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, 2008
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” “smaller reporting company” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer x |
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, 2008 was as follows:
|
Class A Common Stock |
23,865,726 shares | |
|
Class B Common Stock |
22,941,166 shares |
PART I. FINANCIAL INFORMATION
GREIF, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(Dollars in thousands,
except per share amounts)
Net sales
Cost of products sold
Gross profit
Selling, general and administrative expenses
Restructuring charges
Timberland disposals, net
Gain on disposal of properties, plants and equipment, net
Operating profit
Interest expense, net
Other expense, net
Income before income tax expense and equity earnings and minority interests
Income tax expense
Equity earnings and minority interests
Net income
Basic earnings per share:
Class A Common Stock
Class B Common Stock
Diluted earnings per share:
Class A Common Stock
Class B Common Stock
See accompanying Notes to Consolidated Financial Statements
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GREIF, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS
Current assets
Cash and cash equivalents
Trade accounts receivable, less allowance of $11,758 in 2008 and $12,539 in 2007
Inventories
Deferred tax assets
Net assets held for sale
Prepaid expenses and other current assets
Long-term assets
Goodwill
Other intangible assets, net of amortization
Assets held by special purpose entities (Note 8)
Long-term notes receivable
Other long-term assets
Properties, plants and equipment
Timber properties, net of depletion
Land
Buildings
Machinery and equipment
Capital projects in progress
Accumulated depreciation
See accompanying Notes to Consolidated Financial Statements
2
GREIF, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable
Accrued payroll and employee benefits
Restructuring reserves
Short-term borrowings
Other current liabilities
Long-term liabilities
Long-term debt
Deferred tax liabilities
Pension liability
Postretirement benefit liabilities
Liabilities held by special purpose entities (Note 8)
Other long-term liabilities
Minority interest
Shareholders’ equity
Common stock, without par value
Treasury stock, at cost
Retained earnings
Accumulated other comprehensive income (loss):
- foreign currency translation
- interest rate derivatives
- energy and other derivatives
- minimum pension liability
See accompanying Notes to Consolidated Financial Statements
3
GREIF, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in thousands)
For the three months ended January 31,
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization
Asset impairments
Deferred income taxes
Gain on disposals of properties, plants and equipment, net
Timberland disposals, net
Equity earnings and minority interests
Increase (decrease) in cash from changes in certain assets and liabilities:
Trade accounts receivable
Inventories
Prepaid expenses and other current assets
Other long-term assets
Accounts payable
Accrued payroll and employee benefits
Restructuring reserves
Other current liabilities
Pension and postretirement benefit liability
Other, including long-term liabilities
Net cash provided by (used in) operating activities
Cash flows from investing activities:
Acquisitions of companies, net of cash acquired
Purchases of properties, plants and equipment
Purchases of timber properties
Issuance of notes receivable
Proceeds from the disposal of properties, plants, equipment and other assets
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from issuance of long-term debt
Payments on long-term debt
Proceeds from short-term borrowings
Dividends paid
Acquisitions of treasury stock and other
Exercise of stock options
Net cash provided by financing activities
Effects of exchange rates on cash
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
See accompanying Notes to Consolidated Financial Statements
4
GREIF, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2008
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, 2008 and October 31, 2007 and the consolidated statements of income
and cash flows for the three-month periods ended January 31, 2008 and 2007 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, 2007 (the “2007 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 2008 or 2007, 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 2008 presentation.
Industrial Packaging Acquisitions and Divestitures
During the first three months of 2008, the Company completed three acquisitions of industrial packaging companies for an aggregate purchase price of $69.4
million. These three acquisitions were a joint venture in the Middle East in November 2007, a South American company in November 2007, and a North American company in December 2007. These industrial packaging acquisitions are expected to 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 assets acquired were $65.7 million (including $16.0
million of accounts receivable and $8.1 million of inventory) and liabilities assumed were $35.7 million. Identifiable intangible assets, with a combined fair value that is insignificant and are yet to be allocated, 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 $39.4 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.
During 2007, the Company completed seven acquisitions of industrial packaging companies for an aggregate purchase price of $346.4 million. These seven
acquisitions were Blagden Packaging Group, two small North American companies in November 2006, one small North African company in January 2007, the acquisition of the remaining ownership of two of our minority owned plants in Russia in July 2007, a
North American joint venture in October 2007, and one small South American company in October 2007. These industrial packaging acquisitions are expected to 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 assets acquired were $158.0 million (including $61.2 million of accounts receivable and $43.5 million of inventory) and
liabilities assumed were $75.1 million. Identifiable intangible assets, with a combined fair value of $56.4 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 $207.1 million was recorded as goodwill. The final allocation of the purchase prices for three of the 2007 acquisitions 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.
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As of the completion date of the acquisitions made during the first three months of 2008, the Company had
only begun to formulate various restructuring plans at certain of the acquired businesses discussed above.
During 2007, the Company
implemented various restructuring plans in respect of the acquired businesses discussed above that were previously in the planning and evaluation stages. As of the consummation date of the acquisitions, management began to assess and formulate plans
to close certain acquired locations. 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 certain management or sales and marketing personnel, 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 $11.7 million, of which $7.0 million remains in the
restructuring reserve at January 31, 2008. 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 certain sales and marketing personnel, and the reduction of excess capacity.
Had the
transactions occurred on November 1, 2006, results of operations would not have differed materially from reported results.
During the
first quarter of 2008, the Company sold its Australian drum operations and a 51 percent interest in its Zimbabwean drum operations. The net gain from these divestitures was $29.9 million and is included in gain on disposal of properties, plants, and
equipment, net in the accompanying consolidated statement of income. The sales in 2007 from these operations were $45.0 million and the 2007 net income from these operations was $2.1 million. Had these sales occurred at the beginning of the prior
fiscal year, the October 31, 2007 earnings per share of Class A and Class B common stock would have been $2.66 and $3.98 respectively. The October 31, 2007 earnings per share as reported for Class A and Class B common stock were
$2.69 and $4.04, respectively.
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. Share-based compensation expense recognized under SFAS No. 123(R) for the first quarter of 2008 and 2007 was $0 and $0.1 million, respectively.
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. Share-based compensation expense recognized in the Company’s consolidated statements of income for the first three months of 2007
includes compensation expense for share-based awards granted prior to, but not yet vested as of November 1, 2005, based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123. No options have been granted
in 2008 and 2007. 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).
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.
Equity Earnings and Minority Interests
Equity earnings represent investments in affiliates in which the Company does
not exercise control and has a 20% 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 four affiliates, and the equity earnings of these interests were recorded in net income.
Equity earnings for the first quarter of 2008 and 2007 were $0.4 million and $0, 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 quarter of 2008 and 2007 was $0.1 million and $0.3 million, respectively.
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NOTE 2 — RECENT ACCOUNTING STANDARDS
In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value Measurements”, which
defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. The Company will be required to adopt SFAS No. 157 on November 1, 2008
(2009 for the Company). The provisions of SFAS No. 157 should be applied prospectively to the beginning of the fiscal year in which SFAS No. 157 is initially applied, except with respect to certain financial instruments as defined by SFAS
No. 157. The Company has not yet determined the effect, if any, that the adoption of SFAS No. 157 will have on its consolidated financial statements.
In February, 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities,” which allows an entity the irrevocable option to elect fair value for the initial
and subsequent measurement for certain financial assets and liabilities on a contract-by-contract basis. Subsequent changes in fair value of these financial assets and liabilities would be recognized in earnings when they occur. SFAS No. 159
further establishes certain additional disclosure requirements. SFAS No. 159 is effective for the Company’s consolidated financial statements for the fiscal year beginning on November 1, 2008 (2009 for the Company), with earlier
adoption permitted. Management is currently evaluating the impact and timing of the adoption of SFAS No. 159 on the Company’s consolidated financial statements.
On December 4, 2007, the FASB issued SFAS No. 141(R), “Business Combinations,” and SFAS No. 160, “Accounting and Reporting of Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51.” These new standards will significantly change the financial accounting and reporting of business combination transactions and noncontrolling (or minority) interests in consolidated financial
statements. The Company will be required to adopt SFAS Nos. 141(R) and 160 on November 1, 2009 (2010 for the Company). The Company has not yet determined the effect, if any, that the adoption of SFAS Nos.141(R) and 160 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 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 subsidiaries of Greif, Inc., including Greif Belgium BVBA, Greif Germany GmbH, Greif Nederland BV, Greif Spain SA and Greif UK Ltd, under discounted receivables purchase agreements and from Greif France SAS under a
factoring agreement. The RPA was amended on October 28, 2005 to include receivables originated by Greif Portugal Lda, also an indirect wholly-owned subsidiary of Greif, Inc. In addition, on October 28, 2005, Greif Italia S.P.A., also an
indirect wholly-owned subsidiary of Greif, Inc., entered into the Italian Receivables Purchase Agreement with the Italian branch of the major international bank (the “Italian RPA”) with Greif Italia S.P.A., agreeing 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.
On April 30, 2007, the RPA was amended and restated and the Italian RPA was amended by the parties thereto. As a result of the amended and restated RPA and the amended Italian RPA: (i) the maximum amount of
aggregate receivables that may be sold under the Company’s non-United States accounts receivable sales program was increased from €90.0 million to €100.0 million; (ii) Greif Packaging Belgium NV and Greif Packaging
Spain S.A., both indirect wholly owned subsidiaries of Greif, Inc., have established discounted receivables purchase agreements with the Seller; and (iii) Greif Packaging France SAS, an indirect wholly owned subsidiary of Greif, Inc., has
established a factoring agreement with the Seller. On November 15, 2007, the RPA and Italian RPA was amended to increase the maximum amount of the aggregate receivables that may be sold under the Company’s non-United States accounts
receivable sales program from €100.0 million to €115.0 million ($170.0 million at January 31, 2008).
In October
2007, Greif Singapore Pte. Ltd., an indirect wholly-owned 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 10.0 million Singapore Dollars ($7.0 million) at January 31, 2008.
The
structure of these transactions provides for a legal true sale, on a revolving basis, of the receivables transferred from the various Greif, Inc. subsidiaries to the respective major international bank. 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, 2008 and 2007, €80.8 million ($119.5 million) and €73.9 million ($95.6 million), respectively, of accounts receivable were sold under the RPA and Italian RPA. At
January 31, 2008, 4.8 million Singapore Dollars ($3.4 million) of accounts receivable were sold under the Singapore RPA.
7
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 €1.1 million ($1.6 million)
and €0.5 million ($0.6 million) for the three months ended January 31, 2008 and 2007, respectively. Expenses associated with the Singapore RPA were not material to the consolidated financial statements for the three months ended
January 31, 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
NOTE 4
— INVENTORIES
Inventories are summarized as follows (Dollars in thousands):
Finished goods
Raw materials and work-in-process
Reduction to state inventories on last-in, first-out basis
Total
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, 2008, 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 facility sales within the upcoming year.
