GREIF INC, 10-Q filed on 6/7/2013
Quarterly Report
Document and Entity Information
6 Months Ended
Apr. 30, 2013
Jun. 3, 2013
Class A Common Stock [Member]
Jun. 3, 2013
Class B Common Stock [Member]
Entity Information [Line Items]
 
 
 
Document Type
10-Q 
 
 
Amendment Flag
false 
 
 
Document Period End Date
Apr. 30, 2013 
 
 
Document Fiscal Year Focus
2013 
 
 
Document Fiscal Period Focus
Q2 
 
 
Trading Symbol
GEF 
 
 
Entity Registrant Name
GREIF INC 
 
 
Entity Central Index Key
0000043920 
 
 
Current Fiscal Year End Date
--10-31 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
Entity Common Stock, Shares Outstanding
 
25,424,424 
22,119,966 
CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended 6 Months Ended
Apr. 30, 2013
Apr. 30, 2012
Apr. 30, 2013
Apr. 30, 2012
Net sales
$ 1,088.9 
$ 1,098.2 
$ 2,097.5 
$ 2,091.0 
Cost of products sold
886.3 
892.7 
1,707.6 
1,708.1 
Gross profit
202.6 
205.5 
389.9 
382.9 
Selling, general and administrative expenses
121.9 
119.1 
244.5 
232.2 
Restructuring charges
(0.1)
10.1 
1.2 
19.0 
(Gain) on disposal of properties, plants and equipment, net
(3.1)
(2.0)
(4.3)
(3.1)
Operating profit
83.9 
78.3 
148.5 
134.8 
Interest expense, net
21.4 
23.3 
43.0 
46.2 
Debt extinguishment charge
 
 
1.3 
 
Other expense, net
0.8 
2.7 
3.9 
2.5 
Income before income tax expense and equity earnings of unconsolidated affilitates, net
61.7 
52.3 
100.3 
86.1 
Income tax expense
18.9 
15.1 
31.4 
26.1 
Equity earnings of unconsolidated affiliates, net of tax
0.2 
2.0 
0.3 
2.0 
Net income
43.0 
39.2 
69.2 
62.0 
Net (income) loss attributable to noncontrolling interests
(2.1)
0.2 
(3.4)
(0.9)
Net income attributable to Greif, Inc.
$ 40.9 
$ 39.4 
$ 65.8 
$ 61.1 
Class A Common Stock [Member]
 
 
 
 
Basic earnings per share attributable to Greif, Inc. common shareholders:
 
 
 
 
EPS Basic
$ 0.70 
$ 0.68 
$ 1.13 
$ 1.05 
Diluted earnings per share attributable to Greif, Inc. common shareholders:
 
 
 
 
EPS Diluted
$ 0.70 
$ 0.67 
$ 1.13 
$ 1.05 
Class B Common Stock [Member]
 
 
 
 
Basic earnings per share attributable to Greif, Inc. common shareholders:
 
 
 
 
EPS Basic
$ 1.05 
$ 1.01 
$ 1.68 
$ 1.57 
Diluted earnings per share attributable to Greif, Inc. common shareholders:
 
 
 
 
EPS Diluted
$ 1.05 
$ 1.01 
$ 1.68 
$ 1.57 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (USD $)
In Millions, unless otherwise specified
3 Months Ended 6 Months Ended
Apr. 30, 2013
Apr. 30, 2012
Apr. 30, 2013
Apr. 30, 2012
Statement Of Income And Comprehensive Income [Abstract]
 
 
 
 
Net income
$ 43.0 
$ 39.2 
$ 69.2 
$ 62.0 
Other comprehensive income (loss), net of tax:
 
 
 
 
Foreign currency translation
(20.3)
0.3 
(4.4)
(7.1)
Reclassification of cash flow hedges to earnings, net of tax
0.3 
0.9 
0.2 
0.6 
Unrealized gain on cash flow hedges, net of tax
(0.4)
(1.1)
(0.1)
(1.0)
Minimum pension liabilities, net of tax
1.2 
(0.6)
0.8 
3.8 
Other comprehensive (loss), net of tax
(19.2)
(0.5)
(3.5)
(3.7)
Comprehensive income
23.8 
38.7 
65.7 
58.3 
Comprehensive income (loss) attributable to noncontrolling interests
0.7 
(1.7)
6.3 
3.4 
Comprehensive income attributable to Greif, Inc.
$ 23.1 
$ 40.4 
$ 59.4 
$ 54.9 
CONSOLIDATED BALANCE SHEETS (USD $)
In Millions, unless otherwise specified
Apr. 30, 2013
Oct. 31, 2012
Current assets
 
 
Cash and cash equivalents
$ 85.6 
$ 91.7 
Trade accounts receivable, less allowance of $13.2 in 2013 and $17.1 in 2012
471.8 
453.9 
Inventories
392.5 
374.3 
Deferred tax assets
17.9 
18.9 
Net assets held for sale
6.8 
5.5 
Current portion related party notes and advances receivable
2.6 
2.5 
Prepaid expenses and other current assets
146.5 
117.2 
Total current assets
1,123.7 
1,064.0 
Long-term assets
 
 
Goodwill
981.2 
976.1 
Other intangible assets, net of amortization
187.1 
198.6 
Deferred tax assets
9.8 
13.6 
Related party notes receivable
14.6 
15.7 
Assets held by special purpose entities
50.9 
50.9 
Other long-term assets
119.6 
118.3 
Total long-term assets
1,363.2 
1,373.2 
Properties, plants and equipment
 
 
Timber properties, net of depletion
216.8 
217.8 
Land
138.7 
137.7 
Buildings
501.5 
460.0 
Machinery and equipment
1,497.5 
1,472.6 
Capital projects in progress
123.3 
149.3 
Property, Plant and Equipment, Gross
2,477.8 
2,437.4 
Accumulated depreciation
(1,071.5)
(1,017.7)
Properties, plants and equipment, net
1,406.3 
1,419.7 
Total assets
3,893.2 
3,856.9 
Current liabilities
 
 
Accounts payable
425.7 
466.1 
Accrued payroll and employee benefits
88.2 
96.1 
Restructuring reserves
3.8 
8.0 
Current portion of long-term debt
10.0 
25.0 
Short-term borrowings
60.8 
76.0 
Deferred tax liabilities
9.9 
8.1 
Other current liabilities
185.2 
182.7 
Total current liabilities
783.6 
862.0 
Long-term liabilities
 
 
Long-term debt
1,269.4 
1,175.3 
Deferred tax liabilities
193.2 
197.0 
Pension liabilities
130.4 
123.4 
Postretirement benefit obligations
19.2 
19.3 
Liabilities held by special purpose entities
43.3 
43.3 
Other long-term liabilities
116.5 
116.2 
Total long-term liabilities
1,772.0 
1,674.5 
Shareholders' equity
 
 
Common stock, without par value
127.8 
123.8 
Treasury stock, at cost
(131.1)
(131.4)
Retained earnings
1,421.2 
1,404.4 
Accumulated other comprehensive loss:
 
 
- foreign currency translation
(76.4)
(69.1)
- interest rate and other cash flow hedges
(0.8)
(0.9)
- minimum pension liabilities
(125.2)
(126.0)
Total Greif, Inc. shareholders' equity
1,215.5 
1,200.8 
Noncontrolling interests
122.1 
119.6 
Total shareholders' equity
1,337.6 
1,320.4 
Total liabilities and shareholders' equity
$ 3,893.2 
$ 3,856.9 
CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
In Millions, unless otherwise specified
Apr. 30, 2013
Oct. 31, 2012
Statement Of Financial Position [Abstract]
 
 
Allowance of trade accounts receivable
$ 13.2 
$ 17.1 
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Millions, unless otherwise specified
6 Months Ended
Apr. 30, 2013
Apr. 30, 2012
Cash flows from operating activities:
 
 
Net income
$ 69.2 
$ 62.0 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation, depletion and amortization
78.4 
78.4 
Asset impairments
2.3 
7.4 
Unrealized foreign exchange (gain) loss
3.4 
(2.9)
Deferred income taxes
0.1 
(7.1)
Gain on disposals of properties, plants and equipment, net
(4.3)
(3.1)
Equity earnings of affiliates
(0.3)
(2.0)
Other, net
0.5 
(1.3)
Increase (decrease) in cash from changes in certain assets and liabilities:
 
 
Trade accounts receivable
(20.1)
41.6 
Inventories
(19.3)
39.0 
Deferred purchase price on sold receivables
(22.8)
(1.2)
Accounts payable
(40.1)
(29.8)
Restructuring reserves
(4.2)
(10.7)
Pension and postretirement benefit liabilities
6.8 
(7.1)
Other, net
(10.7)
16.2 
Net cash provided by operating activities
38.9 
179.4 
Cash flows from investing activities:
 
 
Purchases of properties, plants and equipment
(55.5)
(80.7)
Purchases of timber properties
(0.5)
(2.6)
Proceeds from the sale of properties, plants, equipment and other assets
6.1 
7.0 
Payments on (issuance of) notes receivable with related party, net
0.5 
(11.9)
Net cash used in investing activities
(49.4)
(88.2)
Cash flows from financing activities:
 
 
Proceeds from issuance of long-term debt
691.9 
1,862.0 
Payments on long-term debt
(619.1)
(1,895.3)
Payments on short-term borrowings, net
(36.2)
(14.1)
Proceeds from (payments on) trade accounts receivable credit facility, net
20.0 
(2.0)
Dividends paid
(49.0)
(48.8)
Exercise of stock options
0.9 
0.6 
Fees paid for amended credit agreement
(3.4)
 
Payment of deferred purchase price related to acquisitions
 
(14.3)
Net cash provided by (used in) financing activities
5.1 
(111.9)
Effects of exchange rates on cash
(0.7)
(1.8)
Net decrease in cash and cash equivalents
(6.1)
(22.5)
Cash and cash equivalents at beginning of period
91.7 
127.4 
Cash and cash equivalents at end of period
$ 85.6 
$ 104.9 
Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation and Summary of Significant Accounting Policies

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 April 30, 2013 and October 31, 2012, the consolidated statements of operations and comprehensive income for the three and six months ended April 30, 2013 and 2012 and the consolidated statements of cash flows for the six month periods ended April 30, 2013 and 2012 of Greif, Inc. and its subsidiaries (the “Company”). The consolidated financial statements include the accounts of Greif, Inc., all wholly-owned and majority-owned subsidiaries and investments in limited liability companies, partnerships and joint ventures in which it has controlling influence. Non–majority owned entities include investments in limited liability companies, partnerships and joint ventures in which the Company does not have controlling influence.

The unaudited consolidated financial statements included in the Quarterly Report on Form 10-Q (this “Form 10-Q”) 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, 2012 (the “2012 Form 10-K”). Note 1 of the “Notes to Consolidated Financial Statements” from the 2012 Form 10-K is specifically incorporated in this Form 10-Q by reference. In the opinion of management, all adjustments necessary for fair presentation of the consolidated financial statements have been included and are of a normal and recurring nature.

The consolidated financial statements have been prepared in accordance with the U.S. Securities and Exchange Commission (“SEC”) instructions to Quarterly Reports on Form 10-Q and include all of the information and disclosures required by accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting. The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual amounts could differ from those estimates.

The Company’s fiscal year begins on November 1 and ends on October 31 of the following year. Any references to the year 2013 or 2012, or to any quarter of those years, relates to the fiscal year or quarter, as the case may be, ended in that year.

The Company presents various fair value disclosures in Notes 3 and 10 to these Consolidated Financial Statements.

Certain prior year amounts have been reclassified to conform to the 2013 presentation.

Newly Adopted Accounting Standards

In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-05 “Comprehensive Income: Presentation of comprehensive income.” This amendment to Accounting Standards Codification (“ASC”) 220 “Comprehensive Income” requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. In December 2011, the FASB issued ASU 2011-12 “Comprehensive Income: Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.” This amendment to ASC 220 “Comprehensive Income” deferred the adoption of presentation of reclassification items out of accumulated other comprehensive income. The Company adopted this new guidance beginning November 1, 2012, and the adoption of the new guidance did not impact the Company’s financial position, results of operations or cash flows, other than the related disclosures.

In September 2011, the FASB issued ASU 2011-08 “Intangibles—Goodwill and Other: Testing Goodwill for Impairment”, which provides an entity the option to first assess qualitative factors to determine whether it is necessary to perform the current two-step test for goodwill impairment. If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further testing is required. The revised standard is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The Company has adopted this new guidance, which will be fully implemented when the annual goodwill impairment testing is performed during the fourth quarter of 2013, and the adoption of the new guidance is not expected to impact the Company’s financial position, results of operations, comprehensive income or cash flows, other than related disclosures.

 

In July 2012, the FASB issued ASU 2012-02 “Intangibles—Goodwill and Other: Testing Indefinite-Lived Intangible Assets for Impairment” which provides an entity the option to first assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more-likely-than-not that the indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount. The Company has adopted this new guidance, which will be fully implemented when the annual intangible asset impairment testing is performed during the fourth quarter of 2013, and the adoption of the new guidance is not expected to impact the Company’s financial position, results of operations, comprehensive income or cash flows, other than related disclosures.

