UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
|
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended January 31, 2009
OR
|
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the transition period from
to
Commission
File Number 001-00566
GREIF,
INC.
(Exact
name of registrant as specified in its charter)
|
Delaware
|
31-4388903
|
|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer
Identification
No.)
|
|
425
Winter Road, Delaware, Ohio
|
43015
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Registrant’s
telephone number, including area code (740) 549-6000
Not
Applicable
Former
name, former address and former fiscal year, if changed since last
report.
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes
x
No
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer, or a smaller reporting company.
See definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
|
Large
accelerated filer
x
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Accelerated
filer
¨
|
|
Non-accelerated filer
¨
(Do not check if a smaller reporting company)
|
Smaller
reporting company
¨
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes
¨
No
x
The
number of shares outstanding of each of the issuer’s classes of common stock at
the close of business on January 31, 2009 was as follows:
|
Class A
Common Stock
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24,338,305
shares
|
|
Class
B Common Stock
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22,462,266
shares
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PART I. FINANCIAL
INFORMATION
|
ITEM 1.
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CONSOLIDATED FINANCIAL
STATEMENTS
|
GREIF, INC. AND SUBSIDIARY
COMPANIES
CONSOLIDATED STATEMENTS OF
INCOME
(UNAUDITED)
(Dollars
in thousands, except per share amounts)
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Three
months ended
|
||||||||
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January
31,
|
||||||||
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2009
|
2008
|
|||||||
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Net
sales
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$ | 666,260 | $ | 846,292 | ||||
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Cost
of products sold
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565,705 | 697,968 | ||||||
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Gross
profit
|
100,555 | 148,324 | ||||||
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Selling,
general and administrative expenses
|
58,434 | 80,512 | ||||||
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Restructuring
charges
|
27,176 | 10,475 | ||||||
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Timberland
disposals, net
|
- | 90 | ||||||
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Gain
on disposal of properties, plants and equipment, net
|
2,317 | 36,774 | ||||||
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Operating
profit
|
17,262 | 94,201 | ||||||
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Interest
expense, net
|
12,199 | 11,756 | ||||||
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Other
income (expense), net
|
(1,787 | ) | (3,330 | ) | ||||
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Income
before income tax expense and equity in earnings (losses) of affiliates
and minority interests
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3,276 | 79,115 | ||||||
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Income
tax expense
|
966 | 18,690 | ||||||
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Equity
in earnings (losses) of affiliates and minority interests
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(1,044 | ) | 262 | |||||
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Net
income
|
$ | 1,266 | $ | 60,687 | ||||
|
Basic
earnings per share:
|
||||||||
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Class
A Common Stock
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$ | 0.03 | $ | 1.05 | ||||
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Class
B Common Stock
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$ | 0.03 | $ | 1.56 | ||||
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Diluted
earnings per share:
|
||||||||
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Class
A Common Stock
|
$ | 0.03 | $ | 1.03 | ||||
|
Class
B Common Stock
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$ | 0.03 | $ | 1.56 | ||||
See
accompanying Notes to Consolidated Financial Statements
GREIF, INC. AND SUBSIDIARY
COMPANIES
CONSOLIDATED BALANCE
SHEETS
(Dollars
in thousands)
ASSETS
|
January
31,
2009
|
October
31,
2008
|
|||||||
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(Unaudited)
|
||||||||
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Current
assets
|
||||||||
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Cash
and cash equivalents
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$ | 55,776 | $ | 77,627 | ||||
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Trade
accounts receivable, less allowance of $14,121 in 2009 and $13,532 in
2008
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315,928 | 392,537 | ||||||
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Inventories
|
296,527 | 303,994 | ||||||
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Deferred
tax assets
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28,617 | 33,206 | ||||||
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Net
assets held for sale
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28,995 | 21,321 | ||||||
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Prepaid
expenses and other current assets
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91,804 | 93,965 | ||||||
| 817,647 | 922,650 | |||||||
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Long-term
assets
|
||||||||
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Goodwill
|
523,862 | 512,973 | ||||||
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Other
intangible assets, net of amortization
|
101,312 | 104,424 | ||||||
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Assets
held by special purpose entities (Note 8)
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50,891 | 50,891 | ||||||
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Other
long-term assets
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105,226 | 88,563 | ||||||
| 781,291 | 756,851 | |||||||
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Properties,
plants and equipment
|
||||||||
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Timber
properties, net of depletion
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202,734 | 199,701 | ||||||
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Land
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117,584 | 119,679 | ||||||
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Buildings
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339,732 | 343,702 | ||||||
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Machinery
and equipment
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1,065,664 | 1,046,347 | ||||||
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Capital
projects in progress
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105,117 | 91,549 | ||||||
| 1,830,831 | 1,800,978 | |||||||
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Accumulated
depreciation
|
(779,111 | ) | (734,581 | ) | ||||
| 1,051,720 | 1,066,397 | |||||||
| $ | 2,650,658 | $ | 2,745,898 | |||||
See accompanying Notes to
Consolidated Financial Statements
GREIF, INC. AND SUBSIDIARY
COMPANIES
CONSOLIDATED BALANCE
SHEETS
(Dollars
in thousands)
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
January
31,
2009
|
October
31,
2008
|
|||||||
|
(Unaudited)
|
||||||||
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Current
liabilities
|
||||||||
|
Accounts
payable
|
$ | 250,915 | $ | 384,648 | ||||
|
Accrued
payroll and employee benefits
|
39,350 | 91,498 | ||||||
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Restructuring
reserves
|
24,670 | 15,147 | ||||||
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Short-term
borrowings
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114,037 | 44,281 | ||||||
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Other
current liabilities
|
100,050 | 136,227 | ||||||
| 529,022 | 671,801 | |||||||
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Long-term
liabilities
|
||||||||
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Long-term
debt
|
735,774 | 673,171 | ||||||
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Deferred
tax liabilities
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184,255 | 183,021 | ||||||
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Pension
liabilities
|
18,999 | 14,456 | ||||||
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Postretirement
benefit liabilities
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24,560 | 25,138 | ||||||
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Liabilities
held by special purpose entities (Note 8)
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43,250 | 43,250 | ||||||
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Other
long-term liabilities
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101,420 | 75,521 | ||||||
| 1,108,258 | 1,014,557 | |||||||
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Minority
interest
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4,651 | 3,729 | ||||||
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Shareholders'
equity
|
||||||||
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Common
stock, without par value
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93,892 | 86,446 | ||||||
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Treasury
stock, at cost
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(115,577 | ) | (112,931 | ) | ||||
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Retained
