UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended January 31,April 30, 2004
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 1-566
GREIF, INC.
(Exact name of registrant as specified in its charter)
Delaware | 31-4388903 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
425 Winter Road, Delaware, Ohio | 43015 | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code (740) 549-6000
Not Applicable
Former name, former address and former fiscal year, if changed since last report.
Indicated by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesx No¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yesx No¨
The number of shares outstanding of each of the issuer’s classes of common stock at the close of business on January 31,April 30, 2004 was as follows:
Class A Common Stock | 10,797,605 shares | |
Class B Common Stock | 11,661,189 shares |
PART I. FINANCIAL INFORMATION
ITEM 1. | CONSOLIDATED FINANCIAL STATEMENTS |
GREIF, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
Three months ended January 31, | Three months ended April 30, | Six months ended April 30, | ||||||||||||||||||||||
2004 | 2003 | 2004 | 2003 | 2004 | 2003 | |||||||||||||||||||
Net sales | $ | 468,860 | $ | 434,678 | $ | 542,189 | $ | 470,807 | $ | 1,011,049 | $ | 905,485 | ||||||||||||
Costs of products sold | 399,410 | 358,949 | 452,928 | 388,564 | 852,338 | 747,513 | ||||||||||||||||||
Gross profit | 69,450 | 75,729 | 89,261 | 82,243 | 158,711 | 157,972 | ||||||||||||||||||
Selling, general and administrative expenses | 51,025 | 59,501 | 55,745 | 59,000 | 106,770 | 118,501 | ||||||||||||||||||
Restructuring charges | 15,259 | 1,539 | 12,278 | 17,449 | 27,537 | 18,988 | ||||||||||||||||||
Gain on sale of assets | 4,109 | 411 | 1,122 | 1,934 | 5,231 | 2,345 | ||||||||||||||||||
Operating profit | 7,275 | 15,100 | 22,360 | 7,728 | 29,635 | 22,828 | ||||||||||||||||||
Interest expense, net | 12,247 | 13,554 | 10,716 | 13,923 | 22,963 | 27,477 | ||||||||||||||||||
Other income, net | 222 | 224 | 694 | 2,138 | 916 | 2,362 | ||||||||||||||||||
Income (loss) before income tax expense (benefit) and equity in earnings of affiliates and minority interests | (4,750 | ) | 1,770 | 12,338 | (4,057 | ) | 7,588 | (2,287 | ) | |||||||||||||||
Income tax expense (benefit) | (1,463 | ) | 566 | 3,800 | (1,298 | ) | 2,337 | (732 | ) | |||||||||||||||
Equity in earnings of affiliates and minority interests | (79 | ) | (1,095 | ) | (89 | ) | (1,654 | ) | (168 | ) | (2,749 | ) | ||||||||||||
Income (loss) before cumulative effect of change in accounting principle | (3,366 | ) | 109 | 8,449 | (4,413 | ) | 5,083 | (4,304 | ) | |||||||||||||||
Cumulative effect of change in accounting principle | — | 4,822 | — | — | — | 4,822 | ||||||||||||||||||
Net income (loss) | $ | (3,366 | ) | $ | 4,931 | $ | 8,449 | $ | (4,413 | ) | $ | 5,083 | $ | 518 | ||||||||||
Basic and diluted earnings (loss) per share: | ||||||||||||||||||||||||
Class A Common Stock (before cumulative effect) | $ | (0.12 | ) | $ | 0.01 | $ | 0.30 | $ | (0.16 | ) | $ | 0.18 | $ | (0.15 | ) | |||||||||
Class A Common Stock (after cumulative effect) | $ | (0.12 | ) | $ | 0.18 | $ | 0.30 | $ | (0.16 | ) | $ | 0.18 | $ | 0.02 | ||||||||||
Class B Common Stock (before cumulative effect) | $ | (0.18 | ) | $ | — | $ | 0.45 | $ | (0.24 | ) | $ | 0.27 | $ | (0.23 | ) | |||||||||
Class B Common Stock (after cumulative effect) | $ | (0.18 | ) | $ | 0.26 | $ | 0.45 | $ | (0.24 | ) | $ | 0.27 | $ | 0.02 |
See accompanying Notes to Consolidated Financial Statements
2
GREIF, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS
January 31, 2004 | October 31, 2003 | April 30, 2004 | October 31, 2003 | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
ASSETS | ||||||||||||||||
Current assets | ||||||||||||||||
Cash and cash equivalents | $ | 38,121 | $ | 49,767 | $ | 29,592 | $ | 49,767 | ||||||||
Trade accounts receivable – less allowance of $11,817 in 2004 and $11,225 in 2003 | 270,613 | 294,957 | ||||||||||||||
Trade accounts receivable, less allowance of $12,013 in 2004 and $11,225 in 2003 | 306,462 | 294,957 | ||||||||||||||
Inventories | 170,295 | 167,157 | 160,407 | 167,157 | ||||||||||||
Net assets held for sale | 6,812 | 6,311 | 14,330 | 6,311 | ||||||||||||
Deferred tax assets | 4,802 | 10,875 | 8,898 | 10,875 | ||||||||||||
Prepaid expenses and other | 60,427 | 54,390 | ||||||||||||||
Other current assets | 60,393 | 54,390 | ||||||||||||||
551,070 | 583,457 | 580,082 | 583,457 | |||||||||||||
Long-term assets | ||||||||||||||||
Goodwill – less accumulated amortization | 251,437 | 252,309 | ||||||||||||||
Other intangible assets – less accumulated amortization | 29,808 | 30,654 | ||||||||||||||
Goodwill, net of amortization | 242,707 | 252,309 | ||||||||||||||
Other intangible assets, net of amortization | 28,701 | 30,654 | ||||||||||||||
Investment in affiliates | 5,581 | 4,421 | 5,395 | 4,421 | ||||||||||||
Other long-term assets | 52,009 | 47,995 | 64,262 | 47,995 | ||||||||||||
338,835 | 335,379 | 341,065 | 335,379 | |||||||||||||
Properties, plants and equipment | ||||||||||||||||
Timber properties – less depletion | 87,748 | 86,437 | ||||||||||||||
Timber properties, net of depletion | 88,367 | 86,437 | ||||||||||||||
Land | 101,838 | 100,615 | 103,183 | 100,615 | ||||||||||||
Buildings | 323,380 | 320,229 | 315,275 | 320,229 | ||||||||||||
Machinery and equipment | 830,190 | 831,815 | 822,212 | 831,815 | ||||||||||||
Capital projects in progress | 42,143 | 36,522 | 44,498 | 36,522 | ||||||||||||
1,385,299 | 1,375,618 | 1,373,535 | 1,375,618 | |||||||||||||
Accumulated depreciation | (483,476 | ) | (463,243 | ) | (492,283 | ) | (463,243 | ) | ||||||||
901,823 | 912,375 | 881,252 | 912,375 | |||||||||||||
$ | 1,791,728 | $ | 1,831,211 | $ | 1,802,399 | $ | 1,831,211 | |||||||||
See accompanying Notes to Consolidated Financial Statements
3
GREIF, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
LIABILITIES AND SHAREHOLDERS’ EQUITY
January 31, 2004 | October 31, 2003 | April 30, 2004 | October 31, 2003 | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||
Current liabilities | ||||||||||||||||
Accounts payable | $ | 131,760 | $ | 158,333 | $ | 158,906 | $ | 158,333 | ||||||||
Accrued payrolls and employee benefits | 30,760 | 43,126 | 34,603 | 43,126 | ||||||||||||
Restructuring reserves | 19,384 | 15,972 | 18,911 | 15,972 | ||||||||||||
Short-term borrowings | 19,734 | 15,605 | 20,200 | 15,605 | ||||||||||||
Current portion of long-term debt | 3,000 | 3,000 | — | 3,000 | ||||||||||||
Other current liabilities | 82,698 | 76,282 | 66,708 | 76,282 | ||||||||||||
287,336 | 312,318 | 299,328 | 312,318 | |||||||||||||
Long-term liabilities | ||||||||||||||||
Long-term debt | 637,972 | 643,067 | 624,114 | 643,067 | ||||||||||||
Deferred tax liability | 161,073 | 159,825 | 159,778 | 159,825 | ||||||||||||
Postretirement benefit liability | 49,187 | 48,504 | 48,683 | 48,504 | ||||||||||||
Other long-term liabilities | 86,269 | 93,047 | 85,930 | 93,047 | ||||||||||||
934,501 | 944,443 | 918,505 | 944,443 | |||||||||||||
Minority interest | 1,633 | 1,886 | 1,532 | 1,886 | ||||||||||||
Shareholders’ equity | ||||||||||||||||
Common stock, without par value | 16,595 | 12,207 | 17,975 | 12,207 | ||||||||||||
Treasury stock, at cost | (63,852 | ) | (64,228 | ) | (63,772 | ) | (64,228 | ) | ||||||||
Retained earnings | 673,861 | 681,043 | 678,353 | 681,043 | ||||||||||||
Accumulated other comprehensive loss: | ||||||||||||||||
- foreign currency translation | (17,090 | ) | (15,314 | ) | (10,549 | ) | (15,314 | ) | ||||||||
- interest rate derivatives | (12,553 | ) | (12,938 | ) | (10,270 | ) | (12,938 | ) | ||||||||
- minimum pension liability | (28,703 | ) | (28,206 | ) | (28,703 | ) | (28,206 | ) | ||||||||
568,258 | 572,564 | 583,034 | 572,564 | |||||||||||||
$ | 1,791,728 | $ | 1,831,211 | $ | 1,802,399 | $ | 1,831,211 | |||||||||
See accompanying Notes to Consolidated Financial Statements
4
GREIF, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in thousands)
2004 | 2003 | |||||||||||||||
For the three months ended January 31, | ||||||||||||||||
For the six months ended April 30, | 2004 | 2003 | ||||||||||||||
Cash flows from operating activities: | ||||||||||||||||
Net income (loss) | $ | (3,366 | ) | $ | 4,931 | |||||||||||
Adjustments to reconcile net income to net cash used in operating activities: | ||||||||||||||||
Net income | $ | 5,083 | $ | 518 | ||||||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||
Depreciation, depletion and amortization | 26,710 | 21,240 | 52,807 | 43,527 | ||||||||||||
Asset impairments | 2,177 | — | 2,252 | 1,698 | ||||||||||||
Equity in earnings of affiliates and minority interests, net of dividends received | (1,413 | ) | 2,036 | |||||||||||||
Deferred income taxes | 8,250 | 3,201 | 3,851 | 5,136 | ||||||||||||
Gain on disposals of properties, plants and equipment | (4,109 | ) | (411 | ) | ||||||||||||
Gain on disposals of properties, plants and equipment, net | (5,231 | ) | (2,345 | ) | ||||||||||||
Equity in earnings of affiliates, net of dividends received, and minority interests | (1,328 | ) | 161 | |||||||||||||
Cumulative effect of change in accounting principle | — | (4,822 | ) | — | (4,822 | ) | ||||||||||
Other, net | (7,957 | ) | (11,388 | ) | ||||||||||||
Changes in current assets and liabilities | (22,571 | ) | (18,697 | ) | ||||||||||||
Increase (decrease) in cash from changes in certain assets and liabilities: | ||||||||||||||||
Trade accounts receivable | (8,200 | ) | 1,601 | |||||||||||||
Inventories | 8,153 | (7,459 | ) | |||||||||||||
Other current assets | (5,615 | ) | 12,921 | |||||||||||||
Other long-term assets | (6,674 | ) | (658 | ) | ||||||||||||
Accounts payable | (2,167 | ) | (2,299 | ) | ||||||||||||
Accrued payroll and employee benefits | (8,423 | ) | (9,797 | ) | ||||||||||||
Restructuring reserves | 2,939 | 6,018 | ||||||||||||||
Other current liabilities | (11,502 | ) | (3,932 | ) | ||||||||||||
Postretirement benefit liability | 179 | (1,520 | ) | |||||||||||||
Other long-term liabilities | (4,607 | ) | (9,942 | ) | ||||||||||||
Net cash used in operating activities | (2,279 | ) | (3,910 | ) | ||||||||||||
Net cash provided by operating activities | 21,517 | 28,806 | ||||||||||||||
Cash flows from investing activities: | ||||||||||||||||
Purchases of properties, plants and equipment | (9,771 | ) | (12,454 | ) | (28,096 | ) | (22,988 | ) | ||||||||
Proceeds on disposals of properties, plants and equipment | 4,200 | 1,390 | 5,666 | 4,826 | ||||||||||||
Net cash used in investing activities | (5,571 | ) | (11,064 | ) | (22,430 | ) | (18,162 | ) | ||||||||
Cash flows from financing activities: | ||||||||||||||||
(Payments) proceeds from long-term debt | (8,451 | ) | 11,588 | |||||||||||||
Payments on long-term debt | (21,952 | ) | (8,220 | ) | ||||||||||||
Proceeds from short-term borrowings | 2,854 | 2,913 | 4,252 | 7,877 | ||||||||||||
Dividends paid | (3,816 | ) | (3,831 | ) | (7,774 | ) | (7,770 | ) | ||||||||
Acquisitions of treasury stock | (2 | ) | (1,031 | ) | (29 | ) | (1,031 | ) | ||||||||
Exercise of stock options | 4,679 | — | 6,166 | — | ||||||||||||
Net cash (used in) provided by financing activities | (4,736 | ) | 9,639 | |||||||||||||
Net cash used in financing activities | (19,337 | ) | (9,144 | ) | ||||||||||||
Effects of exchange rates on cash | 940 | (759 | ) | 75 | (6,704 | ) | ||||||||||
Net decrease in cash and cash equivalents | (11,646 | ) | (6,094 | ) | (20,175 | ) | (5,204 | ) | ||||||||
Cash and cash equivalents at beginning of period | 49,767 | 25,396 | 49,767 | 25,396 | ||||||||||||
Cash and cash equivalents at end of period | $ | 38,121 | $ | 19,302 | $ | 29,592 | $ | 20,192 | ||||||||
See accompanying Notes to Consolidated Financial Statements
5
GREIF, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31,APRIL 30, 2004
NOTE 1 — BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The information furnished herein reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the consolidated balance sheets as of January 31,April 30, 2004 and October 31, 2003, and the consolidated statements of operations for the three-month and six-month periods ended April 30, 2004 and 2003 and cash flows for the three-monthsix-month periods ended January 31,April 30, 2004 and 2003 of Greif, Inc. and subsidiaries (the “Company”). These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for its fiscal year ended October 31, 2003 (the “2003 Form 10-K”).