NOTE 6 — GOODWILL AND
OTHER INTANGIBLE ASSETS
The Company annually 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, 2008 are as follows (Dollars in thousands):
Balance at October 31, 2007
Goodwill acquired
Goodwill disposals
Goodwill adjustments
Currency translation
Balance at January 31, 2008
The goodwill acquired of $39.4 million is preliminary and primarily relates to acquisition of
industrial packaging companies in North and South America and the Middle East. The goodwill disposals of $6.9 million represents the divestiture of the Australian drum operations, and the goodwill adjustments represent a net increase in goodwill of
$11.5 million primarily related to purchase price adjustments on 2007 acquisitions.
All other intangible assets for the periods presented,
except for $8.6 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, 2008 and October 31, 2007 are as follows (Dollars in thousands):
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January 31, 2008:
Trademark and patents
Non-compete agreements
Customer relationships
Other
Total
October 31, 2007:
Trademark and patents
Non-compete agreements
Customer relationships
Other
Total
During the first three months of 2008, other intangible assets increased by $1.3 million. The
increase in intangible assets is based on preliminary purchase price allocations related to the acquisition of industrial packaging companies in Europe, Asia and North America. Amortization expense for the three months ended January 31, 2008
and 2007 was $2.3 million and $3.1 million, respectively. Amortization expense for the next five years is expected to be $10.7 million in 2008, $10.6 million in 2009, $10.2 million in 2010, $9.1 million in 2011 and $7.7 million in 2012.
NOTE 7 — RESTRUCTURING CHARGES
The
focus for restructuring activities in 2008 is on integration of recent acquisitions in the Industrial Packaging (formerly known as “Industrial Packaging & Services”) segment and on alignment to market focused strategy and
implementation of the Greif Business System in the Paper Packaging (formerly known as “Paper, Packaging & Services”) 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. The
remaining restructuring charges for the above activities are anticipated to be $12.8 million for the remainder of 2008.
In 2007, the focus
for restructuring activities was on integration of acquisitions in the Industrial Packaging segment and on alignment to market-focused strategy in the Paper Packaging segment. During the first three months of 2007, the Company recorded restructuring
charges of $2.0 million, consisting of $0.7 million in employee separation costs, $0.4 million in asset impairments and $0.9 million in other costs.
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For each relevant business segment, costs incurred in 2008 are as follows (Dollars in thousands):
Industrial Packaging
Employee separation costs
Asset impairments
Professional fees
Other restructuring costs
Paper Packaging
Employee separation costs
Asset impairments
Professional fees
Other restructuring costs
Total
The following is a reconciliation of the beginning and ending restructuring reserve balances for
the three-month period ended January 31, 2008 (Dollars in thousands):
Balance at October 31, 2007
Costs incurred and charged to expense
Reserves established in the purchase price of business combinations
Costs paid or otherwise settled
Balance at January 31, 2008
NOTE 8 — SIGNIFICANT NONSTRATEGIC TIMBERLAND TRANSACTIONS AND CONSOLIDATION OF VARIABLE INTEREST
ENTITIES
On March 28, 2005, Soterra LLC (a wholly owned subsidiary) entered into two real estate purchase and sale agreements
with Plum Creek Timberlands, L.P. (“Plum Creek”) to sell approximately 56,000 acres of timberland and related assets located primarily in Florida for an aggregate sales price of approximately $90 million, subject to closing adjustments. In
connection with the closing of one of these agreements, Soterra LLC sold approximately 35,000 acres of timberland and associated assets in Florida, Georgia and Alabama for $51.0 million, resulting in a pretax gain of $42.1 million, on May 23,
2005. The purchase price was paid in the form of cash and a $50.9 million purchase note payable by an indirect subsidiary of Plum Creek (the “Purchase Note”). Soterra LLC contributed the Purchase Note to STA Timber LLC (“STA
Timber”), one of the Company’s wholly owned subsidiaries. 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 completed the second phase of its previously reported $90 million sale of timberland, timber and associated assets in the first quarter of 2006.
In this phase, the Company sold 15,300 acres of timberland holdings in Florida for $29.3 million in cash, resulting in a pre-tax gain of $27.4 million. The final phase of this transaction, approximately 5,700 acres sold for $9.7 million, occurred on
April 28, 2006 and the Company recognized additional timberland gains in its consolidated statements of income in the periods that these transactions occurred resulting in a pre-tax gain of $9.0 million.
On May 31, 2005, 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
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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. 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 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 Greif, Inc. and its other
subsidiaries, the assets of the Buyer SPE are not available to satisfy the liabilities and obligations of these entities and the liabilities of the Buyer SPE are not liabilities or obligations of these entities.
Assets of the Buyer SPE at January 31, 2008 and October 31, 2007 consist of restricted bank financial instruments of $50.9 million. STA Timber
had long-term debt of $43.3 million as of January 31, 2008 and October 31, 2007. 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, 2008 and 2007 includes interest expense on STA Timber debt of $0.6 million and interest income on Buyer SPE
NOTE 9 — DEBT
Long-term debt is summarized as follows (Dollars in thousands):
Credit Agreement
Senior Notes
Trade accounts receivable credit facility
Other long-term debt
Total
Credit Agreement
The Company and certain of its international subsidiaries, as borrowers, have entered into a Credit Agreement (the “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, 2008, $305.7 million was outstanding under the Credit Agreement. The weighted average interest rate on the Credit Agreement was 5.18 percent for the three months ended
January 31, 2008, and the interest rate was 4.26 percent at January 31, 2008 and 5.50 percent at October 31, 2007.
The
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, 2008, the Company was in compliance with these covenants.
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.
11
The fair value of the Senior Notes was $285.8 million at January 31, 2008 based on quoted market
prices. The Indenture pursuant to which the Senior Notes were issued contains certain covenants. At January 31, 2008, the Company was in compliance with these covenants.
United States Trade Accounts Receivable Credit Facility
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. 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 London InterBank Offered Rate (“LIBOR”) plus a margin or other agreed upon rate (4.07 percent interest rate at January 31, 2008 and 5.38 percent at October 31, 2007). 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 (“GRF”), which is included in the Company’s consolidated financial statements. However, because GRF
is a separate and distinct legal entity from the Company, the assets of GRF are not available to satisfy the liabilities and obligations of the Company and the liabilities of GRF are not the liabilities or obligations of the Company. This entity
purchases and services the Company’s trade accounts receivable that are subject to this credit facility. There was a total of $102.1 million and $116.0 million outstanding under the United States trade accounts receivable credit facility at
January 31, 2008 and October 31, 2007, respectively.
The United States trade accounts receivable credit facility provides that
in the event the Company breaches any of its financial covenants under the Credit Agreement, and the majority of the lenders thereunder consent to a waiver thereof, but the provider of the trade accounts receivable credit facility does 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.
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 $74.9 million, comprised of $0.4 million in long-term debt and $74.5 million in short-term borrowings, at January 31, 2008 and
outstanding debt of $49.3 million, comprised of $33.5 million in long-term debt and $15.8 million in short-term borrowings, at October 31, 2007.
Annual maturities of the Company’s long-term debt are $37.8 million in 2009, $436.6 million in 2010, $20.3 million in 2011, $20.3 million in 2012, $20.3 million in 2013 and $365.8 million after 2013.
At January 31, 2008 and October 31, 2007, the Company had deferred financing fees and debt issuance costs of $5.2 million and $6.2 million,
respectively, which are included in other long-term assets.
NOTE 10 — FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, trade accounts receivable, accounts payable, current liabilities and short-term borrowings at
January 31, 2008 and October 31, 2007 approximate their fair values because of the short-term nature of these items.
At
January 31, 2008, the Company had a note receivable from Lunival Holding BV for the amount of €23.0 million ($34.0 million at January 31, 2008), which matures in November 2008. Under the notes receivable agreement, the Company
receives interest at a fixed rate of 6.0 percent. The fair market value of the notes receivable approximates its carrying amount.
The
estimated fair value of the Company’s long-term debt was $694.0 million and $620.4 million as compared to the carrying amounts of $708.2 million and $622.7 million at January 31, 2008 and October 31, 2007, 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.
12
The Company had interest rate swap agreements with an aggregate notional amount of $180.0 million and
$230.0 million at January 31, 2008 and October 31, 2007, respectively, 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 monthly or quarterly from the counterparties equal to LIBOR and pays interest at a fixed rate (5.05 percent at January 31, 2008) over the life of the contracts.
On August 1, 2007, the Company entered into new cross-currency interest rate swaps which are designated as a hedge of a net investment in a foreign
operation. Under these new 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. A liability for the loss on these agreements of $18.7 million, representing their fair values, was recorded at January 31, 2008.
At January 31, 2008, the Company had outstanding foreign currency forward contracts in the notional amount of $80.2 million ($82.5 million at October 31, 2007). 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, 2008 resulted in a gain of $0.9 million recorded in other comprehensive income
and a loss of $0.3 million recorded in the consolidated statements of income for 2008. The fair value of similar contracts at October 31, 2007 resulted in a gain of $1.1 million recorded in other comprehensive income and a loss of $0.4 million
recorded in the consolidated statements of income for 2007.
The Company has entered into certain cash flow hedges to mitigate its exposure
to cost fluctuations in natural gas prices through October 31, 2008. The fair value of the energy hedges was in a favorable position of $0.3 million ($0.2 million net of tax) at January 31, 2008, compared to an unfavorable position of $0.3
million ($0.2 million net of tax) at October 31, 2007. 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, 2008.
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 or published market prices. The values represent the estimated amounts the Company would pay or receive to terminate the agreements at the reporting
date.
During the next nine months, the Company expects to reclassify into earnings a net gain from accumulated other comprehensive income
of approximately $0.4 million after tax at the time the underlying hedge transactions are realized.
NOTE 11 — 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 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 a half 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.
13
The following table summarizes the Company’s Class A and Class B common and treasury shares at
the specified dates:
January 31, 2008:
Class A Common Stock
Class B Common Stock
October 31, 2007:
Class A Common Stock
Class B Common Stock
All share information in the above table has been adjusted to reflect the following: On
February 26, 2007, the Company’s shareholders approved an amendment to the Company’s certificate of incorporation increasing the number of the Company’s authorized shares to 128,000,000 shares of Class A Common Stock and
69,120,000 shares of Class B Common Stock. Subsequent to the aforementioned approval, the Company’s Board of Directors authorized a 2-for-1 stock split of the Company’s Class A Common Stock and Class B Common Stock. The split was
payable on April 11, 2007 to shareholders of record on March 19, 2007. The stock split means that each holder of Class A Common Stock as of the close of business on March 19, 2007 received on April 11, 2007 one additional
share of Class A Common Stock for every share they held of Class A Common Stock and each holder of Class B Common Stock as of the close of business on March 19, 2007 received on April 11, 2007 one additional share of Class B
Common Stock for every share they held of Class B Common Stock. The day on which such shares began trading on the New York Stock Exchange reflecting the stock split was April 12, 2007.
All share information, including the number of shares and per share amounts, included in the Consolidated Financial Statements has been adjusted to
reflect the aforementioned 2-for 1 stock split.
