NOTE 1 — BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The information furnished herein reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the consolidated balance sheets as of January 31, 2012 and October 31, 2011 and the consolidated statements of operations and cash flows for the three-month periods ending January 31, 2012 and 2011 of Greif, Inc. and its subsidiaries (the “Company”). The consolidated financial statements include the accounts of Greif, Inc., all wholly-owned and majority-owned subsidiaries and investments in limited liability companies, partnerships and joint ventures in which it has controlling influence. Non-majority owned entities include investments in limited liability companies, partnerships and joint ventures in which the Company does not have controlling influence.

The unaudited consolidated financial statements included in the Quarterly Report on Form 10-Q (this “Form 10-Q”) should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for its fiscal year ended October 31, 2011 (the “2011 Form 10-K”). Note 1 of the “Notes to Consolidated Financial Statements” from the 2011 Form 10-K is specifically incorporated in this Form 10-Q by reference. In the opinion of management, all adjustments necessary for fair presentation of the consolidated financial statements have been included and are of a normal and recurring nature.

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

The Company’s fiscal year begins on November 1 and ends on October 31 of the following year. Any references to the year 2012 or 2011, or to any quarter of those years, relates to the fiscal year or quarter, as the case may be, ending in that year.

Certain and appropriate prior year amounts have been reclassified to conform to the 2012 presentation.

Newly Adopted Accounting Standards

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

Effective July 1, 2009, changes to the ASC are communicated through an ASU. As of January 31, 2012, the FASB has issued ASU’s 2009-01 through 2011-12. The Company has reviewed each ASU and the adoption of each ASU is not expected to have a material impact on the Company’s financial position, results of operations or cash flows, other than the related disclosures.

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

In September 2011, the FASB issued ASU 2011-08 “Intangibles—Goodwill and Other: Testing Goodwill for Impairment” which provides an entity the option to first assess qualitative factors to determine whether it is necessary to perform the current two-step test for goodwill impairment. If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further testing is required. The revised standard is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. However, an entity can choose to early adopt even if its annual test date is before the issuance of the final standard, provided that the entity has not yet performed its 2011 annual impairment test or issued its financial statements. The Company is expected to adopt the new guidance beginning November 1, 2012, and the adoption of the new guidance is not expected to impact the Company’s financial position, results of operations or cash flows, other than related disclosures.

In December 2011, the FASB issued ASU 2011-11 “Balance Sheet: Disclosures about Offsetting Assets and Liabilities.” The differences in the offsetting requirements in U.S. generally accepted accounting principles (“U.S. GAAP”) and International Financial Reporting Standards (“IFRS”) account for a significant difference in the amounts presented in statements of financial position prepared in accordance with U.S. GAAP and in the amounts presented in those statements prepared in accordance with IFRS for certain institutions. This difference reduces the comparability of statements of financial position. The FASB and IASB are issuing joint requirements that will enhance current disclosures. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The Company is expected to adopt the new guidance beginning on November 1, 2014, and the adoption of the new guidance is not expected to impact the Company’s financial position, results of operations or cash flows, other than the related disclosures.

NOTE 2 — ACQUISITIONS, DIVESTITURES AND OTHER SIGNIFICANT TRANSACTIONS

During the three months ending January 31, 2012 and 2011, the Company completed no acquisitions or divestitures; however, the Company made a $14.3 million deferred cash payment during the three months ending January 31, 2012 for an acquisition completed in 2010. The following table presents a summary of the acquisition activity over the prior two fiscal years, 2012 and 2011, respectively (Dollars in millions):

 

 

			September 30,				September 30,				September 30,				September 30,				September 30,
										January 31, 2012
		# of Acquisitions				Purchase Price, net of cash				Tangible Assets, net				Intangible Assets				Goodwill
Total 2012 Acquisitions			0			$	0			$	0			$	0			$	0
Total 2011 Acquisitions			8			$	344.9			$	106.9			$	74.6			$	282.9

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

 

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

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

 

Pro Forma Information

In accordance with ASU 2010-29, “Disclosure of Supplementary Pro Forma Information for Business Combinations,” we have considered the effect of the 2012 and 2011 acquisitions in the consolidated statements of operations for each period ending January 31, 2012 and 2011, respectively. The revenue and operating profit of the 2011 acquisitions included in the Company’s first quarter 2012 consolidated results totaled $95.6 million and $3.6 million, respectively. Pro-forma results of operations, assuming that the 2011 acquisitions had taken place at the beginning of 2011, were not materially different from reported results and, consequently, are not presented.

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

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 (“Seller”), 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 such branch. 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 ($150.9 million) as of January 31, 2012.

In October 2007, Greif Singapore Pte. Ltd., an indirect wholly-owned subsidiary of Greif, Inc., entered into the Singapore Receivable Purchase Agreement (the “Singapore RPA”) with a major international bank. The maximum amount of aggregate receivables that may be financed under the Singapore RPA is 15.0 million Singapore Dollars ($11.9 million) as of January 31, 2012.