The Company’s fiscal year begins on November 1 and ends on October 31 of the following year. Any references to the year 2004 or 2003, or to any quarter of those years, relates to the fiscal year or quarter, as the case may be, ending in that year.
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States 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.
Certain prior year amounts have been reclassified to conform to the 2004 presentation.
Stock-Based Compensation
At January 31,April 30, 2004, the Company had various stock-based compensation plans as described in Note 10 to the Notes to Consolidated Financial Statements in the 2003 Form 10-K. The Company applies Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations in accounting for its stock option plans. If compensation cost would have been determined based on fair values at the date of grant under Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” pro forma net income (loss) and earnings (loss) per share would have been as follows (Dollars in thousands, except per share amounts):
Three months ended January 31, | Three months ended April 30, | Six months ended April 30, | |||||||||||||||||||
2004 | 2003 | 2004 | 2003 | 2004 | 2003 | ||||||||||||||||
Net income (loss) as reported | $ | (3,366 | ) | $ | 4,931 | $ | 8,449 | $ | (4,413 | ) | $ | 5,083 | $ | 518 | |||||||
Deduct total stock option expense determined under fair value method, net of tax | 612 | 952 | 767 | 1,022 | 1,456 | 1,974 | |||||||||||||||
Pro forma net income (loss) | $ | (3,978 | ) | $ | 3,979 | $ | 7,682 | $ | (5,435 | ) | $ | 3,627 | $ | (1,456 | ) | ||||||
Basic and diluted earnings per share: | |||||||||||||||||||||
Basic and diluted earnings (loss) per share: | |||||||||||||||||||||
Class A Common Stock: | |||||||||||||||||||||
As reported | $ | (0.12 | ) | $ | 0.18 | $ | 0.30 | $ | (0.16 | ) | $ | 0.18 | $ | 0.02 | |||||||
Pro forma | $ | (0.14 | ) | $ | 0.15 | $ | 0.27 | $ | (0.19 | ) | $ | 0.13 | $ | (0.05 | ) | ||||||
Class B Common Stock: | |||||||||||||||||||||
As reported | $ | (0.18 | ) | $ | 0.26 | $ | 0.45 | $ | (0.24 | ) | $ | 0.27 | $ | 0.02 | |||||||
Pro forma | $ | (0.22 | ) | $ | 0.21 | $ | 0.41 | $ | (0.29 | ) | $ | 0.19 | $ | (0.08 | ) |
6
NOTE 2 — RECENT ACCOUNTING STANDARDS
In December 2003, the Financial Accounting Standards Board (“FASB”) issued a revision to SFAS No. 132, “Employers Disclosures about Pensions and Other Postretirement Benefits.” The revision relates to employers’ disclosures about pension plans and other postretirement benefit plans. It does not alter the measurement or recognition provisions of the original SFAS No. 132. It requires additional disclosures regarding assets, obligations, cash flows and net periodic benefit costs of pension plans and other defined benefit postretirement plans. Excluding certain disclosure requirements, the revised Statement is effective for financial statements with fiscal years ended after December 15, 2003. Interim period disclosures are effective for interim periods beginning after December 15, 2003.2003 and have been included in Note 14 to the Notes to Consolidated Financial Statements in this Form 10-Q.
In December 2003, the FASB issued a revision to Interpretation No. 46, “Consolidation of Variable Interest Entities.” This Interpretation defines when a business enterprise must consolidate a variable interest entity. The Interpretation provisions are effective for variable interest entities commonly referred to as special-purpose entities for periods ending after March 15, 2004. The Company does not have any material unconsolidated variable interest entities as of January 31,April 30, 2004 that would require consolidation. Adoption of the subsequent provisions of the Interpretation isdid not expected to have a material impact on the Company’s financial position or results of operations.
7
NOTE 3 — INVENTORIES
Inventories are summarized as follows (Dollars in thousands):
January 31, 2004 | October 31, 2003 | April 30, 2004 | October 31, 2003 | |||||||||||||
Finished goods | $ | 56,010 | $ | 44,894 | $ | 53,626 | $ | 44,894 | ||||||||
Raw materials and work-in-process | 146,004 | 153,482 | 138,132 | 153,482 | ||||||||||||
202,014 | 198,376 | 191,758 | 198,376 | |||||||||||||
Reduction to state inventories on last-in, first-out basis | (31,719 | ) | (31,219 | ) | (31,351 | ) | (31,219 | ) | ||||||||
$ | 170,295 | $ | 167,157 | $ | 160,407 | $ | 167,157 | |||||||||
NOTE 4 — NET ASSETS HELD FOR SALE
Net assets held for sale represent land, buildings and land improvements less accumulated depreciation for locations that have been closed. As of January 31,April 30, 2004, there were nine16 facilities held for sale. The net assets held for sale are being marketed for sale and it is the Company’s intention to complete the sales within the upcoming year.
NOTE 5 — GOODWILL AND OTHER INTANGIBLE ASSETS
The Company periodically reviews goodwill and indefinite-lived intangible assets for impairment as required by SFAS No. 142, “Goodwill and Other Intangible Assets.” The Company has performed the required impairment tests and has concluded that no impairment exists at this time.
Changes to the carrying amount of goodwill for the three-monthsix-month period ended January 31,April 30, 2004 are as follows (Dollars in thousands):
Industrial Packaging & Services | Paper, Packaging & Services | Total | Industrial Packaging & Services | Paper, Packaging & Services | Total | |||||||||||||||||
Balance at October 31, 2003 | $ | 220,619 | $ | 31,690 | $ | 252,309 | $ | 220,619 | $ | 31,690 | $ | 252,309 | ||||||||||
Goodwill acquired | 8 | 663 | 671 | 8 | 1,697 | 1,705 | ||||||||||||||||
Goodwill adjustment | (8,879 | ) | — | (8,879 | ) | |||||||||||||||||
Currency translation | (1,543 | ) | — | (1,543 | ) | (2,428 | ) | — | (2,428 | ) | ||||||||||||
Balance at January 31, 2004 | $ | 219,084 | $ | 32,353 | $ | 251,437 | ||||||||||||||||
Balance at April 30, 2004 | $ | 209,320 | $ | 33,387 | $ | 242,707 | ||||||||||||||||
The goodwill acquired relates to refinements to the allocation of the investment in CorrChoice, Inc. in the Paper, Packaging & Services segment and the fair value of net assets acquired for a small steel drum company in Europe in the Industrial Packaging & Services segment.
The goodwill adjustment was recorded to recognize the cash surrender value of reinsurance contracts that are used to fund pension payments in Europe. The adjustment, which relates to the Van Leer Industrial Packaging acquisition, was recorded in the second quarter of 2004.
8
All other intangible assets for the periods presented, except for $3.4 million, net, related to the Tri-Sure Trademark, are subject to amortization and are being amortized using the straight-line method over periods that range from two to 20 years. The detail of other intangible assets by class as of January 31,April 30, 2004 and October 31, 2003 are as follows (Dollars in thousands):
Gross Intangible Assets | Accumulated Amortization | Net Intangible Assets | Gross Intangible Assets | Accumulated Amortization | Net Intangible Assets | |||||||||||||
January 31, 2004: | ||||||||||||||||||
April 30, 2004: | ||||||||||||||||||
Trademarks and patents | $ | 18,077 | $ | 5,017 | $ | 13,060 | $ | 18,077 | $ | 5,359 | $ | 12,718 | ||||||
Non-compete agreements | 9,525 | 6,385 | 3,140 | 9,525 | 6,911 | 2,614 | ||||||||||||
Customer relationships | 6,582 | 139 | 6,443 | 6,582 | 230 | 6,352 | ||||||||||||
Other | 10,417 | 3,252 | 7,165 | 10,417 | 3,400 | 7,017 | ||||||||||||
Total | $ | 44,601 | $ | 14,793 | $ | 29,808 | $ | 44,601 | $ | 15,900 | $ | 28,701 | ||||||
October 31, 2003: | ||||||||||||||||||
Trademarks and patents | $ | 18,077 | $ | 4,675 | $ | 13,402 | $ | 18,077 | $ | 4,675 | $ | 13,402 | ||||||
Non-compete agreements | 9,525 | 5,985 | 3,540 | 9,525 | 5,985 | 3,540 | ||||||||||||
Customer relationships | 6,582 | 47 | 6,535 | 6,582 | 47 | 6,535 | ||||||||||||
Other | 10,417 | 3,240 | 7,177 | 10,417 | 3,240 | 7,177 | ||||||||||||
Total | $ | 44,601 | $ | 13,947 | $ | 30,654 | $ | 44,601 | $ | 13,947 | $ | 30,654 | ||||||
During the first threesix months of 2004, there were no significant acquisitions of other intangible assets. Amortization expense for the threesix months ended January 31,April 30, 2004 and 2003 was $0.8$2.0 million. Amortization expense for the next five years is expected to be $4.0 million in 2004, $3.6 million in 2005, $2.9 million in 2006, $2.5 million in 2007 and $2.4 million in 2008.
In accordance with the transition provisions of SFAS No. 141, “Business Combinations,” the Company recorded a $4.8 million gain as a cumulative effect of change in accounting principle for its remaining unamortized negative goodwill upon the adoption of SFAS No. 142 in the first quarter of 2003.
NOTE 6 — INVESTMENT IN AFFILIATES
The Company has investments in Socer-Embalagens, Lda. (25.00%(25%) and Balmer Lawrie-Van Leer (40.06%(40%) that are accounted for under the equity method. The Company’s share of earnings for these affiliates is included in income as earned.
The summarized unaudited financial information below represents the combined results of those entities accounted for by the equity method (Dollars in thousands):
Three months ended January 31, | Three months ended April 30, | Six months ended April 30, | ||||||||||||||||
2004 | 2003 | 2004 | 2003 | 2004 | 2003 | |||||||||||||
Net sales | $ | 3,931 | $ | 3,359 | $ | 4,259 | $ | 4,036 | $ | 8,191 | $ | 7,395 | ||||||
Gross profit | $ | 877 | $ | 750 | $ | 928 | $ | 850 | $ | 1,806 | $ | 1,600 | ||||||
Net income | $ | 178 | $ | 100 | $ | 157 | $ | 174 | $ | 296 | $ | 274 |
9
NOTE 7 — RESTRUCTURING CHARGES
During 2003, the Company initiated abegan its transformation initiatives, initially referred to as the performance improvement plan, which isare expected to enhance long-term organic sales growth and productivity and achieve permanent cost reductions. As a result, the Company incurred restructuring charges of $60.7 million in 2003 and incurred $15.3$27.5 million during the first threesix months of 2004. The Company anticipates incurring additional restructuring charges of approximately $30$17.5 million to $35$22.5 million during the remainder of 2004.
As part of the performance improvement plan,transformation initiatives, the Company closed threefour company-owned plants (two(three in the Industrial Packaging & Services segment and one in the Paper, Packaging & Services segment) during the threesix months ended January 31,April 30, 2004. All of the plants are located in North America. In addition, administrative staff reductions have continued throughout the world. As a result of the performance improvement plan,transformation initiatives, during the first threesix months of 2004, the Company recognized pre-tax restructuring charges of $15.3$27.5 million, consisting of $7.0$9.0 million in employee separation costs, $2.2$2.3 million in asset impairments and $6.1$16.2 million in other costs.costs, which were primarily for consulting services in connection with the transformation initiatives. The asset impairment charges, which relate to the write-down to fair value of buildings and equipment, are based on recent buy offers, market comparables and/or data obtained from the Company’s commercial real estate broker. A total of approximately 787922 employees have been terminated in connection with the performance improvement plan, 180transformation initiatives, 315 of which were terminated during the threesix months ended January 31,April 30, 2004. For each of the Company’s business segments, amounts incurred in the firstsecond quarter of 2004, the cumulative amounts incurred asfrom the start of January 31,the transformation initiatives through April 30, 2004 and the total costs incurred in 2003 andamounts expected to be incurred in 2004 in connection with the performance improvement plantransformation initiatives are as follows (Dollars in thousands):
Amounts Incurred in | Cumulative Incurred to | Total Amounts Expected to be Incurred | Amounts Incurred | Cumulative Incurred to | Total Amounts Expected to be Incurred | |||||||||||||
Industrial Packaging & Services: | ||||||||||||||||||
Employee separation costs | $ | 6,381 | $ | 35,173 | $ | 48,767 | $ | 1,511 | $ | 36,684 | $ | 45,084 | ||||||
Asset impairments | 1,161 | 8,097 | 13,664 | 75 | 8,173 | 10,973 | ||||||||||||
Other costs | 4,481 | 16,676 | 26,913 | 7,955 | 24,630 | 31,230 | ||||||||||||
12,023 | 59,946 | 89,344 | 9,541 | 69,487 | 87,287 | |||||||||||||
Paper, Packaging & Services: | ||||||||||||||||||
Employee separation costs | 573 | 6,372 | 6,779 | 567 | 6,939 | 6,939 | ||||||||||||
Asset impairments | 1,016 | 4,262 | 5,319 | — | 4,262 | 4,262 | ||||||||||||
Other costs | 1,580 | 5,004 | 3,841 | 2,098 | 7,102 | 7,102 | ||||||||||||
3,169 | 15,638 | 15,939 | 2,665 | 18,303 | 18,303 | |||||||||||||
Timber: | ||||||||||||||||||
Employee separation costs | 2 | 148 | 148 | — | 147 | 147 | ||||||||||||
Asset impairments | — | 36 | 36 | — | 36 | 36 | ||||||||||||
Other costs | 65 | 233 | 233 | 72 | 307 | 307 | ||||||||||||
67 | 417 | 417 | 72 | 490 | 490 | |||||||||||||
Total | $ | 15,259 | $ | 76,001 | $ | 105,700 | $ | 12,278 | $ | 88,280 | $ | 106,080 | ||||||
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Following is a reconciliation of the beginning and ending restructuring reserve balances for the three-monthsix-month period ended January 31,April 30, 2004 (Dollars in thousands):
Balance at October 31, 2003 | Costs Incurred and Charged to Expense | Costs Paid or Otherwise Settled | Balance at January 31, 2004 | Balance at October 31, 2003 | Costs Incurred and Charged to Expense | Costs Paid or Otherwise Settled | Balance at April 30, 2004 | ||||||||||||||||||
Cash charges: | |||||||||||||||||||||||||
Employee separation costs | $ | 13,289 | $ | 6,956 | $ | (6,227 | ) | $ | 14,018 | $ | 13,289 | $ | 9,033 | $ | 10,619 | $ | 11,703 | ||||||||
Other costs | 2,482 | 6,126 | (3,242 | ) | 5,366 | 2,482 | 16,252 | 11,526 | 7,208 | ||||||||||||||||
15,771 | 13,082 | (9,469 | ) | 19,384 | 15,771 | 25,285 | 22,145 | 18,911 | |||||||||||||||||
Non-cash charges: | |||||||||||||||||||||||||
Asset impairments | — | 2,177 | (2,177 | ) | — | 201 | 2,252 | 2,453 | — | ||||||||||||||||
Total | $ | 15,771 | $ | 15,259 | $ | (11,646 | ) | $ | 19,384 | $ | 15,972 | $ | 27,537 | $ | 24,598 | $ | 18,911 | ||||||||
NOTE 8 — LONG-TERM DEBT
Long-term debt is summarized as follows (Dollars in thousands):
January 31, 2004 | October 31, 2003 | April 30, 2004 | October 31, 2003 | ||||||||||||
$550 million Amended and Restated Senior Secured Credit Agreement | $ | 313,021 | $ | 308,783 | $ | 299,565 | $ | 308,783 | |||||||
8 7/8% Senior Subordinated Notes | 254,673 | 251,380 | |||||||||||||
8 7/8% Senior Subordinated Notes | 251,251 | 251,380 | |||||||||||||
Trade accounts receivable credit facility | 72,438 | 85,406 | 72,972 | 85,406 | |||||||||||
Other long-term debt | 840 | 498 | 326 | 498 | |||||||||||
640,972 | 646,067 | 624,114 | 646,067 | ||||||||||||
Current portion | (3,000 | ) | (3,000 | ) | — | (3,000 | ) | ||||||||
$ | 637,972 | $ | 643,067 | $ | 624,114 | $ | 643,067 | ||||||||
$550 million Amended and Restated Senior Secured Credit Agreement
On August 23, 2002, the Company and certain of its non-United States subsidiaries entered into a $550 million Amended and Restated Senior Secured Credit Agreement with a syndicate of lenders. The Amended and Restated Senior Secured Credit Agreement originally provided for a $300 million term loan and a $250 million revolving multicurrency credit facility. The revolving multicurrency credit facility is available for working capital and general corporate purposes, and has been permanently reduced to $240 million. The term loan periodically reduces through its maturity date of August 23, 2009 and the revolving multicurrency credit facility matures on February 28, 2006.
