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, 2003
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
Commission file number: 001-00566
Greif, Inc.
(Exact name of Registrant as specified in its charter)
| State of Delaware | 31-4388903 | |
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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| 425 Winter Road, Delaware, Ohio | 43015 | |
| (Address of principal executive offices) | (Zip Code) | |
Registrant’s 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 |
Name of Each Exchange on Which Registered |
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Class A Common Stock |
New York Stock Exchange | |
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Class B Common Stock |
New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
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
x
No
¨
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 Registrant’s 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.
x
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
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 Registrant’s most recently completed second fiscal quarter was as follows:
Non-voting common equity (Class A Common Stock) - $215,528,276
Voting common equity (Class B Common Stock) - $98,741,604
The number of shares outstanding of each of the Registrant’s classes of common stock, as of December 31, 2003 was as follows:
Class A Common Stock - 10,597,546
Class B Common Stock - 11,662,003
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 Registrant’s Definitive Proxy Statement for use in connection with the Annual Meeting of Stockholders to be held on February 23, 2004 (the “2004 Proxy Statement”), portions of which are incorporated by reference into Part III of this Form 10-K. The 2004 Proxy Statement will be filed within 120 days of October 31, 2003.
IMPORTANT INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
All statements other than statements of historical facts included in this Form 10-K of Greif, Inc. and subsidiaries (the “Company”) or incorporated herein, including, without limitation, statements regarding the Company’s 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 the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “project,” “believe” or “continue” or the negative thereof or variations thereon or similar terminology. Forward-looking statements speak only as the date the statements were made. Although the Company believes that the expectations reflected in forward-looking statements have a reasonable basis, it 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 the Company’s actual results to differ materially from those projected, see “Forward-Looking Statements; Certain Factors Affecting Future Results” in item 7 of this Form 10-K. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
PART I
| Item 1. | BUSINESS |
| (a) | General Development of Business |
General
The Company is a leading global producer of industrial packaging products with manufacturing facilities located in over 40 countries. The Company offers a comprehensive line of industrial packaging products, such as steel, fibre and plastic drums, intermediate bulk containers, closure systems for industrial packaging products, and polycarbonate water bottles, which are complemented with a variety of value-added services. The Company also produces containerboard and corrugated products for niche markets in the United States and Canada. The Company owns timberland in the southeastern United States from which it sells timber to third parties and that it manages to maximize long-term value. The Company also owns timberland in Canada that it does not actively manage. The Company’s customers range from Fortune 500 companies to medium and small-sized companies in a cross section of industries.
The Company’s history goes back to 1877 when its predecessor manufactured wooden barrels, casks and kegs to transport post-Civil War goods nationally and internationally. The Company was incorporated as a Delaware corporation in 1926.
Recent Acquisitions and Other Significant Transactions
CorrChoice, Inc. Redemption of Minority Shareholders’ Outstanding Shares
On September 30, 2003, CorrChoice, Inc. (together with its subsidiaries, “CorrChoice”), which had been a joint venture of the Company, redeemed all of the outstanding shares of its minority shareholders for $115.3 million, which was substantially funded by cash and cash equivalents of CorrChoice. As a result of this transaction, the Company now owns 100% of CorrChoice, Inc. compared to its 63.24% interest when the joint venture was formed on November 1, 1998.
CorrChoice manufactures corrugated sheets at seven locations in Georgia, Kentucky, Michigan, North Carolina and Ohio.
Van Leer Industrial Packaging Acquisition
In March 2001, the Company acquired Royal Packaging Industries Van Leer N.V., a Dutch company, Huhtamaki Holdings do Brasil Ltda., a Brazilian company, Van Leer France Holding S.A.S., a French company, Van Leer Containers, Inc., a United States company, and American Flange & Manufacturing Co., Inc., a United States company, which are collectively referred to as “Van Leer Industrial Packaging.” Van Leer Industrial Packaging was a worldwide provider of industrial packaging and components, including steel, fibre and plastic drums, intermediate bulk containers, closure systems for industrial packaging products and polycarbonate water bottles. In connection with the Van Leer Industrial Packaging acquisition, the Company acquired a 25% interest in Socer-Embalagens, Lda. and a 40.06% interest in Balmer Lawrie-Van Leer. Socer-Embalagens, Lda. reconditions used drums at its facility in Portugal and resells them to customers. Balmer Lawrie-Van Leer manufactures closure systems for industrial packaging products and plastic drums at its two facilities in India.
