigned to tangible and intangible
assets and liabilities assumed in the business combination. The
Company accounts for purchased goodwill and indefinite-lived
intangible assets in accordance with ASC 350,
IntangiblesGoodwill and Other. Under
ASC 350, 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.
ASC 350 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 Company allocates the estimated fair
value of a reporting unit to all of the assets and liabilities
in that reporting 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 discounted cash flow analysis
utilizing 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 forecasts 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 2010, 2009 and 2008, which resulted in no impairment
charges. Refer to Note 6 for additional information
regarding goodwill and other intangible assets.
Acquisitions
From time to time, the Company acquires businesses
and/or
assets that augment and complement its operations, in accordance
with ASC 805, Business Combinations. 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.
Beginning November 1, 2009, the Company classifies costs
incurred in connection with acquisitions as acquisition-related
costs. These costs consist primarily of transaction costs,
integration costs and changes in the fair value of contingent
payments (earn-outs). Acquisition transaction costs are incurred
during the initial evaluation of a potential targeted
acquisition and primarily relate to costs to analyze, negotiate
and consummate the transaction as well as financial and legal
due diligence activities. Post acquisition integration
activities are costs incurred to combine the operations of an
acquired enterprise into the Companys operations.
Internal Use
Software
Internal use software is accounted for 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.
51
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:
|
|
|
|
|
|
|
Years
|
|
|
|
|
Buildings
|
|
|
30-45
|
|
Machinery and equipment
|
|
|
3-19
|
|
Depreciation expense was $98.5 million, $88.6 million
and $92.9 million, in 2010, 2009 and 2008, respectively.
Expenditures for repairs and maintenance are charged to expense
as incurred. When properties are retired or otherwise disposed
of, the cost and accumulated depreciation are eliminated from
the asset and related allowance accounts. Gains or losses are
credited or charged to income as incurred.
For 2010, the Company recorded a gain on disposal of properties,
plants and equipment, net of $11.4 million, primarily
consisting of $3.3 million and $3.1 million pre-tax
net gain on the sale of specific Rigid Industrial
Packaging & Services segment assets and locations in
Asia and North America, respectively, $2.3 million in net
gains from the sale of surplus and higher and better use
(HBU) timber properties and other miscellaneous
gains of $2.7 million.