GREIF INC (Form: 10-Q, Received: 03/10/2006 15:40:19)

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, 2006

¨	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.

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. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨

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, 2006 was as follows:


Class A Common Stock		11,545,022 shares
Class B Common Stock		11,538,645 shares

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

GREIF, INC. AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(Dollars in thousands, except per share amounts)


	Three months ended January 31,
	2006		2005
Net sales	$	582,316	$	582,564
Costs of products sold		492,644		493,838

Gross profit		89,672		88,726

Selling, general and administrative expenses		59,454		59,721
Restructuring charges		5,468		7,186
Gain on sale of assets		33,211		10,344

Operating profit		57,961		32,163

Interest expense, net		9,701		10,093
Other income, net		46		(969	)

Income before income tax expense		48,306		21,101

Income tax expense		14,954		5,965

Net income	$	33,352	$	15,136

Basic earnings per share:
Class A Common Stock	$	1.16	$	0.53
Class B Common Stock	$	1.73	$	0.79

Diluted earnings per share:
Class A Common Stock	$	1.13	$	0.52
Class B Common Stock	$	1.73	$	0.79

See accompanying Notes to Consolidated Financial Statements

GREIF, INC. AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

ASSETS


	January 31, 2006			October 31, 2005
	(Unaudited)
Current assets
Cash and cash equivalents	$	115,421		$	122,411
Trade accounts receivable, less allowance of $8,119 in 2006 and $8,475 in 2005		267,445			258,636
Inventories		177,499			170,533
Net assets held for sale		5,853			8,410
Deferred tax assets		2,152			10,088
Prepaid expenses and other current assets		67,064			55,874

		635,434			625,952

Long-term assets
Goodwill, net of amortization		248,910			263,703
Other intangible assets, net of amortization		37,119			25,015
Assets held by special purpose entities (Note 8)		50,891			50,891
Other long-term assets		53,523			55,706

		390,443			395,315

Properties, plants and equipment
Timber properties, net of depletion		171,795			139,372
Land		76,925			75,464
Buildings		318,835			317,791
Machinery and equipment		861,765			852,926
Capital projects in progress		43,750			38,208

		1,473,070			1,423,761
Accumulated depreciation		(583,487	)		(561,705	)

		889,583			862,056

	$	1,915,460		$	1,883,323

See accompanying Notes to Consolidated Financial Statements

GREIF, INC. AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

LIABILITIES AND SHAREHOLDERS’ EQUITY


	January 31, 2006			October 31, 2005
	(Unaudited)
Current liabilities
Accounts payable	$	212,198		$	234,672
Accrued payrolls and employee benefits		34,490			45,252
Restructuring reserves		10,133			10,402
Short-term borrowings		28,191			17,173
Other current liabilities		74,330			75,485

		359,342			382,984

Long-term liabilities
Long-term debt		457,442			430,400
Deferred tax liability		141,077			133,837
Pension liability		44,746			45,544
Postretirement benefit liability		49,479			47,827
Liabilities held by special purpose entities (Note 8)		43,250			43,250
Other long-term liabilities		57,797			66,897

		793,791			767,755

Minority interest		3,173			1,696

Shareholders’ equity
Common stock, without par value		51,207			49,251
Treasury stock, at cost		(78,974	)		(75,956	)
Retained earnings		820,212			793,669
Accumulated other comprehensive income (loss):
- foreign currency translation		12,061			9,117
- interest rate derivatives		(2,313	)		(2,738	)
- energy derivatives		(582	)		—
- minimum pension liability		(42,457	)		(42,455	)