earnings
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1,134,650 | 1,155,116 | ||||||
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Accumulated
other comprehensive loss:
|
||||||||
|
-
foreign currency translation
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(68,602 | ) | (39,693 | ) | ||||
|
-
interest rate derivatives
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(2,118 | ) | (1,802 | ) | ||||
|
-
energy and other derivatives
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(5,354 | ) | (4,299 | ) | ||||
|
-
minimum pension liabilities
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(28,164 | ) | (27,026 | ) | ||||
| 1,008,727 | 1,055,811 | |||||||
| $ | 2,650,658 | $ | 2,745,898 | |||||
See accompanying Notes to
Consolidated Financial Statements
GREIF, INC. AND SUBSIDIARY
COMPANIES
CONSOLIDATED STATEMENTS OF
CASH FLOWS
(UNAUDITED)
(Dollars
in thousands)
|
For
the three months ended January 31,
|
2009
|
2008
|
||||||
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Cash
flows from operating activities:
|
||||||||
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Net
income
|
$ | 1,266 | $ | 60,687 | ||||
|
Adjustments
to reconcile net income to net cash used in operating
activities:
|
||||||||
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Depreciation,
depletion and amortization
|
25,289 | 25,863 | ||||||
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Asset
impairments
|
4,879 | 5,573 | ||||||
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Deferred
income taxes
|
5,823 | (77,018 | ) | |||||
|
Gain
on disposals of properties, plants and equipment, net
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(2,317 | ) | (36,774 | ) | ||||
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Timberland
disposals, net
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- | (90 | ) | |||||
|
Equity
in earnings (losses) of affiliates and minority interests
|
1,044 | (262 | ) | |||||
|
Increase
(decrease) in cash from changes in certain assets and
liabilities:
|
||||||||
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Trade
accounts receivable
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69,886 | (20,372 | ) | |||||
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Inventories
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1,414 | (12,416 | ) | |||||
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Prepaid
expenses and other current assets
|
(350 | ) | (26,657 | ) | ||||
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Other
long-term assets
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(45,559 | ) | 20,048 | |||||
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Accounts
payable
|
(115,131 | ) | (7,889 | ) | ||||
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Accrued
payroll and employee benefits
|
(52,081 | ) | (26,912 | ) | ||||
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Restructuring
reserves
|
9,523 | (1,301 | ) | |||||
|
Other
current liabilities
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(37,819 | ) | (9,351 | ) | ||||
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Pension
and postretirement benefit liabilities
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3,965 | 3,217 | ||||||
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Other
long-term liabilities
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25,899 | 92 | ||||||
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Other
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(12,083 | ) | 18,565 | |||||
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Net
cash used in operating activities
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(116,352 | ) | (84,997 | ) | ||||
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Cash
flows from investing activities:
|
||||||||
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Acquisitions
of companies, net of cash acquired
|
(2,811 | ) | (69,400 | ) | ||||
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Purchases
of properties, plants and equipment
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(26,840 | ) | (29,507 | ) | ||||
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Purchases
of timber properties
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(400 | ) | (500 | ) | ||||
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Proceeds
from the sale of properties, plants, equipment and other
assets
|
2,271 | 36,745 | ||||||
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Purchases
of land rights and other
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- | (631 | ) | |||||
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Net
cash used in investing activities
|
(27,780 | ) | (63,293 | ) | ||||
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Cash
flows from financing activities:
|
||||||||
|
Proceeds
from issuance of long-term debt
|
566,400 | 376,632 | ||||||
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Payments
on long-term debt
|
(503,954 | ) | (288,653 | ) | ||||
|
Proceeds
from short-term borrowings
|
87,189 | 57,808 | ||||||
|
Dividends
paid
|
(21,732 | ) | (16,064 | ) | ||||
|
Acquisitions
of treasury stock and other
|
(3,145 | ) | (148 | ) | ||||
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Exercise
of stock options
|
186 | 1,731 | ||||||
|
Net
cash provided by financing activities
|
124,944 | 131,306 | ||||||
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Effects
of exchange rates on cash
|
(2,663 | ) | 723 | |||||
|
Net
decrease in cash and cash equivalents
|
(21,851 | ) | (16,261 | ) | ||||
|
Cash
and cash equivalents at beginning of period
|
77,627 | 123,699 | ||||||
|
Cash
and cash equivalents at end of period
|
$ | 55,776 | $ | 107,438 | ||||
See accompanying Notes to Consolidated
Financial Statements
GREIF, INC. AND SUBSIDIARY
COMPANIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
January 31,
2009
NOTE 1 — BASIS OF
PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
information furnished herein reflects all adjustments which are, in the opinion
of management, necessary for a fair presentation of the consolidated balance
sheets as of January 31, 2009 and October 31, 2008 and the consolidated
statements of income and cash flows for the three-month periods ended January
31, 2009 and 2008 of Greif, Inc. and subsidiaries (the “Company”). These
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company’s
Annual Report on Form 10-K for its fiscal year ended October 31, 2008 (the
“2008 Form 10-K”).
The
Company’s fiscal year begins on November 1 and ends on October 31 of
the following year. Any references to the year 2009 or 2008, or to any quarter
of those years, relates to the fiscal year or quarter, as the case may be,
ending in that year.
The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States (“GAAP”) requires management
to make certain estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying notes. Actual amounts
could differ from those estimates.
Certain
prior year amounts have been reclassified to conform to the 2009
presentation.
Industrial
Packaging and Paper Packaging Acquisitions and Divestitures
During
the first three months of 2009, the Company had no acquisitions or divestitures
but made a contingent purchase price payment of $2.8 million related to a 2005
acquisition.
During
2008, the Company completed acquisitions of four industrial packaging companies
and one paper packaging company and made a contingent purchase price payment
related to an acquisition from October 2005 for an aggregate purchase price of
$90.3 million. These five acquisitions consisted of a joint venture in the
Middle East in November 2007, acquisition of a 70 percent interest in a South
American company in November 2007, the acquisition of a North American company
in December 2007, the acquisition of a company in Asia in May 2008, and the
acquisition of a North American paper packaging company in July 2008. These
industrial packaging and paper packaging acquisitions complement the Company’s
existing product lines that together will provide growth opportunities and
scale. These acquisitions, included in operating results from the acquisition
dates, were accounted for using the purchase method of accounting and,
accordingly, the purchase prices were allocated to the assets purchased and
liabilities assumed based upon their estimated fair values at the dates of
acquisition. The estimated fair values of the net assets acquired were $63.0
million (including $12.2 million of accounts receivable and $7.4 million of
inventory) and liabilities assumed were $43.2 million. Identifiable intangible
assets, with a combined fair value of $22.0 million, including trade-names,
customer relationships, and certain non-compete agreements, have been recorded
for these acquisitions. The excess of the purchase prices over the estimated
fair values of the net tangible and intangible assets acquired of $48.5 million
was recorded as goodwill. The final allocation of the purchase prices may differ
due to additional refinements in the fair values of the net assets acquired as
well as the execution of consolidation plans to eliminate duplicate operations,
in accordance with SFAS No. 141, “Business Combinations.” This is due to
the valuation of certain other assets and liabilities that are subject to
refinement and therefore the actual fair value may vary from the preliminary
estimates. Adjustments to the acquired net assets resulting from final
valuations are not expected to be significant. The Company is finalizing certain
closing date adjustments with the sellers, as well as the allocation of income
tax adjustments. The Company is required to make a contingent
payment in March 2009 based on a fixed percentage of EBITDA for one
acquisition. Furthermore, in December 2010, the Company is required
to pay $5.0 million to purchase the land and building that is currently being
leased from the seller of one North American industrial packaging
acquisition.
