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 July 31, 2005
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 1-566
GREIF, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 31-4388903 | |
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
| 425 Winter Road, Delaware, Ohio | 43015 | |
| (Address of principal executive offices) | (Zip Code) | |
Registrant’s telephone number, including area code (740) 549-6000
Not Applicable
Former name, former address and former fiscal year, if changed since last report.
Indicated by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
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 July 31, 2005 was as follows:
Class A Common Stock 11,537,181 shares
Class B Common Stock 11,556,189 shares
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
GREIF, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
Three months ended
July 31,
Nine months ended
July 31,
Net sales
Costs of products sold
Gross profit
Selling, general and administrative expenses
Restructuring charges
Gain on sale of assets
Operating profit
Interest expense, net
Debt extinguishment charge
Other income, net
Income before income tax expense and equity in earnings of affiliates and minority interests
Income tax expense
Equity in earnings of affiliates 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
2
GREIF, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
ASSETS
July 31,
2005
Current assets
Cash and cash equivalents
Trade accounts receivable, less allowance of $8,256 in 2005 and $11,454 in 2004
Inventories
Net assets held for sale
Deferred tax assets
Other current assets
Long-term assets
Goodwill, net of amortization
Other intangible assets, net of amortization
Timber note receivable (Note 9)
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
3
GREIF, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS’ EQUITY
July 31,
2005
Current liabilities
Accounts payable
Accrued payrolls and employee benefits
Restructuring reserves
Short-term borrowings
Other current liabilities
Long-term liabilities
Long-term debt
Deferred tax liability
Pension liability
Postretirement benefit liability
Timber note securitized (Note 9)
Other long-term liabilities
Minority interest
Shareholders’ equity
Common stock, without par value
Treasury stock, at cost
Retained earnings
Accumulated other comprehensive loss:
- foreign currency translation
- interest rate derivatives
- minimum pension liability
See accompanying Notes to Consolidated
Financial Statements
4
GREIF, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in thousands)
For the nine months ended July 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
Gain on sale of significant nonstrategic timberland gains (Note 9)
Equity in earnings of affiliates, net of dividends received, and minority interests
Increase (decrease) in cash from changes in certain assets and liabilities:
Trade accounts receivable
Inventories
Other current assets
Other long-term assets
Accounts payable
Accrued payroll and employee benefits
Restructuring reserves
Other current liabilities
Postretirement benefit liability
Other long-term liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Acquisitions of companies, net of cash acquired
Purchases of properties, plants and equipment
Proceeds from the sale of properties, plants and equipment
Net cash used in investing activities
Cash flows from financing activities:
Payments on long-term debt
Proceeds (payments) on short-term borrowings
Dividends paid
Acquisitions of treasury stock
Exercise of stock options
Proceeds from timber notes securitized (Note 9)
Net cash provided by (used in) financing activities
Effects of exchange rates on cash
Net increase (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
5
GREIF, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2005
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 July 31, 2005 and October 31, 2004 and the consolidated statements of income and cash flows for the three-month and nine-month periods ended July 31,
2005 and 2004 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, 2004 (the “2004 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 2005 or 2004, 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 2005 presentation.
6
Stock-Based Compensation
At July 31, 2005, the Company had various stock-based compensation plans as described in Note 10 to the Notes to
Consolidated Financial Statements in the 2004 Form 10-K. The Company applies Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations in accounting for its stock option plans. If
compensation cost had been determined based on fair values at the date of grant under Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” pro forma net income and earnings per
share would have been as follows (Dollars in thousands, except per share amounts):
NOTE 2 — RECENT ACCOUNTING
STANDARDS
In December 2004, the Financial Accounting
Standards Board (“FASB”) issued a revision to SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123R”). This revision will require the Company to measure the cost of employee services received in exchange
for an award of equity instruments based on the grant-date fair value of the award. The cost will be recognized over the period during which an employee is required to provide service in exchange for the award. SFAS No. 123R was effective as of the
beginning of the first interim or annual reporting period that begins after June 15, 2005. However, based on a new rule by the Securities and Exchange Commission, companies are allowed to implement SFAS No. 123R at the beginning of their next fiscal
year instead of the next reporting period that begins after June 15, 2005 (November 1, 2005 for the Company). SFAS No. 123R will apply to all awards granted after the required effective date and to awards modified, repurchased or canceled after that
date. As of the required effective date, the Company will apply SFAS No. 123R using a modified version of prospective application. Under this transition method, compensation cost is recognized on or after the required effective date for the portion
of outstanding awards for which the requisite service has not yet been rendered, based on the grant-date fair value of those awards calculated under SFAS No. 123R for either recognition or pro forma disclosures. For periods before the required
effective date, the Company has elected not to apply a modified version of retrospective application under which financial statements for prior periods are adjusted by SFAS No. 123R. Adoption of SFAS No. 123R is expected to result in compensation
cost of approximately $1.0 million in the consolidated statements of income in 2006, assuming no additional stock options are granted during 2005 or 2006.
