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NOTE 1 — BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The condensed 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 2015 or 2014, or to any quarter of those years, relates to the fiscal year or quarter, as the case may be, ended in that year. The 2014 amounts have been restated. See Note 20 – Quarterly Financial Data in the Company’s 2014 Form 10-K.
The information furnished herein reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the condensed consolidated balance sheets as of July 31, 2015 and October 31, 2014, the condensed consolidated statements of income and comprehensive income for the three and nine months ended July 31, 2015 and 2014 and the condensed consolidated statements of cash flows for the nine month periods ended July 31, 2015 and 2014 of Greif, Inc. and its subsidiaries (the “Company”). The condensed consolidated financial statements include the accounts of Greif, Inc., all wholly-owned and consolidated 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 and are accounted for using either the equity or cost method, as appropriate.
The unaudited condensed consolidated financial statements included in the Quarterly Report on Form 10-Q (this “Form 10-Q”) should be read in conjunction with the condensed consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for its fiscal year ended October 31, 2014 (the “2014 Form 10-K”).
Venezuela Currency
The Company’s results of its Venezuelan businesses have been reported under highly inflationary accounting since 2010 and the functional currency was converted to US Dollars at that time. Currently, there are multiple legal mechanisms and respective exchange rates available in Venezuela to exchange currency: the CENCOEX rate (official rate or “CENCOEX”); the SICAD rate (“SICAD”) and; as of February of 2015, the SIMADI rate (“SIMADI”). The SIMADI exchange mechanism was created by the Venezuelan government to establish a more market driven exchange rate and is intended to be available to individuals and both public and private companies.
The government also announced in February 2015 that the official rate and SICAD exchange mechanisms would be available only to companies importing essential goods (i.e. medicine, food, and raw materials) although it has not officially published rules or regulations that clarify exactly which activities, industries or transactions will be eligible to use these rates. The purpose of these rates was intended to make necessities affordable to Venezuelan citizens. The exchange mechanisms have not been able to meet the demand from the private sector due to the lack of US Dollars in the country resulting in the continued devaluation of the SIMADI rate.
Greif has historically utilized the official rate which is 6.4 Bolivars/US Dollars to measure Bolivar-denominated monetary assets and liabilities and the respective historical rate to measure Bolivar-denominated nonmonetary assets each reporting period. Due to the continued significant devaluation of the Bolivar and the change in the exchange mechanisms announced earlier this year, the Company has reconsidered which rate best reflects the economics of Grief’s business activities and concluded that the Company should utilize the SIMADI rate to remeasure the Venezuelan operations as of July 31, 2015.
As a result of the change to the SIMADI rate, which reflects the recognition of a devaluation of approximately 97 percent as compared to the official exchange rate previously used, the Company recorded other income of $4.9 million related to the remeasurement of our Venezuelan monetary assets and liabilities during the quarter. In addition, the Company determined that an adjustment of $9.3 million to increase cost of goods sold was needed to reflect the non-monetary inventory assets at net realizable value and, upon review of long-lived assets for impairment, the Company determined that the carrying amount of the long-lived asset was not recoverable in US dollar functional currency and recorded an impairment charge of $15.0 million.
Recently Issued Accounting Standards
In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-03, “Interest—Imputation of Interest (Subtopic 835-30)”. The objective of this update is to simplify the presentation of debt issuance costs in the financial statements. Under the ASU, the Company would present such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset; amortization of the costs is reported as interest expense. The effective date will be the first quarter of fiscal year 2016. The Company would apply the new guidance retrospectively to all prior periods (i.e., the balance sheet for each period would be adjusted). The ASU requires the Company to “disclose in the first fiscal year after the entity’s adoption date, and in the interim periods within the first fiscal year, the following: (1) The nature and reason for the change in accounting principle; (2) The transition method; (3) A description of the prior-period information that has been retrospectively adjusted; and (4) The effect of the change on the financial statement line item (that is, the debt issuance costs asset and the debt liability). The Company is expected to adopt this guidance beginning November 1, 2015, and the adoption of the new guidance is not expected to materially impact the Company’s financial position, results of operations, comprehensive income or cash flows, other than the related disclosures.
In February 2015, the FASB issued ASU 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis,” which makes changes to both the variable interest model and voting interest model and eliminates the indefinite deferral of FASB Statement No. 167, included in ASU 2010-10, for certain investment funds. All reporting entities that hold a variable interest in other legal entities will need to re-evaluate their consolidation conclusions as well as disclosure requirements. This ASU is effective for annual periods beginning after December 15, 2015, and early adoption is permitted, including any interim period. The Company is in the process of determining the potential impact of adopting this guidance on its financial position, results of operations, comprehensive income, cash flow, and disclosures.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”, which supersedes the revenue recognition requirements in Accounting Standards Codification (“ASC”) 605, Revenue Recognition. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The update is effective in fiscal year 2019 using one of two retrospective application methods. The Company is in the process of determining the potential impact of adopting this guidance on its financial position, results of operations, comprehensive income, cash flow and disclosures.
In August 2014, the FASB issued ASU 2014-15 “Presentation of Financial Statements-Going Concern: Disclosure of Uncertainties about an Entity’s Ability to Continue as Going Concern”. The objective of this update is to reduce the diversity in the timing and content of footnote disclosures related to going concern. The amendments require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. This update applies to all entities that would be required to disclose information about their potential inability to continue as a going concern when “substantial doubt” about their ability to continue as a going concern exists. The Company will be required to evaluate “relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued.” The Company will have to document its consideration of the ASU, but not because the Company believes there is substantial doubt about its ability to continue as a going concern. The Company is expected to adopt this guidance beginning November 1, 2017, and the adoption of the new guidance is not expected to impact the Company’s financial position, results of operations, comprehensive income or cash flows, other than the related disclosures.
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NOTE 2 — ACQUISITIONS AND DIVESTITURES
The following table summarizes the Company’s acquisition activity in 2015 and 2014 (Dollars in millions):
# of Acquisitions |
Purchase Price, net of Cash |
Tangible Assets, net |
Intangible Assets |
Goodwill | ||||||||||||||||
Total 2014 Acquisitions |
2 | $ | 53.5 | 2.1 | 14.0 | 34.4 |
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.
The Company completed eight divestitures and no material acquisitions for the nine months ended July 31, 2015. The divestitures were of nonstrategic businesses, six in the Rigid Industrial Packaging & Services segment and two in the Flexible Products & Services segment. The loss on disposal of businesses was $8.5 million for the nine months ended July 31, 2015. Proceeds from divestitures were $18.9 million. Additionally, the Company has recorded notes receivable of $3.6 million for the sale of these businesses, ranging from 3 months to five years.
The Company completed two acquisitions and one material divestiture during the nine months ended July 31, 2014. One acquisition was in the Rigid Industrial Packaging & Services segment and the other acquisition was in the Paper Packaging segment. The rigid industrial packaging acquisition complemented the Company’s existing product lines and provided growth opportunities and economies of scale. The paper packaging acquisition was made in part to obtain technologies, equipment, and customer lists. The divestiture included a nonstrategic business in the Rigid Industrial Packaging & Services segment and resulted in a non-cash loss on sale of $9.7 million, which includes the write-off of allocated goodwill. Proceeds from the divestiture were $30.1 million.
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NOTE 3 — SALE OF NON-UNITED STATES ACCOUNTS RECEIVABLE
On April 27, 2012, Cooperage Receivables Finance B.V. and Greif Coordination Center BVBA, an indirect wholly owned subsidiary of Greif, Inc., entered into the Nieuw Amsterdam Receivables Purchase Agreement (the “European RPA”) with affiliates of a major international bank. On April 20, 2015, Cooperage Receivables Finance B.V. and Greif Coordination Center BVBA amended and extended the term of the existing European RPA. Under the European RPA, as amended, the number of entities participating in the agreement have decreased to now include only the following entities: Greif Belgium BVBA, EarthMinded Benelux N.V. (formerly Pack2pack Rumbeke N.V.), Greif Nederland B.V., Greif Italia S.p.A., Greif Plastics Italy Srl (formerly Fustiplast S.p.A.), Greif France S.A.S., Greif Packaging Spain S.A., Greif Germany GmbH, Greif Plastics Germany GmbH (formerly Fustiplast GmbH), and Greif Portugal S.A. Additionally, the terms have been amended to decrease the maximum amount of receivables that may be sold and outstanding under the European RPA at any time to €100 million ($110.6 million as of July 31, 2015).
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 ($11.0 million as of July 31, 2015).
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 certain Malaysian banks. In March 2014, the Malaysian Agreement was discontinued and therefore there were no receivables held by third party financial institutions under this agreement as of July 31, 2015.
The table below contains certain information related to the Company’s accounts receivables programs (Dollars in millions):
Three months ended July 31, |
Nine months
ended July 31, |
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2015 | 2014 | 2015 | 2014 | |||||||||||||
European RPA |
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Gross accounts receivable sold to third party financial institution |
$ | 165.9 | $ | 266.7 | $ | 552.6 | $ | 784.0 | ||||||||
Cash received for accounts receivable sold under the programs |
147.1 | 235.2 | 489.5 | 692.0 | ||||||||||||
Deferred purchase price related to accounts receivable sold |
18.8 | 31.5 | 63.1 | 92.0 | ||||||||||||
Loss associated with the programs |
0.3 | 0.7 | 1.2 | 2.0 | ||||||||||||
Expenses associated with the programs |
— | — | — | — | ||||||||||||
Other |
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Gross accounts receivable sold to third party financial institution |
$ | 12.0 | $ | 13.0 | $ | 36.4 | $ | 44.1 | ||||||||
Cash received for accounts receivable sold under the program |
12.0 | 13.0 | 36.4 | 44.1 | ||||||||||||
Deferred purchase price related to accounts receivable sold |
— | — | — | — | ||||||||||||
Loss associated with the program |
— | — | — | — | ||||||||||||
Expenses associated with the program |
— | — | 0.1 | 0.1 | ||||||||||||
Total RPAs |
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Gross accounts receivable sold to third party financial institution |
$ | 177.9 | $ | 279.7 | $ | 589.0 | $ | 828.1 | ||||||||
Cash received for accounts receivable sold under the program |
159.1 | 248.2 | 525.9 | 736.1 | ||||||||||||
Deferred purchase price related to accounts receivable sold |
18.8 | 31.5 | 63.1 | 92.0 | ||||||||||||
Loss associated with the program |
0.3 | 0.7 | 1.2 | 2.0 | ||||||||||||
Expenses associated with the program |
— | — | 0.1 | 0.1 |
The table below contains certain information related to the Company’s accounts receivables programs and the impact it has on the Condensed Consolidated Balance Sheets (Dollars in millions):
July 31, 2015 |
October 31, 2014 |
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European RPA |
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Accounts receivable sold to and held by third party financial institution |
$ | 121.6 | $ | 164.7 | ||||
Uncollected deferred purchase price related to accounts receivable sold |
10.9 | — | ||||||
Deferred purchase price liability related to accounts receivable sold |
— | (23.7 | ) | |||||
Other |
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Accounts receivable sold to and held by third party financial institution |
$ | 4.5 | $ | 5.0 | ||||
Uncollected deferred purchase price related to accounts receivable sold |
— | — | ||||||
Total RPAs |
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Accounts receivable sold to and held by third party financial institution |
$ | 126.1 | $ | 169.7 | ||||
Uncollected deferred purchase price related to accounts receivable sold |
10.9 | — | ||||||
Deferred purchase price liability related to accounts receivable sold |
— | (23.7 | ) |
The deferred purchase price related to the accounts receivable sold is reflected as prepaid expenses and other current assets or other current liabilities on the Company’s condensed consolidated balance sheets and is recorded at an amount which approximates its fair value due to the short-term nature of these items. The cash received and the deferred purchase price relate to the sale or ultimate collection of the underlying receivables and are not subject to significant other risks given their short-term nature; therefore, the Company reflects all cash flows under the accounts receivable sales programs as operating cash flows on the Company’s condensed consolidated statements of cash flows.