Recently Issued Accounting Standards

As of April 30, 2013, the FASB has issued ASU’s through 2013-07. The Company has reviewed each ASU and the adoption of each ASU that is applicable to the Company is not expected to have a material impact on the Company’s financial position, results of operations, comprehensive income or cash flows, other than the related disclosures.

In December 2011, the FASB issued ASU 2011-11 “Balance Sheet: Disclosures about Offsetting Assets and Liabilities.” The differences in the offsetting requirements in GAAP and International Financial Reporting Standards (“IFRS”) account for a significant difference in the amounts presented in statements of financial position prepared in accordance with GAAP and in the amounts presented in those statements prepared in accordance with IFRS for certain institutions. This difference reduces the comparability of statements of financial position. The FASB and IASB are issuing joint requirements that will enhance current disclosures. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The Company is expected to adopt the new guidance beginning on November 1, 2013, and the adoption of the new guidance is not expected to impact the Company’s financial position, results of operations, comprehensive income or cash flows, other than the related disclosures.

In January 2013, the FASB issued ASU 2013-01 “Balance Sheet: Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities.” The main objective in developing this update is to address implementation issues about the scope of ASU 2011-11. FASB stakeholders have told the FASB that because the scope in ASU 2011-11 is unclear, diversity in practice may result. Recent feedback from FASB stakeholders is that standard commercial provisions of many contracts would equate to a master netting arrangement. FASB stakeholders questioned whether it was the FASB’s intent to require disclosures for such a broad scope, which would significantly increase the cost of compliance. The objective of this update is to clarify the scope of the offsetting disclosures and address any unintended consequences. The Company is expected to adopt the new guidance beginning on November 1, 2013, and the adoption of the new guidance is not expected to impact the Company’s financial position, results of operations, comprehensive income or cash flows, other than the related disclosures.

In February 2013, the FASB issued ASU 2013-02 “Comprehensive Income: Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” The objective of this update is to improve the reporting of reclassifications out of accumulated other comprehensive income. The amendments in this update seek to attain that objective by requiring an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. GAAP to be reclassified in its entirety to net income. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is reclassified to a balance sheet account instead of directly to income or expense in the same reporting period. The Company is expected to adopt the new guidance beginning on November 1, 2013, and the adoption of the new guidance is not expected to impact the Company’s financial position, results of operations, comprehensive income or cash flows, other than the related disclosures.

In March 2013, the FASB issued ASU 2013-05 “Foreign Currency Matters: Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or an Investment in a Foreign Entity.” The objective of this update is to resolve the diversity in practice about whether ASC 810-10 or ASC 830-30 applies to the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business (other than a sale of in substance real estate or conveyance of oil and gas rights) within a foreign entity. The Company is expected to adopt the new guidance beginning November 1, 2014, and the impact of the adoption of the new guidance will be evaluated when an acquisition or divestiture occurs with respect to the Company’s financial position, results of operations, comprehensive income, cash flows and disclosures.

Acquisitions, Divestitures and Other Significant Transactions
Acquisitions, Divestitures and Other Significant Transactions

NOTE 2 — ACQUISITIONS, DIVESTITURES AND OTHER SIGNIFICANT TRANSACTIONS

The Company completed no acquisitions and no material divestitures for the three months ended April 30, 2013 and 2012 and completed no acquisitions and no material divestitures for the six months ended April 30, 2013 and 2012. The Company made a $14.3 million deferred cash payment during the six months ended April 30, 2012 for an acquisition completed in 2010.

The Company allocates purchase price as of the dates of acquisition based upon its understanding, obtained during due diligence and through other sources, of the fair value of the acquired assets and assumed liabilities. If additional information is obtained about these assets and liabilities within the measurement period (not to exceed one year from the date of acquisition), including through asset appraisals and learning more about the newly acquired business, the Company may refine its estimates of fair value to allocate the purchase price more accurately.

Pro Forma Information

The Company completed no acquisitions during the three months ended April 30, 2013 and 2012 and completed no acquisitions during the six months ended April 30, 2013 and 2012. Therefore, there are no pro forma results of operations to present.

Sale of Non-United States Accounts Receivable
Sale of Non-United States Accounts Receivable

NOTE 3 — SALE OF NON-UNITED STATES ACCOUNTS RECEIVABLE

On April 27, 2012, Cooperage Receivables Finance B.V. (the “Main SPV”) and Greif Coordination Center BVBA, an indirect wholly owned subsidiary of Greif, Inc. (“Seller”), entered into the Nieuw Amsterdam Receivables Purchase Agreement (the “European RPA”) with affiliates of a major international bank (the “Purchasing Bank Affiliates”). Under the European RPA, the Seller has agreed to sell trade accounts receivables that meet certain eligibility requirements that Seller had purchased from other indirect wholly owned subsidiaries of Greif, Inc. under discounted receivables purchase agreements and related agreements. These other indirect wholly owned subsidiaries of Greif, Inc. include Greif Belgium BVBA, Pack2pack Rumbeke N.V., Pack2pack Zwolle B.V., Greif Nederland B.V., Pack2pack Halsteren B.V., Greif Italia S.p.A., Fustiplast S.p.A., Greif France S.A.S., Pack2pack Lille S.A.S., Greif Packaging Spain S.A., Greif UK Ltd., Greif Germany GmbH, Fustiplast GmbH, Pack2pack Mendig GmbH, Greif Portugal S.A., Greif Sweden AB, Greif Packaging Sweden AB and Greif Norway A.S. (the “Selling Subsidiaries”). Under the terms of a Performance and Indemnity Agreement, the performance obligations of the Selling Subsidiaries under the transaction documents have been guaranteed by Greif, Inc. The European RPA may be amended from time to time to add additional subsidiaries of Greif, Inc. The maximum amount of receivables that may be sold and outstanding under the European RPA at any time is €145 million ($188.7 million as of April 30, 2013). A significant portion of the proceeds from this trade receivables facility was used to pay the obligations under the previous trade receivables facilities described below, which were then terminated, and to pay expenses incurred in connection with this transaction. The future proceeds from this facility will be available for working capital and general corporate purposes.

Under the terms of a Receivable Purchase Agreement (the “RPA”) entered into in October 2004 between Seller and a major international bank, Seller had agreed to sell trade receivables meeting certain eligibility requirements that Seller had purchased from other indirect wholly owned subsidiaries of Greif, Inc., including Greif Belgium BVBA, Greif Germany GmbH, Greif Nederland B.V., Greif Packaging Belgium NV, Greif Spain S.A., Greif Sweden AB, Greif Packaging Norway A.S., Greif Packaging France S.A.S., Greif Packaging Spain S.A., Greif Portugal S.A. and Greif UK Ltd., under discounted receivables purchase agreements and from Greif France S.A.S. under a factoring agreement. In addition, Greif Italia S.p.A., also an indirect wholly owned subsidiary of Greif, Inc., had entered into an Italian Receivables Purchase Agreement with the Italian branch of the major international bank (the “Italian RPA”) agreeing to sell trade receivables that meet certain eligibility criteria to such branch. The Italian RPA was similar in structure and terms as the RPA. On April 27, 2012, the RPA and the Italian RPA were terminated.

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 aggregate receivables that may be financed under the Singapore RPA is 15.0 million Singapore Dollars ($12.1 million as of April 30, 2013).

In May 2009, Greif Malaysia Sdn Bhd., an indirect wholly-owned subsidiary of Greif, Inc., entered into the Malaysian Receivables Purchase Agreement (the “Malaysian Agreement”) with Malaysian banks. The maximum amount of the aggregate receivables that may be financed under the Malaysian Agreement is 15.0 million Malaysian Ringgits ($4.9 million as of April 30, 2013).

 

These transactions are structured to provide for legal true sales, on a revolving basis, of the receivables transferred from the various Greif, Inc. subsidiaries to the respective banks and affiliates. Under the European RPA, the RPA, the Singapore RPA and the Malaysian Agreement, the banks and affiliates fund 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; although under the European RPA, the Seller provides a subordinated loan to the Main SPV, which is used to fund the remaining purchase price owed to the Selling Subsidiaries. The repayment of the subordinated loan to the Seller is paid from the collections of the receivables. As of the balance sheet reporting dates, the Company removes from accounts receivable the amount of cash proceeds received from the initial purchase price since they meet the applicable criteria of ASC 860, “Transfers and Servicing”, and continues to recognize the deferred purchase price within other current assets on the Company’s consolidated balance sheet as of the time the receivables are initially sold; accordingly 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 operations within other expense, net. 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.

The tables below contain information related to the Company’s accounts receivables programs for the activities related to the consolidated statements of operations and balance sheets, respectively (Dollars in millions):

 

     Three months ended      Six months ended  
     April 30,      April 30,  
     2013      2012      2013      2012  

European RPA

  

        

Gross accounts receivable sold to third party financial institution

   $ 266.0       $ 187.8       $ 508.1       $ 187.8   

Cash received for accounts receivable sold under the programs

     235.0         164.5         449.7         164.5   

Deferred purchase price related to accounts receivable sold

     30.9         23.3         58.4         23.3   

Loss associated with the programs

     0.5         0.6         1.2         0.6   

Expenses associated with the programs

     —            1.9         —            1.9   

RPA and Italian RPA

           

Gross accounts receivable sold to third party financial institution

   $ —          $ 17.6       $ —          $ 189.4   

Cash received for accounts receivable sold under the programs

     —            15.6         —            167.7   

Deferred purchase price related to accounts receivable sold

     —            2.0         —            21.7   

Loss associated with the programs

     —            0.7         —            1.6   

Expenses associated with the programs

     —            —            —            —      

Singapore RPA

           

Gross accounts receivable sold to third party financial institution

   $ 17.7       $ 19.2       $ 35.0       $ 35.8   

Cash received for accounts receivable sold under the program

     17.7         19.2         35.0         35.8   

Deferred purchase price related to accounts receivable sold

     —            —            —            —      

Loss associated with the program

     —            —            —            —      

Expenses associated with the program

     0.1         0.1         0.1         0.1   

Malaysian Agreement

           

Gross accounts receivable sold to third party financial institution

   $ 6.3       $ 6.0       $ 11.5       $ 12.4   

Cash received for accounts receivable sold under the program

     6.3         6.0         11.5         12.4   

Deferred purchase price related to accounts receivable sold

     —            —            —            —      

Loss associated with the program

     —            —            0.1         0.1   

Expenses associated with the program

     —            —            —            —      

Total RPAs and Agreement

           

Gross accounts receivable sold to third party financial institution

   $ 290.0       $ 230.6       $ 554.6       $ 425.4   

Cash received for accounts receivable sold under the program

     259.0         205.3         496.2         380.4   

Deferred purchase price related to accounts receivable sold

     30.9         25.3         58.4         45.0   

Loss associated with the program

     0.5         1.3         1.3         2.3   

Expenses associated with the program

     0.1         2.0         0.1         2.0   

 

     April 30,      October 31,  
     2013      2012  

European RPA

  

  

Accounts receivable sold to and held by third party financial institution

   $ 180.4       $ 185.6   

Uncollected deferred purchase price related to accounts receivable sold

     26.4         3.5   

RPA and Italian RPA

     

Accounts receivable sold to and held by third party financial institution

   $ —          $ —      

Uncollected deferred purchase price related to accounts receivable sold

     —            —      

Singapore RPA

     

Accounts receivable sold to and held by third party financial institution

   $ 5.6       $ 3.9   

Uncollected deferred purchase price related to accounts receivable sold

     —            —      

Malaysian Agreement

     

Accounts receivable sold to and held by third party financial institution

   $ 4.3       $ 2.9   

Uncollected deferred purchase price related to accounts receivable sold

     —            —      

Total RPAs and Agreement

     

Accounts receivable sold to and held by third party financial institution

   $ 190.3       $ 192.4   

Uncollected deferred purchase price related to accounts receivable sold

   $ 26.4       $ 3.5   

The deferred purchase price related to the accounts receivable sold is reflected as prepaid and other current assets on the Company’s consolidated balance sheet and was initially recorded at an amount which approximates its fair value due to the short-term nature of these items. The cash received up front and the deferred purchase price relate to the sale or ultimate collection of the underlying receivables and are not subject to significant other risks given their short nature; therefore, the Company reflects all cash flows under the accounts receivable sales programs as operating cash flows on the Company’s consolidated statements of cash flows.

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 European RPA, the RPA, the Singapore RPA and the Malaysian Agreement. The servicing liability for these receivables is not material to the consolidated financial statements.

Inventories
Inventories

NOTE 4 — INVENTORIES

Inventories are stated at the lower of cost or market and are summarized as follows (Dollars in millions):

 

     April 30,      October 31,  
     2013      2012  

Finished Goods

   $ 108.9       $ 96.9   

Raw materials

     245.1         241.0   

Work-in-process

     38.5         36.4   
  

 

 

    

 

 

 
   $ 392.5       $ 374.3   
  

 

 

    

 

 

 
Net Assets Held for Sale
Net Assets Held for Sale

NOTE 5 — NET ASSETS HELD FOR SALE

As of April 30, 2013, there was one asset group in the Rigid Industrial Packaging & Services segment and two asset groups in the Flexible Products & Services segment with assets held for sale. As of October 31, 2012, there was one asset group in the Rigid Industrial Packaging & Services segment and one asset group in the Flexible Products & Services segment with assets held for sale. During the six months ended April 30, 2013, one asset group was added in the Rigid Industrial Packaging & Services segment and one asset group was added in the Flexible Products & Services segment. The asset group added to the Rigid Industrial Packaging & Services segment was subsequently sold during the same six month period. The net assets held for sale are being marketed for sale and it is the Company’s intention to complete the sales of these assets within the upcoming year.