NOTE 12 — STOCK OPTIONS
In 2001, the Company adopted the 2001 Management Equity Incentive and Compensation Plan (the “2001 Plan”). The provisions of the 2001 Plan allow
the awarding of incentive and nonqualified stock options and restricted and performance shares of Class A Common Stock to key employees. The maximum number of shares that may be issued each year is determined by a formula that takes into
consideration the total number of shares outstanding and is also subject to certain limits. In addition, the maximum number of incentive stock options that will be issued under the 2001 Plan during its term is 5,000,000 shares.
Prior to 2001, the Company had adopted a Nonstatutory Stock Option Plan (the “2000 Plan”) that provides the discretionary granting of
nonstatutory options to key employees, and an Incentive Stock Option Plan (the “Option Plan”) that provides the discretionary granting of incentive stock options to key employees and nonstatutory options for non-employees. The aggregate
number of the Company’s Class A Common Stock options that may be granted under the 2000 Plan and Option Plan may not exceed 400,000 shares and 2,000,000 shares, respectively.
Under the terms of the 2001 Plan, the 2000 Plan and the Option Plan, stock options are granted at exercise prices equal to the market value of the common
stock on the date options are granted and become fully vested two years after date of grant. Options expire 10 years after date of grant.
In 2005, the Company adopted the 2005 Outside Directors Equity Award Plan (the “2005 Directors Plan”), which provides the granting of stock options, restricted stock or stock appreciation rights to directors who are not employees
of the Company. Prior to 2005, the Directors Stock Option Plan (the “Directors Plan”) provided the granting of stock options to directors who are not employees of the Company. The aggregate number of the Company’s Class A Common
Stock options that may be granted may not exceed 200,000 shares under each of these plans. Under the terms of both plans, options are granted at exercise prices equal to the market value of the common stock on the date options are granted and become
exercisable immediately. Options expire 10 years after date of grant.
No stock options were granted during 2008 and 2007.
14
Stock option activity was as follows (Shares in thousands):
Beginning balance
Granted
Forfeited
Exercised
Ending balance
As of January 31, 2008, outstanding stock options had exercise prices and contractual lives
as follows (Options in thousands):
Range of Exercise Prices
$5 - $15
$15 - $25
$25 - $35
All outstanding options were exercisable at January 31, 2008 and October 31, 2007.
All references to the number of shares and per share amounts in the consolidated financial statements are presented on a post-split basis.
NOTE 13 — DIVIDENDS PER SHARE
The following dividends per share were paid during the periods indicated:
Class A Common Stock
Class B Common Stock
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.
15
The following is a reconciliation of the average shares used to calculate basic and diluted earnings per
share:
Class A Common Stock:
Basic shares
Assumed conversion of stock options
Diluted shares
Class B Common Stock:
Basic and diluted shares
There were no stock options that were antidilutive for the three months ended January 31,
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):
Net income
Other comprehensive income (loss):
Foreign currency translation adjustment
Changes in fair value of interest rate derivatives, net of tax
Changes in fair value of energy and other derivatives, net of tax
Minimum pension liability adjustment, net of tax
Comprehensive income
NOTE 16 — INCOME TAXES
On November 1, 2007, the Company adopted FASB Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income
Taxes.” FIN 48 is an interpretation of SFAS No. 109, “Accounting for Income Taxes,” and clarifies the accounting for uncertainty in income tax positions. FIN 48 prescribes a recognition threshold and measurement process for
recording in the financial statements uncertain tax positions taken or expected to be taken in a tax return. Additionally, FIN 48 provides guidance regarding uncertain tax positions relating to de-recognition, classification, interest and penalties,
accounting in interim periods, disclosures and transition.
The recognition and measurement guidelines of FIN 48 were applied to the
Company’s income tax positions as of the beginning of fiscal year 2008, resulting in an increase in our tax liabilities of $7.0 million with a corresponding decrease to beginning retained earnings for the cumulative effect of the change in
accounting principle. The total amount of unrecognized income tax benefits at the beginning of fiscal year 2008 was $150.5 million; of this amount $139.2 million, if recognized, would affect the Company’s effective income tax rate. The
Company has the ability to offset substantially all of the total unrecognized income tax benefits through purchase accounting items, net operating loss utilization, and deferred tax benefits for temporary differences between book and tax return
items.
Interest and penalties related to uncertain income tax positions are reflected in the Company’s income tax expense. At
January 31, 2008, interest and penalties of $13.2 million have been accrued.
The Company has estimated the reasonably possible
expected net change in unrecognized tax benefits through January 31, 2009 based on 1) anticipated positions taken in the next 12 months, 2) expected settlements or payments of uncertain tax positions, and 3) lapses of the applicable statutes of
limitations of unrecognized tax benefits. The estimated net decrease in unrecognized tax benefits for the next 12 months is approximately $5.2 million. Actual results may differ materially from this estimate.
16
The Company is subject to U.S. federal income tax as well as income tax of multiple state and foreign
jurisdictions. We have concluded all U.S. federal income tax matters and substantially all material state and foreign income tax matters through fiscal year 2003, with the exception of Brazil and The Netherlands. The Company is undergoing tax audits
that have not concluded in these two jurisdictions.
There have been no significant changes in these amounts during the quarter ended
NOTE 17 — RETIREMENT PLANS AND POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
The components of net periodic pension cost include the following (Dollars in thousands):
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost, initial net asset and net actuarial gain
Net periodic pension cost
The Company made a $2.8 million pension contribution in the three months ended January 31,
2008. Based on minimum funding requirements, $23.7 million of pension contributions are estimated for the entire 2008 fiscal year.
The
components of net periodic cost for postretirement benefits include the following (Dollars in thousands):
Service cost
Interest cost
Amortization of prior service cost and recognized actuarial gain
Net periodic cost for postretirement benefits
NOTE 18 — BUSINESS SEGMENT INFORMATION
The Company operates in three business segments: Industrial Packaging; Paper Packaging and Timber.
Operations in the Industrial Packaging segment offer a comprehensive line of products and services, including steel, fibre, and plastic drums,
intermediate bulk containers, closure systems for industrial packaging products, polycarbonate water bottles, blending and packaging services, logistics and warehousing. These products are manufactured and sold in over 45 countries throughout the
world.
Operations in the Paper Packaging segment involve the production and sale of containerboard, both semi-chemical and recycled,
corrugated sheets, corrugated containers, and multiwall bags and related services. These products are manufactured and sold in North America.
Operations in the Timber segment involve the management and sale of timber and special use properties from approximately 268,300 acres of timber properties in the southeastern United States. The Company also owns approximately 36,500 acres
of timber properties in Canada, which are not actively managed at this time. In addition, the Company sells, from time to time, timberland and special use land, which consists of surplus land, higher and better use land, and development land.
The Company’s reportable segments are strategic business units that offer different products. The accounting policies of the
reportable segments are substantially the same as those described in the “Description of Business and Summary of Significant Accounting Policies” note (see Note 1) in the 2007 Form 10-K.
17
The following segment information is presented for the periods indicated (Dollars in thousands):
Net sales:
Industrial Packaging
Paper Packaging
Timber
Total net sales
Operating profit:
Operating profit, before the impact of restructuring charges and timberland disposals, net
Industrial Packaging
Paper Packaging
Timber
Operating profit, before the impact of restructuring charges and timberland disposals, net
Restructuring charges:
Industrial Packaging
Paper Packaging
Total restructuring charges
Timberland disposals, net - Timber
Total Operating profit
Depreciation, depletion and amortization expense:
Industrial Packaging
Paper Packaging
Timber
Total depreciation, depletion and amortization expense
Assets:
Industrial Packaging
Paper Packaging
Timber
Total segments
Corporate and other
Total assets
The following table presents net sales to external customers by geographic area (Dollars in thousands):
Net sales:
North America
Europe
Other
Total net sales
18
The following table presents total assets by geographic area (Dollars in thousands):
Assets:
North America
Europe
Other
GENERAL
The terms “Greif,” “our
company,” “we,” “us” and “our” as used in this discussion refer to Greif, Inc. and its subsidiaries. Our fiscal year begins on November 1 and ends on October 31 of the following year. Any references in
this Form 10-Q to the years 2008 or 2007, or to any quarter of those years, relates to the fiscal year or quarter, as the case may be, ending in that year.
The discussion and analysis presented below relates to the material changes in financial condition and results of operations for our consolidated balance sheets as of January 31, 2008 and October 31, 2007,
and for the consolidated statements of income for the three-month periods ended January 31, 2008 and 2007. This discussion and analysis should be read in conjunction with the consolidated financial statements that appear elsewhere in this Form
10-Q and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the fiscal year ended October 31, 2007 (the “2007 Form 10-K”). Readers
are encouraged to review the entire 2007 Form 10-K, as it includes information regarding Greif not discussed in this Form 10-Q. This information will assist in your understanding of the discussion of our current period financial results.
All statements, other than statements of historical facts, included in this Form 10-Q, including without limitation, statements regarding our future
financial position, business strategy, budgets, projected costs, goals and plans and objectives of management for future operations, are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “project,”
“believe,” “continue” or “target” or the negative thereof or variations thereon or similar terminology. All forward-looking statements made in this Form 10-Q are based on information currently available to our
management. Although we believe that the expectations reflected in forward-looking statements have a reasonable basis, we can give no assurance that these expectations will prove to be correct. Forward-looking statements are subject to risks and
uncertainties that could cause actual events or results to differ materially from those expressed in or implied by the statements. For a discussion of the most significant risks and uncertainties that could cause Greif’s actual results to
differ materially from those projected, see “Risk Factors” in Item 1A of the 2007 Form 10-K, updated by Part II, Item 1A of this Form 10-Q. All forward-looking statements made in this Form 10-Q are expressly qualified in
their entirety by reference to such risk factors. Except to the limited extent required by applicable law, Greif undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or
otherwise.
OVERVIEW
We operate in
three business segments: Industrial Packaging (formerly known as “Industrial Packaging & Services”); Paper Packaging (formerly known as “Paper, Packaging & Services”); and Timber.
We are a leading global provider of industrial packaging products such as steel, fibre and plastic drums, intermediate bulk containers, closure systems
for industrial packaging products, and polycarbonate water bottles, which are complemented with a variety of value-added services, including blending, packaging, logistics and warehousing. We seek to provide complete packaging solutions to our
customers by offering a comprehensive range of products and services on a global basis. We sell our products to customers in industries such as chemicals, paint and pigments, food and beverage, petroleum, industrial coatings, agricultural,
pharmaceutical and mineral, among others. In addition, we provide a variety of blending and packaging services, logistics and warehousing to customers in many of these same industries in North America.
We sell our containerboard, corrugated sheets, corrugated containers and multiwall bags to customers in North America in industries such as packaging,
automotive, food and building products. Our corrugated container products are used to ship such diverse products as home appliances, small machinery, grocery products, building products, automotive components, books and furniture, as well as
numerous other applications. Our full line of multiwall bag products is used to ship a wide range of industrial and consumer products, such as seed, fertilizers, chemicals, concrete, flour, sugar, feed, pet foods, popcorn, charcoal and salt,
primarily for the agricultural, chemical, building products and food industries.