In May 2009, Greif Malaysia Sdn Bhd., an indirect wholly-owned subsidiary of Greif, Inc., entered into the Malaysian Receivables Purchase Agreement (the “Malaysian Agreements”) with Malaysian banks. The maximum amount of the aggregate receivables that may be financed under the Malaysian Agreements is 15.0 million Malaysian Ringgits ($4.9 million) as of January 31, 2012.

The structure of the 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”, and continues to recognize the deferred purchase price in its accounts receivable. 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. 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.

As of January 31, 2012 and October 31, 2011, €85.0 million ($111.6 million) and €105.4 million ($149.2 million), respectively, of accounts receivable were sold under the RPA and Italian RPA.

As of January 31, 2012 and October 31, 2011, 9.1 million Singapore Dollars ($7.3 million) and 12.2 million Singapore Dollars ($9.8 million), respectively, of accounts receivable were sold under the Singapore RPA.

As of January 31, 2012 and October 31, 2011, 13.2 million Malaysian Ringgits ($4.3 million) and 12.6 million Malaysian Ringgits ($4.1 million), respectively, of accounts receivable were sold under the Malaysian Agreements.

 

Expenses associated with the RPA and Italian RPA totaled €0.7 million ($0.9 million) and €0.8 million ($1.0 million) for the three months ending January 31, 2012 and 2011, respectively. Expenses associated with the Singapore RPA totaled 0.1 million Singapore Dollars ($0.1 million) and 0.1 million Singapore Dollars ($0.1 million) for the three months ending January 31, 2012 and 2011, respectively. Expenses associated with the Malaysian Agreements totaled 0.2 million Malaysian Ringgits ($0.1 million) and 0.2 million Malaysian Ringgits ($0.1 million) the three months ending January 31, 2012 and 2011, respectively.

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, and the Malaysian Agreements. The servicing liability for these receivables is not material to the consolidated financial statements.

NOTE 4 — INVENTORIES

Inventories are stated at the lower of cost or market, utilizing the first-in, first-out basis. Inventories are summarized as follows (Dollars in millions):

 

 

			September 30,				September 30,
		January 31,				October 31,
		2012				2011
Finished Goods		$	102.0			$	105.4
Raw materials and work-in-process			292.7				327.1
		$	394.7			$	432.5

NOTE 5 — NET ASSETS HELD FOR SALE

As of January 31, 2012 and October 31, 2011, there were six locations with assets held for sale. During the three months ending January 31, 2012, one location was placed back in service and depreciation was resumed for purposes of GAAP. As a result of placing this location back in service in 2012, the 2011 consolidated balance sheet has been reclassified for such location to conform to the current year presentation. The net assets held for sale are being marketed for sale and it is the Company’s intention to complete the sales of these assets within the upcoming year.

For the three months ending January 31, 2012 the Company recorded a gain on disposal of PP&E, net of $1.1 million. There was a sale of miscellaneous equipment in the Paper Packaging segment which resulted in a $0.5 million gain, sales of special use properties in the Land Management segment which resulted in a $0.4 million gain and sales of other miscellaneous equipment in the Rigid Industrial Packaging & Services segment which resulted in a $0.2 million gain. None of these were previously classified as held for sale.

NOTE 6 — GOODWILL AND OTHER INTANGIBLE ASSETS

The following table summarizes the changes in the carrying amount of goodwill by segment for the three-month period ending January 31, 2012 (Dollars in millions):

 

 

			September 30,				September 30,				September 30,				September 30,				September 30,
		Rigid Industrial Packaging & Services				Flexible Products & Services				Paper Packaging				Land Management				Total
Balance at October 31, 2011		$	866.9			$	78.1			$	59.7			$	0.2			$	1,004.9
Goodwill acquired			—				—				—				—				—
Goodwill adjustments			(7.3	)			0.2				—				—				(7.1	)
Currency translation			(27.5	)			(5.7	)			—				—				(33.2	)
Balance at January 31, 2012		$	832.1			$	72.6			$	59.7			$	0.2			$	964.6

The goodwill adjustments decreased goodwill by a net amount of $7.1 million related to the finalization of purchase price allocation of prior year acquisitions. Certain business combinations that occurred at or near year end were recorded with provisional estimates for fair value based on management’s best estimate.

 

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

 

 

			September 30,				September 30,				September 30,
		Gross Intangible Assets				Accumulated Amortization				Net Intangible Assets
October 31, 2011:
Trademark and patents		$	47.4			$	17.4			$	30.0
Non-compete agreements			22.8				9.0				13.8
Customer relationships			183.0				22.4				160.6
Other			33.1				7.7				25.4
Total		$	286.3			$	56.5			$	229.8
January 31, 2012:
Trademark and patents		$	42.7			$	8.2			$	34.5
Non-compete agreements			16.0				5.4				10.6
Customer relationships			193.2				42.5				150.7
Other			21.0				1.9				19.1
Total		$	272.9			$	58.0			$	214.9

Gross intangible assets decreased by $13.4 million for the three-month period ending January 31, 2012. The decrease in gross intangible assets was attributable to $0.2 million of adjustments to the preliminary purchase price allocations related to the 2011 acquisitions in the Rigid Industrial Packaging & Services segment and $13.2 million was attributable to currency fluctuations. Accumulated amortization increased by $1.5 million for the three-month period ending January 31, 2012. The increase in accumulated amortization was attributable to a decrease of $0.2 million with adjustments to preliminary purchase price allocations related to the 2011 acquisitions in the Rigid Industrial Packaging & Services segment and $1.7 million was attributable to currency fluctuations. Amortization expense for the three months ending January 31, 2012 and 2011 was $5.2 million and $4.2 million, respectively. Amortization expense for the next five years is expected to be $22.7 million in 2012, $22.3 million in 2013, $21.6 million in 2014, $20.5 million in 2015 and $19.9 million in 2016.

