UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended July 31, 2010
Commission File Number 001-00566
GREIF, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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31-4388903
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(State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization)
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Identification No.)
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425 Winter Road, Delaware, Ohio
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43015
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(Address of principal executive offices)
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(Zip Code)
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Registrants telephone number, including area code (740) 549-6000
Not Applicable
Former name, former address and former fiscal year, if changed since last report.
Indicate 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. Yes
þ
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such
files).
Yes
þ
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer, or a smaller reporting company. See definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
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Large accelerated filer
þ
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Accelerated filer
o
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Non-accelerated filer
o
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Smaller reporting company
o
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
Yes
o
No
þ
The number of shares outstanding of each of the issuers classes of common stock at the close
of business on August 31, 2010:
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Class A Common Stock
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24,742,974 shares
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Class B Common Stock
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22,412,266 shares
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TABLE OF CONTENTS
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)
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Three months ended
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Nine months ended
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July 31,
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July 31,
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2010
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2009
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2010
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2009
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(As Adjusted)
1
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(As Adjusted)
1
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Net sales
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$
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921,333
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$
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717,567
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$
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2,467,595
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$
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2,031,724
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Cost of products sold
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730,294
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578,140
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1,970,328
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1,700,636
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Gross profit
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191,039
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139,427
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497,267
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331,088
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Selling, general and administrative expenses
(2)
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90,461
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67,374
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264,511
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191,503
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Restructuring charges
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9,779
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10,277
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20,566
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57,748
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Gain on disposal of properties, plants and equipment, net
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(4,875
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)
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(5,256
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)
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(6,904
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)
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(9,810
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)
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Operating profit
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95,674
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67,032
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219,094
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91,647
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Interest expense, net
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15,935
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12,125
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47,582
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37,727
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Debt extinguishment charge
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782
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Other expense, net
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713
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4,245
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4,372
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4,075
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Income before income tax expense and
equity earnings (losses) of
unconsolidated affilitates, net
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79,026
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50,662
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167,140
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49,063
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Income tax expense
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14,408
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11,489
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31,590
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9,567
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Equity earnings (loss) of unconsolidated affiliates, net of tax
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3,141
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374
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3,272
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(221
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Net income
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67,759
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39,547
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138,822
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39,275
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Net income attributable to noncontrolling interests
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1,784
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1,736
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5,394
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2,183
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Net income attributable to Greif, Inc.
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$
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65,975
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$
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37,811
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$
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133,428
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$
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37,092
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Basic earnings per share attributable to Greif, Inc. common shareholders:
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Class A Common Stock
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$
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1.13
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$
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0.65
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$
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2.29
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$
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0.64
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Class B Common Stock
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$
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1.70
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$
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0.98
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$
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3.43
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$
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0.96
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Diluted earnings per share attributable to Greif, Inc. common shareholders:
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Class A Common Stock
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$
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1.12
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$
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0.65
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$
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2.28
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$
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0.64
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Class B Common Stock
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$
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1.70
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$
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0.98
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$
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3.43
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$
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0.96
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See accompanying Notes to Consolidated Financial Statements
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(1)
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In the first quarter of 2010, the Company changed from using a combination of first-in,
first out (FIFO) and last-in, first-out (LIFO) inventory accounting methods to the FIFO
method for all of its businesses. All amounts included herein have been presented on the
FIFO basis. Refer to Note 4 presented in the Notes to Consolidated Financial Statements.
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(2)
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In the first quarter of 2010, the Company adopted Statement of Financial Accounting
SFAS No. 141(R) (
codified under Accounting Standards Codification ASC 805, Business
Combinations
), which requires it to expense acquisition costs in the period incurred.
Previously, these costs were capitalized as part of the purchase price of the acquisition.
Under this guidance, the Company recorded $2.8 million and $16.1 million of expenses in the
three-month and nine-month periods ended July 31, 2010. The nine-month period ended July 31, 2010 included $6.1
million for acquisition costs incurred prior to November 1, 2009 that were previously
accumulated to the consolidated balance sheet for acquisitions not consummated by October
31, 2009. Refer to Note 1 presented in the Notes to Consolidated Financial Statements.
