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, 2004

 

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 1-566

 

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.

 

Indicated 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 an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes x No ¨

 

The number of shares outstanding of each of the issuer’s classes of common stock at the close of business on January 31, 2004 was as follows:

 

Class A Common Stock		10,748,105 shares
Class B Common Stock		11,661,939 shares

 

PART I. FINANCIAL INFORMATION

 

 

ITEM 1.

CONSOLIDATED FINANCIAL STATEMENTS

 

GREIF, INC. AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(Dollars in thousands, except per share amounts)

 

		Three months ended January 31,
		2004				2003
Net sales		$	468,860			$	434,678
Costs of products sold			399,410				358,949
Gross profit			69,450				75,729
Selling, general and administrative expenses			51,025				59,501
Restructuring charges			15,259				1,539
Gain on sale of assets			4,109				411
Operating profit			7,275				15,100
Interest expense, net			12,247				13,554
Other income, net			222				224
Income (loss) before income tax expense (benefit) and equity in earnings of affiliates and minority interests			(4,750	)			1,770
Income tax expense (benefit)			(1,463	)			566
Equity in earnings of affiliates and minority interests			(79	)			(1,095	)
Income (loss) before cumulative effect of change in accounting principle			(3,366	)			109
Cumulative effect of change in accounting principle			—				4,822
Net income (loss)		$	(3,366	)		$	4,931
Basic and diluted earnings (loss) per share:
Class A Common Stock (before cumulative effect)		$	(0.12	)		$	0.01
Class A Common Stock (after cumulative effect)		$	(0.12	)		$	0.18
Class B Common Stock (before cumulative effect)		$	(0.18	)		$	—
Class B Common Stock (after cumulative effect)		$	(0.18	)		$	0.26

 

See accompanying Notes to Consolidated Financial Statements

 

GREIF, INC. AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

 

ASSETS

 

		January 31, 2004				October 31, 2003
		(Unaudited)
Current assets
Cash and cash equivalents		$	38,121			$	49,767
Trade accounts receivable – less allowance of $11,817 in 2004 and $11,225 in 2003			270,613				294,957
Inventories			170,295				167,157
Net assets held for sale			6,812				6,311
Deferred tax assets			4,802				10,875
Prepaid expenses and other			60,427				54,390
			551,070				583,457
Long-term assets
Goodwill – less accumulated amortization			251,437				252,309
Other intangible assets – less accumulated amortization			29,808				30,654
Investment in affiliates			5,581				4,421
Other long-term assets			52,009				47,995
			338,835				335,379
Properties, plants and equipment
Timber properties – less depletion			87,748				86,437
Land			101,838				100,615
Buildings			323,380				320,229
Machinery and equipment			830,190				831,815
Capital projects in progress			42,143				36,522
			1,385,299				1,375,618
Accumulated depreciation			(483,476	)			(463,243	)
			901,823				912,375
		$	1,791,728			$	1,831,211

 

See accompanying Notes to Consolidated Financial Statements

 

GREIF, INC. AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

		January 31, 2004				October 31, 2003
		(Unaudited)
Current liabilities
Accounts payable		$	131,760			$	158,333
Accrued payrolls and employee benefits			30,760				43,126
Restructuring reserves			19,384				15,972
Short-term borrowings			19,734				15,605
Current portion of long-term debt			3,000				3,000
Other current liabilities			82,698				76,282
			287,336				312,318
Long-term liabilities
Long-term debt			637,972				643,067
Deferred tax liability			161,073				159,825
Postretirement benefit liability			49,187				48,504
Other long-term liabilities			86,269				93,047
			934,501				944,443
Minority interest			1,633				1,886
Shareholders’ equity
Common stock, without par value			16,595				12,207
Treasury stock, at cost			(63,852	)			(64,228	)
Retained earnings			673,861				681,043
Accumulated other comprehensive loss:
- foreign currency translation			(17,090	)			(15,314	)
- interest rate derivatives			(12,553	)			(12,938	)
- minimum pension liability			(28,703	)			(28,206	)
			568,258				572,564
		$	1,791,728			$	1,831,211