7
NOTE 3 – SALE OF EUROPEAN ACCOUNTS RECEIVABLE
To further reduce borrowing costs, the Company entered into an arrangement
to sell on a regular basis up to €55 million ($66.7 million at July 31, 2005) of certain outstanding accounts receivable of its European subsidiaries to a major international bank. At July 31, 2005, €45.8 million ($55.5 million) of
accounts receivable were sold under this arrangement. The Company will continue to service these accounts receivable, although no interests therein have been retained. The acquiring international bank has full title and interest to the accounts
receivable, will be free to further dispose of the accounts receivable sold to it and will be fully entitled to receive and retain for its own account the total collections of such accounts receivable. These accounts receivable have been removed
from the balance sheet since they meet the applicable criteria of SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.”
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
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 July 31, 2005, there were nine facilities held for sale. The net assets held for sale are being marketed for sale and it is the Company’s intention to complete the sales within the upcoming year.
NOTE 6 – GOODWILL AND OTHER INTANGIBLE ASSETS
The Company periodically reviews goodwill and indefinite-lived intangible
assets for impairment as required by SFAS No. 142, “Goodwill and Other Intangible Assets.” The Company has concluded that no impairment exists at this time.
Changes to the carrying amount of goodwill for the nine-month period ended July 31, 2005 are as follows (Dollars in
thousands):
8
The goodwill adjustment was recorded during the second quarter of 2005 to recognize a deferred tax asset
related to Van Leer Industrial Packaging prior to its acquisition by the Company in 2001.
All other intangible assets for the periods presented, except for $3.4 million, net, related to the Tri-Sure Trademark, are subject to amortization and are being amortized using the straight-line method over periods
that range from two to 20 years. The detail of other intangible assets by class as of July 31, 2005 and October 31, 2004 are as follows (Dollars in thousands):
During the first nine
months of 2005, there were no acquisitions of other intangible assets. Amortization expense for the nine months ended July 31, 2005 and 2004 was $3.0 million. Amortization expense for the next five years is expected to be $3.0 million in 2006, $2.5
million in 2007, $2.5 million in 2008, $2.4 million in 2009 and $2.3 million in 2010.
During the third quarter of 2005, the Company acquired a small steel drum company in Mexico in the Industrial Packaging & Services segment for $4.9 million. Estimated amounts of identified intangibles and goodwill
and the related allocation are subject to final allocation based on independent appraisals of fair value of assets acquired.
NOTE 7 — INVESTMENT IN AFFILIATES
The Company has an investment in Balmer Lawrie-Van Leer (40%) that is accounted for under the equity method. During the third quarter of 2004, the
Company’s investment in Socer-Embalagens, Lda. (25%), which was previously accounted for under the equity method, was sold. The Company’s share of earnings for these affiliates is included in income as earned.
9
The summarized unaudited financial information below represents the combined results of those entities
accounted for by the equity method (Dollars in thousands):
Nine months
ended July 31,
Net sales
Gross profit
Net income
NOTE 8 — RESTRUCTURING
CHARGES
During 2003, the Company began its
transformation initiatives, which continue to generate productivity improvements and achieve permanent cost reductions. As a result, the Company incurred restructuring charges of $60.7 million in 2003 and $54.1 million in 2004, and $19.2 million
during the first nine months of 2005 related to the transformation initiatives. The Company is continuing to evaluate future rationalization options based on the progress of the transformation initiatives to-date.
