GREIF INC, 10-Q filed on 9/7/2012
Quarterly Report
Document and Entity Information
9 Months Ended
Jul. 31, 2012
Aug. 24, 2012
Class A common stock
Aug. 24, 2012
Class B common stock
Entity Registrant Name
GREIF INC 
 
 
Entity Central Index Key
0000043920 
 
 
Document Type
10-Q 
 
 
Document Period End Date
Jul. 31, 2012 
 
 
Amendment Flag
false 
 
 
Document Fiscal Year Focus
2012 
 
 
Document Fiscal Period Focus
Q3 
 
 
Current Fiscal Year End Date
--10-31 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
Entity Common Stock, Shares Outstanding
 
25,264,185 
22,119,966 
Consolidated Statements of Operations (Unaudited) (USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Jul. 31, 2012
Jul. 31, 2011
Jul. 31, 2012
Jul. 31, 2011
Net sales
$ 1,102.8 
$ 1,121.9 
$ 3,193.6 
$ 3,116.5 
Cost of products sold
900.3 
910.8 
2,606.5 
2,522.4 
Gross profit
202.5 
211.1 
587.1 
594.1 
Selling, general and administrative expenses
115.8 
109.3 
344.9 
330.0 
Restructuring charges
3.9 
3.4 
22.9 
11.4 
(Gain) on disposal of properties, plants and equipment, net
(3.3)
(9.2)
(6.4)
(14.1)
Operating profit
86.1 
107.6 
225.7 
266.8 
Interest expense, net
22.7 
18.4 
70.5 
53.8 
Other (income) expense, net
(2.3)
4.5 
0.2 
9.9 
Income before income tax expense and equity earnings of unconsolidated affiliates, net
65.7 
84.7 
155.0 
203.1 
Income tax expense
24.5 
17.3 
50.5 
45.3 
Equity earnings of unconsolidated affiliates, net of tax
0.5 
1.5 
2.5 
2.0 
Net income
41.7 
68.9 
107.0 
159.8 
Net income attributable to noncontrolling interests
(1.0)
(2.0)
(1.2)
(1.4)
Net income attributable to Greif, Inc.
$ 40.7 
$ 66.9 
$ 105.8 
$ 158.4 
Class A common stock
 
 
 
 
Basic earnings per share attributable to Greif, Inc. common shareholders:
 
 
 
 
EPS Basic
$ 0.70 
$ 1.15 
$ 1.82 
$ 2.72 
Diluted earnings per share attributable to Greif, Inc. common shareholders:
 
 
 
 
EPS Diluted
$ 0.70 
$ 1.14 
$ 1.82 
$ 2.70 
Class B common stock
 
 
 
 
Basic earnings per share attributable to Greif, Inc. common shareholders:
 
 
 
 
EPS Basic
$ 1.05 
$ 1.72 
$ 2.72 
$ 4.06 
Diluted earnings per share attributable to Greif, Inc. common shareholders:
 
 
 
 
EPS Diluted
$ 1.05 
$ 1.72 
$ 2.72 
$ 4.06 
Consolidated Balance Sheets (Unaudited) (USD $)
In Millions, unless otherwise specified
Jul. 31, 2012
Oct. 31, 2011
Current assets
 
 
Cash and cash equivalents
$ 91.7 
$ 127.4 
Trade accounts receivable, less allowance of $15.6 in 2012 and $13.8 in 2011
492.8 
563.0 
Inventories
398.2 
431.8 
Deferred tax assets
22.6 
23.7 
Net assets held for sale
6.6 
2.2 
Current portion related party notes and advances receivable
2.3 
1.7 
Prepaid expenses and other current assets
133.3 
134.1 
Total current assets
1,147.5 
1,283.9 
Long-term assets
 
 
Goodwill
952.4 
1,005.1 
Other intangible assets, net of amortization
198.6 
228.8 
Deferred tax assets
64.1 
70.6 
Related party notes receivable
16.6 
18.3 
Assets held by special purpose entities
50.9 
50.9 
Other long-term assets
88.7 
93.4 
Total long-term assets
1,371.3 
1,467.1 
Properties, plants and equipment
 
 
Timber properties, net of depletion
217.6 
216.0 
Land
134.6 
123.1 
Buildings
453.7 
480.4 
Machinery and equipment
1,375.1 
1,396.8 
Capital projects in progress
174.0 
140.0 
Property, Plant and Equipment, Gross
2,355.0 
2,356.3 
Accumulated depreciation
(960.1)
(913.2)
Properties, plants and equipment, net
1,394.9 
1,433.1 
Total assets
3,913.7 
4,194.1 
Current liabilities
 
 
Accounts payable
461.2 
492.9 
Accrued payroll and employee benefits
76.5 
99.8 
Restructuring reserves
7.1 
19.6 
Current portion of long-term debt
21.9 
12.5 
Short-term borrowings
97.4 
137.3 
Deferred tax liabilities
3.1 
5.1 
Other current liabilities
166.0 
167.7 
Total current liabilities
833.2 
934.9 
Long-term liabilities
 
 
Long-term debt
1,198.2 
1,345.1 
Deferred tax liabilities
207.4 
196.7 
Pension liabilities
72.0 
76.1 
Postretirement benefit obligations
21.0 
20.9 
Liabilities held by special purpose entities
43.3 
43.3 
Other long-term liabilities
188.9 
203.3 
Total long-term liabilities
1,722.8 
1,885.4 
Shareholders' equity
 
 
Common stock, without par value
121.6 
113.8 
Treasury stock, at cost
(131.6)
(132.0)
Retained earnings
1,415.9 
1,383.3 
Accumulated other comprehensive loss:
 
 
Foreign currency translation
(92.6)
(46.4)
interest rate and other derivatives
(0.9)
(0.1)
minimum pension liabilities
(96.7)
(101.6)
Total Greif, Inc. shareholders' equity
1,215.7 
1,217.0 
Noncontrolling interests
134.0 
156.8 
Total shareholders' equity
1,349.7 
1,373.8 
Total liabilities and shareholders' equity
$ 3,913.7 
$ 4,194.1 
Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $)
In Millions, unless otherwise specified
Jul. 31, 2012
Oct. 31, 2011
Consolidated Balance Sheets [Abstract]
 
 
Allowance for trade accounts receivable
$ 15.6 
$ 13.8 
Consolidated Statements of Cash Flows (Unaudited) (USD $)
In Millions, unless otherwise specified
9 Months Ended
Jul. 31, 2012
Jul. 31, 2011
Cash flows from operating activities:
 
 
Net income
$ 107.0 
$ 159.8 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation, depletion and amortization
115.8 
102.6 
Asset impairments
7.9 
3.3 
Unrealized foreign exchange gain
(4.7)
(4.9)
Deferred income taxes
(12.0)
(3.8)
Gain on disposals of properties, plants and equipment, net
(6.4)
(14.1)
Equity earnings of affiliates
(2.5)
(2.0)
Increase (decrease) in cash from changes in certain assets and liabilities:
 
 
Trade accounts receivable
49.3 
(42.2)
Inventories
9.3 
(44.2)
Accounts payable
8.9 
(63.5)
Restructuring reserves
(12.1)
(6.6)
Pension and postretirement benefit liabilities
(8.1)
(10.8)
Other, net
67.5 
(50.9)
Net cash provided by operating activities
319.9 
22.7 
Cash flows from investing activities:
 
 
Acquisition of companies, net of cash acquired
 
(185.7)
Cash paid for deferred purchase price
(14.3)
 
Purchases of properties, plants and equipment
(107.5)
(117.8)
Purchases of timber properties
(3.4)
(3.4)
Proceeds from the sale of properties, plants, equipment and other assets
9.2 
17.9 
Issuance of notes receivable to related party, net
1.1 
(21.3)
Purchase of land rights
 
(0.6)
Net cash used in investing activities
(114.9)
(310.9)
Cash flows from financing activities:
 
 
Proceeds from issuance of long-term debt
2,486.0 
2,804.5 
Payments on long-term debt
(2,627.5)
(2,492.2)
Proceeds from (payments on) short-term borrowings, net
(21.3)
55.2 
Payments of trade accounts receivable credit facility, net
 
(10.0)
Dividends paid
(73.2)
(73.4)
Exercise of stock options
1.0 
2.2 
Acquisitions of treasury stock and other
(0.1)
(3.1)
Restricted stock awards
 
(0.3)
Net cash provided by (used in) financing activities
(235.1)
282.9 
Effects of exchange rates on cash
(5.6)
7.4 
Net increase (decrease) in cash and cash equivalents
(35.7)
2.1 
Cash and cash equivalents at beginning of period
127.4 
107.0 
Cash and cash equivalents at end of period
$ 91.7 
$ 109.1 
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 July 31, 2012 and October 31, 2011 and the consolidated statements of operations and cash flows for the nine month periods ended July 31, 2012 and 2011 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, 2011 (the “2011 Form 10-K”). Note 1 of the “Notes to Consolidated Financial Statements” from the 2011 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 2012 or 2011, 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, 9 and 10 to these Consolidated Financial Statements.

Certain prior year amounts have been reclassified to conform to the 2012 presentation. See Note 19 to these Consolidated Financial Statements.