On February 6,11, 2004, the Company amended its term loan under the Amended and Restated Senior Secured Credit Agreement. As of January 31, 2004, the original $300 million term loan had an outstanding balance of $226 million. As a result of the amendment, the term loan was increased from its balance then outstanding of $226 million to $250 million, and the applicable margin was lowered by 50 basis points while maintaining the existing maturity schedule. The incremental borrowings under the term loan were used to reduce borrowings under the revolving multicurrency credit facility. The term loan periodically reduces through its maturity date of August 23, 2009 and the revolving multicurrency credit facility matures on February 28, 2006.
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8 7/8% 7/8% Senior Subordinated Notes
On July 31, 2002, the Company issued Senior Subordinated Notes in the aggregate principal amount of $250 million, receiving net proceeds of approximately $248 million before expenses. At January 31,April 30, 2004, the outstanding balance of $254.7$251.3 million included gains on fair value hedges the Company has in place to hedge interest rate risk. Interest on the Senior Subordinated Notes is payable semi-annually at the annual rate of 8.875%. The Senior Subordinated Notes do not have required principal payments prior to maturity on August 1, 2012. However, the Senior Subordinated Notes are redeemable at the option of the Company beginning August 1, 2007, at the redemption prices set forth below (expressed as percentages of principal amount), plus accrued interest, if any, to the redemption date:
Year | Redemption Price | ||
2007 | 104.438 | % | |
2008 | 102.958 | % | |
2009 | 101.479 | % | |
2010 and thereafter | 100.000 | % |
In addition, prior to August 1, 2007, the Company may redeem the Senior Subordinated Notes by paying a specified “make-whole” premium.
A description of the guarantors of the Senior Subordinated Notes by the Company’s United States subsidiaries is included in Note 15.16.
Trade Accounts Receivable Credit Facility
On October 31, 2003, the Company entered into a five-year, up to $120 million credit facility with an affiliate of a bank in connection with the securitization of certain of the Company’s U.S. trade accounts receivable. The credit facility is secured by certain of the Company’s U.S. trade accounts receivable and bears interest at a variable rate based on the London InterBank Offered Rate (“LIBOR”) plus a margin or other agreed upon rate (1.40% interest rate as of January 31,April 30, 2004). The Company also pays a commitment fee. The Company can terminate this facility at any time upon 60 days prior written notice. In connection with this transaction, the Company established Greif Receivables Funding LLC, which is included in the Company’s consolidated financial statements. This entity purchases and services the Company’s trade accounts receivable that are subject to this credit facility.
NOTE 9 — FINANCIAL INSTRUMENTS
The Company had interest rate swap agreements with an aggregate notional amount of $355$345 million at January 31,April 30, 2004, with various maturities through 2012. Under certain of these agreements, the Company receives interest quarterly from the counterparties equal to the LIBOR rate and pays interest at a weighted average rate of 5.6% over the life of the contracts. The Company is also party to agreements in which the Company receives interest semi-annually from the counterparty equal to a fixed rate of 8.875% and pays interest based on the LIBOR rate plus a spread. At
12
January 31,April 30, 2004, a net liability for the loss on interest rate swap contracts, which represented their fair values at that time, in the amount of $15.6$12.3 million ($10.88.5 million net of tax) was recorded.
At January 31,April 30, 2004, the Company had outstanding foreign currency forward contracts in the notional amount of $41.0$30.8 million. The fair value of these contracts at January 31,April 30, 2004 resulted in a loss of $0.1 million recorded in the consolidated statement of operations. The purpose of these contracts is to hedge short-term intercompany loan balances with foreign businesses.
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.
The fair values of all derivative financial instruments are estimated based on current settlement prices of comparable contracts obtained from dealer quotes. The values represent the estimated amounts the Company would pay or receive to terminate the agreements at the reporting date.
NOTE 10 — CAPITAL STOCK
Class A Common Stock is entitled to cumulative dividends of 1 cent a share per year after which Class B Common Stock is entitled to non-cumulative dividends up to ½ cent per share per year. Further distribution in any year must be made in proportion of 1 cent a share for Class A Common Stock to 1 ½ cents a share for Class B Common Stock. The Class A Common Stock has no voting rights unless four quarterly cumulative dividends upon the Class A Common Stock are in arrears. The Class B Common Stock has full voting rights. There is no cumulative voting for the election of directors.
The following table summarizes the Company’s Class A and Class B common and treasury shares at the specified dates:
Authorized Shares | Issued Shares | Outstanding Shares | Treasury Shares | Authorized Shares | Issued Shares | Outstanding Shares | Treasury Shares | |||||||||
January 31, 2004: | ||||||||||||||||
April 30, 2004: | ||||||||||||||||
Class A Common Stock | 32,000,000 | 21,140,960 | 10,748,105 | 10,392,855 | 32,000,000 | 21,140,960 | 10,797,605 | 10,343,355 | ||||||||
Class B Common Stock | 17,280,000 | 17,280,000 | 11,661,939 | 5,618,061 | 17,280,000 | 17,280,000 | 11,661,189 | 5,618,811 | ||||||||
October 31, 2003: | ||||||||||||||||
Class A Common Stock | 32,000,000 | 21,140,960 | 10,573,346 | 10,567,614 | 32,000,000 | 21,140,960 | 10,573,346 | 10,567,614 | ||||||||
Class B Common Stock | 17,280,000 | 17,280,000 | 11,662,003 | 5,617,997 | 17,280,000 | 17,280,000 | 11,662,003 | 5,617,997 |
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NOTE 11 — DIVIDENDS PER SHARE
The following dividends per share were paid during the periods indicated:
Three months ended January 31, | Three months ended April 30, | Six months ended April 30, | ||||||||||||||||
2004 | 2003 | 2004 | 2003 | 2004 | 2003 | |||||||||||||
Class A Common Stock | $ | 0.14 | $ | 0.14 | $ | 0.14 | $ | 0.14 | $ | 0.28 | $ | 0.28 | ||||||
Class B Common Stock | $ | 0.20 | $ | 0.20 | $ | 0.21 | $ | 0.21 | $ | 0.41 | $ | 0.41 |
NOTE 12 — CALCULATION OF EARNINGS (LOSS) PER SHARE
The Company has two classes of common stock and, as such, applies the “two-class method” of computing earnings (loss) per share as prescribed in SFAS No. 128, “Earnings Per Share.” In accordance with the Statement, earnings (losses) are allocated first to Class A and Class B Common Stock to the extent that dividends are actually paid and the remainder allocated assuming all of the earnings (losses) for the period have been distributed in the form of dividends.
The following is a reconciliation of the average shares used to calculate basic and diluted earnings (loss) per share:
Three months ended January 31, | Three months ended April 30, | Six months ended April 30, | ||||||||||
2004 | 2003 | 2004 | 2003 | 2004 | 2003 | |||||||
Class A Common Stock: | ||||||||||||
Basic shares | 10,620,133 | 10,562,640 | 10,783,122 | 10,570,846 | 10,701,627 | 10,566,743 | ||||||
Assumed conversion of stock options | 237,716 | — | 238,269 | — | 234,908 | — | ||||||
Diluted shares | 10,857,849 | 10,562,640 | 11,021,391 | 10,570,846 | 10,936,535 | 10,566,743 | ||||||
Class B Common Stock: | ||||||||||||
Basic and diluted shares | 11,661,995 | 11,754,661 | 11,661,789 | 11,724,403 | 11,661,892 | 11,739,532 | ||||||
There were 8,00020,000 stock options that were antidilutive for the three-month periodand six-month periods ended January 31,April 30, 2004 (1,712,458(18,000 and 8,000 for the three-month periodand six-month periods, respectively, ended January 31,April 30, 2003).
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NOTE 13 — COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) is comprised of net income (loss) and other charges and credits to equity that are not the result of transactions with the Company’s owners. The components of comprehensive income, (loss), net of tax, are as follows (Dollars in thousands):
Three months ended January 31, | Three months ended April 30, | Six months ended April 30, | |||||||||||||||||||||
2004 | 2003 | 2004 | 2003 | 2004 | 2003 | ||||||||||||||||||
Net income (loss) | $ | (3,366 | ) | $ | 4,931 | $ | 8,449 | $ | (4,413 | ) | $ | 5,083 | $ | 518 | |||||||||
Other comprehensive income (loss): | |||||||||||||||||||||||
Foreign currency translation adjustment | (1,776 | ) | (2,245 | ) | 6,541 | 7,264 | 4,765 | 5,019 | |||||||||||||||
Change in market value of interest rate derivatives, net of tax | 385 | 140 | 2,283 | (964 | ) | 2,668 | (824 | ) | |||||||||||||||
Minimum pension liability adjustment, net of tax | (497 | ) | — | — | (1,224 | ) | (497 | ) | (1,224 | ) | |||||||||||||
Comprehensive income (loss) | $ | (5,254 | ) | $ | 2,826 | ||||||||||||||||||
Comprehensive income | $ | 17,273 | $ | 663 | $ | 12,019 | $ | 3,489 | |||||||||||||||
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NOTE 14 — RETIREMENT PLANS AND POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
The components of net periodic pension cost include the following (Dollars in thousands):
Three months ended April 30, | Six months ended April 30, | |||||||||||||||
2004 | 2003 | 2004 | 2003 | |||||||||||||
Service cost | $ | 3,070 | $ | 2,783 | $ | 6,140 | $ | 5,567 | ||||||||
Interest cost | 6,110 | 5,620 | 12,221 | 11,240 | ||||||||||||
Expected return on plan assets | (7,069 | ) | (6,580 | ) | (14,138 | ) | (13,161 | ) | ||||||||
Amortization of prior service cost, initial net asset and net actuarial gain | 749 | 228 | 1,498 | 456 | ||||||||||||
$ | 2,860 | $ | 2,051 | $ | 5,721 | $ | 4,102 | |||||||||
The Company made $2.4 million in pension contributions in the first half of 2004. Based on minimum funding requirements, pension contributions for the entire 2004 fiscal year are estimated at $11.2 million.
The components of net periodic cost for postretirement benefits include the following (Dollars in thousands):
Three months ended April 30, | Six months ended April 30, | |||||||||||||||
2004 | 2003 | 2004 | 2003 | |||||||||||||
Service cost | $ | 15 | $ | 34 | $ | 29 | $ | 68 | ||||||||
Interest cost | 833 | 884 | 1,666 | 1,767 | ||||||||||||
Amortization of net prior service cost and recognized actuarial loss | (31 | ) | (12 | ) | (63 | ) | (25 | ) | ||||||||
$ | 817 | $ | 906 | $ | 1,632 | $ | 1,810 | |||||||||
�� |
On December 8, 2003, the “Medicare Prescription Drug Improvement and Modernization Act of 2003” (the “Act”) was signed into law. The Act introduces a prescription drug benefit under Medicare as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least “actuarially equivalent” to Medicare Part D.
15
A proposed FASB Staff Position 106-b (“FSP 106-b”) was issued providing guidance on accounting for the effects of the Act for employers that sponsor postretirement health care plans providing prescription drug benefits. FSP 106-b supersedes FSP FAS 106-1, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug Improvement and Modernization Act of 2003.”
The guidance in FSP 106-b applies only to the sponsor of a single-employer defined benefit postretirement health plan for which the employer has concluded that prescription drug benefits available under the plan are actuarially equivalent and thus qualify for the subsidy under the Act and the expected subsidy will offset or reduce the employer’s share of the costs of postretirement prescription drug coverage provided by the plan. FSP 106-b is effective for the first interim or annual period beginning after June 15, 2004.
The Company has determined that its plan is actuarially equivalent and has compared the Medicare Part D plan to its retiree prescription drug coverage using actuarial equivalencies and reflecting the retiree premiums and cost sharing provisions of the various plans. This analysis shows the Company’s plans provide more valuable benefits to retirees than the Medicare Part D plan. As permitted in FSP FAS 106-1, the Company has elected to defer recognition of the expected subsidy from the Medicare Act. The adjustment will not have a material impact on the Company’s financial position or results of operations.
NOTE 15 — BUSINESS SEGMENT INFORMATION
The Company operates in three business segments: Industrial Packaging & Services; Paper, Packaging & Services; and Timber.