As part of the transformation initiatives, the Company closed or sold two
company-owned plants (Industrial Packaging & Services segment) during the first nine months of 2005 and six company-owned plants (five in the Industrial Packaging & Services segment and one in the Paper, Packaging & Services segment)
during the first nine months of 2004. All of the plants were located in North America, except for one in South Africa. In addition, corporate and administrative staff reductions have been made throughout the world. As a result of the transformation
initiatives, during the first nine months of 2005, the Company recorded restructuring charges of $19.2 million, consisting of $7.7 million in employee separation costs, $0.2 million in asset impairments, $3.2 in professional fees directly related to
the transformation initiatives and $8.1 million in other restructuring costs. During the first nine months of 2005, the Company also recorded $3.9 million of restructuring charges related to the impairment of two facilities, which are currently held
for sale, that were closed during previous restructuring programs. The asset impairment charges that relate to the write-down to fair value of buildings and equipment were based on recent buy offers, market comparables and/or data obtained from the
Company’s commercial real estate broker. During the first nine months of 2004, the Company recorded restructuring charges of $39.9 million, consisting of $12.5 million in employee separation costs, $2.6 million in asset impairments, $18.5
million in professional fees directly related to the transformation initiatives and $6.3 million in other restructuring costs.
A total of approximately 1,600 employees have been or will be terminated in connection with the transformation initiatives, 1,515 of which have been
terminated as of July 31, 2005.
For each business segment,
costs incurred in 2005, the cumulative amounts incurred from the start of the transformation initiatives through July 31, 2005 and total costs
10
expected to be incurred in connection with the transformation initiatives are as follows (Dollars in thousands):
Following is a
reconciliation of the beginning and ending restructuring reserve balances for the nine-month period ended July 31, 2005 (Dollars in thousands):
NOTE 9 — SIGNIFICANT
NONSTRATEGIC TIMBERLAND TRANSACTIONS
On March 28,
2005, Soterra LLC (a wholly owned subsidiary of Greif, Inc.) 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 purchase 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
11
timberland and associated assets in Florida, Georgia and Alabama for $51.0 million, resulting in a 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 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”), as a guarantee of the due and punctual payment of principal and interest on the Purchase Note. The remaining acres will be sold in several installments in 2006, and the Company will recognize additional timberland gains in its
consolidated statements of income in the periods that these transactions occur.
On May 31, 2005, STA Timber issued private placement 5.20 percent Senior Secured Notes due August 5, 2020 (the “Monetization Notes”) in the principal amount of $43.3 million. In connection with the sale of
the Monetization Notes, STA Timber entered into note purchase agreements with the purchasers of the Monetization Notes (the “Note Purchase Agreements”) and related documentation. The Monetization Notes are secured by a pledge of the
Purchase Note and the Deed of Guarantee. 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 as of July 31, 2005, in accordance with FASB Interpretation No. 46R,
“Consolidation of Variable Interest Entities Interpretation”. Because STA Timber is a separate and distinct legal entity from the Company, the assets of STA Timber are not available to satisfy the liabilities and obligations of the Company
and the liabilities of STA Timber are not liabilities or obligations of the Company. In addition, the Company has not extended any form of guaranty of the principal or interest on the Monetization Notes. Accordingly, the Company will not become
directly or contingently liable for the payment of the Monetization Notes at any time.
NOTE 10 — LONG-TERM DEBT
Long-term debt is summarized as follows (Dollars in thousands):
July 31,
2005
Credit Agreement
Senior Secured Credit Agreement
8
7
/
8
percent Senior Subordinated Notes
Trade accounts receivable credit facility
Other long-term debt
Credit Agreement
As of March 2, 2005, the Company and certain of its international
subsidiaries, as borrowers, entered into a $350 million Credit Agreement (the “Credit Agreement”) with a syndicate of financial institutions, as lenders, Deutsche Bank AG, New York Branch, as administrative agent, Deutsche Bank Securities
Inc., as joint lead arranger and sole book-runner, KeyBank National Association, as joint lead arranger and syndication agent and National City Bank, Fleet National Bank and ING Capital
12
LLC, as co-documentation agents. The Credit Agreement provides for a $350 million revolving multicurrency credit
facility. The revolving multicurrency credit facility is available for ongoing working capital and general corporate purposes and to refinance amounts outstanding under the Senior Secured Credit Agreement, which is described in the next section.