Newly Adopted Accounting Standards

Beginning November 1, 2011 the Company adopted Accounting Standards Update (“ASU”) 2010-29 “Business Combinations: Disclosure of supplementary pro forma information for business combinations”. The amendment to Accounting Standards Codification (“ASC”) 805 “Business Combinations” requires a public entity to disclose pro forma information for business combinations that occurred in the current reporting period. The disclosures include pro forma revenue and earnings of the combined entity for the current reporting period as though the acquisition date for all business combinations that occurred during the year had been as of the beginning of the annual reporting period. If comparative financial statements are presented, the pro forma revenue and earnings of the combined entity for the comparable prior reporting period should be reported as though the acquisition date for all business combinations that occurred during the current year had been as of the beginning of the comparable prior annual reporting period. 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.

Beginning on February 1, 2012 the Company adopted ASU 2011-04 “Fair Value Measurement: Amendments to achieve common fair value measurements and disclosure requirements in U.S. GAAP and IFRS”. The amendments to ASC 820 “Fair Value Measurement” clarify how to apply the existing fair value measurement and disclosure requirements. 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.

 

Recently Issued Accounting Standards

Effective July 1, 2009, changes to the ASC are communicated through an ASU. As of July 31, 2012, the FASB has issued ASU’s 2009-01 through 2012-02. 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 or cash flows, other than the related disclosures.

In June 2011, the FASB issued ASU 2011-05 “Comprehensive Income: Presentation of comprehensive income.” The amendment to 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 is expected to adopt the new guidance on ASU 2011-05 beginning November 1, 2012, and the adoption of the new guidance is not expected to 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. However, an entity can choose to early adopt even if its annual test date is before the issuance of the final standard, provided that the entity has not yet performed its 2011 annual impairment test or issued its financial statements. The Company will consider the applicability of the new guidance beginning November 1, 2012, and the adoption of the new guidance is not expected to impact the Company’s financial position, results of operations or cash flows, other than 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, 2014, and the adoption of the new guidance is not expected to impact the Company’s financial position, results of operations or cash flows, other than the 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 will consider the applicability of the new guidance beginning November 1, 2012, and any adoption of the new guidance is not expected to impact the Company’s financial position, results of operations or cash flows, other than related 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 July 31, 2012 and completed two acquisitions for an aggregate purchase price, net of cash of $157.2 million and completed no material divestitures for the three months ended July 31, 2011. The Company completed no acquisitions and no material divestitures for the nine months ended July 31, 2012 and completed five acquisitions for an aggregate purchase price, net of cash of $185.7 million and completed no material divestitures for the nine months ended July 31, 2011. The Company made a $14.3 million deferred cash payment during the nine months ended July 31, 2012 for an acquisition completed in fiscal year 2010. The following table presents a summary of the purchase price allocation for acquisition activity for 2012 and 2011, respectively, as of July 31, 2012 (Dollars in millions):

 

                                         
    # of
Acquisitions
    Purchase Price,
net of cash
    Tangible
Assets,  net
    Intangible
Assets
    Goodwill  

Total year to date 2012 Acquisitions

    0     $ 0     $ 0     $ 0     $ 0  

Total fiscal year 2011 Acquisitions

    8     $ 344.9     $ 100.1     $ 77.7     $ 290.0  

 

Note: Purchase price, net of cash acquired, represents cash paid in the period of each acquisition and does not include assumed debt, subsequent payments for deferred purchase adjustments or earn-out provisions.

During 2011, the Company completed eight acquisitions, all in the Rigid Industrial Packaging & Services segment, as follows: three European companies acquired in February, July and August, respectively; two joint ventures, one in each of North America and Asia Pacific entered into in February and August, respectively; one Middle Eastern company acquired in May; the acquisition of the remaining outstanding minority shares from a 2008 acquisition in South America; and the acquisition of additional shares of a consolidated subsidiary in North America in October.

The Company has allocated 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; however, any such revisions are not expected to be significant.

Pro Forma Information

In accordance with ASU 2010-29, “Disclosure of Supplementary Pro Forma Information for Business Combinations,” the Company has considered the effect of the 2012 and 2011 acquisitions in the consolidated statements of operations for each period presented. The revenue and operating profit of the 2011 acquisitions included in the Company’s consolidated results totaled $115.5 million and $3.9 million for the three months ended July 31, 2012, and $328.3 million and $6.4 million for the nine months ended July 31, 2012. The revenue and operating profit of the 2011 acquisitions included in the Company’s consolidated results totaled $18.8 million and $2.4 million for the three months ended July 31, 2011, and $21.3 million and $3.2 million for the nine months ended July 31, 2011. All of the 2011 acquisitions involved companies not listed on a stock exchange or not otherwise publicly traded and not required to publicly provide their financial information. Therefore, pro forma results of operations are not presented.

The Company’s 2011 acquisitions were made to obtain technologies, patents, equipment, customer lists and access to markets. All of the 2011 acquisitions were of companies not listed on a stock exchange or not otherwise publicly traded or not required to provide public financial information.

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 Aktiebolag, Greif Packaging Sweden Aktiebolag 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 ($178.1 million as of July 31, 2012). 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”) between Seller and a major international bank, the 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 ($12.0 million as of July 31, 2012).

In May 2009, Greif Malaysia Sdn Bhd., an indirect wholly-owned subsidiary of Greif, Inc., entered into the Malaysian Receivables Purchase Agreement (the “Malaysian Agreements”) with Malaysian banks. The maximum amount of the aggregate receivables that may be financed under the Malaysian Agreements is 15.0 million Malaysian Ringgits ($4.7 million as of July 31, 2012).

These transactions are structured to provide for true legal 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 Singapore RPA and the Malaysian Agreements, 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 table below contains information related to the Company’s accounts receivables programs (Dollars in millions):

 

                                 
    Three months ended     Nine months ended  
    July 31,     July 31,  
    2012     2011     2012     2011  

European RPA

                               

Gross accounts receivable sold to third party financial institution

  $ 266.7     $ —       $ 454.5     $ —    

Cash received for accounts receivable sold under the programs

    235.1       —         399.6       —    

Deferred purchase price related to accounts receivable sold

    31.6       —         54.9       —    

Loss associated with the programs

    0.6       —         1.2       —    

Expenses associated with the programs

    —         —         1.9       —    
         

RPA and Italian RPA

                               

Gross accounts receivable sold to third party financial institution

  $ —       $ 257.1     $ 189.4     $ 720.2  

Cash received for accounts receivable sold under the programs

    —         227.9       167.7       637.5  

Deferred purchase price related to accounts receivable sold

    —         29.2       21.7       82.7  

Loss associated with the programs

    —         —         1.6       2.1  

Expenses associated with the programs

    —         1.1       —         1.1  
         

Singapore RPA

                               

Gross accounts receivable sold to third party financial institution

  $ 21.3     $ 18.5     $ 57.1     $ 52.3  

Cash received for accounts receivable sold under the program

    21.3       18.5       57.1       52.3  

Deferred purchase price related to accounts receivable sold

    —         —         —         —    

Loss associated with the program

    —         —         —         —    

Expenses associated with the program

    0.1       0.1       0.2       0.2  
         

Malaysian Agreements

                               

Gross accounts receivable sold to third party financial institution

  $ 6.0     $ 5.7     $ 18.4     $ 15.3  

Cash received for accounts receivable sold under the program

    6.0       5.7       18.4       15.3  

Deferred purchase price related to accounts receivable sold

    —         —         —         —    

Loss associated with the program

    —         0.1       0.1       0.2  

Expenses associated with the program

    —         —         —         —    
         

Total RPAs and Agreements

                               

Gross accounts receivable sold to third party financial institution

  $ 294.0     $ 281.3     $ 719.4     $ 787.8  

Cash received for accounts receivable sold under the program

    262.4       252.1       642.8       705.1  

Deferred purchase price related to accounts receivable sold

    31.6       29.2       76.6       82.7  

Loss associated with the program

    0.6       0.1       2.9       2.3  

Expenses associated with the program

    0.1       1.2       2.1       1.3  

 

                 
    July 31,     October 31,  
    2012     2011  

European RPA

               

Accounts receivable sold to and held by third party financial institution

  $ 181.1     $ —    

Uncollected deferred purchase price related to accounts receivable sold

    21.5       —    
     

RPA and Italian RPA

               

Accounts receivable sold to and held by third party financial institution

  $ —       $ 149.2  

Uncollected deferred purchase price related to accounts receivable sold

    —         24.4  
     

Singapore RPA

               

Accounts receivable sold to and held by third party financial institution

  $ 6.1     $ 4.9  

Uncollected deferred purchase price related to accounts receivable sold

    —         —    
     

Malaysian Agreements

               

Accounts receivable sold to and held by third party financial institution

  $ 4.0     $ 3.7  

Uncollected deferred purchase price related to accounts receivable sold

    —         —    
     

Total RPAs and Agreements

               

Accounts receivable sold to and held by third party financial institution

  $ 191.2     $ 157.8  

Uncollected deferred purchase price related to accounts receivable sold

  $ 21.5     $ 24.4  

The deferred purchase price related to the accounts receivable sold is reflected as 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 Singapore RPA and the Malaysian Agreements. 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, utilizing the first-in, first-out basis. Inventories are summarized as follows (Dollars in millions):

 

                 
    July 31,     October 31,  
    2012     2011  

Finished Goods

  $ 101.5     $ 105.4  

Raw materials and work-in-process

    296.7       326.4  
   

 

 

   

 

 

 
    $ 398.2     $ 431.8  
   

 

 

   

 

 

 
Net Assets Held for Sale
NET ASSETS HELD FOR SALE

NOTE 5 — NET ASSETS HELD FOR SALE

As of July 31, 2012 and October 31, 2011, there were two and three locations with assets held for sale, respectively. During the nine months ended July 31, 2012, in the Rigid Industrial Packaging & Services segment four locations were placed back in service and depreciation was resumed and accounted for in accordance with ASC 360, “Property, Plant and Equipment” and one location was sold. As a result of placing locations back in service in 2012, the 2011 consolidated balance sheet has been reclassified for such locations to conform to the current year presentation. The reclassification of the four locations to properties, plants and equipment within the consolidated balance sheets was done in accordance with ASC 360, but are still being marketed for sale. 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 July 31, 2012, the Company recorded a gain on disposal of PP&E, net of $3.3 million. There were sales of equipment in the Rigid Industrial Packaging segment which resulted in a gain of $0.6 million and sales of other miscellaneous equipment which resulted in aggregate gains of $2.7 million. None of these were previously classified as held for sale.