The
Company implemented various restructuring plans at certain of the 2008 acquired
businesses discussed above. The Company’s restructuring activities, which were
accounted for in accordance with Emerging Issues Task Force Issue No. 95-3,
“Recognition of Liabilities in Connection with a Purchase Business Combination”
(“EITF 95-3”), primarily have included reductions in staffing levels, other exit
costs associated with the consolidation of facilities, plant relocation, and the
reduction of excess capacity. In connection with these restructuring activities,
as part of the cost of the above acquisitions, the Company established reserves,
primarily for severance and excess facilities, in the amount of $4.9 million, of
which $3.0 million remains in the restructuring reserve at January 31, 2009.
These accruals have been recorded as liabilities to the opening balance sheets
(increases to goodwill) pursuant to the provisions of EITF 95-3. These charges
primarily reflect severance, other exit costs associated with the consolidation
of facilities, and the reduction of excess capacity.
Had the
transactions occurred on November 1, 2007, results of operations would not
have differed materially from reported results.
During
2008, the Company sold a business unit in Australia, a 51 percent interest in a
Zimbabwean operation, three North American paper packaging operations and a
North American industrial packaging operation. The net gain from these
divestitures was $31.6 million and is included in gain on disposal of
properties, plants, and equipment, net in the accompanying 2008 consolidated
statement of income. Included in the gain calculation for the disposal in
Australia was the reclass to net income of a gain of $37.4 million of
accumulated foreign currency translation adjustments.
Stock-Based
Compensation Expense
On
November 1, 2005, the Company adopted Statement of Financial Accounting
Standards (“SFAS”) No. 123(R), “Share-Based Payment,” which requires the
measurement and recognition of compensation expense, based on estimated fair
values, for all share-based awards made to employees and directors, including
stock options, restricted stock, restricted stock units and participation in the
Company’s employee stock purchase plan. In adopting SFAS No. 123(R), the
Company used the modified prospective application transition method, as of
November 1, 2005, the first day of the Company’s fiscal year 2006. There
was no share-based compensation expense recognized under SFAS No. 123(R)
for the first quarter of 2009 and 2008.
SFAS
No. 123(R) requires companies to estimate the fair value of share-based
awards on the date of grant using an option-pricing model. The value of the
portion of the award that is ultimately expected to vest is recognized as
expense in the Company’s consolidated statements of income over the requisite
service periods. The Company will use the straight-line single option method of
expensing stock options to recognize compensation expense in its consolidated
statements of income for all share-based awards. Because share-based
compensation expense is based on awards that are ultimately expected to vest,
share-based compensation expense will be reduced to account for estimated
forfeitures. SFAS No. 123(R) requires forfeitures to be estimated at the
time of grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates. No options have been granted
in 2009 and 2008. For any options granted in the future, compensation
expense will be based on the grant date fair value estimated in accordance with
the provisions of SFAS No. 123(R).
Equity
Earnings and Minority Interests
Equity
earnings represent investments in affiliates in which the Company does not
exercise control and has a 20 percent or more voting interest. Such investments
in affiliates are accounted for using the equity method of accounting. If the
fair value of an investment in an affiliate is below its carrying value and the
difference is deemed to be other than temporary, the difference between the fair
value and the carrying value is charged to earnings. The Company has an equity
interest in six affiliates, and the equity earnings of these interests were
recorded in net income. Equity earnings (losses) for the first three months of
2009 and 2008 were ($0.6) million and $0.4 million, respectively. There were no
dividends received from our equity method subsidiaries for the three months
ended January 31, 2009 and 2008, respectively.
The
Company records minority interest expense which reflects the portion of the
earnings of majority-owned operations which are applicable to the minority
interest partners. The Company has majority holdings in various companies, and
the minority interests of other persons in the respective net income of these
companies were recorded as an expense. Minority interest expense for the first
three months of 2009 and 2008 was $0.4 million and $0.1 million,
respectively.
NOTE 2 — RECENT ACCOUNTING
STANDARDS
In
December 2007, the Financial Accounting Standards Boards ("FASB") issued SFAS
No. 141(R), “Business Combinations,” which replaces SFAS No. 141. The
objective of SFAS 141(R) is to improve the relevance, representational
faithfulness and comparability of the information that a reporting entity
provides in its financial reports about a business combination and its effects.
SFAS No. 141(R) establishes principles and requirements for how the
acquirer recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed and any noncontrolling interest in the
acquiree; recognizes and measures the goodwill acquired in the business
combination or a gain from a bargain purchase; and determines what information
to disclose to enable users of the financial statements to evaluate the nature
and financial effects of the business combination. SFAS No. 141(R) applies
to all transactions or other events in which an entity (the acquirer) obtains
control of one or more businesses (the acquiree), including those sometimes
referred to as “true mergers” or “mergers of equals” and combinations achieved
without the transfer of consideration. SFAS No. 141(R) will apply to any
acquisition entered into after November 1, 2009, but will have no effect on the
Company’s consolidated financial statements for the fiscal year ending October
31, 2009 or any prior fiscal years upon adoption.
In
December 2007, the FASB issued SFAS No. 160, “Accounting and Reporting of
Noncontrolling Interests in Consolidated Financial Statements, an amendment of
ARB No. 51.” The objective of SFAS No. 160 is to improve
the relevance, comparability and transparency of the financial information that
a reporting entity provides in its consolidated financial statements.
