GREIF INC, 10-K filed on 12/22/2010
Annual Report
Document and Entity Informaton
Year Ended
Oct. 31, 2010
Dec. 17, 2010
Apr. 30, 2010
Dec. 17, 2010
Apr. 30, 2010
Entity Registrant Name
GREIF INC 
 
 
 
 
Entity Central Index Key
0000043920 
 
 
 
 
Document Type
10-K 1
 
 
 
 
Document Period End Date
2010-10-31 
 
 
 
 
Amendment Flag
FALSE 
 
 
 
 
Document Fiscal Year Focus
2010 
 
 
 
 
Document Fiscal Period Focus
FY 2
 
 
 
 
Current Fiscal Year End Date
10/31 
 
 
 
 
Entity Well-known Seasoned Issuer
Yes 
 
 
 
 
Entity Voluntary Filers
No 2
 
 
 
 
Entity Current Reporting Status
Yes 
 
 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
 
 
Entity Public Float
 
 
1,405,354,258 
 
393,745,476 
Entity Common Stock, Shares Outstanding
 
24,804,789 
 
22,412,266 
 
Consolidated Statements of Income (USD $)
In Thousands, except Per Share data
Year Ended
Oct. 31,
2010
2009
2008
Net sales
$ 3,461,537 
$ 2,792,217 1
$ 3,790,531 1
Costs of products sold
2,757,875 
2,292,573 1
3,085,735 1
Gross profit
703,662 
499,644 
704,796 1
Selling, general and administrative expenses
362,935 
267,589 
339,157 
Restructuring charges
26,746 
66,590 1
43,202 1
Timberland disposals, net
 
 
(340)
(Gain) on disposal of properties, plants and equipment, net
(11,434)
(34,432)1
(59,534)
Operating profit
325,415 2
199,897 1
382,311 
Interest expense, net
65,787 
53,593 
49,628 1
Loss on Extinguishment of debt
 
782 
 
Other expense, net
7,139 
7,193 1
8,751 
Income before income tax expense and equity earnings of unconsolidated affiliates, net
252,489 
138,329 1
323,932 1
Income tax expense
40,571 
24,061 1
78,241 1
Equity earnings (losses) of unconsolidated affiliates, net of tax
3,539 
(436)
1,672 
Net income
215,457 2
113,832 
247,363 
Net income attributable to noncontrolling interests
(5,472)
(3,186)1
(5,615)
Net income attributable to Greif, Inc.
209,985 2
110,646 1
241,748 1
Class A Common Stock
 
 
 
Basic earnings per share:
 
 
 
Basic earnings per share
3.6 
1.91 1
4.16 1
Diluted earnings per share:
 
 
 
Diluted earnings per share
3.58 2
1.91 1
4.11 1
Class B Common Stock
 
 
 
Basic earnings per share:
 
 
 
Basic earnings per share
5.4 
2.86 
6.23 1
Diluted earnings per share:
 
 
 
Diluted earnings per share
$ 5.4 
$ 2.86 1
$ 6.23 1
Consolidated Balance Sheets (USD $)
In Thousands
Oct. 31, 2010
Oct. 31, 2009
Current assets
 
 
Cash and cash equivalents
$ 106,957 1
$ 111,896 1
Trade accounts receivable, less allowance of $13,311 in 2010 and $12,510 in 2009
480,158 
337,054 1
Inventories
396,572 
238,851 1
Deferred tax assets
19,526 
19,901 1
Net assets held for sale
28,407 1
31,574 1
Prepaid expenses and other current assets
134,269 
105,904 1
Total current assets
1,165,889 
845,180 1
Long-term assets
 
 
Goodwill
709,725 
592,117 1
Other intangible assets, net of amortization
173,239 1
131,370 1
Assets held by special purpose entities
50,891 
50,891 1
Deferred tax assets
29,982 
25,977 
Other long-term assets
93,603 
86,115 1
Total long-term assets
1,057,440 
886,470 1
Properties, plants and equipment
 
 
Timber properties, net of depletion
215,537 1
197,114 1
Land
121,409 
120,667 1
Buildings
411,437 
380,816 1
Machinery and equipment
1,302,597 
1,148,406 1
Capital projects in progress
112,300 
70,489 1
Properties, plants and equipment, gross
2,163,280 
1,917,492 1
Accumulated depreciation
(888,164)
(825,213)1
Properties, plants and equipment, net
1,275,116 
1,092,279 1
Total assets
3,498,445 
2,823,929 1
Current liabilities
 
 
Accounts payable
448,310 
335,816 1
Accrued payroll and employee benefits
90,887 
74,475 1
Restructuring reserves
20,238 
15,315 1
Current portion of long-term debt
12,523 
17,500 1
Short-term borrowings
60,908 
19,584 1
Deferred tax liabilities
5,091 
380 
Other current liabilities
123,854 
99,027 1
Total current liabilities
761,811 
562,097 
Long-term liabilities
 
 
Long-term debt
953,066 
721,108 
Deferred tax liabilities
180,486 1
161,152 1
Pension liabilities
65,915 
77,942 1
Postretirement benefit obligations
21,555 1
25,396 
Liabilities held by special purpose entities
43,250 
43,250 
Other long-term liabilities
116,930 
126,392 1
Total long-term liabilities
1,381,202 1
1,155,240 1
Shareholders' equity
 
 
Common stock, without par value
106,057 
96,504 1
Treasury stock, at cost
(117,394)
(115,277)1
Retained earnings
1,323,477 
1,206,614 1
Accumulated other comprehensive loss:
 
 
foreign currency translation
44,612 
(6,825)1
interest rate derivatives
(1,318)
(1,484)1
energy and other derivatives
(187)
(391)1
minimum pension liabilities
(76,526)
(79,546)
Total Greif, Inc. shareholders' equity
1,278,721 
1,099,595 1
Noncontrolling interests
76,711 
6,997 1
Total shareholders' equity
1,355,432 
1,106,592 1
Total liabilities and shareholders' equity
$ 3,498,445 
$ 2,823,929 1
Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands
Oct. 31, 2010
Oct. 31, 2009
Current assets
 
 
Allowance for trade accounts receivable
$ 13,311 
$ 12,510 1
Consolidated Statements of Cash Flows (USD $)
In Thousands
Year Ended
Oct. 31,
2010
2009
2008
Cash flows from operating activities:
 
 
 
Net income
$ 215,457 1
$ 113,832 
$ 247,363 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation, depletion and amortization
115,974 
102,627 1
106,378 1
Asset impairments
2,917 1
19,516 1
12,325 1
Deferred income taxes
4,596 1
(13,167)1
9,116 1
Gain on disposals of properties, plants and equipment, net
(11,434)
(34,432)1
(59,534)1
Equity (earnings) losses of unconsolidated affiliates, net
(3,539)
436 
(1,672)
Loss on Extinguishment of debt
 
782 
 
Timberland disposals, net
 
 
(340)
Increase (decrease) in cash from changes in certain assets and liabilities:
 
 
 
Trade accounts receivable
(54,046)
73,358 1
(65,877)1
Inventories
(87,832)
109,146 1
(102,699)1
Prepaid expenses and other current assets
(42,557)
(151)1
(3,467)1
Accounts payable
(15,413)
(92,449)1
39,827 1
Accrued payroll and employee benefits
18,868 1
(20,511)1
6,584 1
Restructuring reserves
4,923 1
168 1
(629)1
Other current liabilities
(38,040)
(50,117)
16,310 1
Pension and postretirement benefit liabilities
(15,868)
63,744 1
(13,281)1
Other long-term assets, other long-term liabilities and other
84,105 
(6,258)1
(50,568)
Net cash provided by operating activities
178,111 1
266,524 1
139,836 1
Cash flows from investing activities:
 
 
 
Acquisitions of companies, net of cash acquired
(179,459)
(90,816)1
(99,962)1
Purchases of properties, plants and equipment
(144,137)1
(124,671)1
(143,077)1
Purchases of timber properties
(20,996)1
(1,000)1
(2,500)1
Proceeds from the sale of properties, plants, equipment and other assets
17,325 
50,279 1
60,333 1
Purchases of land rights
 
(4,992)1
(9,289)
Receipt of notes receivable
 
 
33,178 1
Net cash used in investing activities
(327,267)
(171,200)1
(161,317)1
Cash flows from financing activities:
 
 
 
Proceeds from issuance of long-term debt
3,731,683 1
3,170,212 1
2,271,868 1
Payments on long-term debt
(3,637,945)
(2,983,534)1
(2,225,575)1
Proceeds (payments of) short-term borrowings, net
3,878 
(25,749)
23,020 1
Proceeds (payments of) trade accounts receivable credit facility, net
135,000 
(120,000)1
3,976 1
Dividends paid
(93,122)
(87,957)1
(76,524)1
Acquisitions of treasury stock and other
(2,696)
(3,145)1
(21,483)1
Exercise of stock options
2,002 
2,015 1
4,540 1
Debt issuance cost
(10,902)1
(13,588)1
 
Settlement of derivatives, net
17,985 
(3,574)1
 
Net cash provided by (used in) financing activities
145,883 1
(65,320)1
(20,178)1
Effects of exchange rates on cash
(1,666)
4,265 1
(4,413)1
Net increase (decrease) in cash and cash equivalents
(4,939)
34,269 1
(46,072)1
Cash and cash equivalents at beginning of year
111,896 1
77,627 1
123,699 1
Cash and cash equivalents at end of year
$ 106,957 1
$ 111,896 1
$ 77,627 1
Consolidated Statements of Changes in Shareholders' Equity (USD $)
In Thousands
Capital Stock
Treasury Stock
Retained Earnings
Noncontrolling Interest [Member]
Accumulated Other Comprehensive Income (Loss)
Total
Beginning Balance at Oct. 31, 2007
$ 75,155 1
$ (92,028)
$ 1,025,716 1
$ 6,560 
$ 12,484 
$ 1,027,887 
Beginning Balance,Shares at Oct. 31, 2007
46,699 1
30,143 2
 
 
 
 
Net income
 
 
241,748 
5,615 
 
247,363 
Other comprehensive income (loss):
 
 
 
 
 
 
foreign currency translation
 
 
 
 
(82,953)
(82,953)
interest rate derivative, net of income tax expense/benefit of $433, $128 and $67 respectively in 2008, 2009 and 2010
 
 
 
 
(805)
(805)1
minimum pension liability adjustment, net of tax income expense/benefit $920, $28,580 and $27,948 respectively in 2008, 2009 and 2010
 
 
 
 
2,979 
2,979 1
energy derivative, net of income tax expense/benefit of $1,954, $1,579 and $82 respectively in 2008, 2009 and 2010
 
 
 
 
(3,629)
(3,629)
commodity hedge, net of income tax benefit of $482
 
 
 
 
(896)
(896)
Compehensive income
 
 
 
 
 
162,059 
Adjustment to initially apply FIN 48
 
 
(7,015)
 
 
(7,015)
Noncontrolling interests, acquisitions and other
 
 
 
(8,446)
 
(8,446)
Dividend paid
 
 
(76,524)
 
 
(76,524)
Treasury shares acquired
 
(21,476)1
 
 
 
(21,476)
Treasury shares acquired,Shares
(382)1
382 1
 
 
 
 
Stock options exercised
3,949 2
484 1
 
 
 
4,433 
Stock options exercised,Shares
283 
(283)
 
 
 
 
Tax benefit of stock options
4,709 1
 
 
 
 
4,709 
Long-term incentive shares issued
2,633 
89 1
 
 
 
2,722 1
Long-term incentive shares issued,Shares
44 1
(44)
 
 
 
 
Ending Balance at Oct. 31, 2008
86,446 2
(112,931)
1,183,925 1
3,729 
(72,820)
1,088,349 1
Ending Balance,Shares at Oct. 31, 2008
46,644 
30,198 1
 
 
 
 
Net income
 
 
110,646 
3,186 
 
113,832 
Other comprehensive income (loss):
 
 
 
 
 
 
foreign currency translation
 
 
 
 
32,868 1
32,868 
interest rate derivative, net of income tax expense/benefit of $433, $128 and $67 respectively in 2008, 2009 and 2010
 