All intangible assets for the periods presented are subject to amortization and are being amortized using the straight-line method over periods that range from three to 15 years for trade names, two to ten years for non-competition covenants, one to 23 years for customer relationships and four to 20 years for other intangibles, except for $25.5 million related to the Tri-Sure trademark and the trade names related to Blagden Express, Closed-loop, Box Board and Fustiplast, all of which have indefinite lives.

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

The Company’s business segments have been identified as reporting units and the Company concluded that no impairment or impairment indicators exist as of January 31, 2012.

 

NOTE 7 — RESTRUCTURING CHARGES

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

 

 

			September 30,				September 30,				September 30,				September 30,
		Cash Charges								Non-cash Charges
		Employee
		Separation								Asset
		Costs				Other Costs				Impairments				Total
Balance at October 31, 2011		$	11.8			$	7.6			$	0.2			$	19.6
Costs incurred and charged to expense			5.2				1.9				1.8				8.9
Costs paid or otherwise settled			(9.3	)			(1.6	)			(1.6	)			(12.5	)
Balance at January 31, 2012		$	7.7			$	7.9			$	0.4			$	16.0

The focus for restructuring activities in 2012 continues to be on the contingency actions and integration of acquisitions in the Rigid Industrial Packaging & Services and Flexible Products & Services segments. During the three months ending January 31, 2012, the Company recorded restructuring charges of $8.9 million, which compares to $3.0 million of restructuring charges during the three months ending January 31, 2011. The restructuring activity for the three-month period ending January 31, 2012 consisted of $5.2 million in employee separation costs, $1.8 million in asset impairments and $1.9 million in other restructuring costs, primarily consisting of lease termination costs and professional fees.

The following is a reconciliation of the total amounts expected to be incurred from open restructuring plans which are anticipated to be realized in 2012 and 2013 or plans that are being formulated and have not been announced as of the date of this Form 10-Q. Amounts expected to be incurred were $25.5 million and $10.4 million at January 31, 2012 and October 31, 2011, respectively. The increase was due to the formulation of new plans by management. (Dollars in millions):

 

 

			September 30,				September 30,				September 30,
		Amounts Expected to be				Three months ended				Amounts Remaining to be
		Incurred				January 31, 2012				Incurred
Rigid Industrial Packaging & Services
Employee separation costs		$	12.6			$	4.3			$	8.3
Asset impairments			1.7				1.7				—
Other restructuring costs			8.8				1.3				7.5
			23.1				7.3				15.8
Flexible Products & Services
Employee separation costs			1.7				0.9				0.8
Asset impairments			0.1				0.1				—
Other restructuring costs			0.6				0.6				—
			2.4				1.6				0.8
		$	25.5			$	8.9			$	16.6

NOTE 8 — VARIABLE INTEREST ENTITIES

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

 

Significant Nonstrategic Timberland Transactions

In March 2005, Soterra LLC (a wholly owned subsidiary) entered into two real estate purchase and sale agreements with Plum Creek Timberlands, L.P. (“Plum Creek”) to sell approximately 56,000 acres of timberland and related assets located primarily in Florida for an aggregate sales price of approximately $90 million, subject to closing adjustments. In connection with the closing of one of these agreements, Soterra LLC sold approximately 35,000 acres of timberland and associated assets in Florida, Georgia and Alabama for $51.0 million. The purchase price was paid in the form of cash and a $50.9 million purchase note payable (the “Purchase Note”) by an indirect subsidiary of Plum Creek (the “Buyer SPE”). Soterra LLC contributed the Purchase Note to STA Timber LLC (“STA Timber”), one of the Company’s indirect wholly owned subsidiaries. The Purchase Note is secured by a Deed of Guarantee issued by Bank of America, N.A., London Branch, in an amount not to exceed $52.3 million (the “Deed of Guarantee”), as a guarantee of the due and punctual payment of principal and interest on the Purchase Note.