Additionally, the Company performs collections and administrative functions on the receivables sold, similar to the procedures it uses for collecting all of its receivables, including receivables that are not sold under the RPAs.
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NOTE 4 — INVENTORIES
Inventories are stated at the lower of cost or market and are summarized as follows (Dollars in millions):
July 31, 2015 |
October 31, 2014 |
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Finished Goods |
$ | 95.3 | $ | 100.9 | ||||
Raw materials |
211.1 | 235.9 | ||||||
Work-in-process |
28.3 | 44.3 | ||||||
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$ | 334.7 | $ | 381.1 | |||||
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NOTE 5 — ASSETS AND LIABILITIES OF BUSINESSES HELD FOR SALE AND DISPOSALS OF PROPERTIES, PLANTS AND EQUIPMENT, NET
As of July 31, 2015, there were asset groups within the Rigid Industrial Packaging & Services and the Flexible Products & Services segments classified as assets and liabilities held for sale. The assets and liabilities held for sale are being marketed for sale, and it is the Company’s intention to complete the sales of these assets within the twelve months following the end of the quarter.
As of October 31, 2014, there were asset groups in the Rigid Industrial Packaging & Services, Flexible Products & Services, and the Land Management segments classified as assets and liabilities held for sale. During the nine months ended July 31, 2015, five asset groups previously classified as held for sale within the Rigid Industrial Packaging & Services and Paper Packaging & Services segments were sold and another asset group consisting of higher and better use (“HBU”) and surplus properties previously classified as held for sale within the Land Management segment were sold.
For the three months ended July 31, 2015, the Company recorded a gain on disposal of properties, plants and equipment, net of $7.0 million. This includes sales of HBU and surplus properties that resulted in gains of $1.5 million in the Land Management segment, a disposal of an asset group previously classified as held for sale in the Rigid Industrial Packaging & Services segment that resulted in a gain of $4.4 million, and other net gains and insurance recoveries totaling an additional $1.1 million.
For the nine months ended July 31, 2015, the Company recorded a gain on disposal of properties, plants and equipment, net of $9.3 million. This includes sales of HBU and surplus properties that resulted in gains of $2.7 million in the Land Management segment, and other net gains and insurance recoveries within the Rigid Industrial Packaging & Services segment that resulted in gains of $6.6 million.
For the three months ended July 31, 2014, the Company recorded a gain on disposal of properties, plants and equipment, net of $1.4 million. This includes sales of HBU and surplus properties that resulted in gains of $0.1 million in the Land Management segment, a sale of equipment that was previously classified as held for sale in the Flexible Products & Services segment that resulted in a gain of $1.1 million, and sales of other miscellaneous equipment which resulted in aggregate gains of $0.2 million.
For the nine months ended July 31, 2014, the Company recorded a gain on disposal of properties, plants and equipment, net of $5.5 million. This includes sales of HBU and surplus properties that resulted in gains of $2.8 million in the Land Management segment, a disposal of property in the Paper Packing segment that resulted in a gain of $0.8 million, a sale of equipment that was previously classified as held for sale in the Flexible Products & Services segment that resulted in a gain of $1.1 million, and sales of other miscellaneous equipment that resulted in aggregate gains of $0.8 million.
For the nine months ended July 31, 2015, the Company recorded gains of $24.3 million related to the sale of timberland. For the nine months ended July 31, 2014, the Company recorded $17.1 million relating to the sale of timberland. The Company recorded immaterial gains for the three months ended July 31, 2015 and 2014.
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NOTE 6 — GOODWILL AND OTHER INTANGIBLE ASSETS
The following table summarizes the changes in the carrying amount of goodwill by segment for the nine month period ended July 31, 2015 (Dollars in millions):
Rigid Industrial Packaging & Services (1) |
Paper Packaging |
Flexible Products & Services (2) |
Land Management | Total | ||||||||||||||||
Balance at October 31, 2014 |
$ | 820.7 | $ | 59.5 | $ | — | $ | — | $ | 880.2 | ||||||||||
Goodwill acquired |
— | — | — | — | — | |||||||||||||||
Goodwill allocated to divestitures and businesses held for sale |
(12.1 | ) | — | — | — | (12.1 | ) | |||||||||||||
Goodwill adjustments |
— | — | — | — | — | |||||||||||||||
Goodwill Impairment charge |
(0.5 | ) | (0.5 | ) | ||||||||||||||||
Currency translation |
(57.3 | ) | — | — | — | (57.3 | ) | |||||||||||||
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Balance at July 31, 2015 |
$ | 750.8 | $ | 59.5 | $ | — | $ | — | $ | 810.3 | ||||||||||
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(1) | At July 31, 2015 and October 31, 2014, the accumulated goodwill impairment loss was $0.5 million and $0.0 million, respectively. |
(2) | At July 31, 2015 and October 31, 2014, the accumulated goodwill impairment loss was $50.3 million. |
The following table summarizes the carrying amount of net other intangible assets by class as of July 31, 2015 and October 31, 2014 (Dollars in millions):
Gross Intangible Assets | Accumulated Amortization |
Net Intangible Assets |
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July 31, 2015: |
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Indefinite lived: |
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Trademarks and patents |
$ | 13.1 | $ | — | $ | 13.1 | ||||||
Definite lived: |
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Customer relationships |
182.0 | 78.8 | 103.2 | |||||||||
Trademarks and patents |
24.2 | 11.6 | 12.6 | |||||||||
Non-compete agreements |
12.4 | 4.0 | 8.4 | |||||||||
Other |
4.9 | 4.4 | 0.5 | |||||||||
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Total |
$ | 236.6 | $ | 98.8 | $ | 137.8 | ||||||
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October 31, 2014: |
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Indefinite lived: |
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Trademarks and patents |
$ | 13.8 | $ | — | $ | 13.8 | ||||||
Definite lived: |
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Customer relationships |
203.3 | 78.8 | 124.5 | |||||||||
Trademarks and patents |
15.3 | 4.7 | 10.6 | |||||||||
Non-compete agreements |
6.0 | 5.1 | 0.9 | |||||||||
Other |
27.8 | 11.1 | 16.7 | |||||||||
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Total |
$ | 266.2 | $ | 99.7 | $ | 166.5 | ||||||
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Amortization expense for the three months ended July 31, 2015 and 2014 was $4.5 million and $5.4 million, respectively. Amortization expense for the nine months ended July 31, 2015 and 2014 was $13.9 million and $18.7 million, respectively. Amortization expense for the next five years is expected to be $18.2 million in 2015, $17.4 million in 2016, $16.7 million in 2017, $16.3 million in 2018 and $16.3 million in 2019.
Definite lived intangible assets for the periods presented are subject to amortization and are being amortized using the straight-line method over periods that are contractually, legally determined, or over the period a market participant would benefit from the asset.
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NOTE 7 — RESTRUCTURING CHARGES
The following is a reconciliation of the beginning and ending restructuring reserve balances for the nine month period ended July 31, 2015 (Dollars in millions):
Employee Separation Costs |
Other Costs | Total | ||||||||||
Balance at October 31, 2014 |
$ | 2.9 | $ | 1.2 | $ | 4.1 | ||||||
Costs incurred and charged to expense |
18.6 | 8.1 | 26.7 | |||||||||
Costs paid or otherwise settled |
(10.8 | ) | (3.9 | ) | (14.7 | ) | ||||||
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Balance at July 31, 2015 |
$ | 10.7 | $ | 5.4 | $ | 16.1 | ||||||
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The focus for restructuring activities in 2015 is to continue to rationalize operations and close underperforming assets throughout all segments. During the three months ended July 31, 2015, the Company recorded restructuring charges of $16.2 million, which compares to $4.2 million of restructuring charges recorded during the three months ended July 31, 2014. The restructuring activity for the three months ended July 31, 2015 consisted of $10.9 million in employee separation costs and $5.3 million in other restructuring costs, primarily consisting of professional fees incurred for services specifically associated with employee separation and relocation. During the nine months ended July 31, 2015, the Company recorded restructuring charges of $26.7 million, which compares to $10.5 million of restructuring charges during the nine months ended July 31, 2014. The restructuring activity for the nine months ended July 31, 2015 consisted of $18.6 million in employee separation and relocation costs and $8.1 million in other restructuring costs, primarily consisting of professional fees incurred for services specifically associated with employee separation and relocation. The Company anticipates completion of the current restructuring programs by early 2018.
The following is a reconciliation of the total amounts expected to be incurred from open restructuring plans or plans that are being formulated and have not been announced as of the date of this Form 10-Q. Remaining amounts expected to be incurred are $17.4 million and $9.2 million as of July 31, 2015 and October 31, 2014, respectively. The change was due to the formulation of new plans during the period offset by the realization of expenses from plans formulated in prior periods. (Dollars in millions):
Total Amounts Expected to be Incurred |
Amounts expensed during the nine month period ended July 31, 2015 |
Amounts Remaining to be Incurred |
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Rigid Industrial Packaging & Services |
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Employee separation costs |
$ | 20.9 | $ | 15.3 | $ | 5.6 | ||||||
Other restructuring costs |
10.6 | 5.1 | 5.5 | |||||||||
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31.5 | 20.4 | 11.1 | ||||||||||
Flexible Products & Services |
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Employee separation costs |
9.0 | 3.1 | 5.9 | |||||||||
Other restructuring costs |
2.6 | 2.2 | 0.4 | |||||||||
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11.6 | 5.3 | 6.3 | ||||||||||
Paper Packaging |
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Employee separation costs |
0.2 | 0.2 | — | |||||||||
Other restructuring costs |
0.8 | 0.8 | — | |||||||||
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1.0 | 1.0 | — | ||||||||||
$ | 44.1 | $ | 26.7 | $ | 17.4 | |||||||
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NOTE 8 — CONSOLIDATION OF VARIABLE INTEREST ENTITIES
The Company evaluates whether an entity is a variable interest entity (“VIE”) upon acquisition and whenever reconsideration events occur. The Company consolidates VIEs 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, as appropriate. 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 VIEs economic performance; and the obligation to absorb the expected losses and/or the right to receive the expected returns of the VIE.