19
As of January 31, 2008, we owned approximately 268,300 acres of timber properties in the
southeastern United States, which is actively managed, and approximately 36,500 acres of timberland in Canada. Our timber management is focused on the active harvesting and regeneration of our timber properties to achieve sustainable long-term
yields. While timber sales are subject to fluctuations, we seek to maintain a consistent cutting schedule, within the limits of available merchantable acreage of timber, market and weather conditions. We also sell, from time to time, timberland and
special use land, which consists of surplus land, higher and better use (“HBU”) land, and development land.
In 2003, we began a
transformation to become a leaner, more market-focused/performance-driven company – what we call the “Greif Business System.” We believe the Greif Business System has and will continue to generate productivity improvements and achieve
permanent cost reductions. The Greif Business System continues to focus on opportunities such as improved labor productivity, material yield and other manufacturing efficiencies, along with further plant consolidations. In addition, as part of the
Greif Business System, we have launched a strategic sourcing initiative to more effectively leverage our global spending and lay the foundation for a world-class sourcing and supply chain capability.
CRITICAL ACCOUNTING POLICIES
The discussion and
analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The
preparation of these consolidated financial statements, in accordance with these principles, require us to make estimates and assumptions that affect the reported amount of assets and liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities at the date of our consolidated financial statements.
A summary of our significant accounting policies
is included in Note 1 to the Notes to Consolidated Financial Statements included in the 2007 Form 10-K. We believe that the consistent application of these policies enables us to provide readers of the consolidated financial statements with useful
and reliable information about our results of operations and financial condition. The following are the accounting policies that we believe are most important to the portrayal of our results of operations and financial condition and require our most
difficult, subjective or complex judgments.
Allowance for Accounts Receivable.
We evaluate the collectibility of our
accounts receivable based on a combination of factors. In circumstances where we are aware of a specific customer’s inability to meet its financial obligations to us, we record a specific allowance for bad debts against amounts due to reduce
the net recognized receivable to the amount we reasonably believe will be collected. In addition, we recognize allowances for bad debts based on the length of time receivables are past due with allowance percentages, based on our historical
experiences, applied on a graduated scale relative to the age of the receivable amounts. If circumstances change (e.g., higher than expected bad debt experience or an unexpected material adverse change in a major customer’s ability to meet its
financial obligations to us), our estimates of the recoverability of amounts due to us could change by a material amount.
20
Inventory Reserves.
Reserves for slow moving and obsolete inventories are provided based on
historical experience and product demand. We continuously evaluate the adequacy of these reserves and make adjustments to these reserves as required.
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. We record net assets held for sale in
accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” at the lower of carrying value or fair value less cost to sell. Fair value is
based on the estimated proceeds from the sale of the facility utilizing recent purchase offers, market comparables and/or data obtained from our commercial real estate broker. Our estimate as to fair value is regularly reviewed and subject to
changes in the commercial real estate markets and our continuing evaluation as to the facility’s acceptable sale price.
Properties, Plants and Equipment.
Depreciation on properties, plants and equipment is provided on the straight-line method over the estimated useful lives of our assets.
We own timber properties in the southeastern United States and in Canada. With respect to our United States timber properties, which consisted of
approximately 268,300 acres at January 31, 2008, depletion expense is computed on the basis of cost and the estimated recoverable timber acquired. Our land costs are maintained by tract. Merchantable timber costs are maintained by five product
classes, pine sawtimber, pine chip-n-saw, pine pulpwood, hardwood sawtimber and hardwood pulpwood, within a “depletion block,” with each depletion block based upon a geographic district or subdistrict. Currently, we have 11 depletion
blocks. These same depletion blocks are used for pre-merchantable timber costs. Each year, we estimate the volume of our merchantable timber for the five product classes by each depletion block. These estimates are based on the current state in the
growth cycle and not on quantities to be available in future years. Our estimates do not include costs to be incurred in the future. We then project these volumes to the end of the year. Upon acquisition of a new timberland tract, we record separate
amounts for land, merchantable timber and pre-merchantable timber allocated as a percentage of the values being purchased. These acquisition volumes and costs acquired during the year are added to the totals for each product class within the
appropriate depletion block(s). The total of the beginning, one-year growth and acquisition volumes are divided by the total undepleted historical cost to arrive at a depletion rate, which is then used for the current year. As timber is sold, we
multiply the volumes sold by the depletion rate for the current year to arrive at the depletion cost. Our Canadian timberland, which consisted of approximately 36,500 acres at January 31, 2008, did not have any depletion expense since it is not
actively managed at this time.
We believe that the lives and methods of determining depreciation and depletion are reasonable; however,
using other lives and methods could provide materially different results.
Restructuring Reserves.
Restructuring reserves are
determined in accordance with appropriate accounting guidance, including SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” and Staff Accounting Bulletin No. 100, “Restructuring and Impairment
Charges,” depending upon the facts and circumstances surrounding the situation. Restructuring reserves are further discussed in Note 7 to the Notes to Consolidated Financial Statements included in this Form 10-Q.
Pension and Postretirement Benefits.
Our actuaries using assumptions about the discount rate, expected return on plan assets, rate of
compensation increase and health care cost trend rates determine pension and postretirement benefit expenses. Further discussion of our pension and postretirement benefit plans and related assumptions is contained in Note 17 to the Notes to
Consolidated Financial Statement included in this Form 10-Q. The results would be different using other assumptions.
Income
Taxes.
We record a tax provision for the anticipated tax consequences of our reported results of operations. In accordance with SFAS No. 109, “
Accounting for Income Taxes
,” the provision for income taxes is
computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities,
and for operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets are expected to be realized
or settled. We record a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized. On November 1, 2007, we adopted Financial Interpretation No. (“FIN”) 48, “
Accounting
for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109
.” Further information may be found in Note 16, to the Notes to Condensed Consolidated Financial Statements included in this Form 10-Q.
We believe it is more likely than not that forecasted income, including income that may be generated as a result of certain tax planning strategies,
together with the tax effects of the deferred tax liabilities, will be sufficient to fully recover the remaining deferred tax assets. In the event that all or part of the net deferred tax assets are determined not to be realizable in the future, an
adjustment to the valuation allowance would be charged either to earnings or to goodwill, whichever is appropriate, in the period such determination is made. In addition, the calculation of tax liabilities involves significant judgment in estimating
the impact of uncertainties in the application of FIN 48 and other complex tax laws. Resolution of these uncertainties in a manner inconsistent with our expectations could have a material impact on our financial condition and operating results.
21
Environmental Cleanup Costs.
We expense environmental costs related to existing
conditions caused by past or current operations and from which no current or future benefit is discernable. Expenditures that extend the life of the related property, or mitigate or prevent future environmental contamination, are capitalized.
Environmental expenses were insignificant for the three months ended January 31, 2008 and 2007. Environmental cash expenditures were
$0.4 million, and insignificant for the three months ended January 31, 2008 and 2007, respectively. Our reserves for environmental liabilities at January 31, 2008 amounted to $40.5 million, which included a reserve of $22.2 million related
to our blending facility in Chicago, Illinois (acquired in September 2006) and $10.6 million related to our Blagden facilities (acquired in November 2006). The remaining reserves were for asserted and unasserted environmental litigation, claims
and/or assessments at manufacturing sites and other locations where we believe it is probable the outcome of such matters will be unfavorable to us, but the environmental exposure at any one of those sites was not individually material. Reserves for
large environmental exposures are principally basedon environmental studies and cost estimates provided by third parties, but also take into account management estimates. Reserves for less significant environmental exposures are principally based on
management estimates.
We anticipate that expenditures for remediation costs at most of the sites will be made over an extended period of
time. Given the inherent uncertainties in evaluating environmental exposures, actual costs may vary from those estimated at January 31, 2008. Our exposure to adverse developments with respect to any individual site is not expected to be
material. Although environmental remediation could have a material effect on results of operations if a series of adverse developments occur in a particular quarter or fiscal year, we believe that the chance of a series of adverse developments
occurring in the same quarter or fiscal year is remote. Future information and developments will require us to continually reassess the expected impact of these environmental matters.
Self-Insurance
. We are self-insured for certain of the claims made under our employee medical and dental insurance programs. We had
recorded liabilities totaling $3.5 million and $3.1 million of estimated costs related to outstanding claims at January 31, 2008 and October 31, 2007, respectively. These costs include an estimate for expected settlements on pending
claims, administrative fees and an estimate for claims incurred but not reported. These estimates are based on our assessment of outstanding claims, historical analysis and current payment trends. We record an estimate for the claims incurred but
not reported using an estimated lag period based upon historical information. This lag period assumption has been consistently applied for the periods presented. If the lag period were hypothetically adjusted by a period equal to a half month, the
impact on earnings would be approximately $0.9 million. However, we believe the liabilities recorded are adequate based upon current facts and circumstances.
We have certain deductibles applied to various insurance policies including general liability, product, auto and workers’ compensation. Deductible liabilities are insured primarily through our captive insurance
subsidiary. We recorded liabilities totaling $22.4 million and $21.9 million for anticipated costs related to general liability, product, auto and workers’ compensation at January 31, 2008 and October 31, 2007, respectively. These
costs include an estimate for expected settlements on pending claims, defense costs and an estimate for claims incurred but not reported. These estimates are based on our assessment of outstanding claims, historical analysis, actuarial information
and current payment trends.
Contingencies
. Various lawsuits, claims and proceedings have been or may be instituted or
asserted against us, including those pertaining to environmental, product liability, and safety and health matters. We are continually consulting legal counsel and evaluating requirements to reserve for contingencies in accordance with SFAS
No. 5, “Accounting for Contingencies.” While the amounts claimed may be substantial, the ultimate liability cannot currently be determined because of the considerable uncertainties that exist. Based on the facts currently available,
we believe the disposition of matters that are pending will not have a material effect on the consolidated financial statements.
Goodwill, Other Intangible Assets and Other Long-Lived Assets.
Goodwill and indefinite-lived intangible assets are no longer amortized, but instead are periodically reviewed for impairment as required by SFAS
No. 142, “Goodwill and Other Intangible Assets.” The costs of acquired intangible assets determined to have definite lives are amortized on a straight-line basis over their estimated economic lives of five to 20 years. Our policy is
to periodically review other intangible assets subject to amortization and other long-lived assets based upon the evaluation of such factors as the occurrence of a significant adverse event or change in the environment in which the business
operates, or if the expected future net cash flows (undiscounted and without interest) would become less than the carrying amount of the asset. An impairment loss would be recorded in the period such determination is made based on the fair value of
the related assets.
22
Other Items.
Other items that could have a significant impact on the financial
statements include the risks and uncertainties listed in Part I, Item 1A—Risk Factors, of the 2007 Form 10-K, as updated by Part II, Item 1A of this Form 10-Q. Actual results could differ materially using different estimates and
assumptions, or if conditions are significantly different in the future.