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2
GREIF, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Dollars in thousands)
ASSETS
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July 31, 2010
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October 31, 2009
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(As Adjusted)
1
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Current assets
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Cash and cash equivalents
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$
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84,174
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$
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111,896
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Trade accounts receivable, less allowance
of $13,117 in 2010 and $12,510 in 2009
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464,778
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337,054
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Inventories
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353,030
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238,851
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Deferred tax assets
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14,465
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19,901
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Net assets held for sale
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24,789
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31,574
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Prepaid expenses and other current assets
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137,480
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105,904
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1,078,716
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845,180
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Long-term assets
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Goodwill
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661,095
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592,117
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Other intangible assets, net of amortization
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150,713
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131,370
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Assets held by special purpose entities
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50,891
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50,891
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Other long-term assets
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100,361
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112,092
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963,060
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886,470
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Properties, plants and equipment
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Timber properties, net of depletion
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215,184
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197,114
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Land
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115,933
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120,667
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Buildings
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374,485
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380,816
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Machinery and equipment
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1,195,787
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1,148,406
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Capital projects in progress
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135,289
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70,489
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2,036,678
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1,917,492
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Accumulated depreciation
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(861,196
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)
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(825,213
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)
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1,175,482
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1,092,279
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Total assets
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$
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3,217,258
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$
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2,823,929
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See accompanying Notes to Consolidated Financial Statements
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(1)
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In the first quarter of 2010, the Company changed from using a combination of FIFO and
LIFO inventory accounting methods to the FIFO method for all of its businesses. All
amounts included herein have been presented on the FIFO basis. Refer to Note 4 presented in
the Notes to Consolidated Financial Statements.
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3
GREIF, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Dollars in thousands)
LIABILITIES AND SHAREHOLDERS EQUITY
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July 31, 2010
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October 31, 2009
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(As Adjusted)
1
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Current liabilities
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Accounts payable
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$
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380,890
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$
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335,816
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Accrued payroll and employee benefits
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72,318
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74,475
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Restructuring reserves
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17,793
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15,315
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Current portion of long-term debt
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20,000
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17,500
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Short-term borrowings
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50,958
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19,584
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Other current liabilities
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138,304
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99,407
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680,263
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562,097
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Long-term liabilities
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Long-term debt
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948,626
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721,108
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Deferred tax liabilities
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158,033
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161,152
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Pension liabilities
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79,366
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77,942
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Postretirement benefit obligations
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26,527
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25,396
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Liabilities held by special purpose entities
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43,250
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43,250
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Other long-term liabilities
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111,877
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126,392
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1,367,679
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1,155,240
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Shareholders equity
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Common stock, without par value
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105,070
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96,504
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Treasury stock, at cost
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(117,447
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)
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(115,277
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)
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Retained earnings
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1,271,435
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1,206,614
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Accumulated other comprehensive loss:
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- foreign currency translation
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(19,903
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)
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(6,825
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)
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- interest rate derivatives
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(1,449
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)
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(1,484
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)
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- energy and other derivatives
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(93
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)
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(391
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)
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- minimum pension liabilities
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(78,467
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)
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(79,546
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)
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Toal Greif, Inc. shareholders equity before noncontrolling interests
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1,159,146
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1,099,595
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Noncontrolling interests
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10,170
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6,997
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Total shareholders equity
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1,169,316
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1,106,592
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Total liabilities and shareholders equity
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$
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3,217,258
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$
|
2,823,929
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|
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|
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See accompanying Notes to Consolidated Financial Statements
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(1)
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In the first quarter of 2010, the Company changed from using a combination of FIFO and
LIFO inventory accounting methods to the FIFO method for all of its businesses. All
amounts included herein have been presented on the FIFO basis. Refer to Note 4 presented in
the Notes to Consolidated Financial Statements.