| (b) | Financial Information about Segments |
The Company operates in three business segments: Industrial Packaging & Services; Paper, Packaging & Services; and Timber. Information related to each of these segments is included in Note 15 to the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K, which Note is incorporated herein by reference.
| (c) | Narrative Description of Business |
Products and Services
In the Industrial Packaging & Services segment, the Company offers a comprehensive line of industrial packaging products, such as steel, fibre and plastic drums, intermediate bulk containers, closure systems for industrial packaging products, and polycarbonate water bottles. The Company sells its industrial packaging products to customers in over 40 countries in industries such as chemicals, paints and pigments, food and beverage, petroleum, industrial coatings, agricultural, pharmaceutical and mineral, among others.
In the Paper, Packaging & Services segment, the Company sells containerboard, corrugated sheets and other corrugated products and multiwall bags to customers in North America in industries such as packaging, automotive, food and building products. The Company’s 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. The Company’s full line of industrial and consumer multiwall bag products is used to ship a wide range of industrial and consumer products, such as fertilizers, chemicals, concrete, flour, sugar, feed, seed, pet foods, popcorn, charcoal and salt, primarily for the agricultural, chemical, building products and food industries.
In the Timber segment, the Company is focused on the active harvesting and regeneration of its United States timber properties to achieve sustainable long-term yields. While timber sales are subject to fluctuations, the Company seeks to maintain a consistent cutting schedule, within the limits of market and weather conditions. As of October 31, 2003, the Company owned approximately 279,000 acres of timberland in the southeastern United States, and approximately 40,000 acres of timberland in Canada.
Customers
Due to the variety of its products, the Company has many customers buying different types of its products and, due to the scope of the Company’s sales, no one customer is considered principal in the total operation of the Company.
Backlog
The business of the Company is not seasonal to any significant extent. 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
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significant extent and maintains only limited levels of finished goods. Many customers place their orders weekly for delivery during the week.
Competition
The markets in which the Company sells its products are highly competitive and comprised of many participants. Although no single company dominates, the Company faces significant competitors in each of its businesses. The Company’s competitors include large vertically integrated companies as well as numerous smaller companies. The industries in which the Company competes are particularly sensitive to price fluctuations caused by shifts in industry capacity and other cyclical industry conditions. Other competitive factors include design, quality and service, with varying emphasis depending on product line.
In the industrial packaging products industry, the Company competes by offering a comprehensive line of products on a global basis. In the paper, packaging and services industry, the Company competes by concentrating on providing value-added, higher-margin corrugated products to niche markets. In addition, over the past several years the Company has closed higher cost facilities and otherwise restructured its operations, which it believes has significantly improved its cost competitiveness.
Environmental Matters; Governmental Regulations
The Company’s operations are subject to extensive federal, state, local and non-United States 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, the Company is subject to periodic environmental inspections and monitoring by governmental enforcement authorities. In addition, certain of the Company’s production facilities require environmental permits that are subject to revocation, modification and renewal.
Based on current information, the Company believes that the probable costs of the remediation of company-owned property will not have a material adverse effect on its financial condition or results of operations. The Company believes that its liability for these matters was adequately reserved as of October 31, 2003.
The Company does not believe that compliance with federal, state, local and non-United States 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 the capital expenditures, earnings or competitive position of the Company. The Company does not anticipate any material capital expenditures related to environmental control in 2004.
See also Item 7 of this Form 10-K and Note 14 to the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for additional information concerning environmental expenses and expenditures for 2003, 2002 and 2001, and the Company’s reserves for environmental liabilities at October 31, 2003.
Raw Materials
Steel, resin and containerboard are the principal raw materials for the Industrial Packaging & Services segment, and pulpwood, old corrugated containers for recycling and containerboard are the principal raw materials for the Paper, Packaging & Services segment. The Company satisfies most of its needs for these raw materials through purchases on the open market or under short-term supply agreements. All of these raw materials are purchased in highly competitive, price-sensitive markets, which have historically exhibited price and demand cyclicality. From time to time, some of these raw materials have been in short supply, but to date these shortages have not had a significant effect on the Company’s operations.