Significant Nonstrategic Timberland Transactions
In 2005, the Company sold certain timber properties to Plum Creek Timberlands, L.P. (“Plum Creek”) in a series of transactions that included the creation of two separate legal entities that are now consolidated as separate VIEs. One is an indirect subsidiary of Plum Creek (the “Buyer SPE”), and the other is STA Timber LLC, an indirect wholly owned subsidiary of the Company (“STA Timber”). As of July 31, 2015 and October 31, 2014, consolidated assets of Buyer SPE consisted of $50.9 million of restricted bank financial instruments which are expected to be held to maturity. For both of the three month periods ended July 31, 2015 and 2014, Buyer SPE recorded interest income of $0.6 million. For both of the nine month periods ended July 31, 2015 and 2014, Buyer SPE recorded interest income of $1.8 million.
As of July 31, 2015 and October 31, 2014, STA Timber had consolidated long-term debt of $43.3 million. For both of the three month periods ended July 31, 2015 and 2014, STA Timber recorded interest expense of $0.5 million. For both of the nine month periods ended July 31, 2015 and 2014, STA Timber recorded interest expense of $1.7 million. The intercompany borrowing arrangement between the two VIEs is eliminated in consolidation. STA Timber is exposed to credit-related losses in the event of nonperformance by an issuer of a deed of guarantee in the transaction.
Flexible Packaging Joint Venture
On September 29, 2010, Greif, Inc. and its indirect subsidiary Greif International Holding Supra C.V. (“Greif Supra”) formed a joint venture (referred to herein as the “Flexible Packaging JV”) with Dabbagh Group Holding Company Limited and its subsidiary National Scientific Company Limited (“NSC”). The Flexible Packaging JV owns the operations in the Flexible Products & Services segment. The Flexible Packaging JV has been consolidated into the operations of the Company as of its formation date of September 29, 2010.
All entities contributed to the Flexible Packaging JV were existing businesses acquired by Greif Supra that were reorganized under Greif Flexibles Asset Holding B.V. and Greif Flexibles Trading Holding B.V. (“Asset Co.” and “Trading Co.”), respectively. The Flexible Packaging J.V. also includes Global Textile Company LLC (“Global Textile”), which owned and operated a fabric hub in the Kingdom of Saudi Arabia that commenced operations in the fourth quarter of 2012 and ceased operations in the fourth quarter of 2014.
The following table presents the Flexible Packaging JV total net assets (Dollars in millions):
July 31, 2015 |
Asset Co. | Global Textile | Trading Co. | Flexible Packaging JV | ||||||||||||
Total assets |
$ | 99.9 | $ | 16.5 | $ | 105.9 | $ | 222.3 | ||||||||
Total liabilities |
92.2 | 17.4 | 56.3 | 165.9 | ||||||||||||
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Net assets |
$ | 7.7 | $ | (0.9 | ) | $ | 49.6 | $ | 56.4 | |||||||
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October 31, 2014 |
Asset Co. | Global Textile | Trading Co. | Flexible Packaging JV | ||||||||||||
Total assets |
$ | 113.6 | $ | 21.6 | $ | 126.4 | $ | 261.6 | ||||||||
Total liabilities |
102.7 | 42.8 | 51.8 | 197.3 | ||||||||||||
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Net assets |
$ | 10.9 | $ | (21.2 | ) | $ | 74.6 | $ | 64.3 | |||||||
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Net losses attributable to the noncontrolling interest in the Flexible Packaging JV for the three months ended July 31, 2015 and 2014 were $2.6 million and $3.7 million, respectively; and for the nine months ended July 31, 2015 and 2014, net losses attributable to the noncontrolling interest were $8.9 million and $9.2 million, respectively.
Non-United States Accounts Receivable VIE
As further described in Note 3, Cooperage Receivables Finance B.V. is a party to the European RPA. Cooperage Receivables Finance B.V. is deemed to be a VIE since this entity is not able to satisfy its liabilities without the financial support from the Company. While this entity is a separate and distinct legal entity from the Company and no ownership interest in this entity is held by the Company, the Company is the primary beneficiary because it has (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and (2) the obligation to absorb losses of the VIE that could potentially be significant to the VIE. As a result, Cooperage Receivables Finance B.V. has been consolidated into the operations of the Company.
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NOTE 9 — LONG-TERM DEBT
Long-term debt is summarized as follows (Dollars in millions):
July 31, 2015 | October 31, 2014 | |||||||
Amended Credit Agreement |
$ | 248.5 | $ | 169.2 | ||||
Senior Notes due 2017 |
300.8 | 301.2 | ||||||
Senior Notes due 2019 |
245.8 | 245.2 | ||||||
Senior Notes due 2021 |
219.5 | 252.5 | ||||||
Amended Receivables Facility |
145.8 | 110.0 | ||||||
Other debt |
18.6 | 26.9 | ||||||
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1,179.0 | 1,105.0 | |||||||
Less current portion |
(24.1 | ) | (17.6 | ) | ||||
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Long-term debt |
$ | 1,154.9 | $ | 1,087.4 | ||||
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Amended Credit Agreement
On December 19, 2012, the Company and two of its international subsidiaries amended and restated the Company’s existing $1.0 billion senior secured credit agreement with a syndicate of financial institutions (the “Amended Credit Agreement”). The total available borrowing under this facility was $679.5 million as of July 31, 2015, which has been reduced by $14.4 million for outstanding letters of credit, all of which is available without violating covenants.
The Amended Credit Agreement contains financial covenants that require the Company to maintain a certain leverage ratio and an interest coverage ratio. The leverage ratio generally requires that at the end of any fiscal quarter the Company will not permit the ratio of (a) the Company’s total consolidated indebtedness, to (b) the Company’s consolidated net income plus depreciation, depletion and amortization, interest expense (including capitalized interest), and income taxes, and minus certain extraordinary gains and non-recurring gains (or plus certain extraordinary losses and non-recurring losses) and plus or minus certain other items for the preceding twelve months (“adjusted EBITDA”) to be greater than 4.00 to 1. The interest coverage ratio generally requires that at the end of any fiscal quarter the Company will not permit the ratio of (a) the Company’s consolidated adjusted EBITDA to (b) the Company’s consolidated interest expense to the extent paid or payable, to be less than 3.00 to 1, during the preceding twelve month period (the “Interest Coverage Ratio Covenant”). As of July 31, 2015, the Company was in compliance with these covenants.
As of July 31, 2015, $248.5 million was outstanding under the Amended Credit Agreement. The current portion of the Amended Credit Agreement was $17.3 million and the long-term portion was $231.2 million. The weighted average interest rate on the Amended Credit Agreement was 1.61% for the nine months ended July 31, 2015. The actual interest rate on the Amended Credit Agreement was 1.73% as of July 31, 2015.
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.
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.
Senior Notes due 2021
On July 15, 2011, Greif, Inc.’s wholly-owned subsidiary, Greif Nevada Holdings, Inc., S.C.S. (formerly 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.
United States Trade Accounts Receivable Credit Facility
Prior to September 30, 2013, the Company had a $130 million U.S. trade accounts receivable credit facility with a financial institution (the “Prior Receivables Facility”). On September 30, 2013, the Company amended and restated the Prior Receivables Facility to establish a $170.0 million United States Trade Accounts Receivable Credit Facility (the “Amended Receivables Facility”) with a financial institution. The Amended Receivables Facility matures in September 2016.
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NOTE 10 — FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
Financial Instruments
The Company uses derivatives to mitigate partially the effect of exposure to interest rate movements, exposure to currency translation. 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.
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 in which there is little or no market data, which would require the Company to develop its own assumptions. |
Recurring Fair Value Measurements
The following table presents the fair value for those assets and (liabilities) measured on a recurring basis as of July 31, 2015 and October 31, 2014 (Dollars in millions):
July 31, 2015 |
Balance sheet |
|||||||||||||||||
Fair Value Measurement | ||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total |
Location |
||||||||||||||
Foreign exchange hedges |
— | 0.8 | — | 0.8 | Prepaid expenses and other current assets | |||||||||||||
Foreign exchange hedges |
— | (0.5 | ) | — | (0.5 | ) | Other current liabilities | |||||||||||
Insurance annuity |
— | — | 19.6 | 19.6 | Other long-term assets | |||||||||||||
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Total* |
$ | — | $ | 0.3 | $ | 19.6 | $ | 19.9 | ||||||||||
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October 31, 2014 |
Balance sheet Location |
|||||||||||||||||
Fair Value Measurement | ||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||||
Interest rate derivatives |
$ | — | $ | (0.2 | ) | $ | — | $ | (0.2 | ) | Other long-term liabilities | |||||||
Foreign exchange hedges |
— | 0.6 | — | 0.6 | Prepaid expenses and other current assets | |||||||||||||
Foreign exchange hedges |
— | (0.2 | ) | — | (0.2 | ) | Other current liabilities | |||||||||||
Insurance annuity |
— | — | 22.6 | 22.6 | Other long-term assets | |||||||||||||
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Total* |
$ | — | $ | 0.2 | $ | 22.6 | $ | 22.8 | ||||||||||
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* | The carrying amounts of cash and cash equivalents, trade accounts receivable, accounts payable, current liabilities and short-term borrowings as of July 31, 2015 and October 31, 2014 approximate their fair values because of the short-term nature of these items and are not included in this table. |
Interest Rate Derivatives
As of July 31, 2015, the Company has no interest rate derivatives.
Through December 2014, the Company had two interest rate derivatives (floating to fixed swap agreements designated as cash flow hedges) with a total notional amount of $150 million. Under these swap agreements, the Company received interest based upon a variable interest rate from the counterparties and paid interest based upon a fixed interest rate. The assumptions that were used in measuring fair value of the interest rate derivatives were considered level 2 inputs, which were based on interest from the counterparties based upon LIBOR and interest paid based upon a designated fixed rate over the life of the swap agreements. These derivative instruments were designated and qualified as cash flow hedges. Accordingly, the effective portion of the gain or loss on these derivative instruments was reported as a component of other comprehensive income and reclassified into earnings in the same line item associated with the forecasted transaction and in the same period during which the hedged transaction affected earnings. The ineffective portion of the gain or loss on the derivative instrument was recognized in earnings immediately.
Losses reclassified to earnings under these contracts were $0.2 million for the three months ended July 31, 2014 and were $0.2 million and $0.7 million for the nine months ended July 31, 2015 and 2014, respectively. These losses were recorded within the condensed consolidated statements of income as interest expense, net. The fair value of these contracts was $0.2 million recorded in accumulated other comprehensive income as of October 31, 2014.
Foreign Exchange Hedges
The Company conducts business in various international currencies and is subject to risks associated with changing foreign exchange rates. The Company’s objective is to reduce volatility associated with foreign exchange rate changes. Accordingly, the Company enters into various contracts that change in value as foreign exchange rates change to protect the value of certain existing foreign currency assets and liabilities, commitments and anticipated foreign currency cash flows.