|
4
GREIF, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in thousands)
|
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|
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For the nine months ended July 31,
|
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2010
|
|
|
2009
|
|
|
|
|
|
|
|
(As Adjusted)
1
|
|
Cash flows from operating activities:
|
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|
|
|
|
|
|
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Net income
|
|
$
|
138,822
|
|
|
$
|
39,275
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Adjustments to reconcile net income to net cash provided by operating activities:
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Depreciation, depletion and amortization
|
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84,927
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|
74,562
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Asset impairments
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|
2,356
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|
|
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13,332
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Deferred income taxes
|
|
|
2,317
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|
|
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(5,182
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)
|
Gain on disposals of properties, plants and
equipment, net
|
|
|
(6,904
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)
|
|
|
(9,810
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)
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Equity (earnings) losses of unconsolidated affiliates
|
|
|
(3,272
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)
|
|
|
221
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|
Increase (decrease) in cash from changes in certain assets and liabilities:
|
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|
|
|
|
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Trade accounts receivable
|
|
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(83,713
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)
|
|
|
78,577
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Inventories
|
|
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(92,845
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)
|
|
|
118,947
|
|
Prepaid expenses and other current assets
|
|
|
(21,144
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)
|
|
|
2,933
|
|
Accounts payable
|
|
|
(71,330
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)
|
|
|
(167,506
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)
|
Accrued payroll and employee benefits
|
|
|
1,774
|
|
|
|
(33,727
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)
|
Restructuring reserves
|
|
|
2,478
|
|
|
|
3,459
|
|
Other current liabilities
|
|
|
29,981
|
|
|
|
(29,382
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)
|
Pension and postretirement benefit liabilities
|
|
|
2,555
|
|
|
|
(3,394
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)
|
Other long-term assets, other long-term liabilities
and other
|
|
|
31,773
|
|
|
|
6,999
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
17,775
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|
|
|
89,304
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Acquisitions of companies, net of cash acquired
|
|
|
(152,739
|
)
|
|
|
(32,999
|
)
|
Purchases of properties, plants and equipment
|
|
|
(101,046
|
)
|
|
|
(81,400
|
)
|
Purchases of timber properties
|
|
|
(19,500
|
)
|
|
|
(600
|
)
|
Proceeds from the sale of properties, plants, equipment and other assets
|
|
|
13,034
|
|
|
|
14,806
|
|
Purchases of land rights and other
|
|
|
|
|
|
|
(9,588
|
)
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(260,251
|
)
|
|
|
(109,781
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt
|
|
|
2,497,953
|
|
|
|
2,738,793
|
|
Payments on long-term debt
|
|
|
(2,259,612
|
)
|
|
|
(2,629,675
|
)
|
Proceeds from short-term borrowings, net
|
|
|
20,554
|
|
|
|
1,125
|
|
Dividends paid
|
|
|
(68,607
|
)
|
|
|
(65,864
|
)
|
Acquisitions of treasury stock and other
|
|
|
(2,696
|
)
|
|
|
(3,145
|
)
|
Exercise of stock options
|
|
|
1,164
|
|
|
|
747
|
|
Settlement of derivatives
|
|
|
29,248
|
|
|
|
|
|
Debt issuance cost
|
|
|
|
|
|
|
(13,124
|
)
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
218,004
|
|
|
|
28,857
|
|
|
|
|
|
|
|
|
Effects of exchange rates on cash
|
|
|
(3,250
|
)
|
|
|
(337
|
)
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(27,722
|
)
|
|
|
8,043
|
|
Cash and cash equivalents at beginning of period
|
|
|
111,896
|
|
|
|
77,627
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
84,174
|
|
|
$
|
85,670
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements
|
|
|
(1)
|
|
In the first quarter of 2010, the Company changed from using a combination of FIFO and
LIFO inventory accounting methods to the FIFO method for all of its businesses. All
amounts included herein have been presented on the FIFO basis. Refer to Note 4 presented in
the Notes to Consolidated Financial Statements.
|
5
GREIF, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2010
NOTE 1 BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The information furnished herein reflects all adjustments which are,
in the opinion of management, necessary for a fair presentation of the consolidated
balance sheets as of July 31, 2010 and October 31, 2009 and the consolidated statements of
operations and cash flows for the three-month and nine-month periods ended July 31, 2010 and 2009
of Greif, Inc. and subsidiaries (the Company). The consolidated financial statements include the
accounts of the Company and all wholly-owned and majority-owned subsidiaries.