 
 
 
318 
318 
minimum pension liability adjustment, net of tax income expense/benefit $920, $28,580 and $27,948 respectively in 2008, 2009 and 2010
 
 
 
 
(51,092)
(51,092)
energy derivative, net of income tax expense/benefit of $1,954, $1,579 and $82 respectively in 2008, 2009 and 2010
 
 
 
 
3,908 
3,908 
Compehensive income
 
 
 
 
 
99,834 
Change in pension measurements date, net of income tax benefit of $590
 
 
 
 
(1,428)1
(1,428)
Noncontrolling interests, acquisitions and other
 
 
 
82 
 
82 
Dividend paid
 
 
(87,957)
 
 
(87,957)
Treasury shares acquired
 
(3,145)
 
 
 
(3,145)
Treasury shares acquired,Shares
(100)
100 1
 
 
 
 
Stock options exercised
1,749 
266 
 
 
 
2,015 
Stock options exercised,Shares
133 
(133)1
 
 
 
 
Tax benefit of stock options
575 
 
 
 
 
575 
Long-term incentive shares issued
7,734 1
533 
 
 
 
8,267 
Long-term incentive shares issued,Shares
260 
(260)2
 
 
 
 
Ending Balance at Oct. 31, 2009
96,504 
(115,277)1
1,206,614 
6,997 
(88,246)1
1,106,592 1
Ending Balance,Shares at Oct. 31, 2009
46,937 1
29,905 
 
 
 
 
Net income
 
 
209,985 
5,472 
 
215,457 1
Other comprehensive income (loss):
 
 
 
 
 
 
foreign currency translation
 
 
 
 
51,437 1
51,437 1
interest rate derivative, net of income tax expense/benefit of $433, $128 and $67 respectively in 2008, 2009 and 2010
 
 
 
 
166 
166 2
minimum pension liability adjustment, net of tax income expense/benefit $920, $28,580 and $27,948 respectively in 2008, 2009 and 2010
 
 
 
 
3,020 1
3,020 
energy derivative, net of income tax expense/benefit of $1,954, $1,579 and $82 respectively in 2008, 2009 and 2010
 
 
 
 
204 
204 
Compehensive income
 
 
 
 
 
270,284 1
Noncontrolling interests, acquisitions and other
 
 
 
64,242 1
 
64,242 
Dividend paid
 
 
(93,122)
 
 
(93,122)
Treasury shares acquired
 
(2,696)
 
 
 
(2,696)
Treasury shares acquired,Shares
(50)
50 
 
 
 
 
Stock options exercised
1,729 
273 2
 
 
 
2,002 
Stock options exercised,Shares
133 
(133)1
 
 
 
 
Tax benefit of stock options and other
17 2
 
 
 
 
17 
Long-term incentive shares issued
7,807 1
306 
 
 
 
8,113 
Long-term incentive shares issued,Shares
149 
(149)
 
 
 
 
Ending Balance at Oct. 31, 2010
$ 106,057 
$ (117,394)
$ 1,323,477 
$ 76,711 
$ (33,419)
$ 1,355,432 
Ending Balance,Shares at Oct. 31, 2010
47,169 
29,673 2
 
 
 
 
Consolidated Statements of Changes in Shareholders' Equity (Parenthetical) (USD $)
In Thousands
Year Ended
Oct. 31,
2010
2009
2008
Other comprehensive income (loss):
 
 
 
Income tax expense/benefit, interest rate derivative
$ 67 
$ 128 
$ 433 
Income tax expense/benefit, minimum pension liability adjustment
1,279 
28,580 1
920 
Income tax expense/benefit, energy derivative
82 
1,579 
1,954 2
Income tax benefit,Change in pension measurements date
 
590 
 
Income tax benefit, commodity hedge
 
 
482 1
Accumulated Other Comprehensive Income (Loss)
 
 
 
Other comprehensive income (loss):
 
 
 
Income tax expense/benefit, interest rate derivative
67 1
128 
433 
Income tax expense/benefit, minimum pension liability adjustment
1,279 
28,580 
920 
Income tax expense/benefit, energy derivative
82 1
1,579 1
1,954 
Income tax benefit,Change in pension measurements date
 
590 
 
Income tax benefit, commodity hedge
 
 
482 
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
 
 
The Business
 
Greif, Inc. and its subsidiaries (collectively, “Greif”, “our”, or the “Company”) principally manufacture industrial packaging products, complemented with a variety of value-added services, including blending, packaging, reconditioning, logistics and warehousing, flexible intermediate bulk containers and containerboard and corrugated products, and that it sells to customers in many industries throughout the world. The Company has operations in over 50 countries. In addition, the Company owns timber properties in the southeastern United States, which are actively harvested and regenerated, and also owns timber properties in Canada.
 
Due to the variety of its products, the Company has many customers buying different products and, due to the scope of the Company’s sales, no one customer is considered principal in the total operations of the Company.
 
Because the Company supplies a cross section of industries, such as chemicals, food products, petroleum products, pharmaceuticals and metal products, and must make spot deliveries on a day-to-day basis as its products are required by its customers, the Company does not operate on a backlog to any significant extent and maintains only limited levels of finished goods. Many customers place their orders weekly for delivery during the same week.
 
The Company’s raw materials are principally steel, resin, containerboard, old corrugated containers for recycling and pulpwood.
 
There are approximately 12,250 employees of the Company at October 31, 2010.
 
 
Principles of Consolidation and Basis of Presentation
 
The consolidated financial statements include the accounts of Greif, Inc., all wholly-owned and majority-owned subsidiaries, joint ventures managed by the Company including the joint venture relating to the Flexible Products and Services segment and equity earnings (losses) of unconsolidated affiliates. All intercompany transactions and balances have been eliminated in consolidation. Investments in unconsolidated affiliates are accounted for using the equity method.
 
The Company’s consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States (“GAAP”). Certain prior year and prior quarter amounts have been reclassified to conform to the current year presentation.
 
The Company’s fiscal year begins on November 1 and ends on October 31 of the following year. Any references to the year 2010, 2009 or 2008, or to any quarter of those years, relates to the fiscal year ending in that year.
 
 
Use of Estimates
 
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates, judgments, and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The most significant estimates are related to the allowance for doubtful accounts, inventory reserves, expected useful lives assigned to properties, plants and equipment, goodwill and other intangible assets, restructuring reserves, environmental liabilities, pension and postretirement benefits, income taxes, derivatives, net assets held for sale, self-insurance reserves and contingencies. Actual amounts could differ from those estimates.
 
 
Cash and Cash Equivalents
 
The Company considers highly liquid investments with an original maturity of three months or less to be cash equivalents. The carrying value of cash equivalents approximates fair value.
 
Allowance for Doubtful Accounts
 
Trade receivables represent amounts owed to the Company through its operating activities and are presented net of allowance for doubtful accounts. The allowance for doubtful accounts totaled $13.3 million and $12.5 million at October 31, 2010 and 2009, respectively. The Company evaluates the collectability of its accounts receivable based on a combination of factors. In circumstances where the Company is aware of a specific customer’s inability to meet its financial obligations to the Company, the Company records a specific allowance for bad debts against amounts due to reduce the net recognized receivable to the amount the Company reasonably believes will be collected. In addition, the Company recognizes allowances for bad debts based on the length of time receivables are past due with allowance percentages, based on its historical experiences, applied on a graduated scale relative to the age of the receivable amounts. If circumstances such as higher than expected bad debt experience or an unexpected material adverse change in a major customer’s ability to meet its financial obligations to the Company were to occur, the recoverability of amounts due to the Company could change by a material amount. Amounts deemed uncollectible are written-off against an established allowance for doubtful accounts.
 
 
Concentration of Credit Risk and Major Customers
 
The Company maintains cash depository accounts with major banks throughout the world and invests in high quality short-term liquid instruments. Such investments are made only in instruments issued or enhanced by high quality institutions. These investments mature within three months and the Company has not incurred any related losses.
 
Trade receivables can be potentially exposed to a concentration of credit risk with customers or in particular industries. Such credit risk is considered by management to be limited due to the Company’s many customers, none of which are considered principal in the total operations of the Company, and its geographic scope of operations in a variety of industries throughout the world. The Company does not have an individual customer that exceeds 10 percent of total revenue. In addition, the Company performs ongoing credit evaluations of its customers’ financial conditions and maintains reserves for credit losses. Such losses historically have been within management’s expectations.
 
 
Inventories
 
On November 1, 2009, the Company elected to adopt the FIFO method of inventory valuation for all locations, whereas in all prior years inventory for certain U.S. locations was valued using the LIFO method. The Company believes that the FIFO method of inventory valuation is preferable because (i) the change conforms to a single method of accounting for all of the Company’s inventories on a U.S. and global basis, (ii) the change simplifies financial disclosures, (iii) financial statement comparability and analysis for investors and analysts is improved, and (iv) the majority of the Company’s key competitors use FIFO. The comparative consolidated financial statements of prior periods presented have been adjusted to apply the new accounting method retrospectively.
 
 
Inventory Reserves
 
Reserves for slow moving and obsolete inventories are provided based on historical experience, inventory aging and product demand. The Company continuously evaluates the adequacy of these reserves and makes adjustments to these reserves as required. The Company also evaluates reserves for losses under firm purchase commitments for goods or inventories.
 
 
Net Assets Held for Sale
 
Net assets held for sale represent land, buildings and land improvements for locations that have met the criteria of “held for sale” accounting, as specified by Accounting Standards Codification (“ASC”) 360, “Property, Plant, and Equipment”. As of October 31, 2010, there were sixteen locations held for sale (twelve in the Rigid Industrial Packaging & Services segment and four in the Paper Packaging segment). In 2010, the Company recorded net sales of $91.2 million and net loss before taxes of $1.3 million associated with these properties, primarily related to the Rigid Industrial Packaging & Services segment. For 2009, the Company recorded net sales of $5.5 million and net loss before taxes of $3.9 million associated with held for sale properties, primarily related to the Rigid Industrial Packaging & Services segment. The effect of suspending depreciation on the facilities held for sale is immaterial to the results of operations. The properties classified within net assets held for sale have been listed for sale and it is the Company’s intention to complete these sales within the upcoming year.
 
Goodwill and Other Intangibles
 
Goodwill is the excess of the purchase price of an acquired entity over the amounts assigned to tangible and intangible assets and liabilities assumed in the business combination. The Company accounts for purchased goodwill and indefinite-lived intangible assets in accordance with ASC 350, “Intangibles—Goodwill and Other”. Under ASC 350, purchased goodwill and intangible assets with indefinite lives are not amortized, but instead are tested for impairment at least annually. Intangible assets with finite lives, primarily customer relationships, patents and trademarks, continue to be amortized over their useful lives. The Company tests for impairment during the fourth quarter of each fiscal year, or more frequently if certain indicators are present or changes in circumstances suggest that impairment may exist.
 
ASC 350 requires that testing for goodwill impairment be conducted at the reporting unit level using a two-step approach. The first step requires a comparison of the carrying value of the reporting units to the estimated fair value of these units. If the carrying value of a reporting unit exceeds its estimated fair value, the Company performs the second step of the goodwill impairment to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the estimated implied fair value of a reporting unit’s goodwill to its carrying value. The Company allocates the estimated fair value of a reporting unit to all of the assets and liabilities in that reporting unit, including intangible assets, as if the reporting unit had been acquired in a business combination. Any excess of the estimated fair value of a reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill.
 
The Company’s determination of estimated fair value of the reporting units is based on a discounted cash flow analysis utilizing a multiple of earnings before interest, taxes, depreciation and amortization (“EBITDA”). The discount rates used for impairment testing are based on the risk-free rate plus an adjustment for risk factors and is reflective of a typical market participant. The use of alternative estimates, peer groups or changes in the industry, or adjusting the discount rate, or EBITDA forecasts used could affect the estimated fair value of the reporting units and potentially result in goodwill impairment. Any identified impairment would result in an expense to the Company’s results of operations. The Company performed its annual impairment test in fiscal 2010, 2009 and 2008, which resulted in no impairment charges. Refer to Note 6 for additional information regarding goodwill and other intangible assets.
 