Interest is based on a Eurocurrency rate or an alternative base rate that resets periodically plus a calculated margin amount. As a result of refinancing the Senior Secured Credit Agreement, a debt extinguishment charge of $2.8 million was recorded
during the second quarter of 2005.
On March 3, 2005, $189.4
million was borrowed under the Credit Agreement in order to prepay the obligations outstanding under the Senior Secured Credit Agreement and certain costs and expenses incurred in connection with the Credit Agreement. As of July 31, 2005, $65.0
million was outstanding under the Credit Agreement.
Senior Secured Credit
Agreement
On August 23, 2002, the Company and certain
international subsidiaries entered into a $550 million Amended and Restated Senior Secured Credit Agreement (the “Senior Secured Credit Agreement”) with a syndicate of lenders. The Senior Secured Credit Agreement was repaid on March 2,
2005 from the proceeds of the Credit Agreement, as described above.
A portion of the proceeds from the Senior Secured Credit Agreement was used to refinance amounts outstanding under the Company’s then existing $900 million senior secured credit agreement. The Senior Secured Credit Agreement originally
provided for a $300 million term loan and a $250 million revolving multicurrency credit facility. The revolving multicurrency credit facility was available for working capital and general corporate purposes. On February 11, 2004, the Company amended
its term loan under the Senior Secured Credit Agreement. As a result of the amendment, the term loan was increased from its balance then outstanding of $226 million to $250 million and the applicable margin was lowered by 50 basis points while
maintaining the existing maturity schedule. The incremental borrowings under the term loan were used to reduce borrowings under the revolving multicurrency credit facility, which was permanently reduced to $230 million. Interest was based on either
a London InterBank Offered Rate (“LIBOR”) or an alternative base rate that was reset periodically plus a calculated margin amount.
Senior Subordinated Notes
On July 31, 2002, the Company issued Senior Subordinated Notes in the aggregate principal amount of $250 million, receiving net proceeds of approximately
$248 million before expenses. During the third quarter of 2005, the Company purchased $ 2.0 million of the Senior Subordinated Notes at a premium ($0.2 million), which was charged to interest expense. At July 31, 2005, the outstanding balance of
$246.4 million included gains on fair value hedges the Company had in
13
place to hedge interest rate risk. Interest on the Senior Subordinated Notes is payable semi-annually at the annual rate of 8.875 percent. The Senior
Subordinated Notes do not have required principal payments prior to maturity on August 1, 2012. However, the Senior Subordinated Notes are redeemable at the option of the Company beginning August 1, 2007, at the redemption prices set forth below
(expressed as percentages of principal amount), plus accrued interest, if any, to the redemption date:
Year
2007
2008
2009
2010 and thereafter
In addition, prior to
August 1, 2007, the Company may redeem the Senior Subordinated Notes by paying a specified “make-whole” premium.
A description of the guarantors of the Senior Subordinated Notes by the Company’s United States subsidiaries is included in Note 18 – Summarized
Condensed Consolidating Financial Statements.
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 United States trade accounts receivable. The credit facility is secured by certain of
the Company’s United States trade accounts receivable and bears interest at a variable rate based on LIBOR plus a margin or other agreed upon rate (3.34 percent interest rate as of July 31, 2005). The Company also pays a commitment fee. The
Company can terminate this facility at any time upon 60 days prior written notice. In connection with this transaction, the Company established Greif Receivables Funding LLC, which is included in the Company’s consolidated financial statements.
This entity purchases and services the Company’s trade accounts receivable that are subject to this credit facility. As of July 31, 2005, there was a total of $93.3 million outstanding under the trade accounts receivable credit facility.
NOTE 11 — FINANCIAL INSTRUMENTS
The Company had interest rate swap agreements with an aggregate notional
amount of $280 million at July 31, 2005 with various maturities through 2012. Under certain of these agreements, the Company receives interest quarterly from the counterparties equal to LIBOR and pays interest at a weighted average rate of 5.93
percent over the life of the contracts. The Company is also party to agreements in which the Company receives interest semi-annually from the counterparty equal to a
14
fixed rate of 8.875 percent and pays interest based on LIBOR plus a margin. A liability for the loss on interest rate
swap contracts of $4.2 million was recorded at July 31, 2005.