In May 2005, STA Timber issued in a private placement its 5.20% Senior Secured Notes due August 5, 2020 (the “Monetization Notes”) in the principal amount of $43.3 million. In connection with the sale of the Monetization Notes, STA Timber entered into note purchase agreements with the purchasers of the Monetization Notes (the “Note Purchase Agreements”) and related documentation. The Monetization Notes are secured by a pledge of the Purchase Note and the Deed of Guarantee. The Monetization Notes may be accelerated in the event of a default in payment or a breach of the other obligations set forth therein or in the Note Purchase Agreements or related documents, subject in certain cases to any applicable cure periods, or upon the occurrence of certain insolvency or bankruptcy related events. The Monetization Notes are subject to a mechanism that may cause them, subject to certain conditions, to be extended to November 5, 2020. The proceeds from the sale of the Monetization Notes were primarily used for the repayment of indebtedness. Greif, Inc. and its other subsidiaries have not extended any form of guaranty of the principal or interest on the Monetization Notes. Accordingly, Greif, Inc. and its other subsidiaries will not become directly or contingently liable for the payment of the Monetization Notes at any time.

The Buyer SPE is deemed to be a VIE since the Buyer SPE is not able to satisfy its liabilities without financial support from the Company. The Buyer SPE is a separate and distinct legal entity from the Company, but the Company is the primary beneficiary because it has (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and (2) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. As a result, Buyer SPE has been consolidated into the operations of the Company.

As of January 31, 2012 and October 31, 2011, assets of the Buyer SPE consisted of $50.9 million of restricted bank financial instruments. For the three-month periods ending January 31, 2012 and 2011, the Buyer SPE recorded interest income of $0.6 million, respectively.

As of January 31, 2012 and October 31, 2011, STA Timber had long-term debt of $43.3 million. For each of the three-month periods ending January 31, 2012 and 2011, STA Timber recorded interest expense of $0.6 million. STA Timber is exposed to credit-related losses in the event of nonperformance by the issuer of the Deed of Guarantee.

Flexible Products Joint Venture

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

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

 

The economic and business purpose underlying the Flexible Products JV is to establish a global industrial flexible products enterprise through a series of targeted acquisitions and major investments in plant, machinery and equipment. All entities contributed to the Flexible Products JV were existing businesses acquired by a subsidiary of Greif, Inc. and were reorganized under Greif Flexibles Asset Holding B.V. and Greif Flexibles Trading Holding B.V. (“Asset Co.” and “Trading Co.”), respectively. The Company has 51 percent ownership in Trading Co. and 49 percent ownership in Asset Co. However, Greif Supra and NSC have equal economic interests in the Flexible Products JV, notwithstanding the actual ownership interests in the various legal entities.

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

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

 

 

			September 30,				September 30,				September 30,
October 31, 2011		Asset Co.				Trading Co.				Flexible Products JV
Total assets		$	192.9			$	171.3			$	364.2
Total liabilities			78.9				57.2				136.1
Net assets		$	114.0			$	114.1			$	228.1
January 31, 2012		Asset Co.				Trading Co.				Flexible Products JV
Total assets		$	194.0			$	149.5			$	343.5
Total liabilities			74.5				51.1				125.6
Net assets		$	119.5			$	98.4			$	217.9

As of January 31, 2012, Asset Co. had outstanding advances to NSC for $13.0 million which are being used to fund certain costs incurred in Saudi Arabia in respect of the fabric hub being constructed and equipped there. These advances are recorded within the current portion related party notes and advances receivable on the Company’s consolidated balance sheet since they are expected to be repaid within the next twelve months. As of January 31, 2012, Asset Co. and Trading Co. held short term loans payable to NSC for $8.6 million recorded within short-term borrowings on the Company’s consolidated balance sheet. These loans are interest bearing and are used to fund certain operational requirements. Net loss attributable to the non controlling interest in the Flexible Products JV for the three months ending January 31, 2012 and 2011 were $1.4 million and $1.7 million, respectively.

NOTE 9 — LONG-TERM DEBT

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

 

 

			September 30,				September 30,
		January 31, 2012				October 31, 2011
Credit Agreement		$	468.0			$	355.4
Senior Notes due 2017			302.7				302.9
Senior Notes due 2019			243.1				242.9
Senior Notes due 2021			262.5				280.2
Trade accounts receivable credit facility			112.5				130.0
Other long-term debt			14.8				46.2
			1,403.6				1,357.6
Less current portion			(15.6	)			(12.5	)
Long-term debt		$	1,388.0			$	1,345.1

 

Credit Agreement

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

The Credit Agreement is available to fund ongoing working capital and capital expenditure needs, for general corporate purposes and to finance acquisitions. Interest is based on a Eurodollar rate or a base rate that resets periodically plus a calculated margin amount. As of January 31, 2012, $468.0 million was outstanding under the Credit Agreement. The current portion of the Credit Agreement was $15.6 million and the long-term portion was $452.4 million. The weighted average interest rate on the Credit Agreement was 2.28% for the three months ending January 31, 2012 and 2.21% as of January 31, 2012.

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

Senior Notes due 2017

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

The fair value of the Senior Notes due 2017 was $319.2 million as of January 31, 2012 based upon quoted market prices. The indenture pursuant to which these Senior Notes were issued contains certain covenants. As of January 31, 2012, the Company was in compliance with these covenants.

Senior Notes due 2019

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

The fair value of the Senior Notes due 2019 was $276.3 million as of January 31, 2012, based upon quoted market prices. The indenture pursuant to which these Senior Notes were issued contains certain covenants. As of January 31, 2012, the Company was in compliance with these covenants.