As of July 31, 2015, the Company had outstanding foreign currency forward contracts in the notional amount of $81.6 million ($122.4 million as of October 31, 2014). Adjustments to fair value are recognized in earnings, offsetting the impact of the hedged item. The assumptions used in measuring fair value of foreign exchange hedges are considered level 2 inputs, which were based on observable market pricing for similar instruments, principally foreign exchange futures contracts. Gains (losses) recorded under fair value contracts were $0.6 million and ($2.5) million for the three months ended July 31, 2015 and 2014, respectively; and were ($6.2) million and ($2.6) million for the nine months ended July 31, 2015 and 2014, respectively.
Other financial instruments
The fair values of the Company’s Amended Credit Agreement and the Amended Receivables Facility do 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, which are considered level 2 inputs in accordance with ASC Topic 820, Fair Value Measurements and Disclosures.
The following table presents the estimated fair values of the Company’s Senior Notes and the Assets held by special purpose entities (Dollars in millions):
July 31, 2015 | October 31, 2014 | |||||||
Senior Notes due 2017 |
||||||||
Estimated fair value |
$ | 317.3 | $ | 325.5 | ||||
Senior Notes due 2019 |
||||||||
Estimated fair value |
278.1 | 287.5 | ||||||
Senior Notes due 2021 |
||||||||
Estimated fair value |
260.7 | 297.7 | ||||||
Assets held by special purpose entities |
||||||||
Estimated fair value |
54.4 | 54.5 |
Non-Recurring Fair Value Measurements
Long-Lived Assets
The Company recognized asset impairment charges of $17.6 million during the three months ended July 31, 2015 and $15.4 million for the three months ended July 31, 2014. As a result of the Company measuring long-lived assets at fair value on a non-recurring basis, during the three months ended July 31, 2015 these impairment charges included $15.0 million related to Venezuelan property, plants and equipment, net, $1.5 million of IT software assets that were identified as obsolete during the quarter and $0.5 million other-than-temporary impairment of an equity method investment within the Flexible Products & Services segment. During the three months ended July 31, 2014 the impairment charges included $5.0 million of IT software assets that were identified as obsolete during the quarter, impairment of $5.9 million related to an equity method investment within the Rigid Industrial Packaging & Services segment and $4.3 million of impairment charges related to plant closures and restructuring plans. The Company recognized asset impairment charges of $22.3 million and $15.6 million during the nine months ended July 31, 2015 and 2014, respectively. These charges during the nine months ended July 31, 2015 included $15.0 million of impairment charges related to Venezuelan properties, plants and equipment, net, $1.5 million of IT software assets that were identified as obsolete, $0.5 million other-than-temporary impairment of equity method investment within the Flexible Products & Services segment, and $4.2 million of impairment charges related to plant closures within the Rigid Industrial Packaging & Services segment.
The assumptions used in measuring fair value of long-lived assets are considered level 3 inputs, which include bids received from third parties, recent purchase offers, market comparable information and discounted cash flows based on assumptions that market participants would use. The following table presents quantitative information about the significant unobservable inputs used to determine the fair value of the impairment of long-lived assets held and used for the nine months ended July 31, 2015.
Fair Value of Impairment |
Valuation Technique |
Unobservable Input |
Range of Input Values |
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(in millions) | ||||||||||
July 31, 2015 |
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Impairment of Long-lived assets - Land & Building |
$ | 17.7 | Broker Quote/ Indicative Bids |
Indicative Bids | N/A | |||||
Impairment of Long-lived assets - Machinery & Equipment |
$ | 3.0 | Sales Value | Sales Value | N/A |
Assets and Liabilities Held for Sale
The assumptions used in measuring fair value of assets and liabilities held for sale are considered level 3 inputs, which include recent purchase offers, market comparables and/or data obtained from commercial real estate brokers. During the nine month period ended July 31, 2015, the Company recorded no additional impairment related to assets which were previously classified as assets and liabilities held for sale. During the nine month period ended July 31, 2014, the Company recorded no impairment related to assets which were previously classified as assets and liabilities held for sale.
Goodwill and Other Intangible Assets
On an annual basis or whenever events or circumstances indicate impairment may have occurred, the Company performs impairment tests for goodwill and long lived intangible assets as defined under ASC 350, “Intangibles-Goodwill and Other.” The Company concluded that no such impairment existed as of July 31, 2015.
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NOTE 11 — INCOME TAXES
Income tax expense was $18.7 million and $28.2 million for the three months ended July 31, 2015 and 2014, respectively. The effective tax rate was 68.2 percent and 72.3 percent for the three months ended July 31, 2015 and 2014, respectively. The effective tax rate in both periods is higher than normally expected due to significant non-deductible GAAP losses recorded during each period.
The third quarter 2015 effective rate reflects the impact of the following: a shift in global earnings mix to countries with higher tax rates; the impact of the Venezuela hyperinflationary pretax adjustment on net income; and the impact of a $1.3 million discrete tax benefit consisting of a benefit of $2.0 million related to return-to-provision adjustments and statutory rate decreases for international subsidiaries and $0.8 million of tax expense related to a net increase in uncertain tax positions for the international subsidiaries.
The third quarter 2014 effective tax rate reflects the impact of the following: a shift in global earnings mix to countries with higher tax rates; the tax effect of GAAP losses from the sale of a business; the forecasted tax effect of a planned sale of an asset group within the Flexible Products & Services segment classified as assets held for sale; and the impact of a $3.5 million discrete tax expense. The discrete tax expense is a net amount mainly consisting of a $7.0 million expense related to the increase in valuation allowances for international subsidiaries and a benefit of $3.0 million related to the return to provision adjustments for international subsidiaries.
Income tax expense was $45.8 million and $64.2 million for the nine months ended July 31, 2015 and 2014 respectively. The effective rate was 44.3 percent and 44.7 percent for the nine months ended July 31, 2015 and 2014, respectively.
As of July 31, 2015, the Company had not recognized U.S. deferred income taxes on the undistributed earnings of non-U.S. subsidiaries. It is the Company’s belief that as of July 31, 2015 such earnings are indefinitely reinvested outside of the U.S. and determining the unrecognized deferred tax liability related to investments in these non-U.S. subsidiaries that are indefinitely reinvested is not practicable.
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NOTE 12 — POST RETIREMENT BENEFIT PLANS
The components of net periodic pension cost include the following (Dollars in millions):
Three months ended July 31, |
Nine months ended July 31, |
|||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Service cost |
$ | 4.1 | $ | 3.9 | $ | 12.4 | $ | 11.7 | ||||||||
Interest cost |
7.1 | 7.4 | 21.3 | $ | 22.2 | |||||||||||
Expected return on plan assets |
(8.4 | ) | (8.5 | ) | (25.3 | ) | $ | (25.5 | ) | |||||||
Amortization of prior service cost, initial net asset and net actuarial gain |
3.7 | 2.7 | 11.0 | $ | 8.1 | |||||||||||
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Net periodic pension costs |
$ | 6.5 | $ | 5.5 | $ | 19.4 | $ | 16.5 | ||||||||
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The Company made $8.1 million in pension contributions in the nine months ended July 31, 2015. The Company estimates $9.2 million of pension contributions for the twelve months ended October 31, 2015.
The components of net periodic cost for postretirement benefits include the following (Dollars in millions):
Three months ended July 31, |
Nine months ended July 31, |
|||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Service cost |
$ | — | $ | — | $ | — | $ | — | ||||||||
Interest cost |
0.1 | 0.2 | 0.5 | 0.6 | ||||||||||||
Amortization of prior service cost and recognized actuarial gain |
(0.4 | ) | (0.4 | ) | (1.2 | ) | (1.2 | ) | ||||||||
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Net periodic benefit for postretirement benefits |
$ | (0.3 | ) | $ | (0.2 | ) | $ | (0.7 | ) | $ | (0.6 | ) | ||||
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NOTE 13 — CONTINGENT LIABILITIES AND ENVIRONMENTAL RESERVES
Litigation-related Liabilities
The Company may become involved in litigation and regulatory matters incidental to its business, including governmental investigations, enforcement actions, personal injury claims, product liability, employment 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 condensed 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 reviews contingencies at least quarterly to determine whether its accruals are adequate. The amount of ultimate loss may differ from these estimates.
Environmental Reserves
As of July 31, 2015 and October 31, 2014, environmental reserves of $8.6 million and $24.7 million, respectively, were recorded on an undiscounted basis. These reserves are principally based on environmental studies and cost estimates provided by third parties, but also take into account management estimates. The estimated liabilities are reduced to reflect the anticipated participation of other potentially responsible parties in those instances where it is probable that such parties are legally responsible and financially capable of paying their respective shares of relevant costs. For sites that involve formal actions subject to joint and several liabilities, these actions have formal agreements in place to apportion the liability. As of July 31, 2015 and October 31, 2014, environmental reserves of the Company included $0.8 million and $13.7 million, respectively, for a blending facility in Chicago, Illinois; $4.4 million and $6.8 million, respectively, for various European drum facilities acquired from Blagden and Van Leer; $2.1 million and $2.6 million, respectively, for its various container life cycle management and recycling facilities acquired in 2011 and 2010; and $1.3 million and $1.6 million for various other facilities around the world. The $12.9 million decrease in environmental reserve for the blending facility located in Chicago is a result of the divestment during the second quarter of 2015 of the subsidiary that owns this facility.
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.
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NOTE 15 – EQUITY EARNINGS OF UNCONSOLIDATED AFFILIATES, NET OF TAX AND NET (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS
Equity earnings of unconsolidated affiliates, net of tax
Equity earnings of unconsolidated affiliates, net of tax represent the Company’s share of earnings of affiliates in which the Company does not exercise control and has a 20 percent or more voting interest. Investments in such affiliates are accounted for using the equity method of accounting. If the fair value of an investment in an affiliate is below its carrying value and the difference is deemed to be other than temporary, the difference between the fair value and the carrying value is charged to earnings. The Company has an equity interest in two such affiliates as of July 31, 2015. The Company had an equity interest in four such affiliates as of July 31, 2014. Equity earnings of unconsolidated affiliates, net of tax for the three months ended July 31, 2015 and 2014 were $0.6 million and $0.7 million, respectively. There were no dividends received from the Company’s equity method affiliates for the three months ended July 31, 2015 and 2014. Equity earnings of unconsolidated affiliates, net of tax for the nine months ended July 31, 2015 and 2014 were $0.3 million and $0.9 million, respectively. There were no dividends received from the Company’s equity method affiliates for the nine months ended July 31, 2015, compared to $0.2 million for the nine months ended July 31, 2014.
Net (income) loss attributable to noncontrolling interests
Net (income) loss attributable to noncontrolling interests represent the portion of earnings or losses from the operations of the Company’s consolidated subsidiaries attributable to unrelated third party equity owners that were added to net income to arrive at net income attributable to the Company. Net (income) loss attributable to noncontrolling interests for the three months ended July 31, 2015 and 2014 was ($0.7) million and $2.2 million, respectively. Net loss attributable to noncontrolling interests for the nine months ended July 31, 2015 and 2014 was $1.5 million and $2.4 million, respectively.