Acquisitions
 
From time to time, the Company acquires businesses and/or assets that augment and complement its operations, in accordance with ASC 805, “Business Combinations.” These acquisitions are accounted for under the purchase method of accounting. The consolidated financial statements include the results of operations from these business combinations as of the date of acquisition.
 
Beginning November 1, 2009, the Company classifies costs incurred in connection with acquisitions as acquisition-related costs. These costs consist primarily of transaction costs, integration costs and changes in the fair value of contingent payments (earn-outs). Acquisition transaction costs are incurred during the initial evaluation of a potential targeted acquisition and primarily relate to costs to analyze, negotiate and consummate the transaction as well as financial and legal due diligence activities. Post acquisition integration activities are costs incurred to combine the operations of an acquired enterprise into the Company’s operations.
 
Internal Use Software
 
Internal use software is accounted for under ASC 985, “Software”. Internal use software is software that is acquired, internally developed or modified solely to meet the Company’s needs and for which, during the software’s development or modification, a plan does not exist to market the software externally. Costs incurred to develop the software during the application development stage and for upgrades and enhancements that provide additional functionality are capitalized and then amortized over a three- to ten- year period.
 
Properties, Plants and Equipment
 
Properties, plants and equipment are stated at cost. Depreciation on properties, plants and equipment is provided on the straight-line method over the estimated useful lives of the assets as follows:
 
         
    Years  
 
 
Buildings
    30-45  
Machinery and equipment
    3-19  
 
Depreciation expense was $98.5 million, $88.6 million and $92.9 million, in 2010, 2009 and 2008, respectively. Expenditures for repairs and maintenance are charged to expense as incurred. When properties are retired or otherwise disposed of, the cost and accumulated depreciation are eliminated from the asset and related allowance accounts. Gains or losses are credited or charged to income as incurred.
 
For 2010, the Company recorded a gain on disposal of properties, plants and equipment, net of $11.4 million, primarily consisting of $3.3 million and $3.1 million pre-tax net gain on the sale of specific Rigid Industrial Packaging & Services segment assets and locations in Asia and North America, respectively, $2.3 million in net gains from the sale of surplus and higher and better use (“HBU”) timber properties and other miscellaneous gains of $2.7 million.
 
The Company capitalizes interest on long-term fixed asset projects using a rate that approximates the Company’s weighted average cost of borrowing. At October 31, 2010 and 2009, the Company had capitalized interest costs of $5.3 million and $2.7 million, respectively.
 
The Company owns timber properties in the southeastern United States and in Canada. With respect to the Company’s United States timber properties, which consisted of approximately 267,150 acres at October 31, 2010, depletion expense on timber properties is computed on the basis of cost and the estimated recoverable timber. Depletion expense was $2.6 million, $2.9 million and $4.2 million in 2010, 2009 and 2008, respectively. The Company’s land costs are maintained by tract. The Company begins recording pre-merchantable timber costs at the time the site is prepared for planting. Costs capitalized during the establishment period include site preparation by aerial spray, costs of seedlings, planting costs, herbaceous weed control, woody release, labor and machinery use, refrigeration rental and trucking for the seedlings. The Company does not capitalize interest costs in the process. Property taxes are expensed as incurred. New road construction costs are capitalized as land improvements and depreciated over 20 years. Road repairs and maintenance costs are expensed as incurred. Costs after establishment of the seedlings, including management costs, pre-commercial thinning costs and fertilization costs, are expensed as incurred. Once the timber becomes merchantable, the cost is transferred from the pre-merchantable timber category to the merchantable timber category in the depletion block.
 
Merchantable timber costs are maintained by five product classes, pine sawtimber, pine chip-n-saw, pine pulpwood, hardwood sawtimber and hardwood pulpwood, within a depletion block, with each depletion block based upon a geographic district or subdistrict. Currently, the Company has eight depletion blocks. These same depletion blocks are used for pre-merchantable timber costs. Each year, the Company estimates the volume of the Company’s merchantable timber for the five product classes by each depletion block. These estimates are based on the current state in the growth cycle and not on quantities to be available in future years. The Company’s estimates do not include costs to be incurred in the future. The Company then projects these volumes to the end of the year. Upon acquisition of a new timberland tract, the Company records separate amounts for land, merchantable timber and pre-merchantable timber allocated as a percentage of the values being purchased. These acquisition volumes and costs acquired during the year are added to the totals for each product class within the appropriate depletion block(s). The total of the beginning, one-year growth and acquisition volumes are divided by the total undepleted historical cost to arrive at a depletion rate, which is then used for the current year. As timber is sold, the Company multiplies the volumes sold by the depletion rate for the current year to arrive at the depletion cost.
 
The Company’s Canadian timber properties, which consisted of approximately 24,700 acres at October 31, 2010, are not actively managed at this time, and therefore, no depletion expense is recorded.
 
Equity Earnings (Losses) of Unconsolidated Affiliates and Non-Controlling Interests including Variable Interest Entities
 
The Company accounts for equity earnings (losses) of unconsolidated affiliates and non-controlling interests under ASC 810, “Consolidation”. The objective of ASC 810 is to improve the relevance, comparability and transparency of the financial information that a reporting entity provides in its consolidated financial statements. ASC 810 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. ASC 810 also changes the way the consolidated financial statements are presented, establishes a single method of accounting for changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation, requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated and expands disclosures in the consolidated financial statements that clearly identify and distinguish between the parent’s ownership interest and the interest of the noncontrolling owners of a subsidiary. Refer to Note 16 for additional information regarding the Company’s unconsolidated affiliates and non-controlling interests.
 
ASC 810 also provides a framework for identifying variable interest entities (“VIE’s”) and determining when a company should include the assets, liabilities, noncontrolling interests and results of operations of a VIE in its consolidated financial statements. In general, a VIE is a corporation, partnership, limited liability company, trust or any other legal structure used to conduct activities or hold assets that either (1) has an insufficient amount of equity to carry out its principal activities without additional subordinated financial support, (2) has a group of equity owners that are unable to make significant decisions about its activities or (3) has a group of equity owners that do not have the obligation to absorb losses or the right to receive returns generated by its operations. ASC 810 requires a VIE to be consolidated if a party with an ownership, contractual or other financial interest in the VIE (a variable interest holder) is obligated to absorb a majority of the risk of loss from the VIE’s activities, is entitled to receive a majority of the VIE’s residual returns (if no party absorbs a majority of the VIE’s losses), or both.
 
On September 29, 2010, Greif, Inc. and its indirect subsidiary Greif International Holding Supra C.V. (“Greif Supra”), a Netherlands limited partnership, completed a Joint Venture Agreement with Dabbagh Group Holding Company Limited (“Dabbagh”), a Saudi Arabia corporation and National Scientific Company Limited (“NSC”), a Saudi Arabia limited liability company and a subsidiary of Dabbagh, referred to herein as the Flexible Packaging JV. The joint venture owns the operations in the Flexible Products & Services segment, with the exception of the North American multi-wall bag business. Greif Supra and NSC have equal economic interests in the joint venture, notwithstanding the actual ownership interests in the various legal entities. All investments, loans and capital injections are shared 50% by the Greif and the Dabbagh entities. Greif has deemed this joint venture to be a VIE based on the criteria outlined in Financial Accounting Standards Board Interpretation No. 46 as revised in December 2003 (FIN 46(R))—Consolidation of Variable Interest Entities, codified under ASC 810. Greif exercises management control over this joint venture and is the primary beneficiary due to supply agreements and broader packaging industry customer risks and rewards. Therefore, Greif has fully consolidated the operations of this joint venture as of the formation date of September 29, 2010 and has reported Dabbagh’s share in the profits and losses in this joint venture as from this date on the company’s income statement under net income attributable to non-controlling interests. The majority of the fiscal 2010 increase in non-controlling interests pertains to the Flexible Packaging JV.
 
The Company has consolidated the assets and liabilities of STA Timber LLC (“STA Timber”) in accordance with ASC 810 which was involved in the transactions described in Note 8. Because STA Timber is a separate and distinct legal entity from Greif, Inc. and its other subsidiaries, the assets of STA Timber are not available to satisfy the liabilities and obligations of these entities and the liabilities of STA Timber are not liabilities or obligations of these entities. The Company has also consolidated the assets and liabilities of the buyer-sponsored purpose entity described in Note 8 (the “Buyer SPE”) involved in that transaction as a result of ASC 810. However, because the Buyer SPE is a separate and distinct legal entity from Greif, Inc. and its other subsidiaries, the assets of the Buyer SPE are not available to satisfy the liabilities and obligations of these entities and the liabilities of the Buyer SPE are not liabilities or obligations of these entities.
 
Contingencies
 
Various lawsuits, claims and proceedings have been or may be instituted or asserted against the Company, including those pertaining to environmental, product liability, and safety and health matters. While the amounts claimed may be substantial, the ultimate liability cannot currently be determined because of the considerable uncertainties that exist.
 
All lawsuits, claims and proceedings are considered by the Company in establishing reserves for contingencies in accordance with ASC 450, “Contingencies”. In accordance with the provisions of ASC 450, the Company accrues for a litigation-related liability when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Based on currently available information known to the Company, the Company believes that its reserves for these litigation-related liabilities are reasonable and that the ultimate outcome of any pending matters is not likely to have a material adverse effect on the Company’s financial position or results of operations.
 
Environmental Cleanup Costs
 
The Company accounts for environmental clean up costs in accordance with ASC 450. The Company expenses environmental expenditures related to existing conditions resulting from past or current operations and from which no current or future benefit is discernable. Expenditures that extend the life of the related property or mitigate or prevent future environmental contamination are capitalized. The Company determines its liability on a site-by-site basis and records a liability at the time when it is probable and can be reasonably estimated. The Company’s estimated liability is 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 the relevant costs.
 
Self-Insurance
 
The Company is self-insured for certain of the claims made under its employee medical and dental insurance programs. The Company had recorded liabilities totaling $2.6 million and $4.0 million for estimated costs related to outstanding claims at October 31, 2010 and 2009, respectively. These costs include an estimate for expected settlements on pending claims, administrative fees and an estimate for claims incurred but not reported. These estimates are based on management’s assessment of outstanding claims, historical analyses and current payment trends. The Company recorded an estimate for the claims incurred but not reported using an estimated lag period based upon historical information. This lag period assumption has been consistently applied for the periods presented. If the lag period was hypothetically adjusted by a period equal to a half month, the impact on earnings would be approximately $0.9 million. However, the Company believes the reserves recorded are adequate based upon current facts and circumstances.
 
The Company has certain deductibles applied to various insurance policies including general liability, product, auto and workers’ compensation. Deductible liabilities are insured through the Company’s captive insurance subsidiary, which had recorded liabilities totaling $24.2 million and $21.5 million for anticipated costs related to general liability, product, auto and workers’ compensation at October 31, 2010 and 2009, respectively. These costs include an estimate for expected settlements on pending claims, defense costs and an estimate for claims incurred but not reported. These estimates are based on the Company’s assessment of outstanding claims, historical analysis, actuarial information and current payment trends.
 
Income Taxes
 
Income taxes are accounted for under ASC 740, “Income Taxes”. In accordance with ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as measured by enacted tax rates that are expected to be in effect in the periods when the deferred tax assets and liabilities are expected to be settled or realized. Valuation allowances are established where expected future taxable income does not support the realization of the deferred tax assets.
 
The Company’s effective tax rate is based on income, statutory tax rates and tax planning opportunities available to the Company in the various jurisdictions in which the Company operates. Significant judgment is required in determining the Company’s effective tax rate and in evaluating its tax positions.
 
Tax benefits from uncertain tax position are recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. The amount recognized is measured as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon settlement. The Company’s effective tax rate includes the impact of reserve provisions and changes to reserves that it considers appropriate as well as related interest and penalties.
 