Senior Notes due 2021

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

The fair value of the Senior Notes due 2021 was $259.2 million as of January 31, 2012, based upon quoted market prices. The indenture pursuant to which these Senior Notes were issued contains certain covenants. As of January 31, 2012, the Company was in compliance with these covenants.

United States Trade Accounts Receivable Credit Facility

On December 8, 2008, the Company entered into a trade accounts receivable credit facility with a financial institution. This facility was amended on September 19, 2011, which decreased the amount available to the borrowers from $135.0 million to $130.0 million and extended the termination date of the commitment to September 19, 2014. The credit facility is secured by certain of the Company’s trade accounts receivable in the United States and bears interest at a variable rate based on the London Interbank Offered Rate (“LIBOR”) plus a margin or other agreed-upon rate (1.07% as of January 31, 2012). In addition, the Company can terminate the credit facility at any time upon five days prior written notice. A significant portion of the initial proceeds from this credit facility was used to pay the obligations under the previous trade accounts receivable credit facility, which was terminated. The remaining proceeds were and will be used to pay certain fees, costs and expenses incurred in connection with the credit facility and for working capital and general corporate purposes. As of January 31, 2012, there was $112.5 million outstanding under the credit facility. The agreement for this credit facility contains financial covenants that require the Company to maintain a certain leverage ratio and a fixed charge coverage ratio. As of January 31, 2012, the Company was in compliance with these covenants.

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

Other

In addition to the amounts borrowed under the Credit Agreement and proceeds from the Senior Notes and the United States Trade Accounts Receivable Credit Facility, as of January 31, 2012, the Company had outstanding other debt of $125.2 million, comprised of $14.8 million in long-term debt and $110.4 million in short-term borrowings, compared to other debt outstanding of $183.5 million, comprised of $46.2 million in long-term debt and $137.3 million in short-term borrowings, as of October 31, 2011.

As of January 31, 2012, the current portion of the Company’s long-term debt was $15.6 million. Annual maturities, including the current portion, of long-term debt under the Company’s various financing arrangements were $9.4 million in 2012, $39.8 million in 2013, $25.0 million in 2014, $521.2 million in 2015, $302.7 million in 2017 and $505.5 million thereafter.

As of January 31, 2012 and October 31, 2011, the Company had deferred financing fees and debt issuance costs of $21.0 million and $18.9 million, respectively, which are included in other long-term assets.

NOTE 10 — FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

Financial Instruments

The Company uses derivatives from time to time to partially mitigate the effect of exposure to interest rate movements, exposure to currency fluctuations, and energy cost fluctuations. Under ASC 815, “Derivatives and Hedging”, all derivatives are to be recognized as assets or liabilities on the balance sheet and measured at fair value. Changes in the fair value of derivatives are recognized in either net income or in other comprehensive income, depending on the designated purpose of the derivative.

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

During the next nine months, the Company expects to reclassify into earnings a net loss from accumulated other comprehensive loss of approximately $1.2 million after tax at the time the underlying hedge transactions are realized.

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

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

 

•

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

 

•

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

 

•

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

 

Recurring Fair Value Measurements

The following table presents the fair value adjustments for those assets and (liabilities) measured on a recurring basis as of January 31, 2012 (Dollars in millions):

 

 

			September 30,				September 30,				September 30,				September 30,				September 30,
		Fair Value Measurement																Balance sheet
		Level 1				Level 2				Level 3				Total				Location
Interest rate derivatives		$	—			$	(1.3	)		$	—			$	(1.3	)			Other long-term liabilities
Foreign exchange hedges			—				1.5				—				1.5				Other current assets
Foreign exchange hedges			—				(3.7	)			—				(3.7	)			Other current liabilities
Energy hedges			—				(0.9	)			—				(0.9	)			Other current liabilities
Total*		$	—			$	(4.4	)		$	—			$	(4.4	)

 

*	The carrying amounts of cash and cash equivalents, trade accounts receivable, accounts payable, current liabilities and short-term borrowings as of January 31, 2012 approximate their fair values because of the short-term nature of these items and are not included in this table.

Interest Rate Derivatives

The Company has interest rate swap agreements with various maturities through 2014. These interest rate swap agreements are used to manage the Company’s fixed and floating rate debt mix, specifically the Credit Agreement. Under these agreements, the Company receives interest monthly from the counterparties based upon the LIBOR and pays interest based upon a designated fixed rate over the life of the swap agreements.

The Company had three interest rate derivatives as of October 31, 2011 which expired in the first quarter of 2012. The Company now has two interest rate derivatives, both of which were entered into during the first quarter of 2012 (floating to fixed swap agreements designated as cash flow hedges) with a total notional amount of $150 million. Under these swap agreements, the Company receives interest based upon a variable interest rate from the counterparties (weighted average of 0.27% as of January 31, 2012 and 0.27% as of October 31, 2011) and pays interest based upon a fixed interest rate (weighted average of 0.75% as of January 31, 2012 and 1.92% as of October 31, 2011). The fair value of these contracts (both those that existed at October 31, 2011 and those entered into in the first quarter 2012) resulted in realized losses of $0.4 million and $0.5 million recorded in the consolidated statements of operations as of January 31, 2012 and 2011, respectively. The fair value of these contracts resulted in a loss of $1.3 million and a loss of $0.3 million recorded in other comprehensive income as of January 31, 2012 and October 31, 2011, respectively.