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NOTE 16 —EQUITY AND COMPREHENSIVE INCOME (LOSS)
The following table summarizes the changes of equity from October 31, 2014 to July 31, 2015 (Dollars in millions, shares in thousands):
Capital Stock | Treasury Stock | |||||||||||||||||||||||||||||||||||
Common Shares |
Amount | Treasury Shares |
Amount | Retained Earnings |
Accumulated Other Comprehensive Income (Loss) |
Greif, Inc. Equity |
Non controlling interests |
Total Equity |
||||||||||||||||||||||||||||
As of October 31, 2014 |
47,724 | $ | 135.5 | 29,118 | $ | (130.7 | ) | $ | 1,411.7 | $ | (274.4 | ) | $ | 1,142.1 | $ | 81.1 | $ | 1,223.2 | ||||||||||||||||||
Net income |
59.5 | 59.5 | (1.5 | ) | 58.0 | |||||||||||||||||||||||||||||||
Other comprehensive loss: |
||||||||||||||||||||||||||||||||||||
- foreign currency translation |
(87.7 | ) | (87.7 | ) | (21.8 | ) | (109.5 | ) | ||||||||||||||||||||||||||||
- Net reclassification of cash flow hedges to earnings, net of immaterial income tax expense |
0.1 | 0.1 | 0.1 | |||||||||||||||||||||||||||||||||
- minimum pension liability adjustment, net of income tax expense of $2.0 million |
5.5 | 5.5 | 5.5 | |||||||||||||||||||||||||||||||||
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Comprehensive loss |
(22.6 | ) | (45.9 | ) | ||||||||||||||||||||||||||||||||
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Acquisition of noncontrolling interests and other |
(0.4 | ) | (0.4 | ) | (10.1 | ) | (10.5 | ) | ||||||||||||||||||||||||||||
Dividends paid to Greif, Inc. shareholders |
(74.0 | ) | (74.0 | ) | (74.0 | ) | ||||||||||||||||||||||||||||||
Dividends paid to noncontrolling interests |
— | (4.0 | ) | (4.0 | ) | |||||||||||||||||||||||||||||||
Stock options exercised |
10 | 0.2 | (10 | ) | — | 0.2 | 0.2 | |||||||||||||||||||||||||||||
Restricted stock executives and directors |
31 | 1.4 | (31 | ) | — | 1.4 | 1.4 | |||||||||||||||||||||||||||||
Long-term incentive shares issued |
49 | 2.0 | (49 | ) | 0.1 | 2.1 | 2.1 | |||||||||||||||||||||||||||||
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As of July 31, 2015 |
47,814 | $ | 139.1 | 29,028 | $ | (130.6 | ) | $ | 1,396.8 | $ | (356.5 | ) | $ | 1,048.8 | $ | 43.7 | $ | 1,092.5 | ||||||||||||||||||
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The following table summarizes the changes of equity from October 31, 2013 to July 31, 2014 (Dollars in millions, shares in thousands):
Capital Stock | Treasury Stock | |||||||||||||||||||||||||||||||||||
Common Shares |
Amount | Treasury Shares |
Amount | Retained Earnings |
Accumulated Other Comprehensive Income (Loss) |
Greif, Inc. Equity |
Non controlling interests |
Total Equity |
||||||||||||||||||||||||||||
As of October 31, 2013 |
47,577 | $ | 129.4 | 29,265 | $ | (131.0 | ) | $ | 1,418.8 | $ | (152.6 | ) | $ | 1,264.6 | $ | 115.3 | $ | 1,379.9 | ||||||||||||||||||
Net income |
82.8 | 82.8 | (2.4 | ) | 80.4 | |||||||||||||||||||||||||||||||
Other comprehensive income: |
||||||||||||||||||||||||||||||||||||
- foreign currency translation |
(36.3 | ) | (36.3 | ) | 0.3 | (36.0 | ) | |||||||||||||||||||||||||||||
- Net reclassification of cash flow hedges to earnings, net of income tax expense of $0.2 million |
0.4 | 0.4 | 0.4 | |||||||||||||||||||||||||||||||||
- minimum pension liability adjustment, net of income tax benefit of $0.2 million |
(0.5 | ) | (0.5 | ) | (0.5 | ) | ||||||||||||||||||||||||||||||
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Comprehensive Income |
46.4 | 44.3 | ||||||||||||||||||||||||||||||||||
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Noncontrolling interests, loan conversion and other |
(1.2 | ) | (1.2 | ) | 15.2 | 14.0 | ||||||||||||||||||||||||||||||
Dividends paid to Greif, Inc. shareholders |
(73.8 | ) | (73.8 | ) | (73.8 | ) | ||||||||||||||||||||||||||||||
Stock options exercised |
68 | 1.6 | (68 | ) | 0.1 | 1.7 | 1.7 | |||||||||||||||||||||||||||||
Restricted stock executives and directors |
22 | 1.1 | (22 | ) | 0.1 | 1.2 | 1.2 | |||||||||||||||||||||||||||||
Long-term incentive shares issued |
56 | 2.9 | (56 | ) | 0.1 | 3.0 | 3.0 | |||||||||||||||||||||||||||||
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|
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|
|
|
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|
|
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|
|
|||||||||||||||||||
As of July 31, 2014 |
47,723 | $ | 135.0 | 29,119 | $ | (130.7 | ) | $ | 1,426.6 | $ | (189.0 | ) | $ | 1,241.9 | $ | 128.4 | $ | 1,370.3 | ||||||||||||||||||
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
The following table provides the rollforward of accumulated other comprehensive income for the nine months ended July 31, 2015 (Dollars in millions):
Foreign Currency Translation |
Cash Flow Hedges |
Minimum Pension Liability Adjustment |
Accumulated Other Comprehensive Income (Loss) |
|||||||||||||
Balance as of October 31, 2014 |
$ | (144.5 | ) | $ | (0.1 | ) | $ | (129.8 | ) | $ | (274.4 | ) | ||||
Other Comprehensive Income (Loss) Before Reclassifications |
(87.7 | ) | — | 5.5 | (82.2 | ) | ||||||||||
Amounts reclassified from Accumulated Other Comprehensive Loss |
— | 0.1 | — | 0.1 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Current-period Other Comprehensive Income (Loss) |
(87.7 | ) | 0.1 | 5.5 | (82.1 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance as of July 31, 2015 |
$ | (232.2 | ) | $ | — | $ | (124.3 | ) | $ | (356.5 | ) | |||||
|
|
|
|
|
|
|
|
The following table provides the rollforward of accumulated other comprehensive income for the nine months ended July 31, 2014 (Dollars in millions):
Foreign Currency Translation |
Cash Flow Hedges |
Minimum Pension Liability Adjustment |
Accumulated Other Comprehensive Income (Loss) |
|||||||||||||
Balance as of October 31, 2013 |
$ | (56.9 | ) | $ | (0.6 | ) | $ | (95.1 | ) | $ | (152.6 | ) | ||||
Other Comprehensive Income (Loss) Before Reclassifications |
(36.3 | ) | (0.1 | ) | (0.5 | ) | (36.9 | ) | ||||||||
Amounts reclassified from Accumulated Other Comprehensive Loss |
— | 0.5 | — | 0.5 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Current-period Other Comprehensive Income (Loss) |
(36.3 | ) | 0.4 | (0.5 | ) | (36.4 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance as of July 31, 2014 |
$ | (93.2 | ) | $ | (0.2 | ) | $ | (95.6 | ) | $ | (189.0 | ) | ||||
|
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|
|
|
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The components of accumulated other comprehensive income above are presented net of tax, as applicable.
The following table provides amounts reclassified out of accumulated other comprehensive income for the nine months ended July 31 (Dollars in millions):
Details about Accumulated Other |
Ammount Reclassified
from Accumulated Other Comprehensive Income (Loss) |
Location on Consolidated Consolidated Statements of Income |
||||||||
2015 | 2014 | |||||||||
Cash Flow Hedges |
$ | 0.1 | $ | 0.5 | Other expense, net |
|
NOTE 17 — BUSINESS SEGMENT INFORMATION
The Company has five operating segments, which are aggregated into four reportable business segments: Rigid Industrial Packaging & Services; Paper Packaging; Flexible Products & Services; and Land Management.
The Company’s reportable business segments offer different products and services. The accounting policies of the reportable business segments are substantially the same as those described in the “Basis of Presentation and Summary of Significant Accounting Policies” note in the 2014 Form 10-K. The measure of segment profitability that is used by the Company is operating profit.
The following segment information is presented for the periods indicated (Dollars in millions):
Three months ended July 31, |
Nine months ended July 31, |
|||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Net sales |
||||||||||||||||
Rigid Industrial Packaging & Services |
$ | 669.0 | $ | 827.7 | $ | 1,985.3 | $ | 2,324.3 | ||||||||
Paper Packaging |
176.7 | 180.6 | 496.3 | 520.2 | ||||||||||||
Flexible Products & Services |
79.2 | 107.3 | 249.3 | 325.8 | ||||||||||||
Land Management |
5.1 | 8.4 | 17.3 | 20.7 | ||||||||||||
|
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|
|
|
|
|
|
|||||||||
Total net sales |
$ | 930.0 | $ | 1,124.0 | $ | 2,748.2 | $ | 3,191.0 | ||||||||
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|
|
|||||||||
Operating profit (loss): |
||||||||||||||||
Rigid Industrial Packaging & Services |
$ | 29.5 | $ | 43.0 | $ | 75.5 | $ | 123.4 | ||||||||
Paper Packaging |
21.5 | 27.9 | 76.7 | 84.4 | ||||||||||||
Flexible Products & Services |
(9.7 | ) | (12.9 | ) | (23.8 | ) | (22.4 | ) | ||||||||
Land Management |
2.9 | 3.3 | 32.3 | 26.4 | ||||||||||||
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|
|
|
|
|
|||||||||
Total operating profit |
$ | 44.2 | $ | 61.3 | $ | 160.7 | $ | 211.8 | ||||||||
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|
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|
|||||||||
Depreciation, depletion and amortization expense: |
||||||||||||||||
Rigid Industrial Packaging & Services |
$ | 21.8 | $ | 26.8 | $ | 70.2 | $ | 81.1 | ||||||||
Paper Packaging |
6.8 | 7.3 | 21.5 | 22.6 | ||||||||||||
Flexible Products & Services |
2.2 | 3.3 | 6.6 | 10.7 | ||||||||||||
Land Management |
0.8 | 1.4 | 2.6 | 3.0 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total depreciation, depletion and amortization expense |
$ | 31.6 | $ | 38.8 | $ | 100.9 | $ | 117.4 | ||||||||
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|
|
|
|
|
The following table presents net sales to external customers by geographic area (Dollars in millions):
Three months ended July 31, | Nine months ended July 31, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Net sales: |
||||||||||||||||
United States |
$ | 431.5 | $ | 502.4 | $ | 1,269.7 | $ | 1,417.3 | ||||||||
Europe, Middle East and Africa |
337.3 | 428.2 | 979.5 | 1,216.7 | ||||||||||||
Asia Pacific and other Americas |
161.2 | 193.4 | 499.0 | 557.0 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total net sales |
$ | 930.0 | $ | 1,124.0 | $ | 2,748.2 | $ | 3,191.0 | ||||||||
|
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|
|
|
|
|
|
The following table presents total assets by segment and total properties, plants, and equipment, net by geographic area (Dollars in millions):
July 31, 2015 | October 31, 2014 | |||||||
Assets: |
||||||||
Rigid Industrial Packaging & Services |
$ | 2,200.5 | $ | 2,416.6 | ||||
Paper Packaging |
442.5 | 418.2 | ||||||
Flexible Products & Services |
211.4 | 251.0 | ||||||
Land Management |
342.3 | 319.0 | ||||||
|
|
|
|
|||||
Total segments |
3,196.7 | 3,404.8 | ||||||
Corporate and other |
218.6 | 262.6 | ||||||
|
|
|
|
|||||
Total assets |
$ | 3,415.3 | $ | 3,667.4 | ||||
|
|
|
|
|||||
Properties, plants and equipment, net: |
||||||||
United States |
$ | 735.7 | $ | 716.5 | ||||
Europe, Middle East and Africa |
339.8 | 387.5 | ||||||
Asia Pacific and other Americas |
157.8 | 189.0 | ||||||
|
|
|
|
|||||
Total properties, plants and equipment, net |
$ | 1,233.3 | $ | 1,293.0 | ||||
|
|
|
|
|
Basis of Presentation
The condensed 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 2015 or 2014, or to any quarter of those years, relates to the fiscal year or quarter, as the case may be, ended in that year. The 2014 amounts have been restated. See Note 20 – Quarterly Financial Data in the Company’s 2014 Form 10-K.