A number of years may elapse before a particular matter for which the Company has established a reserve is audited and finally resolved. The number of years with open tax audits varies depending on the tax jurisdiction. While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter, the Company believes that its reserves reflect the outcome of known tax contingencies. Unfavorable settlement of any particular issue would require use of the Company’s cash. Favorable resolution would be recognized as a reduction to the Company’s effective tax rate in the period of resolution.
 
Restructuring Charges
 
The Company accounts for all exit or disposal activities in accordance with ASC 420, “Exit or Disposal Cost Obligations”. Under ASC 420, a liability is measured at its fair value and recognized as incurred.
 
Employee-related costs primarily consist of one-time termination benefits provided to employees who have been involuntarily terminated. A one-time benefit arrangement is an arrangement established by a plan of termination that applies for a specified termination event or for a specified future period. A one-time benefit arrangement exists at the date the plan of termination meets all of the following criteria and has been communicated to employees:
 
(1) Management, having the authority to approve the action, commits to a plan of termination.
 
(2) The plan identifies the number of employees to be terminated, their job classifications or functions and their locations, and the expected completion date.
 
(3) The plan establishes the terms of the benefit arrangement, including the benefits that employees will receive upon termination (including but not limited to cash payments), in sufficient detail to enable employees to determine the type and amount of benefits they will receive if they are involuntarily terminated.
 
(4) Actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
 
Facility exit and other costs consist of accelerated depreciation, equipment relocation costs, project consulting fees and costs associated with restructuring the Company’s delivery of information technology infrastructure services. A liability for other costs associated with an exit or disposal activity is recognized and measured at its fair value in the period in which the liability is incurred (generally, when goods or services associated with the activity are received). The liability is not recognized before it is incurred, even if the costs are incremental to other operating costs and will be incurred as a direct result of a plan.
 
Pension and Postretirement Benefits
 
Under ASC 715, “Compensation—Retirement Benefits”, employers recognize the funded status of their defined benefit pension and other postretirement plans on the consolidated balance sheet and record as a component of other comprehensive income, net of tax, the gains or losses and prior service costs or credits that have not been recognized as components of the net periodic benefit cost.
 
Transfer and Service of Assets
 
Several indirect wholly-owned subsidiaries of Greif, Inc. have each agreed to sell trade receivables meeting certain eligibility requirements that it had purchased from other indirect wholly-owned subsidiaries of Greif, Inc., under a non-U.S. factoring agreement. The structure of the transactions provides for a legal true sale, on a revolving basis, of the receivables transferred from the various Greif, Inc. subsidiaries to the respective financial institutions and their affiliates. These institutions 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. At the balance sheet reporting dates, the Company removes from accounts receivable the amount of proceeds received from the initial purchase price since they meet the applicable criteria of ASC 860, “Transfers and Servicing”. 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.
 
Stock-Based Compensation Expense
 
The Company recognizes stock-based compensation expense in accordance with ASC 718, “Compensation—Stock Compensation”. ASC 718 requires the measurement and recognition of compensation expense, based on estimated fair values, for all share-based awards made to employees and directors, including stock options, restricted stock, restricted stock units and participation in the Company’s employee stock purchase plan.
 
ASC 718 requires companies to estimate the fair value of share-based awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense in the Company’s consolidated statements of income over the requisite service periods. No options were granted in 2010, 2009, or 2008. For any options granted in the future, compensation expense will be based on the grant date fair value estimated in accordance with the standard. There was no share-based compensation expense recognized under the standard for 2010, 2009 or 2008.
 
The Company uses the straight-line single option method of expensing stock options to recognize compensation expense in its consolidated statements of income for all share-based awards. Because share-based compensation expense is based on awards that are ultimately expected to vest, share-based compensation expense will be reduced to account for estimated forfeitures. 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.
 
Restricted Stock
 
Under the Company’s Long-Term Incentive Plan and the 2005 Outside Directors Equity Award Plan, the Company granted 134,721 and 14,480 shares of restricted stock with a weighted average grant date fair value of $54.88 and $49.70, respectively, in 2010. The Company granted 243,107 and 16,568 shares of restricted stock with a weighted average grant date fair value of $32.03 and $28.96, under the Company’s Long-Term Incentive Plan and the 2005 Outside Directors Equity Award Plan, respectively, in 2009. All restricted stock awards are fully vested at the date of award.
 
Revenue Recognition
 
The Company recognizes revenue when title passes to customers or services have been rendered, with appropriate provision for returns and allowances. Revenue is recognized in accordance with ASC 605, “Revenue Recognition”.
 
Timberland disposals, timber and special use property revenues are recognized when closings have occurred, required down payments have been received, title and possession have been transferred to the buyer, and all other criteria for sale and profit recognition have been satisfied.
 
The Company reports the sale of surplus and HBU property in our consolidated statements of income under “gain on disposals of properties, plants and equipment, net” and reports the sale of development property under “net sales” and “cost of products sold.” All HBU and development property, together with surplus property, is used by the Company to productively grow and sell timber until sold.
 
Shipping and Handling Fees and Costs
 
The Company includes shipping and handling fees and costs in cost of products sold.
 
Other Expense, Net
 
Other expense, net primarily represents non-United States trade receivables program fees, currency translation and remeasurement gains and losses and other infrequent non-operating items.
 
Currency Translation
 
In accordance with ASC 830, “Foreign Currency Matters”, the assets and liabilities denominated in a foreign currency are translated into United States dollars at the rate of exchange existing at year-end, and revenues and expenses are translated at average exchange rates.
 
The cumulative translation adjustments, which represent the effects of translating assets and liabilities of the Company’s international operations, are presented in the consolidated statements of changes in shareholders’ equity in accumulated other comprehensive income (loss). The transaction gains and losses are credited or charged to income. The amounts included in other income (expense) related to transaction gain and losses, net of tax were $0.1 million, ($0.1) million and ($1.3) million in 2010, 2009 and 2008, respectively.
 
Derivative Financial Instruments
 
In accordance with ASC 815, “Derivatives and Hedging”, the Company records all derivatives in the consolidated balance sheet as either assets or liabilities measured at fair value. Dependent on the designation of the derivative instrument, changes in fair value are recorded to earnings or shareholders’ equity through other comprehensive income (loss).
 
The Company uses interest rate swap agreements for cash flow hedging purposes. For derivative instruments that hedge the exposure of variability in interest rates, designated as cash flow hedges, the effective portion of the net gain or loss on the derivative instrument is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.
 
Interest rate swap agreements that hedge against variability in interest rates effectively convert a portion of floating rate debt to a fixed rate basis, thus reducing the impact of interest rate changes on future interest expense. The Company uses the “variable cash flow method” for assessing the effectiveness of these swaps. The effectiveness of these swaps is reviewed at least every quarter. Hedge ineffectiveness has not been material during any of the years presented herein.
 
The Company enters into currency forward contracts to hedge certain currency transactions and short-term intercompany loan balances with its international businesses. In addition, the Company uses cross-currency swaps to hedge a portion of its net investment in its European subsidiaries. Such contracts limit the Company’s exposure to both favorable and unfavorable currency fluctuations. These contracts are adjusted to reflect market value as of each balance sheet date, with the resulting changes in fair value being recognized in other comprehensive income (loss).
 
The Company uses derivative instruments to hedge a portion of its natural gas. These derivatives are designated as cash flow hedges. The effective portion of the net gain or loss is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period during which the hedged transaction affects earnings.
 
Any derivative contract that is either not designated as a hedge, or is so designated but is ineffective, is adjusted to market value and recognized in earnings immediately. If a cash flow or fair value hedge ceases to qualify for hedge accounting, the contract would continue to be carried on the balance sheet at fair value until settled and future adjustments to the contract’s fair value would be recognized in earnings immediately. If a forecasted transaction were no longer probable to occur, amounts previously deferred in accumulated other comprehensive income (loss) would be recognized immediately in earnings.
 
Fair Value
 
The Company uses ASC 820, “Fair Value Measurements and Disclosures” to account for fair value. ASC 820 defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. Additionally, this standard 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. For derivative instruments, the Company uses interest rates, LIBOR curves, commodity rates, and foreign currency futures when assessing fair value.
 
       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.
 
Newly Adopted Accounting Standards
 
In December 2007, the Financial Accounting Standards Board (“FASB”) issued new guidance, which has been codified within ASC 805, “Business Combinations”. The objective of the new provisions of ASC 805 is to improve the relevance, representational faithfulness and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. ASC 805 establishes principles and requirements for how the acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree; recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. ASC 805 applies to all transactions or other events in which an entity (the acquirer) obtains control of one or more businesses (the acquiree), including those sometimes referred to as “true mergers” or “mergers of equals” and combinations achieved without the transfer of consideration. ASC 805 applies to any acquisition entered into on or after November 1, 2009. The Company adopted the new guidance beginning on November 1, 2009, which impacted the Company’s financial position, results of operations, cash flows and related disclosures.
 
In December 2007, the FASB amended ASC 810, “Consolidation”. The objective of the new amendment of ASC 810 is to improve the relevance, comparability and transparency of the financial information that a reporting entity provides in its consolidated financial statements. ASC 810 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. ASC 810 also changes the way the consolidated financial statements are presented, establishes a single method of accounting for changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation, requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated and expands disclosures in the consolidated financial statements that clearly identify and distinguish between the parent’s ownership interest and the interest of the noncontrolling owners of a subsidiary. The new provisions of ASC 810 are to be applied prospectively as of the beginning of the fiscal year in which the provision are adopted, except for the presentation and disclosure requirements, which are to be applied retrospectively for all periods presented. The Company adopted the new guidance beginning November 1, 2009, and the adoption of the new guidance did not impact the Company’s financial position, results of operations or cash flows, other than the related disclosures.
 
In December 2008, the FASB amended ASC 715, “Compensation—Retirement Benefits”, to provide guidance on employers’ disclosures about assets of a defined benefit pension or other postretirement plan. The new guidance codified within ASC 715 requires employers to disclose information about fair value measurements of plan assets similar to ASC 820, “Fair Value Measurements and Disclosures.” The objectives of the disclosures are to provide an understanding of: (a) how investment allocation decisions are made, including the factors that are pertinent to an understanding of investment policies and strategies, (b) the major categories of plan assets, (c) the inputs and valuation techniques used to measure the fair value of plan assets, (d) the effect of fair value measurements using significant unobservable inputs on changes in plan assets for the period and (e) significant concentrations of risk within plan assets. The Company adopted the new guidance beginning November 1, 2009, and the adoption of the new guidance did not impact the Company’s financial position, results of operations or cash flows, other than the related disclosures.
 
Recently Issued Accounting Standards
 
In June 2009, the FASB amended ASC 860, “Transfers and Servicing”. The amendment to ASC 860 to improve the information provided in financial statements concerning transfers of financial assets, including the effects of transfers on financial position, financial performance and cash flows, and any continuing involvement of the transferor with the transferred financial assets. The new provisions of ASC 860 are effective for the Company’s financial statements for the fiscal year beginning November 1, 2010. The Company is in the process of evaluating the impact, if any, that the adoption of the guidance may have on its consolidated financial statements and related disclosures. However, the Company does not anticipate a material impact on the Company’s financial position, results of operations or cash flows.
 
In June 2009, the FASB amended ASC 810, “Consolidation”. The amendment to ASC 810 requires an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity. It also requires enhanced disclosures that will provide users of financial statements with more transparent information about an enterprise’s involvement in a variable interest entity. The new provisions of ASC 810 are effective for the Company’s financial statements for the fiscal year beginning November 1, 2010. The Company is in the process of evaluating the impact, if any, that the adoption of ASC 810 may have on its consolidated financial statements and related disclosures. However, the Company does not anticipate a material impact on the Company’s financial position, results of operations or cash flows.
Acquisitions and Other Significant Transactions
ACQUISITIONS AND OTHER SIGNIFICANT TRANSACTIONS
NOTE 2— ACQUISITIONS AND OTHER SIGNIFICANT TRANSACTIONS
 
The following table summarizes the Company’s acquisition activity in 2010 and 2009 (Dollars in thousands).
 