SFAS No. 160 amends Accounting Research Bulletin ARB No. 51 to
establish accounting and reporting standards for the noncontrolling interest in
a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 also
changes the way the consolidated financial statements are presented, establishes
a single method of accounting for changes in a parent’s ownership interest in a
subsidiary that do not result in deconsolidation, requires that a parent
recognize a gain or loss in net income when a subsidiary is deconsolidated and
expands disclosures in the consolidated financial statements that clearly
identify and distinguish between the parent’s ownership interest and the
interest of the noncontrolling owners of a subsidiary. The provisions of
SFAS No. 160 are to be applied prospectively as of the beginning of the
fiscal year in which SFAS No. 160 is adopted, except for the presentation
and disclosure requirements, which are to be applied retrospectively for all
periods presented. SFAS No. 160 will be effective for the Company’s
financial statements for the fiscal year beginning November 1, 2009 (2010
for the Company). The Company is currently evaluating the impact, if any, that
the adoption of SFAS No. 160 will have on its consolidated financial
statements.
In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.” This standard identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements that are presented in conformity with
GAAP. The FASB believes that the GAAP hierarchy should be directed to
entities because it is the entity, not its auditor, that is responsible for
selecting accounting principles for financial statements that are presented in
conformity with GAAP. Accordingly, the FASB concluded that the GAAP hierarchy
should reside in the accounting literature established by the FASB and issued
this Statement to achieve that result. The standard will be effective
60 days following the Securities Exchange Commission’s approval of the Public
Company Accounting Oversight Board amendment to AU Section 411. The
Company is currently evaluating the impact, if any, that the adoption of SFAS
No. 162 will have on its consolidated financial statements.
NOTE 3 — SALE OF NON-UNITED
STATES ACCOUNTS RECEIVABLE
Pursuant
to the terms of a Receivable Purchase Agreement (the “RPA”) dated
October 28, 2004, as amended, between Greif Coordination Center BVBA (the
“Seller”), an indirect wholly-owned subsidiary of Greif, Inc., and a major
international bank (the “Buyer”), the Seller agreed to sell trade receivables
meeting certain eligibility requirements that the Seller had purchased from
other indirect wholly-owned indirect European subsidiaries of Greif, Inc., under
discounted receivables purchase agreements and from an indirect
wholly-owned French subsidiary under a factoring agreement. In addition, on
October 28, 2005, an indirect wholly-owned Italian subsidiary of Greif,
Inc., entered into the Italian Receivables Purchase Agreement with the Italian
branch of the major international bank (the “Italian RPA”)and agreed
to sell trade receivables that meet certain eligibility criteria to the Italian
branch of the major international bank. The Italian RPA is similar in structure
and terms as the RPA. The maximum amount of the receivables that may
be sold under the RPA and the Italian RPA is €115.0 million ($152.5 million
at January 31, 2009).
In
October 2007, an indirect wholly-owned Singapore subsidiary of Greif Inc.,
entered into the Singapore Receivable Purchase Agreement (the “Singapore RPA”)
with a major international bank. The maximum amount of the aggregate receivables
that may be sold under the Singapore RPA is 15.0 million Singapore Dollars
($10.0 million at January 31, 2009).
In
October 2008, an indirect wholly-owned Brazil subsidiary of Greif, Inc., entered
into agreements (“the Brazil Agreements”) with Brazilian Banks. There
is no maximum amount of aggregate receivables that may be sold under the Brazil
Agreements; however, the sale of individual receivables is subject to approval
by the banks.
The
structure of the transactions provide for a legal true sale, on a revolving
basis, of the receivables transferred from the various Greif, Inc. subsidiaries
to the respective banks. The bank funds an initial purchase price of a certain
percentage of eligible receivables based on a formula with the initial purchase
price approximating 75 percent to 90 percent of eligible receivables. The
remaining deferred purchase price is settled upon collection of the receivables.
At the balance sheet reporting dates, the Company removes from accounts
receivable the amount of proceeds received from the initial purchase price since
they meet the applicable criteria of SFAS No. 140, “Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,”
and continues to recognize the deferred purchase price in its accounts
receivable. The receivables are sold on a non-recourse basis with the total
funds in the servicing collection accounts pledged to the banks between
settlement dates. At January 31, 2009 and October 31, 2008,
€60.9 million ($80.7 million) and €106.0 million ($137.8 million),
respectively, of accounts receivable were sold under the RPA and Italian RPA. At
January 31, 2009 and October 31, 2008, 6.2 million Singapore Dollars ($4.1
million) and 7.8 million Singapore Dollars ($5.3 million), respectively, of
accounts receivable were sold under the Singapore RPA. At
January 31, 2009 and October 31, 2008, 2.9 million Brazilian Reais ($1.3
million) and 9.5 million Brazilian Reais ($4.5 million), respectively, of
accounts receivable were sold under the Brazil Agreements.
At the
time the receivables are initially sold, the difference between the carrying
amount and the fair value of the assets sold are included as a loss on sale in
the consolidated statements of income. Expenses, primarily related to the loss
on sale of receivables, associated with the RPA and Italian RPA totaled
€1.4 million ($1.8 million) and €1.1 million ($1.6 million) for the
three months ended January 31, 2009 and 2008, respectively. Expenses associated
with the Singapore RPA and Brazil Agreements were not material to the
consolidated financial statements for the three months ended January 31, 2009
and 2008. Additionally, the Company performs collections and administrative
functions on the receivables sold similar to the procedures it uses for
collecting all of its receivables, including receivables that are not sold under
the RPA, the Italian RPA, the Singapore RPA and the Brazil Agreements. The
servicing liability for these receivables is not material to the consolidated
financial statements.
NOTE 4 —
INVENTORIES
Inventories
are summarized as follows (Dollars in thousands):
|
January
31,
|
October
31,
|
|||||||
|
2009
|
2008
|
|||||||
|
Finished
goods
|
$ | 57,897 | $ | 71,659 | ||||
|
Raw
materials and work-in-process
|
279,727 | 279,186 | ||||||
| 337,624 | 350,845 | |||||||
|
Reduction
to state inventories on last-in, first-out basis
|
(41,097 | ) | (46,851 | ) | ||||
| $ | 296,527 | $ | 303,994 | |||||
NOTE 5 — NET ASSETS HELD FOR
SALE
Net
assets held for sale represent land, buildings and land improvements less
accumulated depreciation for locations that meet the classification requirements
of net assets held for sale as defined in SFAS No. 144, “Accounting for
Impairment or Disposal of Long-Lived Assets.” As of January 31, 2009, there were
twelve facilities held for sale. The net assets held for sale are being marketed
for sale and it is the Company’s intention to complete the facility sales within
the upcoming year.
NOTE 6 — GOODWILL AND OTHER
INTANGIBLE ASSETS
The
Company annually or on an interim when considered necessary reviews goodwill and
indefinite-lived intangible assets for impairment as required by SFAS
No. 142, “Goodwill and Other Intangible Assets.” The Company has concluded
that no impairment exists at this time.