 

See accompanying Notes to Consolidated Financial Statements

 

GREIF, INC. AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(Dollars in thousands)

 

		2004				2003
For the three months ended January 31,
Cash flows from operating activities:
Net income (loss)		$	(3,366	)		$	4,931
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation, depletion and amortization			26,710				21,240
Asset impairments			2,177				—
Equity in earnings of affiliates and minority interests, net of dividends received			(1,413	)			2,036
Deferred income taxes			8,250				3,201
Gain on disposals of properties, plants and equipment			(4,109	)			(411	)
Cumulative effect of change in accounting principle			—				(4,822	)
Other, net			(7,957	)			(11,388	)
Changes in current assets and liabilities			(22,571	)			(18,697	)
Net cash used in operating activities			(2,279	)			(3,910	)
Cash flows from investing activities:
Purchases of properties, plants and equipment			(9,771	)			(12,454	)
Proceeds on disposals of properties, plants and equipment			4,200				1,390
Net cash used in investing activities			(5,571	)			(11,064	)
Cash flows from financing activities:
(Payments) proceeds from long-term debt			(8,451	)			11,588
Proceeds from short-term borrowings			2,854				2,913
Dividends paid			(3,816	)			(3,831	)
Acquisitions of treasury stock			(2	)			(1,031	)
Exercise of stock options			4,679				—
Net cash (used in) provided by financing activities			(4,736	)			9,639
Effects of exchange rates on cash			940				(759	)
Net decrease in cash and cash equivalents			(11,646	)			(6,094	)
Cash and cash equivalents at beginning of period			49,767				25,396
Cash and cash equivalents at end of period		$	38,121			$	19,302

 

See accompanying Notes to Consolidated Financial Statements

 

GREIF, INC. AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 31, 2004

 

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, 2004 and October 31, 2003 and the consolidated statements of operations and cash flows for the three-month periods ended January 31, 2004 and 2003 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, 2003 (the “2003 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 2004 or 2003, 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 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 2004 presentation.

 

Stock-Based Compensation

 

At January 31, 2004, the Company had various stock-based compensation plans as described in Note 10 to the Notes to Consolidated Financial Statements in the 2003 Form 10-K. The Company applies Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations in accounting for its stock option plans. If compensation cost would have been determined based on fair values at the date of grant under Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” pro forma net income (loss) and earnings (loss) per share would have been as follows (Dollars in thousands, except per share amounts):

 

		Three months ended January 31,
		2004				2003
Net income (loss) as reported		$	(3,366	)		$	4,931
Deduct total stock option expense determined under fair value method, net of tax			612				952
Pro forma net income (loss)		$	(3,978	)		$	3,979
Basic and diluted earnings per share:
Class A Common Stock:
As reported		$	(0.12	)		$	0.18
Pro forma		$	(0.14	)		$	0.15
Class B Common Stock:
As reported		$	(0.18	)		$	0.26
Pro forma		$	(0.22	)		$	0.21

 

NOTE 2 — RECENT ACCOUNTING STANDARDS

 

In December 2003, the Financial Accounting Standards Board (“FASB”) issued a revision to SFAS No. 132, “Employers Disclosures about Pensions and Other Postretirement Benefits.” The revision relates to employers’ disclosures about pension plans and other postretirement benefit plans. It does not alter the measurement or recognition provisions of the original SFAS No. 132. It requires additional disclosures regarding assets, obligations, cash flows and net periodic benefit costs of pension plans and other defined benefit postretirement plans. Excluding certain disclosure requirements, the revised Statement is effective for financial statements with fiscal years ended after December 15, 2003. Interim period disclosures are effective for interim periods beginning after December 15, 2003.

 

In December 2003, the FASB issued a revision to Interpretation No. 46, “Consolidation of Variable Interest Entities.” This Interpretation defines when a business enterprise must consolidate a variable interest entity. The Interpretation provisions are effective for variable interest entities commonly referred to as special-purpose entities for periods ending after March 15, 2004. The Company does not have any material unconsolidated variable interest entities as of January 31, 2004 that would require consolidation. Adoption of the subsequent provisions of the Interpretation is not expected to have a material impact on the Company’s financial position or results of operations.