RESULTS OF OPERATIONS
The following comparative information is presented for the three-month periods ended January 31, 2008 and 2007. Historically, revenues or earnings
may or may not be representative of future operating results due to various economic and other factors.
The financial measure of operating
profit before the impact of restructuring charges and timberland disposals, net is used throughout the following discussion of our results of operations (except with respect to the segment discussions for Industrial Packaging and Paper
Packaging, where timberland disposals, net are not applicable). Operating profit, before the impact of restructuring charges and timberland disposals, net is equal to operating profit plus restructuring charges less timberland gains plus timberland
losses. We use operating profit, before the impact of restructuring charges and timberland disposals, net, because we believe that this measure provides a better indication of our operational performance because it excludes restructuring charges,
which are not representative of ongoing operations, and timberland disposals, net, which are volatile from period to period, and it provides a more stable platform on which to compare our historical performance.
First Quarter Results
Overview
Net sales increased 13 percent (7 percent excluding the impact of foreign currency translation) to $846.3 million in the first quarter of 2008 compared to
$750.8 million in the first quarter of 2007. The $95.5 million increase is due to Industrial Packaging ($78.9 million), Paper Packaging ($14.6 million) and Timber ($2.0 million). Higher sales volumes primarily drove the 7 percent constant-currency
increase.
Operating profit was $94.2 million and $58.6 million in the first quarter of 2008 and 2007, respectively. Operating profit
before the impact of restructuring charges and timberland disposals, net was $104.6 million for the first quarter of 2008 compared to $60.6 million for the first quarter of 2007. The $44.0 million increase included a $29.9 million pre-tax net gain
on the divestiture of business units in Australia and Zimbabwe. The remaining $14.1 million increase was principally due to higher operating profit in Industrial Packaging ($11.3 million) and Paper Packaging ($3.2 million). This increase was
attributable to a modest improvement in gross profit margin and a reduction in the selling, general and administrative expenses to net sales ratio compared to the same period last year.
23
The following table sets forth the net sales and operating profit for each of our business segments
(Dollars in millions):
For the three months ended January 31,
Net sales:
Industrial Packaging
Paper Packaging
Timber
Total net sales
Operating profit:
Operating profit, before the impact of restructuring charges and timberland disposals, net:
Industrial Packaging
Paper Packaging
Timber
Total operating profit before the impact of restructuring charges and timberland disposals, net
Restructuring charges:
Industrial Packaging
Paper Packaging
Total restructuring charges
Timberland disposals, net:
Timber
Operating profit:
Industrial Packaging
Paper Packaging
Timber
Total operating profit
Segment Review
Industrial Packaging
Our Industrial Packaging segment offers a comprehensive line of industrial packaging products and
services, such as steel, fibre and plastic drums, intermediate bulk containers, closure systems for industrial packaging products, polycarbonate water bottles, blending, filling and other packaging services, logistics and warehousing. The key
factors influencing profitability in the Industrial Packaging segment are:
Selling prices and sales volumes;
Raw material costs, primarily steel, resin and containerboard;
Energy and transportation costs;
Benefits from executing the Greif Business System;
Contributions from recent acquisitions;
Impact of foreign currency translation.
In this segment, net sales were up 13 percent to $671.3 million in the first quarter of 2008 compared to $592.4 million in the first quarter of 2007 — an increase of 5 percent excluding the impact of foreign currency translation. The
increase in net sales was primarily attributable to the higher sales volumes in most regions with particular strength in Europe and emerging markets.
24
Gross profit margin for the Industrial Packaging segment was 16.8 percent in the first quarter of
2008 versus 16.6 percent in the first quarter of 2007.
Operating profit was $68.3 million in the first quarter of 2008 compared to $35.7
million in the first quarter of 2007. Operating profit before the impact of restructuring charges increased to $78.1 million in the first quarter of 2008 compared to $36.9 million in the first quarter of 2007. The increase included a $29.9 million
pre-tax net gain on the divestiture of business units in Australia and Zimbabwe. The remaining increase was primarily due to improvement in net sales volumes and execution of the Greif Business System.
Paper Packaging
Our Paper Packaging segment
sells containerboard, corrugated sheets, corrugated containers and multiwall bags in North America. The key factors influencing profitability in the Paper Packaging segment are:
Selling prices and sales volumes;
Raw material costs, primarily old corrugated containers (“OCC”);
Energy and transportation costs; and
Benefits from executing the Greif Business System.
In this segment, net sales were $168.8 million in the first quarter of 2008 compared to $154.3 million in the first quarter of 2007. This was principally due to higher containerboard selling prices implemented in
during the fourth quarter of fiscal 2007.
The Paper Packaging segment’s gross profit margin increased to 19.6 percent in the
first quarter of 2008 compared to 19.4 percent for the first quarter of 2007.
Operating Profit was $19.7 million and $16.4 million in the
first quarter of 2008 and 2007, respectively. Operating profit before the impact of restructuring charges increased to $20.4 million in the first quarter of 2008 compared to $17.2 million in the first quarter of 2007. Higher raw material costs
especially OCC, were partially offset by higher selling prices and contributions from further execution of the Greif Business System.
Timber
Our Timber segment consists of approximately 268,300 acres of timber properties in the southeastern United States, which are actively
harvested and regenerated, and approximately 36,500 acres in Canada. The key factors influencing profitability in the Timber segment are:
Planned level of timber sales;
Gains (losses) on sale of timberland; and
Sale of special use properties (surplus, HBU, and development properties).
Net sales were $6.2 million in the first quarter of 2008 and $4.2 million in the first quarter of 2007.
Operating profit was $6.2 million and $6.5 million in the first quarter of 2008 and 2007, respectively. Operating profit before the impact of
restructuring charges and timberland disposals, net was $6.1 million in the first quarter of 2008 compared to $6.5 million in the first quarter of 2007. Included in these amounts were profits from the sale of special use properties of $3.4 million
in the first quarter of 2008 and $4.7 million in the first quarter of 2007.
Other Income Statement Changes
Cost of Products Sold
The cost of products sold, as a
percentage of net sales, was 82.5 percent for the first quarter of 2008 versus 82.7 percent for the first quarter of 2007. Higher raw material costs were more than offset by higher selling prices and contributions from further execution of the Greif
Business System.
Selling, General and Administrative (“SG&A”) Expenses
SG&A expenses were $80.5 million, or 9.5 percent of net sales, in the first quarter of 2008 compared to $74.6 million, or 9.9 percent of net sales, in
the first quarter of 2007. The dollar increase is primarily due to our Blagden and other acquisitions and the impact of foreign currency translation, partially offset by tighter controls over SG&A expenses and the impact of acquisition
integration activities.
25
Restructuring Charges
During the first quarter of 2008, we recorded restructuring charges of $10.5 million, consisting of $3.8 million in employee separation costs, $5.6 million in asset impairments and $1.1 million in other costs. The
focus of the 2008 restructuring activities is on integration of acquisitions in the Industrial Packaging segment and alignment of the market-focused strategy and implementation of the Greif Business System in the Paper Packaging segment.
During the first quarter of 2007, we recorded restructuring charges of $2.0 million, consisting of $0.7 million in employee separation
costs, $0.4 million in asset impairments and $0.9 million in other costs. In 2007, our restructuring charges were primarily related to integration of acquisitions in the Industrial Packaging segment and on alignment of the market-focused strategy in
the Paper Packaging segment.
Timberland Disposals, Net
During the first quarter of 2008, we recorded a net gain on sale of timber property of $0.1 million compared to a net gain of $0.1 million in the first quarter of 2007.
Gain on Disposal of Properties, Plants, and Equipment, Net
During the first quarter of 2008, we recorded a gain on disposal of properties, plants and equipment, net of $36.8 million, primarily consisting of a $29.9 million pre-tax net gain on divestiture of business units in Australia and Zimbabwe,
and $3.4 million in gains from the sale of surplus and HBU timber properties. During the first quarter of 2007, gain on disposals of properties, plants and equipment, net was $5.1 million, primarily consisting of a gain on sale of corporate surplus
property for $4.0 million.
Interest Expense, Net
Interest expense, net was $11.8 million and $12.0 million for the first quarter of 2008 and 2007,
respectively. The decrease was primarily attributable to higher average debt outstanding due to our recent acquisitions, which was more than offset by lower interest expense for our 6
3
/
4
percent Senior Notes, compared to the previously outstanding 8
7
/
8
percent Senior Subordinated Notes which were redeemed in full in 2007.
Other Expense, Net
Other expense, net during first quarter of 2008 was $3.3 million compared to other expense, net of $0.7 million during the first
quarter of 2007. The unfavorable variance is primarily due to an increase in fees associated with our non-United States trade receivable facility and foreign exchange losses.
Income Tax Expense
The effective tax rate was 23.6 percent and 25.2 percent in the first quarter of
2008 and 2007, respectively. The lower effective tax rate resulted from a change in the mix of income to outside the United States in the first quarter 2008 compared to the same period last year.
Equity Earnings and Minority Interests
Equity
earnings of affiliates and minority interests was earnings of $0.3 million and a loss of $0.3 million for the first three months ended January 31, 2008 and 2007, respectively. We have minority holdings in various companies, and the minority
interests of other persons in the respective net income of these companies have been recorded as an expense. These expenses were partially offset by equity in the earnings of our unconsolidated affiliates.
Net Income
Based on the foregoing, we recorded net
income of $60.7 million for the first quarter of 2008 compared to $34.0 million in the first quarter of 2007.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity are operating cash flows, the proceeds from our trade accounts receivable credit facility, proceeds
from the sale of our Non-United States accounts receivable, borrowings under our Credit Agreement. We have used these sources to fund our working capital needs, capital expenditures, cash dividends, common stock repurchases and acquisitions. We
anticipate continuing to fund these items in a like manner. We currently expect that operating cash flows, the proceeds from our United States trade accounts receivable credit facility, proceeds from the sale of our Non-United States accounts
receivable and borrowings under our Credit Agreement will be sufficient to fund our working capital, capital expenditures, debt repayment and other liquidity needs for the foreseeable future.
26
Capital Expenditures, Business Acquisitions and Divestitures
During the first quarter of 2008, we invested $29.5 million in capital expenditures, excluding timberland purchases of $0.5 million, compared with capital
expenditures of $34.3 million, excluding timberland purchases of $0.4 million, during the same period last year.
We expect capital
expenditures, excluding timberland purchases, to be approximately $125 million in 2008, which includes expansion capital to support our growth strategy in the emerging markets.
During the first quarter of 2008, we acquired three small industrial packaging companies for an aggregate purchase price of $69.4 million. These three
acquisitions, one in South America, one in the Middle East, and one in North America, complimented our current businesses. During the first quarter of 2008, we sold our Australian drum operations and a 51 percent interest in our Zimbabwean drum
operations. The proceeds from these divestitures were $28.4 million. The 2007 sales and net income from these operations were not material to our overall operations.