For the three months ended April 30, 2013, the Company recorded a gain on disposal of property, plant and equipment, net of $3.1 million. There were sales of higher and better use (“HBU”) and surplus properties which resulted in gains of $0.5 million in the Land Management segment, a disposal of equipment in the Rigid Industrial Packaging & Services segment that resulted in a gain of $1.7 million, a sale of property that was previously classified as held for sale in the Rigid Industrial Packaging & Services segment that resulted in a gain of $0.6 million and sales of other miscellaneous equipment which resulted in aggregate gains of $0.3 million.

For the six months ended April 30, 2013, the Company recorded a gain on disposal of property, plant and equipment, net of $4.3 million. There were sales of HBU and surplus properties which resulted in gains of $0.7 million in the Land Management segment, a sale of equipment in the Paper Packaging segment that resulted in a gain of $0.6 million, a disposal of property and equipment in the Rigid Industrial Packaging & Services segment that resulted in a gain of $2.0 million, a sale of property that was previously classified as held for sale in the Rigid Industrial Packaging & Services segment that resulted in a gain of $0.6 million and sales of other miscellaneous equipment that resulted in aggregate gains of $0.4 million.

Goodwill and Other Intangible Assets
Goodwill and Other Intangible Assets

NOTE 6 — GOODWILL AND OTHER INTANGIBLE ASSETS

The following table summarizes the changes in the carrying amount of goodwill by segment for the six month period ended April 30, 2013 (Dollars in millions):

 

     Rigid  Industrial
Packaging &
Services
     Flexible Products
& Services
     Paper Packaging      Land Management     Total  

Balance at October 31, 2012

   $ 844.6       $ 71.6       $ 59.7       $ 0.2      $ 976.1   

Goodwill acquired

     —           —           —           —          —     

Goodwill adjustments

     2.3         —           0.2         (0.2     2.3   

Currency translation

     2.4         0.4         —           —          2.8   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Balance at April 30, 2013

   $ 849.3       $ 72.0       $ 59.9       $  —        $ 981.2   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Goodwill increased by $5.1 million for the six month period ended April 30, 2013. The increase in goodwill was primarily attributable to $2.8 million of currency fluctuations.

The Company reviews goodwill by reporting unit and indefinite-lived intangible assets for impairment as required by ASC 350, “Intangibles—Goodwill and Other”, either annually in the fourth quarter or whenever events and circumstances indicate impairment may have occurred. A reporting unit is the operating segment, or a business one level below that operating segment if discrete financial information is prepared and regularly reviewed by segment management.

The Company concluded that no impairment or impairment indicators exist as of April 30, 2013.

 

The following table summarizes the carrying amount of net intangible assets by class as of April 30, 2013 and October 31, 2012 (Dollars in millions):

 

     Gross Intangible Assets      Accumulated
Amortization
     Net Intangible
Assets
 

October 31, 2012:

        

Trademark and patents

   $ 32.5       $ 3.6       $ 28.9   

Non-compete agreements

     14.4         11.1         3.3   

Customer relationships

     201.1         53.6         147.5   

Other

     23.8         4.9         18.9   
  

 

 

    

 

 

    

 

 

 

Total

   $ 271.8       $ 73.2       $ 198.6   
  

 

 

    

 

 

    

 

 

 

April 30, 2013:

        

Trademark and patents

   $ 31.3       $ 4.4       $ 26.9   

Non-compete agreements

     14.7         12.0         2.7   

Customer relationships

     202.7         61.3         141.4   

Other

     22.4         6.3         16.1   
  

 

 

    

 

 

    

 

 

 

Total

   $ 271.1       $ 84.0       $ 187.1   
  

 

 

    

 

 

    

 

 

 

Gross intangible assets decreased by $0.7 million for the six month period ended April 30, 2013. The decrease in gross intangible assets was primarily attributable to the write-off of certain fully amortized assets, partially offset by currency fluctuations. Amortization expense for the three months ended April 30, 2013 and 2012 was $5.2 million and $5.9 million, respectively. Amortization expense for the six months ended April 30, 2013 and 2012 was $10.2 million and $11.1 million, respectively. Amortization expense for the next five years is expected to be $20.1 million in 2013, $19.6 million in 2014, $18.6 million in 2015, $17.9 million in 2016 and $17.2 million in 2017.

All intangible assets for the periods presented are subject to amortization and are being amortized using the straight-line method over periods that range from three to 15 years for trade names, two to ten years for non-compete covenants, one to 23 years for customer relationships and four to 20 years for other intangibles, except for $14.3 million related to the Tri-Sure trademark and trade names related to Blagden Express, Closed-loop, Box Board, and Fustiplast, all of which have indefinite lives.

Restructuring Charges
Restructuring Charges

NOTE 7 — RESTRUCTURING CHARGES

The following is a reconciliation of the beginning and ending restructuring reserve balances for the six month period ended April 30, 2013 (Dollars in millions):

 

     Cash Charges     Non-cash
Charges
       
     Employee
Separation
          Asset        
     Costs     Other Costs     Impairments     Total  

Balance at October 31, 2012

   $ 6.2      $ 1.8      $  —        $ 8.0   

Costs incurred and charged to expense

     (0.4     1.1        0.5        1.2   

Costs paid or otherwise settled

     (3.4     (1.5     (0.5     (5.4
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at April 30, 2013

   $ 2.4      $ 1.4      $ —        $ 3.8   
  

 

 

   

 

 

   

 

 

   

 

 

 

The focus for restructuring activities in 2013 continues to be on the rationalization of operations and contingency actions in Rigid Industrial Packaging & Services. During the three months ended April 30, 2013, the Company recorded restructuring charges of ($0.1) million, which compares to $10.1 million of restructuring charges during the three months ended April 30, 2012. During the six months ending April 30, 2013, the Company recorded restructuring charges of $1.2 million, which compares to $19.0 million of restructuring charges during the six months ending April 30, 2012. The restructuring activity for the three months ended April 30, 2013 consisted of ($1.0) million in employee separation costs, $0.4 million in asset impairments and $0.5 million in other restructuring costs, primarily consisting of lease termination costs and professional fees. The restructuring activity for the six months ended April 30, 2013 consisted of ($0.4) million in employee separation costs, $0.5 million in asset impairments and $1.1 million in other restructuring costs, primarily consisting of lease termination costs and professional fees.

 

The following is a reconciliation of the total amounts expected to be incurred from open restructuring plans which are anticipated to be realized in 2013 or plans that are being formulated and have not been announced as of the date of this Form 10-Q. Amounts expected to be incurred were $7.2 million and $12.3 million as of April 30, 2013 and October 31, 2012, respectively. The decrease was due to the realization of expenses from plans formulated in prior periods offset by the formulation of new plans during the period. (Dollars in millions):

 

    Amounts
Expected
to be
Incurred
    Amounts
expensed
during
the six
month
period
ended
April 30,
2013
    Amounts
Remaining
to be
Incurred
 

Rigid Industrial Packaging & Services

     

Employee separation costs

  $ 2.4      $ (0.5   $ 2.9   

Asset impairments

    0.5        0.5        —      

Other restructuring costs

    4.3        0.9        3.4   
 

 

 

   

 

 

   

 

 

 
    7.2        0.9        6.3   

Flexible Products & Services

     

Employee separation costs

    0.5        0.1        0.4   

Asset impairments

    —           —           —      

Other restructuring costs

    0.7        0.2        0.5   
 

 

 

   

 

 

   

 

 

 
    1.2        0.3        0.9   
 

 

 

   

 

 

   

 

 

 
  $ 8.4      $ 1.2      $ 7.2   
 

 

 

   

 

 

   

 

 

 
Variable Interest Entities
Variable Interest Entities

NOTE 8 — VARIABLE INTEREST ENTITIES

The Company evaluates whether an entity is a variable interest entity (“VIE”) at the inception of an arrangement or whenever reconsideration events occur and performs reassessments of all VIE’s quarterly to determine if the primary beneficiary designation is appropriate. The Company consolidates VIE’s for which it is the primary beneficiary regardless of whether the Company holds an ownership interest in the entity. If the Company is not the primary beneficiary and an ownership interest is held by the Company, the VIE is accounted for under the equity or cost methods of accounting. When assessing the determination of the primary beneficiary, the Company considers all relevant facts and circumstances, including: the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance; and the obligation to absorb the expected losses and/or the right to receive the expected returns of the VIE. A company acquired in 2011 is considered a VIE. However, because the Company is not the primary beneficiary, the Company will report its ownership interest in this acquired company using the equity method of accounting.

Significant Nonstrategic Timberland Transactions

In March 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. The purchase price was paid in the form of cash and a $50.9 million purchase note payable (the “Purchase Note”) by an indirect subsidiary of Plum Creek (the “Buyer SPE”). 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 Company completed the second phase of these transactions 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 in the second quarter of 2006, resulted in a pre-tax gain of $9.0 million.

 

In May 2005, STA Timber issued in a private placement its 5.20% 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. 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 Buyer SPE is deemed to be a VIE since the Buyer SPE is not able to satisfy its liabilities without financial support from the Company. While the Buyer SPE is a separate and distinct legal entity from the Company and no ownership interest in this entity is held by the Company, the Company is the primary beneficiary because it has (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and (2) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. As a result, Buyer SPE has been consolidated into the operations of the Company.

As of April 30, 2013 and October 31, 2012, assets of the Buyer SPE consisted of $50.9 million of restricted bank financial instruments. For both of the three month periods ended April 30, 2013 and 2012, the Buyer SPE recorded interest income of $0.6 million. For both of the six month periods ended April 30, 2013 and 2012, the Buyer SPE recorded interest income of $1.2 million.

As of April 30, 2013 and October 31, 2012, STA Timber had long-term debt of $43.3 million. For both of the three month periods ended April 30, 2013 and 2012, STA Timber recorded interest expense of $0.6 million. For both of the six month periods ended April 30, 2013 and 2012, STA Timber recorded interest expense of $1.2 million. STA Timber is exposed to credit-related losses in the event of nonperformance by the issuer of the Deed of Guarantee.

Flexible Packaging Joint Venture

On September 29, 2010, Greif, Inc. and its indirect subsidiary Greif International Holding Supra C.V. (“Greif Supra”) formed a joint venture (referred to herein as the “Flexible Packaging JV”) with Dabbagh Group Holding Company Limited and its subsidiary National Scientific Company Limited (“NSC”). The Flexible Packaging JV owns the operations in the Flexible Products & Services segment, with the exception of the North American multi-wall bag business. The Flexible Packaging JV has been consolidated into the operations of the Company as of its formation date of September 29, 2010.

The Flexible Packaging JV is deemed to be a VIE since the total equity investment at risk is not sufficient to permit the legal entity to finance its activities without additional subordinated financial support from the Company. The Company is the primary beneficiary because it has (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and (2) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.

The economic and business purpose underlying the Flexible Packaging JV is to establish a global industrial flexible products enterprise through a series of targeted acquisitions and major investments in plant, machinery and equipment. All entities contributed to the Flexible Packaging JV were existing businesses acquired by a subsidiary of Greif, Inc. and were reorganized under Greif Flexibles Asset Holding B.V. and Greif Flexibles Trading Holding B.V. (“Asset Co.” and “Trading Co.”), respectively. The Flexible Packaging JV also includes Global Textile Company LLC (“Global Textile”), which owns and operates a fabric hub in the Kingdom of Saudi Arabia that commenced operations in the fourth quarter of 2012. The Company has 51 percent ownership in Trading Co. and 49 percent ownership in Asset Co. and Global Textile. However, Greif Supra and NSC have equal economic interests in the Flexible Packaging JV, notwithstanding the actual ownership interests in the various legal entities.

All investments, loans and capital contributions are to be shared equally by Greif, Inc. and NSC and each partner has committed to contribute capital of up to $150 million and obtain third party financing and/or make loans for up to $150 million as required.

 

The following table presents the Flexible Packaging JV total net assets (Dollars in millions):

 

October 31, 2012

   Asset Co.      Global Textile      Trading Co.      Flexible Packaging JV  

Total assets

   $ 151.0       $ 47.6       $ 138.7       $ 337.3   

Total liabilities

     73.9         0.5         46.4         120.8   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net assets

   $ 77.1       $ 47.1       $ 92.3       $ 216.5   
  

 

 

    

 

 

    

 

 

    

 

 

 

April 30, 2013

   Asset Co.      Global Textile      Trading Co.      Flexible Packaging JV  

Total assets

   $ 154.3       $ 56.8       $ 144.1       $ 355.2   

Total liabilities

     78.0         1.4         37.7         117.1   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net assets

   $ 76.3       $ 55.4       $ 106.4       $ 238.1   
  

 

 

    

 

 

    

 

 

    

 

 

 

As of April 30, 2013, Asset Co. had outstanding advances to NSC for $0.6 million which are being used to fund certain costs incurred in Saudi Arabia in respect of the fabric hub being constructed and equipped there. These advances are recorded within the current portion related party notes and advances receivable on the Company’s consolidated balance sheet since they are expected to be repaid within the next twelve months. As of April 30, 2013, Asset Co. and Trading Co. held short term loans payable to NSC for $12.0 million recorded within short-term borrowings on the Company’s consolidated balance sheet. These loans are interest bearing and are used to fund certain operational requirements.