The Company’s reportable segments are strategic business units that offer different products. The accounting policies of the reportable segments are the same as those described in the “Description of Business and Summary of Significant Accounting Policies” note (see Note 1) in the 2003 Form 10-K, except that the Company accounts for inventories on a first-in, first-out basis at the segment level compared to a last-in, first-out basis at the consolidated level for most locations in the United States.
16
The following segment information is presented for the periods indicated (Dollars in thousands):
Three months ended January 31, | Three months ended April 30, | Six months ended April 30, | ||||||||||||||||
2004 | 2003 | 2004 | 2003 | 2004 | 2003 | |||||||||||||
Net sales: | ||||||||||||||||||
Industrial Packaging & Services | $ | 337,391 | $ | 303,148 | $ | 399,689 | $ | 343,387 | $ | 737,080 | $ | 646,535 | ||||||
Paper, Packaging & Services | 125,294 | 124,680 | 138,043 | 120,775 | 263,337 | 245,455 | ||||||||||||
Timber | 6,175 | 6,850 | 4,457 | 6,645 | 10,632 | 13,495 | ||||||||||||
Total net sales | $ | 468,860 | $ | 434,678 | $ | 542,189 | $ | 470,807 | $ | 1,011,049 | $ | 905,485 | ||||||
Operating profit: | ||||||||||||||||||
Operating profit before restructuring charges and timberland gains: | ||||||||||||||||||
Industrial Packaging & Services | $ | 8,851 | $ | 3,515 | $ | 27,760 | $ | 13,942 | $ | 36,611 | $ | 17,457 | ||||||
Paper, Packaging & Services | 5,353 | 7,891 | 2,435 | 4,821 | 7,788 | 12,712 | ||||||||||||
Timber | 4,396 | 4,837 | 3,079 | 4,846 | 7,475 | 9,683 | ||||||||||||
Operating profit before restructuring charges and timberland gains | 18,600 | 16,243 | ||||||||||||||||
Total operating profit before restructuring charges and timberland gains | 33,274 | 23,609 | 51,874 | 39,852 | ||||||||||||||
Restructuring charges: | ||||||||||||||||||
Industrial Packaging & Services | 12,023 | 1,165 | 9,541 | 13,562 | 21,563 | 14,727 | ||||||||||||
Paper, Packaging & Services | 3,169 | 374 | 2,665 | 3,791 | 5,834 | 4,165 | ||||||||||||
Timber | 67 | — | 72 | 96 | 140 | 96 | ||||||||||||
Total restructuring charges | 15,259 | 1,539 | 12,278 | 17,449 | 27,537 | 18,988 | ||||||||||||
Timberland gains: | �� | |||||||||||||||||
Timber | 3,934 | 396 | 1,364 | 1,568 | 5,298 | 1,964 | ||||||||||||
Total | $ | 7,275 | $ | 15,100 | $ | 22,360 | $ | 7,728 | $ | 29,635 | $ | 22,828 | ||||||
Depreciation, depletion and amortization expense: | ||||||||||||||||||
Industrial Packaging & Services | $ | 17,019 | $ | 16,088 | $ | 34,078 | $ | 30,942 | ||||||||||
Paper, Packaging & Services | 8,486 | 8,707 | 17,311 | 17,554 | ||||||||||||||
Timber | 592 | 354 | 1,418 | 754 | ||||||||||||||
Total depreciation, depletion and amortization expense | $ | 26,097 | $ | 25,149 | $ | 52,807 | $ | 49,250 | ||||||||||
April 30, 2004 | October 31, 2003 | |||||
Assets: | ||||||
Industrial Packaging & Services | $ | 1,147,867 | $ | 1,153,939 | ||
Paper, Packaging & Services | 295,739 | 341,305 | ||||
Timber | 128,636 | 123,582 | ||||
Total segment | 1,572,242 | 1,618,826 | ||||
Corporate and other | 230,157 | 212,385 | ||||
Total assets | $ | 1,802,399 | $ | 1,831,211 | ||
1517
Three months ended January 31, | ||||||
2004 | 2003 | |||||
Depreciation, depletion and amortization expense: | ||||||
Industrial Packaging & Services | $ | 17,058 | $ | 14,854 | ||
Paper, Packaging & Services | 8,825 | 8,847 | ||||
Timber | 827 | 400 | ||||
Total depreciation, depletion and amortization expense | $ | 26,710 | $ | 24,101 | ||
January 31, | October 31, 2003 | |||||
Assets: | ||||||
Industrial Packaging & Services | $ | 1,128,756 | $ | 1,153,939 | ||
Paper, Packaging & Services | 308,895 | 341,305 | ||||
Timber | 127,262 | 123,582 | ||||
Total segment | 1,564,913 | 1,618,826 | ||||
Corporate and other | 226,815 | 212,385 | ||||
Total assets | $ | 1,791,728 | $ | 1,831,211 | ||
The following table presents net sales to external customers by geographic area (Dollars in thousands): | ||||||
Three months ended January 31, | ||||||
2004 | 2003 | |||||
Net sales: | ||||||
North America | $ | 268,024 | $ | 275,057 | ||
Europe | 132,946 | 107,321 | ||||
Other | 67,890 | 52,300 | ||||
Total net sales | $ | 468,860 | $ | 434,678 | ||
The following table presents total assets by geographic area (Dollars in thousands): | ||||||
January 31, 2004 | October 31, 2003 | |||||
Assets: | ||||||
North America | $ | 1,201,106 | $ | 1,253,983 | ||
Europe | 402,435 | 389,171 | ||||
Other | 188,187 | 188,057 | ||||
Total assets | $ | 1,791,728 | $ | 1,831,211 | ||
The following table presents net sales to external customers by geographic area (Dollars in thousands):
Three months ended April 30, | Six months ended April 30, | |||||||||||
2004 | 2003 | 2004 | 2003 | |||||||||
Net sales: | ||||||||||||
North America | $ | 305,470 | $ | 283,980 | $ | 573,494 | $ | 559,037 | ||||
Europe | 159,001 | 129,407 | 291,947 | 236,728 | ||||||||
Other | 77,718 | 57,420 | 145,608 | 109,720 | ||||||||
Total net sales | $ | 542,189 | $ | 470,807 | $ | 1,011,049 | $ | 905,485 | ||||
The following table presents total assets by geographic area (Dollars in thousands):
April 30, 2004 | October 31, 2003 | |||||
Assets: | ||||||
North America | $ | 1,194,695 | $ | 1,253,983 | ||
Europe | 414,486 | 389,171 | ||||
Other | 193,218 | 188,057 | ||||
Total assets | $ | 1,802,399 | $ | 1,831,211 | ||
NOTE 16 — SUMMARIZED CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The Senior Subordinated Notes, more fully described in Note 8 – Long-Term Debt, are fully guaranteed, jointly and severally, by the Company’s United States subsidiaries (“Guarantor Subsidiaries”). The Company’s non-United States subsidiaries are not guaranteeing the Senior Subordinated Notes (“Non-Guarantor Subsidiaries”). Presented below are summarized condensed consolidating financial statements of Greif, Inc. (the “Parent”), which includes certain of the Company’s operating units, the Guarantor Subsidiaries, the Non-Guarantor Subsidiaries and the Company on a consolidated basis.
16
These summarized condensed consolidating financial statements are prepared using the equity method. Separate financial statements for the Guarantor Subsidiaries are not presented based on management’s determination that they do not provide additional information that is material to investors.
18
Condensed Consolidating Statement of Operations Three months ended April 30, 2004
| |||||||||||||||||||
Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Net sales | $ | 168,899 | $ | 152,821 | $ | 284,337 | $ | (63,868 | ) | $ | 542,189 | ||||||||
Cost of products sold | 144,371 | 132,585 | 239,840 | (63,868 | ) | 452,928 | |||||||||||||
Gross profit | 24,528 | 20,236 | 44,497 | — | 89,261 | ||||||||||||||
Selling, general and administrative expenses | 23,002 | 5,643 | 27,100 | — | 55,745 | ||||||||||||||
Restructuring charges | 1,841 | 9,583 | 854 | — | 12,278 | ||||||||||||||
Gain on sale of assets | — | 882 | 240 | — | 1,122 | ||||||||||||||
Operating profit (loss) | (315 | ) | 5,892 | 16,783 | — | 22,360 | |||||||||||||
Interest expense, net | 9,346 | 425 | 945 | — | 10,716 | ||||||||||||||
Other income (expense), net(1) | (10,153 | ) | 9,735 | 1,112 | — | 694 | |||||||||||||
Income (loss) before income tax expense (benefit) and equity in earnings of affiliates and minority interests | (19,814 | ) | 15,202 | 16,950 | — | 12,338 | |||||||||||||
Income tax expense (benefit) | (6,102 | ) | 4,682 | 5,220 | — | 3,800 | |||||||||||||
Equity in earnings of affiliates and minority interests | 22,161 | — | (89 | ) | (22,161 | ) | (89 | ) | |||||||||||
Net income (loss) | $ | 8,449 | $ | 10,520 | $ | 11,641 | $ | (22,161 | ) | $ | 8,449 | ||||||||
Condensed Consolidating Statement of Operations
For the threeSix months ended January 31,April 30, 2004
Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Net sales | $ | 153,790 | $ | 131,158 | $ | 239,754 | $ | (55,842 | ) | $ | 468,860 | ||||||||
Cost of products sold | 135,688 | 112,556 | 207,008 | (55,842 | ) | 399,410 | |||||||||||||
Gross profit | 18,102 | 18,602 | 32,746 | — | 69,450 | ||||||||||||||
Selling, general and administrative expenses | 24,959 | 3,800 | 22,266 | — | 51,025 | ||||||||||||||
Restructuring charges | 3,208 | 9,408 | 2,643 | — | 15,259 | ||||||||||||||
Gain on sale of assets | — | 4,019 | 90 | — | 4,109 | ||||||||||||||
Operating profit (loss) | (10,065 | ) | 9,413 | 7,927 | — | 7,275 | |||||||||||||
Interest expense, net | 10,172 | 1,064 | 1,011 | — | 12,247 | ||||||||||||||
Other income (expense), net(1) | (8,889 | ) | 4,879 | 4,232 | — | 222 | |||||||||||||
Income (loss) before income tax expense (benefit) and equity in earnings of affiliates and minority interests | (29,126 | ) | 13,228 | 11,148 | — | (4,750 | ) | ||||||||||||
Income tax expense (benefit) | (8,971 | ) | 4,074 | 3,434 | — | (1,463 | ) | ||||||||||||
Equity in earnings of affiliates and minority interests | 16,789 | — | (79 | ) | (16,789 | ) | (79 | ) | |||||||||||
Net income (loss) | $ | (3,366 | ) | $ | 9,154 | $ | 7,635 | $ | (16,789 | ) | $ | (3,366 | ) | ||||||
Condensed Consolidating Statement of Operations
For the three months ended January 31, 2003
Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||||||||||||||
Net sales | $ | 168,626 | $ | 124,153 | $ | 194,814 | $ | (52,915 | ) | $ | 434,678 | $ | 322,689 | $ | 283,979 | $ | 524,091 | $ | (119,710 | ) | $ | 1,011,049 | |||||||||||||||||
Cost of products sold | 143,635 | 104,295 | 163,934 | (52,915 | ) | 358,949 | 280,059 | 245,141 | 446,848 | (119,710 | ) | 852,338 | |||||||||||||||||||||||||||
Gross profit | 24,991 | 19,858 | 30,880 | — | 75,729 | 42,630 | 38,838 | 77,243 | — | 158,711 | |||||||||||||||||||||||||||||
Selling, general and administrative expenses | 23,089 | 12,434 | 23,978 | — | 59,501 | 47,961 | 9,443 | 49,366 | — | 106,770 | |||||||||||||||||||||||||||||
Restructuring charges | 1,123 | — | 416 | — | 1,539 | 5,049 | 18,991 | 3,497 | — | 27,537 | |||||||||||||||||||||||||||||
Gain (loss) on sale of assets | 12 | 450 | (51 | ) | — | 411 | |||||||||||||||||||||||||||||||||
Gain on sale of assets | — | 4,901 | 330 | — | 5,231 | ||||||||||||||||||||||||||||||||||
Operating profit | 791 | 7,874 | 6,435 | — | 15,100 | ||||||||||||||||||||||||||||||||||
Interest expense (income), net | 12,477 | (348 | ) | 1,425 | — | 13,554 | |||||||||||||||||||||||||||||||||
Operating profit (loss) | (10,380 | ) | 15,305 | 24,710 | — | 29,635 | |||||||||||||||||||||||||||||||||
Interest expense, net | 19,518 | 1,489 | 1,956 | — | 22,963 | ||||||||||||||||||||||||||||||||||
Other income (expense), net(1) | (10,091 | ) | 11,146 | (831 | ) | — | 224 | (19,042 | ) | 14,614 | 5,344 | — | 916 | ||||||||||||||||||||||||||
Income (loss) before income tax expense (benefit) and equity in earnings of affiliates and minority interests | (21,777 | ) | 19,368 | 4,179 | — | 1,770 | (48,940 | ) | 28,430 | 28,098 | — | 7,588 | |||||||||||||||||||||||||||
Income tax expense (benefit) | (7,841 | ) | 6,902 | 1,505 | — | 566 | (15,073 | ) | 8,756 | 8,654 | — | 2,337 | |||||||||||||||||||||||||||
Equity in earnings of affiliates and minority interests | 14,045 | (3,719 | ) | (10 | ) | (11,411 | ) | (1,095 | ) | 38,950 | — | (168 | ) | (38,950 | ) | (168 | ) | ||||||||||||||||||||||
Income (loss) before cumulative effect of change in accounting principle | 109 | 8,747 | 2,664 | (11,411 | ) | 109 | |||||||||||||||||||||||||||||||||
Cumulative effect of change in accounting principle | 4,822 | — | — | — | 4,822 | ||||||||||||||||||||||||||||||||||
Net income (loss) | $ | 4,931 | $ | 8,747 | $ | 2,664 | $ | (11,411 | ) | $ | 4,931 | $ | 5,083 | $ | 19,674 | $ | 19,276 | $ | (38,950 | ) | $ | 5,083 | |||||||||||||||||
(1) | Parent column other expense amount and a related |
1719
Condensed Consolidating Statement of Operations
Three months ended April 30, 2003
Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Net sales | $ | 173,569 | $ | 129,209 | $ | 227,367 | $ | (59,338 | ) | $ | 470,807 | |||||||||
Cost of products sold | 149,645 | 107,893 | 190,364 | (59,338 | ) | 388,564 | ||||||||||||||
Gross profit | 23,924 | 21,316 | 37,003 | — | 82,243 | |||||||||||||||
Selling, general and administrative expenses | 28,138 | 5,231 | 25,631 | — | 59,000 | |||||||||||||||
Restructuring charges | 2,411 | 10,058 | 4,980 | — | 17,449 | |||||||||||||||
Gain on sale of assets | 22 | 1,243 | 669 | — | 1,934 | |||||||||||||||
Operating profit (loss) | (6,603 | ) | 7,270 | 7,061 | — | 7,728 | ||||||||||||||
Interest expense (income), net | 12,312 | (24 | ) | 1,635 | — | 13,923 | ||||||||||||||
Other income (expense), net(1) | (10,254 | ) | 11,481 | 911 | — | 2,138 | ||||||||||||||
Income (loss) before income tax expense (benefit) and equity in earnings of affiliates and minority interests | (29,169 | ) | 18,775 | 6,337 | — | (4,057 | ) | |||||||||||||