For the nine months ended July 31, 2012, the Company recorded a gain on disposal of PP&E, net of $6.4 million. There were sales of HBU and surplus properties which resulted in gains of $3.2 million and sales of development properties which resulted in gains of $1.2 million in the Land Management segment, a sale of equipment in the Rigid Industrial Packaging segment which resulted in aggregate gains of $0.6 million, a sale of miscellaneous equipment in the Paper Packaging segment which resulted in a gain of $0.5 million and sales of other miscellaneous equipment which resulted in aggregate gains of $0.9 million. None of these assets were previously classified as held for sale.

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 nine month period ended July 31, 2012 (Dollars in millions):

 

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

Balance at October 31, 2011

  $ 867.1     $ 78.1     $ 59.7     $ 0.2     $ 1,005.1  

Goodwill acquired

    —         —         —         —         —    

Goodwill adjustments

    11.3       0.1       —         —         11.4  

Currency translation

    (53.8     (10.3     —         —         (64.1
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at July 31, 2012

  $ 824.6     $ 67.9     $ 59.7     $ 0.2     $ 952.4  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

The goodwill adjustments increased goodwill by a net amount of $11.4 million related to the finalization of purchase price allocations of certain prior year acquisitions. Business combinations that occurred at or near year end were recorded with provisional estimates for fair value based on management’s best estimate and were updated based on updated estimates.

The following table summarizes the carrying amount of net intangible assets by class as of July 31, 2012 and October 31, 2011 (Dollars in millions):

 

                         
    Gross Intangible Assets     Accumulated
Amortization
    Net Intangible
Assets
 

October 31, 2011:

                       

Trademark and patents

  $ 47.4     $ 17.7     $ 29.7  

Non-compete agreements

    22.8       9.3       13.5  

Customer relationships

    183.0       22.8       160.2  

Other

    33.1       7.7       25.4  
   

 

 

   

 

 

   

 

 

 

Total

  $ 286.3     $ 57.5     $ 228.8  
   

 

 

   

 

 

   

 

 

 

July 31, 2012:

                       

Trademark and patents

  $ 37.2     $ 9.2     $ 28.0  

Non-compete agreements

    14.4       5.6       8.8  

Customer relationships

    193.9       49.3       144.6  

Other

    19.8       2.6       17.2  
   

 

 

   

 

 

   

 

 

 

Total

  $ 265.3     $ 66.7     $ 198.6  
   

 

 

   

 

 

   

 

 

 

Gross intangible assets decreased by $21.0 million for the nine month period ended July 31, 2012. The decrease in gross intangible assets was attributable to $19.8 million of currency fluctuations and $1.2 million of adjustments to the preliminary purchase price allocations related to the 2011 acquisitions in the Rigid Industrial Packaging & Services segment. The decrease in accumulated amortization was attributable to $3.1 million of currency fluctuations. Amortization expense for the three months ended July 31, 2012 and 2011 was $5.0 million and $4.3 million, respectively. Amortization expense for the nine months ended July 31, 2012 and 2011 was $15.1 million and $12.7 million, respectively. Amortization expense for the next five years is expected to be $20.8 million in 2012, $20.0 million in 2013, $18.6 million in 2014, $17.5 million in 2015 and $17.0 million in 2016.

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-competition covenants, one to 23 years for customer relationships and four to 20 years for other intangibles, except for $15.8 million related to the Tri-Sure trademark and the trade names related to Blagden Express, Closed-loop and Box Board, all of which have indefinite lives.

The Company reviews goodwill and indefinite-lived intangible assets for impairment by reporting unit as required by ASC 350, “Intangibles—Goodwill and Other”, on an annual basis and 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’s business segments have been identified as reporting units and the Company concluded that no impairment or impairment indicators exist as of July 31, 2012.

 

Restructuring Charges
RESTRUCTURING CHARGES

NOTE 7 — RESTRUCTURING CHARGES

The following is a reconciliation of the beginning and ending restructuring reserve balances for the nine month period ended July 31, 2012 (Dollars in millions):

 

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

Balance at October 31, 2011

  $ 11.8     $ 7.6     $ 0.2     $ 19.6  

Costs incurred and charged to expense

    10.5       7.0       5.4       22.9  

Costs paid or otherwise settled

    (17.0     (12.8     (5.6     (35.4
   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at July 31, 2012

  $ 5.3     $ 1.8     $ —       $ 7.1  
   

 

 

   

 

 

   

 

 

   

 

 

 

The focus for restructuring activities in 2012 continues to be on contingency actions and integration of acquisitions in the Rigid Industrial Packaging & Services and Flexible Products & Services segments. During the three months ended July 31, 2012, the Company recorded restructuring charges of $3.9 million, which compares to $3.4 million of restructuring charges during the three months ended July 31, 2011. During the nine months ended July 31, 2012, the Company recorded restructuring charges of $22.9 million, which compares to $11.4 million of restructuring charges during the nine months ended July 31, 2011. The restructuring activity for the three months ended July 31, 2012 consisted of $2.3 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 restructuring activity for the nine month period ended July 31, 2012 consisted of $10.5 million in employee separation costs, $5.4 million in asset impairments and $7.0 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 2012 and 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 $30.0 million and $10.4 million as of July 31, 2012 and October 31, 2011, respectively. The increase was due to the formulation of new plans by management. (Dollars in millions):

 

                         
    Amounts Expected to be
Incurred
    Amounts expensed during
the nine month period
ended July 31, 2012
    Amounts Remaining to be
Incurred
 

Rigid Industrial Packaging & Services

                       

Employee separation costs

  $ 12.0     $ 8.5     $ 3.5  

Asset impairments

    4.0       2.8       1.2  

Other restructuring costs

    7.0       4.9       2.1  
   

 

 

   

 

 

   

 

 

 
      23.0       16.2       6.8  

Flexible Products & Services

                       

Employee separation costs

    2.0       2.0       —    

Asset impairments

    2.6       2.6       —    

Other restructuring costs

    2.4       2.1       0.3  
   

 

 

   

 

 

   

 

 

 
      7.0       6.7       0.3  
   

 

 

   

 

 

   

 

 

 
    $ 30.0     $ 22.9     $ 7.1  
   

 

 

   

 

 

   

 

 

 

 

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. One of the companies 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.

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 July 31, 2012 and October 31, 2011, assets of the Buyer SPE consisted of $50.9 million of restricted bank financial instruments. For both of the nine month periods ended July 31, 2012 and 2011, the Buyer SPE recorded interest income of $1.8 million.

As of July 31, 2012 and October 31, 2011, STA Timber had long-term debt of $43.3 million. For both of the nine month periods ended July 31, 2012 and 2011, STA Timber recorded interest expense of $1.7 million. STA Timber is exposed to credit-related losses in the event of nonperformance by the issuer of the Deed of Guarantee.

Flexible Products 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 Products JV”) with Dabbagh Group Holding Company Limited and its subsidiary National Scientific Company Limited (“NSC”). The Flexible Products JV owns the operations in the Flexible Products & Services segment, with the exception of the North American multi-wall bag business. The Flexible Products JV has been consolidated into the operations of the Company as of its formation date of September 29, 2010.

 

The Flexible Products 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 Products 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 Products 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 Company has 51 percent ownership in Trading Co. and 49 percent ownership in Asset Co. However, Greif Supra and NSC have equal economic interests in the Flexible Products 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 for up to $150 million as required.