At July 31, 2005, the Company had outstanding foreign currency forward contracts in the notional amount of $26.2 million. The fair value of these contracts at July 31, 2005 resulted in a loss of $ 0.1 million recorded in the consolidated
statements of income. The purpose of these contracts is to hedge the Company’s short-term intercompany loan balances with its international businesses.
While the Company may be exposed to credit losses in the event of nonperformance by the counterparties to its derivative financial instrument contracts,
its counterparties are established banks and financial institutions with high credit ratings. The Company has no reason to believe that such counterparties will not be able to fully satisfy their obligations under these contracts.
The fair values of all derivative financial instruments are estimated based
on current settlement prices of comparable contracts obtained from dealer quotes. The values represent the estimated amounts the Company would pay or receive to terminate the agreements at the reporting date.
NOTE 12 — CAPITAL STOCK
Class A Common Stock is entitled to cumulative dividends of 1 cent a share
per year after which Class B Common Stock is entitled to non-cumulative dividends up to ½ cent per share per year. Further distribution in any year must be made in proportion of 1 cent a share for Class A Common Stock to 1
1
/
2
cents a share for Class B Common Stock. The Class A Common Stock has no voting rights unless four quarterly
cumulative dividends upon the Class A Common Stock are in arrears. The Class B Common Stock has full voting rights. There is no cumulative voting for the election of directors.
The following table summarizes the Company’s Class A and Class B common and treasury shares at the specified dates:
15
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.
The following is a reconciliation of the average shares used to calculate basic and diluted earnings per share:
There were no stock
options and 12,000 stock options that were antidilutive for the three-month and nine-month periods, respectively, ended July 31, 2005, and no stock options and 20,000 stock options that were antidilutive for the three-month and nine-month periods,
respectively, ended July 31, 2004.
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):
16
NOTE 16 — RETIREMENT PLANS AND POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
The components of net periodic pension cost include the following (Dollars
in thousands):
Three months
ended July 31,
Nine months
ended July 31,
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost, initial net asset and net actuarial gain
The Company made $12.0
million in pension contributions in the first three quarters of 2005. Based on minimum funding requirements, $16.3 million of pension contributions are estimated for the entire 2005 fiscal year.
The components of net periodic cost for postretirement benefits include the
following (Dollars in thousands):
NOTE 17 — BUSINESS SEGMENT
INFORMATION
The Company operates in three business
segments: Industrial Packaging & Services; Paper, Packaging & Services; and Timber.
Operations in the Industrial Packaging & Services segment involve the production and sale of industrial packaging and related services. These products are manufactured and sold in over 40 countries throughout the
world.
Operations in the Paper, Packaging & Services
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.
17
Operations in the Timber segment involve the management and sale of timber in the southeastern United
States (approximately 246,000 acres of timberland were owned at July 31, 2005). The Company also owns approximately 37,000 acres of timberland in Canada, which are not actively managed at this time. In May 2005, the Company completed the first phase
of the sale of 56,000 acres of timberland, timber and associated assets for approximately $90 million, subject to closing adjustments. In this first phase, 35,000 acres of the Company’s timberland holdings in Florida, Georgia and Alabama were
sold for approximately $51 million in the third quarter of 2005. The second phase of this transaction is expected to occur in several installments during 2006. For further information, see Note 9 – Significant Nonstrategic Timberland
Transactions.
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 2004 Form 10-K.
The following segment
information is presented for the periods indicated (Dollars in thousands):
18
The following table
presents net sales to external customers by geographic area (Dollars in thousands):
The following table
presents total assets by geographic area (Dollars in thousands):
July 31,
2005
Assets:
North America
Europe
Other
Total assets
NOTE 18 — SUMMARIZED
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The
Senior Subordinated Notes, more fully described in Note 10 — Long-Term Debt, are fully guaranteed, jointly and severally, by the Company’s United States subsidiaries (“Guarantor Subsidiaries”). The Company’s non-United
States subsidiaries are not guaranteeing the Senior Subordinated Notes (“Non-Guarantor Subsidiaries”). Presented below are summarized condensed consolidating financial statements of Greif, Inc. (the “Parent”), which includes
certain of the Company’s operating units, the Guarantor Subsidiaries, the Non-Guarantor Subsidiaries and the Company on a consolidated basis.
On November 1, 2004, the Company restructured certain of its United States operations and subsidiaries. As a result, the condensed consolidating financial
statements at July 31, 2005 and for the three-month and nine-month periods ended July 31, 2005 reflect these changes.