 

NOTE 3 — INVENTORIES

 

Inventories are summarized as follows (Dollars in thousands):

 

		January 31, 2004				October 31, 2003
Finished goods		$	56,010			$	44,894
Raw materials and work-in-process			146,004				153,482
			202,014				198,376
Reduction to state inventories on last-in, first-out basis			(31,719	)			(31,219	)
		$	170,295			$	167,157

 

NOTE 4 — NET ASSETS HELD FOR SALE

 

Net assets held for sale represent land, buildings and land improvements less accumulated depreciation for locations that have been closed. As of January 31, 2004, there were nine 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 sales within the upcoming year.

 

NOTE 5 — GOODWILL AND OTHER INTANGIBLE ASSETS

 

The Company periodically reviews goodwill and indefinite-lived intangible assets for impairment as required by SFAS No. 142, “Goodwill and Other Intangible Assets.” The Company has performed the required impairment tests and has concluded that no impairment exists at this time.

 

Changes to the carrying amount of goodwill for the three-month period ended January 31, 2004 are as follows (Dollars in thousands):

 

		Industrial Packaging & Services				Paper, Packaging & Services			Total
Balance at October 31, 2003		$	220,619			$	31,690		$	252,309
Goodwill acquired			8				663			671
Currency translation			(1,543	)			—			(1,543	)
Balance at January 31, 2004		$	219,084			$	32,353		$	251,437

 

The goodwill acquired relates to refinements to the allocation of the investment in CorrChoice, Inc. in the Paper, Packaging & Services segment and the fair value of net assets acquired for a small steel drum company in Europe in the Industrial Packaging & Services segment.  

All other intangible assets for the periods presented, except for $3.4 million, net, related to the Tri-Sure Trademark, are subject to amortization and are being amortized using the straight-line method over periods that range from two to 20 years. The detail of other intangible assets by class as of January 31, 2004 and October 31, 2003 are as follows (Dollars in thousands):

 

		Gross Intangible Assets			Accumulated Amortization			Net Intangible Assets
January 31, 2004:
Trademarks and patents		$	18,077		$	5,017		$	13,060
Non-compete agreements			9,525			6,385			3,140
Customer relationships			6,582			139			6,443
Other			10,417			3,252			7,165
Total		$	44,601		$	14,793		$	29,808
October 31, 2003:
Trademarks and patents		$	18,077		$	4,675		$	13,402
Non-compete agreements			9,525			5,985			3,540
Customer relationships			6,582			47			6,535
Other			10,417			3,240			7,177
Total		$	44,601		$	13,947		$	30,654

 

During the first three months of 2004, there were no significant acquisitions of other intangible assets. Amortization expense for the three months ended January 31, 2004 and 2003 was $0.8 million. Amortization expense for the next five years is expected to be $4.0 million in 2004, $3.6 million in 2005, $2.9 million in 2006, $2.5 million in 2007 and $2.4 million in 2008.

 

In accordance with the transition provisions of SFAS No. 141, “Business Combinations,” the Company recorded a $4.8 million gain as a cumulative effect of change in accounting principle for its remaining unamortized negative goodwill upon the adoption of SFAS No. 142 in the first quarter of 2003.

 

NOTE 6 — INVESTMENT IN AFFILIATES

 

The Company has investments in Socer-Embalagens, Lda. (25.00%) and Balmer Lawrie-Van Leer (40.06%) that are accounted for under the equity method. The Company’s share of earnings for these affiliates is included in income as earned.

 

The summarized unaudited financial information below represents the combined results of those entities accounted for by the equity method (Dollars in thousands):

 

		Three months ended January 31,
		2004			2003
Net sales		$	3,931		$	3,359
Gross profit		$	877		$	750
Net income		$	178		$	100

 

NOTE 7 — RESTRUCTURING CHARGES

 

During 2003, the Company initiated a performance improvement plan, which is expected to enhance long-term organic sales growth and productivity and achieve permanent cost reductions. As a result, the Company incurred restructuring charges of $60.7 million in 2003 and incurred $15.3 million during the first three months of 2004. The Company anticipates incurring additional restructuring charges of approximately $30 million to $35 million during the remainder of 2004.