                                                         
    # of
    Purchase Price,
          Operating
    Tangible
    Intangible
       
    Acquisitions     Net of Cash     Revenue     Profit     Assets, Net     Assets     Goodwill  
 
 
Total 2010 Acquisitions
    12     $ 176,156     $ 268,443     $ 19,042     $ 122,899     $ 50,104     $ 127,311  
Total 2009 Acquisitions
    6     $ 88,005     $ 31,736     $ 4,389     $ 7,075     $ 38,339     $ 45,412  
 
 
Note: Purchase price, net of cash acquired, does not include payments for earn-out provisions on prior acquisitions. Revenue and operating profit represent activity only in the year of acquisition. Goodwill in 2010 excludes an immaterial acquisition in our Land Management segment.
 
During 2010, the Company completed twelve acquisitions consisting of seven rigid industrial packaging companies and five flexible products companies and made a contingent purchase price related to a 2008 acquisition. The seven rigid industrial packaging companies consisted of a European company purchased in November 2009, an Asian company purchased in June 2010, a North American drum reconditioning company purchased in July, a North American drum reconditioning company purchased in August 2010, one European company purchased in August 2010, a 51 percent interest in a Middle Eastern company purchased in September 2010 and a South American company purchased in September 2010. The five flexible products companies acquired conduct business throughout Europe, Asia and North America and were acquired in February, June, August and September 2010. The aggregate purchase price in the table above includes approximately $98.2 million received from the Flexible Packaging JV partner relating to their investment in the Flexible Packaging JV and reimbursement of certain costs. The five flexible products companies were contributed to a joint venture on September 29, 2010, which was accounted for in accordance with ASC 810. Greif owns 50 percent of this joint venture but maintains management control. The rigid industrial packaging acquisitions are expected to complement the Company’s existing product lines that together will provide growth opportunities and economies of scale. The drum reconditioning, within our Rigid Industrial Packaging acquisitions, and flexible products acquisitions expand the Company’s product and service offerings. The estimated fair value of the net tangible assets acquired was $122.9 million. Identifiable intangible assets, with a combined fair value of $50.1 million, including trade-names, customer relationships, and certain non-compete agreements, have been recorded for these acquisitions. The excess of the purchase prices over the estimated fair values of the net tangible and intangible assets acquired of $127.3 million was recorded as goodwill. Certain business combinations that occurred at or near year end have been recorded with provisional estimates for fair value based on management’s best estimate.
 
During 2010, we sold specific Paper Packaging segment assets and facilities in North America. The net gain from these sales was immaterial.
 
During 2009, the Company completed six acquisitions consisting of two North American rigid industrial packaging companies in February 2009, the acquisition of a North American rigid industrial packaging company in June 2009, the acquisition of a rigid industrial packaging company in Asia in July 2009, the acquisition of a South American rigid industrial packaging company in October 2009, and the acquisition of a 75 percent interest in a North American paper packaging company in October 2009. These rigid industrial packaging and paper packaging acquisitions complemented the Company’s existing product lines and provided growth opportunities and economies of scale. These acquisitions, included in operating results from the acquisition dates, were accounted for using the purchase method of accounting and, accordingly, the purchase prices were allocated to the assets purchased and liabilities assumed based upon their estimated fair values at the dates of acquisition. The estimated fair values of the net tangible assets acquired were $7.1 million. Identifiable intangible assets, with a combined fair value of $38.3 million, including trade-names, customer relationships, and certain non-compete agreements, have been recorded for these acquisitions. The excess of the purchase prices over the estimated fair values of the net tangible and intangible assets acquired of $45.4 million was recorded as goodwill.
 
During 2009, the Company sold specific Rigid Industrial Packaging & Services segment assets and facilities in North America. The net gain from these sales was $17.2 million and is included in gain on disposal of properties, plants, and equipment, net in the accompanying consolidated statement of income.
 
Under previous accounting guidance applicable to acquisitions made prior to November 1, 2009, the Company implemented a restructuring plan for one of the 2009 acquisitions above. The Company’s restructuring activities, which were accounted for in accordance with Emerging Task Force Issue No. 95-3, “Recognition of Liabilities in Connection with a Purchase Business Combination” (“EITF 95-3”), primarily included exit costs associated with the consolidation of facilities, facility relocation, and the reduction of excess capacity. As of November 1, 2009, the accounting for EITF 95-3 was superseded and not codified within ASC 805. In connection with these restructuring activities, as part of the cost of the above acquisition, the Company established reserves, primarily for excess facilities, in the amount of $1.7 million, of which $0.8 million remains in the restructuring reserve at October 31, 2010. This guidance is no longer applicable to acquisitions made by the Company in 2010 and thereafter.
Sale of Non-United States Accounts Receivable
SALE OF NON-UNITED STATES ACCOUNTS RECEIVABLE
 
NOTE 3— SALE OF NON-UNITED STATES ACCOUNTS RECEIVABLE
 
Pursuant to the terms of a Receivable Purchase Agreement (the “RPA”) between Greif Coordination Center BVBA, an indirect wholly-owned subsidiary of Greif, Inc., and a major international bank, the seller 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 BV, Greif Packaging Belgium NV, Greif Spain SA, Greif Sweden AB, Greif Packaging Norway AS, Greif Packaging France, SAS, Greif Packaging Spain SA, Greif Portugal Lda and Greif UK Ltd, under discounted receivables purchase agreements and from Greif France SAS under a factoring agreement. This agreement is amended from time to time to add additional Greif entities. In addition, Greif Italia S.P.A., also an indirect wholly-owned subsidiary of Greif, Inc., entered into the Italian Receivables Purchase Agreement with the Italian branch of the major international bank (the “Italian RPA”) agreeing to sell trade receivables that meet certain eligibility criteria to the Italian branch of the major international bank. The Italian RPA is similar in structure and terms as the RPA. The maximum amount of receivables that may be financed under the RPA and the Italian RPA is €115 million ($159.4 million) at October 31, 2010.
 
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 sold under the Singapore RPA is 15.0 million Singapore Dollars ($11.5 million) at October 31, 2010.
 
In October 2008, Greif Embalagens Industrialis Do Brasil Ltda., an indirect wholly-owned subsidiary of Greif, Inc., entered into agreements (the “Brazil Agreements”) with Brazilian banks. There is no maximum amount of aggregate receivables that may be sold under the Brazil Agreements; however, the sale of individual receivables is subject to approval by the banks.
 
In May 2009, Greif Malaysia Sdn Bhd., an indirect wholly-owned subsidiary of Greif, Inc., entered into the Malaysian Receivables Purchase Agreement (the “Malaysian Agreement”) with Malaysian banks. The maximum amount of the aggregate receivables that may be sold under the Malaysian Agreement is 15.0 million Malaysian Ringgits ($4.8 million) at October 31, 2010.
 
The structure of these transactions provide for a legal true sale, on a revolving basis, of the receivables transferred from the various Greif, Inc. subsidiaries to the respective banks. The bank funds an initial purchase price of a certain percentage of eligible receivables based on a formula with the initial purchase price approximating 75 percent to 90 percent of eligible receivables. The remaining deferred purchase price is settled upon collection of the receivables. At the balance sheet reporting dates, the Company removes from accounts receivable the amount of proceeds received from the initial purchase price since they meet the applicable criteria of ASC 860, “Transfers and Servicing”. The receivables are sold on a non-recourse basis with the total funds in the servicing collection accounts pledged to the banks between settlement dates.
 
At October 31, 2010 and October 31, 2009, €117.6 million ($162.9 million) and €77.0 million ($114.0 million), respectively, of accounts receivable were sold under the RPA and Italian RPA. At October 31, 2010 and October 31, 2009, 6.7 million Singapore Dollars ($5.4 million) and 5.6 million Singapore Dollars ($4.0 million), respectively, of accounts receivable were sold under the Singapore RPA. At October 31, 2010 and October 31, 2009, 11.7 million Brazilian Reais ($6.9 million) and 13.3 million Brazilian Reais ($7.6 million), respectively, of accounts receivable were sold under the Brazil Agreements. At October 31, 2010 and October 31, 2009, 6.3 million Malaysian Ringgits ($2.0 million) and 6.3 million Malaysian Ringgits ($1.8 million), respectively, of accounts receivable were sold under the Malaysian Agreements.
 
At the time the receivables are initially sold, the difference between the carrying amount and the fair value of the assets sold are included as a loss on sale in the consolidated statements of operations.
 
Expenses, primarily related to the loss on sale of receivables, associated with the RPA and Italian RPA totaled €2.9 million ($3.9 million), €3.7 million ($5.5 million) and €5.9 million ($7.9 million) for year ended October 31, 2010, 2009 and 2008, respectively.
 
Expenses associated with the Singapore RPA totaled 0.4 million Singapore Dollars ($0.3 million), 0.3 million Singapore Dollars ($0.2 million) and were insignificant for the year ended October 31, 2010, 2009 and 2008, respectively.
 
Expenses associated with the Brazil Agreements totaled 4.4 million Brazilian Reais ($2.5 million), 1.3 million Brazilian Reais ($0.8 million) and were insignificant for the year ended October 31, 2010, 2009 and 2008, respectively.
 
Expenses associated with the Malaysian Agreements totaled 0.4 million Malaysian Ringgits ($0.1 million) and 0.2 million Malaysian Ringgits ($0.1 million) for the year ended October 31, 2010 and 2009, respectively. There were no expenses for the year ended October 31, 2008 as the Malaysian Agreement did not commence until May 2009.
 
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 RPA, the Italian RPA, the Singapore RPA, the Brazil Agreements, and the Malaysian Agreements. The servicing liability for these receivables is not material to the consolidated financial statements.
Inventories
INVENTORIES
 
NOTE 4— INVENTORIES
 
On November 1, 2009, the Company elected to adopt the FIFO method of inventory valuation for all locations, whereas in all prior years inventory for certain U.S. locations was valued using the LIFO method. The Company believes that the FIFO method of inventory valuation is preferable because (i) the change conforms to a single method of accounting for all of the Company’s inventories on a U.S. and global basis, (ii) the change simplifies financial disclosures, (iii) financial statement comparability and analysis for investors and analysts is improved, and (iv) the majority of the Company’s key competitors use FIFO. The comparative consolidated financial statements of prior periods presented have been adjusted to apply the new accounting method retrospectively. The change in accounting principle is reported through retrospective application as described in ASC 250, “Accounting Changes and Error Corrections.”
 