Income tax expense (benefit) | (8,462 | ) | 5,304 | 1,860 | — | (1,298 | ) | |||||||||||||
Equity in earnings of affiliates and minority interests | 16,294 | (4,254 | ) | (191 | ) | (13,503 | ) | (1,654 | ) | |||||||||||
Net income (loss) | $ | (4,413 | ) | $ | 9,217 | $ | 4,286 | $ | (13,503 | ) | $ | (4,413 | ) | |||||||
Condensed Consolidating Statement of Operations
Six months ended April 30, 2003
Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Net sales | $ | 342,195 | $ | 253,362 | $ | 422,181 | $ | (112,253 | ) | $ | 905,485 | |||||||||
Cost of products sold | 293,280 | 212,188 | 354,298 | (112,253 | ) | 747,513 | ||||||||||||||
Gross profit | 48,915 | 41,174 | 67,883 | — | 157,972 | |||||||||||||||
Selling, general and administrative expenses | 51,227 | 17,665 | 49,609 | — | 118,501 | |||||||||||||||
Restructuring charges | 3,534 | 10,058 | 5,396 | — | 18,988 | |||||||||||||||
Gain on sale of assets | 34 | 1,693 | 618 | — | 2,345 | |||||||||||||||
Operating profit (loss) | (5,812 | ) | 15,144 | 13,496 | — | 22,828 | ||||||||||||||
Interest expense (income), net | 24,789 | (372 | ) | 3,060 | — | 27,477 | ||||||||||||||
Other income (expense), net(1) | (20,345 | ) | 22,627 | 80 | — | 2,362 | ||||||||||||||
Income (loss) before income tax expense (benefit) and equity in earnings of affiliates and minority interests | (50,946 | ) | 38,143 | 10,516 | — | (2,287 | ) | |||||||||||||
Income tax expense (benefit) | (16,303 | ) | 12,206 | 3,365 | — | (732 | ) | |||||||||||||
Equity in earnings of affiliates and minority interests | 30,339 | (7,973 | ) | (201 | ) | (24,914 | ) | (2,749 | ) | |||||||||||
Income (loss) before cumulative effect of change in accounting principle | (4,304 | ) | 17,964 | 6,950 | (24,914 | ) | (4,304 | ) | ||||||||||||
Cumulative effect of change in accounting principle | 4,822 | — | — | — | 4,822 | |||||||||||||||
Net income (loss) | $ | 518 | $ | 17,964 | $ | 6,950 | $ | (24,914 | ) | $ | 518 | |||||||||
(1) | Parent column other expense amount and a related amount of other income in the Guarantor Subsidiaries column primarily relate to an intercompany royalty arrangement. |
20
Condensed Consolidating Balance Sheet
January 31,April 30, 2004
Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||||||||||
Current assets | ||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | 12,897 | $ | 25,224 | $ | — | $ | 38,121 | $ | — | $ | 4,515 | $ | 25,077 | $ | — | $ | 29,592 | ||||||||||||
Trade accounts receivable | 69,127 | 37,549 | 163,937 | — | 270,613 | 73,458 | 55,755 | 177,249 | — | 306,462 | ||||||||||||||||||||||
Inventories | 17,774 | 48,372 | 104,149 | — | 170,295 | 13,501 | 43,843 | 103,063 | — | 160,407 | ||||||||||||||||||||||
Other current assets | 27,287 | 11,729 | 33,025 | — | 72,041 | 38,059 | 8,599 | 36,963 | — | 83,621 | ||||||||||||||||||||||
114,188 | 110,547 | 326,335 | — | 551,070 | 125,018 | 112,712 | 342,352 | — | 580,082 | |||||||||||||||||||||||
Long-term assets | ||||||||||||||||||||||||||||||||
Goodwill and other intangible assets | 113,536 | 38,794 | 128,915 | — | 281,245 | 113,438 | 39,626 | 118,344 | — | 271,408 | ||||||||||||||||||||||
Other long-term assets | 948,935 | 525,042 | 16,387 | (1,432,774 | ) | 57,590 | 933,003 | 523,125 | 30,725 | (1,417,196 | ) | 69,657 | ||||||||||||||||||||
1,062,471 | 563,836 | 145,302 | (1,432,774 | ) | 338,835 | 1,046,441 | 562,751 | 149,069 | (1,417,196 | ) | 341,065 | |||||||||||||||||||||
Properties, plants and equipment, net | 234,513 | 376,523 | 290,787 | — | 901,823 | 231,723 | 373,459 | 276,070 | — | 881,252 | ||||||||||||||||||||||
$ | 1,411,172 | $ | 1,050,906 | $ | 762,424 | $ | (1,432,774 | ) | $ | 1,791,728 | $ | 1,403,182 | $ | 1,048,922 | $ | 767,491 | $ | (1,417,196 | ) | $ | 1,802,399 | |||||||||||
LIABILITIES & SHAREHOLDERS’ EQUITY | ||||||||||||||||||||||||||||||||
Current liabilities | ||||||||||||||||||||||||||||||||
Accounts payable | $ | 19,756 | $ | 26,532 | $ | 85,472 | $ | — | $ | 131,760 | $ | 18,792 | $ | 29,660 | $ | 110,454 | $ | — | $ | 158,906 | ||||||||||||
Short-term borrowings | — | — | 19,734 | — | 19,734 | — | — | 20,200 | — | 20,200 | ||||||||||||||||||||||
Current portion of long-term debt | 3,000 | — | — | — | 3,000 | |||||||||||||||||||||||||||
Other current liabilities | 16,311 | 30,397 | 86,134 | — | 132,842 | 17,939 | 33,982 | 68,301 | — | 120,222 | ||||||||||||||||||||||
39,067 | 56,929 | 191,340 | — | 287,336 | 36,731 | 63,642 | 198,955 | — | 299,328 | |||||||||||||||||||||||
Long-term liabilities | ||||||||||||||||||||||||||||||||
Long-term debt | 635,450 | — | 2,522 | — | 637,972 | 616,991 | — | 7,123 | — | 624,114 | ||||||||||||||||||||||
Other long-term liabilities | 168,397 | 53,316 | 74,816 | — | 296,529 | 166,426 | 56,738 | 71,227 | — | 294,391 | ||||||||||||||||||||||
803,847 | 53,316 | 77,338 | — | 934,501 | 783,417 | 56,738 | 78,350 | — | 918,505 | |||||||||||||||||||||||
Minority interest | — | — | 1,633 | — | 1,633 | — | — | 1,532 | — | 1,532 | ||||||||||||||||||||||
Shareholders’ equity | 568,258 | 940,661 | 492,113 | (1,432,774 | ) | 568,258 | 583,034 | 928,542 | 488,654 | (1,417,196 | ) | 583,034 | ||||||||||||||||||||
$ | 1,411,172 | $ | 1,050,906 | $ | 762,424 | $ | (1,432,774 | ) | $ | 1,791,728 | $ | 1,403,182 | $ | 1,048,922 | $ | 767,491 | $ | (1,417,196 | ) | $ | 1,802,399 | |||||||||||
Condensed Consolidating Balance Sheet
October 31, 2003
Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||
ASSETS | ||||||||||||||||
Current assets | ||||||||||||||||
Cash and cash equivalents | $ | — | $ | 26,421 | $ | 23,346 | $ | — | $ | 49,767 | ||||||
Trade accounts receivable | 84,282 | 49,517 | 161,158 | — | 294,957 | |||||||||||
Inventories | 16,896 | 46,696 | 103,565 | — | 167,157 | |||||||||||
Other current assets | 30,938 | 8,348 | 32,290 | — | 71,576 | |||||||||||
132,116 | 130,982 | 320,359 | — | 583,457 | ||||||||||||
Long-term assets | ||||||||||||||||
Goodwill and other intangible assets | 113,117 | 38,847 | 130,999 | — | 282,963 | |||||||||||
Other long-term assets | 952,972 | 524,372 | 10,651 | (1,435,579 | ) | 52,416 | ||||||||||
1,066,089 | 563,219 | 141,650 | (1,435,579 | ) | 335,379 | |||||||||||
Properties, plants and equipment, net | 243,007 | 383,205 | 286,163 | — | 912,375 | |||||||||||
$ | 1,441,212 | $ | 1,077,406 | $ | 748,172 | $ | (1,435,579 | ) | $ | 1,831,211 | ||||||
LIABILITIES & SHAREHOLDERS’ EQUITY | ||||||||||||||||
Current liabilities | ||||||||||||||||
Accounts payable | $ | 26,776 | $ | 39,392 | $ | 92,165 | $ | — | $ | 158,333 | ||||||
Short-term borrowings | — | — | 15,605 | — | 15,605 | |||||||||||
Current portion of long-term debt | 3,000 | — | — | — | 3,000 | |||||||||||
Other current liabilities | 20,353 | 22,146 | 92,881 | — | 135,380 | |||||||||||
50,129 | 61,538 | 200,651 | — | 312,318 | ||||||||||||
Long-term liabilities | ||||||||||||||||
Long-term debt | 637,034 | — | 6,033 | — | 643,067 | |||||||||||
Other long-term liabilities | 181,485 | 56,645 | 63,246 | — | 301,376 | |||||||||||
818,519 | 56,645 | 69,279 | — | 944,443 | ||||||||||||
Minority interest | — | — | 1,886 | — | 1,886 | |||||||||||
Shareholders’ equity | 572,564 | 959,223 | 476,356 | (1,435,579 | ) | 572,564 | ||||||||||
$ | 1,441,212 | $ | 1,077,406 | $ | 748,172 | $ | (1,435,579 | ) | $ | 1,831,211 | ||||||
1821
Condensed Consolidating Statement of Cash Flows
For the threesix months ended January 31,April 30, 2004
Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||||||||||||||||||||
Net cash provided by (used in) operating activities | $ | 2,545 | $ | (12,175 | ) | $ | 7,351 | $ | — | $ | (2,279 | ) | $ | 30,450 | $ | (14,719 | ) | $ | 5,786 | $ | — | $ | 21,517 | |||||||||||||||
Cash flows from investing activities: | ||||||||||||||||||||||||||||||||||||||
Purchases of properties, plants and equipment | (1,822 | ) | (5,446 | ) | (2,503 | ) | — | (9,771 | ) | (6,861 | ) | (12,853 | ) | (8,382 | ) | — | (28,096 | ) | ||||||||||||||||||||
Proceeds on disposals of properties, plants and equipment | — | 4,097 | 103 | — | 4,200 | — | 5,666 | — | — | 5,666 | ||||||||||||||||||||||||||||
Net cash used in investing activities | (1,822 | ) | (1,349 | ) | (2,400 | ) | — | (5,571 | ) | (6,861 | ) | (7,187 | ) | (8,382 | ) | — | (22,430 | ) | ||||||||||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||||||||||||||||||||
Payments on long-term debt | (1,584 | ) | — | (6,867 | ) | — | (8,451 | ) | (21,952 | ) | — | — | — | (21,952 | ) | |||||||||||||||||||||||
Proceeds from short-term borrowings | — | — | 2,854 | — | 2,854 | — | — | 4,252 | — | 4,252 | ||||||||||||||||||||||||||||
Dividends paid | (3,816 | ) | — | — | — | (3,816 | ) | |||||||||||||||||||||||||||||||
Other, net | 4,677 | — | — | — | 4,677 | (1,637 | ) | — | — | — | (1,637 | ) | ||||||||||||||||||||||||||
Net cash used in financing activities | (723 | ) | — | (4,013 | ) | — | (4,736 | ) | ||||||||||||||||||||||||||||||
Net cash (used in) provided by financing activities | (23,589 | ) | — | 4,252 | — | (19,337 | ) | |||||||||||||||||||||||||||||||
Effects of exchange rates on cash | — | — | 940 | — | 940 | — | — | 75 | — | 75 | ||||||||||||||||||||||||||||
Net increase (decrease) in cash and cash equivalents | — | (13,524 | ) | 1,878 | — | (11,646 | ) | — | (21,906 | ) | 1,731 | — | (20,175 | ) | ||||||||||||||||||||||||
Cash and cash equivalents at beginning of period | — | 26,421 | 23,346 | — | 49,767 | — | 26,421 | 23,346 | — | 49,767 | ||||||||||||||||||||||||||||
Cash and cash equivalents at end of period | $ | — | $ | 12,897 | $ | 25,224 | $ | — | $ | 38,121 | $ | — | $ | 4,515 | $ | 25,077 | $ | — | $ | 29,592 | ||||||||||||||||||
Condensed Consolidating Statement of Cash Flows
For the threesix months ended January 31,April 30, 2003
Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||||||||||||||||||||
Net cash provided by (used in) operating activities | $ | 3,571 | $ | 2,623 | $ | (10,104 | ) | $ | — | $ | (3,910 | ) | $ | 24,526 | $ | 5,694 | $ | (1,414 | ) | $ | — | $ | 28,806 | |||||||||||||||
Cash flows from investing activities: | ||||||||||||||||||||||||||||||||||||||
Purchases of properties, plants and equipment | (1,697 | ) | (5,351 | ) | (5,406 | ) | — | (12,454 | ) | |||||||||||||||||||||||||||||
Purchase of properties, plants and equipment | (4,146 | ) | (8,383 | ) | (10,459 | ) | — | (22,988 | ) | |||||||||||||||||||||||||||||
Proceeds on disposals of properties, plants and equipment | 880 | 510 | — | — | 1,390 | 2,109 | 2,717 | — | — | 4,826 | ||||||||||||||||||||||||||||
Net cash used in investing activities | (817 | ) | (4,841 | ) | (5,406 | ) | — | (11,064 | ) | (2,037 | ) | (5,666 | ) | (10,459 | ) | — | (18,162 | ) | ||||||||||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||||||||||||||||||||
Proceeds from issuance of long-term debt | 814 | — | 10,774 | — | 11,588 | |||||||||||||||||||||||||||||||||
Payments on (proceeds from) long-term debt | (15,014 | ) | — | 6,794 | — | (8,220 | ) | |||||||||||||||||||||||||||||||
Proceeds from short-term borrowings | — | — | 2,913 | — | 2,913 | — | — | 7,877 | — | 7,877 | ||||||||||||||||||||||||||||
Dividends paid | (3,831 | ) | — | — | — | (3,831 | ) | (7,770 | ) | — | — | — | (7,770 | ) | ||||||||||||||||||||||||
Other, net | (1,031 | ) | — | — | — | (1,031 | ) | (1,031 | ) | — | — | — | (1,031 | ) | ||||||||||||||||||||||||
Net cash provided by (used in) financing activities | (4,048 | ) | — | 13,687 | — | 9,639 | ||||||||||||||||||||||||||||||||
Net cash (used in) provided by financing activities | (23,815 | ) | — | 14,671 | — | (9,144 | ) | |||||||||||||||||||||||||||||||
Effects of exchange rates on cash | — | — | (759 | ) | — | (759 | ) | — | — | (6,704 | ) | — | (6,704 | ) | ||||||||||||||||||||||||
Net decrease in cash and cash equivalents | (1,294 | ) | (2,218 | ) | (2,582 | ) | — | (6,094 | ) | |||||||||||||||||||||||||||||
Net increase (decrease) in cash and cash equivalents | (1,326 | ) | 28 | (3,906 | ) | — | (5,204 | ) | ||||||||||||||||||||||||||||||
Cash and cash equivalents at beginning of period | 1,326 | 2,218 | 21,852 | — | 25,396 | 1,326 | 2,218 | 21,852 | — | 25,396 | ||||||||||||||||||||||||||||
Cash and cash equivalents at end of period | $ | 32 | $ | — | $ | 19,270 | $ | — | $ | 19,302 | $ | — | $ | 2,246 | $ | 17,946 | $ | — | $ | 20,192 | ||||||||||||||||||
1922
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
GENERAL
The terms “Greif,” “our company,” “we,” “us” and “our” as used in this discussion refer to Greif, Inc. and its subsidiaries. Our fiscal year begins on November 1 and ends on October 31 of the following year. Any references in this Form 10-Q to the years 2004 or 2003, or to any quarter of those years, relates to the fiscal year or quarter, as the case may be, ending in that year.