Presented below are condensed consolidating financial statements of the Parent, the Guarantor Subsidiaries and the non-Guarantor Subsidiaries at July 31,
2005
19
and October 31, 2004, and for the three-month and nine-month periods ended July 31, 2005 and 2004. These summarized
condensed consolidating financial statements are prepared using the equity method. Separate financial statements for the Guarantor Subsidiaries are not presented based on management’s determination that they do not provide additional
information that is material to investors.
20
Condensed Consolidating Statements of Income
For the three months ended July 31, 2005
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Net sales
Cost of products sold
Gross profit
Selling, general and administrative expenses
Restructuring charges
Gain (loss) on sale of assets
Operating profit
Interest expense, net
Debt extinguishment charge
Other income (expense), net (1)
Income before income tax expense and equity in earnings of affiliates and minority interests
Income tax expense
Equity in earnings of affiliates and minority interests
Net income (loss)
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Net sales
Cost of products sold
Gross profit
Selling, general and administrative expenses
Restructuring charges
Gain (loss) on sale of assets
Operating profit
Interest expense, net
Debt extinguishment charge
Other income (expense), net (1)
Income before income tax expense and equity in earnings of affiliates and minority interests
Income tax expense
Equity in earnings of affiliates and minority interests
Net income (loss)
21
Condensed Consolidating Statement of Income
Three months ended July 31, 2004
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Net sales
Cost of products sold
Gross profit
Selling, general and administrative expenses
Restructuring charges
Gain on sale of assets
Operating profit
Interest expense, net
Other income (expense), net (1)
Income (loss) before income tax expense (benefit) and equity in earnings of affiliates and minority interests
Income tax expense (benefit)
Equity in earnings of affiliates and minority interests
Net income (loss)
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Net sales
Cost of products sold
Gross profit
Selling, general and administrative expenses
2005
2004
2005
2004
$
609,046
$
584,814
$
1,804,570
$
1,595,863
515,575
484,921
1,524,455
1,337,259
93,471
99,893
280,115
258,604
52,224
57,105
168,013
163,875
5,296
12,324
23,103
39,861
46,579
1,290
61,117
6,521
82,530
31,754
150,116
61,389
9,754
10,885
30,540
33,848
—
—
2,828
—
2,401
292
3,608
1,208
75,177
21,161
120,356
28,749
24,344
6,000
37,310
8,337
(121
)
(292
)
(431
)
(460
)
$
50,712
$
14,869
$
82,615
$
19,952
$
1.76
$
0.52
$
2.88
$
0.71
$
2.63
$
0.79
$
4.31
$
1.06
$
1.71
$
0.51
$
2.81
$
0.70
$
2.63
$
0.79
$
4.31
$
1.06
October 31,
2004
(Unaudited)
$
70,810
$
38,109
276,352
307,750
206,235
191,457
17,103
14,753
9,357
6,636
66,282
53,977
646,139
612,682
232,091
237,803
24,550
27,524
50,891
—
55,092
54,547
362,624
319,874
132,553
129,141
72,701
68,349
315,991
321,183
843,142
851,800
49,727
37,192
1,414,114
1,407,665
(569,608
)
(526,983
)
844,506
880,682
$
1,853,269
$
1,813,238
October 31,
2004
(Unaudited)
$
235,547
$
281,265
40,582
49,633
10,858
17,283
26,050
11,621