Foreign Exchange Hedges

As of January 31, 2012, the Company had outstanding foreign currency forward contracts in the notional amount of $181.5 million ($160.6 million as of October 31, 2011). 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 resulted in realized losses of $2.7 million and $0.2 million recorded in the consolidated statements of operations as of January 31, 2012 and 2011, respectively. The fair value of these contracts resulted in a gain of $0.5 million and a gain of $0.7 million recorded in other comprehensive income as of January 31, 2012 and October 31, 2011, respectively.

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, 2012. Under these hedge agreements, the Company agrees to purchase natural gas at a fixed price. As of January 31, 2012, the notional amount of these hedges was $1.9 million ($2.7 million as of October 31, 2011). The fair value of these contracts resulted in realized losses of $0.2 million and $0.2 million recorded in the consolidated statements of operations as of January 31, 2012 and 2011, respectively. The fair value of these contracts resulted in a loss of $0.9 million and a loss of $0.1 million recorded in other comprehensive income as of January 31, 2012 and October 31, 2011, respectively.

 

Other financial instruments

The estimated fair value of the Company’s long-term debt was $854.7 million and $866.8 million compared to the carrying amounts of $808.3 million and $825.9 million as of January 31, 2012, and October 31, 2011, respectively. The current portion of the long-term debt was $15.6 million as of January 31, 2012 and $12.5 million as of October 31, 2011. The fair values of the Company’s Credit Agreement and the United States Trade Accounts Receivable Credit Facility does not materially differ from carrying value as the Company’s cost of borrowing is variable and approximates current borrowing rates. The fair values of the Company’s long-term obligations are estimated based on either the quoted market prices for the same or similar issues or the current interest rates offered for the debt of the same remaining maturities.

Non Recurring Fair Value Measurements

Long-Lived Assets

As part of the Company’s restructuring plans following recent acquisitions, the Company may close manufacturing facilities during the next few years. The assumptions used in measuring fair value of long-lived assets are considered level two 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 three-month period ending January 31, 2012 of $1.8 million on long lived assets with net book values of $1.9 million.

Net Assets Held for Sale

The assumptions used in measuring fair value of 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. During 2011, the Company recognized an impairment of $1.3 million related to net assets held for sale in our Rigid Industrial Packaging & Services segment. As of January 31, 2012, the Company had not recognized any additional impairment related to net assets held for sale.

Goodwill and Long Lived Intangible Assets

On an annual basis or when events or circumstances indicate impairment may have occurred, the Company performs impairment tests for goodwill and intangibles as defined under ASC 350, “Intangibles-Goodwill and Other.” In the third quarter of 2011, the Company recognized an impairment charge of $3.0 million related to the discontinued usage of certain trade names in our Flexible Products & Services segment. The Company concluded that no further impairment existed as of January 31, 2012.

Pension Plan Assets

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

 

•

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

 

•

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

 

•

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

 

•

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

 

•

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

NOTE 11 — STOCK-BASED COMPENSATION

Stock-based compensation is accounted for in accordance with ASC 718, “Compensation – Stock Compensation”, which requires companies to estimate the fair value of share-based awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense in the Company’s consolidated statements of operations over the requisite service periods. The Company uses the straight-line single option method of expensing stock options to recognize compensation expense in its consolidated statements of operations for all share-based awards. Because share-based compensation expense is based on awards that are ultimately expected to vest, share-based compensation expense will be reduced to account for estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. No stock options were granted in 2012 or 2011. For any options granted in the future, compensation expense will be based on the grant date fair value estimated in accordance with the provisions of ASC 718.

 

NOTE 12 — INCOME TAXES

The effective tax rate was 29.2% and 24.6% for the three months ending January 31, 2012 and 2011, respectively. The change in the effective tax rate was primarily attributable to a shift in global earning mix, along with the recognition of a valuation allowance on deferred tax assets in 2011 and other discrete tax items recognized in these periods.

The Company has estimated the reasonably possible expected net change in unrecognized tax benefits through January 31, 2012 based on expected settlements or payments of uncertain tax positions, and lapses of the applicable statutes of limitations of unrecognized tax benefits under ASC 740, “Income Taxes.” The estimated net decrease in unrecognized tax benefits for the next 12 months ranges from $0 to $48.5 million. Actual results may differ materially from this estimate.

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

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

 

 

			September 30,				September 30,
		Three months ended
		January 31
		2012				2011
Service cost		$	3.4			$	3.1
Interest cost			7.4				7.4
Expected return on plan assets			(8.5	)			(9.1	)
Amortization of prior service cost, initial net asset and net actuarial gain			3.2				2.5
Net periodic pension costs		$	5.5			$	3.9

The Company made $3.6 million in pension contributions in the three months ending January 31, 2012. The Company estimates $26.0 million of pension contributions for the entire 2012 fiscal year.