The following consolidated statement of operations line items for the years ending October 31, 2009 and October 31, 2008 were affected by the change in accounting principle (Dollars in thousands):
 
                                                 
    For the Year Ended October 31, 2009     For the Year Ended October 31, 2008  
    As Originally
                As Originally
             
    Reported     Adjustments     As Adjusted     Reported     Adjustments     As Adjusted  
 
 
Cost of products sold
  $ 2,257,141     $ 35,432     $ 2,292,573     $ 3,097,760     $ (12,025 )   $ 3,085,735  
Gross profit
    535,076       (35,432 )     499,644       692,771       12,025       704,796  
Operating profit
    235,329       (35,432 )     199,897       370,286       12,025       382,311  
Income tax expense
    37,706       (13,645 )     24,061       73,610       4,631       78,241  
Net income attributable to Greif, Inc. 
  $ 132,433     $ (21,787 )   $ 110,646     $ 234,354     $ 7,394     $ 241,748  
 
The following consolidated balance sheet line items at October 31, 2009 were affected by the change in accounting principle (Dollars in thousands):
 
                         
    As Originally
             
    Reported     Adjustments     As Adjusted  
 
Inventory
  $ 227,432     $ 11,419     $ 238,851  
                         
Total assets
  $ 2,812,510     $ 11,419     $ 2,823,929  
                         
                         
Deferred tax liabilities
  $ 156,755     $ 4,397     $ 161,152  
                         
Total liabilities
  $ 1,712,940     $ 4,397     $ 1,717,337  
                         
                         
Retained earnings
  $ 1,199,592     $ 7,022     $ 1,206,614  
                         
Total liabilities and shareholders’ equity
  $ 2,812,510     $ 11,419     $ 2,823,929  
                         
                         
 
The inventories are comprised as follows at October 31 for the year indicated (Dollars in thousands):
 
                 
    2010     2009  
 
Finished goods
  $ 92,469     $ 57,304  
Raw materials and work-in process
    304,103       181,547  
                 
    $ 396,572     $ 238,851  
                 
                 
Net Assets Held for Sale
NET ASSETS HELD FOR SALE
 
NOTE 5— NET ASSETS HELD FOR SALE
 
Net assets held for sale represent land, buildings and land improvements for locations that have met the criteria of “held for sale” accounting, as specified by ASC 360, “Property, Plant, and Equipment”. As of October 31, 2010 and October 31, 2009, there were sixteen and nineteen facilities held for sale, respectively. The net assets held for sale are being marketed for sale and it is the Company’s intention to complete the facility sales within the upcoming year.
Goodwill and Other Intangible Assets
GOODWILL AND OTHER INTANGIBLE ASSETS
 
NOTE 6— GOODWILL AND OTHER INTANGIBLE ASSETS
 
The Company reviews goodwill and indefinite-lived intangible assets for impairment as required by ASC 350, “Intangibles—Goodwill and Other”, either annually or when events and circumstances indicate an impairment may have occurred. The Company’s business segments have been identified as reporting units, which contain goodwill and indefinite-lived intangibles that are assessed for impairment. A reporting unit is the operating segment, or a business one level below that operating segment (the component level) if discrete financial information is prepared and regularly reviewed by segment management. However, components are aggregated as a single reporting unit if they have similar economic characteristics. The Company has concluded that no impairment exists at this time. The following table summarizes the changes in the carrying amount of goodwill by segment for the year ended October 31, 2010 and 2009 (Dollars in thousands):
 
                                         
    Rigid Industrial
                         
    Packaging
    Flexible Products
    Paper
    Land
       
    & Services     & Services     Packaging     Management     Total  
 
Balance at October 31, 2008
  $ 480,312     $     $ 32,661     $     $ 512,973  
Goodwill acquired
    20,658             29,250             49,908  
Goodwill adjustments
    10,634             (511 )           10,123  
Currency translation
    19,113                         19,113  
                                         
Balance at October 31, 2009
  $ 530,717     $     $ 61,400     $     $ 592,117  
Goodwill acquired
    51,655       75,656             150       127,461  
Goodwill adjustments
    (6,316 )           (747 )           (7,063 )
Currency translation
    (5,395 )     2,605                   (2,790 )
                                         
Balance at October 31, 2010
  $ 570,661     $ 78,261     $ 60,653     $ 150     $ 709,725  
                                         
                                         
 
The 2010 goodwill acquired during 2010 of $127.5 million consisted of preliminary goodwill related to acquisitions in the Rigid Industrial Packaging & Services and Flexible Products & Services segments.
 
The 2009 goodwill acquired included $20.7 million of goodwill related to the acquisition of industrial packaging companies in North America, South America, and Asia, and $29.2 million related to an acquisition of a 75 percent interest in a paper packaging company in North America. The goodwill adjustments represented a net increase in goodwill of $10.1 million primarily related to finalization of the purchase price allocations of prior year acquisitions.
 
The details of other intangible assets by class as of October 31, 2010 and October 31, 2009 are as follows (Dollars in thousands):
 
                         
    Gross
             
    Intangible
    Accumulated
    Net Intangible
 
    Assets     Amortization     Assets  
 
October 31, 2010:
                       
Trademarks and patents
  $ 42,878     $ 17,184     $ 25,694  
Non-compete agreements
    20,456       7,774       12,682  
Customer relationships
    153,131       27,091       126,040  
Other
    15,235       6,412       8,823  
                         
Total
  $ 231,700     $ 58,461     $ 173,239  
                         
                         
October 31, 2009:
                       
Trademarks and patents
  $ 35,081     $ 15,457     $ 19,624  
Non-compete agreements
    18,842       6,143       12,699  
Customer relationships
    110,298       17,190       93,108  
Other
    11,018       5,079       5,939  
                         
Total
  $ 175,239     $ 43,869     $ 131,370  
                         
                         
 
Gross intangible assets increased by $56.5 million for the year ended October 31, 2010. The increase in gross intangible assets consisted of $6.8 million in final purchase price allocations related to the 2009 acquisitions in the Rigid Industrial Packaging & Services and Paper Packaging segments, $50.2 million in purchase price allocations related to 2010 acquisitions in the Rigid Industrial Packaging & Services and Flexible Products & Services segments and a $0.5 million decrease due to currency fluctuations related to the Rigid Industrial Packaging & Services and to the Flexible Products & Services segment. Amortization expense was $14.4 million, $11.0 million and $9.2 million for 2010, 2009 and 2008, respectively. Amortization expense for the next five years is expected to be $21.7 million in 2011, $21.4 million in 2012, $17.6 million in 2013, $15.3 million in 2014 and $14.6 million in 2015.
 
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 23 years, except for $12.4 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.
Restructuring Charges
RESTRUCTURING CHARGES
 
NOTE 7— RESTRUCTURING CHARGES
 
The focus for restructuring activities in 2010 was on integration of recent acquisitions in the Rigid Industrial Packaging & Services and Flexible Products & Services segments. During 2010, the Company recorded restructuring charges of $26.7 million, consisting of $13.7 million in employee separation costs, $2.9 million in asset impairments, $2.4 million in professional fees and $7.7 million in other restructuring costs, primarily consisting of facility consolidation and lease termination costs. In addition, the Company recorded $0.1 million in restructuring-related inventory charges in cost of products sold. Seven plants in the Rigid Industrial Packaging & Services segment, one plant in the Flexible Products & Services segment and two plants in the Paper Packaging segment were closed. There were a total of 232 employees severed throughout 2010 as part of the Company’s restructuring efforts.
 
For each relevant business segment, costs incurred in 2010 are as follows (Dollars in thousands):
 
                         
                Amounts
 
    Amounts
    Amounts
    Remaining
 
    Expected to be
    Incurred in
    to be
 
    Incurred     2010     Incurred  
 
Rigid Industrial Packaging & Services:
                       
Employee separation costs
  $ 13,003     $ 10,673     $ 2,330  
Asset impairments
    1,392       1,392        
Professional fees
    4,815       2,370       2,445  
Inventory adjustments
    131       131        
Other restructuring costs
    14,030       6,545       7,485  
                         
      33,371       21,111       12,260  
Flexible Products & Services:
                       
Employee separation costs
    511       378       133  
Other restructuring costs
    246       246        
                         
      757       624       133  
Paper Packaging:
                       
Employee separation costs
    2,815       2,692       123  
Asset impairments
    1,524       1,524        
Other restructuring costs
    2,419       926       1,493  
                         
      6,758       5,142       1,616  
                         
    $ 40,886     $ 26,877     $ 14,009  
                         
                         
 
The total amounts expected to be incurred above, some of which have been accrued and may or may not have been paid in the current year, are from open restructuring plans which are anticipated to be realized in 2011. Following is a reconciliation of the beginning and ending restructuring reserve balances for the years ended October 31, 2010 and 2009 (Dollars in thousands):
 
                                         
    Cash Charges                    
    Employee
          Non-Cash Charges        
    Separation
          Asset
    Inventory
       
    Costs     Other Costs     Impairments     Write-down     Total  
 
Balance at October 31, 2008, net
  $ 14,413     $ 734     $     $     $ 15,147  
Costs incurred and charged to expense
    28,408       18,586       19,596       10,772       77,362  
Reserves established in the purchase price of business combinations
    971       2,971       3,771             7,713  
Costs paid or otherwise settled
    (34,553 )     (16,215 )     (23,367 )     (10,772 )     (84,907 )
                                         
Balance at October 31, 2009
  $ 9,239     $ 6,076     $     $     $ 15,315  
                                         
                                         
Costs incurred and charged to expense
    13,743       10,086       2,916       131       26,876  
Costs paid or otherwise settled
    (10,314 )     (8,592 )     (2,916 )     (131 )     (21,953 )
                                         
Balance at October 31, 2010
  $ 12,668     $ 7,570     $     $     $ 20,238  
                                         
                                         
 
The focus for restructuring activities in 2009 was on business realignment to address the adverse impact resulting from the global economic downturn and further implementation of the Greif Business System and specific contingency actions. During 2009, the Company recorded restructuring charges of $66.6 million, consisting of $28.4 million in employee separation costs, $19.6 million in asset impairments, $0.3 million in professional fees, and $18.3 million in other restructuring costs, primarily consisting of facility consolidation and lease termination costs. In addition, the Company recorded $10.8 million in restructuring-related inventory charges in costs of products sold. Nineteen plants in the Rigid Industrial Packaging & Services segment were closed. There were a total of 1,294 employees severed throughout 2009 as part of the Company’s restructuring efforts. Within the Paper Packaging segment, the Company recorded a reversal of severance expense in the amount of $2.1 million related to the actual costs being less as a result of fewer employees being severed in connection with the sale of assets and closure of operations.
 
The focus for restructuring activities in 2008 was on the integration of recent acquisitions in the Rigid Industrial Packaging & Services segment and on alignment to market focused strategy and on the integration of a recent acquisition and closing of two facilities in the Paper Packaging segment. During 2008, the Company recorded restructuring charges of $43.2 million, consisting of $20.6 million in employee separation costs, $12.3 million in asset impairments, $0.4 million in professional fees, and $9.9 million in other restructuring costs, primarily consisting of facility consolidation and lease termination costs. Six plants in the Rigid Industrial Packaging & Services segment and four plants in the Paper Packaging segment were closed. The total number of employees severed during 2008 was 630.
Significant Nonstrategic Timberland Transactions and Consolidation of Variable Interest Entities
SIGNIFICANT NONSTRATEGIC TIMBERLAND TRANSACTIONS AND CONSOLIDATION OF VARIABLE INTEREST ENTITIES
 
NOTE 8—SIGNIFICANT NONSTRATEGIC TIMBERLAND TRANSACTIONS AND CONSOLIDATION OF VARIABLE INTEREST ENTITIES
 
On March 28, 2005, Soterra LLC (a wholly owned subsidiary) entered into two real estate purchase and sale agreements with Plum Creek Timberlands, L.P. (“Plum Creek”) to sell approximately 56,000 acres of timberland and related assets located primarily in Florida for an aggregate sales price of approximately $90 million, subject to closing adjustments. In connection with the closing of one of these agreements, Soterra LLC sold approximately 35,000 acres of timberland and associated assets in Florida, Georgia and Alabama for $51.0 million, resulting in a pretax gain of $42.1 million, on May 23, 2005. The purchase price was paid in the form of cash and a $50.9 million purchase note payable by an indirect subsidiary of Plum Creek (the “Purchase Note”). Soterra LLC contributed the Purchase Note to STA Timber LLC (“STA Timber”), one of the Company’s indirect wholly owned subsidiaries. The Purchase Note is secured by a Deed of Guarantee issued by Bank of America, N.A., London Branch, in an amount not to exceed $52.3 million (the “Deed of Guarantee”), as a guarantee of the due and punctual payment of principal and interest on the Purchase Note.
 
The Company completed the second phase of these transactions in the first quarter of 2006. In this phase, the Company sold 15,300 acres of timberland holdings in Florida for $29.3 million in cash, resulting in a pre-tax gain of $27.4 million. The final phase of this transaction, approximately 5,700 acres sold for $9.7 million, occurred on April 28, 2006 and the Company recognized additional timberland gains in its consolidated statements of operations in the periods that these transactions occurred resulting in a pre-tax gain of $9.0 million.
 
On May 31, 2005, STA Timber issued in a private placement its 5.20% 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.
 
In addition, Greif, Inc. and its other subsidiaries have not extended any form of guaranty of the principal or interest on the Monetization Notes. Accordingly, Greif, Inc. and its other subsidiaries will not become directly or contingently liable for the payment of the Monetization Notes at any time.
 
The Company has consolidated the assets and liabilities of the buyer-sponsored special purpose entity (the “Buyer SPE”) involved in these transactions as the result of ASC 810. However, because the Buyer SPE is a separate and distinct legal entity from the Company, the assets of the Buyer SPE are not available to satisfy the liabilities and obligations of the Company and its subsidiaries and the liabilities of the Buyer SPE are not liabilities or obligations of the Company and its subsidiaries.
 