79,980
77,416
393,017
437,218
404,682
457,415
170,506
148,639
45,070
44,036
48,869
48,667
43,250
—
37,212
46,444
749,589
745,201
1,797
1,725
47,857
27,382
(72,157
)
(65,360
)
778,557
711,919
1,544
5,655
(3,530
)
(7,097
)
(43,405
)
(43,405
)
708,866
629,094
$
1,853,269
$
1,813,238
2005
2004
$
82,615
$
19,952
74,576
77,134
4,110
2,581
8,673
8,766
(19,042
)
(6,520
)
(42,090
)
—
698
(930
)
29,486
(45,482
)
(16,893
)
(6,785
)
(13,839
)
(3,212
)
13,834
(8,088
)
(43,136
)
35,641
(8,653
)
(4,808
)
(6,369
)
41
2,931
814
1,555
778
618
(11,016
)
69,074
58,866
(4,889
)
—
(59,184
)
(47,406
)
23,789
10,324
(40,284
)
(37,082
)
(52,714
)
(44,052
)
14,628
(887
)
(15,977
)
(12,310
)
(8,105
)
(29
)
21,573
10,552
43,250
—
2,655
(46,726
)
1,256
188
32,701
(24,754
)
38,109
49,767
$
70,810
$
25,013
July 31,
2005
October 31,
2004
$
52,452
$
60,615
188,998
168,477
241,450
229,092
(35,215
)
(37,635
)
$
206,235
$
191,457
Three months
ended July 31,
2005
2004
2005
2004
$
3,806
$
3,785
$
11,328
$
11,975
$
595
$
661
$
1,771
$
2,466
$
278
$
403
$
827
$
699
October 31,
2004
$
65,025
$
—
—
81,398
246,399
253,960
93,258
103,857
—
18,200
$
404,682
$
457,415
Redemption
Price
104.438
%
102.958
%
101.479
%
100.000
%
Three months
ended July 31,
Nine months
ended July 31,
2005
2004
2005
2004
$
0.24
$
0.16
$
0.56
$
0.44
$
0.36
$
0.24
$
0.83
$
0.65
2005
2004
2005
2004
$
3,110
$
3,065
$
9,444
$
9,205
6,433
6,106
19,660
18,327
(7,186
)
(7,080
)
(21,956
)
(21,218
)
1,138
744
3,462
2,242
$
3,495
$
2,835
$
10,610
$
8,556
October 31,
2004
$
1,230,205
$
1,136,781
409,769
469,094
221,789
207,363
$
1,861,763
$
1,813,238
Parent
Eliminations
Consolidated
$
1,248
$
361,920
$
311,441
$
(65,563
)
$
609,046
859
318,939
261,340
(65,563
)
515,575
389
42,981
50,101
—
93,471
290
26,875
25,059
—
52,224
1
2,110
3,185
—
5,296
1,227
45,418
(66
)
—
46,579
1,325
59,414
21,791
—
82,530
—
8,324
1,430
—
9,754
—
—
—
—
—
3
(2,031
)
4,429
—
2,401
1,328
49,059
24,790
—
75,177
413
15,467
8,464
—
24,344
49,797
—
(121
)
(49,797
)
(121
)
$
50,712
$
33,592
$
16,205
$
(49,797
)
$
50,712
For the nine months ended July 31, 2005
Parent
Eliminations
Consolidated
$
3,840
$
1,008,143
$
918,681
$
(126,094
)
$
1,804,570
2,788
870,448
777,313
(126,094
)
1,524,455
1,052
137,695
141,368
—
280,115
895
87,608
79,510
—
168,013
1
11,265
11,837
—
23,103
1,227
58,871
1,019
—
61,117
1,383
97,693
51,040
—
150,116
—
26,006
4,534
—
30,540
—
2,828
—
—
2,828
9
(8,573
)
12,172
—
3,608
1,392
60,286
58,678
—
120,356
431
18,689
18,190
—
37,310
81,654
—
(431
)
(81,654
)
(431
)
$
82,615
$
41,597
$
40,057
$
(81,654
)
$
82,615
(1)
Includes amounts that relate to intercompany royalty arrangements.
Parent
Eliminations
Consolidated
$
176,705
$
166,601
$
311,481
$
(69,973
)
$
584,814
150,290
143,135
261,469
(69,973
)
484,921
26,415
23,466
50,012
—
99,893
22,629
6,445
28,031
—
57,105
1,121
8,504
2,699
—
12,324
—
989
301
—
1,290
2,665
9,506
19,583
—
31,754
9,669
120
1,096
—
10,885
(10,617
)
8,209
2,700
—
292
(17,621
)
17,595
21,187
—
21,161
(4,230
)
4,591
5,639
—
6,000
28,260
—
(292
)
(28,260
)
(292
)
$
14,869
$
13,004
$
15,256
$
(28,260
)
$
14,869
Nine months ended July 31, 2004
Parent
Eliminations
Consolidated
$
499,394
$
450,580
$
835,572
$
(189,683
)
$
1,595,863
430,349
388,276
708,317
(189,683
)
1,337,259
69,045
62,304
127,255
—
258,604