Research and Development
While research and development projects are important to the Company’s continued growth, the amount expended in any year is not material in relation to the results of operations of the Company.
The Company’s business is not materially dependent upon patents, trademarks, licenses or franchises.
Employees
As of October 31, 2003, the Company had approximately 9,800 employees. A significant number of the Company’s employees are represented by unions. The Company believes that its employee relations are generally good.
| (d) | Financial Information about Geographic Areas |
The Company’s operations are located in North America, Europe and various other regions. Information related to each of these areas is included in Note 15 to the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K, which Note is incorporated herein by reference. Quantitative and Qualitative Disclosures about Market Risk, included in Item 7A of this Form 10-K, is incorporated herein by reference.
| (e) | Available Information |
The Company maintains an Internet Web site at www.greif.com. The Company files reports with the Securities and Exchange Commission (the “SEC”) and makes available, free of charge, on or through this Internet Web site, its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy and information statements and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the SEC.
Any of the materials the Company files with the SEC may also be read and copied at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. Information on the operation of the SEC’s Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet Web site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov.
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| (f) | Disclosures Required by New York Stock Exchange |
The Company’s common equity securities are listed on the New York Stock Exchange (“NYSE”). The following disclosures are provided in accordance with Section 303A of the NYSE’s Listed Company Manual.
The Company’s Board of Directors has adopted the following corporate governance documents with respect to the Company (the “Corporate Governance Documents”):
| • | Corporate Governance Guidelines of the Board of Directors; |
| • | Code of Business Conduct and Ethics for directors, officers and employees; |
| • | Charter for the Audit Committee; |
| • | Charter for the Nominating and Corporate Governance Committee; |
| • | Charter for the Compensation Committee; and |
| • | Independence Standards for Directors. |
Each of the Corporate Governance Documents will be posted on the Company’s Internet Web site at www.greif.com under “Investor Center—Corporate Governance” on or before February 23, 2004. Copies of each of the Corporate Governance Documents are also available in print to any stockholder of the Company, without charge, by making a written request to the Company. Requests should be directed to Greif, Inc., Attention: Corporate Secretary, 425 Winter Road, Delaware, Ohio 43015.
On January 22, 2004, Michael J. Gasser, the Company’s Chief Executive Officer, and Donald S. Huml, the Company’s Chief Financial Officer, have provided certain certifications in this Form 10-K regarding the quality of the Company’s public disclosures. See Exhibits 31.1, 31.2, 32.1 and 32.2 to this Form 10-K.
| (g) | Other Matters |
This Form 10-K is part of the Company’s 2003 Annual Report to Stockholders (the “Annual Report”). The Annual Report includes a letter from Michael J. Gasser, Chairman and Chief Executive Officer, to the Company’s stockholders. Mr. Gasser’s letter includes the non-GAAP financial measure of net income before restructuring charges, a debt extinguishment charge, timberland gains and the cumulative effect of change in accounting principle. The comparable GAAP measure is net income. A reconciliation of the GAAP to non-GAAP measures for the applicable years follows (Dollars in millions):
| Item 2. | PROPERTIES |
The following are the Company’s principal operating locations and the products manufactured at such facilities or the use of such facilities. The Company considers its operating properties to be in satisfactory condition and adequate to meet its present needs. However, the Company expects to make further additions, improvements and consolidations of its properties as the Company’s business continues to expand.
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The Company also owns a substantial number of scattered timber tracts comprising approximately 279,000 acres in the states of Alabama, Arkansas, Florida, Louisiana and Mississippi and approximately 40,000 acres in the provinces of Ontario and Quebec in Canada as of October 31, 2003.
A first lien on a significant number of the Company’s United States locations secures payment of the Company’s obligations under its $550 million Amended and Restated Senior Secured Credit Agreement (see “Borrowing Arrangements” in Item 7 of this Form 10-K).
| Item 3. | LEGAL PROCEEDINGS |
The Company has no pending material legal proceedings.
From time to time, various legal proceedings arise at federal, state, local or non-United States levels involving environmental sites to which the Company has shipped, directly or indirectly, small amounts of toxic waste, such as paint solvents, etc. The Company, to date, has been classified as a “de minimis” participant and, as such, has not been subject, in any instance, to sanctions of $100,000 or more.