 

As part of the performance improvement plan, the Company closed three company-owned plants (two in the Industrial Packaging & Services segment and one in the Paper, Packaging & Services segment) during the three months ended January 31, 2004. All of the plants are located in North America. In addition, administrative staff reductions have continued throughout the world. As a result of the performance improvement plan, during the first three months of 2004, the Company recognized pre-tax restructuring charges of $15.3 million, consisting of $7.0 million in employee separation costs, $2.2 million in asset impairments and $6.1 million in other costs. The asset impairment charges, which relate to the write-down to fair value of buildings and equipment, are based on recent buy offers, market comparables and/or data obtained from the Company’s commercial real estate broker. A total of approximately 787 employees have been terminated in connection with the performance improvement plan, 180 of which were terminated during the three months ended January 31, 2004. For each of the Company’s business segments, amounts incurred in the first quarter of 2004, the cumulative amounts incurred as of January 31, 2004 and total costs incurred in 2003 and expected to be incurred in 2004 in connection with the performance improvement plan are as follows (Dollars in thousands):

 

		Amounts Incurred in the Current Period			Cumulative Amounts Incurred to Date			Total Amounts Expected to be Incurred
Industrial Packaging & Services:
Employee separation costs		$	6,381		$	35,173		$	48,767
Asset impairments			1,161			8,097			13,664
Other costs			4,481			16,676			26,913
			12,023			59,946			89,344
Paper, Packaging & Services:
Employee separation costs			573			6,372			6,779
Asset impairments			1,016			4,262			5,319
Other costs			1,580			5,004			3,841
			3,169			15,638			15,939
Timber:
Employee separation costs			2			148			148
Asset impairments			—			36			36
Other costs			65			233			233
			67			417			417
Total		$	15,259		$	76,001		$	105,700

 

Following is a reconciliation of the beginning and ending restructuring reserve balances for the three-month period ended January 31, 2004 (Dollars in thousands):

 

 

		Balance at October 31, 2003			Costs Incurred and Charged to Expense			Costs Paid or Otherwise Settled				Balance at January 31, 2004
Cash charges:
Employee separation costs		$	13,289		$	6,956		$	(6,227	)		$	14,018
Other costs			2,482			6,126			(3,242	)			5,366
			15,771			13,082			(9,469	)			19,384
Non-cash charges:
Asset impairments			—			2,177			(2,177	)			—
Total		$	15,771		$	15,259		$	(11,646	)		$	19,384

 

NOTE 8 — LONG-TERM DEBT

 

Long-term debt is summarized as follows (Dollars in thousands):

 

		January 31, 2004				October 31, 2003
$550 million Amended and Restated Senior Secured Credit Agreement		$	313,021			$	308,783
8 7/8% Senior Subordinated Notes			254,673				251,380
Trade accounts receivable credit facility			72,438				85,406
Other long-term debt			840				498
			640,972				646,067
Current portion			(3,000	)			(3,000	)
		$	637,972			$	643,067

 

$550 million Amended and Restated Senior Secured Credit Agreement

 

On August 23, 2002, the Company and certain of its non-United States subsidiaries entered into a $550 million Amended and Restated Senior Secured Credit Agreement with a syndicate of lenders. The Amended and Restated Senior Secured Credit Agreement originally provided for a $300 million term loan and a $250 million revolving multicurrency credit facility. The revolving multicurrency credit facility is available for working capital and general corporate purposes, and has been permanently reduced to $240 million. The term loan periodically reduces through its maturity date of August 23, 2009 and the revolving multicurrency credit facility matures on February 28, 2006.

 

On February 6, 2004, the Company amended its term loan under the Amended and Restated Senior Secured Credit Agreement. As of January 31, 2004, the original $300 million term loan had an outstanding balance of $226 million. As a result of the amendment, the term loan was increased to $250 million and the applicable margin was lowered by 50 basis points while maintaining the existing maturity schedule. The incremental borrowings under the term loan were used to reduce borrowings under the revolving multicurrency credit facility.  