The information furnished herein reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the condensed consolidated balance sheets as of July 31, 2015 and October 31, 2014, the condensed consolidated statements of income and comprehensive income for the three and nine months ended July 31, 2015 and 2014 and the condensed consolidated statements of cash flows for the nine month periods ended July 31, 2015 and 2014 of Greif, Inc. and its subsidiaries (the “Company”). The condensed consolidated financial statements include the accounts of Greif, Inc., all wholly-owned and consolidated 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 and are accounted for using either the equity or cost method, as appropriate.
The unaudited condensed consolidated financial statements included in the Quarterly Report on Form 10-Q (this “Form 10-Q”) should be read in conjunction with the condensed consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for its fiscal year ended October 31, 2014 (the “2014 Form 10-K”).
Venezuela Currency
The Company’s results of its Venezuelan businesses have been reported under highly inflationary accounting since 2010 and the functional currency was converted to US Dollars at that time. Currently, there are multiple legal mechanisms and respective exchange rates available in Venezuela to exchange currency: the CENCOEX rate (official rate or “CENCOEX”); the SICAD rate (“SICAD”) and; as of February of 2015, the SIMADI rate (“SIMADI”). The SIMADI exchange mechanism was created by the Venezuelan government to establish a more market driven exchange rate and is intended to be available to individuals and both public and private companies.
The government also announced in February 2015 that the official rate and SICAD exchange mechanisms would be available only to companies importing essential goods (i.e. medicine, food, and raw materials) although it has not officially published rules or regulations that clarify exactly which activities, industries or transactions will be eligible to use these rates. The purpose of these rates was intended to make necessities affordable to Venezuelan citizens. The exchange mechanisms have not been able to meet the demand from the private sector due to the lack of US Dollars in the country resulting in the continued devaluation of the SIMADI rate.
Greif has historically utilized the official rate which is 6.4 Bolivars/US Dollars to measure Bolivar-denominated monetary assets and liabilities and the respective historical rate to measure Bolivar-denominated nonmonetary assets each reporting period. Due to the continued significant devaluation of the Bolivar and the change in the exchange mechanisms announced earlier this year, the Company has reconsidered which rate best reflects the economics of Grief’s business activities and concluded that the Company should utilize the SIMADI rate to remeasure the Venezuelan operations as of July 31, 2015.
As a result of the change to the SIMADI rate, which reflects the recognition of a devaluation of approximately 97 percent as compared to the official exchange rate previously used, the Company recorded other income of $4.9 million related to the remeasurement of our Venezuelan monetary assets and liabilities during the quarter. In addition, the Company determined that an adjustment of $9.3 million to increase cost of goods sold was needed to reflect the non-monetary inventory assets at net realizable value and, upon review of long-lived assets for impairment, the Company determined that the carrying amount of the long-lived asset was not recoverable in US dollar functional currency and recorded an impairment charge of $15.0 million.
Recently Issued Accounting Standards
In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-03, “Interest—Imputation of Interest (Subtopic 835-30)”. The objective of this update is to simplify the presentation of debt issuance costs in the financial statements. Under the ASU, the Company would present such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset; amortization of the costs is reported as interest expense. The effective date will be the first quarter of fiscal year 2016. The Company would apply the new guidance retrospectively to all prior periods (i.e., the balance sheet for each period would be adjusted). The ASU requires the Company to “disclose in the first fiscal year after the entity’s adoption date, and in the interim periods within the first fiscal year, the following: (1) The nature and reason for the change in accounting principle; (2) The transition method; (3) A description of the prior-period information that has been retrospectively adjusted; and (4) The effect of the change on the financial statement line item (that is, the debt issuance costs asset and the debt liability). The Company is expected to adopt this guidance beginning November 1, 2015, and the adoption of the new guidance is not expected to materially impact the Company’s financial position, results of operations, comprehensive income or cash flows, other than the related disclosures.
In February 2015, the FASB issued ASU 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis,” which makes changes to both the variable interest model and voting interest model and eliminates the indefinite deferral of FASB Statement No. 167, included in ASU 2010-10, for certain investment funds. All reporting entities that hold a variable interest in other legal entities will need to re-evaluate their consolidation conclusions as well as disclosure requirements. This ASU is effective for annual periods beginning after December 15, 2015, and early adoption is permitted, including any interim period. The Company is in the process of determining the potential impact of adopting this guidance on its financial position, results of operations, comprehensive income, cash flow, and disclosures.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”, which supersedes the revenue recognition requirements in Accounting Standards Codification (“ASC”) 605, Revenue Recognition. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The update is effective in fiscal year 2019 using one of two retrospective application methods. The Company is in the process of determining the potential impact of adopting this guidance on its financial position, results of operations, comprehensive income, cash flow and disclosures.
In August 2014, the FASB issued ASU 2014-15 “Presentation of Financial Statements-Going Concern: Disclosure of Uncertainties about an Entity’s Ability to Continue as Going Concern”. The objective of this update is to reduce the diversity in the timing and content of footnote disclosures related to going concern. The amendments require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. This update applies to all entities that would be required to disclose information about their potential inability to continue as a going concern when “substantial doubt” about their ability to continue as a going concern exists. The Company will be required to evaluate “relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued.” The Company will have to document its consideration of the ASU, but not because the Company believes there is substantial doubt about its ability to continue as a going concern. The Company is expected to adopt this guidance beginning November 1, 2017, and the adoption of the new guidance is not expected to impact the Company’s financial position, results of operations, comprehensive income or cash flows, other than the related disclosures.
|
The following table summarizes the Company’s acquisition activity in 2015 and 2014 (Dollars in millions):
# of Acquisitions |
Purchase Price, net of Cash |
Tangible Assets, net |
Intangible Assets |
Goodwill | ||||||||||||||||
Total 2014 Acquisitions |
2 | $ | 53.5 | 2.1 | 14.0 | 34.4 |
|
The table below contains certain information related to the Company’s accounts receivables programs (Dollars in millions):
Three months ended July 31, |
Nine months
ended July 31, |
|||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
European RPA |
||||||||||||||||
Gross accounts receivable sold to third party financial institution |
$ | 165.9 | $ | 266.7 | $ | 552.6 | $ | 784.0 | ||||||||
Cash received for accounts receivable sold under the programs |
147.1 | 235.2 | 489.5 | 692.0 | ||||||||||||
Deferred purchase price related to accounts receivable sold |
18.8 | 31.5 | 63.1 | 92.0 | ||||||||||||
Loss associated with the programs |
0.3 | 0.7 | 1.2 | 2.0 | ||||||||||||
Expenses associated with the programs |
— | — | — | — | ||||||||||||
Other |
||||||||||||||||
Gross accounts receivable sold to third party financial institution |
$ | 12.0 | $ | 13.0 | $ | 36.4 | $ | 44.1 | ||||||||
Cash received for accounts receivable sold under the program |
12.0 | 13.0 | 36.4 | 44.1 | ||||||||||||
Deferred purchase price related to accounts receivable sold |
— | — | — | — | ||||||||||||
Loss associated with the program |
— | — | — | — | ||||||||||||
Expenses associated with the program |
— | — | 0.1 | 0.1 | ||||||||||||
Total RPAs |
||||||||||||||||
Gross accounts receivable sold to third party financial institution |
$ | 177.9 | $ | 279.7 | $ | 589.0 | $ | 828.1 | ||||||||
Cash received for accounts receivable sold under the program |
159.1 | 248.2 | 525.9 | 736.1 | ||||||||||||
Deferred purchase price related to accounts receivable sold |
18.8 | 31.5 | 63.1 | 92.0 | ||||||||||||
Loss associated with the program |
0.3 | 0.7 | 1.2 | 2.0 | ||||||||||||