The unaudited consolidated financial statements included in the Quarterly Report on Form 10-Q
(this Form 10-Q) should be read in conjunction with the consolidated financial statements and
notes thereto included in the Companys Annual Report on Form 10-K for its fiscal year ended
October 31, 2009 (the 2009 Form 10-K) and the Companys Form 8-K filed on May 27, 2010 (the May
27 Form 8-K) to update certain sections of the 2009 Form 10-K to reflect revised financial
information and disclosures resulting from the application of a change in an accounting principle
from using a combination of the last-in, first-out (LIFO) and the first-in, first-out (FIFO)
inventory accounting methods to the FIFO method for all the Companys businesses effective
November 1, 2009. All references in this Form 10-Q to the 2009 Form 10-K also include the
financial information and disclosures contained in the May 27 Form 8-K. Note 1 of the Notes to
Consolidated Financial Statements from the 2009 Form 10-K is specifically incorporated in this
Form 10-Q by reference. In the opinion of Management, all adjustments necessary for fair
presentation of the consolidated financial statements have been included. Except as disclosed
elsewhere in this Form 10-Q, all such adjustments are of a normal and recurring nature.
The consolidated financial statements have been prepared in accordance with the U.S.
Securities and Exchange Commission (SEC) instructions to Quarterly Reports on Form 10-Q and
include all of the information and disclosures required by accounting principles generally accepted
in the United States (GAAP) for interim financial reporting. The preparation of financial
statements in conformity with GAAP requires management to make certain estimates and assumptions
that affect the amounts reported in the consolidated financial statements and accompanying notes.
Actual amounts could differ from those estimates.
The Companys fiscal year begins on November 1 and ends on October 31 of the following year.
Any references to the year 2010 or 2009, or to any quarter of those years, relates to the fiscal
year or quarter, as the case may be, ending in that year.
Certain and appropriate prior year amounts have been reclassified to conform to the 2010
presentation. In addition, certain prior year financial information has been adjusted to reflect
the Companys change in inventory accounting discussed in Note 4.
Newly Adopted Accounting Standards
In December 2007, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standard (SFAS) No. 141(R),
(codified under Accounting Standards
Codification (ASC) 805 Business Combinations),
which replaces SFAS No. 141. The objective of
SFAS No. 141(R) is to improve the relevance, representational faithfulness and comparability of the
information that a reporting entity provides in its financial reports about a business combination
and its effects. SFAS No. 141(R) establishes principles and requirements for how the acquirer
recognizes and measures in its financial statements the identifiable assets acquired, the
liabilities assumed and any noncontrolling interest in the acquiree; recognizes and measures the
goodwill acquired in the business combination or a gain from a bargain purchase; and determines
what information to disclose to enable users of the financial statements to evaluate the nature and
financial effects of the business combination. SFAS No. 141(R) applies to all transactions or other
events in which an entity (the acquirer) obtains control of one or more businesses (the acquiree),
including those sometimes referred to as true mergers or mergers of equals and combinations
achieved without the transfer of consideration. SFAS No. 141(R) applies to any acquisition entered
into on or after November 1, 2009. The Company adopted the new guidance beginning on November 1,
2009, which impacted the Companys financial position, results of operations or cash flows and
related disclosures.
6
In December 2007, the FASB issued SFAS No. 160, Accounting and Reporting of Noncontrolling
Interests in Consolidated Financial Statements, an amendment of ARB No. 51,
(codified under ASC
810 Consolidation)
. The objective of SFAS No. 160 is to improve the relevance, comparability and
transparency of the financial information that a reporting entity provides in its consolidated
financial statements. SFAS No. 160 amends ARB No. 51 to establish accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. SFAS No. 160 also changes the way the consolidated financial statements are presented,
establishes a single method of accounting for changes in a parents ownership interest in a
subsidiary that do not result in deconsolidation, requires that a parent recognize a gain or loss
in net income when a subsidiary is deconsolidated and expands disclosures in the consolidated
financial statements that clearly identify and distinguish between the parents ownership interest
and the interest of the noncontrolling owners of a subsidiary. The provisions of SFAS No. 160 are
to be applied prospectively as of the beginning of the fiscal year in which SFAS No. 160 is
adopted, except for the presentation and disclosure requirements, which are to be applied
retrospectively for all periods presented. The Company adopted the new guidance beginning
November 1, 2009, and the adoption of the new guidance did not impact the Companys financial
position, results of operations or cash flows, other than the related disclosures.