8 7/8% Senior Subordinated Notes

 

On July 31, 2002, the Company issued Senior Subordinated Notes in the aggregate principal amount of $250 million, receiving net proceeds of approximately $248 million before expenses. At January 31, 2004, the outstanding balance of $254.7 million included gains on fair value hedges the Company has in place to hedge interest rate risk. Interest on the Senior Subordinated Notes is payable semi-annually at the annual rate of 8.875%. The Senior Subordinated Notes do not have required principal payments prior to maturity on August 1, 2012. However, the Senior Subordinated Notes are redeemable at the option of the Company beginning August 1, 2007, at the redemption prices set forth below (expressed as percentages of principal amount), plus accrued interest, if any, to the redemption date:

 

Year		Redemption Price
2007		104.438	%
2008		102.958	%
2009		101.479	%
2010 and thereafter		100.000	%

 

In addition, prior to August 1, 2007, the Company may redeem the Senior Subordinated Notes by paying a specified “make-whole” premium.

 

A description of the guarantors of the Senior Subordinated Notes by the Company’s United States subsidiaries is included in Note 15.

 

Trade Accounts Receivable Credit Facility

 

On October 31, 2003, the Company entered into a five-year, up to $120 million credit facility with an affiliate of a bank in connection with the securitization of certain of the Company’s trade accounts receivable. The credit facility is secured by certain of the Company’s trade accounts receivable and bears interest at a variable rate based on the London InterBank Offered Rate (“LIBOR”) plus a margin or other agreed upon rate (1.40% interest rate as of January 31, 2004). The Company also pays a commitment fee. The Company can terminate this facility at any time upon 60 days prior written notice. In connection with this transaction, the Company established Greif Receivables Funding LLC, which is included in the Company’s consolidated financial statements. This entity purchases and services the Company’s trade accounts receivable that are subject to this credit facility.

 

NOTE 9 — FINANCIAL INSTRUMENTS

 

The Company had interest rate swap agreements with an aggregate notional amount of $355 million at January 31, 2004 with various maturities through 2012. Under certain of these agreements, the Company receives interest quarterly from the counterparties equal to the LIBOR rate and pays interest at a weighted average rate of 5.6% over the life of the contracts. The Company is also party to agreements in which the Company receives interest semi-annually from the counterparty equal to a fixed rate of 8.875% and pays interest based on the LIBOR rate plus a spread. At January 31, 2004, a net liability for the loss on interest rate swap contracts, which represented their fair values at that time, in the amount of $15.6 million ($10.8 million net of tax) was recorded.

 

At January 31, 2004, the Company had outstanding foreign currency forward contracts in the notional amount of $41.0 million. The fair value of these contracts at January 31, 2004 resulted in a loss of $0.1 million recorded in the consolidated statement of operations. The purpose of these contracts is to hedge short-term intercompany loan balances with foreign businesses.

 

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.

 

The fair values of all derivative financial instruments are estimated based on current settlement prices of comparable contracts obtained from dealer quotes. The values represent the estimated amounts the Company would pay or receive to terminate the agreements at the reporting date.

 

NOTE 10 — 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 ½ cent per share per year. Further distribution in any year must be made in proportion of 1 cent a share for Class A Common Stock to 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. 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, 2004:
Class A Common Stock		32,000,000		21,140,960		10,748,105		10,392,855
Class B Common Stock		17,280,000		17,280,000		11,661,939		5,618,061
October 31, 2003:
Class A Common Stock		32,000,000		21,140,960		10,573,346		10,567,614
Class B Common Stock		17,280,000		17,280,000		11,662,003		5,617,997

 

NOTE 11 — DIVIDENDS PER SHARE

 

The following dividends per share were paid during the periods indicated:

 

		Three months ended January 31,
		2004			2003
Class A Common Stock		$	0.14		$	0.14
Class B Common Stock		$	0.20		$	0.20

 

NOTE 12 — CALCULATION OF EARNINGS (LOSS) PER SHARE

 