BUSINESS SEGMENTSOVERVIEW
We operate in three business segments: Industrial Packaging & Services; Paper, Packaging & Services; and Timber.
We are a leading global provider of industrial packaging products such as steel, fibre and plastic drums, intermediate bulk containers, closure systems for industrial shipping containers and polycarbonate water bottles. We seek to provide complete packaging solutions to our customers by offering a comprehensive range of products and services on a global basis. We sell our products to customers in industries such as chemicals, paints and pigments, food and beverage, petroleum, industrial coatings, agricultural, pharmaceutical and mineral, among others.
We sell our containerboard, corrugated sheets and other corrugated products and multiwall bags to customers in North America. Our corrugated container products are used to ship such diverse products as home appliances, small machinery, grocery products, building products, automotive components, books and furniture, as well as numerous other applications. Our full line of industrial and consumer multiwall bag products is used to ship a wide range of industrial and consumer products, such as fertilizers, chemicals, concrete, flour, sugar, feed, seed, pet foods, popcorn, charcoal and salt. Our products are primarily sold to the agricultural, automotive, chemical, building products, food and packaging industries.
As of January 31,April 30, 2004, we owned approximately 279,000278,000 acres of timberland in the southeastern United States and approximately 40,000 acres of timberland in Canada. Our timber management in the United States is focused on the active harvesting and regeneration of our timber properties to achieve sustainable long-term yields on our timberland. While timber sales are subject to fluctuations, we seek to maintain a consistent cutting schedule, within the limits of market and weather conditions. Our Canadian timberland areis not actively managed at this time.
CRITICAL ACCOUNTING POLICIES
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of these consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported
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amount of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of our consolidated financial statements.
A summary of our significant accounting policies is included in Note 1 to the Notes to Consolidated Financial Statements in our 2003 Form 10-K. We believe that the consistent application of these policies enables us to provide readers of the consolidated financial statements with useful and reliable information about our operating results and financial condition. The following are the accounting policies that we believe are most important to the portrayal of our financial condition and results of operations and require our most difficult, subjective or complex judgments.
We own timber properties in the southeastern United States and in Canada. With respect to our United States timber properties, which are being actively managed, depletion expense is computed on the basis of cost and the estimated recoverable timber acquired. Our land costs are maintained by tract. Merchantable timber costs are maintained by five product classes, pine sawtimber, pine chip-n-saw, pine pulpwood, hardwood sawtimber and hardwood
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pulpwood, within a “depletion block,” with each depletion block based upon a geographic district or subdistrict. Currently, we have twelve depletion blocks. These same depletion blocks are used for pre-merchantable timber costs. Each year we estimate the volume of our merchantable timber for the five product classes by each depletion block. These estimates are based on the current state in the growth cycle and not on quantities to be available in future years. Our estimates do not include costs to be incurred in the future. We then project these volumes to the end of the year. Upon acquisition of a new timberland tract, we record separate amounts for land, merchantable timber and pre-merchantable timber allocated as a percentage of the values being purchased. These acquisition volumes and costs acquired during the year are added to the totals for each product class within the appropriate depletion block(s). The total of the beginning, one-year growth and acquisition volumes are divided by the total undepleted historical cost to arrive at a depletion rate, which is then used for the current year. As timber is sold, we multiply the volumes sold by the depletion rate for the current year to arrive at the depletion cost.
We believe that the lives and methods of determining depreciation and depletion are reasonable; however, using other lives and methods could provide materially different results.
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Our reserves for environmental liabilities at January 31,April 30, 2004 amounted to $9.4$9.0 million, which included a reserve of $4.9 million related to our facility in Lier, Belgium and $4.5$4.1 million for asserted and unasserted environmental litigation, claims and/or assessments at several manufacturing sites or other locations where we believe the outcome of such matters will be unfavorable to us. The environmental exposures for those sites included in the $4.5$4.1 million reserve were not individually significant. The reserve for the Lier, Belgium site is based on environmental studies that have been conducted at this location. The Lier, Belgium site is being monitored by the Public Flemish Waste Company (“PFWC”), which is the Belgian body for waste control. The PFWC must approve all remediation efforts that are undertaken by us at this site.
We anticipate that expenditures in future periods for remediation costs at identified sites will be over an extended period of time. Given the inherent uncertainties in evaluating environmental exposures, actual costs may vary from those estimated at January 31,April 30, 2004. Our 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 fiscal year, we believe that the chance of such developments occurring in the same quarter or fiscal year is remote. Future information and developments will require us to continually reassess the expected impact of these environmental matters.
Other items that could have a significant impact on the consolidated financial statements include the risks and uncertainties listed in this Form 10-Q under the “Forward-Looking Statements; Certain Factors Affecting Future Results” below. Actual
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results could differ materially using different estimates and assumptions or if conditions are significantly different in the future.
RESULTS OF OPERATIONS
The following comparative information is presented for the three-month and six-month periods ended January 31,April 30, 2004 and 2003. Historically, revenues or earnings may or may not be representative of future operating results due to various economic and other factors.
The non-GAAP financial measure of operating profit before restructuring charges and timberland gains is used throughout the following discussion of our results of operations (except with respect to the segment discussions for Industrial Packaging & Services and Paper, Packaging & Services, where timberland gains are not applicable). Operating profit before restructuring charges and timberland gains is equal to the GAAP operating profit plus restructuring charges less timberland gains. We use operating profit before restructuring charges and timberland gains because we believe that this measure provides a better indication of our operational performance than the corresponding GAAP measure because it excludes restructuring charges, which are not representative of ongoing operations, and timberland gains, which are volatile from period to period, and it provides a more stable platform on which to compare our historical performance.
Second Quarter Results
Overview
Net sales rose 15% to $542.2 million for the second quarter of 2004 from $470.8 million during the same quarter last year. On a consolidated basis, net sales increased approximately 9% after excluding the impact of foreign currency translation. Higher selling prices and volumes in the Industrial Packaging & Services and higher volumes in the Paper, Packaging & Services segments contributed to this increase.
GAAP operating profit was $22.4 million for the second quarter of 2004 compared with GAAP operating profit of $7.7 million for the same period last year.
Operating profit before restructuring charges and timberland gains increased 41% to $33.3 million for the second quarter of 2004 compared with $23.6 million for the same period last year. There were $12.3 million and $17.4 million of restructuring charges and $1.4 million and $1.6 million of timberland gains during the second quarter of 2004 and 2003, respectively.
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The following table sets forth the net sales and operating profit for each of our business segments (Dollars in thousands):
For the three months ended January 31, | 2004 | 2003 | ||||
Net Sales | ||||||
Industrial Packaging & Services | $ | 337,391 | $ | 303,148 | ||
Paper, Packaging & Services | 125,294 | 124,680 | ||||
Timber | 6,175 | 6,850 | ||||
Total net sales | $ | 468,860 | $ | 434,678 | ||
Operating Profit | ||||||
Operating profit, before restructuring charges and timberland gains: | ||||||
Industrial Packaging & Services | $ | 8,851 | $ | 3,515 | ||
Paper, Packaging & Services` | 5,353 | 7,891 | ||||
Timber | 4,396 | 4,837 | ||||
Total operating profit before restructuring charges and timberland gains | 18,600 | 16,243 | ||||
Restructuring charges: | ||||||
Industrial Packaging & Services | 12,023 | 1,165 | ||||
Paper, Packaging & Services | 3,169 | 374 | ||||
Timber | 67 | — | ||||
Total restructuring charges | 15,259 | 1,539 | ||||
Timberland gains: | ||||||
Timber | 3,934 | 396 | ||||
Total operating profit | $ | 7,275 | $ | 15,100 | ||
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Overview
Net sales rose 8% to $468.9 million for the first quarter of 2004 from $434.7 million during the same quarter last year. On a consolidated basis, net sales increased approximately 1% after excluding the impact of foreign currency translation.
The GAAP operating profit was $7.3 million for the first quarter of 2004 compared with $15.1 million a year ago. Our operating profit for the first quarter of 2004 was negatively impacted by a higher level of restructuring charges and positively impacted by a higher level of timberland gains versus the first quarter of 2003.
Operating profit, before restructuring charges of $15.3 million and timberland gains of $3.9 million, increased 15% to $18.6 million for the first quarter of 2004 compared with operating profit, before restructuring charges of $1.5 million and timberland gains of $0.4 million, of $16.2 million for the same period last year.
For the three months ended April 30, | 2004 | 2003 | ||||
Net sales: | ||||||
Industrial Packaging & Services | $ | 399,689 | $ | 343,387 | ||
Paper, Packaging & Services | 138,043 | 120,775 | ||||
Timber | 4,457 | 6,645 | ||||
Total net sales | $ | 542,189 | $ | 470,807 | ||
Operating profit: | ||||||
Operating profit, before restructuring charges and timberland gains: | ||||||
Industrial Packaging & Services | $ | 27,760 | $ | 13,942 | ||
Paper, Packaging & Services | 2,435 | 4,821 | ||||
Timber | 3,079 | 4,846 | ||||
Total operating profit before restructuring charges and timberland gains | 33,274 | 23,609 | ||||
Restructuring charges: | ||||||
Industrial Packaging & Services | 9,541 | 13,562 | ||||
Paper, Packaging & Services | 2,665 | 3,791 | ||||
Timber | 72 | 96 | ||||
Total restructuring charges | 12,278 | 17,449 | ||||
Timberland gains: | ||||||
Timber | 1,364 | 1,568 | ||||
Total operating profit | $ | 22,360 | $ | 7,728 | ||
Segment Review
Industrial Packaging & Services
Net sales rose 11%16% to $337.4$399.7 million for the firstsecond quarter of 2004 from $303.1$343.4 million for the same period last year. AfterNet sales increased 8% after excluding the impact of foreign currency translation,translation. Selling prices rose in response to higher raw material costs, especially steel, and contributed to the increase in net sales for this segment increased 1% on a quarter-over-quarter basis.the second quarter of 2004. Additionally, sales volumes were higher for steel and plastic drums.
The GAAP operating lossprofit was $3.2$18.2 million for the firstsecond quarter of 2004 compared with a GAAP operating profit of $2.4$0.4 million for the firstsecond quarter of 2003. This segment’s first quarter of 2004 results were negatively impacted by a higher level of restructuring charges versus the same period last year.
Operating profit before restructuring charges of $12.0 million, rose to $8.9$27.8 million for the firstsecond quarter of 2004 from operating profit, before restructuring charges of $1.2 million, of $3.5$13.9 million a year ago. Cost reduction initiatives continue to be implemented to reduceRestructuring charges were $9.5 million for the second quarter of 2004 compared with $13.6 million a year ago. The Industrial Packaging & Services segment’s gross profit margin benefited from labor and other manufacturing efficiencies, partially offset by higher raw material costs, and improve operating efficiencies. Lower selling,as a percentage of net sales. Selling, general and administrative (“SG&A”) expenses for Industrial Packaging & Servicesthis segment reflect a portion of the savings resulting from thesethe transformation initiatives. These benefits were partially offset by higher raw material costs and lower absorption of fixed costs, which reduced this segment’s gross profit margins.
Paper, Packaging & Services
Net sales rose nominally14% to $125.3$138.0 million for the firstsecond quarter of 2004 from $124.7$120.8 million for the same period last year. Improved volumes for most of this segment’s
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products were partially offset by lower average salesselling prices in the containerboard operations of this segment.operations.
The GAAP operating profitloss was $2.2$0.2 million for the firstsecond quarter of 2004 compared with $7.5GAAP operating profit of $1.0 million for the firstsecond quarter of 2003. This segment’s first quarter of 2004 results were negatively impacted by a higher level of restructuring charges versus the same period last year.