Assets of the Buyer SPE at October 31, 2010 and 2009 consist of restricted bank financial instruments of $50.9 million. STA Timber had long-term debt of $43.3 million as of October 31, 2010 and 2009. STA Timber is exposed to credit-related losses in the event of nonperformance by the issuer of the Deed of Guarantee. The accompanying consolidated income statements for the years ended October 31, 2010 and 2009 include interest expense on STA Timber debt of $2.3 million for each year and interest income on Buyer SPE investments of $2.4 million for each year.
Long-Term Debt
LONG-TERM DEBT
 
NOTE 9— LONG-TERM DEBT
 
Long-term debt is summarized as follows (Dollars in thousands):
 
                 
    October 31,
    October 31,
 
    2010     2009  
 
2010 Credit Agreement
  $ 273,700     $  
2009 Credit Agreement
          192,494  
Senior Notes due 2017
    303,396       300,000  
Senior Notes due 2019
    242,306       241,729  
Trade accounts receivable credit facility
    135,000        
Other long-term debt
    11,187       4,385  
                 
      965,589       738,608  
Less current portion
    (12,523 )     (17,500 )
                 
Long-term debt
  $ 953,066     $ 721,108  
                 
                 
 
2010 Credit Agreement
 
On October 29, 2010, the Company obtained a $1.0 billion senior secured credit facility pursuant to an Amended and Restated Credit Agreement with a syndicate of financial institutions (the “2010 Credit Agreement”). The 2010 Credit Agreement 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 $156.3 million on the maturity date. The 2010 Credit Agreement replaced our then existing credit agreement (the “2009 Credit Agreement”) that provided us with a $500 million revolving multicurrency credit facility and a $200 million term loan, both expiring in February 2012.
 
The 2010 Credit Agreement is available to fund ongoing working capital and capital expenditure needs, for general corporate purposes, to finance acquisitions and to refinance amounts outstanding under the 2009 Credit Agreement. Interest is based on a Eurodollar rate or a base rate that resets periodically plus an agreed upon margin amount. As of October 31, 2010, $273.7 million was outstanding under the 2010 Credit Agreement. The current portion of the 2010 Credit Agreement was $12.5 million and the long-term portion was $261.2 million. The weighted average interest rate on the 2010 Credit Agreement was 3.67% for the year ended October 31, 2010 and at October 31, 2010.
 
The 2010 Credit Agreement contains financial covenants that require the Company to maintain a certain leverage ratio and a fixed charge coverage ratio. At October 31, 2010, 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 these Senior Notes due 2017 was $322.9 million at October 31, 2010 based upon quoted market prices. The Indenture pursuant to which these Senior Notes were issued contains certain covenants. At October 31, 2010, 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 these Senior Notes due 2019 was $278.8 million at October 31, 2010 based upon quoted market prices. The Indenture pursuant to which these Senior Notes were issued contains certain covenants. At October 31, 2010, the Company was in compliance with these covenants.
 
United States Trade Accounts Receivable Credit Facility
 
On December 8, 2008, the Company entered into a $135.0 million trade accounts receivable credit facility with a financial institution and its affiliate, as purchasers, with a maturity date of December 8, 2013, subject to earlier termination of the purchasers’ commitment on September 29, 2011, or such later date to which the purchase commitment may be extended by agreement of the parties. 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 applicable commercial paper rate plus a margin or other agreed-upon rate (0.82% at October 31, 2010). 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. At October 31, 2010, there was $135.0 million outstanding under the Receivables Facility. The agreement for this receivables financing facility contains financial covenants that require the Company to maintain a certain leverage ratio and a fixed charge coverage ratio. At October 31, 2010, 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 the Company and its other subsidiaries, and the liabilities of GRF are not the liabilities or obligations of the Company and its other subsidiaries. This entity purchases and services the Company’s trade accounts receivable that are subject to these credit facilities.
 
Other
 
In addition to the amounts borrowed under the 2010 Credit Agreement and proceeds from these Senior Notes and the United States Trade Accounts Receivable Credit Facility, at October 31, 2010, the Company had outstanding other debt of $72.1 million, comprised of $11.2 million in long-term debt and $60.9 million in short-term borrowings, compared to other debt outstanding of $24.0 million, comprised of $4.4 million in long-term debt and $19.6 million in short-term borrowings, at October 31, 2009.
 
At October 31, 2010, the current portion of the Company’s long-term debt was $12.5 million. Annual maturities, including the current portion, of long-term debt under the Company’s various financing arrangements were $12.5 million in 2011, $23.7 million in 2012, $25.0 million in 2013, $160.0 million in 2014, $198.7 million in 2015 and $545.7 million thereafter. Cash paid for interest expense was $65.3 million, $48.0 million and $50.5 million in 2010, 2009 and 2008, respectively.
 
At October 31, 2010 and 2009, the Company had deferred financing fees and debt issuance costs of $21.4 million and $14.9 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
 
Recurring Fair Value Measurements
 
The following table presents the fair values adjustments for those assets and (liabilities) measured on a recurring basis as of October 31, 2010 (Dollars in thousands):
 
                                                                     
    October 31, 2010     October 31, 2009     Balance Sheet
    Level 1     Level 2     Level 3     Total     Level 1     Level 2     Level 3     Total     Location
Interest rate derivatives
  $     $ (2,028 )   $     $ (2,028 )   $     $ (14,635 )   $     $ (14,635 )   Other long-term liabilities
Foreign exchange hedges
          (1,497 )           (1,497 )           (2,283 )           (2,283 )   Other current liabilities
Energy hedges
          (288 )           (288 )           (727 )           (727 )   Other current liabilities
                                                                     
Total*
  $     $ (3,813 )   $     $ (3,813 )   $     $ (17,645 )   $     $ (17,645 )    
                                                                     
                                                                     
 
 
* The carrying amounts of cash and cash equivalents, trade accounts receivable, accounts payable, current liabilities and short-term borrowings at October 31, 2010 approximate their fair values because of the short-term nature of these items and are not included in this table.
 
Derivatives and Hedging Activity
 
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 12 months, the Company expects to reclassify into earnings a net loss from accumulated other comprehensive loss of approximately $3.7 million after tax at the time the underlying hedge transactions are realized.
 
Cross-Currency Interest Rate Swaps
 
The Company entered into a cross-currency interest rate swap agreement which was designated as a hedge of a net investment in a foreign operation. Under this swap agreement, the Company received interest semi-annually from the counterparties in an amount equal to a fixed rate of 6.75% on $200.0 million and paid interest in an amount equal to a fixed rate of 6.25% on €146.6 million. During 2010, the Company terminated this swap agreement, including any future cash flows. The termination of this swap agreement resulted in a cash benefit of $25.7 million ($15.8 million, net of tax) which is included within foreign currency translation adjustments at October 31, 2010. At October 31, 2009, the Company had recorded an other comprehensive loss of $14.6 million as a result of the swap agreement.
 
Interest Rate Derivatives
 
The Company has interest rate swap agreements with various maturities through 2012. These interest rate swap agreements are used to manage the Company’s fixed and floating rate debt mix. Under these agreements, the Company receives interest monthly from the counterparties based upon a designated London Interbank Offered Rate and pays interest based upon a designated fixed rate over the life of the swap agreements.
 
The Company has two interest rate derivatives (floating to fixed swap agreements recorded as cash flow hedges) with a total notional amount of $125 million. Under these swap agreements, the Company receives interest based upon a variable interest rate from the counterparties (weighted average of 0.26% at October 31, 2010 and 0.25% at October 31, 2009) and pays interest based upon a fixed interest rate (weighted average of 1.78% at October 31, 2010 and 2.71% at October 31, 2009). The other comprehensive loss on these interest rate derivatives was $2.0 million and $2.3 million at October 31, 2010 and 2009, respectively.
 
In the first quarter of 2010, the Company entered into a $100.0 million fixed to floating swap agreement which was recorded as a fair value hedge. Under this swap agreement, the Company received interest from the counterparty based upon a fixed rate of 6.75% and paid interest based upon a variable rate on a semi-annual basis. In the third quarter of 2010, the Company terminated this swap agreement, including any future cash flows. The termination of this swap agreement resulted in a cash benefit of $3.6 million ($2.2 million, net of tax) which is included within long-term debt on the balance sheet.
 
Foreign Exchange Hedges
 
At October 31, 2010, the Company had outstanding foreign currency forward contracts in the notional amount of $252.9 million ($70.5 million at October 31, 2009). The purpose of these contracts is to hedge the Company’s exposure to foreign currency transactions and short-term intercompany loan balances in its international businesses. The fair value of these contracts at October 31, 2010 resulted in a gain of $0.8 million recorded in the consolidated statements of operations and a loss of $2.3 million recorded in other comprehensive income. The fair value of similar contracts at October 31, 2009 resulted in an immaterial loss in the consolidated statements of operations.
 
Energy Hedges
 
The Company has entered into certain cash flow agreements to mitigate its exposure to cost fluctuations in natural gas prices through October 31, 2011. Under these hedge agreements, the Company agrees to purchase natural gas at a fixed price. At October 31, 2010, the notional amount of these hedges was $2.4 million ($4.0 million at October 31, 2009). The other comprehensive loss on these agreements was $0.3 million at October 31, 2010 and $0.6 million at October 31, 2009. As a result of the high correlation between the hedged instruments and the underlying transactions, ineffectiveness has not had a material impact on the Company’s consolidated statements of operations for the year ended October 31, 2010.
 
Other Financial Instruments
 
The estimated fair values of the Company’s long-term debt were $1,021.5 million and $744.9 million compared to the carrying amounts of $965.6 million and $738.6 million at October 31, 2010 and October 31, 2009, respectively. The current portion of the long-term debt was $12.5 million and $17.5 million at October 31, 2010 and 2009, respectively. The fair values of the Company’s long-term obligations are estimated based on either the quoted market prices for the same or similar issues or the current interest rates offered for debt of the same remaining maturities.
 
Non-Recurring Fair Value Measurements
 
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (Codified under ASC 820, “Fair Value Measurements and Disclosures”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value within GAPP and expands required disclosures about fair value measurements. In November 2007, the FASB provided a one year deferral for the implementation of SFAS No. 157 for non financial assets and liabilities which is applicable to the company in 2010.
 
Long-Lived Assets
 
As part of the Company’s restructuring plans following current and future acquisitions, the Company may shut down manufacturing facilities during the next few years. The long-lived assets are considered level three inputs which were valued based on bids received from third parties and using discounted cash flow analysis based on assumptions that the Company believes market participants would use. Key inputs included anticipated revenues, associated manufacturing costs, capital expenditures and discount, growth and tax rates. The Company recorded restructuring related expenses for the year ended October 31, 2010 of $2.9 million on long lived assets with net book values of $4.6 million.
 
Net Assets Held for Sale
 
Net assets held for sale are considered level two inputs which include recent purchase offers, market comparables and/or data obtained from commercial real estate brokers. As of October 31, 2010, the Company had not recognized any impairments related to net assets held for sale.
 
Goodwill
 
On an annual basis, the Company performs its impairment tests for goodwill as defined under ASC 350, “Intangibles-Goodwill and Other”. As a result of this review during 2010, the Company concluded that no impairment existed at that time.
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 2010, 2009 or 2008. 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 2001, the Company adopted the 2001 Management Equity Incentive and Compensation Plan (the “2001 Plan”). The provisions of the 2001 Plan allow the awarding of incentive and nonqualified stock options and restricted and performance shares of Class A Common Stock to key employees. The maximum number of shares that may be issued each year is determined by a formula that takes into consideration the total number of shares outstanding and is also subject to certain limits. In addition, the maximum number of incentive stock options that will be issued under the 2001 Plan during its term is 5,000,000 shares.
 