Net losses attributable to the noncontrolling interest in the Flexible Packaging JV for the three months ended April 30, 2013 and 2012 were $0.4 million and $2.4 million, respectively; and for the six months ended April 30, 2013 and 2012, net losses attributable to the noncontrolling interest were $1.1 million and $3.8 million, respectively.

Non-United States Accounts Receivable VIE

As further described in Note 3, Cooperage Receivables Finance B.V. is a party to the European RPA. Cooperage Receivables Finance B.V. is deemed to be a VIE since this entity is not able to satisfy its liabilities without the financial support from the Company. While this entity is a separate and distinct legal entity from the Company and no ownership interest in this entity is held by the Company, the Company is the primary beneficiary because it has (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and (2) the obligation to absorb losses of the VIE that could potentially be significant to the VIE. As a result, Cooperage Receivables Finance B.V. has been consolidated into the operations of the Company.

Long-Term Debt
Long-Term Debt

NOTE 9 — LONG-TERM DEBT

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

 

     April 30, 2013     October 31, 2012  

Amended Credit Agreement

   $ 298.3      $ —     

2010 Credit Agreement

     —          255.0   

Senior Notes due 2017

     302.0        302.3   

Senior Notes due 2019

     244.0        243.6   

Senior Notes due 2021

     257.6        256.0   

Trade accounts receivable credit facility

     130.0        110.0   

Other long-term debt

     47.5        33.4   
  

 

 

   

 

 

 
     1,279.4        1,200.3   

Less current portion

     (10.0     (25.0
  

 

 

   

 

 

 

Long-term debt

   $ 1,269.4      $ 1,175.3   
  

 

 

   

 

 

 

 

Credit Agreement

On December 19, 2012, the Company and two of its international subsidiaries amended and restated the Company’s existing $1.0 billion senior secured credit agreement with a syndicate of financial institutions (the “Amended Credit Agreement”). The Amended Credit Agreement provides the Company with an $800 million revolving multicurrency credit facility and a $200 million term loan, both expiring in December 2017, with an option to add $250 million to the facilities with the agreement of the lenders. The $200 million term loan is scheduled to amortize by the payment of principal in the amount of $2.5 million each quarter-end for the first eight quarters, beginning January 2013, the payment of $5.0 million each quarter-end for the next twelve quarters and the payment of the remaining balance on the maturity date. The revolving credit facility under the Amended Credit Agreement is available to fund ongoing working capital and capital expenditure needs, for general corporate purposes and to finance acquisitions. Interest is based on a Eurodollar rate or a base rate that resets periodically plus an agreed upon margin amount. The total available borrowing under this facility was $682.1 million as of April 30, 2013, which has been reduced by $14.6 million for outstanding letters of credit.

The Amended Credit Agreement contains financial covenants that require the Company to maintain a certain leverage ratio and an interest coverage ratio. The leverage ratio generally requires that at the end of any fiscal quarter the Company will not permit the ratio of (a) the Company’s total consolidated indebtedness, to (b) the Company’s 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) and plus or minus certain other items for the preceding twelve months (“adjusted EBITDA”) to be greater than 4.00 to 1. The interest coverage ratio generally requires that at the end of any fiscal quarter the Company will not permit the ratio of (a) the Company’s consolidated adjusted EBITDA to (b) the Company’s consolidated interest expense to the extent paid or payable, to be less than 3.00 to 1, during the preceding twelve month period.

The terms of the Amended Credit Agreement limit the Company’s ability to make “restricted payments,” which include dividends and purchases, redemptions and acquisitions of the Company’s equity interests. The repayment of amounts borrowed under the Amended Credit Agreement are secured by a security interest in the personal property of Greif, Inc. and certain of the Company’s United States subsidiaries, including equipment and inventory and certain intangible assets, as well as a pledge of the capital stock of substantially all of the Company’s United States subsidiaries. The repayment of amounts borrowed under the Amended Credit Agreement is also secured, in part, by capital stock of the non-U.S. subsidiaries that are parties to the Amended Credit Agreement. However, in the event that the Company receives and maintains an investment grade rating from either Moody’s Investors Service, Inc. or Standard & Poor’s Corporation, the Company may request the release of such collateral. The payment of outstanding principal under the Amended Credit Agreement and accrued interest thereon may be accelerated and become immediately due and payable upon the Company’s default in its payment or other performance obligations or its failure to comply with the financial and other covenants in the Amended Credit Agreement, subject to applicable notice requirements and cure periods as provided in the Amended Credit Agreement.

During the three months ended April 30, 2013 and 2012, the Company recorded no debt extinguishment charges. During the six months ended April 30, 2013, the Company recorded debt extinguishment charges of $1.3 million resulting from the write off of unamortized deferred financing costs associated with the 2010 Credit Agreement. During the six months ended April 30, 2012, the Company recorded no debt extinguishment charges. Financing costs associated with the Amended Credit Agreement totaling $3.4 million have been capitalized and included in other long term assets.

On October 29, 2010, the Company obtained a $1.0 billion senior secured credit facility pursuant to an Amended and Restated Credit Agreement with a syndicate of financial institutions (the “2010 Credit Agreement”). The 2010 Credit Agreement provided for a $750 million revolving multicurrency credit facility and a $250 million term loan, both expiring October 29, 2015, with an option to add $250 million to the facilities with the agreement of the lenders. The $250 million term loan was scheduled to amortize by $3.1 million each quarter-end for the first eight quarters, $6.3 million each quarter-end for the next eleven quarters and the remaining balance due on the maturity date. The 2010 agreement was replaced by the Amended Credit Agreement.

The Amended Credit Agreement is available to fund ongoing working capital and capital expenditure needs, for general corporate purposes and to finance acquisitions. Interest under the Amended Credit Agreement is based on a Eurodollar rate or a base rate that resets periodically plus a calculated margin amount. As of April 30, 2013, $298.3 million was outstanding under the Amended Credit Agreement. The current portion of the Amended Credit Agreement was $10.0 million and the long-term portion was $288.3 million. The weighted average interest rate on the Amended Credit Agreement was 1.83% for the six months ended April 30, 2013. The actual interest rate on the Amended Credit Agreement was 1.77% as of April 30, 2013.

Senior Notes due 2017

On February 9, 2007, the Company issued $300.0 million of 6.75% Senior Notes due February 1, 2017. Interest on these Senior Notes is payable semi-annually. Proceeds from the issuance of these Senior Notes were principally used to fund the purchase of previously outstanding 8.875% Senior Subordinated Notes in a tender offer and for general corporate purposes.

The indenture pursuant to which these Senior Notes were issued contains certain covenants. As of April 30, 2013, the Company was in compliance with these covenants.

 

Senior Notes due 2019

On July 28, 2009, the Company issued $250.0 million of 7.75% Senior Notes due August 1, 2019. Interest on these Senior Notes is payable semi-annually. Proceeds from the issuance of these Senior Notes were principally used for general corporate purposes, including the repayment of amounts outstanding under the Company’s revolving multicurrency credit facility, without any permanent reduction of the commitments.

The indenture pursuant to which these Senior Notes were issued contains certain covenants. As of April 30, 2013, the Company was in compliance with these covenants.

Senior Notes due 2021

On July 15, 2011, Greif, Inc.’s wholly-owned Luxembourg subsidiary, Greif Luxembourg Finance S.C.A., issued €200.0 million of 7.375% Senior Notes due July 15, 2021. These Senior Notes are fully and unconditionally guaranteed on a senior basis by Greif, Inc. Interest on these Senior Notes is payable semi-annually. A portion of the proceeds from the issuance of these Senior Notes was used to repay non-U.S. borrowings under the 2010 Credit Agreement, without any permanent reduction of the commitments, and the remaining proceeds are available for general corporate purposes, including the financing of acquisitions.

The indenture pursuant to which these Senior Notes were issued contains certain covenants. As of April 30, 2013, the Company was in compliance with these covenants.

United States Trade Accounts Receivable Credit Facility

On December 8, 2008, the Company entered into a trade accounts receivable credit facility (the “Receivables Facility”) with a financial institution. The Receivables Facility was amended on September 19, 2011, which decreased the amount available to the borrowers from $135.0 million to $130.0 million and extended the termination date of the commitment to September 19, 2014. The Receivables 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 (0.95% as of April 30, 2013). In addition, the Company can terminate the Receivables Facility at any time upon five days prior written notice. A significant portion of the initial proceeds from the Receivables Facility was used to pay the obligations under the previous trade accounts receivable credit facility, which was terminated. The remaining proceeds were and will be used to pay certain fees, costs and expenses incurred in connection with the Receivables Facility and for working capital and general corporate purposes. As of April 30, 2013, there was $130.0 million outstanding under the Receivables Facility. The agreement for the Receivables Facility contains financial covenants that require the Company to maintain a certain leverage ratio and an interest coverage ratio. As of April 30, 2013, the Company was in compliance with these covenants.

Greif Receivables Funding LLC (“GRF”), an indirect subsidiary of the Company, has participated in the purchase and transfer of receivables in connection with these credit facilities and is included in the Company’s consolidated financial statements. However, because GRF is a separate and distinct legal entity from the Company and its other subsidiaries, the assets of GRF are not available to satisfy the liabilities and obligations of Greif, Inc. and its other subsidiaries, and the liabilities of GRF are not the liabilities or obligations of Greif, Inc. and its other subsidiaries. This entity purchases and services the Company’s trade accounts receivable that are subject to the Receivables Facility.

Other

In addition to the amounts borrowed under the Amended Credit Agreement and proceeds from the Senior Notes and the Receivables Facility, as of April 30, 2013, the Company had outstanding other debt of $108.3 million, comprised of $47.5 million in long-term debt and $60.8 million in short-term borrowings, compared to other debt outstanding of $109.4 million, comprised of $33.4 million in long-term debt and $76.0 million in short-term borrowings, as of October 31, 2012.

As of April 30, 2013, the current portion of the Company’s long-term debt was $10.0 million. Annual maturities, including the current portion, of long-term debt under the Company’s various financing arrangements were $5.0 million in 2013, $187.5 million in 2014, $20.0 million in 2015, $20.0 million in 2016, $322.0 million in 2017 and $724.9 million thereafter.

As of April 30, 2013 and October 31, 2012, the Company had deferred financing fees and debt issuance costs of $14.4 million and $14.8 million, respectively, which are included in other long-term assets.

Financial Instruments and Fair Value Measurements
Financial Instruments and Fair Value Measurements

NOTE 10 — FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

Financial Instruments

The Company uses derivatives from time to time partially to mitigate the effect of exposure to interest rate movements, exposure to currency fluctuations and energy cost fluctuations. Under ASC 815, “Derivatives and Hedging”, all derivatives are to be recognized as assets or liabilities on 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.

While the Company may be exposed to credit losses in the event of nonperformance by the counterparties to its derivative financial instrument contracts, its counterparties are established banks and financial institutions with high credit ratings. The Company has no reason to believe that such counterparties will not be able to fully satisfy their obligations under these contracts.

During the next twelve months, the Company expects to reclassify into earnings a net loss from accumulated other comprehensive income of approximately $0.6 million after tax at the time the underlying hedge transactions are realized.

ASC 820, “Fair Value Measurements and Disclosures” defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements for financial and non-financial assets and liabilities. Additionally, this guidance established a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs.

The three levels of inputs used to measure fair values are as follows:

 

  Level 1 – Observable inputs such as unadjusted quoted prices in active markets for identical assets and liabilities.

 

  Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities.

 

  Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities.

Recurring Fair Value Measurements

The following table presents the fair value for those assets and (liabilities) measured on a recurring basis as of April 30, 2013 (Dollars in millions):

 

     Fair Value Measurement     Balance sheet
     Level 1      Level 2     Level 3      Total     Location

Interest rate derivatives

   $  —         $ (1.3   $  —         $ (1.3   Other long-term liabilities

Foreign exchange hedges

     —           0.3        —           0.3      Other current assets

Foreign exchange hedges

     —           (0.5     —           (0.5   Other current liabilities

Energy hedges

     —           —          —           —        Other current liabilities
  

 

 

    

 

 

   

 

 

    

 

 

   

Total*

   $ —         $ (1.5   $ —         $ (1.5  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

* The carrying amounts of cash and cash equivalents, trade accounts receivable, accounts payable, current liabilities and short-term borrowings as of April 30, 2013 approximate their fair values because of the short-term nature of these items and are not included in this table.

Interest Rate Derivatives

The Company has interest rate swap agreements with maturities through 2014. These interest rate swap agreements are used to manage the Company’s fixed and floating rate debt mix. The assumptions used in measuring fair value of these interest rate derivatives are considered level 2 inputs, which were based on interest received monthly from the counterparties based upon the LIBOR and interest paid based upon a designated fixed rate over the life of the swap agreements. These derivative instruments are designated and qualify as cash flow hedges. Accordingly, the effective portion of the gain or loss on these derivative instruments is reported as a component of other comprehensive income and reclassified into earnings in the same line item associated with the forecasted transaction and in the same period during which the hedged transaction affects earnings. The ineffective portion of the gain or loss on the derivative instrument is recognized in earnings immediately.