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

 

                         

October 31, 2011

  Asset Co.     Trading Co.     Flexible Products JV  

Total assets

  $ 192.9     $ 171.3     $ 364.2  

Total liabilities

    78.9       57.2       136.1  
   

 

 

   

 

 

   

 

 

 

Net assets

  $ 114.0     $ 114.1     $ 228.1  
   

 

 

   

 

 

   

 

 

 
       

July 31, 2012

  Asset Co.     Trading Co.     Flexible Products JV  

Total assets

  $ 193.7     $ 141.0     $ 334.7  

Total liabilities

    83.3       49.4       132.7  
   

 

 

   

 

 

   

 

 

 

Net assets

  $ 110.4     $ 91.6     $ 202.0  
   

 

 

   

 

 

   

 

 

 

As of July 31, 2012, 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 July 31, 2012, Asset Co. and Trading Co. held short term loans payable to NSC for $11.4 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 (income) loss attributable to the noncontrolling interest in the Flexible Products JV for the three months ended July 31, 2012 and 2011 was $0.4 million and ($0.1) million, respectively. Net (income) loss attributable to the noncontrolling interest in the Flexible Products JV for the nine months ended July 31, 2012 and 2011 was ($4.2) million and ($3.5) 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):

 

                 
    July 31, 2012     October 31, 2011  

Credit Agreement

  $ 288.9     $ 355.4  

Senior Notes due 2017

    302.4       302.9  

Senior Notes due 2019

    243.4       242.9  

Senior Notes due 2021

    245.7       280.2  

Trade accounts receivable credit facility

    130.0       130.0  

Other long-term debt

    9.7       46.2  
   

 

 

   

 

 

 
      1,220.1       1,357.6  

Less current portion

    (21.9     (12.5
   

 

 

   

 

 

 

Long-term debt

  $ 1,198.2     $ 1,345.1  
   

 

 

   

 

 

 

Credit Agreement

On October 29, 2010, the Company entered into a $1.0 billion senior secured credit facility pursuant to an Amended and Restated Credit Agreement with a syndicate of financial institutions (the “Credit Agreement”). The Credit Agreement provides 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 is 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 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 a calculated margin amount. As of July 31, 2012, $288.9 million was outstanding under the Credit Agreement. The current portion of the Credit Agreement was $21.9 million and the long-term portion was $267.0 million. The weighted average interest rate on the Credit Agreement was 2.18% for the nine months ended July 31, 2012 and 2.13% as of July 31, 2011.

The Credit Agreement contains financial covenants that require the Company to maintain a certain leverage ratio and a fixed charge coverage ratio. As of July 31, 2012, the Company was in compliance with these covenants.

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 fair value of the Senior Notes due 2017 was $328.7 million as of July 31, 2012 based upon observable market prices, which are considered level 2 inputs. The indenture pursuant to which these Senior Notes were issued contains certain covenants. As of July 31, 2012, 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 fair value of the Senior Notes due 2019 was $285.0 million as of July 31, 2012, based upon observable market prices, which are considered level 2 inputs. The indenture pursuant to which these Senior Notes were issued contains certain covenants. As of July 31, 2012, 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 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 fair value of the Senior Notes due 2021 was $261.6 million as of July 31, 2012, based upon observable market prices, which are considered level 2 inputs. The indenture pursuant to which these Senior Notes were issued contains certain covenants. As of July 31, 2012, 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 with a financial institution. This 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 credit facility is secured by certain of the Company’s trade accounts receivable in the United States and bears interest at a variable rate based on the London Interbank Offered Rate (“LIBOR”) plus a margin or other agreed-upon rate (1.00% as of July 31, 2012). In addition, the Company can terminate the credit facility at any time upon five days prior written notice. A significant portion of the initial proceeds from this credit 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 credit facility and for working capital and general corporate purposes. As of July 31, 2012, there was $130.0 million outstanding under the credit facility. The agreement for this credit facility contains financial covenants that require the Company to maintain a certain leverage ratio and a fixed charge coverage ratio. As of July 31, 2012, 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 this credit facility.

Other

In addition to the amounts borrowed under the Credit Agreement and proceeds from the Senior Notes and the United States Trade Accounts Receivable Credit Facility, as of July 31, 2012, the Company had outstanding other debt of $107.1 million, comprised of $9.7 million in long-term debt and $97.4 million in short-term borrowings, compared to other debt outstanding of $183.5 million, comprised of $46.2 million in long-term debt and $137.3 million in short-term borrowings, as of October 31, 2011.

As of July 31, 2012, the current portion of the Company’s long-term debt was $21.9 million. Annual maturities, including the current portion, of long-term debt under the Company’s various financing arrangements were $3.1 million in 2012, $34.7 million in 2013, $25.0 million in 2014, $365.7 million in 2015, $302.4 million in 2017 and $489.2 million thereafter.

As of July 31, 2012 and October 31, 2011, the Company had deferred financing fees and debt issuance costs of $20.1 million and $18.9 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 to partially 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 three months, the Company expects to reclassify into earnings a net loss from accumulated other comprehensive income of approximately $0.4 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 adjustments for those assets and (liabilities) measured on a recurring basis as of July 31, 2012 (Dollars in millions):

 

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

Location

Interest rate derivatives

  $ —       $ (1.6   $ —       $ (1.6   Other long-term liabilities

Foreign exchange hedges

    —         1.1       —         1.1     Other current assets

Foreign exchange hedges

    —         (2.3     —         (2.3   Other current liabilities

Energy hedges

    —         (0.2     —         (0.2   Other current liabilities
   

 

 

   

 

 

   

 

 

   

 

 

     

Total*

  $ —       $ (3.0   $ —       $ (3.0    
   

 

 

   

 

 

   

 

 

   

 

 

     

 

* The carrying amounts of cash and cash equivalents, trade accounts receivable, accounts payable, current liabilities and short-term borrowings as of July 31, 2012 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 various maturities through 2014. These interest rate swap agreements are used to manage the Company’s fixed and floating rate debt mix, specifically the Credit Agreement. 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 had three interest rate derivatives as of October 31, 2011 which expired in the first quarter of 2012. The Company now has two interest rate derivatives, both of which were entered into during the first quarter of 2012 (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 0.25% as of July 31, 2012 and 0.27% as of October 31, 2011) and pays interest based upon a fixed interest rate (weighted average of 0.75% as of July 31, 2012 and 1.92% as of October 31, 2011). 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 $0.5 million for the three months ended July 31, 2012 and 2011, respectively; and were $0.8 million and $1.5 million for the nine months ended July 31, 2012 and 2011, respectively. These losses were recorded within the consolidated statement of operations as interest expense, net. The fair value of these contracts resulted in losses of $1.6 million and $0.3 million recorded in accumulated other comprehensive income as of July 31, 2012 and October 31, 2011, 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 to allow management to focus its attention on business operations. 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 July 31, 2012, the Company had outstanding foreign currency forward contracts in the notional amount of $231.4 million ($160.6 million as of October 31, 2011). These derivative instruments are designated and qualify as cash flow hedges. Accordingly, the effective portion of the gain or loss on the derivative instrument 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 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 reclassified to earnings under these contracts were $2.9 million and $1.0 million for the three months ended July 31, 2012 and 2011, respectively; and were $4.4 million and $1.0 million for the nine months ended July 31, 2012 and 2011, respectively. These gains and losses were recorded within the consolidated statement of operations as other expense, net. The fair value of these contracts resulted in a loss of $0.2 million and a gain of $0.7 million recorded in other comprehensive income as of July 31, 2012 and October 31, 2011, respectively.

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 enters into derivative contracts to manage the price risk associated with certain of these forecasted purchases.

The Company has entered into certain cash flow agreements to mitigate its exposure to cost fluctuations in natural gas prices through October 31, 2012. Under these hedge agreements, the Company agrees to purchase natural gas at a fixed price. As of July 31, 2012, the notional amount of these hedges was $0.7 million ($2.7 million as of October 31, 2011). These derivative instruments are designated and qualify as cash flow hedges. Accordingly, the effective portion of the gain or loss on the derivative instrument 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 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. Loses reclassified to earnings under these contracts were $0.4 million and immaterial for the three months ended July 31, 2012 and 2011, respectively; and were $1.0 million and $0.3 million for the nine months ended July 31, 2012 and 2011, respectively. These losses were recorded within the consolidated statement of operations as cost of products sold. The fair value of these contracts resulted in losses of $0.2 million and $0.1 million recorded in other comprehensive income as of July 31, 2012 and October 31, 2011, respectively.

Other financial instruments

The estimated fair value of the Company’s 2017 Senior Notes are $328.7 million and $317.9 million compared to the carrying amounts of $300.0 million as of July 31, 2012, and October 31, 2011. The estimated fair value of the Company’s 2019 Senior Notes are $285.0 million and $268.8 million compared to the carrying amounts of $250.0 million as of July 31, 2012, and October 31, 2011. The estimated fair value of the Company’s 2021 Senior Notes are $261.6 million and $280.2 million compared to the carrying amounts of $245.7 million and $280.2 million as of July 31, 2012, and October 31, 2011, respectively. The fair values of the Company’s Credit Agreement and the United States Trade Accounts Receivable Credit Facility 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 following recent acquisitions, the Company may close manufacturing facilities during the next few years. 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. The Company recorded restructuring-related expenses for the nine month period ended July 31, 2012 of $5.4 million on long lived assets with net book values of $19.6 million.

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. The Company recognized an impairment of $0.6 million and zero related to net assets held for sale for the three and nine months ended July 31, 2012 and 2011, respectively.

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.” In the third quarter of 2011, the Company recognized an impairment charge of $3.0 million related to the discontinued usage of certain trade names in the Flexible Products & Services segment. The Company concluded that no further impairment existed as of July 31, 2012.

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 all considered level 1 and level 2 fair value measurements. 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.

 

   

The common collective trusts invest in an array of fixed income, debt and equity securities with various growth and preservation strategies: The trusts invest in long term bonds and large and small capital stock.

 

   

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.

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 2012 or 2011. 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 37.3% and 20.4% for the three months ended July 31, 2012 and 2011, respectively; and 32.6% and 22.3% for the nine months ended July 31, 2012 and 2011, respectively. The change in the effective tax rate was primarily attributable to a shift in global earnings mix to tax jurisdictions with higher tax rates and other discrete items recognized during the period.