In addition, from time to time, but less frequently, the Company has been cited for violations of environmental regulations. None of these violations involve or are expected to involve sanctions of $100,000 or more.
| Item 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
Executive Officers of the Company
The following information relates to executive officers of the Company (elected annually):
| Name | Age | Positions and offices | Year first became
executive officer |
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Michael J. Gasser |
52 | Chairman of the Board of Directors and Chief Executive Officer | 1988 | |||
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William B. Sparks, Jr. |
62 | Director, President and Chief Operating Officer | 1995 | |||
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Donald S. Huml |
57 | Chief Financial Officer | 2002 | |||
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John S. Lilak |
56 | Executive Vice President and President of Soterra LLC (subsidiary company) | 1999 | |||
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Gary R. Martz |
45 | Senior Vice President, General Counsel and Secretary | 2002 | |||
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Michael L. Roane |
48 | Senior Vice President, Human Resources and Communications | 1998 | |||
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John K. Dieker |
40 | Vice President and Corporate Controller | 1996 | |||
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Robert A. Young |
49 | Vice President, Taxes | 2002 | |||
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Robert S. Zimmerman |
32 | Vice President and Treasurer | 2001 | |||
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Sharon R. Maxwell |
54 | Assistant Secretary | 1997 | |||
Except as indicated below, each person has served in his or her present capacity for at least five years.
Donald S. Huml was elected Chief Financial Officer in 2002. Prior to that time, and for more than five years, he served as Senior Vice President, Finance, and Chief Financial Officer of Snap-On Incorporated, a global developer, manufacturer and marketer of tools and equipment.
John S. Lilak was elected President of Soterra LLC (subsidiary company) in 2002 and Executive Vice President during 1999. Prior to that time, and for more than five years, Mr. Lilak served as General Sales and Marketing Manager, Kraft Paper and Board Division, for Union Camp Corporation.
Gary R. Martz was elected Senior Vice President, General Counsel and Secretary in 2002. Prior to that time, and for more than five years, he served as a partner in the law firm of Baker & Hostetler LLP.
Robert A. Young was elected Vice President, Taxes, during 2002. During 1999 to 2001, Mr. Young served as the Director of Taxes. Prior to that time, and for more than five years, he was the Tax Manager of Consolidated Papers, Inc.
Robert S. Zimmerman was elected Vice President and Treasurer during 2003. During 2001 to 2003, Mr. Zimmerman served as the Company’s Assistant Treasurer. From 1999 until joining the Company in 2001, he served as Treasury Manager at Mettler-Toledo International, Inc. Prior to 1999, and for more than five years, Mr. Zimmerman was a Risk Advisor at Bank One.
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| Item 5. | MARKET FOR THE REGISTRANT’S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS |
Shares of the Company’s 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 the Company’s 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 fiscal years, is included in Note 16 to the Notes to Consolidated Financial Statements in Item 8 of this Form 10-K, which Note is incorporated herein by reference.
The Company paid four dividends of varying amounts during its fiscal year computed on the basis described in Note 9 to the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K, which Note is incorporated herein by reference. The annual dividends paid for the last three fiscal years are as follows:
2003 fiscal year dividends per share – Class A $0.56; Class B $0.83
2002 fiscal year dividends per share – Class A $0.56; Class B $0.83
2001 fiscal year dividends per share – Class A $0.54; Class B $0.80
The terms of both the Company’s $550 million Amended and Restated Senior Secured Credit Agreement and the Indenture for the Company’s 8 7 / 8 % Senior Subordinated Notes limit the ability of the Company to make “restricted payments,” which include dividends and purchases, redemptions and acquisitions of equity interests of the Company. The payments of dividends and other restricted payments are subject to the condition that certain defaults not exist under the terms of those agreements and are limited in amount by a formula based on the consolidated net income of the Company. Under the Amended and Restated Senior Secured Credit Agreement, the dividends and other restricted payments may not exceed $25 million during any fiscal year.
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| Item 6. | SELECTED FINANCIAL DATA |
The five-year selected financial data is as follows (Dollars in thousands, except per share amounts):