In December 2008, the FASB issued FASB Staff Position FAS 132(R)-1, Employers Disclosures
About Postretirement Benefit Plan Assets (FSP FAS 132(R)-1)
(codified under ASC 715
Compensation Retirement Benefits)
, to provide guidance on employers disclosures about assets
of a defined benefit pension or other postretirement plan. FSP FAS 132(R)-1 requires employers to
disclose information about fair value measurements of plan assets similar to SFAS No. 157, Fair
Value Measurements. The objectives of the disclosures are to provide an understanding of: (a) how
investment allocation decisions are made, including the factors that are pertinent to an
understanding of investment policies and strategies, (b) the major categories of plan assets, (c)
the inputs and valuation techniques used to measure the fair value of plan assets, (d) the effect
of fair value measurements using significant unobservable inputs on changes in plan assets for the
period and (e) significant concentrations of risk within plan assets. The Company adopted the new
guidance beginning November 1, 2009, and the adoption of the new guidance did not impact the
Companys financial position, results of operations or cash flows, other than the related
disclosures.
Recently Issued Accounting Standards
In June 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Assetsan
amendment of FASB Statement No. 140
(codified under ASC 860 Transfers and Servicing).
The
Statement amends SFAS No. 140 to improve the information provided in financial statements
concerning transfers of financial assets, including the effects of transfers on financial position,
financial performance and cash flows, and any continuing involvement of the transferor with the
transferred financial assets. The provisions of SFAS 166 are effective for the Companys financial
statements for the fiscal year beginning November 1, 2010. The Company is in the process of
evaluating the impact that the adoption of the guidance may have on its consolidated financial
statements and related disclosures. However, the Company does not anticipate a material impact on
the Companys financial position, results of operations or cash flows.
In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R)
(codified under ASC 810 Consolidation).
SFAS 167 amends FIN 46(R) to require an enterprise to
perform an analysis to determine whether the enterprises variable interest or interests give it a
controlling financial interest in a variable interest entity. It also amends FIN 46(R) to require
enhanced disclosures that will provide users of financial statements with more transparent
information about an enterprises involvement in a variable interest entity. The provisions of SFAS
167 are effective for the Companys financial statements for the fiscal year beginning November 1,
2010. The Company is in the process of evaluating the impact that the adoption of SFAS No. 167 may
have on its consolidated financial statements and related disclosures. However, the Company does
not anticipate a material impact on the Companys financial position, results of operations or cash
flows.
NOTE 2 ACQUISITIONS, DIVESTITURES AND OTHER SIGNIFICANT TRANSACTIONS
During the first nine months of 2010, the Company completed acquisitions of three rigid
industrial packaging companies and two flexible products companies and made a contingent purchase
price payment related to a 2008 rigid industrial packaging acquisition. The five 2010 acquisitions
consisted of the acquisition of a European rigid industrial packaging company in November 2009, an
Asian rigid industrial packaging company in June 2010, a North American drum reconditioning company
in July 2010, and two European flexible products companies, one in February and the other in June
2010. The aggregate purchase price for the five 2010 acquisitions was less than $200 million. The
European and Asian rigid industrial packaging acquisitions are expected to complement the Companys
existing product lines that together will provide growth opportunities and economies of scale. The
drum reconditioning and flexible products acquisitions expand the
Companys product and service offerings.
7
During 2009, the Company completed acquisitions of five rigid industrial packaging companies
and one paper packaging company and made a contingent purchase price payment related to a 2005
acquisition for an aggregate purchase price of $90.8 million. These six acquisitions consisted of
two North American rigid industrial packaging companies in February 2009, the acquisition of a
North American rigid industrial packaging company in June 2009, the acquisition of a rigid
industrial packaging company in Asia in July 2009, the acquisition of a South American rigid
industrial packaging company in October 2009, and the acquisition of a 75 percent interest in a
North American paper packaging company in October 2009. These rigid industrial packaging and paper
packaging acquisitions complemented the Companys existing product lines and provided growth
opportunities and economies of scale. These acquisitions, included in operating results from the
acquisition dates, were accounted for using the purchase method of accounting and, accordingly, the
purchase prices were allocated to the assets purchased and liabilities assumed based upon their
estimated fair values at the dates of acquisition. The estimated fair values of the net assets
acquired were $23.5 million (including $8.4 million of accounts receivable and $4.4 million of
inventory) and liabilities assumed were $20.7 million. Identifiable intangible assets, with a
combined fair value of $34.5 million, including trade-names, customer relationships, and certain
non-compete agreements, have been recorded for these acquisitions. The excess of the purchase
prices over the estimated fair values of the net tangible and intangible assets acquired of $53.5
million was recorded as goodwill. The final allocation of the purchase prices may differ due to
additional refinements in the fair values of the net assets acquired as well as the execution of
consolidation plans to eliminate duplicate operations, in accordance with SFAS No. 141, Business
Combinations. This is due to the valuation of certain other assets and liabilities that are
subject to refinement and therefore the actual fair value may vary from the preliminary estimates.