 

The Company has two interest rate derivatives, both of which were entered into during the first quarter of 2012 to replace those that existed at October 31, 2011 (floating to fixed swap agreements designated as cash flow hedges) with a total notional amount of $150 million. Under these swap agreements, the Company receives interest based upon a variable interest rate from the counterparties (weighted average of 0.20% as of April 30, 2013 and 0.21% as of October 31, 2012) and pays interest based upon a fixed interest rate (weighted average of 0.75% as of April 30, 2013 and 0.75% as of October 31, 2012). Losses reclassified to earnings under these contracts (both those that existed as of October 31, 2011 and those entered into in the first quarter 2012) were $0.2 million and $0.2 million for the three months ended April 30, 2013 and 2012, respectively; and were $0.4 million and $0.6 million for the six months ending April 30, 2013 and 2012. These losses were recorded within the consolidated statement of operations as interest expense, net. The change in fair value of these contracts resulted in losses of $0.2 million and $1.3 million recorded in accumulated other comprehensive income as of April 30, 2013 and 2012, respectively.

Foreign Exchange Hedges

The Company conducts business in major international currencies and is subject to risks associated with changing foreign exchange rates. The Company’s objective is to reduce volatility associated with foreign exchange rate changes. Accordingly, the Company enters into various contracts that change in value as foreign exchange rates change to protect the value of certain existing foreign currency assets and liabilities, commitments and anticipated foreign currency revenues and expenses.

As of April 30, 2013, the Company had outstanding foreign currency forward contracts in the notional amount of $155.7 million ($233.2 million as of October 31, 2012). At April 30, 2013, these derivative instruments were designated and qualified as fair value hedges. Adjustments to fair value for fair value hedges are recognized in earnings, offsetting the impact of the hedged item. The assumptions used in measuring fair value of foreign exchange hedges are considered level 2 inputs, which were based on observable market pricing for similar instruments, principally foreign exchange futures contracts. Losses recorded under fair value contracts were $1.3 million and $0.2 million for the three months ended April 30, 2013 and 2012; respectively; and realized (gains) losses were ($0.4) million and $1.7 million for the six months ended April 30, 2013 and 2012.

During 2012, some derivative instruments were designated and qualified as cash flow hedges. Accordingly, the effective portion of the gain or loss on these derivative instruments was previously reported as a component of other comprehensive income and reclassified into earnings in the same line item associated with the forecasted transaction and in the same period during which the hedged transaction affected earnings. Gains reclassified to earnings for hedging contracts qualifying as cash flow hedges were $0.1 million for the three months ended April 30, 2012 and were $0.2 million for the six months ended April 30, 2012. These gains and losses were recorded within the consolidated statement of operations as other (income) expense, net. The change in fair value of these contracts resulted in losses or $0.6 million recorded in other comprehensive income as of April 30, 2012. The ineffective portion of the gain or loss on the derivative instrument was previously recognized in earnings immediately.

Energy Hedges

The Company is exposed to changes in the price of certain commodities. The Company’s objective is to reduce volatility associated with forecasted purchases of these commodities to allow management of the Company to focus its attention on business operations. Accordingly, the Company may enter into derivative contracts to manage the price risk associated with certain of these forecasted purchases.

From time to time, the Company has entered into certain cash flow hedges to mitigate its exposure to cost fluctuations in natural gas prices. Under these hedge agreements, the Company agreed to purchase natural gas at a fixed price. There were no energy hedges in effect as of April 30, 2013 or October 31, 2012. Such derivative instruments were previously designated and qualified as cash flow hedges. Accordingly, the effective portion of the gain or loss on such a derivative instrument was previously reported as a component of other comprehensive income and reclassified into earnings in the same line item associated with the forecasted transaction and in the same period during which the hedged transaction affected earnings. The ineffective portion of the gain or loss on such a derivative instrument was previously recognized in earnings immediately. The assumptions used in measuring fair value of energy hedges are considered level 2 inputs, which were based on observable market pricing for similar instruments, principally commodity futures contracts. Losses reclassified to earnings under such prior contracts were $0.4 million for the three months ended April 30, 2012 and $0.6 million for the six months ended April 30, 2012. Losses on such contracts were recorded within the consolidated statement of operations as cost of products sold. The change in fair value of these contracts resulted in immaterial losses recorded in accumulated other comprehensive income as of April 30, 2012.

 

Other financial instruments

The estimated fair value of the Company’s 2017 Senior Notes are $338.3 million and $330.8 million compared to the carrying amounts of $302.0 million and $302.3 million as of April 30, 2013, and October 31, 2012, respectively. The estimated fair value of the Company’s 2019 Senior Notes are $294.7 million and $286.9 million compared to the carrying amounts of $244.0 million and $243.6 million as of April 30, 2013, and October 31, 2012, respectively. The estimated fair value of the Company’s 2021 Senior Notes are $298.5 million and $283.4 million compared to the carrying amounts of $257.0 million and $256.1 million as of April 30, 2013, and October 31, 2012, respectively. The fair values of the Company’s Amended Credit Agreement, the United States Trade Accounts Receivable Credit Facility and the other long-term debt does not materially differ from carrying value as the Company’s cost of borrowing is variable and approximates current borrowing rates. 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 the debt of the same remaining maturities.

Non Recurring Fair Value Measurements

Long-Lived Assets

As part of the Company’s restructuring plans, the Company may close manufacturing facilities. The assumptions used in measuring fair value of long-lived assets are considered level 2 inputs which were valued based on bids received from third parties, recent purchase offers and market comparables. The Company recorded restructuring-related expenses for the six month period ended April 30, 2013 and 2012 of $0.5 million and $4.9 million, respectively, on long lived assets with net book values of $0.5 million and $17.6 million, respectively.

During the six month period ended April 30, 2013, the Company recognized an impairment of $1.8 million, primarily for assets under contract to be sold in Paper Packaging segment.

Net Assets Held for Sale

The assumptions used in measuring fair value of net assets held for sale are considered level 2 inputs which include recent purchase offers, market comparables and/or data obtained from commercial real estate brokers. As of April 30, 2013, the Company has not recognized impairment related to net assets held for sale. As of October 31, 2012 the Company had recognized $2.0 million of impairment related to net assets held for sale.

Goodwill and Long Lived Intangible Assets

On an annual basis or whenever events or circumstances indicate impairment may have occurred, the Company performs impairment tests for goodwill and intangibles as defined under ASC 350, “Intangibles-Goodwill and Other.” The Company concluded that no impairment existed as of April 30, 2013.

Pension Plan Assets

On an annual basis the Company compares the asset holdings of the pension plan to targets established by the Company. The pension plan assets are categorized as either equity securities, debt securities, or other assets, which are considered level 1, level 2 and level 3 fair value measurements, respectively. The typical asset holdings include:

 

   

Mutual funds: Valued at the Net Asset Value “NAV” available daily in an observable market.

 

   

Common collective trusts: Unit value calculated based on the observable NAV of the underlying investment.

 

   

Pooled separate accounts: Unit value calculated based on the observable NAV of the underlying investment.

 

   

Government and corporate debt securities: Valued based on readily available inputs such as yield or price of bonds of comparable quality, coupon, maturity and type.

 

   

Insurance Annuity: Value is derived based on the value of the corresponding liability.

Stock-Based Compensation
Stock-Based Compensation

NOTE 11 — STOCK-BASED COMPENSATION

Stock-based compensation is accounted for in accordance with ASC 718, “Compensation – Stock Compensation,” which 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 an expense in the Company’s consolidated statements of operations over the requisite service periods. The Company uses the straight-line single option method of expensing stock options to recognize compensation expense in its consolidated statements of operations 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. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. No stock options were granted in 2013 or 2012. 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 ASC 718.

Income Taxes
Income Taxes

NOTE 12 — INCOME TAXES

The effective tax rate was 30.6% and 28.9% for the three months ended April 30, 2013 and 2012, respectively; and 31.3% and 30.3% for the six months ended April 30, 2013 and 2012, respectively. Income tax expense was $18.9 million and $15.1 million for the three months ended April 30, 2013 and 2012, respectively; and $31.4 million and $26.1 million for the six months ended April 30, 2013 and 2012, respectively. The increase was attributable to higher income and an increase in the proportion of income generated in the United States, which is a higher tax jurisdiction.

The Company has estimated the reasonably possible net change in its unrecognized tax benefits through April 30, 2014 under ASC 740, “Income Taxes”. The Company’s estimate is based on expected settlements, payments of uncertain tax positions and lapses of applicable statues of limitations, and includes an unfavorable court decision related to a fully reserved foreign controversy for tax years ending October 31, 2001 through October 31, 2007. The resolution of the foreign controversy will be offset by the utilization of tax losses. The estimated net decrease in unrecognized tax benefits for the next 12 months ranges from approximately $17.8 million to $28.0 million. Actual results may differ materially from this estimate.

Retirement Plans and Postretirement Health Care and Life Insurance Benefits
Retirement Plans and Postretirement Health Care and Life Insurance Benefits

NOTE 13 — RETIREMENT PLANS AND POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS

The components of net periodic pension cost include the following (Dollars in millions):

 

     Three months ended     Six months ended  
     April 30,     April 30,  
     2013     2012     2013     2012  

Service cost

   $ 4.2      $ 3.4      $ 8.4      $ 6.8   

Interest cost

     6.9        7.4        13.8        14.8   

Expected return on plan assets

     (8.1     (8.5     (16.2     (17.0

Amortization of prior service cost, initial net asset and net actuarial gain

     4.2        3.2        8.4        6.4   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic pension costs

   $ 7.2      $ 5.5      $ 14.4      $ 11.0   
  

 

 

   

 

 

   

 

 

   

 

 

 

The Company made $6.8 million in pension contributions in the six months ended April 30, 2013. The Company estimates $13.1 million of pension contributions for the entire 2013 fiscal year.

 

The components of net periodic cost for postretirement benefits include the following (Dollars in millions):

 

     Three months ended     Six months ended  
     April 30,     April 30,  
     2013     2012     2013     2012  

Service cost

   $ —        $ —        $ —        $ —     

Interest cost

     0.2        0.3        0.4        0.6   

Amortization of prior service cost and recognized actuarial gain

     (0.4     (0.4     (0.8     (0.8
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic cost for postretirement benefits

   $ (0.2   $ (0.1   $ (0.4   $ (0.2
  

 

 

   

 

 

   

 

 

   

 

 

 
Contingent Liabilities
Contingent Liabilities

NOTE 14 — CONTINGENT LIABILITIES

Litigation-related Liabilities

The Company may become involved from time-to-time in litigation and regulatory matters incidental to its business, including governmental investigations, enforcement actions, personal injury claims, product liability, employment claims, health and safety matters, commercial disputes, intellectual property matters, disputes regarding environmental clean-up costs, litigation in connection with acquisitions and divestitures and other matters arising out of the normal conduct of its business. The Company intends to vigorously defend itself in such litigation. The Company does not believe that the outcome of any pending litigation will have a material adverse effect on its consolidated financial statements.

The Company may accrue for contingencies related to litigation and regulatory matters if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Because litigation is inherently unpredictable and unfavorable resolutions can occur, assessing contingencies is highly subjective and requires judgments about future events. The Company regularly reviews contingencies to determine whether its accruals are adequate. The amount of ultimate loss may differ from these estimates.

Environmental Reserves

As of April 30, 2013 and October 31, 2012, environmental reserves of $26.9 million and $27.5 million, respectively, were included in other long-term liabilities and were recorded on an undiscounted basis. These reserves are principally based on environmental studies and cost estimates provided by third parties, but also take into account management estimates. The estimated liabilities are reduced to reflect the anticipated participation of other potentially responsible parties in those instances where it is probable that such parties are legally responsible and financially capable of paying their respective shares of relevant costs. For sites that involve formal actions subject to joint and several liabilities, these actions have formal agreements in place to apportion the liability. As of April 30, 2013 and October 31, 2012, environmental reserves of the Company included $13.8 million and $13.9 million, respectively, for its blending facility in Chicago, Illinois, $7.3 million and $7.4 million, respectively, for various European drum facilities acquired from Blagden and Van Leer, $3.7 million and $4.2 million, respectively, for its various container life cycle management and recycling facilities acquired in 2011 and 2010, and $2.1 million and $2.0 million for various other facilities around the world.

As of April 30, 2013, Greif estimated that payments for environmental remediation will be $8.0 million in 2013, $3.8 million in 2014, $2.1 million in 2015, $3.8 million in 2016, $2.1 million in 2017 and $7.1 million thereafter. The Company’s 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 year, the Company believes that the chance of a series of adverse developments occurring in the same quarter or year is remote. Future information and developments will require the Company to continually reassess the expected impact of these environmental matters.