Expenses associated with the program |
— | — | 0.1 | 0.1 |
The table below contains certain information related to the Company’s accounts receivables programs and the impact it has on the Condensed Consolidated Balance Sheets (Dollars in millions):
July 31, 2015 |
October 31, 2014 |
|||||||
European RPA |
||||||||
Accounts receivable sold to and held by third party financial institution |
$ | 121.6 | $ | 164.7 | ||||
Uncollected deferred purchase price related to accounts receivable sold |
10.9 | — | ||||||
Deferred purchase price liability related to accounts receivable sold |
— | (23.7 | ) | |||||
Other |
||||||||
Accounts receivable sold to and held by third party financial institution |
$ | 4.5 | $ | 5.0 | ||||
Uncollected deferred purchase price related to accounts receivable sold |
— | — | ||||||
Total RPAs |
||||||||
Accounts receivable sold to and held by third party financial institution |
$ | 126.1 | $ | 169.7 | ||||
Uncollected deferred purchase price related to accounts receivable sold |
10.9 | — | ||||||
Deferred purchase price liability related to accounts receivable sold |
— | (23.7 | ) |
|
Inventories are stated at the lower of cost or market and are summarized as follows (Dollars in millions):
July 31, 2015 |
October 31, 2014 |
|||||||
Finished Goods |
$ | 95.3 | $ | 100.9 | ||||
Raw materials |
211.1 | 235.9 | ||||||
Work-in-process |
28.3 | 44.3 | ||||||
|
|
|
|
|||||
$ | 334.7 | $ | 381.1 | |||||
|
|
|
|
|
The following table summarizes the changes in the carrying amount of goodwill by segment for the nine month period ended July 31, 2015 (Dollars in millions):
Rigid Industrial Packaging & Services (1) |
Paper Packaging |
Flexible Products & Services (2) |
Land Management | Total | ||||||||||||||||
Balance at October 31, 2014 |
$ | 820.7 | $ | 59.5 | $ | — | $ | — | $ | 880.2 | ||||||||||
Goodwill acquired |
— | — | — | — | — | |||||||||||||||
Goodwill allocated to divestitures and businesses held for sale |
(12.1 | ) | — | — | — | (12.1 | ) | |||||||||||||
Goodwill adjustments |
— | — | — | — | — | |||||||||||||||
Goodwill Impairment charge |
(0.5 | ) | (0.5 | ) | ||||||||||||||||
Currency translation |
(57.3 | ) | — | — | — | (57.3 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance at July 31, 2015 |
$ | 750.8 | $ | 59.5 | $ | — | $ | — | $ | 810.3 | ||||||||||
|
|
|
|
|
|
|
|
|
|
(1) | At July 31, 2015 and October 31, 2014, the accumulated goodwill impairment loss was $0.5 million and $0.0 million, respectively. |
(2) | At July 31, 2015 and October 31, 2014, the accumulated goodwill impairment loss was $50.3 million. |
The following table summarizes the carrying amount of net other intangible assets by class as of July 31, 2015 and October 31, 2014 (Dollars in millions):
Gross Intangible Assets | Accumulated Amortization |
Net Intangible Assets |
||||||||||
July 31, 2015: |
||||||||||||
Indefinite lived: |
||||||||||||
Trademarks and patents |
$ | 13.1 | $ | — | $ | 13.1 | ||||||
Definite lived: |
||||||||||||
Customer relationships |
182.0 | 78.8 | 103.2 | |||||||||
Trademarks and patents |
24.2 | 11.6 | 12.6 | |||||||||
Non-compete agreements |
12.4 | 4.0 | 8.4 | |||||||||
Other |
4.9 | 4.4 | 0.5 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 236.6 | $ | 98.8 | $ | 137.8 | ||||||
|
|
|
|
|
|
|||||||
October 31, 2014: |
||||||||||||
Indefinite lived: |
||||||||||||
Trademarks and patents |
$ | 13.8 | $ | — | $ | 13.8 | ||||||
Definite lived: |
||||||||||||
Customer relationships |
203.3 | 78.8 | 124.5 | |||||||||
Trademarks and patents |
15.3 | 4.7 | 10.6 | |||||||||
Non-compete agreements |
6.0 | 5.1 | 0.9 | |||||||||
Other |
27.8 | 11.1 | 16.7 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 266.2 | $ | 99.7 | $ | 166.5 | ||||||
|
|
|
|
|
|
|
The following is a reconciliation of the beginning and ending restructuring reserve balances for the nine month period ended July 31, 2015 (Dollars in millions):
Employee Separation Costs |
Other Costs | Total | ||||||||||
Balance at October 31, 2014 |
$ | 2.9 | $ | 1.2 | $ | 4.1 | ||||||
Costs incurred and charged to expense |
18.6 | 8.1 | 26.7 | |||||||||
Costs paid or otherwise settled |
(10.8 | ) | (3.9 | ) | (14.7 | ) | ||||||
|
|
|
|
|
|
|||||||
Balance at July 31, 2015 |
$ | 10.7 | $ | 5.4 | $ | 16.1 | ||||||
|
|
|
|
|
|
The change was due to the formulation of new plans during the period offset by the realization of expenses from plans formulated in prior periods. (Dollars in millions):
Total Amounts Expected to be Incurred |
Amounts expensed during the nine month period ended July 31, 2015 |
Amounts Remaining to be Incurred |
||||||||||
Rigid Industrial Packaging & Services |
||||||||||||
Employee separation costs |
$ | 20.9 | $ | 15.3 | $ | 5.6 | ||||||
Other restructuring costs |
10.6 | 5.1 | 5.5 | |||||||||
|
|
|
|
|
|
|||||||
31.5 | 20.4 | 11.1 | ||||||||||
Flexible Products & Services |
||||||||||||
Employee separation costs |
9.0 | 3.1 | 5.9 | |||||||||
Other restructuring costs |
2.6 | 2.2 | 0.4 | |||||||||
|
|
|
|
|
|
|||||||
11.6 | 5.3 | 6.3 | ||||||||||
Paper Packaging |
||||||||||||
Employee separation costs |
0.2 | 0.2 | — | |||||||||
Other restructuring costs |
0.8 | 0.8 | — | |||||||||
|
|
|
|
|
|
|||||||
1.0 | 1.0 | — | ||||||||||
$ | 44.1 | $ | 26.7 | $ | 17.4 | |||||||
|
|
|
|
|
|
|
The following table presents the Flexible Packaging JV total net assets (Dollars in millions):
July 31, 2015 |
Asset Co. | Global Textile | Trading Co. | Flexible Packaging JV | ||||||||||||
Total assets |
$ | 99.9 | $ | 16.5 | $ | 105.9 | $ | 222.3 | ||||||||
Total liabilities |
92.2 | 17.4 | 56.3 | 165.9 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net assets |
$ | 7.7 | $ | (0.9 | ) | $ | 49.6 | $ | 56.4 | |||||||
|
|
|
|
|
|
|
|
|||||||||
October 31, 2014 |
Asset Co. | Global Textile | Trading Co. | Flexible Packaging JV | ||||||||||||
Total assets |
$ | 113.6 | $ | 21.6 | $ | 126.4 | $ | 261.6 | ||||||||
Total liabilities |
102.7 | 42.8 | 51.8 | 197.3 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net assets |
$ | 10.9 | $ | (21.2 | ) | $ | 74.6 | $ | 64.3 | |||||||
|
|
|
|
|
|
|
|
|
Long-term debt is summarized as follows (Dollars in millions):
July 31, 2015 | October 31, 2014 | |||||||
Amended Credit Agreement |
$ | 248.5 | $ | 169.2 | ||||
Senior Notes due 2017 |
300.8 | 301.2 | ||||||
Senior Notes due 2019 |
245.8 | 245.2 | ||||||
Senior Notes due 2021 |
219.5 | 252.5 | ||||||
Amended Receivables Facility |
145.8 | 110.0 | ||||||
Other debt |
18.6 | 26.9 | ||||||
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1,179.0 | 1,105.0 | |||||||
Less current portion |
(24.1 | ) | (17.6 | ) | ||||
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Long-term debt |
$ | 1,154.9 | $ | 1,087.4 | ||||
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The following table presents the fair value for those assets and (liabilities) measured on a recurring basis as of July 31, 2015 and October 31, 2014 (Dollars in millions):
July 31, 2015 |
Balance sheet |
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Fair Value Measurement | ||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total |
Location |
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Foreign exchange hedges |
— | 0.8 | — | 0.8 | Prepaid expenses and other current assets | |||||||||||||
Foreign exchange hedges |
— | (0.5 | ) | — | (0.5 | ) | Other current liabilities | |||||||||||
Insurance annuity |
— | — | 19.6 | 19.6 | Other long-term assets | |||||||||||||
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Total* |
$ | — | $ | 0.3 | $ | 19.6 | $ | 19.9 | ||||||||||
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October 31, 2014 |
Balance sheet Location |
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Fair Value Measurement | ||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||||
Interest rate derivatives |
$ | — | $ | (0.2 | ) | $ | — | $ | (0.2 | ) | Other long-term liabilities | |||||||
Foreign exchange hedges |
— | 0.6 | — | 0.6 | Prepaid expenses and other current assets | |||||||||||||
Foreign exchange hedges |
— | (0.2 | ) | — | (0.2 | ) | Other current liabilities | |||||||||||
Insurance annuity |
— | — | 22.6 | 22.6 | Other long-term assets | |||||||||||||
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Total* |
$ | — | $ | 0.2 | $ | 22.6 | $ | 22.8 | ||||||||||
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* | The carrying amounts of cash and cash equivalents, trade accounts receivable, accounts payable, current liabilities and short-term borrowings as of July 31, 2015 and October 31, 2014 approximate their fair values because of the short-term nature of these items and are not included in this table. |
The following table presents the estimated fair values of the Company’s Senior Notes and the Assets held by special purpose entities (Dollars in millions):
July 31, 2015 | October 31, 2014 | |||||||
Senior Notes due 2017 |
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Estimated fair value |
$ | 317.3 | $ | 325.5 | ||||
Senior Notes due 2019 |
||||||||
Estimated fair value |
278.1 | 287.5 | ||||||
Senior Notes due 2021 |
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Estimated fair value |
260.7 | 297.7 | ||||||
Assets held by special purpose entities |
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Estimated fair value |
54.4 | 54.5 |
The following table presents quantitative information about the significant unobservable inputs used to determine the fair value of the impairment of long-lived assets held and used for the nine months ended July 31, 2015.