Adjustments to the acquired net assets resulting from final valuations are not expected to be
significant. The Company is finalizing certain closing date adjustments with the sellers, as well
as the allocation of income tax adjustments.
The Company implemented a restructuring plan for one of the 2009 acquisitions above. The
Companys restructuring activities, which were accounted for in accordance with Emerging Task Force
Issue No. 95-3, Recognition of Liabilities in Connection with a Purchase Business Combination
(EITF 95-3), primarily included exit costs associated with the consolidation of facilities,
facility relocation, and the reduction of excess capacity. In connection with these restructuring
activities, as part of the cost of the above acquisition, the Company established reserves,
primarily for excess facilities, in the amount of $1.7 million, of which $0.8 million remains in
the restructuring reserve at July 31, 2010.
Had the transactions occurred on November 1, 2008, results of operations would not have
differed materially from reported results.
NOTE 3 SALE OF NON-UNITED STATES ACCOUNTS RECEIVABLE
Pursuant to the terms of a Receivable Purchase Agreement (the RPA) dated October 28, 2004
between Greif Coordination Center BVBA, an indirect wholly-owned subsidiary of Greif, Inc., and a
major international bank, the seller agreed to sell trade receivables meeting certain eligibility
requirements that seller had purchased from other indirect wholly-owned subsidiaries of Greif,
Inc., including Greif Belgium BVBA, Greif Germany GmbH, Greif Nederland BV, Greif Spain SA and
Greif UK Ltd, under discounted receivables purchase agreements and from Greif France SAS under a
factoring agreement. The RPA was amended on October 28, 2005 to include receivables originated by
Greif Portugal Lda, also an indirect wholly-owned subsidiary of Greif, Inc. In addition, on
October 28, 2005, Greif Italia S.P.A., also an indirect wholly-owned subsidiary of Greif, Inc.,
entered into the Italian Receivables Purchase Agreement with the Italian branch of the major
international bank (the Italian RPA) with Greif Italia S.P.A., agreeing to sell trade receivables
that meet certain eligibility criteria to the Italian branch of the major international bank. The
Italian RPA is similar in structure and terms as the RPA. The RPA was amended April 30, 2007 to
include receivables originated by Greif Packaging Belgium NV, Greif Packaging France SAS and Greif
Packaging Spain SA, all wholly-owned subsidiaries of Greif, Inc. The maximum amount of receivables
that may be sold under the RPA and the Italian RPA is 115 million ($149.5 million) at July 31,
2010.
In October 2007, Greif Singapore Pte. Ltd., an indirect wholly-owned subsidiary of Greif,
Inc., entered into the Singapore Receivable Purchase Agreement (the Singapore RPA) with a major
international bank. The maximum amount of aggregate receivables that may be sold under the
Singapore RPA is 15.0 million Singapore Dollars ($11.0 million) at July 31, 2010.
In October 2008, Greif Embalagens Industriais do Brasil Ltda., an indirect wholly-owned
subsidiary of Greif, Inc., entered into agreements (the Brazil Agreements) with Brazilian banks.
There is no maximum amount of aggregate receivables that may be sold under the Brazil Agreements;
however, the sale of individual receivables is subject to approval by the banks.
In May 2009, Greif Malaysia Sdn Bhd., an indirect wholly-owned Malaysian subsidiary of Greif,
Inc., entered into the Malaysian Receivables Purchase Agreement (the Malaysian Agreements) with
Malaysian banks. The maximum amount of the aggregate receivables that may be sold under the
Malaysian Agreements is 15.0 million Malaysian Ringgits ($4.7 million) at July 31, 2010.
8
The structure of the transactions provide for a legal true sale, on a revolving basis, of the
receivables transferred from the various Greif, Inc. subsidiaries to the respective banks. The bank
funds an initial purchase price of a certain percentage of eligible receivables based on a formula
with the initial purchase price approximating 75 percent to 90 percent of eligible receivables. The
remaining deferred purchase price is settled upon collection of the receivables. At the balance
sheet reporting dates, the Company removes from accounts receivable the amount of proceeds received
from the initial purchase price since they meet the applicable criteria of SFAS No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
(codified under ASC 860 Transfers and Servicing),
and continues to recognize the deferred
purchase price in its accounts receivable. The receivables are sold on a non-recourse basis with
the total funds in the servicing collection accounts pledged to the banks between settlement dates.