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

 

 

			September 30,				September 30,
		Three months ended
		January 31
		2012				2011
Service cost		$	—			$	—
Interest cost			0.3				0.3
Amortization of prior service cost and recognized actuarial gain			(0.4	)			(0.4	)
Net periodic cost for postretirement benefits		$	(0.1	)		$	(0.1	)

NOTE 14 — CONTINGENT LIABILITIES

Litigation-related Liabilities

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

 

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

Environmental Reserves

As of January 31, 2012 and October 31, 2011, the Company recorded environmental reserves of $27.5 million and $29.3 million, respectively. The reserves were recorded on an undiscounted basis and are included in other long-term liabilities. These reserves are principally based on environmental studies and cost estimates provided by third parties, but also take into account management estimates. The estimated liabilities are reduced to reflect the anticipated participation of other potentially responsible parties in those instances where it is probable that such parties are legally responsible and financially capable of paying their respective shares of relevant costs. For sites that involve formal actions subject to joint and several liabilities, these actions have formal agreements in place to apportion the liability. As of January 31, 2012 and October 31, 2011, the Company had recorded environmental reserves of $13.8 million and $14.0 million, respectively, for its blending facility in Chicago, Illinois, $8.2 million and $9.5 million, respectively, for various European drum facilities acquired from Blagden and Van Leer, $3.9 million and $4.2 million, respectively, for its various container life cycle management and recycling facilities acquired in 2011 and 2010, and $1.6 million and $1.6 million for various other facilities around the world.

As of January 31, 2012 Greif estimated that payments for environmental remediation will be $7.6 million in 2012, $3.4 million in 2013, $1.5 million in 2014, $2.6 million in 2015, $1.7 million in 2016, and $11.6 million thereafter. The Company’s exposure to adverse developments with respect to any individual site is not expected to be material. Although environmental remediation could have a material effect on results of operations if a series of adverse developments occur in a particular quarter or year, the Company believes that the chance of a series of adverse developments occurring in the same quarter or year is remote. Future information and developments will require the Company to continually reassess the expected impact of these environmental matters.

NOTE 15 — EARNINGS PER SHARE

The Company has two classes of common stock and, as such, applies the “two-class method” of computing earnings per share (“EPS”) as prescribed in ASC 260, “Earnings Per Share”. In accordance with this guidance, earnings are allocated first to Class A and Class B Common Stock to the extent that dividends are actually paid and the remainder allocated assuming all of the earnings for the period have been distributed in the form of dividends.

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

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

 

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

 

 

			September 30,				September 30,
		Three months ended
		January 31
(In millions, except per share data)		2012				2011
Numerator for basic and diluted EPS
Net income attributable to Greif, Inc.		$	23.9			$	41.4
Cash dividends			24.3				24.3
Undistributed net income attributable to Greif, Inc.		$	(0.4	)		$	17.1
Denominator for basic EPS
Class A common stock			25.1				24.8
Class B common stock			22.1				22.4
Denominator for diluted EPS
Class A common stock			25.2				25.1
Class B common stock			22.1				22.4
EPS Basic
Class A common stock		$	0.41			$	0.71
Class B common stock		$	0.61			$	1.06
EPS Diluted
Class A common stock		$	0.41			$	0.71
Class B common stock		$	0.61			$	1.06
Dividends per share
Class A common stock		$	0.42			$	0.42
Class B common stock		$	0.62			$	0.62

Class A Common Stock is entitled to cumulative dividends of one cent a share per year after which Class B Common Stock is entitled to non-cumulative dividends up to a half-cent a share per year. Further distribution in any year must be made in proportion of one cent a share for Class A Common Stock to one and a half cents a share for Class B Common Stock. The Class A Common Stock has no voting rights unless four quarterly cumulative dividends upon the Class A Common Stock are in arrears. The Class B Common Stock has full voting rights. There is no cumulative voting for the election of directors.

Common stock repurchases

The Company’s Board of Directors has authorized the purchase of up to four million shares of Class A Common Stock or Class B Common Stock or any combination of the foregoing. During the three months ending January 31, 2012, the Company repurchased no shares of Class A or Class B Common Stock. As of January 31, 2012, the Company had repurchased 3,183,272 shares, including 1,425,452 shares of Class A Common Stock and 1,757,820 shares of Class B Common Stock, under this program. The total cost of the shares repurchased from November 1, 2010 through January 31, 2012 was approximately $15.1 million.