		759,154			730,888

	$	1,915,460		$	1,883,323

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,	2006			2005
Cash flows from operating activities:
Net income	$	33,352		$	15,136
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization		24,673			24,982
Asset impairments		1,173			57
Deferred income taxes		13,731			3,282
Gain on disposals of properties, plants and equipment, net		(1,643	)		(10,344	)
Gain on significant sales of nonstrategic timberland (Note 8)		(31,569	)		—
Increase (decrease) in cash from changes in certain assets and liabilities:
Trade accounts receivable		(6,693	)		48,713
Inventories		(5,328	)		(17,081	)
Other current assets		(10,424	)		(1,235	)
Other long-term assets		2,760			1,836
Accounts payable		(24,070	)		(41,402	)
Accrued payroll and employee benefits		(10,979	)		(13,929	)
Restructuring reserves		(336	)		(171	)
Other current liabilities		(2,700	)		(2,340	)
Postretirement benefit liability		267			7,319
Other long-term liabilities		(369	)		(17,069	)

Net cash used in operating activities		(18,155	)		(2,246	)

Cash flows from investing activities:
Purchases of properties, plants, equipment and other assets		(48,018	)		(8,685	)
Proceeds from the sale of properties, plants, equipment and other assets		36,490			12,934

Net cash provided by (used in) in investing activities		(11,528	)		4,249

Cash flows from financing activities:
Proceeds from issuance of long-term debt		287,727			574,867
Payments on long-term debt		(264,112	)		(553,332	)
Proceeds (payments) on short-term borrowings		9,684			(3,731	)
Dividends paid		(6,811	)		(4,458	)
Acquisitions of treasury stock		(3,202	)		(5,291	)
Exercise of stock options		1,483			6,182

Net cash provided by financing activities		24,769			14,237

Effects of exchange rates on cash		(2,076	)		1,789

Net increase (decrease) in cash and cash equivalents		(6,990	)		18,029
Cash and cash equivalents at beginning of period		122,411			38,109

Cash and cash equivalents at end of period	$	115,421		$	56,138

See accompanying Notes to Consolidated Financial Statements

GREIF, INC. AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

January 31, 2006

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, 2006 and October 31, 2005 and the consolidated statements of income and cash flows for the three-month period ended January 31, 2006 and 2005 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, 2005 (the “2005 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 2006 or 2005, 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 2006 presentation.

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 March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin (“SAB”) No. 107 relating to SFAS No. 123(R). The Company has applied the provisions of SAB 107 in its adoption of SFAS No. 123(R).

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. The Company’s consolidated financial statements as of and for the first quarter of fiscal 2006 reflect the impact of SFAS No. 123(R). In accordance with the modified prospective application transition method, the Company’s consolidated financial statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS No. 123(R). Share-based compensation expense recognized under SFAS No. 123(R) for the first quarter of fiscal 2006 was $0.2 million.

Prior to the adoption of SFAS No. 123(R), the Company accounted for share-based awards to employees and directors using the intrinsic value method in accordance with Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” as interpreted by Financial Accounting Standards Board (“FASB”) Interpretation (“FIN”) No. 44, “Accounting for Certain Transactions Involving Stock Compensation, an Interpretation of APB Opinion No. 25,” as allowed under SFAS No. 123, “Accounting for Stock-Based Compensation.” Because the exercise price of the Company’s stock options granted to employees and directors equaled the fair market value of the underlying stock at the grant date, under the intrinsic value method, no share-based compensation expense was otherwise recognized in the Company’s consolidated statement of income for the first quarter of 2005. 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 and earnings per share would have been as follows (Dollars in thousands, except per share amounts):


	Three months ended January 31, 2005
Net income as reported	$	15,136
Deduct total stock option expense determined under fair value method, net of tax		273

Pro forma net income	$	14,863

Earnings per share:

Class A Common Stock:
Basic - as reported	$	0.53
Basic - pro forma	$	0.52
Diluted - as reported	$	0.52
Diluted - pro forma	$	0.51

Class B Common Stock:
Basic - as reported	$	0.79
Basic - pro forma	$	0.78
Diluted - as reported	$	0.79
Diluted - pro forma	$	0.78

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 statement of operations over the requisite service periods. Share-based compensation expense recognized in the Company’s consolidated statement of operations for the first quarter of fiscal 2006 includes compensation expense for share-based awards granted prior to, but not yet vested as of October 31, 2005, based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123. No options have been granted in fiscal 2006. For any options granted subsequent to October 31, 2005, compensation expense will