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Operating profit before restructuring charges of $3.2 million, was $5.4$2.4 million for the firstsecond quarter of 2004 compared with $4.8 million the prior year. Restructuring charges were $2.7 million for the second quarter of 2004 versus $3.8 million a year ago. The decrease in operating profit before restructuring charges of $0.4 million, of $7.9 million a year ago. This decrease was primarily due to a decline in gross profit margin resulting from reduced pricing levels and higher raw material costs, particularly for old corrugated containers, in the containerboard operations. The decline in gross profit was partially offset by lowerIn absolute dollars and as a percentage of net sales, labor and energy costs were higher on a quarter-over-quarter comparison. Lower SG&A expenses in the firstsecond quarter of 2004 compared with the same quarter last year.year partially offset this reduction.
Timber
Timber net sales were $6.2$4.5 million for the firstsecond quarter of 2004 compared with $6.9$6.6 million for the same period last year. These net sales were consistent with budgetedplanned levels for both periods.
The GAAP operating profit was $8.3$4.4 million for the firstsecond quarter of 2004 compared with $5.2$6.3 million for the firstsecond quarter of 2003. This segment’s first quarter of 2004 results were positively impacted by a higher level of timberland gains versus the same period last year.
As a result of the lower sales volume, operating profit before restructuring charges of $0.1 million and timberland gains of $3.9 million, was $4.4$3.1 million for the firstsecond quarter of 2004 compared to operating profit, before timberland gains of $0.4 million, of $4.8 million a year ago. Restructuring charges were $0.1 million for the second quarter of 2004 and 2003. Timberland gains were $1.4 million for the second quarter of 2004 and $1.6 million for the same period last year.
Other Income Statement Changes
Cost of Products Sold
The cost of products sold, as a percentage of net sales, increased to 85.2%83.5% for the firstsecond quarter of 2004 from 82.6%82.5% for the firstsecond quarter of 2003. The cost of products sold, as a percentage of net sales, primarily increased as a result of higher costs for raw materials and lower absorption of fixed costs inprincipal factors impacting the Industrial Packaging & Services segment; lower selling prices and1.0 point increase were higher raw material costs, in the containerboard operations of the Paper, Packaging & Services segment;particularly steel and old corrugated containers, lower planned timber sales and higher energy costs. Reductions in the Timber segment, which have a relatively lower cost associated with them.labor and other manufacturing costs partially offset these impacts.
Selling, General and Administrative Expenses
SG&A expenses declined to $51.0$55.7 million, or 10.9%10.3% of net sales, for the firstsecond quarter of 2004 from $59.5$59.0 million, or 13.7%12.5% of net sales, for the same period a year ago. The decline in SG&A expenses was primarily attributable to solid progress regardingrealization of additional savings from our performance improvement plan.transformation initiatives. The dollar reduction in SG&A expenses was partially offset by the negative impact of foreign currency translation (approximately $2$3 million).
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Restructuring Charges
As previously announced, our performance improvement plan is expected to enhance long-term organic sales growth and productivity and achieve permanent cost
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reductions. Our focus during 2003 had been primarily SG&A optimization, which is expected to result in annual cost savings of $60 million realized in 2004. The focus during 2004 is to become an even leaner, more market-focused/performance-driven company. This next and final phasepart of the transformation is expectedinitiatives, initially referred to deliver additional annualized benefits of approximately $50 million, with about $15 million of those savings to be realized in 2004. The opportunities identified include, but are not limited to, improved labor productivity, material yield and other manufacturing efficiencies, coupled with further network consolidation. The related one-time costs for this phase will be approximately $45 million to $50 million, all of which will be incurred in 2004. In addition, we are launching a strategic sourcing initiative to more effectively leverage our global spending and lay the foundation for a world class sourcing and supply chain capability.
As part ofas the performance improvement plan, we closed threeone company-owned plants (twoplant in the Industrial Packaging & Services segment and one in the Paper, Packaging & Services segment) during the firstsecond quarter of 2004. These plants areThe plant is located in North America. In addition, administrative staff reductions have been made throughout the world. As a result of the performance improvement plan,transformation initiatives, during the firstsecond quarter of 2004, we recognized restructuring charges of $15.3$12.3 million, consisting of $7.0$2.1 million in employee separation costs, $2.2$0.1 million in asset impairments and $6.1$10.1 million in other costs.costs, which were primarily for consulting services in connection with the transformation initiatives. See Note 7 to the Notes to Consolidated Financial Statements in this Form 10-Q for additional disclosures regarding our restructuring activities.
For further information, see the “Transformation Initiatives” section below.
Gain on Sale of Assets
Gain on sale of assets increaseddecreased to $4.1$1.1 million in the firstsecond quarter of 2004 as compared to $0.4$1.9 million in the firstsecond quarter of 2003, resultingincluding $0.2 million less from the sale of certain timber properties.
Interest Expense, Net
Interest expense, net declined to $12.2$10.7 million for the firstsecond quarter of 2004 from $13.6$13.9 million for the same period last year. This reduction was primarily due to lower average interest rates on our debt. A $25 million reduction in average debt outstanding during the second quarter of 2004 compared to the second quarter of 2003 also contributed to this decrease.
Other Income, Net
Other income, net was $0.2$0.7 million in the firstsecond quarter of both 2004 andversus $2.1 million in the second quarter of 2003.
Income Tax Expense (Benefit)
The effective tax rate was 30.8% and 32.0% in the firstsecond quarter of 2004 and 2003, respectively.respectively, resulting in an income tax expense of $3.8 million for the second quarter of 2004 and an income tax benefit of $1.3 million for the second quarter of 2003. The lower effective tax rate resulted from a change in the mix of income outside the United States.
Equity in Earnings of Affiliates and Minority Interests
Equity in earnings of affiliates and minority interests was a charge of $0.1 million for the firstsecond quarter of 2004 as compared to a charge of $1.1$1.7 million in the same period
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of 2003. During the firstsecond quarter of 2003, we deducted 37% of CorrChoice’s net income related to its minority shareholders. Effective September 30, 2003, our ownership increased to 100% resulting from CorrChoice’s redemption of its minority
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shareholders’ outstanding shares. Therefore, no such deduction was made in the second quarter of 2004.
Net Income (Loss)
Based on the foregoing, we recorded net income of $8.4 million for the second quarter of 2004 compared to net loss of $4.4 million in the same period last year.
Year-to-Date Results
Overview
Net sales rose 12% to $1,011.0 million for the first half of 2004 from $905.5 million during the same period last year. On a consolidated basis, net sales increased approximately 5% after excluding the impact of foreign currency translation. Higher sales in both the Industrial Packaging & Services and Paper, Packaging & Services segments contributed to this increase.
The GAAP operating profit was $29.6 million for the first half of 2004 compared with $22.8 million a year ago. Our operating profit for the first half of 2004 was negatively impacted by a higher level of restructuring charges and positively impacted by a higher level of timberland gains versus the first half of 2003.
Operating profit, before restructuring charges of $27.5 million and timberland gains of $5.3 million, increased 30% to $51.9 million for the first half of 2004 compared with operating profit, before restructuring charges of $19.0 million and timberland gains of $2.0 million, of $39.9 million for the same period last year.
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The following table sets forth the net sales and operating profit for each of our business segments (Dollars in thousands):
For the six months ended April 30, | 2004 | 2003 | ||||
Net sales: | ||||||
Industrial Packaging & Services | $ | 737,080 | $ | 646,535 | ||
Paper, Packaging & Services | 263,337 | 245,455 | ||||
Timber | 10,632 | 13,495 | ||||
Total net sales | $ | 1,011,049 | $ | 905,485 | ||
Operating profit: | ||||||
Operating profit, before restructuring charges and timberland gains: | ||||||
Industrial Packaging & Services | $ | 36,611 | $ | 17,457 | ||
Paper, Packaging & Services | 7,788 | 12,712 | ||||
Timber | 7,475 | 9,683 | ||||
Total operating profit before restructuring charges and timberland gains | 51,874 | 39,852 | ||||
Restructuring charges: | ||||||
Industrial Packaging & Services | 21,563 | 14,727 | ||||
Paper, Packaging & Services | 5,834 | 4,165 | ||||
Timber | 140 | 96 | ||||
Total restructuring charges | 27,537 | 18,988 | ||||
Timberland gains: | ||||||
Timber | 5,298 | 1,964 | ||||
Total operating profit | $ | 29,635 | $ | 22,828 | ||
Segment Review
Industrial Packaging & Services
Net sales rose 14% to $737.1 million for the first half of 2004 from $646.5 million for the same period last year. After excluding the impact of foreign currency translation, net sales for this segment increased 5%. Increased selling prices for this segment’s products in response to higher raw material costs, especially steel, contributed to the increase in net sales. Additionally, sales volumes were higher for steel and fibre drums.
The GAAP operating profit was $15.0 million for the first half of 2004 compared with $2.7 million for the first half of 2003. This segment’s first half of 2004 results were negatively impacted by a higher level of restructuring charges versus the same period last year.
Operating profit, before restructuring charges of $21.6 million, rose to $36.6 million for the first half of 2004 from operating profit, before restructuring charges of $14.7 million, of $17.5 million a year ago. The Industrial Packaging & Services segment’s gross profit margin benefited from labor and other manufacturing efficiencies, partially offset by higher raw material costs, as a percentage of net sales. SG&A expenses for this segment reflect a portion of the savings resulting from the transformation initiatives.
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Paper, Packaging & Services
Net sales rose 7% to $263.3 million for the first half of 2004 from $245.5 million for the same period last year. Improved volumes for most of this segment’s products were partially offset by lower average sales prices in the containerboard operations.
The GAAP operating profit was $2.0 million for the first half of 2004 compared with $8.5 million for the first half of 2003.
Operating profit, before restructuring charges of $5.8 million, was $7.8 million for the first half of 2004 compared with operating profit, before restructuring charges of $4.2 million, of $12.7 million a year ago. This decrease was primarily due to a decline in gross profit margin resulting from reduced pricing levels and higher raw material costs, particularly for old corrugated containers, and energy costs in the containerboard operations. Lower SG&A expenses in the first half of 2004 compared with the same period last year partially offset this reduction.
Timber
Timber sales were $10.6 million for the first half of 2004 compared with $13.5 million for the same period last year. These sales were consistent with budgeted levels for both periods.
The GAAP operating profit was $12.6 million for the first half of 2004 compared with $11.6 million for the first half of 2003. This segment’s first half of 2004 results were positively impacted by a higher level of timberland gains versus the same period last year.
As a result of the lower sales volume, operating profit, before restructuring charges of $0.1 million and timberland gains of $5.3 million, was $7.5 million for the first half of 2004, compared to operating profit, before restructuring charges of $0.1 million and timberland gains of $2.0 million, of $9.7 million a year ago.
Other Income Statement Changes
Cost of Products Sold
The cost of products sold, as a percentage of net sales, increased to 84.3% for the first half of 2004 from 82.6% for the first half of 2003. The principal factors impacting the 1.7 point increase were higher raw material costs, particularly steel and old corrugated containers, lower planned timber sales and higher energy costs. Improved efficiencies in labor and other manufacturing costs partially offset these impacts.
Selling, General and Administrative Expenses
SG&A expenses declined to $106.8 million, or 10.6% of net sales, for the first half of 2004 from $118.5 million, or 13.1% of net sales, for the same period a year ago. The decline in SG&A expenses was primarily attributable to realization of additional savings from our transformation initiatives. The dollar reduction in SG&A expenses was partially offset by the impact of foreign currency translation (approximately $6 million).
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Restructuring Charges
As part of the transformation initiatives, initially referred to as the performance improvement plan, we closed four company-owned plants (three in the Industrial Packaging & Services segment and one in the Paper, Packaging & Services segment) during the first half of 2004. These plants are located in North America. In addition, administrative staff reductions continue to be made throughout the world. As a result of the transformation initiatives, during the first half of 2004, we recognized restructuring charges of $27.5 million, consisting of $9.0 million in employee separation costs, $2.3 million in asset impairments and $16.2 million in other costs, which were primarily for consulting services in connection with the transformation initiatives. See Note 7 to the Notes to Consolidated Financial Statements in this Form 10-Q for additional disclosures regarding our restructuring activities.
For further information, see the “Transformation Initiatives” section below.
Gain on Sale of Assets
Gain on sale of assets increased to $5.2 million in the first half of 2004 as compared to $2.3 million in the first half of 2003, including $3.3 million more from the sale of timber properties.
Interest Expense, Net
Interest expense, net declined to $23.0 million for the first half of 2004 from $27.5 million for the same period last year. This reduction was primarily due to lower average interest rates on our debt. An $8 million reduction in average debt outstanding during the first half of 2004 compared to the first half of 2003 also contributed to this decrease.
Other Income, Net
Other income, net was $0.9 million in the first half of 2004 versus $2.4 million in the first half of 2003.
Income Tax Expense (Benefit)
The effective tax rate was 30.8% and 32.0% in the first half of 2004 and 2003, respectively, resulting in an income tax expense of $2.3 million for the first half of 2004 and an income tax benefit of $0.7 million for the first half of 2003. The lower effective tax rate resulted from a change in the mix of income outside the United States.
Equity in Earnings of Affiliates and Minority Interests
Equity in earnings of affiliates and minority interests was a charge of $0.2 million for the first half of 2004 as compared to a charge of $2.7 million in the same period of 2003. During the first half of 2003, we deducted 37% of CorrChoice’s net income
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related to its minority shareholders. Effective September 30, 2003, our ownership increased to 100% resulting from CorrChoice’s redemption of its minority shareholders’ outstanding shares. Therefore, no such deduction was made in the first quarterhalf of 2004.
Cumulative Effect of Change in Accounting Principle
During the first quarter of 2003, we recorded a $4.8 million gain as a cumulative effect of change in accounting principle resulting from the adjustment of our unamortized negative goodwill in accordance with the transition provisions of SFAS No. 141, “Business Combinations,” upon the adoption of SFAS No. 142.
Net Income (Loss)
Based on the foregoing, we recorded a net lossincome of $3.4$5.1 million for the first quarterhalf of 2004 compared to net income of $4.9$0.5 million in the same period last year.