The Company has two classes of common stock and, as such, applies the “two-class method” of computing earnings (loss) per share as prescribed in SFAS No. 128, “Earnings Per Share.” In accordance with the Statement, earnings (losses) 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 (losses) 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 (loss) per share:

 

		Three months ended January 31,
		2004		2003
Class A Common Stock:
Basic shares		10,620,133		10,562,640
Assumed conversion of stock options		237,716		—
Diluted shares		10,857,849		10,562,640
Class B Common Stock:
Basic and diluted shares		11,661,995		11,754,661

 

There were 8,000 stock options that were antidilutive for the three-month period ended January 31, 2004 (1,712,458 for the three-month period ended January 31, 2003).

 

NOTE 13 — COMPREHENSIVE INCOME (LOSS)

 

Comprehensive income (loss) 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 (loss), net of tax, are as follows (Dollars in thousands):

 

		Three months ended January 31,
		2004				2003
Net income (loss)		$	(3,366	)		$	4,931
Other comprehensive income (loss):
Foreign currency translation adjustment			(1,776	)			(2,245	)
Change in market value of interest rate derivatives, net of tax			385				140
Minimum pension liability adjustment, net of tax			(497	)			—
Comprehensive income (loss)		$	(5,254	)		$	2,826

 

NOTE 14 — BUSINESS SEGMENT INFORMATION

 

The Company operates in three business segments: Industrial Packaging & Services; Paper, Packaging & Services; and Timber.

 

The Company’s reportable segments are strategic business units that offer different products. The accounting policies of the reportable segments are the same as those described in the “Description of Business and Summary of Significant Accounting Policies” note (see Note 1) in the 2003 Form 10-K, except that the Company accounts for inventories on a first-in, first-out basis at the segment level compared to a last-in, first-out basis at the consolidated level for most locations in the United States.

 

The following segment information is presented for the periods indicated (Dollars in thousands):

 

		Three months ended January 31,
		2004			2003
Net sales:
Industrial Packaging & Services		$	337,391		$	303,148
Paper, Packaging & Services			125,294			124,680
Timber			6,175			6,850
Total net sales		$	468,860		$	434,678
Operating profit:
Operating profit before restructuring charges and timberland gains:
Industrial Packaging & Services		$	8,851		$	3,515
Paper, Packaging & Services			5,353			7,891
Timber			4,396			4,837
Operating profit before restructuring charges and timberland gains			18,600			16,243
Restructuring charges:
Industrial Packaging & Services			12,023			1,165
Paper, Packaging & Services			3,169			374
Timber			67			—
Total restructuring charges			15,259			1,539
Timberland gains:
Timber			3,934			396
Total		$	7,275		$	15,100

 

		Three months ended January 31,
		2004			2003
Depreciation, depletion and amortization expense:
Industrial Packaging & Services		$	17,058		$	14,854
Paper, Packaging & Services			8,825			8,847
Timber			827			400
Total depreciation, depletion and amortization expense		$	26,710		$	24,101
		January 31, 2004			October 31, 2003
Assets:
Industrial Packaging & Services		$	1,128,756		$	1,153,939
Paper, Packaging & Services			308,895			341,305
Timber			127,262			123,582
Total segment			1,564,913			1,618,826
Corporate and other			226,815			212,385
Total assets		$	1,791,728		$	1,831,211
The following table presents net sales to external customers by geographic area (Dollars in thousands):
		Three months ended January 31,
		2004			2003
Net sales:
North America		$	268,024		$	275,057
Europe			132,946			107,321
Other			67,890			52,300
Total net sales		$	468,860		$	434,678
The following table presents total assets by geographic area (Dollars in thousands):
		January 31, 2004			October 31, 2003
Assets:
North America		$	1,201,106		$	1,253,983
Europe			402,435			389,171
Other			188,187			188,057
Total assets		$	1,791,728		$	1,831,211

 

NOTE	15 — SUMMARIZED CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

 

The Senior Subordinated Notes, more fully described in Note 8 – Long-Term Debt, are fully guaranteed, jointly and severally, by the Company’s United States subsidiaries (“Guarantor Subsidiaries”). The Company’s non-United States subsidiaries are not guaranteeing the Senior Subordinated Notes (“Non-Guarantor Subsidiaries”). Presented below are summarized condensed consolidating financial statements of Greif, Inc. (the “Parent”), which includes certain of the Company’s operating units, the Guarantor Subsidiaries, the Non-Guarantor Subsidiaries and the Company on a consolidated basis.  