Balance Sheet Changes
Our trade accounts receivable increased $35.6 million, primarily due to the
2008 first quarter acquisitions in North and South America and the Middle East.
Inventories increased $21.9 million, primarily due to
acceleration of raw material purchases in anticipation of rising steel costs.
Prepaid expenses and other current assets increased $29.0
million due to a reclass of long-term receivables short-term receivables.
Goodwill and intangible assets increased $43.9 million primarily
due to the 2008 first quarter acquisitions in North and South America and the Middle East.
Accounts Payable decreased $64.8 million and
accrued payroll and employee benefits decreased $27.4 million due to seasonality factors and timing of payments, particularly 2007 performance-based incentives.
Debt increased $144.2 million due to seasonal factors, acceleration of inventory purchases in response to rising raw material costs, the payment of fiscal 2007 performance-based incentives during the first quarter of
2008, and the net of three small acquisitions and two divestitures.
Other long-term liabilities increased by $91.5 million and deferred
tax liabilities decreased by $83.9 million primarily due to the implementation of FIN 48.
Borrowing Arrangements
Credit Agreement
We and certain of our
international subsidiaries, as borrowers, and a syndicate of financial institutions are parties to a Credit Agreement (the “Credit Agreement”) that provides us with a $450.0 million revolving multicurrency credit facility due 2010. The
revolving multicurrency credit facility is available to us 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.
There was $305.7 million outstanding under the Credit Agreement at January 31, 2008.
The Credit Agreement contains certain covenants,
which include financial covenants that require us to maintain a certain leverage ratio and a minimum coverage of interest expense. The leverage ratio generally requires that at the end of any fiscal quarter we will not permit the ratio of
(a) our total consolidated indebtedness less cash and cash equivalents to (b) our consolidated net income plus depreciation, depletion and amortization, interest expense (including capitalized interest), income taxes, and minus certain
extraordinary gains and non-recurring gains (or plus certain extraordinary losses and non-recurring losses) for the preceding twelve months (“EBITDA”) to be greater than 3.5 to 1. The interest coverage ratio generally requires that at the
end of any fiscal quarter we will not permit the ratio of (a) our EBITDA to (b) our interest expense (including capitalized interest) for the preceding twelve months to be less than 3.0 to 1. As of January 31, 2008, we were in
compliance with these covenants. The terms of the Credit Agreement limit our ability to make “restricted payments,” which include dividends and purchases, redemptions and acquisitions of our equity interests. The repayment of this facility
is secured by a pledge of the capital stock of substantially all of our United States subsidiaries and, in part, by the capital stock of the international borrowers.
Senior Notes
On February 9, 2007,
we issued $300.0 million of our 6
3
/
4
percent Senior Notes due February 1, 2017. Proceeds from the issuance of the Senior
Notes were principally used to fund the purchase of our previously outstanding senior subordinated notes and
27
for general corporate purposes. The Senior Notes are general unsecured obligations of Greif, provide for semi-annual payments of interest at a fixed rate of
6.75 percent, and do not require any principal payments prior to maturity on February 1, 2017. The Senior Notes are not guaranteed by any of our subsidiaries and thereby are effectively subordinated to all of our subsidiaries’ existing and
future indebtedness. The Indenture pursuant to which the Senior Notes were issued contains covenants, which, among other things, limit our ability to create liens on our assets to secure debt and to enter into sale and leaseback transactions. These
covenants are subject to a number of limitations and exceptions as set forth in the Indenture. At January 31, 2008, we were in compliance with these covenants.
United States Trade Accounts Receivable Credit Facility
On October 31, 2003 we 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 our United States trade accounts receivable. On October 24, 2007, the trade accounts receivable credit
facility was amended to extend the maturity date to October 20, 2010. The credit facility is secured by certain of our United States 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. We can terminate this facility at any time upon 60 days prior written notice. In connection with this transaction, we established Greif Receivables Funding LLC (“GRF”), which is
included in our consolidated financial statements. However, because GRF is a separate and distinct legal entity from us, the assets of GRF are not available to satisfy our liabilities and obligations and the liabilities of GRF are not our
liabilities or obligations. This entity purchases and services our trade accounts receivable that are subject to this credit facility. There was a total of $102.1 million and $116.0 million outstanding under the United States trade accounts
receivable credit facility at January 31, 2008 and October 31, 2007, respectively.
The trade accounts receivable credit facility
provides that in the event we breach any of our financial covenants under the Credit Agreement, and the majority of the lenders there under consent to a waiver thereof, but the provider of the trade accounts receivable credit facility does not
consent to any such waiver, then we must within 90 days of providing notice of the breach, pay all amounts outstanding under the trade accounts receivable credit facility.
Sale of Non-United States Accounts Receivable
Pursuant to the terms of a Receivable Purchase
Agreement (the “RPA”) between Greif Coordination Center BVBA (the “Seller”), an indirect wholly-owned subsidiary of Greif, Inc., and a major international bank (the “Buyer”), the Seller has agreed to sell trade
receivables to Buyer that meet certain eligibility requirements and that Seller has purchased from other indirect wholly-owned subsidiaries of Greif, Inc. under discounted receivables purchase agreements and from Greif France SAS under a factoring
agreement. In addition, Greif Italia S.p.A., also an indirect wholly-owned subsidiary of Greif, Inc., is a party to an Italian Receivables Purchase Agreement with the Italian branch of the major international bank (the “Italian RPA”)
pursuant to which it sells 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 aggregate receivables that
may be sold under the RPA and Italian RPA was €115.0 million ($170.0 million) at January 31, 2008.
In October 2007, Greif
Singapore Pte. Ltd., an indirect wholly-owned 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
maybe sold under the Singapore RPA was 10.0 million Singapore dollars ($7.0 million) at January 31, 2008.
The structure of these
transactions provide for a legal true sale, on a revolving basis, of the receivables transferred from the various Greif subsidiaries either (i) to Greif Coordination Center BVBA, which in turn sells the receivables to the respective bank, or
(ii) directly to the respective bank. 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, we remove 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 Buyer between the semi-monthly settlement dates. At January 31, 2008, €80.8 million ($119.5 million) of accounts receivable were
sold under the RPA and Italian RPA. At January 31, 2008, 4.8 million Singapore Dollars ($3.4 million) of accounts receivable were sold under the Singapore RPA.
At the time the receivables are initially sold, the difference between the carrying amount and the fair value of the assets sold are included as a loss on sale and classified as “other expense” in the
consolidated statements of income. Expenses associated with the RPA and Italian RPA totaled €1.1 million ($1.6 million) for the three months ended January 31, 2008. Expenses associated with the Singapore RPA were insignificant to the
consolidated financial statements for the three months ended January 31, 2008. Additionally, we perform 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 and Italian RPA. The servicing liability for these receivables is not material to the consolidated financial statements.
28
Other
In addition to the borrowings and facilities described above, we had outstanding debt of $74.9 million, comprised of $0.4 million in long-term debt and $74.5 million in short-term borrowings, at January 31, 2008, and $49.3 million,
comprised of $33.5 million in long-term debt and $15.8 million in short-term borrowings, at October 31, 2007.
Significant Nonstrategic
Timberland Transactions
In connection with one of our 2005 timberland transactions with Plum Creek Timberlands, L.P. (“Plum
Creek”), Soterra LLC (one of our wholly owned subsidiaries) received cash and a $50.9 million purchase note payable by an indirect subsidiary of Plum Creek (the “Purchase Note”). Soterra LLC contributed the Purchase Note to STA Timber
LLC (“STA Timber”), one of our indirect wholly owned subsidiaries. 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”). STA Timber has issued in a private placement 5.20 percent Senior Secured Notes due August 5, 2020 (the “Monetization Notes”) in the principal amount of $43.3 million. The Monetization Notes are secured by a pledge of
the Purchase Note and the Deed of Guarantee. 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
Contractual Obligations
As of January 31, 2008, we had the following contractual obligations (Dollars in millions):
Long-term debt
Short-term borrowings
Non-cancelable operating leases
Timber note securitized
Total contractual cash obligations
Stock Repurchase Program
Our Board of Directors has authorized us to purchase up to four million shares of Class A Common Stock or Class B Common Stock or any combination of
the foregoing. During the first quarter of 2008, we did not repurchase any shares of Class A Common Stock, but we purchased 2,500 shares of Class B Common Stock. As of January 31, 2008, we had repurchased 2,357,228 shares, including
1,419,608 shares of Class A Common Stock and 937,620 shares of Class B Common Stock, under this program. The total cost of the shares repurchased from 1999 through January 31, 2008 was approximately $52.4 million.
Recent Accounting Standards
In September
2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value Measurements,” which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles,
and expands disclosures about fair value measurements. We will be required to adopt SFAS No. 157 on November 1, 2008 (2009 for us). The provisions of SFAS No. 157 should be applied prospectively to the beginning of the fiscal year in
which SFAS No. 157 is initially applied, except with respect to certain financial instruments as defined by SFAS No. 157. We have not yet determined the effect, if any, that the adoption of SFAS No. 157 will have on its consolidated
financial statements.
In February, 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial
Liabilities”, which allows an entity the irrevocable option to elect fair value for the initial and subsequent measurement for certain financial assets and liabilities on a contract-by-contract basis. Subsequent changes in fair value of these
financial assets and liabilities would be recognized in earnings when they occur. SFAS No. 159 further establishes certain additional disclosure requirements. SFAS No. 159 is effective for our consolidated financial statements for the
fiscal year beginning on November 1, 2008 (2009 for us), with earlier adoption permitted. We are currently evaluating the impact and timing of the adoption of SFAS No. 159 on our consolidated financial statements.
On December 4, 2007, the FASB issued SFAS No. 141(R), “Business Combinations,” and SFAS No. 160, “Accounting and Reporting
of Noncontrolling interest in Consolidated Financial Statements, an amendment of ARB No. 51”. These new standards will significantly change the financial accounting and reporting of business combination transactions and noncontrolling (or
minority) interests in consolidated financial statements. We will be required to adopt SFAS Nos. 141(R) and 160 on November 1, 2009 (2010 for us). We have not yet determined the effect, if any, that the adoption of SFAS Nos. 141(R) and 160 will
have on our consolidated financial statements.
29
There has not been a significant change in the quantitative and qualitative disclosures about our market risk from the disclosures contained in the 2007 Form 10-K.
With the
participation of our principal executive officer and principal financial officer, Greif’s management has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act
of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this report. Based upon that evaluation, our principal executive officer and principal financial officer have concluded that, as of the end of the period
covered by this report:
Information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the
time periods specified in the rules and forms of the Securities and Exchange Commission;
Information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including
our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure; and
Our disclosure controls and procedures are effective.
There has been no change in our internal controls over financial reporting that occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal
ITEM 1.