Earnings Per Share
Earnings Per Share

NOTE 15 —EARNINGS PER SHARE

The Company has two classes of common stock and, as such, applies the “two-class method” of computing earnings per share (“EPS”) as prescribed in ASC 260, “Earnings Per Share”. In accordance with this guidance, 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 Company calculates Class A EPS as follows: (i) multiply 40 percent times the average Class A shares outstanding, then divide that amount by the product of 40 percent of the average Class A shares outstanding plus 60 percent of the average Class B shares outstanding to get a percentage, (ii) divide undistributed net income attributable to Greif, Inc. by the average Class A shares outstanding, then (iii) multiply item (i) by item (ii), and finally (iv) add item (iii) to the Class A cash dividend per share. Diluted shares are factored into the Class A calculation.

 

The Company calculates Class B EPS as follows: (i) multiply 60 percent times the average Class B shares outstanding, then divide that amount by the product of 40 percent of the average Class A shares outstanding plus 60 percent of the average Class B shares outstanding to get a percentage, (ii) divide undistributed net income attributable to Greif, Inc. by the average Class B shares outstanding, then (iii) multiply item (i) by item (ii), and finally (iv) add item (iii) to the Class B cash dividend per share. Class B diluted EPS is identical to Class B basic EPS.

The following table provides EPS information for each period, respectively:

 

     Three months ended      Six months ended  
     April 30,      April 30,  

(In millions, except per share data)

   2013      2012      2013      2012  

Numerator for basic and diluted EPS

           

Net income attributable to Greif, Inc.

   $ 40.9       $ 39.4       $ 65.8       $ 61.1   

Cash dividends

     24.6         24.5         49.0         48.8   
  

 

 

    

 

 

    

 

 

    

 

 

 

Undistributed net income attributable to Greif, Inc.

   $ 16.3       $ 14.9       $ 16.8       $ 12.3   

Denominator for basic EPS

           

Class A common stock

     25.4         25.1         25.4         25.1   

Class B common stock

     22.1         22.1         22.1         22.1   

Denominator for diluted EPS

           

Class A common stock

     25.4         25.3         25.4         25.2   

Class B common stock

     22.1         22.1         22.1         22.1   

EPS Basic

           

Class A common stock

   $ 0.70       $ 0.68       $ 1.13       $ 1.05   

Class B common stock

   $ 1.05       $ 1.01       $ 1.68       $ 1.57   

EPS Diluted

           

Class A common stock

   $ 0.70       $ 0.67       $ 1.13       $ 1.05   

Class B common stock

   $ 1.05       $ 1.01       $ 1.68       $ 1.57   

Dividends per share

           

Class A common stock

   $ 0.42       $ 0.42       $ 0.84       $ 0.84   

Class B common stock

   $ 0.63       $ 0.63       $ 1.25       $ 1.25   

Class A Common Stock is entitled to cumulative dividends of one cent a share per year after which Class B Common Stock is entitled to non-cumulative dividends up to a half-cent a 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. The Class B Common Stock has full voting rights. There is no cumulative voting for the election of directors.

Common stock repurchases

The Company’s Board of Directors has authorized the purchase of up to four million shares of Class A Common Stock or Class B Common Stock or any combination of the foregoing. During the six months ended April 30, 2013, the Company repurchased no shares of Class A or Class B Common Stock. During the six months ended April 30, 2012, the Company repurchased no shares of Class A Common Stock. During the three and six months ended April 30, 2012, the Company repurchased 1,000 shares of Class B Common Stock. As of April 30, 2013, the Company had repurchased 3,184,272 shares, including 1,425,452 shares of Class A Common Stock and 1,758,820 shares of Class B Common Stock, under this program which were all purchased in prior years. The total cost of the shares repurchased from November 1, 2011 through April 30, 2013 was approximately $0.1 million.

 

The following table summarizes the Company’s Class A and Class B common and treasury shares as of the specified dates:

 

     Authorized Shares      Issued Shares      Outstanding Shares      Treasury Shares  

October 31, 2012:

           

Class A Common Stock

     128,000,000         42,281,920         25,283,465         16,998,455   

Class B Common Stock

     69,120,000         34,560,000         22,119,966         12,440,034   

April 30, 2013:

           

Class A Common Stock

     128,000,000         42,281,920         25,424,224         16,857,696   

Class B Common Stock

     69,120,000         34,560,000         22,119,966         12,440,034   

The following is a reconciliation of the shares used to calculate basic and diluted earnings per share:

 

     Three months ended      Six months ended  
     April 30,      April 30,  
     2013      2012      2013      2012  

Class A Common Stock:

           

Basic shares

     25,390,486         25,149,691         25,353,441         25,101,280   

Assumed conversion of stock options

     43,699         141,404         40,962         134,423   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted shares

     25,434,185         25,291,095         25,394,403         25,235,703   
  

 

 

    

 

 

    

 

 

    

 

 

 

Class B Common Stock:

           

Basic and diluted shares

     22,119,966         22,120,666         22,119,966         22,120,816   
  

 

 

    

 

 

    

 

 

    

 

 

 

No stock options were antidilutive for the three and six month periods ended April 30, 2013 and 2012, respectively.

Equity Earnings of Unconsolidated Affiliates, Net of Tax and Net Income Attributable to Noncontrolling Interests
Equity Earnings of Unconsolidated Affiliates, Net of Tax and Net Income Attributable to Noncontrolling Interests

NOTE 16 – EQUITY EARNINGS OF UNCONSOLIDATED AFFILIATES, NET OF TAX AND NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS

Equity earnings of unconsolidated affiliates, net of tax

Equity earnings of unconsolidated affiliates, net of tax represent the Company’s share of earnings of affiliates in which the Company does not exercise control and has a 20 percent or more voting interest. Investments in such affiliates are accounted for using the equity method of accounting. If the fair value of an investment in an affiliate is below its carrying value and the difference is deemed to be other than temporary, the difference between the fair value and the carrying value is charged to earnings. The Company has an equity interest in six such affiliates. Equity earnings of unconsolidated affiliates, net of tax for the three months ended April 30, 2013 and 2012 were $0.2 million and $2.0 million, respectively. Dividends received from the Company’s equity method affiliates for the three months ended April 30, 2013 were immaterial and there were no dividends received for the three months ended April 30, 2012. Equity earnings of unconsolidated affiliates, net of tax for the six months ended April 30, 2013 and 2012 were $0.3 million and $2.0 million, respectively. Dividends received from the Company’s equity method affiliates for the six months ended April 30, 2013 were immaterial and there were no dividends received for the six months ended April 30, 2012. The Company has made loans to an entity deemed a VIE and accounted for as an unconsolidated equity investment. These loans bear interest at various interest rates. The original principal balance of these loans was $22.2 million. As of April 30, 2013, these loans had an outstanding balance of $16.3 million.

Net (income) loss attributable to noncontrolling interests

Net (income) loss attributable to noncontrolling interests represent the portion of earnings or losses from the operations of the Company’s consolidated subsidiaries attributable to unrelated third party equity owners that were (deducted from)/added to net income to arrive at net income attributable to the Company. Net (income) loss attributable to noncontrolling interests for the three months ended April 30, 2013 and 2012 was ($2.1) million and $0.2 million, respectively. Net (income) loss attributable to noncontrolling interests for the six months ended April 30, 2013 and 2012 was ($3.4) million and ($0.9) million, respectively.

Shareholders Equity
Shareholders Equity

NOTE 17 — SHAREHOLDERS EQUITY

The components of Shareholders’ Equity from October 31, 2012 to April 30, 2013 (Dollars in millions, shares in thousands):

 

    Capital Stock     Treasury Stock     Retained
Earnings
    Noncontrolling
interests
    Accumulated
Other
Comprehensive
Income (Loss)
    Shareholders’
Equity
 
    Common
Shares
    Amount     Treasury
Shares
    Amount          

As of October 31, 2012

    47,403      $ 123.8        29,439      $ (131.4   $ 1,404.4      $ 119.6      $ (196.0   $ 1,320.4   

Net income

            65.8        3.4          69.2   

Other comprehensive income (loss):

               

- foreign currency translation

              2.9        (7.3     (4.4

- Reclassification of cash flow hedges to earnings, net of income tax benefit of $0.2 million

                0.2        0.2   

- Unrealized loss on cash flow hedges, net of income tax expense of $0.2 million

                (0.1     (0.1

- minimum pension liability adjustment, net of income tax expense of $0.3 million

                0.8        0.8   
               

 

 

 

Comprehensive income

                  65.7   
               

 

 

 

Noncontrolling interests and other

              (3.8       (3.8

Dividends paid

            (49.0         (49.0

Stock options exercised

    66        0.9        (66     0.1              1.0   

Restricted stock executives and directors

    21        1.0        (21     0.1              1.1   

Long-term incentive shares issued

    54        2.1        (54     0.1              2.2   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

As of April 30, 2013

    47,544      $ 127.8        29,298      $ (131.1   $ 1,421.2      $ 122.1      $ (202.4   $ 1,337.6   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Business Segment Information
Business Segment Information

NOTE 18 — BUSINESS SEGMENT INFORMATION

The Company has five operating segments, which are aggregated into four reportable business segments: Rigid Industrial Packaging & Services, Flexible Products & Services, Paper Packaging, and Land Management.

Operations in the Rigid Industrial Packaging & Services segment involve the production and sale of rigid industrial packaging products, such as steel, fibre and plastic drums, rigid intermediate bulk containers, closure systems for industrial packaging products, transit protection products, water bottles and reconditioned containers, and services, such as container life cycle services, blending, filling and other packaging services, logistics and warehousing. The Company’s rigid industrial packaging products are sold to customers in industries such as chemicals, paints and pigments, food and beverage, petroleum, industrial coatings, agricultural, pharmaceutical and mineral, among others.

Operations in the Flexible Products & Services segment involve the production and sale of flexible intermediate bulk containers and related services on a global basis and the sale of industrial and consumer shipping sacks and multiwall bag products in North America. The Company’s flexible intermediate bulk containers are constructed from a polypropylene-based woven fabric that is produced at its fully integrated production sites, as well as sourced from strategic regional suppliers. Flexible products are sold to customers and in market segments similar to those of the Company’s Rigid Industrial Packaging & Services segment. Additionally, the Company’s flexible products significantly expand its presence in the agricultural and food industries, among others. The Company’s industrial and consumer shipping sacks and multiwall bag products are 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.

Operations in the Paper Packaging segment involve the production and sale of containerboard, corrugated sheets, corrugated containers and other corrugated products to customers in North America. The Company’s corrugated container products are used to ship such diverse products as home appliances, small machinery, grocery products, automotive components, books and furniture, as well as numerous other applications.

 

Operations in the Land Management segment involve the management and sale of timber and special use properties from approximately 269,550 acres of timber properties in the southeastern United States, which are actively managed, and 11,850 acres of timber properties in Canada. Land Management’s operations focus on the active harvesting and regeneration of our United States timber properties to achieve sustainable long-term yields. While timber sales are subject to fluctuations, the Company seeks to maintain a consistent cutting schedule, within the limits of market and weather conditions. The Company also sells, from time to time, timberland and special use properties, which consists of surplus properties, HBU properties, and development properties.

The Company’s reportable business segments offer different products and services. The accounting policies of the reportable business segments are substantially the same as those described in the “Basis of Presentation and Summary of Significant Accounting Policies” note in the 2012 Form 10-K.

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

 

     Three months ended     Six months ended  
     April 30,     April 30,  
     2013      2012     2013      2012  

Net sales

          

Rigid Industrial Packaging & Services

   $ 773.4       $ 803.0      $ 1,477.8       $ 1,506.4   

Flexible Products & Services

     112.4         113.9        223.8         228.7   

Paper Packaging

     194.5         173.4        378.7         341.5   

Land Management

     8.6         7.9        17.2         14.4   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total net sales

   $ 1,088.9       $ 1,098.2      $ 2,097.5       $ 2,091.0   
  

 

 

    

 

 

   

 

 

    

 

 

 

Operating profit:

          

Rigid Industrial Packaging & Services

   $ 53.2       $ 56.0      $ 85.3       $ 87.0   

Flexible Products & Services

     0.8         (1.9     1.4         0.4   

Paper Packaging

     25.7         17.1        53.4         37.3   

Land Management

     4.2         7.1        8.4         10.1   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total operating profit

   $ 83.9       $ 78.3      $ 148.5       $ 134.8   
  

 

 

    

 

 

   

 

 

    

 

 

 

Depreciation, depletion and amortization expense:

          

Rigid Industrial Packaging & Services

   $ 26.6       $ 27.3      $ 53.5       $ 53.2   

Flexible Products & Services

     3.7         3.8        7.2         7.7   

Paper Packaging

     7.4         7.8        15.4         15.7   

Land Management

     1.2         0.8        2.3         1.8   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total depreciation, depletion and amortization expense

   $ 38.9       $ 39.7      $ 78.4       $ 78.4   
  

 

 

    

 

 

   

 

 

    

 

 

 

The following table presents net sales to external customers by geographic area (Dollars in millions):

 

     Three months ended April 30,      Six months ended April 30,  
     2013      2012      2013      2012  

Net sales:

           

North America

   $ 513.3       $ 506.6       $ 989.4       $ 960.0   

Europe, Middle East and Africa

     413.5         423.9         784.1         802.2   

Asia Pacific and Latin America

     162.1         167.7         324.0         328.8   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total net sales

   $ 1,088.9       $ 1,098.2       $ 2,097.5       $ 2,091.0   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

The following table presents total assets by segment and geographic area (Dollars in millions):

 

     April 30, 2013      October 31, 2012  

Assets:

     

Rigid Industrial Packaging & Services

   $ 2,436.1       $ 2,484.7   

Flexible Products & Services

     381.7         363.8   

Paper Packaging

     409.0         401.7   

Land Management

     282.3         280.5   
  

 

 

    

 

 

 

Total segments

     3,509.1         3,530.7   
  

 

 

    

 

 

 

Corporate and other

     384.1         326.2   
  

 

 

    

 

 

 

Total assets

   $ 3,893.2       $ 3,856.9   
  

 

 

    

 

 

 

Assets:

     

North America

   $ 1,733.8       $ 1,717.2   

Europe, Middle East and Africa

     1,580.4         1,555.0   

Asia Pacific and Latin America

     579.0         584.7   
  

 

 

    

 

 

 

Total assets

   $ 3,893.2       $ 3,856.9   
  

 

 

    

 

 

 
Basis of Presentation and Summary of Significant Accounting Policies (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 April 30, 2013 and October 31, 2012, the consolidated statements of operations and comprehensive income for the three and six months ended April 30, 2013 and 2012 and the consolidated statements of cash flows for the six month periods ended April 30, 2013 and 2012 of Greif, Inc. and its subsidiaries (the “Company”). The consolidated financial statements include the accounts of Greif, Inc., all wholly-owned and majority-owned subsidiaries and investments in limited liability companies, partnerships and joint ventures in which it has controlling influence. Non–majority owned entities include investments in limited liability companies, partnerships and joint ventures in which the Company does not have controlling influence.