The Company has estimated the reasonably possible expected net change in unrecognized tax benefits through July 31, 2012 based on expected settlements or payments of uncertain tax positions, and lapses of the applicable statutes of limitations of unrecognized tax benefits under ASC 740, “Income Taxes.” The estimated net decrease in unrecognized tax benefits for the next 12 months ranges from $0 to $48.5 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
July 31,
    Nine months ended
July 31,
 
    2012     2011     2012     2011  

Service cost

  $ 3.4     $ 3.1     $ 10.2     $ 9.3  

Interest cost

    7.4       7.4       22.2       22.2  

Expected return on plan assets

    (8.5     (9.1     (25.5     (27.3

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

    3.2       2.5       9.6       7.5  
   

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic pension costs

  $ 5.5     $ 3.9     $ 16.5     $ 11.7  
   

 

 

   

 

 

   

 

 

   

 

 

 

The Company made $13.6 million in pension contributions in the nine months ended July 31, 2012. The Company estimates $17.7 million of pension contributions for the entire 2012 fiscal year.

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

 

                                 
    Three months ended
July 31,
    Nine months ended
July 31,
 
    2012     2011     2012     2011  

Service cost

  $ —       $ —       $ —       $ —    

Interest cost

    0.3       0.3       0.9       0.9  

Amortization of prior service cost and recognized actuarial gain

    (0.4     (0.4     (1.2     (1.2
   

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic cost for postretirement benefits

  $ (0.1   $ (0.1   $ (0.3   $ (0.3
   

 

 

   

 

 

   

 

 

   

 

 

 
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 July 31, 2012 and October 31, 2011, environmental reserves of $26.6 million and $29.3 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 July 31, 2012 and October 31, 2011, environmental reserves of the Company included $13.9 million and $14.0 million, respectively, for its blending facility in Chicago, Illinois, $7.2 million and $9.5 million, respectively, for various European drum facilities acquired from Blagden and Van Leer, $3.8 million and $4.2 million, respectively, for its various container life cycle management and recycling facilities acquired in 2011 and 2010, and $1.7 million and $1.6 million for various other facilities around the world.

As of July 31, 2012 Greif estimated that payments for environmental remediation will be $5.8 million in 2012, $3.4 million in 2013, $1.5 million in 2014, $2.6 million in 2015, $1.7 million in 2016 and $11.6 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
July 31,
    Nine months ended
July 31,
 

(In millions, except per share data)

  2012     2011     2012     2011  

Numerator for basic and diluted EPS

                               

Net income attributable to Greif, Inc.

  $ 40.7     $ 66.9     $ 105.8     $ 158.4  

Cash dividends

    24.5       24.6       73.3       73.4  
   

 

 

   

 

 

   

 

 

   

 

 

 

Undistributed net income attributable to Greif, Inc.

  $ 16.2     $ 42.3     $ 32.5     $ 85.0  
         

Denominator for basic EPS

                               

Class A common stock

    25.2       24.9       25.1       24.8  

Class B common stock

    22.1       22.4       22.1       22.4  

Denominator for diluted EPS

                               

Class A common stock

    25.3       25.1       25.2       25.0  

Class B common stock

    22.1       22.4       22.1       22.4  

EPS Basic

                               

Class A common stock

  $ 0.70     $ 1.15     $ 1.82     $ 2.72  

Class B common stock

  $ 1.05     $ 1.72     $ 2.72     $ 4.06  

EPS Diluted

                               

Class A common stock

  $ 0.70     $ 1.14     $ 1.82     $ 2.70  

Class B common stock

  $ 1.05     $ 1.72     $ 2.72     $ 4.06  

Dividends per share

                               

Class A common stock

  $ 0.42     $ 0.42     $ 1.26     $ 1.26  

Class B common stock

  $ 0.63     $ 0.63     $ 1.88     $ 1.88  

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 three months ended July 31, 2012 and the nine months ended July 31, 2012, the Company repurchased no shares of Class A Common Stock. During the three months ended July 31, 2012, the Company repurchased no shares of Class B Common Stock. During the nine months ended July 31, 2012, the Company repurchased 1,000 shares of Class B Common Stock. As of July 31, 2012, 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 except for the 1,000 shares discussed above. The total cost of the shares repurchased from November 1, 2010 through July 31, 2012 was approximately $15.1 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, 2011:

                               

Class A Common Stock

    128,000,000       42,281,920       24,972,029       17,309,891  

Class B Common Stock

    69,120,000       34,560,000       22,120,966       12,439,034  

July 31, 2012:

                               

Class A Common Stock

    128,000,000       42,281,920       25,212,598       17,069,322  

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
July 31,
    Nine months ended
July 31,
 
    2012     2011     2012     2011  

Class A Common Stock:

                               

Basic shares

    25,177,924       24,897,665       25,126,828       24,837,097  

Assumed conversion of stock options

    95,502       215,900       107,124       209,696  
   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted shares

    25,273,426       25,113,565       25,233,952       25,046,793  
   

 

 

   

 

 

   

 

 

   

 

 

 

Class B Common Stock:

                               

Basic and diluted shares

    22,119,966       22,362,266       22,120,533       22,386,818  
   

 

 

   

 

 

   

 

 

   

 

 

 

No stock options were antidilutive for the nine month periods ended July 31, 2012 and 2011, 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 seven such affiliates. Equity earnings of unconsolidated affiliates, net of tax for the three months ended July 31, 2012 and 2011 were $0.5 million and $1.5 million, respectively. Dividends received from the Company’s equity method affiliates for the three months ended July 31, 2012 and 2011 were $0.1 million and $0.0 million, respectively. Equity earnings of unconsolidated affiliates, net of tax for the nine months ended July 31, 2012 and 2011 were $2.5 and $2.0 million, respectively. Dividends received from the Company’s equity method affiliates for the nine months ended July 31, 2012 and 2011 were $0.1 million and $0.0 million, respectively. 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 July 31, 2012, these loans had an outstanding balance of $18.4 million.

Net income attributable to noncontrolling interests

Net income 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)/added from net income to arrive at net income attributable to the Company. Net income attributable to noncontrolling interests for the three months ended July 31, 2012 and 2011 was $1.0 million and $2.0 million, respectively. Net income attributable to noncontrolling interests for the nine months ended July 31, 2012 and 2011 was $1.2 million and $1.4 million, respectively.

Comprehensive Income and Shareholders Equity
COMPREHENSIVE INCOME AND SHAREHOLDERS EQUITY

NOTE 17 — COMPREHENSIVE INCOME AND SHAREHOLDERS EQUITY

Comprehensive income is comprised of net income and other charges and credits to equity that are not the result of transactions with the Company’s owners.

 

The components of comprehensive income are as follows (Dollars in millions):

 

                                 
    Three months ended
July 31,
    Nine months ended
July 31,
 
    2012     2011     2012     2011  
          As restated (1)           As restated (1)  

Net income

  $ 41.7     $ 68.9     $ 107.0     $ 159.8  

Other comprehensive income:

                               

Foreign currency translation adjustment

    (61.1     (23.5     (46.2     0.2  
         

Changes in fair value of interest rate and other derivatives, net of tax

    (0.6     0.3       (0.8     1.1  

Minimum pension liabilities adjustment, net of tax

    1.1       0.1       4.9       (0.8
   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

  $ (18.9   $ 45.8     $ 64.9     $ 160.3  
   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) The consolidated balance sheet and the consolidated statement of changes in shareholders’ equity as of October 31, 2010 have been restated to correct prior period errors. However, the quarterly balance sheets as of January 31, 2011, April 30, 2011 and July 31, 2011 were not restated as part of the October 31, 2011 restatement since the corrections did not impact total assets, consolidated net income or cash flows of the Company, but have been restated within this filing for comparative purposes.

The components of accumulated other comprehensive income within the Company’s consolidated balance sheets were adjusted as follows (Dollars in millions):

 

                         
    July 31, 2011     April 30, 2011     Change  

Accumulated other comprehensive loss:

                       

Foreigh currency translation, as reported

  $ 44.8     $ 68.3     $ (23.5

Restatment

    (44.3     (44.3     —    
   

 

 

   

 

 

   

 

 

 

Foreigh currency translation, as adjusted

  $ 0.5     $ 24.0     $ (23.5
   

 

 

   

 

 

   

 

 

 
       
    July 31, 2011     October 31, 2010     Change  

Accumulated other comprehensive loss:

                       

Foreigh currency translation, as reported

  $ 44.8     $ 44.6     $ 0.2  

Restatment

    (44.3     (44.3     —    
   

 

 

   

 

 

   

 

 

 

Foreigh currency translation, as adjusted

  $ 0.5     $ 0.3     $ 0.2  
   

 

 

   

 

 

   

 

 

 

In the fourth quarter of 2011, the Company corrected an error which occurred in 2003 related to the balance sheet elimination of certain intercompany balances. The effect of the error impacted both foreign currency translation within other comprehensive income (loss), which had been overstated by $19.6 million, and accounts payable, which had been understated by $19.6 million. The Company has corrected the error for 2011 by restating the consolidated statements of changes in shareholders’ equity and the consolidated balance sheets. The correction of the error did not impact total assets, consolidated net income, or cash flows.

During the third quarter of 2011, the Company recorded an out-of-period correction of an error in both noncontrolling interest, which had been understated by $24.7 million, and foreign currency translation within the other comprehensive income (loss), which had been overstated by $24.7 million, as of October 31, 2010. Since the Company restated its consolidated financial statements for the intercompany error noted above, the consolidated balance sheet as of October 31, 2010 and the consolidated statements of changes in shareholders’ equity have also been restated to reflect this correction as of October 31, 2010. The correction of the error did not impact total assets, consolidated net income or cash flows.