At July 31, 2010 and October 31, 2009, 85.3 million ($110.8 million) and 77.0 million
($114.0 million), respectively, of accounts receivable were sold under the RPA and Italian RPA. At
July 31, 2010 and October 31, 2009, 8.1 million Singapore Dollars ($5.9 million) and 5.6 million
Singapore Dollars ($4.0 million), respectively, of accounts receivable were sold under the
Singapore RPA. At July 31, 2010 and October 31, 2009, 18.1 million Brazilian Reais ($10.2 million)
and 13.3 million Brazilian Reais ($7.6 million), respectively, of accounts receivable were sold
under the Brazil Agreements. At July 31, 2010 and October 31, 2009, 6.6 million Malaysian Ringgits
($2.1 million) and 6.3 million Malaysian Ringgits ($1.8 million), respectively, of accounts
receivable were sold under the Malaysian Agreements.
At the time the receivables are initially sold, the difference between the carrying amount and
the fair value of the assets sold are included as a loss on sale in the consolidated statements of
operations.
Expenses, primarily related to the loss on sale of receivables, associated with the RPA and
Italian RPA totaled 0.8 million ($1.0 million) and 0.8 million ($1.2 million) for the three
months ended July 31, 2010 and 2009, respectively; and 2.2 million ($2.9 million) and 2.9
million ($3.9 million) for the nine months ended July 31, 2010 and 2009, respectively.
Expenses associated with the Singapore RPA totaled 0.1 million Singapore Dollars ($0.1
million) and 0.1 million Singapore Dollars ($0.1 million) for the three months ended July 31, 2010
and 2009, respectively; and 0.3 million Singapore Dollars ($0.3 million) and 0.3 million Singapore
Dollars ($0.2 million) for the nine months ended July 31, 2010 and 2009, respectively.
Expenses associated with the Brazil Agreements totaled 1.2 million Brazilian Reais ($0.7
million) and 0.9 million Brazilian Reais ($0.4 million) for the three months ended July 31, 2010
and 2009, respectively; and 3.3 million ($1.9 million) and 1.4 million ($0.7 million) for the nine
months ended July 31, 2010 and 2009, respectively.
Expenses associated with the Malaysian Agreements were insignificant for the three months
ended July 31, 2010 and 2009; and 0.1 million Malaysian Ringgits ($0.1 million) for the nine months
ended July 31, 2010 and were insignificant for the nine months ended July 31, 2009.
Additionally, the Company performs collections and administrative functions on the receivables
sold similar to the procedures it uses for collecting all of its receivables, including receivables
that are not sold under the RPA, the Italian RPA, the Singapore RPA, the Brazil Agreements, and the
Malaysian Agreements. The servicing liability for these receivables is not material to the
consolidated financial statements.
NOTE 4 INVENTORIES
On November 1, 2009, the Company elected to adopt the FIFO method of inventory valuation for
all locations, whereas in all prior years inventory for certain U.S. locations was valued using the
LIFO method. The Company believes that the FIFO method of inventory valuation is preferable
because (i) the change conforms to a single method of accounting for all of the Companys
inventories on a U.S. and global basis, (ii) the change simplifies financial disclosures, (iii)
financial statement comparability and analysis for investors and analysts is improved, and (iv) the
majority of the Companys key competitors use FIFO. The comparative consolidated financial
statements of prior periods presented have been adjusted to apply the new accounting method
retrospectively. The change in accounting principle is reported through retrospective application
as described in ASC 250, Accounting Changes and Error Corrections.