CONSOLIDATED FINANCIAL STATEMENTS
Three months ended
January 31,
2008
2007
$
846,292
$
750,759
697,968
620,673
148,324
130,086
80,512
74,609
10,475
2,037
(90
)
(62
)
(36,774
)
(5,139
)
94,201
58,641
11,756
12,034
3,330
736
79,115
45,871
18,690
11,559
262
(333
)
$
60,687
$
33,979
$
1.05
$
0.59
$
1.56
$
0.88
$
1.03
$
0.58
$
1.56
$
0.88
January 31,
2008
October 31,
2007
(Unaudited)
$
107,438
$
123,699
374,941
339,328
264,856
242,994
20,991
27,917
11,179
11,564
125,287
96,283
904,692
841,785
538,236
493,252
95,172
96,256
50,891
50,891
3,316
36,434
58,292
59,547
745,907
736,380
195,265
197,235
127,398
126,018
359,422
356,878
1,064,451
1,032,677
103,102
90,659
1,849,638
1,803,467
(775,495
)
(728,921
)
1,074,143
1,074,546
$
2,724,742
$
2,652,711
January 31,
2008
October 31,
2007
(Unaudited)
$
346,283
$
411,095
57,603
84,977
13,264
15,776
74,525
15,848
132,867
121,214
624,542
648,910
708,239
622,685
75,550
159,494
19,757
19,892
31,442
32,983
43,250
43,250
210,741
119,180
1,088,979
997,484
6,682
6,405
78,999
75,156
(92,110
)
(92,028
)
1,041,908
1,004,300
8,257
43,260
(3,459
)
(997
)
186
226
(29,242
)
(30,005
)
1,004,539
999,912
$
2,724,742
$
2,652,711
2008
2007
$
60,687
$
33,979
25,863
26,172
5,573
851
(77,018
)
27,084
(36,774
)
(5,907
)
(90
)
(62
)
(262
)
333
(20,372
)
14,316
(12,416
)
(17,251
)
(26,657
)
(14,203
)
19,417
(38,359
)
(7,889
)
(32,909
)
(26,912
)
(24,791
)
(1,301
)
(1,990
)
(9,351
)
12,044
3,217
(2,247
)
18,657
25,308
(85,628
)
2,368
(69,400
)
(310,798
)
(29,507
)
(34,303
)
(500
)
(400
)
—
(29,748
)
36,745
5,694
(62,662
)
(369,555
)
376,632
609,000
(288,653
)
(389,685
)
57,808
41,907
(16,064
)
(10,315
)
(148
)
—
1,731
8,920
131,306
259,827
723
(1,271
)
(16,261
)
(108,631
)
123,699
187,101
$
107,438
$
78,470
January 31,
2008
October 31,
2007
$
81,085
$
75,428
219,313
202,392
300,398
277,820
(35,542
)
(34,826
)
$
264,856
$
242,994
Industrial
Packaging
Paper
Packaging
Total
$
468,096
$
25,156
$
493,252
39,430
—
39,430
(6,889
)
—
(6,889
)
11,521
—
11,521
922
—
922
$
513,080
$
25,156
$
538,236
Gross
Intangible
Assets
Accumulated
Amortization
Net Intangible
Assets
$
31,479
$
11,293
$
20,186
20,639
6,115
14,524
61,134
7,435
53,699
10,869
4,106
6,763
$
124,121
$
28,949
$
95,172
$
31,983
$
10,922
$
21,061
19,708
5,328
14,380
61,145
6,470
54,675
10,032
3,892
6,140
$
122,868
$
26,612
$
96,256
Three months ended
January 31, 2008
Total Amounts
Expected to be
incurred
$
3,836
$
9,228
5,573
8,427
260
400
134
2,002
9,803
20,057
—
1,490
—
1,000
—
65
672
688
672
3,243
$
10,475
$
23,300
Cash Charges
Non-cash Charges
Employee
Separation
Costs
Other Costs
Asset
Impairments
Total
$
12,296
$
3,480
$
—
$
15,776
3,836
1,066
5,573
10,475
483
290
—
773
(5,578
)
(2,609
)
(5,573
)
(13,760
)
$
11,037
$
2,227
$
—
$
13,264
January 31,
2008
October 31,
2007
$
305,745
$
173,131
300,000
300,000
102,132
116,024
362
33,530
$
708,239
$
622,685
Authorized
Shares
Issued Shares
Outstanding
Shares
Treasury Shares
128,000,000
42,281,920
23,865,726
18,416,194
69,120,000
34,560,000
22,941,166
11,618,834
128,000,000
42,281,920
23,754,753
18,527,167
69,120,000
34,560,000
22,943,666
11,616,334
Three months ended
January 31, 2008
Year ended
October 31, 2007
Shares
Weighted
Average
Exercise Price
Shares
Weighted
Average
Exercise Price
1,072
$
15.75
1,633
$
15.62
—
—
—
—
2
12.71
76
$
13.86
559
$
15.38
996
$
15.89
1,072
$
15.75
Number
Outstanding
Weighted-
Average
Remaining
Contractual Life
573
4 years
399
6 years
24
8 years
Three months ended
January 31
2008
2007
$
0.28
$
0.18
$
0.41
$
0.27
Three months ended
January 31
2008
2007
23,789,223
23,426,112
559,649
683,044
24,348,872
24,109,156
22,942,913
23,031,066
Three months ended
January 31
2008
2007
$
60,687
$
33,979
(35,003
)
(11,953
)
(2,462
)
435
(40
)
339
763
—
$
23,945
$
22,800
Three months ended
January 31
2008
2007
$
3,151
$
3,419
7,660
6,827
(9,098
)
(7,767
)
1,192
1,309
$
2,905
$
3,788
Three months ended
January 31
2008
2007
$
8
$
11
502
527
(348
)
(269
)
$
162
$
269
Three months ended
January 31,
2008
2007
$
671,278
$
592,284
168,804
154,246
6,210
4,229
$
846,292
$
750,759
$
78,073
$
36,881
20,397
17,243
6,116
6,492
104,586
60,616
9,803
1,173
672
864
10,475
2,037
90
62
$
94,201
$
58,641
$
17,722
$
17,762
5,845
7,118
2,296
1,292
$
25,863
$
26,172
January 31,
2008
October 31,
2007
$
1,928,856
$
1,923,219
199,791
220,946
253,916
252,540
2,382,563
2,396,705
342,179
256,006
$
2,724,742
$
2,652,711
Three months ended
January 31,
2008
2007
$
450,070
$
429,888
267,256
212,032
128,966
108,839
$
846,292
$
750,759
January 31,
2008
October 31,
2007
$
1,460,407
$
1,587,022
925,475
734,649
338,860
331,040
$
2,724,742
$
2,652,711
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
2008
2007
$
671.3
$
592.4
168.8
154.2
6.2
4.2
$
846.3
$
750.8
$
78.1
$
36.9
20.4
17.2
6.1
6.5
104.6
60.6
9.8
1.2
0.7
0.8
10.5
2.0
0.1
—
68.3
35.7
19.7
16.4
6.2
6.5
$
94.2
$
58.6
•
•
•
•
•
•
•
•
•
•
•
•
•
Payments Due By Period
Total
Less
than 1 year
1-3 years
3-5 years
After 5
years
$
929.1
$
28.1
$
474.4
$
40.5
$
386.1
77.3
77.3
—
—
—
94.1
15.7
30.7
18.5
29.2
71.3
1.7
4.5
4.5
60.6
$
1,171.8
$
122.8
$
509.6
$
63.5
$
475.9
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
ITEM 4.
CONTROLS AND PROCEDURES
•
•
•
PART II. OTHER INFORMATION
| ITEM 1A. | RISK FACTORS |
There have been no material changes in our risk factors from those disclosed in the 2007 Form 10-K under Part I, Item 1A – Risk Factors.
30
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
Issuer Purchases of Class A Common Stock
|
Period |
Total Number
of Shares Purchased |
Average Price
Paid Per Share |
Total Number of
Shares Purchased as Part of Publicly Announced Plans or Programs (1) |
Maximum Number (or
Approximate Dollar Value) of Shares that May Yet Be Purchased under the Plans or Programs (1) |
||||
|
November 2007 |
— | — | 1,661,272 | |||||
|
December 2007 |
— | — | 1,661,272 | |||||
|
January 2008 |
— | — | 1,658,772 | |||||
| — | — | |||||||
Issuer Purchases of Class B Common Stock
|
Period |
Total Number
of Shares Purchased |
Average Price
Paid Per Share |
Total Number of
Shares Purchased as Part of Publicly Announced Plans or Programs (1) |
Maximum Number (or
Approximate Dollar Value) of Shares that May Yet Be Purchased under the Plans or Programs (1) |
|||||
|
November 2007 |
— | — | 1,661,272 | ||||||
|
December 2007 |
— | — | 1,661,272 | ||||||
|
January 2008 |
2,500 | $ | 59.04 | 2,500 | 1,658,772 | ||||
| 2,500 | 2,500 | ||||||||
| (1) | Our Board of Directors has authorized a stock repurchase program which permits us to purchase up to 4.0 million shares of our Class A Common Stock or Class B Common Stock, or any combination thereof. As of January 31, 2008, the maximum number of shares that may yet be purchased is 1,658,772, which may be any combination of Class A Common Stock or Class B Common Stock. |
| ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
| (a.) | We held our Annual Meeting of Stockholders on February 25, 2008. |
| (b.) | At the Annual Meeting of Stockholders, the following nominees were elected to the Board of Directors for a one-year term. The inspectors of election certified the following vote tabulation as to the shares of the Company’s Class B Common Stock: |
| For | Against | |||
|
Vicki L. Avril |
21,605,026 | 7,081 | ||
|
Michael H. Dempsey |
21,348,755 | 263,352 | ||
|
Bruce A. Edwards |
21,605,426 | 6,681 | ||
|
Mark A. Emkes |
21,604,626 | 7,481 | ||
|
John F. Finn |
21,604,426 | 7,681 | ||
|
Michael J. Gasser |
21,605,026 | 7,081 | ||
|
Daniel J. Gunsett |
21,346,003 | 266,104 | ||
|
Judith D. Hook |
20,216,311 | 1,395,796 | ||
|
Patrick J. Norton |
21,605,026 | 7,081 |
31
| ITEM 6. | EXHIBITS |
| (a.) | Exhibits |
|
Exhibit No. |
Description of Exhibit |
|
| 10(cc) | Nonqualified Deferred Compensation Plan | |
| 24(e) | Powers of Attorney for John F. Finn and Mark A. Emkes. | |
| 31.1 | Certification of Chief Executive Officer Pursuant to Rule 13a - 14(a) of the Securities Exchange Act of 1934. | |
| 31.2 | Certification of Chief Financial Officer Pursuant to Rule 13a - 14(a) of the Securities Exchange Act of 1934. | |
| 32.1 | Certification of Chief Executive Officer required by Rule 13a - 14(b) of the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States Code. | |
| 32.2 | Certification of Chief Financial Officer required by Rule 13a - 14(b) of the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States Code. | |
32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized.
| Greif, Inc. | ||
| (Registrant) | ||
|
Date: March 11, 2008 |
/s/ Donald S. Huml |
|
| Donald S. Huml, Executive Vice President and Chief Financial Officer | ||
| (Duly Authorized Signatory) | ||
33
GREIF, INC.