The following is the income tax benefit (expense) for each other comprehensive income line item (Dollars in millions):

 

                                 
    Three months ended
July 31,
    Nine months ended
July 31,
 
    2012     2011     2012     2011  

Income tax benefit (expense):

                               

Changes in fair value of interest rate and other derivatives

    0.3       (0.2     0.4       (0.6

Minimum pension liabilities adjustment

    (0.7     —         (2.4     0.3  

 

The components of Shareholders’ Equity from October 31, 2011 to July 31, 2012 (Dollars in millions, shares in thousands):

 

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

As of October 31, 2011

    47,093     $ 113.8       29,749     $ (132.0   $ 1,383.3     $ 156.8     $ (148.1   $ 1,373.8  

Net income

                                    105.8       1.2               107.0  

Other comprehensive income (loss):

                                                               

- foreign currency translation

                                            (18.9     (46.2     (65.1

- interest rate and other derivatives, net of income tax expense of $0.1

                                                    (0.8     (0.8

- minimum pension liability adjustment, net of income tax expense of $1.5

                                                    4.9       4.9  
                                                           

 

 

 

Comprehensive income

                                                            46.0  
                                                           

 

 

 

Other noncontrolling interests

                                            (5.1             (5.1

Dividends paid

                                    (73.2                     (73.2

Stock options exercised

    88       1.0       (88     0.1                               1.1  

Restricted stock executives and directors

    19       0.9       (19     —                                 0.9  

Treasury shares acquired

    (1     —         1       0.1                               0.1  

Long-term incentive shares issued

    134       5.9       (134     0.2                               6.1  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

As of July 31, 2012

    47,333     $ 121.6       29,509     $ (131.6   $ 1,415.9     $ 134.0     $ (190.2   $ 1,349.7  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Business Segment Information
BUSINESS SEGMENT INFORMATION

NOTE 18 — BUSINESS SEGMENT INFORMATION

The Company operates in four 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, fiber and plastic drums, rigid intermediate bulk containers, closure systems for industrial packaging products, water bottles and remanufactured and reconditioned industrial containers, and services such as container life cycle management, recycling of industrial containers, blending, filling, logistics, warehousing and other packaging services. 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 industrial and consumer multiwall bag products in the North America market. The Company’s flexible intermediate bulk containers consist of a polypropylene-based woven fabric that is partly produced at the Company’s fully integrated production sites, as well as sourced from strategic regional suppliers. The Company’s 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 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 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, building 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 269,050 acres of timber properties in the southeastern United States, which are actively managed, and 12,137 acres of timber properties in Canada, which are not actively managed. The Company’s Land Management team is focused on the active harvesting and regeneration of the Company’s 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 consist of surplus properties, higher and better use properties and development properties.

 

The Company’s reportable segments are strategic business units that offer different products and services. The accounting policies of the reportable segments are substantially the same as those described in the “Basis of Presentation and Summary of Significant Accounting Policies” note in the 2011 Form 10-K.

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

 

                                 
    Three months ended     Nine months ended  
    July 31,     July 31,  
    2012     2011     2012     2011  

Net sales

                               

Rigid Industrial Packaging & Services

  $ 805.1     $ 803.9     $ 2,311.3     $ 2,201.8  

Flexible Products & Services

    109.7       141.2       338.4       404.0  

Paper Packaging

    182.7       172.8       524.2       496.1  

Land Management

    5.3       4.0       19.7       14.6  
   

 

 

   

 

 

   

 

 

   

 

 

 

Total net sales

  $ 1,102.8     $ 1,121.9     $ 3,193.6     $ 3,116.5  
   

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit:

                               

Rigid Industrial Packaging & Services

  $ 62.1     $ 71.6     $ 153.8     $ 183.0  

Flexible Products & Services

    1.4       7.7       1.9       11.2  

Paper Packaging

    21.0       17.5       58.3       56.5  

Land Management

    1.6       10.8       11.7       16.1  
   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating profit

  $ 86.1     $ 107.6     $ 225.7     $ 266.8  
   

 

 

   

 

 

   

 

 

   

 

 

 

Restructuring charges:

                               

Rigid Industrial Packaging & Services

    3.4       3.4       16.2       8.0  

Flexible Products & Services

    0.5       0.7       6.7       3.9  

Paper Packaging

    —         (0.7     —         (0.5
   

 

 

   

 

 

   

 

 

   

 

 

 

Total restructuring charges

    3.9       3.4       22.9       11.4  
   

 

 

   

 

 

   

 

 

   

 

 

 

Acquisition-related costs:

                               

Rigid Industrial Packaging & Services

    1.6       2.1       4.1       6.3  

Flexible Products & Services

    —         0.6       0.9       12.9  
   

 

 

   

 

 

   

 

 

   

 

 

 

Total acquisition-related costs

    1.6       2.7       5.0       19.2  
   

 

 

   

 

 

   

 

 

   

 

 

 

Non-cash intangible asset impairment charge:

                               

Flexible Products & Services

    —         3.0       —         3.0  
   

 

 

   

 

 

   

 

 

   

 

 

 

Total non-cash intangible asset impairment charge

    —         3.0       —         3.0  
   

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit before special items:

                               

Rigid Industrial Packaging & Services

    67.1       77.1       174.1       197.3  

Flexible Products & Services

    1.9       12.0       9.5       31.0  

Paper Packaging

    21.0       16.8       58.3       56.0  

Land Management

    1.6       10.8       11.7       16.1  
   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating profit before special items*

    91.6       116.7       253.6       300.4  
   

 

 

   

 

 

   

 

 

   

 

 

 

Depreciation, depletion and amortization expense:

                               

Rigid Industrial Packaging & Services

  $ 25.3     $ 22.5     $ 78.5     $ 64.7  

Flexible Products & Services

    3.7       4.1       11.4       12.5  

Paper Packaging

    7.7       7.8       23.4       23.3  

Land Management

    0.7       0.5       2.5       2.1  
   

 

 

   

 

 

   

 

 

   

 

 

 

Total depreciation, depletion and amortization expense

  $ 37.4     $ 34.9     $ 115.8     $ 102.6  
   

 

 

   

 

 

   

 

 

   

 

 

 

 

* Total operating profit before special items represents operating profit before the impact of restructuring charges and acquisition-related costs.

 

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

 

                                 
    Three months ended July 31,     Nine months ended July 31,  
    2012     2011     2012     2011  

Net sales:

                               

North America

  $ 509.0     $ 502.4     $ 1,469.0     $ 1,426.2  

Europe, Middle East and Africa

    433.9       445.3       1,236.1       1,197.0  

Asia Pacific and Latin America

    159.9       174.2       488.5       493.3  
   

 

 

   

 

 

   

 

 

   

 

 

 

Total net sales

  $ 1,102.8     $ 1,121.9     $ 3,193.6     $ 3,116.5  
   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

                 
    July 31, 2012     October 31, 2011  

Assets:

               

Rigid Industrial Packaging & Services

  $ 2,526.4     $ 2,725.0  

Flexible Products & Services

    356.2       383.5  

Paper Packaging

    411.7       420.4  

Land Management

    278.9       280.1  
   

 

 

   

 

 

 

Total segments

    3,573.2       3,809.0  
   

 

 

   

 

 

 

Corporate and other

    340.5       385.1  
   

 

 

   

 

 

 

Total assets

  $ 3,913.7     $ 4,194.1  
   

 

 

   

 

 

 

Assets:

               

North America

  $ 1,757.1     $ 1,779.5  

Europe, Middle East and Africa

    1,553.4       1,750.3  

Asia Pacific and Latin America

    603.2       664.3  
   

 

 

   

 

 

 

Total assets

  $ 3,913.7     $ 4,194.1  
   

 

 

   

 

 

 

 

Correction of Errors
Correction of Errors

Note 19 – Correction of Errors

The Company’s internal audit process identified deficiencies in internal controls over financial reporting within its Rigid Industrial Packaging & Services business unit in Brazil. Upon further investigation, financial statement errors were discovered in the Brazil business unit in several prior periods. The impact of the errors in the prior years was not material to the Company in any of those years; however, the aggregate amount of the prior period errors of $18.4 million would have been material to the Company’s current year consolidated statement of operations. Consequently, the Company has corrected these errors for all prior periods presented by restating the consolidated financial statements and other financial information included herein. These items include prior period errors that were previously assessed as immaterial and corrections to the financial statements were recorded in the first and second quarters of 2012. Management has determined that the financial statement errors, which related to improperly stated reserves and asset balances which the Company was unable to substantiate, resulted from deficiencies in internal controls over financial reporting within the Company’s Brazil business unit. Periods not presented herein will be restated, as applicable, as they are included in future filings.

The following are the previously reported and corrected balances of certain consolidated statements of operations and consolidated balance sheets (Dollars in millions, except per share amounts):

 

                         
    Three months ended
January 31, 2012
 
    As Reported     Adjustments     As Adjusted  

Selling, general and administrative expenses

  $ 112.6     $ (2.2   $ 110.4  

Operating profit

    58.3       2.2       60.5  
       

Income before income tax expense and equity earnings of unconsolidated affilitates, net

    34.8       2.2       37.0  

Income tax expense

    10.2       0.8       11.0  

Net income

    24.6       1.4       26.0  

Net income attributable to Greif, Inc.