The unaudited consolidated financial statements included in the Quarterly Report on Form 10-Q (this “Form 10-Q”) 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, 2012 (the “2012 Form 10-K”). Note 1 of the “Notes to Consolidated Financial Statements” from the 2012 Form 10-K is specifically incorporated in this Form 10-Q by reference. In the opinion of management, all adjustments necessary for fair presentation of the consolidated financial statements have been included and are of a normal and recurring nature.

The consolidated financial statements have been prepared in accordance with the U.S. Securities and Exchange Commission (“SEC”) instructions to Quarterly Reports on Form 10-Q and include all of the information and disclosures required by accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting. The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual amounts could differ from those estimates.

The Company’s fiscal year begins on November 1 and ends on October 31 of the following year. Any references to the year 2013 or 2012, or to any quarter of those years, relates to the fiscal year or quarter, as the case may be, ended in that year.

The Company presents various fair value disclosures in Notes 3 and 10 to these Consolidated Financial Statements.

Certain prior year amounts have been reclassified to conform to the 2013 presentation.

Newly Adopted Accounting Standards

In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-05 “Comprehensive Income: Presentation of comprehensive income.” This amendment to Accounting Standards Codification (“ASC”) 220 “Comprehensive Income” requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. In December 2011, the FASB issued ASU 2011-12 “Comprehensive Income: Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.” This amendment to ASC 220 “Comprehensive Income” deferred the adoption of presentation of reclassification items out of accumulated other comprehensive income. The Company adopted this new guidance beginning November 1, 2012, and the adoption of the new guidance did not impact the Company’s financial position, results of operations or cash flows, other than the related disclosures.

In September 2011, the FASB issued ASU 2011-08 “Intangibles—Goodwill and Other: Testing Goodwill for Impairment”, which provides an entity the option to first assess qualitative factors to determine whether it is necessary to perform the current two-step test for goodwill impairment. If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further testing is required. The revised standard is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The Company has adopted this new guidance, which will be fully implemented when the annual goodwill impairment testing is performed during the fourth quarter of 2013, and the adoption of the new guidance is not expected to impact the Company’s financial position, results of operations, comprehensive income or cash flows, other than related disclosures.

 

In July 2012, the FASB issued ASU 2012-02 “Intangibles—Goodwill and Other: Testing Indefinite-Lived Intangible Assets for Impairment” which provides an entity the option to first assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more-likely-than-not that the indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount. The Company has adopted this new guidance, which will be fully implemented when the annual intangible asset impairment testing is performed during the fourth quarter of 2013, and the adoption of the new guidance is not expected to impact the Company’s financial position, results of operations, comprehensive income or cash flows, other than related disclosures.

Recently Issued Accounting Standards

As of April 30, 2013, the FASB has issued ASU’s through 2013-07. The Company has reviewed each ASU and the adoption of each ASU that is applicable to the Company is not expected to have a material impact on the Company’s financial position, results of operations, comprehensive income or cash flows, other than the related disclosures.

In December 2011, the FASB issued ASU 2011-11 “Balance Sheet: Disclosures about Offsetting Assets and Liabilities.” The differences in the offsetting requirements in GAAP and International Financial Reporting Standards (“IFRS”) account for a significant difference in the amounts presented in statements of financial position prepared in accordance with GAAP and in the amounts presented in those statements prepared in accordance with IFRS for certain institutions. This difference reduces the comparability of statements of financial position. The FASB and IASB are issuing joint requirements that will enhance current disclosures. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The Company is expected to adopt the new guidance beginning on November 1, 2013, and the adoption of the new guidance is not expected to impact the Company’s financial position, results of operations, comprehensive income or cash flows, other than the related disclosures.

In January 2013, the FASB issued ASU 2013-01 “Balance Sheet: Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities.” The main objective in developing this update is to address implementation issues about the scope of ASU 2011-11. FASB stakeholders have told the FASB that because the scope in ASU 2011-11 is unclear, diversity in practice may result. Recent feedback from FASB stakeholders is that standard commercial provisions of many contracts would equate to a master netting arrangement. FASB stakeholders questioned whether it was the FASB’s intent to require disclosures for such a broad scope, which would significantly increase the cost of compliance. The objective of this update is to clarify the scope of the offsetting disclosures and address any unintended consequences. The Company is expected to adopt the new guidance beginning on November 1, 2013, and the adoption of the new guidance is not expected to impact the Company’s financial position, results of operations, comprehensive income or cash flows, other than the related disclosures.

In February 2013, the FASB issued ASU 2013-02 “Comprehensive Income: Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” The objective of this update is to improve the reporting of reclassifications out of accumulated other comprehensive income. The amendments in this update seek to attain that objective by requiring an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. GAAP to be reclassified in its entirety to net income. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is reclassified to a balance sheet account instead of directly to income or expense in the same reporting period. The Company is expected to adopt the new guidance beginning on November 1, 2013, and the adoption of the new guidance is not expected to impact the Company’s financial position, results of operations, comprehensive income or cash flows, other than the related disclosures.

In March 2013, the FASB issued ASU 2013-05 “Foreign Currency Matters: Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or an Investment in a Foreign Entity.” The objective of this update is to resolve the diversity in practice about whether ASC 810-10 or ASC 830-30 applies to the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business (other than a sale of in substance real estate or conveyance of oil and gas rights) within a foreign entity. The Company is expected to adopt the new guidance beginning November 1, 2014, and the impact of the adoption of the new guidance will be evaluated when an acquisition or divestiture occurs with respect to the Company’s financial position, results of operations, comprehensive income, cash flows and disclosures.

Sale of Non-United States Accounts Receivable (Tables)
Company's Accounts Receivable Programs for Activities Related to Consolidated Statements of Operations and Balance Sheets

The tables below contain information related to the Company’s accounts receivables programs for the activities related to the consolidated statements of operations and balance sheets, respectively (Dollars in millions):

 

     Three months ended      Six months ended  
     April 30,      April 30,  
     2013      2012      2013      2012  

European RPA

  

        

Gross accounts receivable sold to third party financial institution

   $ 266.0       $ 187.8       $ 508.1       $ 187.8   

Cash received for accounts receivable sold under the programs

     235.0         164.5         449.7         164.5   

Deferred purchase price related to accounts receivable sold

     30.9         23.3         58.4         23.3   

Loss associated with the programs

     0.5         0.6         1.2         0.6   

Expenses associated with the programs

     —            1.9         —            1.9   

RPA and Italian RPA

           

Gross accounts receivable sold to third party financial institution

   $ —          $ 17.6       $ —          $ 189.4   

Cash received for accounts receivable sold under the programs

     —            15.6         —            167.7   

Deferred purchase price related to accounts receivable sold

     —            2.0         —            21.7   

Loss associated with the programs

     —            0.7         —            1.6   

Expenses associated with the programs

     —            —            —            —      

Singapore RPA

           

Gross accounts receivable sold to third party financial institution

   $ 17.7       $ 19.2       $ 35.0       $ 35.8   

Cash received for accounts receivable sold under the program

     17.7         19.2         35.0         35.8   

Deferred purchase price related to accounts receivable sold

     —            —            —            —      

Loss associated with the program

     —            —            —            —      

Expenses associated with the program

     0.1         0.1         0.1         0.1   

Malaysian Agreement

           

Gross accounts receivable sold to third party financial institution

   $ 6.3       $ 6.0       $ 11.5       $ 12.4   

Cash received for accounts receivable sold under the program

     6.3         6.0         11.5         12.4   

Deferred purchase price related to accounts receivable sold

     —            —            —            —      

Loss associated with the program

     —            —            0.1         0.1   

Expenses associated with the program

     —            —            —            —      

Total RPAs and Agreement

           

Gross accounts receivable sold to third party financial institution

   $ 290.0       $ 230.6       $ 554.6       $ 425.4   

Cash received for accounts receivable sold under the program

     259.0         205.3         496.2         380.4   

Deferred purchase price related to accounts receivable sold

     30.9         25.3         58.4         45.0   

Loss associated with the program

     0.5         1.3         1.3         2.3   

Expenses associated with the program

     0.1         2.0         0.1         2.0   

 

     April 30,      October 31,  
     2013      2012  

European RPA

  

  

Accounts receivable sold to and held by third party financial institution

   $ 180.4       $ 185.6   

Uncollected deferred purchase price related to accounts receivable sold

     26.4         3.5   

RPA and Italian RPA

     

Accounts receivable sold to and held by third party financial institution

   $ —          $ —      

Uncollected deferred purchase price related to accounts receivable sold

     —            —      

Singapore RPA

     

Accounts receivable sold to and held by third party financial institution

   $ 5.6       $ 3.9   

Uncollected deferred purchase price related to accounts receivable sold

     —            —      

Malaysian Agreement

     

Accounts receivable sold to and held by third party financial institution

   $ 4.3       $ 2.9   

Uncollected deferred purchase price related to accounts receivable sold

     —            —      

Total RPAs and Agreement

     

Accounts receivable sold to and held by third party financial institution

   $ 190.3       $ 192.4   

Uncollected deferred purchase price related to accounts receivable sold

   $ 26.4       $ 3.5   
Inventories (Tables)
Summarization of Inventories

Inventories are stated at the lower of cost or market and are summarized as follows (Dollars in millions):

 

     April 30,      October 31,  
     2013      2012  

Finished Goods

   $ 108.9       $ 96.9   

Raw materials

     245.1         241.0   

Work-in-process

     38.5         36.4   
  

 

 

    

 

 

 
   $ 392.5       $ 374.3   
  

 

 

    

 

 

 
Goodwill and Other Intangible Assets (Tables)

The following table summarizes the changes in the carrying amount of goodwill by segment for the six month period ended April 30, 2013 (Dollars in millions):

 

     Rigid  Industrial
Packaging &
Services
     Flexible Products
& Services
     Paper Packaging      Land Management     Total  

Balance at October 31, 2012

   $ 844.6       $ 71.6       $ 59.7       $ 0.2      $ 976.1   

Goodwill acquired

     —           —           —           —          —     

Goodwill adjustments

     2.3         —           0.2         (0.2     2.3   

Currency translation

     2.4         0.4         —           —          2.8   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Balance at April 30, 2013

   $ 849.3       $ 72.0       $ 59.9       $  —        $ 981.2   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

The following table summarizes the carrying amount of net intangible assets by class as of April 30, 2013 and October 31, 2012 (Dollars in millions):

 

     Gross Intangible Assets      Accumulated
Amortization
     Net Intangible
Assets
 

October 31, 2012:

        

Trademark and patents

   $ 32.5       $ 3.6       $ 28.9   

Non-compete agreements

     14.4         11.1         3.3   

Customer relationships

     201.1         53.6         147.5   

Other

     23.8         4.9         18.9   
  

 

 

    

 

 

    

 

 

 

Total

   $ 271.8       $ 73.2       $ 198.6   
  

 

 

    

 

 

    

 

 

 

April 30, 2013:

        

Trademark and patents

   $ 31.3       $ 4.4       $ 26.9   

Non-compete agreements

     14.7         12.0         2.7   

Customer relationships

     202.7         61.3         141.4   

Other

     22.4         6.3         16.1   
  

 

 

    

 

 

    

 

 

 

Total

   $ 271.1       $ 84.0       $ 187.1   
  

 

 

    

 

 

    

 

 

 
Restructuring Charges (Tables)

The following is a reconciliation of the beginning and ending restructuring reserve balances for the six month period ended April 30, 2013 (Dollars in millions):

 

     Cash Charges     Non-cash
Charges
       
     Employee
Separation
          Asset        
     Costs     Other Costs     Impairments     Total  