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

 

 

			September 30,				September 30,				September 30,				September 30,
										Outstanding
		Authorized Shares				Issued Shares				Shares				Treasury Shares
October 31, 2011:
Class A Common Stock			128,000,000				42,281,920				24,972,029				17,309,891
Class B Common Stock			69,120,000				34,560,000				22,120,966				12,439,034
January 31, 2012:
Class A Common Stock			128,000,000				42,281,920				25,122,916				17,159,004
Class B Common Stock			69,120,000				34,560,000				22,120,966				12,439,034

 

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

 

 

			September 30,				September 30,
		Three months ended
		January 31
		2012				2011
Class A Common Stock:
Basic shares			25,052,868				24,787,857
Assumed conversion of stock options			148,377				274,699
Diluted shares			25,201,245				25,062,556
Class B Common Stock:
Basic and diluted shares			22,120,966				22,412,266

No stock options were antidilutive for the three-month periods ending January 31, 2012 and 2011, respectively.

 

NOTE 16 —

EQUITY EARNINGS (LOSSES) OF UNCONSOLIDATED AFFILIATES, NET OF TAX AND NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS

Equity earnings (losses) of unconsolidated affiliates, net of tax

Equity earnings (losses) of unconsolidated affiliates, net of tax represent the Company’s share of earnings of affiliates in which the Company does not exercise control and has a 20 percent or more voting interest. Investments in such affiliates are accounted for using the equity method of accounting. If the fair value of an investment in an affiliate is below its carrying value and the difference is deemed to be other than temporary, the difference between the fair value and the carrying value is charged to earnings. The Company has an equity interest in seven affiliates. Equity earnings of unconsolidated affiliates, net of tax for the three months ending January 31, 2012 and 2011 were immaterial and $0.5 million, respectively. There were no dividends received from the Company’s equity method affiliates for the three months ending January 31, 2012 and 2011. The Company has made loans to an entity deemed a VIE and accounted for as an unconsolidated equity investment. These loans bear interest at various interest rates. The original principal balance of these loans was $22.2 million. As of January 31, 2012, these loans had an outstanding balance of $19.6 million.

Net income (losses) attributable to noncontrolling interests

Net income attributable to noncontrolling interests represent the portion of earnings or losses from the operations of the Company’s consolidated subsidiaries attributable to unrelated third party equity owners that were deducted from net income to arrive at net income attributable to the Company. Net income attributable to noncontrolling interests for the three months ended January 31, 2012 and 2011 was $0.7 million and ($0.3) million, respectively.

NOTE 17 — COMPREHENSIVE INCOME AND SHAREHOLDERS EQUITY

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

 

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

 

 

			September 30,				September 30,
		Three months ended
		January 31
		2012				2011
						As Restated (1)
Net income		$	24.6			$	41.1
Other comprehensive income:
Foreign currency translation adjustment			(7.4	)			(30.4	)
Changes in fair value of interest rate and other derivatives, net of tax			(0.2	)			0.5
Minimum pension liabilities adjustment, net of tax			4.4				0.1
Comprehensive income		$	21.4			$	11.3

 

(1)

The consolidated balance sheet and the consolidated statement of changes in shareholders’ equity as of October 31, 2010 have been restated to correct prior period errors. The quarterly balance sheets as of January 31, 2011, April 30, 2011 and July 31, 2011 were not restated since the corrections did not impact total assets, consolidated net income or cash flows of the company.

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

 

 

			September 30,				September 30,				September 30,
		January 31, 2011				October 31, 2010				Change
Accumulated other comprehensive loss:
Foreigh currency translation, as reported		$	14.2			$	44.6			$	(30.4	)
Restatment			(44.3	)			(44.3	)			—
Foreigh currency translation, as adjusted		$	(30.1	)		$	0.3			$	(30.4	)

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

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

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

 

 

			September 30,				September 30,
		Three months ended
		January 31
		2012				2011
Income tax benefit (expense):
Changes in fair value of interest rate and other derivatives, net of tax			0.1				(0.3	)
Minimum pension liabilities adjustment, net of tax			(1.8	)			—

 

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

 

 

			xxxxxx				xxxxxx				xxxxxx				xxxxxx				xxxxxx				xxxxxx				xxxxxx				xxxxxx
		Capital Stock								Treasury Stock																Accumulated
																						Non-				Other
		Common Shares				Amount				Treasury Shares				Amount				Retained Earnings				controlling interests				Comprehensive Income (Loss)				Shareholders’ Equity
As of October 31, 2011			47,093			$	113.8				29,749			$	(132.0	)		$	1,401.7			$	156.8			$	(148.1	)		$	1,392.2
Net income																			23.9				0.7								24.6
Other comprehensive income (loss):
- foreign currency translation																							(20.8	)			13.4				(7.4	)
- interest rate and other derivatives, net of income tax expense of $ 0.1																											(0.2	)			(0.2	)
- minimum pension liability adjustment, net of income tax expense of $ 1.8																											4.4				4.4
Comprehensive income																															21.4
Acquisitions and noncontrolling interests																							(3.9	)							(3.9	)
Dividends paid																			(24.3	)											(24.3	)
Stock options exercised			12				0.2				(12	)			—																0.2
Restricted stock executives			5				0.2				(5	)			—																0.2
Long-term incentive shares issued			134				5.8				(134	)			0.3																6.1
As of January 31, 2012			47,244			$	120.0				29,598			$	(131.7	)		$	1,401.3			$	132.8			$	(130.5	)		$	1,391.9