Fair Value of Impairment |
Valuation Technique |
Unobservable Input |
Range of Input Values |
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(in millions) | ||||||||||
July 31, 2015 |
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Impairment of Long-lived assets - Land & Building |
$ | 17.7 | Broker Quote/ Indicative Bids |
Indicative Bids | N/A | |||||
Impairment of Long-lived assets - Machinery & Equipment |
$ | 3.0 | Sales Value | Sales Value | N/A |
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The components of net periodic pension cost include the following (Dollars in millions):
Three months ended July 31, |
Nine months ended July 31, |
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2015 | 2014 | 2015 | 2014 | |||||||||||||
Service cost |
$ | 4.1 | $ | 3.9 | $ | 12.4 | $ | 11.7 | ||||||||
Interest cost |
7.1 | 7.4 | 21.3 | $ | 22.2 | |||||||||||
Expected return on plan assets |
(8.4 | ) | (8.5 | ) | (25.3 | ) | $ | (25.5 | ) | |||||||
Amortization of prior service cost, initial net asset and net actuarial gain |
3.7 | 2.7 | 11.0 | $ | 8.1 | |||||||||||
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Net periodic pension costs |
$ | 6.5 | $ | 5.5 | $ | 19.4 | $ | 16.5 | ||||||||
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The components of net periodic cost for postretirement benefits include the following (Dollars in millions):
Three months ended July 31, |
Nine months ended July 31, |
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2015 | 2014 | 2015 | 2014 | |||||||||||||
Service cost |
$ | — | $ | — | $ | — | $ | — | ||||||||
Interest cost |
0.1 | 0.2 | 0.5 | 0.6 | ||||||||||||
Amortization of prior service cost and recognized actuarial gain |
(0.4 | ) | (0.4 | ) | (1.2 | ) | (1.2 | ) | ||||||||
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Net periodic benefit for postretirement benefits |
$ | (0.3 | ) | $ | (0.2 | ) | $ | (0.7 | ) | $ | (0.6 | ) | ||||
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The following table summarizes the changes of equity from October 31, 2014 to July 31, 2015 (Dollars in millions, shares in thousands):
Capital Stock | Treasury Stock | |||||||||||||||||||||||||||||||||||
Common Shares |
Amount | Treasury Shares |
Amount | Retained Earnings |
Accumulated Other Comprehensive Income (Loss) |
Greif, Inc. Equity |
Non controlling interests |
Total Equity |
||||||||||||||||||||||||||||
As of October 31, 2014 |
47,724 | $ | 135.5 | 29,118 | $ | (130.7 | ) | $ | 1,411.7 | $ | (274.4 | ) | $ | 1,142.1 | $ | 81.1 | $ | 1,223.2 | ||||||||||||||||||
Net income |
59.5 | 59.5 | (1.5 | ) | 58.0 | |||||||||||||||||||||||||||||||
Other comprehensive loss: |
||||||||||||||||||||||||||||||||||||
- foreign currency translation |
(87.7 | ) | (87.7 | ) | (21.8 | ) | (109.5 | ) | ||||||||||||||||||||||||||||
- Net reclassification of cash flow hedges to earnings, net of immaterial income tax expense |
0.1 | 0.1 | 0.1 | |||||||||||||||||||||||||||||||||
- minimum pension liability adjustment, net of income tax expense of $2.0 million |
5.5 | 5.5 | 5.5 | |||||||||||||||||||||||||||||||||
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Comprehensive loss |
(22.6 | ) | (45.9 | ) | ||||||||||||||||||||||||||||||||
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Acquisition of noncontrolling interests and other |
(0.4 | ) | (0.4 | ) | (10.1 | ) | (10.5 | ) | ||||||||||||||||||||||||||||
Dividends paid to Greif, Inc. shareholders |
(74.0 | ) | (74.0 | ) | (74.0 | ) | ||||||||||||||||||||||||||||||
Dividends paid to noncontrolling interests |
— | (4.0 | ) | (4.0 | ) | |||||||||||||||||||||||||||||||
Stock options exercised |
10 | 0.2 | (10 | ) | — | 0.2 | 0.2 | |||||||||||||||||||||||||||||
Restricted stock executives and directors |
31 | 1.4 | (31 | ) | — | 1.4 | 1.4 | |||||||||||||||||||||||||||||
Long-term incentive shares issued |
49 | 2.0 | (49 | ) | 0.1 | 2.1 | 2.1 | |||||||||||||||||||||||||||||
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As of July 31, 2015 |
47,814 | $ | 139.1 | 29,028 | $ | (130.6 | ) | $ | 1,396.8 | $ | (356.5 | ) | $ | 1,048.8 | $ | 43.7 | $ | 1,092.5 | ||||||||||||||||||
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The following table summarizes the changes of equity from October 31, 2013 to July 31, 2014 (Dollars in millions, shares in thousands):
Capital Stock | Treasury Stock | |||||||||||||||||||||||||||||||||||
Common Shares |
Amount | Treasury Shares |
Amount | Retained Earnings |
Accumulated Other Comprehensive Income (Loss) |
Greif, Inc. Equity |
Non controlling interests |
Total Equity |
||||||||||||||||||||||||||||
As of October 31, 2013 |
47,577 | $ | 129.4 | 29,265 | $ | (131.0 | ) | $ | 1,418.8 | $ | (152.6 | ) | $ | 1,264.6 | $ | 115.3 | $ | 1,379.9 | ||||||||||||||||||
Net income |
82.8 | 82.8 | (2.4 | ) | 80.4 | |||||||||||||||||||||||||||||||
Other comprehensive income: |
||||||||||||||||||||||||||||||||||||
- foreign currency translation |
(36.3 | ) | (36.3 | ) | 0.3 | (36.0 | ) | |||||||||||||||||||||||||||||
- Net reclassification of cash flow hedges to earnings, net of income tax expense of $0.2 million |
0.4 | 0.4 | 0.4 | |||||||||||||||||||||||||||||||||
- minimum pension liability adjustment, net of income tax benefit of $0.2 million |
(0.5 | ) | (0.5 | ) | (0.5 | ) | ||||||||||||||||||||||||||||||
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Comprehensive Income |
46.4 | 44.3 | ||||||||||||||||||||||||||||||||||
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Noncontrolling interests, loan conversion and other |
(1.2 | ) | (1.2 | ) | 15.2 | 14.0 | ||||||||||||||||||||||||||||||
Dividends paid to Greif, Inc. shareholders |
(73.8 | ) | (73.8 | ) | (73.8 | ) | ||||||||||||||||||||||||||||||
Stock options exercised |
68 | 1.6 | (68 | ) | 0.1 | 1.7 | 1.7 | |||||||||||||||||||||||||||||
Restricted stock executives and directors |
22 | 1.1 | (22 | ) | 0.1 | 1.2 | 1.2 | |||||||||||||||||||||||||||||
Long-term incentive shares issued |
56 | 2.9 | (56 | ) | 0.1 | 3.0 | 3.0 | |||||||||||||||||||||||||||||
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As of July 31, 2014 |
47,723 | $ | 135.0 | 29,119 | $ | (130.7 | ) | $ | 1,426.6 | $ | (189.0 | ) | $ | 1,241.9 | $ | 128.4 | $ | 1,370.3 | ||||||||||||||||||
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The following table provides the rollforward of accumulated other comprehensive income for the nine months ended July 31, 2015 (Dollars in millions):
Foreign Currency Translation |
Cash Flow Hedges |
Minimum Pension Liability Adjustment |
Accumulated Other Comprehensive Income (Loss) |
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Balance as of October 31, 2014 |
$ | (144.5 | ) | $ | (0.1 | ) | $ | (129.8 | ) | $ | (274.4 | ) | ||||
Other Comprehensive Income (Loss) Before Reclassifications |
(87.7 | ) | — | 5.5 | (82.2 | ) | ||||||||||
Amounts reclassified from Accumulated Other Comprehensive Loss |
— | 0.1 | — | 0.1 | ||||||||||||
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Current-period Other Comprehensive Income (Loss) |
(87.7 | ) | 0.1 | 5.5 | (82.1 | ) | ||||||||||
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Balance as of July 31, 2015 |
$ | (232.2 | ) | $ | — | $ | (124.3 | ) | $ | (356.5 | ) | |||||
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The following table provides the rollforward of accumulated other comprehensive income for the nine months ended July 31, 2014 (Dollars in millions):
Foreign Currency Translation |
Cash Flow Hedges |
Minimum Pension Liability Adjustment |
Accumulated Other Comprehensive Income (Loss) |
|||||||||||||
Balance as of October 31, 2013 |
$ | (56.9 | ) | $ | (0.6 | ) | $ | (95.1 | ) | $ | (152.6 | ) | ||||
Other Comprehensive Income (Loss) Before Reclassifications |
(36.3 | ) | (0.1 | ) | (0.5 | ) | (36.9 | ) | ||||||||
Amounts reclassified from Accumulated Other Comprehensive Loss |
— | 0.5 | — | 0.5 | ||||||||||||
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Current-period Other Comprehensive Income (Loss) |
(36.3 | ) | 0.4 | (0.5 | ) | (36.4 | ) | |||||||||
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Balance as of July 31, 2014 |
$ | (93.2 | ) | $ | (0.2 | ) | $ | (95.6 | ) | $ | (189.0 | ) | ||||
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The following table provides amounts reclassified out of accumulated other comprehensive income for the nine months ended July 31 (Dollars in millions):
Details about Accumulated Other |
Ammount Reclassified
from Accumulated Other Comprehensive Income (Loss) |
Location on Consolidated Consolidated Statements of Income |
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2015 | 2014 | |||||||||
Cash Flow Hedges |
$ | 0.1 | $ | 0.5 | Other expense, net |
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The following segment information is presented for the periods indicated (Dollars in millions):
Three months ended July 31, |
Nine months ended July 31, |
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2015 | 2014 | 2015 | 2014 | |||||||||||||
Net sales |
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Rigid Industrial Packaging & Services |
$ | 669.0 | $ | 827.7 | $ | 1,985.3 | $ | 2,324.3 | ||||||||
Paper Packaging |
176.7 | 180.6 | 496.3 | 520.2 | ||||||||||||
Flexible Products & Services |
79.2 | 107.3 | 249.3 | 325.8 | ||||||||||||
Land Management |
5.1 | 8.4 | 17.3 | 20.7 | ||||||||||||
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Total net sales |
$ | 930.0 | $ | 1,124.0 | $ | 2,748.2 | $ | 3,191.0 | ||||||||
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Operating profit (loss): |
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Rigid Industrial Packaging & Services |
$ | 29.5 | $ | 43.0 | $ | 75.5 | $ | 123.4 | ||||||||
Paper Packaging |
21.5 | 27.9 | 76.7 | 84.4 | ||||||||||||
Flexible Products & Services |
(9.7 | ) | (12.9 | ) | (23.8 | ) | (22.4 | ) | ||||||||
Land Management |
2.9 | 3.3 | 32.3 | 26.4 | ||||||||||||
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Total operating profit |
$ | 44.2 | $ | 61.3 | $ | 160.7 | $ | 211.8 | ||||||||
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Depreciation, depletion and amortization expense: |
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Rigid Industrial Packaging & Services |
$ | 21.8 | $ | 26.8 | $ | 70.2 | $ | 81.1 | ||||||||
Paper Packaging |
6.8 | 7.3 | 21.5 | 22.6 | ||||||||||||
Flexible Products & Services |
2.2 | 3.3 | 6.6 | 10.7 | ||||||||||||
Land Management |
0.8 | 1.4 | 2.6 | 3.0 | ||||||||||||
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Total depreciation, depletion and amortization expense |
$ | 31.6 | $ | 38.8 | $ | 100.9 | $ | 117.4 | ||||||||
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The following table presents net sales to external customers by geographic area (Dollars in millions):
Three months ended July 31, | Nine months ended July 31, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Net sales: |
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United States |
$ | 431.5 | $ | 502.4 | $ | 1,269.7 | $ | 1,417.3 | ||||||||
Europe, Middle East and Africa |
337.3 | 428.2 | 979.5 | 1,216.7 | ||||||||||||
Asia Pacific and other Americas |
161.2 | 193.4 | 499.0 | 557.0 | ||||||||||||
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Total net sales |
$ | 930.0 | $ | 1,124.0 | $ | 2,748.2 | $ | 3,191.0 | ||||||||
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The following table presents total assets by segment and total properties, plants, and equipment, net by geographic area (Dollars in millions):
July 31, 2015 | October 31, 2014 | |||||||
Assets: |
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Rigid Industrial Packaging & Services |
$ | 2,200.5 | $ | 2,416.6 | ||||
Paper Packaging |
442.5 | 418.2 | ||||||
Flexible Products & Services |
211.4 | 251.0 | ||||||
Land Management |
342.3 | 319.0 | ||||||
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Total segments |
3,196.7 | 3,404.8 | ||||||
Corporate and other |
218.6 | 262.6 | ||||||
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Total assets |
$ | 3,415.3 | $ | 3,667.4 | ||||
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Properties, plants and equipment, net: |
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United States |
$ | 735.7 | $ | 716.5 | ||||
Europe, Middle East and Africa |
339.8 | 387.5 | ||||||
Asia Pacific and other Americas |
157.8 | 189.0 | ||||||
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Total properties, plants and equipment, net |
$ | 1,233.3 | $ | 1,293.0 | ||||
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