Transformation Initiatives (Performance Improvement Plan)
As previously announced, our transformation initiatives are expected to enhance long-term organic sales growth and productivity and achieve permanent cost reductions. Our focus during fiscal 2003 had been primarily SG&A optimization, which is expected to result in annual cost savings of $60 million realized in fiscal 2004. The focus during fiscal 2004 is to become an even leaner, more market-focused/performance-driven company. This next and final phase of the transformation is expected to deliver additional annualized benefits of approximately $50 million, with about $15 million of those savings to be realized in fiscal 2004 and the remainder in fiscal 2005. The opportunities identified include, but are not limited to, improved labor productivity, material yield and other manufacturing efficiencies, coupled with further network consolidation. The related one-time costs for this phase will be approximately $45 million to $50 million, which will be incurred in fiscal 2004. In addition, we launched a strategic sourcing initiative to more effectively leverage our global spending and lay the foundation for a world-class sourcing and supply chain capability.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity are operating cash flows, the proceeds from our Senior Subordinated Notes and trade accounts receivable credit facility, and borrowings under our Amended and Restated Senior Secured Credit Agreement, discussed below. We have used these sources to fund our working capital needs, capital expenditures, cash dividends, common stock repurchases and acquisitions. We anticipate continuing to fund these items in a like manner. We currently expect that operating cash flows, the proceeds from our Senior Subordinated Notes and trade accounts receivable credit facility, and borrowings under our Amended and Restated Senior Secured Credit Agreement will be sufficient to fund our working capital, capital expenditures, debt repayment and other liquidity needs for the foreseeable future.
Capital Expenditures
During the first three monthshalf of 2004, we invested $9.8$28.1 million in capital expenditures, which included $2.7$4.6 million for the purchase of timber properties.
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We expect capital expenditures to be approximately $75 million to $80 million in 2004, which would be $20 million to $25 million below our anticipated depreciation expense.
Balance Sheet Changes
The reductionincrease in trade accounts receivable was primarily due to lower nethigher sales in the firstsecond quarter of 2004 as compared towith the fourth quarter of 2003.
The decrease in accounts payable was mostlyNet assets held for sale has increased due to lower costour transformation initiatives. We now have 16 properties classified as held for sale versus eight properties at October 31, 2003.
Goodwill has decreased as a result of products soldan adjustment to recognize the cash surrender value of reinsurance contracts that are used to fund pension payments in Europe. The adjustment, which relates to the Van Leer Industrial Packaging acquisition, was recorded in the firstsecond quarter of 2004 compared to the fourth quarter of 2003 and the timing of payments made to our suppliers.2004.
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Accrued payroll and employee benefits were lower primarily due to the timing of the annual bonus payments, which were fully accrued at October 31, 2003.
Long-term debt has decreased due to payments made during the first half of 2004. We expect to continue repaying debt throughout the second half of 2004 from cash generated by our operating activities.
Borrowing Arrangements
$550 Millionmillion Amended and Restated Senior Secured Credit Agreement
On August 23, 2002, we and certain of our non-United States subsidiaries entered into a $550 million Amended and Restated Senior Secured Credit Agreement with a syndicate of lenders. The Amended and Restated Senior Secured Credit Agreement originally provided for a $300 million term loan and a $250 million revolving multicurrency credit facility. The revolving multicurrency credit facility is available for working capital and general corporate purposes, and has been permanently reduced to $240 million. On February 11, 2004, we amended our term loan under the Amended and Restated Senior Secured Credit Agreement. As a result of the amendment, the term loan was increased from its balance then outstanding of $226 million to $250 million, and the applicable margin was lowered by 50 basis points while maintaining the existing maturity schedule. The incremental borrowings under the term loan were used to reduce borrowings under the revolving multicurrency credit facility. Interest is based on either a London InterBank Offered Rate (“LIBOR”) or an alternative base rate that resets periodically plus a calculated margin amount. As of January 31,April 30, 2004, there was a total of $313$300 million outstanding under the Amended and Restated Senior Secured Credit Agreement.
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The Amended and Restated Senior Secured Credit Agreement contains certain covenants, which include financial covenants that require us to maintain a certain leverage ratio, a minimum coverage of interest expense and fixed charges, and a minimum net worth. At January 31,April 30, 2004, we were in compliance with these covenants. The terms of the Amended and Restated Senior Secured Credit Agreement also limit our ability to make “restricted payments,” which include dividends and purchases, redemptions and acquisitions of equity interests. The repayment of this facility is secured by a first lien on substantially all of the personal property and certain of the real property of Greif and its United States subsidiaries and, in part, by the capital stock of the non-United States borrowers and any intercompany notes payable to them.
On February 6, 2004, we amended our term loan under the Amended and Restated Senior Secured Credit Agreement. As of January 31, 2004, the original $300 million term loan had an outstanding balance of $226 million. As a result of the amendment, the term loan was increased to $250 million and the applicable margin was lowered by 50 basis points while maintaining the existing maturity schedule. The incremental borrowings under the term loan were used to reduce borrowings under the revolving multicurrency credit facility.
8 7/8% 7/8% Senior Subordinated Notes
On July 31, 2002, we issued Senior Subordinated Notes in the aggregate principal amount of $250 million, receiving net proceeds of approximately $248 million before expenses. Interest on the Senior Subordinated Notes is payable semi-annually at the annual rate of 8.875%. The Senior Subordinated Notes do not have required principal payments prior to maturity on August 1, 2012. As of January 31,April 30, 2004, there was a total of $255$251.3 million outstanding under the Senior Subordinated Notes. The increase in the balance as compared to the proceeds originally received was primarily due to the recording of gains on fair value hedges we have in place to hedge interest rate risk.
The Indenture pursuant to which the Senior Subordinated Notes were issued contains certain covenants. At January 31,April 30, 2004, we were in compliance with these covenants. The terms of the Senior Subordinated Notes also limit our ability to make “restricted payments,” which include dividends and purchases, redemptions and acquisitions of equity interests.
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Trade Accounts Receivable Credit Facility
On October 31, 2003, we entered into a five-year, up to $120 million credit facility with an affiliate of a bank in connection with the securitization of certain of our U.S. trade accounts receivable. The facility is secured by certain of our U.S. trade accounts receivable and bears interest at a variable rate based on LIBOR plus a margin or other agreed upon rate. We also pay a commitment fee. We can terminate the facility at any time upon 60 days prior written notice. In connection with this transaction, we established Greif Receivables Funding LLC, which is included in our consolidated financial statements. This entity purchases and services our trade accounts receivable that are subject to this credit facility. As of January 31,April 30, 2004, there was a total of $72$73.0 million outstanding under the trade accounts receivable credit facility.
The trade accounts receivable credit facility provides that in the event we breach any of our financial covenants under the Amended and Restated Senior Secured Credit Agreement, and the majority of the lenders thereunder consent to a waiver thereof, but the provider of the trade accounts receivable credit facility does not consent to any such waiver, then we must within 90 days of providing notice of the breach pay all amounts outstanding under the trade accounts receivable credit facility.
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Contractual Obligations
As of January 31,April 30, 2004, we had the following contractual obligations (Dollars in millions):
Payments Due By Period | Payments Due by Period | |||||||||||||||||||||||||||||
Total | Less than 1 year | 1-3 years | 3-5 years | After 5 years | Total | Less than 1 year | 1-3 years | 3-5 years | After 5 years | |||||||||||||||||||||
Long-term debt | $ | 641 | $ | 3 | $ | 94 | $ | 78 | $ | 466 | $ | 624 | $ | — | $ | 37 | $ | 73 | $ | 514 | ||||||||||
Short-term borrowings | 20 | 20 | — | — | — | 20 | 20 | — | — | — | ||||||||||||||||||||
Non-cancelable operating leases | 60 | 11 | 23 | 13 | 13 | 57 | 8 | 23 | 13 | 13 | ||||||||||||||||||||
Total contractual cash obligations | $ | 721 | $ | 34 | $ | 117 | $ | 91 | $ | 479 | $ | 701 | $ | 28 | $ | 60 | $ | 86 | $ | 527 | ||||||||||
Stock Repurchase Program
In February 1999, our Board of Directors authorized a one million-share stock repurchase program. During the first three monthshalf of 2004, we repurchased 64814 shares of Class B Common Stock. As of January 31,April 30, 2004, we had repurchased 712,930713,680 shares, including 435,476 shares of Class A Common Stock and 277,454278,204 shares of Class B Common Stock. The total cost of the shares repurchased during 1999 through January 31,April 30, 2004 was $20.5 million.
Recent Accounting Standards
In December 2003, the Financial Accounting Standards Board (“FASB”) issued a revision to SFAS No. 132, “Employers Disclosures about Pensions and Other Postretirement Benefits.” The revision relates to employers’ disclosures about pension plans and other postretirement benefit plans. It does not alter the measurement or recognition provisions of the original SFAS No. 132. It requires additional disclosures
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regarding assets, obligations, cash flows and net periodic benefit costs of pension plans and other defined benefit postretirement plans. Excluding certain disclosure requirements, the revised Statement is effective for financial statements with fiscal years ended after December 15, 2003. Interim period disclosures are effective for interim periods beginning after December 15, 2003.2003 and have been included in Note 14 to the Notes to Consolidated Financial Statements in this Form 10-Q.
In December 2003, the FASB issued a revision to Interpretation No. 46, “Consolidation of Variable Interest Entities.” This Interpretation defines when a business enterprise must consolidate a variable interest entity. The Interpretation provisions are effective for variable interest entities commonly referred to as special-purpose entities for periods ending after March 15, 2004. We do not have any material unconsolidated variable interest entities as of January 31,April 30, 2004 that would require consolidation. Adoption of the subsequent provisions of the Interpretation isdid not expected to have a material impact on our financial position or results of operations.
Forward-Looking Statements; Certain Factors Affecting Future Results
All statements other than statements of historical facts included in this Form 10-Q, including, without limitation, statements regarding our future financial position,
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business strategy, budgets, projected costs, goals and plans and objectives of management for future operations, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “project,” “believe” or “continue” or the negative thereof or variations thereon or similar terminology. All forward-looking statements made in this Form 10-Q are based on information presently available to our management. Although we believe that the expectations reflected in forward-looking statements have a reasonable basis, we can give no assurance that these expectations will prove to be correct. Forward-looking statements are subject to risks and uncertainties that could cause actual events or results to differ materially from those expressed in or implied by the statements. Such risks and uncertainties that could cause a difference include, but are not limited to: general economic and business conditions, including a prolonged or substantial economic downturn; changing trends and demands in the industries in which we compete, including industry over-capacity; industry competition; the continuing consolidation of our customer base for industrial packaging, containerboard and corrugated products; political instability in those foreign countries where we manufacture and sell our products; foreign currency fluctuations and devaluations; availability and costs of raw materials for the manufacture of our products, particularly steel and resin, and price fluctuations in energy costs; costs associated with litigation or claims against us pertaining to environmental, safety and health, product liability and other matters; work stoppages and other labor relations matters; property loss resulting from wars, acts of terrorism, or natural disasters; the frequency and volume of sales of our timber and timberland; and the deviation of actual results from the estimates and/or assumptions used by us in the application of our significant accounting policies. These and other risks and uncertainties that could materially affect our consolidated financial results are further discussed in our filings with the Securities and Exchange Commission, including our Form 10-K for the year ended October 31, 2003. We assume no obligation to update any forward-looking statements.
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ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK |
There has not been a significant change in the quantitative and qualitative disclosures about the Company’s market risk from the disclosures contained in the Company’s2003 Form 10-K for the year ended October 31, 2003.10-K.
ITEM 4. | CONTROLS AND PROCEDURES |
Under the supervision of the Chief Executive Officer and Chief Financial Officer, the Company’s management conducted an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures, as such term is defined under Rule 15d–15(e) promulgated under the Securities Exchange Act of 1934. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective in timely making known to them material information required to be included in the Company’s periodic filings with the Securities and Exchange Commission.
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There has been no change in the Company’s internal controls over financial reporting that occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.
PART II. OTHER INFORMATION
ITEM |
Issuer Purchases of Class B Common Stock
Period | Total Number of Shares | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1) | Maximum Number of Shares that May Yet Be Purchased under the Plans or Programs(1) | |||||
02/01/04 thru 02/29/04 | — | — | — | 287,020 | |||||
03/01/04 thru 03/31/04 | — | — | — | 287,020 | |||||
04/01/04 thru 04/30/04 | 750 | $ | 36.00 | 750 | 286,320 | ||||
Total | 750 | $ | 36.00 | 750 | 286,320 | ||||
(1) | In February 1999, the Company’s Board of Directors authorized a stock repurchase program which permits the Company to purchase up to 1.0 million shares of the Company’s Class A Common Stock or Class B Common Stock, or any combination thereof. The |
For | Against | |||
Charles R. Chandler | 11,419,192 | 7,678 | ||
Michael H. Dempsey | 11,412,284 | 14,586 | ||
Michael J. Gasser | 11,419,292 | 7,578 | ||
Daniel J. Gunsett | 11,414,284 | 12,586 | ||
Judith D. Hook | 11,423,670 | 3,200 | ||
Patrick J. Norton | 11,423,770 | 3,100 | ||
David J. Olderman | 11,423,770 | 3,100 | ||
William B. Sparks, Jr. | 11,419,192 | 7,678 |
For | Against | Withheld | ||||
11,353,876 | 47,610 | 25,384 |
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ITEM 6. | EXHIBITS AND REPORTS ON FORM 8-K |
(a.) | Exhibits |
Exhibit No. | Description of Exhibit | |
3.E | Amendments to Amended and Restated By-Laws of Greif Bros. Corporation | |
10.O | Amendment No. 1 to the Amended and Restated Senior Secured Credit Agreement | |
31.1 | Certification of Chief Executive Officer Pursuant to Rule 13a | |
31.2 | Certification of Chief Financial Officer Pursuant to Rule 13a | |
32.1 | Certification of Chief Executive Officer required by Rule 13a | |
32.2 | Certification of Chief Financial Officer required by Rule 13a |
(b.) | Reports on Form 8-K. |
No events occurred requiring a Form 8-K to be filed during the firstsecond quarter of 2004.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized.
Greif, Inc. | ||||||||||
(Registrant) | ||||||||||
Date: |
| /s/ Donald S. Huml | ||||||||
Donald S. Huml, Chief Financial Officer (Duly Authorized Signatory) |
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GREIF, INC.
Form 10-Q
For Quarterly Period Ended January 31,April 30, 2004
EXHIBIT INDEX
Exhibit No. | Description of Exhibit | |
3.E | Amendments to Amended and Restated By-Laws of Greif Bros. Corporation | |
10.O | Amendment No. 1 to the Amended and Restated Senior Secured Credit Agreement | |
31.1 | Certification of Chief Executive Officer Pursuant to Rule 13a | |
31.2 | Certification of Chief Financial Officer Pursuant to Rule 13a | |
32.1 | Certification of Chief Executive Officer required by Rule 13a | |
32.2 | Certification of Chief Financial Officer required by Rule 13a |
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