These summarized condensed consolidating financial statements are prepared using the equity method. Separate financial statements for the Guarantor Subsidiaries are not presented based on management’s determination that they do not provide additional information that is material to investors.

 

Condensed Consolidating Statement of Operations

For the three months ended January 31, 2004

 

 

		Parent				Guarantor Subsidiaries			Non-Guarantor Subsidiaries				Eliminations				Consolidated
Net sales		$	153,790			$	131,158		$	239,754			$	(55,842	)		$	468,860
Cost of products sold			135,688				112,556			207,008				(55,842	)			399,410
Gross profit			18,102				18,602			32,746				—				69,450
Selling, general and administrative expenses			24,959				3,800			22,266				—				51,025
Restructuring charges			3,208				9,408			2,643				—				15,259
Gain on sale of assets			—				4,019			90				—				4,109
Operating profit (loss)			(10,065	)			9,413			7,927				—				7,275
Interest expense, net			10,172				1,064			1,011				—				12,247
Other income (expense), net (1)			(8,889	)			4,879			4,232				—				222
Income (loss) before income tax expense (benefit) and equity in earnings of affiliates and minority interests			(29,126	)			13,228			11,148				—				(4,750	)
Income tax expense (benefit)			(8,971	)			4,074			3,434				—				(1,463	)
Equity in earnings of affiliates and minority interests			16,789				—			(79	)			(16,789	)			(79	)
Net income (loss)		$	(3,366	)		$	9,154		$	7,635			$	(16,789	)		$	(3,366	)

 

Condensed Consolidating Statement of Operations

For the three months ended January 31, 2003

 

		Parent				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Eliminations				Consolidated
Net sales		$	168,626			$	124,153			$	194,814			$	(52,915	)		$	434,678
Cost of products sold			143,635				104,295				163,934				(52,915	)			358,949
Gross profit			24,991				19,858				30,880				—				75,729
Selling, general and administrative expenses			23,089				12,434				23,978				—				59,501
Restructuring charges			1,123				—				416				—				1,539
Gain (loss) on sale of assets			12				450				(51	)			—				411
Operating profit			791				7,874				6,435				—				15,100
Interest expense (income), net			12,477				(348	)			1,425				—				13,554
Other income (expense), net (1)			(10,091	)			11,146				(831	)			—				224
Income (loss) before income tax expense (benefit) and equity in earnings of affiliates and minority interests			(21,777	)			19,368				4,179				—				1,770
Income tax expense (benefit)			(7,841	)			6,902				1,505				—				566
Equity in earnings of affiliates and minority interests			14,045				(3,719	)			(10	)			(11,411	)			(1,095	)
Income (loss) before cumulative effect of change in accounting principle			109				8,747				2,664				(11,411	)			109
Cumulative effect of change in accounting principle			4,822				—				—				—				4,822
Net income (loss)		$	4,931			$	8,747			$	2,664			$	(11,411	)		$	4,931

 

(1)	Parent column other expense amount and related amounts of other income in the Guarantor and Non-Guarantor Subsidiaries column primarily relate to an intercompany royalty arrangements.

 

Condensed Consolidating Balance Sheet

January 31, 2004

 

 

		Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations				Consolidated
ASSETS
Current assets
Cash and cash equivalents		$	—		$	12,897		$	25,224		$	—			$	38,121
Trade accounts receivable			69,127			37,549			163,937			—				270,613
Inventories			17,774			48,372			104,149			—				170,295
Other current assets			27,287			11,729			33,025			—				72,041
			114,188			110,547			326,335			—				551,070
Long-term assets
Goodwill and other intangible assets			113,536			38,794			128,915			—				281,245
Other long-term assets			948,935			525,042			16,387			(1,432,774	)			57,590
			1,062,471			563,836			145,302			(1,432,774	)			338,835
Properties, plants and equipment, net			234,513			376,523			290,787			—				901,823
		$	1,411,172		$	1,050,906		$	762,424		$	(1,432,774	)		$	1,791,728
LIABILITIES & SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable		$	19,756		$	26,532		$	85,472		$	—			$	131,760
Short-term borrowings			—			—			19,734			—				19,734
Current portion of long-term debt			3,000			—			—			—				3,000
Other current liabilities			16,311			30,397			86,134			—				132,842
			39,067			56,929			191,340			—				287,336
Long-term liabilities
Long-term debt			635,450			—			2,522			—				637,972
Other long-term liabilities			168,397			53,316			74,816			—				296,529
			803,847			53,316			77,338			—				934,501
Minority interest			—			—			1,633			—				1,633
Shareholders’ equity			568,258			940,661			492,113			(1,432,774	)			568,258
		$	1,411,172		$	1,050,906		$	762,424		$	(1,432,774	)		$	1,791,728

 

Condensed Consolidating Balance Sheet

October 31, 2003

 

		Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations				Consolidated
ASSETS
Current assets
Cash and cash equivalents		$	—		$	26,421		$	23,346		$	—			$	49,767
Trade accounts receivable			84,282			49,517			161,158			—				294,957
Inventories			16,896			46,696			103,565			—				167,157
Other current assets			30,938			8,348			32,290			—				71,576
			132,116			130,982			320,359			—				583,457
Long-term assets
Goodwill and other intangible assets			113,117			38,847			130,999			—				282,963
Other long-term assets			952,972			524,372			10,651			(1,435,579	)			52,416
			1,066,089			563,219			141,650			(1,435,579	)			335,379
Properties, plants and equipment, net			243,007			383,205			286,163			—				912,375
		$	1,441,212		$	1,077,406		$	748,172		$	(1,435,579	)		$	1,831,211
LIABILITIES & SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable		$	26,776		$	39,392		$	92,165		$	—			$	158,333
Short-term borrowings			—			—			15,605			—				15,605
Current portion of long-term debt			3,000			—			—			—				3,000
Other current liabilities			20,353			22,146			92,881			—				135,380
			50,129			61,538			200,651			—				312,318
Long-term liabilities
Long-term debt			637,034			—			6,033			—				643,067
Other long-term liabilities			181,485			56,645			63,246			—				301,376
			818,519			56,645			69,279			—				944,443
Minority interest			—			—			1,886			—				1,886
Shareholders’ equity			572,564			959,223			476,356			(1,435,579	)			572,564
		$	1,441,212		$	1,077,406		$	748,172		$	(1,435,579	)		$	1,831,211

 

Condensed Consolidating Statement of Cash Flows

For the three months ended January 31, 2004

 

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		Parent				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Eliminations			Consolidated
Cash flows from operating activities:
Net cash provided by (used in) operating activities		$	2,545			$	(12,175	)		$	7,351			$	—		$	(2,279	)
Cash flows from investing activities:
Purchases of properties, plants and equipment			(1,822	)			(5,446	)			(2,503	)			—			(9,771	)
Proceeds on disposals of properties, plants and equipment			—				4,097				103				—			4,200
Net cash used in investing activities			(1,822	)			(1,349	)			(2,400	)			—			(5,571	)
Cash flows from financing activities:
Payments on long-term debt			(1,584	)			—				(6,867	)			—			(8,451	)
Proceeds from short-term borrowings			—				—				2,854				—			2,854
Dividends paid			(3,816	)			—				—				—			(3,816	)
Other, net			4,677				—				—				—			4,677
Net cash used in financing activities			(723	)			—				(4,013	)			—			(4,736	)
Effects of exchange rates on cash			—				—				940				—			940
Net increase (decrease) in cash and cash equivalents			—				(13,524	)			1,878				—			(11,646	)
Cash and cash equivalents at beginning of period			—				26,421				23,346				—			49,767
Cash and cash equivalents at end of period		$	—			$	12,897			$	25,224			$	—		$	38,121