Changes
to the carrying amount of goodwill by segment for the three-month period ended
January 31, 2009 are as follows (Dollars in thousands):
|
Industrial
Packaging
|
Paper
Packaging
|
Total
|
||||||||||
|
Balance
at October 31, 2008
|
$ | 480,312 | $ | 32,661 | $ | 512,973 | ||||||
|
Goodwill
acquired
|
2,811 | - | 2,811 | |||||||||
|
Goodwill
adjustments
|
9,009 | 9 | 9,018 | |||||||||
|
Currency
translation
|
(940 | ) | - | (940 | ) | |||||||
|
Balance
at January 31, 2009
|
$ | 491,192 | $ | 32,670 | $ | 523,862 | ||||||
The
goodwill acquired of $2.8 million represents a contingent purchase price payment
related to a 2005 acquisition. The goodwill adjustments represent a
net increase in goodwill of $9.0 million primarily related to the final purchase
price adjustments for three of the 2008 acquisitions, the recognition of
deferred tax assets and the reversal of tax contingency reserves.
All other
intangible assets for the periods presented, except for $8.2 million related to
the Tri-Sure Trademark, Blagden Express Tradename, and Closed-loop Tradename,
are subject to amortization and are being amortized using the straight-line
method over periods that range from five to 20 years. The detail of other
intangible assets by class as of January 31, 2009 and October 31, 2008 are as
follows (Dollars in thousands):
|
Gross
Intangible Assets
|
Accumulated
Amortization
|
Net
Intangible Assets
|
|||||||||||
|
January 31, 2009:
|
|||||||||||||
|
Trademark
and patents
|
$ | 30,057 | $ | 13,635 | $ | 16,422 | |||||||
|
Non-compete
agreements
|
16,463 | 4,037 | 12,426 | ||||||||||
|
Customer
relationships
|
79,318 | 11,855 | 67,463 | ||||||||||
|
Other
|
9,598 | 4,597 | 5,001 | ||||||||||
|
Total
|
|
$ | 135,436 | $ | 34,124 | $ | 101,312 | ||||||
|
October 31, 2008:
|
|||||||||||||
|
Trademark
and patents
|
$ | 29,996 | $ | 13,066 | $ | 16,930 | |||||||
|
Non-compete
agreements
|
16,514 | 3,470 | 13,044 | ||||||||||
|
Customer
relationships
|
80,017 | 10,741 | 69,276 | ||||||||||
|
Other
|
9,624 | 4,450 | 5,174 | ||||||||||
|
Total
|
$ | 136,151 | $ | 31,727 | $ | 104,424 | |||||||
During
the first three months of 2009, gross intangible assets decreased by $0.7
million. The decrease in gross intangible assets is primarily comprised of
currency fluctuations in the Industrial Packaging companies. Amortization
expense for the three months ended January 31, 2009 and 2008 was $2.5 million
and $2.2 million, respectively. Amortization expense for the next five years is
expected to be $12.0 million in 2010, $11.3 million in 2011, $9.0 million in
2012, $6.5 million in 2013 and $6.4 million in 2014.
NOTE 7 — RESTRUCTURING
CHARGES
The focus
for restructuring activities in 2009 is on business realignment to address the
adverse impact resulting from the sharp decline in business throughout the
global economy and further implementation of the Greif Business System. During
the first three months of 2009, the Company recorded restructuring charges of
$27.2 million, consisting of $16.0 million in employee separation costs, $4.9
million in asset impairments and $6.3 million in other costs. In addition, the
Company recorded $1.8 million in restructuring-related inventory charges in cost
of products sold. Ten company-owned plants in the Industrial
Packaging segment were closed and the total employees severed during the
first three months of 2009 were 927. The remaining restructuring
charges for the above activities are anticipated to be $21.0 million for the
remainder of 2009.
In 2008,
the focus for restructuring activities was on integration of acquisitions in the
Industrial Packaging segment and on alignment to market-focused strategy and
implementation of the Greif Business System in the Paper Packaging
segment. During the first three months of 2008, the Company recorded
restructuring charges of $10.5 million, consisting of $3.8 million in employee
separation costs, $5.6 million in asset impairments, $0.3 million in
professional fees and $0.8 million in other costs. Two company-owned plants in
the Industrial Packaging segment were closed and the total employees
severed during the first three months of 2008 were 54.
For each
relevant business segment, costs incurred in 2009 are as follows (Dollars in
thousands):
The
following is a reconciliation of the beginning and ending restructuring reserve
balances for the three month period ended January 31, 2009 (Dollars in
thousands):
|
Cash
Charges
|
Non-cash
Charges
|
|||||||||||||||
|
Employee
Separation Costs
|
Other
Costs
|
Asset
Impairments
|
Total
|
|||||||||||||
|
Balance
at October 31, 2008
|
$ | 14,413 | $ | 734 | $ | - | $ | 15,147 | ||||||||
|
Costs
incurred and charged to expense
|
16,006 | 6,291 | 4,879 | 27,176 | ||||||||||||
|
Reserves
established in the purchase price
|
||||||||||||||||
|
of
business combinations
|
527 | 2,227 | - | 2,754 | ||||||||||||
|
Costs
paid or otherwise settled
|
(10,544 | ) | (4,984 | ) | (4,879 | ) | (20,407 | ) | ||||||||
|
Balance
at January 31, 2009
|
$ | 20,402 | $ | 4,268 | $ | - | $ | 24,670 | ||||||||
NOTE 8 — SIGNIFICANT
NONSTRATEGIC TIMBERLAND TRANSACTIONS AND CONSOLIDATION OF VARIABLE INTEREST
ENTITIES
On
May 31, 2005, STA Timber LLC, a wholly owned subsidiary of the Company
(“STA Timber”) issued in a private placement its 5.20 percent Senior Secured
Notes due August 5, 2020 (the “Monetization Notes”) in the principal amount
of $43.3 million. In connection with the sale of the Monetization Notes, STA
Timber entered into note purchase agreements with the purchasers of the
Monetization Notes (the “Note Purchase Agreements”) and related documentation.
The Monetization Notes are secured by a pledge of the Purchase Note and the Deed
of Guarantee (as hereafter defined). The Monetization Notes may be accelerated
in the event of a default in payment or a breach of the other obligations set
forth therein or in the Note Purchase Agreements or related documents, subject
in certain cases to any applicable cure periods, or upon the occurrence of
certain insolvency or bankruptcy related events. The Monetization Notes are
subject to a mechanism that may cause them, subject to certain conditions, to be
extended to November 5, 2020. The proceeds from the sale of the
Monetization Notes were primarily used for the repayment of
indebtedness. The Purchase Note means the $50.9 million
purchase note payable by an indirect subsidiary of Plum Creek Timberlands, L.P
(“Plum Creek”) as a portion of the purchase price in connection with its
purchase from Soterra LLC, a wholly owned subsidiary of the Company, of
approximately 56,000 acres of timberland located in Florida, Georgia and
Alabama, on May 23, 2005. The Purchase Note is secured by a Deed of
Guarantee issued by Bank of America, N.A., London Branch, in an amount not to
exceed $52.3 million (the “Deed of Guarantee”), as a guarantee of the due and
punctual payment of principal and interest on the Purchase Note.