Form 10-Q
For Quarterly Period Ended January 31, 2008
EXHIBIT INDEX
|
Exhibit No. |
Description of Exhibit |
|
| 10(cc) | Nonqualified Deferred Compensation Plan | |
| 24(e) | Powers of Attorney for John F. Finn and Mark A. Emkes. | |
| 31.1 | Certification of Chief Executive Officer Pursuant to Rule 13a - 14(a) of the Securities Exchange Act of 1934. | |
| 31.2 | Certification of Chief Financial Officer Pursuant to Rule 13a - 14(a) of the Securities Exchange Act of 1934. | |
| 32.1 | Certification of Chief Executive Officer required by Rule 13a - 14(b) of the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States Code. | |
| 32.2 | Certification of Chief Financial Officer required by Rule 13a - 14(b) of the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States Code. | |
34
Exhibit 10(cc)
GREIF, INC.
NONQUALIFIED DEFERRED COMPENSATION PLAN
GREIF, INC.
NONQUALIFIED DEFERRED COMPENSATION PLAN
Table of Contents
| Page | ||||
| Article 1 - Definitions | ||||
| 1.1 | Account | 1 | ||
| 1.2 | Administrator | 1 | ||
| 1.3 | Board | 1 | ||
| 1.4 | Bonus | 1 | ||
| 1.5 | Cause | 1 | ||
| 1.6 | Change-in-Control | 2 | ||
| 1.7 | Code | 2 | ||
| 1.8 | Compensation | 2 | ||
| 1.9 | Deferrals | 2 | ||
| 1.10 | Deferral Election | 3 | ||
| 1.11 | Disability | 3 | ||
| 1.12 | Effective Date | 3 | ||
| 1.13 | Eligible Employee | 3 | ||
| 1.14 | Employee | 3 | ||
| 1.15 | Employers | 3 | ||
| 1.16 | Employer Discretionary Contribution | 3 | ||
| 1.17 | Employer Supplemental Contribution | 3 | ||
| 1.18 | ERISA | 3 | ||
| 1.19 | Identification Date | 4 | ||
| 1.20 | Investment Fund | 4 | ||
| 1.21 | Matching Contribution | 4 | ||
| 1.22 | Participant | 4 | ||
| 1.23 | Plan Year | 4 | ||
| 1.24 | Performance-based Compensation | 4 | ||
| 1.25 | Qualified Plan | 4 | ||
| 1.26 | Retirement | 4 | ||
| 1.27 | Salary | 4 | ||
| 1.28 | Separation from Service | 5 | ||
| 1.29 | Service Recipient | 5 | ||
| 1.30 | Specified Employee | 5 | ||
| 1.31 | Trust | 5 | ||
| 1.32 | Trustee | 5 | ||
| 1.33 | Years of Service | 5 | ||
| Article 2 - Participation | ||||
| 2.1 | Commencement of Participation | 5 | ||
| 2.2 | Loss of Eligible Employee Status | 6 | ||
| Article 3 - Contributions | ||||
| 3.1 | Deferral Elections - General | 6 | ||
| 3.2 | Time of Deferral Election | 6 | ||
| 3.3 | Distribution Elections | 7 | ||
| 3.4 | Additional Requirements for Deferral Elections | 7 | ||
| 3.5 | Matching Contribution | 7 | ||
| 3.6 | Employer Supplemental Contribution | 7 | ||
| 3.7 | Employer Discretionary Contributions | 7 | ||
| 3.8 | Crediting of Contributions | 8 | ||
| Article 4 - Vesting | ||||
| 4.1 | Vesting of Deferrals | 8 | ||
| 4.2 | Vesting of Matching Contributions | 8 | ||
| 4.3 | Vesting of Employer Supplemental Contributions | 9 | ||
| 4.4 | Vesting of Employer Discretionary Contributions | 9 | ||
| 4.5 | Vesting in Event of Retirement, Disability, Death or Change-in-Control | 9 | ||
| 4.6 | Amounts Not Vested | 9 | ||
| Article 5 - Accounts | ||||
| 5.1 | Accounts | 9 | ||
| 5.2 | Investments, Gains and Losses | 10 | ||
| Article 6 - Distributions | ||||
| 6.1 | Distribution Election | 11 | ||
| 6.2 | Distributions from an In-Service Sub-Account | 11 | ||
| 6.3 | Distributions Upon Retirement | 11 | ||
| 6.4 | Substantially Equal Annual Installments | 11 | ||
| 6.5 | Distributions Upon a Change-in-Control | 12 | ||
| 6.6 | Distributions upon Separations from Service other than due to Retirement, Disability, Death or for Cause | 12 | ||
| 6.7 | Distributions upon Separation from Service due to Disability | 12 | ||
| 6.8 | Distributions upon Death | 12 | ||
| 6.9 | Separation from Service due to Cause | 12 | ||
| 6.10 | Changes to Distribution Elections | 12 | ||
| 6.11 | Distributions to Specified Employees | 13 | ||
| 6.12 | Minimum Distribution | 13 | ||
| 6.13 | Unforeseeable Emergency | 13 | ||
| Article 7 - Beneficiaries | ||||
| 7.1 | Beneficiaries | 14 | ||
| 7.2 | Lost Participant and/or Beneficiary | 14 | ||
| Article 8 - Funding | ||||
| 8.1 | Prohibition Against Funding | 14 | ||
| 8.2 | Deposits in Trust | 15 | ||
| 8.3 | Withholding of Employee Contributions | 15 | ||
| Article 9 - Claims Administration | ||||
| 9.1 | General | 15 | ||
| 9.2 | Claims Procedure | 15 | ||
| 9.3 | Right of Appeal | 16 | ||
| 9.4 | Review of Appeal | 16 | ||
| 9.5 | Designation | 16 | ||
| Article 10 - General Provisions | ||||
| 10.1 | Administrator | 16 | ||
| 10.2 | No Assignment | 17 | ||
| 10.3 | No Employment Rights | 17 | ||
| 10.4 | Incompetence | 17 | ||
| 10.5 | Identity | 18 | ||
| 10.6 | Other Benefits | 18 | ||
| 10.7 | Right of Setoff | 18 | ||
| 10.8 | Expenses | 18 | ||
| 10.9 | Insolvency | 18 | ||
| 10.10 | Amendment, Modification, Suspension or Termination | 18 | ||
| 10.11 | Construction | 19 | ||
| 10.12 | Governing Law | 19 | ||
| 10.13 | Severability | 19 | ||
| 10.14 | Headings | 19 | ||
| 10.15 | Terms | 19 | ||
| 10.16 | Code Section 409A Compliance | 19 | ||
| 10.17 | Payments Upon Income Inclusion Under Code Section 409A | 20 | ||
GREIF, INC.
NONQUALIFIED DEFERRED COMPENSATION PLAN
Greif, Inc., an Ohio corporation (the “Company”), hereby adopts this Greif, Inc. Nonqualified Deferred Compensation Plan (the “Plan”) for the benefit of a select group of management or highly compensated employees. This Plan is an unfunded arrangement and is intended to be exempt from the participation, vesting, funding, and fiduciary requirements set forth in Title I of ERISA. It is intended to comply with Code Section 409A. This Plan is effective January 1,2007 and adopted by the Company on December 30, 2006.
Article 1 - Definitions
| 1.1 | Account. |
The bookkeeping account established for each Participant as provided in Section 5.1 hereof.
| 1.2 | Administrator. |
The Compensation Committee of the Board; provided, however, that, subject to applicable law, the Compensation Committee may delegate its authority under the Plan to any other person or persons. The Administrator shall serve as the agent for the Company with respect to the Trust.
| 1.3 | Board. |
The Board of Directors of the Company.
| 1.4 | Bonus. |
Compensation which is designated as a bonus or incentive award by an Employer and that is earned by an Eligible Employee in addition to his or her Salary, including any pretax elective deferrals from said Bonus to any Employer-sponsored plan that includes amounts deferred under a Deferral Election or any elective deferral as defined in Code Section 402(g)(3) or any amount contributed or deferred at the election of the Eligible Employee in accordance with Code Section 125 or 132(f)(4).
| 1.5 | Cause. |
Cause shall mean:
(a) Any act which the Company, in its sole discretion, concludes is detrimental to the best interests of the Company or any of its subsidiaries or affiliates;
(b) Serious, willful misconduct relating to the discharge of duties owed to the Participant’s Employer;
(c) Conviction of a felony or perpetuation of a common law fraud;
1
(d) Willful failure to comply with laws applicable to the execution of the business of the Company or any of its subsidiaries or affiliates;
(e) Theft, fraud, embezzlement, dishonesty or other willful misconduct that has resulted in economic damage to the Company or any of its subsidiaries or affiliates; or
(f) Failure to comply with the Company’s drug and alcohol abuse policy.
| 1.6 | Change-in-Control. |
Provided that such definition shall be interpreted in a manner that is consistent with the definition of “change in control event” under Code Section 409A and the regulations promulgated thereunder, a “Change-in-Control” of the Company shall mean the first to occur of any of the following:
(a) the date that any one person, or more than one person acting as a group, acquires ownership of stock of the Company that, together with stock held by such person or group, constitutes more than fifty percent (50%) of the total fair market value or total voting power of the stock of the Company;
(b) the date that any one person, or more than one person acting as a group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) ownership of stock of the Company possessing thirty-five percent (35%) or more of the total voting power of the stock of the Company;
(c) the date that any one person, or more than one person acting as a group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value equal to or more than forty percent (40%) of the total gross fair market value of all of the assets of the Company immediately prior to such acquisition or acquisitions; or
(d) the date that a majority of members of the Board is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Board prior to the date of the appointment or election.
| 1.7 | Code. |
The Internal Revenue Code of 1986, as amended.
| 1.8 | Compensation. |
The Participant’s Salary, Bonus and Performance-based Compensation.
| 1.9 | Deferrals. |
The portion of Compensation that a Participant elects to defer in accordance with Section 3.1 hereof.
2
| 1.10 | Deferral Election. |
The separate agreement, submitted to the Administrator, by which an Eligible Employee (a) agrees to participate in the Plan, (b) may designate the amount of any Deferrals to be made to the Plan and (c) may designate the time and form of distribution of his or her Account.
| 1.11 | Disability. |
A Participant shall be considered disabled if:
(a) the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or
(b) the Participant is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three months under an accident and health plan covering employees of the Participant’s Employer.
| 1.12 | Effective Date. |
January 1,2007.
| 1.13 | Eligible Employee. |
An Employee shall be considered an Eligible Employee if such Employee is (a) a member of the Employer’s select group of management or is a highly compensated employee within the meaning of Title I of ERISA and (b) designated as an Eligible Employee by the Administrator. The designation of an Employee as an Eligible Employee in any Plan Year shall not confer upon such Employee any right to be designated as an Eligible Employee in any future Plan Year.
| 1.14 | Employee. |
Any person employed by an Employer.