    23.9       1.4       25.3  
       

Basic earnings per share attributable to Greif, Inc. common shareholders:

                       

Class A Common Stock

  $ 0.41     $ 0.03     $ 0.44  

Class B Common Stock

  $ 0.61     $ 0.04     $ 0.65  
       

Diluted earnings per share attributable to Greif, Inc. common shareholders:

                       

Class A Common Stock

  $ 0.41     $ 0.03     $ 0.44  

Class B Common Stock

  $ 0.61     $ 0.04     $ 0.65  

 

                         
    Three months ended  
    April 30, 2012  
    As Reported     Adjustments     As Adjusted  

Net Sales

  $ 1,095.3     $ 2.8     $ 1,098.1  

Gross profit

    203.1       2.8       205.9  

Selling, general and administrative expenses

    121.9       (3.2     118.7  

(Gain) on disposal of properties, plants and equipment, net

    (3.2     1.2       (2.0

Operating profit

    74.3       4.8       79.1  
       

Income before income tax expense and equity earnings of unconsolidated affilitates, net

    47.5       4.8       52.3  

Income tax expense

    13.3       1.8       15.1  

Net income

    36.2       3.0       39.2  

Net income attributable to Greif, Inc.

    36.8       3.0       39.8  
       

Basic earnings per share attributable to Greif, Inc. common shareholders:

                       

Class A Common Stock

  $ 0.63     $ 0.05     $ 0.68  

Class B Common Stock

  $ 0.95     $ 0.07     $ 1.02  
       

Diluted earnings per share attributable to Greif, Inc. common shareholders:

                       

Class A Common Stock

  $ 0.63     $ 0.05     $ 0.68  

Class B Common Stock

  $ 0.95     $ 0.07     $ 1.02  

 

                         
    Three months ended  
    July 31, 2011  
    As Reported     Adjustments     As Adjusted  

Cost of products sold

  $ 910.6     $ 0.2     $ 910.8  

Gross profit

    211.3       (0.2     211.1  

Selling, general and administrative expenses

    109.1       0.2       109.3  

Operating profit

    108.0       (0.4     107.6  
       

Income before income tax expense and equity earnings of unconsolidated affilitates, net

    85.1       (0.4     84.7  

Income tax expense

    21.7       (4.4     17.3  

Net income

    64.9       4.0       68.9  

Net income attributable to Greif, Inc.

    62.9       4.0       66.9  
       

Basic earnings per share attributable to Greif, Inc. common shareholders:

                       

Class A Common Stock

  $ 1.08     $ 0.07     $ 1.15  

Class B Common Stock

  $ 1.61     $ 0.11     $ 1.72  
       

Diluted earnings per share attributable to Greif, Inc. common shareholders:

                       

Class A Common Stock

  $ 1.07     $ 0.07     $ 1.14  

Class B Common Stock

  $ 1.61     $ 0.11     $ 1.72  

 

                         
    Nine months ended  
    July 31, 2011  
    As Reported     Adjustments     As Adjusted  

Cost of products sold

  $ 2,521.7     $ 0.7     $ 2,522.4  

Gross profit

    594.8       (0.7     594.1  

Selling, general and administrative expenses

    329.5       0.5       330.0  

Operating profit

    268.0       (1.2     266.8  
       

Income before income tax expense and equity earnings of unconsolidated affilitates, net

    204.3       (1.2     203.1  

Income tax expense

    49.7       (4.4     45.3  

Net income

    156.6       3.2       159.8  

Net income attributable to Greif, Inc.

    155.2       3.2       158.4  
       

Basic earnings per share attributable to Greif, Inc. common shareholders:

                       

Class A Common Stock

  $ 2.66     $ 0.06     $ 2.72  

Class B Common Stock

  $ 3.98     $ 0.08     $ 4.06  
       

Diluted earnings per share attributable to Greif, Inc. common shareholders:

                       

Class A Common Stock

  $ 2.65     $ 0.05     $ 2.70  

Class B Common Stock

  $ 3.98     $ 0.08     $ 4.06  

 

                         
    For the year ended  
    October 31, 2011  
    As Reported     Adjustments     As Adjusted  

Cost of products sold

  $ 3,446.8     $ 0.9     $ 3,447.7  

Gross profit

    801.1       (0.9     800.2  

Selling, general and administrative expenses

    448.4       0.7       449.1  

(Gain) on disposal of properties, plants and equipment, net

    (14.9     (1.2     (16.1

Operating profit

    337.1       (0.4     336.7  
       

Income before income tax expense and equity earnings of unconsolidated affilitates, net

    243.4       (0.4     243.0  

Income tax expense

    71.1       (3.9     67.2  

Net income

    177.1       3.5       180.6  

Net income attributable to Greif, Inc.

    176.0       3.5       179.5  
       

Basic earnings per share attributable to Greif, Inc. common shareholders:

                       

Class A Common Stock

  $ 3.02     $ 0.06     $ 3.08  

Class B Common Stock

  $ 4.52     $ 0.09     $ 4.61  
       

Diluted earnings per share attributable to Greif, Inc. common shareholders:

                       

Class A Common Stock

  $ 3.01     $ 0.06     $ 3.07  

Class B Common Stock

  $ 4.52     $ 0.09     $ 4.61  

 

                         
    October 31, 2011  
    As Reported     Adjustments     As Adjusted  

Current assets

                       

Trade accounts receivable, less allowance

  $ 568.6     $ (5.6   $ 563.0  

Inventories

    432.5       (0.7     431.8  

Prepaid expenses and other current assets

    140.0       (5.9     134.1  

Long-term assets

                       

Goodwill

    1,004.9       0.2       1,005.1  

Other intangible assets, net of amortization

    229.8       (1.0     228.8  

Other long-term assets

    92.2       1.2       93.4  

Properties, plants and equipment

                       

Machinery and equipment

    1,398.2       (1.4     1,396.8  

Total assets

    4,207.3       (13.2     4,194.1  
       

Current Liabilities

                       

Accounts payable

    487.8       5.1       492.9  

Long-term liabilities

                       

Other long-term liabilities

    203.2       0.1       203.3  

Shareholders’ equity

                       

Retained earnings

    1,401.7       (18.4     1,383.3  

Total liabilities and shareholders’ equity

    4,207.3       (13.2     4,194.1  

 

                         
    For the year ended  
    October 31, 2010  
    As Reported     Adjustments     As Adjusted  

Cost of products sold

  $ 2,757.9     $ 1.6     $ 2,759.5  

Gross profit

    703.6       (1.6     702.0  

Selling, general and administrative expenses

    362.9       1.7       364.6  

Operating profit

    325.4       (3.3     322.1  
       

Income before income tax expense and equity earnings of unconsolidated affilitates, net

    252.5       (3.3     249.2  

Income tax expense

    40.6       (0.1     40.5  

Net income

    215.5       (3.2     212.3  

Net income attributable to Greif, Inc.

    210.0       (3.2     206.8  
       

Basic earnings per share attributable to Greif, Inc. common shareholders:

                       

Class A Common Stock

  $ 3.60     $ (0.05   $ 3.55  

Class B Common Stock

  $ 5.40     $ (0.09   $ 5.31  
       

Diluted earnings per share attributable to Greif, Inc. common shareholders:

                       

Class A Common Stock

  $ 3.58     $ (0.05   $ 3.53  

Class B Common Stock

  $ 5.40     $ (0.09   $ 5.31  

 

                         
    October 31, 2010  
    As Reported     Adjustments     As Adjusted  

Current assets

                       

Trade accounts receivable, less allowance

  $ 480.2     $ (4.3   $ 475.9  

Inventories

    396.6       (0.9     395.7  

Prepaid expenses and other current assets

    134.3       (5.6     128.7  

Long-term assets

                       

Goodwill

    709.7       0.2       709.9  

Other intangible assets, net of amortization

    173.2       (0.7     172.5  

Properties, plants and equipment

                       

Machinery and equipment

    1,319.3       (1.3     1,318.0  

Total assets

    3,498.4       (12.6     3,485.8  
       

Current Liabilities

                       

Accounts payable

    467.9       5.1       473.0  

Long-term liabilities

                       

Other long-term liabilities

    116.9       4.2       121.1  

Shareholders’ equity

                       

Retained earnings

    1,323.5       (21.9     1,301.6  

Total liabilities and shareholders’ equity

    3,498.4       (12.6     3,485.8  
Basis of Presentation and Summary of Significant Accounting Policies (Policies)

The information furnished herein reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the consolidated balance sheets as of July 31, 2012 and October 31, 2011 and the consolidated statements of operations and cash flows for the nine month periods ended July 31, 2012 and 2011 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, 2011 (the “2011 Form 10-K”). Note 1 of the “Notes to Consolidated Financial Statements” from the 2011 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 2012 or 2011, 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, 9 and 10 to these Consolidated Financial Statements.

Certain prior year amounts have been reclassified to conform to the 2012 presentation. See Note 19 to these Consolidated Financial Statements.

Beginning November 1, 2011 the Company adopted Accounting Standards Update (“ASU”) 2010-29 “Business Combinations: Disclosure of supplementary pro forma information for business combinations”. The amendment to Accounting Standards Codification (“ASC”) 805 “Business Combinations” requires a public entity to disclose pro forma information for business combinations that occurred in the current reporting period. The disclosures include pro forma revenue and earnings of the combined entity for the current reporting period as though the acquisition date for all business combinations that occurred during the year had been as of the beginning of the annual reporting period. If comparative financial statements are presented, the pro forma revenue and earnings of the combined entity for the comparable prior reporting period should be reported as though the acquisition date for all business combinations that occurred during the current year had been as of the beginning of the comparable prior annual reporting period. 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.