The
Company has consolidated the assets and liabilities of STA Timber in accordance
with FASB Interpretation No. 46R, “Consolidation of Variable Interest
Entities.” Because STA Timber is a separate and distinct legal entity from
Greif, Inc. and its other subsidiaries, the assets of STA Timber are not
available to satisfy the liabilities and obligations of these entities and the
liabilities of STA Timber are not liabilities or obligations of these entities.
In addition, Greif, Inc. and its other subsidiaries have not extended any form
of guaranty of the principal or interest on the Monetization Notes. Accordingly,
Greif, Inc. and its other subsidiaries will not become directly or contingently
liable for the payment of the Monetization Notes at any time.
The
Company has also consolidated the assets and liabilities of the buyer-sponsored
special purpose entity (the “Buyer SPE”) involved in these transactions as the
result of Interpretation 46R. However, because the Buyer SPE is a separate and
distinct legal entity from the Company, the assets of the Buyer SPE are not
available to satisfy the liabilities and obligations of the Company and the
liabilities of the Buyer SPE are not liabilities or obligations of the
Company.
Assets of
the Buyer SPE at January 31, 2009 and October 31, 2008 consist of restricted
bank financial instruments of $50.9 million. STA Timber had long-term debt of
$43.3 million as of January 31, 2009 and October 31, 2008. STA Timber is exposed
to credit-related losses in the event of nonperformance by the issuer of the
Deed of Guarantee, but the Company does not expect that issuer to fail to meet
its obligations. The accompanying consolidated income statements for the three
month periods ended January 31, 2009 and 2008 include interest expense on STA
Timber debt of $0.6 million and interest income on Buyer SPE investments of $0.6
million.
NOTE 9 —
DEBT
Long-term
debt is summarized as follows (Dollars in thousands):
|
January
31,
|
October
31,
|
|||||||
|
2009
|
2008
|
|||||||
|
Credit
Agreement
|
$
|
337,959
|
$
|
247,597
|
||||
|
Senior
Notes
|
300,000
|
300,000
|
||||||
|
Trade
accounts receivable credit facility
|
93,081
|
120,000
|
||||||
|
Other
long-term debt
|
4,734
|
5,574
|
||||||
|
$
|
735,774
|
$
|
673,171
|
|||||
Credit Agreement
The
Company and certain of its international subsidiaries, as borrowers, have
entered into a Credit Agreement (the “Prior Credit Agreement”) with a syndicate
of financial institutions that provides for a $450.0 million revolving
multicurrency credit facility due in 2010. The revolving multicurrency credit
facility is available for ongoing working capital and general corporate
purposes. Interest is based on a euro currency rate or an alternative base rate
that resets periodically plus a calculated margin amount. As of January 31, 2009
and October 31, 2008, $338.0 million and $247.6 million were outstanding under
the Prior Credit Agreement, respectively. The weighted average interest rate on
the Prior Credit Agreement was 2.87 percent for the three months ended January
31, 2009, and the interest rate was 2.07 percent at January 31, 2009 and 3.62
percent at October 31, 2008.
The Prior
Credit Agreement contains financial covenants that require the Company to
maintain a certain leverage ratio and a minimum coverage of interest expense. At
January 31, 2009, the Company was in compliance with these
covenants.
On
February 19, 2009 (subsequent to the Company’s first quarter-end), the Company
and Greif International Holding B.V., as borrowers, entered into a $700 million
Senior Secured Credit Agreement (the “New Credit Agreement”) with a syndicate of
financial institutions. The New Credit Agreement provides for a $500 million
revolving multicurrency credit facility and a $200 million term loan, both
expiring February 2012, with an option to add $200 million to the facilities
with the agreement of the lenders. The New Credit Agreement is available to fund
ongoing working capital and capital expenditure needs, for general corporate
purposes, to finance acquisitions, and to repay amounts outstanding under the
Prior Credit Agreement. Interest is based on either a Eurodollar rate
or a base rate that resets periodically plus a calculated margin
amount. On February 19, 2009, $325.3 million borrowed under the
revolving credit facility and term loan was used to prepay the obligations
outstanding under the Prior Credit Agreement and certain costs and expenses
incurred in connection with the New Credit Agreement. The Prior
Credit Agreement was terminated on February 19, 2009.
Senior
Notes
On
February 9, 2007, the Company issued $300.0 million of 6 3 /4 percent
Senior Notes due February 1, 2017. Interest on the Senior Notes is payable
semi-annually. Proceeds from the issuance of Senior Notes were principally used
to fund the purchase of previously outstanding 8 7/8 percent Senior
Subordinated Notes in a tender offer and for general corporate
purposes.
The
Indenture pursuant to which the Senior Notes were issued contains certain
covenants. At January 31, 2009, the Company was in compliance with these
covenants.
United
States Trade Accounts Receivable Credit Facility
On
December 8, 2008, the Company entered into a $135.0 million trade accounts
receivable credit facility with a financial institution and its affiliate, with
a maturity date of December 8, 2013, subject to earlier termination of their
purchase commitment on December 7, 2009, or such later date to which the
purchase commitment may be extended by agreement of the parties. The
credit facility is secured by certain of the Company’s trade accounts receivable
in the United States and bears interest at a variable rate based on the
applicable commercial paper rate plus a margin or other agreed-upon rate (3.0
percent at January 31, 2009). In addition, the Company can terminate
the credit facility at any time upon five days prior written
notice. A significant portion of the proceeds from this credit
facility were used to pay the obligations under the previous credit facility
described below, which was terminated. The remaining proceeds will be
used to pay certain fees, costs and expenses incurred in connection with the
credit facility and for working capital and general corporate purposes. There
was $93.1 million outstanding under the United States trade accounts receivable
credit facility at January 31, 2009. The agreement for this
receivables financing facility contains financial covenants that require the
Company to maintain a certain leverage ratio and a minimum coverage of interest
expense. At January 31, 2009, the Company was in compliance with these
covenants.