Balance at October 31, 2012

   $ 6.2      $ 1.8      $  —        $ 8.0   

Costs incurred and charged to expense

     (0.4     1.1        0.5        1.2   

Costs paid or otherwise settled

     (3.4     (1.5     (0.5     (5.4
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at April 30, 2013

   $ 2.4      $ 1.4      $ —        $ 3.8   
  

 

 

   

 

 

   

 

 

   

 

 

 

The following is a reconciliation of the total amounts expected to be incurred from open restructuring plans which are anticipated to be realized in 2013 or plans that are being formulated and have not been announced as of the date of this Form 10-Q. Amounts expected to be incurred were $10.1 million and $12.3 million as of April 30, 2013 and October 31, 2012, respectively. The decrease was due to the realization of expenses from plans formulated in prior periods offset by the formulation of new plans during the period. (Dollars in millions):

 

    Amounts Expected to be
Incurred
    Amounts expensed during
the six month period ended
April 30, 2013
    Amounts Remaining to be
Incurred
 

Rigid Industrial Packaging & Services

     

Employee separation costs

  $ 2.4      $ (0.5   $ 2.9   

Asset impairments

    0.5        0.5        —     

Other restructuring costs

    4.3        0.9        3.4   
 

 

 

   

 

 

   

 

 

 
    7.2        0.9        6.3   

Flexible Products & Services

     

Employee separation costs

    0.5        0.1        0.4   

Asset impairments

    —          —          —     

Other restructuring costs

    0.7        0.2        0.5   
 

 

 

   

 

 

   

 

 

 
    1.2        0.3        0.9   
 

 

 

   

 

 

   

 

 

 
  $ 8.4      $ 1.2      $ 7.2   
 

 

 

   

 

 

   

 

 

 
Variable Interest Entities (Tables)
Total Net Assets of Flexible Packaging JV

The following table presents the Flexible Packaging JV total net assets (Dollars in millions):

 

October 31, 2012

   Asset Co.      Global Textile      Trading Co.      Flexible Packaging JV  

Total assets

   $ 151.0       $ 47.6       $ 138.7       $ 337.3   

Total liabilities

     73.9         0.5         46.4         120.8   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net assets

   $ 77.1       $ 47.1       $ 92.3       $ 216.5   
  

 

 

    

 

 

    

 

 

    

 

 

 

April 30, 2013

   Asset Co.      Global Textile      Trading Co.      Flexible Packaging JV  

Total assets

   $ 154.3       $ 56.8       $ 144.1       $ 355.2   

Total liabilities

     78.0         1.4         37.7         117.1   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net assets

   $ 76.3       $ 55.4       $ 106.4       $ 238.1   
  

 

 

    

 

 

    

 

 

    

 

 

 
Long-Term Debt (Tables)
Summary of Long-Term Debt

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

 

     April 30, 2013     October 31, 2012  

Amended Credit Agreement

   $ 298.3      $ —     

2010 Credit Agreement

     —          255.0   

Senior Notes due 2017

     302.0        302.3   

Senior Notes due 2019

     244.0        243.6   

Senior Notes due 2021

     257.6        256.0   

Trade accounts receivable credit facility

     130.0        110.0   

Other long-term debt

     47.5        33.4   
  

 

 

   

 

 

 
     1,279.4        1,200.3   

Less current portion

     (10.0     (25.0
  

 

 

   

 

 

 

Long-term debt

   $ 1,269.4      $ 1,175.3   
  

 

 

   

 

 

 
Financial Instruments and Fair Value Measurements (Tables)
Recurring Fair Value Measurements

The following table presents the fair value for those assets and (liabilities) measured on a recurring basis as of April 30, 2013 (Dollars in millions):

 

     Fair Value Measurement     Balance sheet
     Level 1      Level 2     Level 3      Total     Location

Interest rate derivatives

   $  —         $ (1.3   $  —         $ (1.3   Other long-term liabilities

Foreign exchange hedges

     —           0.3        —           0.3      Other current assets

Foreign exchange hedges

     —           (0.5     —           (0.5   Other current liabilities

Energy hedges

     —           —          —           —        Other current liabilities
  

 

 

    

 

 

   

 

 

    

 

 

   

Total*

   $ —         $ (1.5   $ —         $ (1.5  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

* The carrying amounts of cash and cash equivalents, trade accounts receivable, accounts payable, current liabilities and short-term borrowings as of April 30, 2013 approximate their fair values because of the short-term nature of these items and are not included in this table.
Retirement Plans and Postretirement Health Care and Life Insurance Benefits (Tables)

The components of net periodic pension cost include the following (Dollars in millions):

 

     Three months ended     Six months ended  
     April 30,     April 30,  
     2013     2012     2013     2012  

Service cost

   $ 4.2      $ 3.4      $ 8.4      $ 6.8   

Interest cost

     6.9        7.4        13.8        14.8   

Expected return on plan assets

     (8.1     (8.5     (16.2     (17.0

Amortization of prior service cost, initial net asset and net actuarial gain

     4.2        3.2        8.4        6.4   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic pension costs

   $ 7.2      $ 5.5      $ 14.4      $ 11.0   
  

 

 

   

 

 

   

 

 

   

 

 

 

The components of net periodic cost for postretirement benefits include the following (Dollars in millions):

 

     Three months ended     Six months ended  
     April 30,     April 30,  
     2013     2012     2013     2012  

Service cost

   $ —        $ —        $ —        $ —     

Interest cost

     0.2        0.3        0.4        0.6   

Amortization of prior service cost and recognized actuarial gain

     (0.4     (0.4     (0.8     (0.8
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic cost for postretirement benefits

   $ (0.2   $ (0.1   $ (0.4   $ (0.2
  

 

 

   

 

 

   

 

 

   

 

 

 
Earnings Per Share (Tables)

The following table provides EPS information for each period, respectively:

 

     Three months ended      Six months ended  
     April 30,      April 30,  

(In millions, except per share data)

   2013      2012      2013      2012  

Numerator for basic and diluted EPS

           

Net income attributable to Greif, Inc.

   $ 40.9       $ 39.4       $ 65.8       $ 61.1   

Cash dividends

     24.6         24.5         49.0         48.8   
  

 

 

    

 

 

    

 

 

    

 

 

 

Undistributed net income attributable to Greif, Inc.

   $ 16.3       $ 14.9       $ 16.8       $ 12.3   

Denominator for basic EPS

           

Class A common stock

     25.4         25.1         25.4         25.1   

Class B common stock

     22.1         22.1         22.1         22.1   

Denominator for diluted EPS

           

Class A common stock

     25.4         25.3         25.4         25.2   

Class B common stock

     22.1         22.1         22.1         22.1   

EPS Basic

           

Class A common stock

   $ 0.70       $ 0.68       $ 1.13       $ 1.05   

Class B common stock

   $ 1.05       $ 1.01       $ 1.68       $ 1.57   

EPS Diluted

           

Class A common stock

   $ 0.70       $ 0.67       $ 1.13       $ 1.05   

Class B common stock

   $ 1.05       $ 1.01       $ 1.68       $ 1.57   

Dividends per share

           

Class A common stock

   $ 0.42       $ 0.42       $ 0.84       $ 0.84   

Class B common stock

   $ 0.63       $ 0.63       $ 1.25       $ 1.25   

The following table summarizes the Company’s Class A and Class B common and treasury shares as of the specified dates:

 

     Authorized Shares      Issued Shares      Outstanding
Shares
     Treasury Shares  

October 31, 2012:

           

Class A Common Stock

     128,000,000         42,281,920         25,283,465         16,998,455   

Class B Common Stock

     69,120,000         34,560,000         22,119,966         12,440,034   

April 30, 2013:

           

Class A Common Stock

     128,000,000         42,281,920         25,424,224         16,857,696   

Class B Common Stock

     69,120,000         34,560,000         22,119,966         12,440,034   

The following is a reconciliation of the shares used to calculate basic and diluted earnings per share:

 

     Three months ended      Six months ended  
     April 30,      April 30,  
     2013      2012      2013      2012  

Class A Common Stock:

           

Basic shares

     25,390,486         25,149,691         25,353,441         25,101,280   

Assumed conversion of stock options

     43,699         141,404         40,962         134,423   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted shares

     25,434,185         25,291,095         25,394,403         25,235,703   
  

 

 

    

 

 

    

 

 

    

 

 

 

Class B Common Stock:

           

Basic and diluted shares

     22,119,966         22,120,666         22,119,966         22,120,816   
  

 

 

    

 

 

    

 

 

    

 

 

 
Shareholders Equity (Tables)
Components of Shareholders Equity

The components of Shareholders’ Equity from October 31, 2012 to April 30, 2013 (Dollars in millions, shares in thousands):

 

    Capital Stock     Treasury Stock     Retained
Earnings
    Noncontrolling
interests
    Accumulated
Other
Comprehensive
Income (Loss)
    Shareholders’
Equity
 
    Common
Shares
    Amount     Treasury
Shares
    Amount          

As of October 31, 2012

    47,403      $ 123.8        29,439      $ (131.4   $ 1,404.4      $ 119.6      $ (196.0   $ 1,320.4   

Net income

            65.8        3.4          69.2   

Other comprehensive income (loss):

               

- foreign currency translation

              2.9        (7.3     (4.4

- Reclassification of cash flow hedges to earnings, net of income tax benefit of $0.2 million

                0.2        0.2   

- Unrealized loss on cash flow hedges, net of income tax expense of $0.2 million

                (0.1     (0.1

- minimum pension liability adjustment, net of income tax expense of $0.3 million

                0.8        0.8   
               

 

 

 

Comprehensive income

                  65.7   
               

 

 

 

Noncontrolling interests and other

              (3.8       (3.8

Dividends paid

            (49.0         (49.0

Stock options exercised

    66        0.9        (66     0.1              1.0   

Restricted stock executives and directors

    21        1.0        (21     0.1              1.1   

Long-term incentive shares issued

    54        2.1        (54     0.1              2.2   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

As of April 30, 2013

    47,544      $ 127.8        29,298      $ (131.1   $ 1,421.2      $ 122.1      $ (202.4   $ 1,337.6   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Business Segment Information (Tables)

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

 

     Three months ended     Six months ended  
     April 30,     April 30,  
     2013      2012     2013      2012  

Net sales

          

Rigid Industrial Packaging & Services

   $ 773.4       $ 803.0      $ 1,477.8       $ 1,506.4   

Flexible Products & Services

     112.4         113.9        223.8         228.7   

Paper Packaging

     194.5         173.4        378.7         341.5   

Land Management

     8.6         7.9        17.2         14.4   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total net sales

   $ 1,088.9       $ 1,098.2      $ 2,097.5       $ 2,091.0   
  

 

 

    

 

 

   

 

 

    

 

 

 

Operating profit:

          

Rigid Industrial Packaging & Services

   $ 53.2       $ 56.0      $ 85.3       $ 87.0   

Flexible Products & Services

     0.8         (1.9     1.4         0.4   

Paper Packaging

     25.7         17.1        53.4         37.3   

Land Management

     4.2         7.1        8.4         10.1   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total operating profit

   $ 83.9       $ 78.3      $ 148.5       $ 134.8   
  

 

 

    

 

 

   

 

 

    

 

 

 

Depreciation, depletion and amortization expense:

          

Rigid Industrial Packaging & Services

   $ 26.6       $ 27.3      $ 53.5       $ 53.2   

Flexible Products & Services

     3.7         3.8        7.2         7.7   

Paper Packaging

     7.4         7.8        15.4         15.7   

Land Management

     1.2         0.8        2.3         1.8   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total depreciation, depletion and amortization expense

   $ 38.9       $ 39.7      $ 78.4       $ 78.4   
  

 

 

    

 

 

   

 

 

    

 

 

 

The following table presents net sales to external customers by geographic area (Dollars in millions):

 

     Three months ended April 30,      Six months ended April 30,  
     2013      2012      2013      2012  

Net sales:

           

North America

   $ 513.3       $ 506.6       $ 989.4       $ 960.0   

Europe, Middle East and Africa

     413.5         423.9         784.1         802.2   

Asia Pacific and Latin America

     162.1         167.7         324.0         328.8   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total net sales

   $ 1,088.9       $ 1,098.2       $ 2,097.5       $ 2,091.0   
  

 

 

    

 

 

    

 

 

    

 

 

 
     April 30, 2013      October 31, 2012  

Assets:

     

Rigid Industrial Packaging & Services

   $ 2,436.1       $ 2,484.7   

Flexible Products & Services

     381.7         363.8   

Paper Packaging

     409.0         401.7   

Land Management

     282.3         280.5   
  

 

 

    

 

 

 

Total segments

     3,509.1         3,530.7   
  

 

 

    

 

 

 

Corporate and other

     384.1         326.2   
  

 

 

    

 

 

 

Total assets

   $ 3,893.2       $ 3,856.9   
  

 

 

    

 

 

 

Assets:

     

North America

   $ 1,733.8       $ 1,717.2   

Europe, Middle East and Africa

     1,580.4         1,555.0   

Asia Pacific and Latin America

     579.0         584.7   
  

 

 

    

 

 

 

Total assets

   $ 3,893.2       $ 3,856.9   
  

 

 

    

 

 

Acquisitions, Divestitures and Other Significant Transactions - Additional Information (Detail)