Beginning on February 1, 2012 the Company adopted ASU 2011-04 “Fair Value Measurement: Amendments to achieve common fair value measurements and disclosure requirements in U.S. GAAP and IFRS”. The amendments to ASC 820 “Fair Value Measurement” clarify how to apply the existing fair value measurement and disclosure requirements. 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.

Effective July 1, 2009, changes to the ASC are communicated through an ASU. As of July 31, 2012, the FASB has issued ASU’s 2009-01 through 2012-02. 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 or cash flows, other than the related disclosures.

In June 2011, the FASB issued ASU 2011-05 “Comprehensive Income: Presentation of comprehensive income.” The amendment to 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 is expected to adopt the new guidance on ASU 2011-05 beginning November 1, 2012, and the adoption of the new guidance is not expected to 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. However, an entity can choose to early adopt even if its annual test date is before the issuance of the final standard, provided that the entity has not yet performed its 2011 annual impairment test or issued its financial statements. The Company will consider the applicability of the new guidance beginning November 1, 2012, and the adoption of the new guidance is not expected to impact the Company’s financial position, results of operations or cash flows, other than 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, 2014, and the adoption of the new guidance is not expected to impact the Company’s financial position, results of operations or cash flows, other than the 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 will consider the applicability of the new guidance beginning November 1, 2012, and any adoption of the new guidance is not expected to impact the Company’s financial position, results of operations or cash flows, other than related disclosures.

These transactions are structured to provide for true legal 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 Singapore RPA and the Malaysian Agreements, 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 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.

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.

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 2012 or 2011. 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.

In accordance with ASU 2010-29, “Disclosure of Supplementary Pro Forma Information for Business Combinations,” the Company has considered the effect of the 2012 and 2011 acquisitions in the consolidated statements of operations for each period presented. The revenue and operating profit of the 2011 acquisitions included in the Company’s consolidated results totaled $115.5 million and $3.9 million for the three months ended July 31, 2012, and $328.3 million and $6.4 million for the nine months ended July 31, 2012. The revenue and operating profit of the 2011 acquisitions included in the Company’s consolidated results totaled $18.8 million and $2.4 million for the three months ended July 31, 2011, and $21.3 million and $3.2 million for the nine months ended July 31, 2011. All of the 2011 acquisitions involved companies not listed on a stock exchange or not otherwise publicly traded and not required to publicly provide their financial information. Therefore, pro forma results of operations are not presented.

Comprehensive income is comprised of net income and other charges and credits to equity that are not the result of transactions with the Company’s owners.

The Company uses derivatives from time to time to partially 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.

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.

The Company has interest rate swap agreements with various maturities through 2014. These interest rate swap agreements are used to manage the Company’s fixed and floating rate debt mix, specifically the Credit Agreement. 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 estimated the reasonably possible expected net change in unrecognized tax benefits through July 31, 2012 based on expected settlements or payments of uncertain tax positions, and lapses of the applicable statutes of limitations of unrecognized tax benefits under ASC 740, “Income Taxes.” The estimated net decrease in unrecognized tax benefits for the next 12 months ranges from $0 to $48.5 million. Actual results may differ materially from this estimate.

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-competition covenants, one to 23 years for customer relationships and four to 20 years for other intangibles, except for $15.8 million related to the Tri-Sure trademark and the trade names related to Blagden Express, Closed-loop and Box Board, all of which have indefinite lives.

The Company reviews goodwill and indefinite-lived intangible assets for impairment by reporting unit as required by ASC 350, “Intangibles—Goodwill and Other”, on an annual basis and 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.

As of July 31, 2012 and October 31, 2011, there were two and three locations with assets held for sale, respectively. During the nine months ended July 31, 2012, in the Rigid Industrial Packaging & Services segment four locations were placed back in service and depreciation was resumed and accounted for in accordance with ASC 360, “Property, Plant and Equipment” and one location was sold. As a result of placing locations back in service in 2012, the 2011 consolidated balance sheet has been reclassified for such locations to conform to the current year presentation. The reclassification of the four locations to properties, plants and equipment within the consolidated balance sheets was done in accordance with ASC 360, but are still being marketed for sale. 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.

Acquisitions, Divestitures and Other Significant Transactions (Tables)
Acquisitions
                                         
    # of
Acquisitions
    Purchase Price,
net of cash
    Tangible
Assets,  net
    Intangible
Assets
    Goodwill  

Total year to date 2012 Acquisitions

    0     $ 0     $ 0     $ 0     $ 0  

Total fiscal year 2011 Acquisitions

    8     $ 344.9     $ 100.1     $ 77.7     $ 290.0  
Sale of Non-United States Accounts Receivable (Tables)
Company's accounts receivables programs
                                 
    Three months ended     Nine months ended  
    July 31,     July 31,  
    2012     2011     2012     2011  

European RPA

                               

Gross accounts receivable sold to third party financial institution

  $ 266.7     $ —       $ 454.5     $ —    

Cash received for accounts receivable sold under the programs

    235.1       —         399.6       —    

Deferred purchase price related to accounts receivable sold

    31.6       —         54.9       —    

Loss associated with the programs

    0.6       —         1.2       —    

Expenses associated with the programs

    —         —         1.9       —    
         

RPA and Italian RPA

                               

Gross accounts receivable sold to third party financial institution

  $ —       $ 257.1     $ 189.4     $ 720.2  

Cash received for accounts receivable sold under the programs

    —         227.9       167.7       637.5  

Deferred purchase price related to accounts receivable sold

    —         29.2       21.7       82.7  

Loss associated with the programs

    —         —         1.6       2.1  

Expenses associated with the programs

    —         1.1       —         1.1  
         

Singapore RPA

                               

Gross accounts receivable sold to third party financial institution

  $ 21.3     $ 18.5     $ 57.1     $ 52.3  

Cash received for accounts receivable sold under the program

    21.3       18.5       57.1       52.3  

Deferred purchase price related to accounts receivable sold

    —         —         —         —    

Loss associated with the program

    —         —         —         —    

Expenses associated with the program

    0.1       0.1       0.2       0.2  
         

Malaysian Agreements

                               

Gross accounts receivable sold to third party financial institution

  $ 6.0     $ 5.7     $ 18.4     $ 15.3  

Cash received for accounts receivable sold under the program

    6.0       5.7       18.4       15.3  

Deferred purchase price related to accounts receivable sold

    —         —         —         —    

Loss associated with the program

    —         0.1       0.1       0.2  

Expenses associated with the program

    —         —         —         —    
         

Total RPAs and Agreements

                               

Gross accounts receivable sold to third party financial institution

  $ 294.0     $ 281.3     $ 719.4     $ 787.8  

Cash received for accounts receivable sold under the program

    262.4       252.1       642.8       705.1  

Deferred purchase price related to accounts receivable sold

    31.6       29.2       76.6       82.7  

Loss associated with the program

    0.6       0.1       2.9       2.3  

Expenses associated with the program

    0.1       1.2       2.1       1.3  

 

                 
    July 31,     October 31,  
    2012     2011  

European RPA

               

Accounts receivable sold to and held by third party financial institution

  $ 181.1     $ —    

Uncollected deferred purchase price related to accounts receivable sold

    21.5       —    
     

RPA and Italian RPA

               

Accounts receivable sold to and held by third party financial institution

  $ —       $ 149.2  

Uncollected deferred purchase price related to accounts receivable sold

    —         24.4  
     

Singapore RPA

               

Accounts receivable sold to and held by third party financial institution

  $ 6.1     $ 4.9  

Uncollected deferred purchase price related to accounts receivable sold

    —         —    
     

Malaysian Agreements

               

Accounts receivable sold to and held by third party financial institution

  $ 4.0     $ 3.7  

Uncollected deferred purchase price related to accounts receivable sold

    —         —    
     

Total RPAs and Agreements

               

Accounts receivable sold to and held by third party financial institution

  $ 191.2     $ 157.8  

Uncollected deferred purchase price related to accounts receivable sold

  $ 21.5     $ 24.4  
Inventories (Tables)
Summarization of inventories
                 
    July 31,     October 31,  
    2012     2011  

Finished Goods

  $ 101.5     $ 105.4  

Raw materials and work-in-process

    296.7       326.4  
   

 

 

   

 

 

 
    $ 398.2     $ 431.8  
   

 

 

   

 

 

 
Goodwill and Other Intangible Assets (Tables)
                                         
    Rigid Industrial
Packaging &
Services
    Flexible Products &
Services
    Paper Packaging     Land Management     Total  

Balance at October 31, 2011

  $ 867.1     $ 78.1     $ 59.7     $ 0.2     $ 1,005.1  

Goodwill acquired

    —         —         —         —         —    

Goodwill adjustments

    11.3       0.1       —         —         11.4  

Currency translation

    (53.8     (10.3     —         —         (64.1
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at July 31, 2012

  $ 824.6     $ 67.9     $ 59.7     $ 0.2     $ 952.4  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
                         
    Gross Intangible Assets     Accumulated
Amortization
    Net Intangible
Assets
 

October 31, 2011:

                       

Trademark and patents

  $ 47.4     $ 17.7     $ 29.7  

Non-compete agreements

    22.8       9.3       13.5  

Customer relationships

    183.0       22.8       160.2  

Other

    33.1       7.7       25.4  
   

 

 

   

 

 

   

 

 

 

Total

  $ 286.3     $ 57.5     $ 228.8