On
October 31, 2003, the Company entered into a five-year, up to $120.0
million, credit facility with an affiliate of a bank in connection with the
securitization of certain of the Company’s trade accounts receivable in the
United States. On October 24, 2007, the trade accounts receivable credit
facility was amended to extend the maturity date to October 20, 2010. This
credit facility was secured by certain of the Company’s trade accounts
receivable in the United States and bore interest at a variable rate based on
the London InterBank Offered Rate (“LIBOR”) plus a margin or other agreed upon
rate (4.69 percent at October 31, 2008).There was a total of $120.0 million
outstanding under this credit facility at October 31, 2008. The trade
accounts receivable credit facility provided that in the event the Company
breaches any of its financial covenants and the majority of the lenders
thereunder consent to a waiver thereof, but the providers of the trade accounts
receivable credit facility do not consent to any such waiver, then the Company
must within 90 days of providing notice of the breach, pay all amounts
outstanding under the trade accounts receivable credit facility. The 2003 credit
facility was terminated on December 8, 2008.
Greif
Receivables Funding LLC (“GRF”), an indirect subsidiary of the Company, has
participated in the purchase and transfer of receivables in connection with
these credit facilities and is included in the Company’s consolidated financial
statements. However, because GRF is a separate and distinct legal entity from
the Company and its other subsidiaries, the assets of GRF are not available to
satisfy the liabilities and obligations of the Company and its other
subsidiaries and the liabilities of GRF are not the liabilities or obligations
of the Company and its other subsidiaries. This entity purchases and services
the Company’s trade accounts receivable that are subject to these credit
facilities.
Other
In
addition to the amounts borrowed against the Credit Agreement and proceeds from
the Senior Notes and the United States trade accounts receivable credit
facility, the Company had outstanding debt of $118.7 million, comprised of $4.7
million in long-term debt and $114.0 million in short-term borrowings, at
January 31, 2009 and outstanding debt of $49.9 million, comprised of $5.6
million in long-term debt and $44.3 million in short-term borrowings, at October
31, 2008.
At
January 31, 2009, annual maturities of the Company’s long-term debt under the
new financing arrangements are $342.8 million in 2010, $92.1 million in 2014 and
$300.0 million thereafter.
At
January 31, 2009 and October 31, 2008, the Company had deferred financing fees
and debt issuance costs of $4.5 million and $4.6 million, respectively, which
are included in other long-term assets.
NOTE 10 — FINANCIAL
INSTRUMENTS AND FAIR VALUE MEASUREMENTS
The
carrying amounts of cash and cash equivalents, trade accounts receivable,
accounts payable, current liabilities and short-term borrowings at January 31,
2009 and October 31, 2008 approximate their fair values because of the
short-term nature of these items.
The
estimated fair value of the Company’s long-term debt was $702.9 million and
$619.2 million as compared to the carrying amounts of $735.8 million and $673.2
million at January 31, 2009 and October 31, 2008, respectively. The fair values
of the Company’s long-term obligations are estimated based on either the quoted
market prices for the same or similar issues or the current interest rates
offered for debt of the same remaining maturities.
The
Company uses derivatives from time to time to partially mitigate the effect of
exposure to interest rate movements, exposure to foreign currency fluctuations,
and commodity cost fluctuations. The Company records derivatives based on SFAS
No. 133, “Accounting for Derivative Instruments and Hedging Activities,”
and related amendments. This Statement requires that all derivatives be
recognized as assets or liabilities in the balance sheet and measured at fair
value. Changes in the fair value of derivatives are recognized in either net
income or in other comprehensive income, depending on the designated purpose of
the derivative.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities–Including an amendment of FASB
Statement No. 115.” SFAS No. 159 permits companies to measure many financial
instruments and certain other items at fair value at specified election dates.
SFAS No. 159 was effective for the Company on November 1, 2008. Since the
Company has not utilized the fair value option for any allowable items, the
adoption of SFAS No. 159 did not have a material impact on the Company’s
financial condition and results of operations.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value
Measurements.” SFAS No. 157 defines fair value, establishes a
framework for measuring fair value within GAAP and expands required disclosures
about fair value measurements. In November 2007, the FASB provided a one year
deferral for the implementation of SFAS No. 157 for nonfinancial assets and
liabilities. The Company adopted SFAS No. 157 on February 1,
2008, as required. The adoption of SFAS No. 157 did not have a material impact
on the Company’s financial condition and results of operations.
SFAS No.
157 established a three-tier fair value hierarchy, which prioritizes the inputs
used in measuring fair value. These tiers include: Level 1, defined as
observable inputs such as quoted prices in active markets; Level 2, defined as
inputs other than quoted prices in active markets that are either directly or
indirectly observable; and Level 3, defined as unobservable inputs in which
little or no market data exists, therefore requiring an entity to develop its
own assumptions. As of January 31, 2009, the Company held certain derivative
asset and liability positions that are required to be measured at fair value on
a recurring basis. The majority of the Company’s derivative instruments related
to receive fixed-rate, pay floating-rate interest rate swaps and receive
fixed-rate, pay fixed-rate cross-currency interest rate swaps. The
fair values of these derivatives have been measured in accordance with Level 2
inputs in the fair value hierarchy, and as of January 31, 2009, are as follows
(Dollars in thousands):
|
Notional
Amount
|
Fair
Value Adjustment
|
|
|||||||
|
January
31, 2009
|
January
31, 2009
|
Balance
Sheet Location
January
31, 2009
|
|||||||
|
Cross-currency
interest rate swaps
|
$ | 300,000 | $ | 23,136 |
Other
long-term assets
|
||||
|
Interest
rate derivatives
|
100,000 | (3,258 | ) |
Other
long-term liabilities
|
|||||
|
Energy
and other derivatives
|
77,918 | (8,992 | ) |
Other
current liabilities
|
|||||
|
Total
|
$ | 377,918 | $ | 14,144 | |||||
The
Company has entered into cross-currency interest rate swaps which are designated
as a hedge of a net investment in a foreign operation. Under these agreements,
the Company receives interest semi-annually from the counterparties equal to a
fixed rate of 6.75 percent on $300.0 million and pays interest at a fixed rate
of 6.25 percent on €219.9 million. Upon maturity of these swaps on
August 1, 2009, August 1, 2010, and August 1, 2012, the
Company will be required to pay €73.3 million to the counterparties and
receive $100.0 million from the counterparties on each of these dates. The other
comprehensive gain on these agreements was $23.1 million and 24.5 million at
January 31, 2009 and October 31, 2008, respectively.
The
Company has interest rate swap agreements with various maturities through 2010.
The interest rate swap agreements are used to fix a portion of the interest on
the Company’s variable rate debt. Under certain of these agreements, the Company
receives interest quarterly from the counterparties equal to LIBOR and pays
interest at a fixed rate (4.93 percent at January 31, 2009) over the life of the
contracts.
At
January 31, 2009, the Company had outstanding foreign currency forward contracts
in the notional amount of $88.6 million ($174.0 million at October 31, 2008).