Prior to 2001, the Company had adopted a Non-statutory Stock Option Plan (the “2000 Plan”) that provides the discretionary granting of non-statutory options to key employees, and an Incentive Stock Option Plan (the “Option Plan”) that provides the discretionary granting of incentive stock options to key employees and non-statutory options for non-employees. The aggregate number of the Company’s Class A Common Stock options that may be granted under the 2000 Plan and the Option Plan may not exceed 400,000 shares and 2,000,000 shares, respectively.
 
Under the terms of the 2001 Plan, the 2000 Plan and the Option Plan, stock options may be granted at exercise prices equal to the market value of the common stock on the date options are granted and become fully vested two years after date of grant. Options expire 10 years after date of grant.
 
In 2005, the Company adopted the 2005 Outside Directors Equity Award Plan (the “2005 Directors Plan”), which provides for the granting of stock options, restricted stock or stock appreciation rights to directors who are not employees of the Company. Prior to 2005, the Directors Stock Option Plan (the “Directors Plan”) provided for the granting of stock options to directors who are not employees of the Company. The aggregate number of the Company’s Class A Common Stock options, and in the case of the 2005 Directors Plan, restricted stock, that may be granted may not exceed 200,000 shares under each of these plans. Under the terms of both plans, options are granted at exercise prices equal to the market value of the common stock on the date options are granted and become exercisable immediately. Options expire 10 years after date of grant.
 
Stock option activity for the years ended October 31 was as follows (Shares in thousands):
 
                                                 
    2010     2009     2008  
       
          Weighted
          Weighted
          Weighted
 
          Average
          Average
          Average
 
          Exercise
          Exercise
          Exercise
 
    Shares     Price     Shares     Price     Shares     Price  
 
 
Beginning balance
    643     $ 15.91       785     $ 16.01       1,072     $ 15.75  
Granted
                                   
Forfeited
                1       13.10       2       11.50  
Exercised
    133       15.06       141       16.50       285       15.03  
     
     
Ending balance
    510     $ 16.14       643     $ 15.91       785     $ 16.01  
                                                 
 
The Company’s results of operations include no share based compensation expense for stock options for 2010, 2009, or 2008, respectively.
 
As of October 31, 2010, outstanding stock options had exercise prices and contractual lives as follows (Shares in thousands):
 
                 
          Weighted-
 
          Average
 
          Remaining
 
    Number
    Contractual
 
Range of Exercise Prices   Outstanding     Life  
 
 
$5-$15
    266       2.3  
$15-$25
    232       2.3  
$25-$35
    12       4.3  
 
All outstanding options were exercisable at October 31, 2010, 2009 and 2008, respectively.
Income Taxes
INCOME TAXES
 
NOTE 12— INCOME TAXES
 
The Company files income tax returns in the U.S. federal jurisdiction, various U.S. state and local jurisdictions, and various non-U.S. jurisdictions.
 
The provision for income taxes consists of the following (Dollars in thousands):
 
                         
For the years ended October 31,   2010     2009(1)     2008(1)  
 
Current
                       
Federal
  $ 15,222     $ 24,005     $ 34,369  
State and local
    5,892       1,268       3,589  
non-U.S. 
    14,861       11,955       31,167  
                         
      35,975       37,228       69,125  
Deferred
                       
Federal
    (372 )     (8,762 )     2,802  
State and local
    653       2,062       380  
non-U.S. 
    4,315       (6,467 )     5,934  
                         
      4,596       (13,167 )     9,116  
                         
    $ 40,571     $ 24,061     $ 78,241  
                         
                         
 
 
(1) Amounts presented in 2009 and 2008 reflect the change in accounting principle from using a combination of the LIFO and FIFO inventory accounting methods to the FIFO method for all of our businesses effective November 1, 2009.
 
Non-U.S. income before income tax expense was $159.7 million, $63.3 million and $213.7 million in 2010, 2009, and 2008, respectively.
 
The following is a reconciliation of the provision for income taxes based on the federal statutory rate to the Company’s effective income tax rate:
 
                         
For the years ended October 31,   2010     2009(1)     2008(1)  
 
United States federal tax rate
    35.00 %     35.00 %     35.00 %
Non-U.S. tax rates
    (14.50 )%     (12.00 )%     (8.30 )%
State and local taxes, net of federal tax benefit
    1.30 %     1.90 %     1.20 %
United States tax credits
    (3.90 )%     (4.40 )%     (0.90 )%
Other non-recurring items
    (1.80 )%     (3.10 )%     (2.90 )%
                         
      16.10 %     17.40 %     24.10 %
                         
                         
 
 
(1) Amounts presented in 2009 and 2008 reflect the change in accounting principle from using a combination of the LIFO and FIFO inventory accounting methods to the FIFO method for all of our businesses effective November 1, 2009.
 
The United States tax credits in 2010 and 2009 primarily relate to an alternative tax fuel credit for the production of cellulosic bio-fuel.
 
Significant components of the Company’s deferred tax assets and liabilities at October 31 for the years indicated were as follows (Dollars in thousands):
 
                 
    2010     2009(1)  
 
Deferred Tax Assets
               
Net operating loss carryforwards
  $ 117,850     $ 136,528  
Minimum pension liabilities
    46,064       45,360  
Insurance operations
    13,659       12,898  
Incentives
    8,605       11,345  
Environmental reserves
    7,619       9,322  
State income tax
    8,026       9,482  
Postretirement
    6,963       7,227  
Other
    8,829       6,928  
Derivatives instruments
    832       6,132  
Interest
    4,606       3,190  
Allowance for doubtful accounts
    2,496       3,093  
Restructuring reserves
    3,558       2,975  
Deferred compensation
    3,098       2,367  
Foreign tax credits
    1,602       1,806  
Vacation accruals
    1,186       1,345  
Stock options
    1,820       1,341  
Severance
    372       614  
Workers compensation accruals
    295       608  
                 
Total Deferred Tax Assets
    237,480       262,561  
Valuation allowance
    (64,568 )     (80,702 )
                 
Net Deferred Tax Assets
    172,912       181,859  
                 
Deferred Tax Liabilities
               
Properties, plants and equipment
    106,544       101,655  
Goodwill and other intangible assets
    83,690       79,410  
Inventories
    5,117       8,912  
Timberland transactions
    95,355       95,497  
Pension
    18,275       12,039  
                 
Total Deferred Tax Liabilities
    308,981       297,513  
                 
Net Deferred Tax Asset (Liability)
  $ (136,069 )   $ (115,654 )
                 
                 
 
 
(1) Amounts presented in 2009 and 2008 reflect the change in accounting principle from using a combination of the LIFO and FIFO inventory accounting methods to the FIFO method for all of our businesses effective November 1, 2009.
 
At October 31, 2010, the Company had tax benefits from non-U.S. net operating loss carryforwards of approximately $116.0 million and approximately $1.8 million of state net operating loss carryfowards. A majority of the non-U.S. net operating losses will begin expiring in 2012. At October 31, 2010, valuation allowances of approximately $62.9 million have been provided against the tax benefits from non-U.S. net operating loss carryforwards.
 
At October 31, 2010, the Company had undistributed earnings from certain non-U.S. subsidiaries that are intended to be permanently reinvested in non-U.S. operations. Because these earnings are considered permanently reinvested, no U.S. tax provision has been accrued related to the repatriation of these earnings. It is not practicable to determine the additional tax, if any, which would result from the remittance of these amounts.
 
The recognition and measurement guidelines of ASC 740 was applied to all of the Company’s material income tax positions as of the beginning of 2008, resulting in an increase in the Company’s tax liabilities of $7.0 million with a corresponding decrease to beginning retained earnings for the cumulative effect of the change in accounting principle.
 
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
 
                         
    2010     2009     2008  
 
Balance at November 1
  $ 45,459     $ 51,715     $ 60,476  
Increases in tax provisions for prior years
    66       3,335       2,295  
Decreases in tax provisions for prior years
    (2,728 )     (2,992 )     (928 )
Increases in tax positions for current years
    1,517       2,951       378  
Settlements with taxing authorities
    (6,667 )           (186 )
Lapse in statute of limitations
          (6,016 )     (3,872 )
Currency translation
    (2,285 )     (3,534 )     (6,448 )
                         
Balance at October 31
  $ 35,362     $ 45,459     $ 51,715  
                         
                         
 
The 2010 settlements with taxing authorities referenced above primarily relate to a prior-year issue in a non-U.S. taxing jurisdiction that was resolved during 2010 with a non-U.S. jurisdiction.
 
The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. As of October 31, 2010 and October 31, 2009, the Company had $11.1 million and $10.5 million, respectively, accrued for the payment of interest and penalties. For the year ended October 31, 2010, the Company recognized expense of $0.4 million related to interest and penalties in the consolidated statement of income, which was recorded as part of income tax expense. For the years ended October 31, 2009, and 2008 the Company recognized a benefit of $3.7 million and an expense of $1.3 million related to interest and penalties in the consolidated statement of income, which was recorded as a reduction of income tax expense, respectively.
 
The Company has estimated the reasonably possible expected net change in unrecognized tax benefits through October 31, 2010 based on lapses of the applicable statutes of limitations of unrecognized tax benefits. The estimated net decrease in unrecognized tax benefits for the next 12 months ranges from $0 to $0.8 million. Actual results may differ materially from this estimate.
 
The Company paid income taxes of $29.3 million, $58.9 million and $57.3 million in 2010, 2009, and 2008, respectively.
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
 
 
Retirement Plans
 
The Company has certain non-contributory defined benefit pension plans in the United States, Canada, Germany, the Netherlands, South Africa and the United Kingdom. The Company uses a measurement date of October 31 for fair value purposes for its pension plans. The salaried plans’ benefits are based primarily on years of service and earnings. The hourly plans’ benefits are based primarily upon years of service. The Company contributes an amount that is not less than the minimum funding or more than the maximum tax-deductible amount to these plans. The plans’ assets consist of large cap, small cap and international equity securities, fixed income investments and not more than the allowable number of shares of the Company’s common stock, which was 247,504 Class A shares and 160,710 Class B shares at October 31, 2010 and 2009. Other international represents the noncontributory defined benefit pension plans in Canada, the Netherlands, and South Africa.
 
The components of net periodic pension cost include the following (Dollars in thousands):
 
                                         
                            Other
 
For the year ended October 31, 2010   Consolidated     United States     Germany     United Kingdom     International  
 
Service cost
  $ 12,670     $ 9,171     $ 366     $ 2,326     $ 807  
Interest cost
    29,213       15,990       1,387       6,958       4,878  
Expected return on plan assets
    (34,784 )     (18,097 )           (11,604 )     (5,083 )
Amortization of transition net asset
    24       (48 )                 72  
Amortization of prior service cost
    951       951                    
Recognized net actuarial (gain) loss
    6,718       5,899             524       295  
                                         
Net periodic pension cost
  $ 14,792     $ 13,866     $ 1,753     $ (1,796 )   $ 969  
                                         
                                         
 
                                         
                            Other
 
For the year ended October 31, 2009   Consolidated     United States     Germany     United Kingdom     International  
 
Service cost
  $ 10,224     $ 7,366     $ 345     $ 1,838     $ 675  
Interest cost
    31,440       16,572       1,505       6,792       6,571  
Expected return on plan assets
    (35,875 )     (17,593 )           (10,927 )     (7,355 )
Amortization of transition net asset
    29       (48 )                 77  
Amortization of prior service cost
    1,005       1,017       9             (21 )
Recognized net actuarial (gain) loss
    (1,209 )     38             (1,268 )     21  
Curtailment, settlement and other
    497       147             350        
                                         
Net periodic pension cost
  $ 6,111     $ 7,499     $ 1,859     $ (3,215 )   $ (32 )
                                         
                                         
 
                                         
                            Other
 
For the year ended October 31, 2008   Consolidated     United States     Germany     United Kingdom     International  
 
Service cost
  $ 11,932     $ 8,700     $ 377     $ 2,008     $ 847  
Interest cost
    28,410       14,893       1,204       7,290       5,023  
Expected return on plan assets
    (33,460 )     (17,650 )           (10,477 )     (5,333 )
Amortization of transition net asset
    19       (48 )                 67  
Amortization of prior service cost
    811       920