The purpose of these contracts is to hedge the Company’s exposure to foreign
currency transactions and short-term intercompany loan balances in its
international businesses. The fair value of these contracts at January 31, 2009
resulted in a loss of $0.8 million recorded in other comprehensive income and a
loss of $0.3 million recorded in the consolidated statements of income for the
three months ended January 31, 2009. The fair value of similar contracts at
January 31, 2008 resulted in a loss of $0.9 million recorded in other
comprehensive income and a loss of $0.3 million recorded in the consolidated
statements of income for the three months ended January 31, 2008.
The
Company has entered into certain cash flow hedges to mitigate its exposure to
cost fluctuations in natural gas prices through October 31, 2009. The fair
value of the energy hedges was in an unfavorable position of $7.0 million ($4.6
million net of tax) at January 31, 2009, compared to an unfavorable position of
$5.2 million ($3.4 million net of tax) at October 31, 2008. As a result of the
high correlation between the hedged instruments and the underlying transactions,
ineffectiveness has not had a material impact on the Company’s consolidated
statements of income for the quarter ended January 31, 2009.
The
Company has entered into certain cash flow hedges to mitigate its exposure to
cost fluctuations in old corrugated containers (“OCC”) prices through July 31,
2009. The fair value of these hedges was in a favorable position of $1.2 million
($0.8 million net of tax). As a result of the high correlation between the
hedged instruments and the underlying transactions, ineffectiveness has not had
a material impact on the Company’s consolidated statements of income for the
three months ended January 31, 2009.
While the
Company may be exposed to credit losses in the event of nonperformance by the
counterparties to its derivative financial instrument contracts, its
counterparties are established banks and financial institutions with high credit
ratings. The Company has no reason to believe that such counterparties will not
be able to fully satisfy their obligations under these contracts.
During
the next nine months, the Company expects to reclassify into earnings a net loss
from accumulated other comprehensive income of approximately $7.7 million after
tax at the time the underlying hedge transactions are realized.
NOTE 11 — CONTINGENT
LIABILITIES
Various
lawsuits, claims and proceedings have been or may be instituted or asserted
against the Company, including those pertaining to environmental, product
liability and safety and health matters. While the amounts claimed may be
substantial, the ultimate liability cannot now be determined because of
considerable uncertainties that exist. Therefore, it is possible that results of
operations or liquidity in a particular period could be materially affected by
certain contingencies.
All
lawsuits, claims and proceedings are considered by the Company in establishing
reserves for contingencies in accordance with SFAS No. 5, “Accounting for
Contingencies.” In accordance with the provisions of SFAS No. 5, the
Company accrues for a litigation-related liability when it is probable that a
liability has been incurred and the amount of the loss can be reasonably
estimated. Based on currently available information known to the Company, the
Company believes that its reserves for these litigation-related liabilities are
reasonable and that the ultimate outcome of any pending matters is not likely to
have a material adverse effect on the Company’s financial position or results
from operations.
NOTE 12 — CAPITAL
STOCK
Class A
Common Stock is entitled to cumulative dividends of 1 cent a share per year
after which Class B Common Stock is entitled to non-cumulative dividends up to
one half (1/2) cent per share per year. Further distribution in any year must be
made in proportion of one cent a share for Class A Common Stock to one and
one-half (1 ½) cents a share for Class B Common Stock. The Class A Common
Stock has no voting rights unless four quarterly cumulative dividends upon the
Class A Common Stock are in arrears or unless changes are proposed to the
Company’s certificate of incorporation. The Class B Common Stock has full voting
rights. There is no cumulative voting for the election of
directors.
The
following table summarizes the Company’s Class A and Class B common and
treasury shares at the specified dates:
|
Authorized
Shares
|
Issued
Shares
|
Outstanding
Shares
|
Treasury
Shares
|
|||||||||||||
|
January 31, 2009:
|
||||||||||||||||
|
Class
A Common Stock
|
128,000,000 | 42,281,920 | 24,338,305 | 17,943,615 | ||||||||||||
|
Class
B Common Stock
|
69,120,000 | 34,560,000 | 22,462,266 | 12,097,734 | ||||||||||||
|
October 31, 2008:
|
||||||||||||||||
|
Class
A Common Stock
|
128,000,000 | 42,281,920 | 24,081,998 | 18,199,922 | ||||||||||||
|
Class
B Common Stock
|
69,120,000 | 34,560,000 | 22,562,266 | 11,997,734 | ||||||||||||
NOTE 13 — DIVIDENDS PER
SHARE
The
following dividends per share were paid during the periods
indicated:
|
Three
Months Ended
January
31
|
||||||||
|
2009
|
2008
|
|||||||
|
Class
A Common Stock
|
$ | 0.38 | $ | 0.28 | ||||
|
Class
B Common Stock
|
$ | 0.56 | $ | 0.41 | ||||
NOTE 14 — CALCULATION OF
EARNINGS PER SHARE
The
Company has two classes of common stock and, as such, applies the “two-class
method” of computing earnings per share as prescribed in SFAS No. 128,
“Earnings Per Share.” In accordance with the Statement, earnings are allocated
first to Class A and Class B Common Stock to the extent that dividends are
actually paid and the remainder allocated assuming all of the earnings for the
period have been distributed in the form of dividends. The following is a
reconciliation of the average shares used to calculate basic and diluted
earnings per share:
|
Three
months ended
|
||||||||
|
January
31
|
||||||||
|
2009
|
2008
|
|||||||
|
Class A Common Stock:
|
||||||||
|
Basic
shares
|
24,130,385 | 23,789,223 | ||||||
|
Assumed
conversion of stock options
|
274,872 | 559,649 | ||||||
|
Diluted
shares
|
24,405,257 | 24,348,872 | ||||||
|
Class B Common Stock:
|
||||||||
|
Basic
and diluted shares
|
22,516,029 | 22,942,913 | ||||||
There
were 20,000 stock options that were antidilutive for the three months ended
January 31, 2009. No stock options were antidilutive for the three months ended
January 31, 2008.
NOTE 15 — COMPREHENSIVE
INCOME
Comprehensive
income is comprised of net income and other charges and credits to equity that
are not the result of transactions with the Company’s owners. The components of
comprehensive income, net of tax, are as follows (Dollars in
thousands):
|
Three
months ended
|
||||||||
|
January
31
|
||||||||
|
2009
|
2008
|
|||||||
|
Net
income
|
$ | 1,266 | $ | 60,687 | ||||
|
Other
comprehensive income (loss):
|
||||||||
|
Foreign
currency translation adjustment
|
(28,909 | ) | (35,003 | ) | ||||
|
Changes
in fair value of interest rate derivatives, net of tax
|
(316 | ) | (2,462 | ) | ||||
|
Changes
in fair value of energy and other derivatives, net of tax
|
(1,055 | ) | ||||||