9
The following consolidated statement of operations line items for the three and nine-month
periods ended July 31, 2009 were affected by the change in accounting principle (Dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended July 31, 2009
|
|
|
For the nine months ended July 31, 2009
|
|
|
|
As Originally
|
|
|
|
|
|
|
|
|
|
|
As Originally
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
As Adjusted
|
|
|
Reported
|
|
|
Adjustments
|
|
|
As Adjusted
|
|
Cost of products sold
|
|
$
|
575,018
|
|
|
$
|
3,122
|
|
|
$
|
578,140
|
|
|
$
|
1,674,538
|
|
|
$
|
26,098
|
|
|
$
|
1,700,636
|
|
Gross profit
|
|
|
142,549
|
|
|
|
(3,122
|
)
|
|
|
139,427
|
|
|
|
357,186
|
|
|
|
(26,098
|
)
|
|
|
331,088
|
|
Operating profit
|
|
|
70,154
|
|
|
|
(3,122
|
)
|
|
|
67,032
|
|
|
|
117,745
|
|
|
|
(26,098
|
)
|
|
|
91,647
|
|
Income tax expense
|
|
|
12,691
|
|
|
|
(1,202
|
)
|
|
|
11,489
|
|
|
|
19,617
|
|
|
|
(10,050
|
)
|
|
|
9,567
|
|
Net income attributable to Greif, Inc.
|
|
$
|
39,731
|
|
|
$
|
(1,920
|
)
|
|
$
|
37,811
|
|
|
$
|
53,139
|
|
|
$
|
(16,047
|
)
|
|
$
|
37,092
|
|
The following consolidated balance sheet line items at October 31, 2009 were affected by
the change in accounting principle (Dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Originally
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
As Adjusted
|
|
Inventory
|
|
$
|
227,432
|
|
|
$
|
11,419
|
|
|
$
|
238,851
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,812,510
|
|
|
$
|
11,419
|
|
|
$
|
2,823,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
$
|
156,755
|
|
|
$
|
4,397
|
|
|
$
|
161,152
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
1,712,940
|
|
|
$
|
4,397
|
|
|
$
|
1,717,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings
|
|
$
|
1,199,592
|
|
|
$
|
7,022
|
|
|
$
|
1,206,614
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
2,812,510
|
|
|
$
|
11,419
|
|
|
$
|
2,823,929
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 5 NET ASSETS HELD FOR SALE
Net assets held for sale represent land, buildings and land improvements for locations that
have met the criteria of held for sale accounting, as specified by SFAS No. 144, Accounting for
Impairment or Disposal of Long-Lived Assets
(codified under ASC 360 Property, Plant, and
Equipment).
As of July 31, 2010 and October 31, 2009, there were thirteen and fourteen facilities
held for sale, respectively. The net assets held for sale are being marketed for sale and it is the
Companys intention to complete the facility sales within the upcoming year.
NOTE 6 GOODWILL AND OTHER INTANGIBLE ASSETS
The Company reviews goodwill and indefinite-lived intangible assets for impairment as required by SFAS
No. 142 Goodwill and Other Intangible Assets (
codified under ASC 350 Intangibles Goodwill and
Other
), either annually or when events and circumstances
indicate an impairment may have occurred. The following table summarizes the changes in the carrying amount of goodwill by segment
for the nine month period ended July 31, 2010 (Dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rigid Industrial Packaging
|
|
|
Flexible Products
|
|
|
|
|
|
|
|
|
|
|
|
|
& Services
|
|
|
& Services
|
|
|
Paper Packaging
|
|
|
Land Management
|
|
|
Total
|
|
Balance at October 31, 2009
|
|
$
|
530,717
|
|
|
$
|
|
|
|
$
|
61,400
|
|
|
$
|
|
|
|
$
|
592,117
|
|
Goodwill acquired
|
|
|
37,372
|
|
|
|
42,013
|
|
|
|
|
|
|
|
150
|
|
|
|
79,535
|
|
Goodwill adjustments
|
|
|
6,481
|
|
|
|
|
|
|
|
(1,075
|
)
|
|
|
|
|
|
|
5,406
|
|
Currency translation
|
|
|
(15,963
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,963
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 31, 2010
|
|
$
|
558,607
|
|
|
$
|
42,013
|
|
|
$
|
60,325
|
|
|
$
|
150
|
|
|
$
|
661,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
goodwill acquired of $79.5 million consisted of preliminary goodwill related to
acquisitions in the Rigid Industrial Packaging & Services and Flexible Products & Services
segments. The goodwill adjustments increased goodwill by $5.4 million and consisted
of a $3.4 million contingent payment relating to a 2008
acquisition, with the balance related to
purchase price adjustments for nine of the 2009 acquisitions.
10
The detail of other intangible assets by class as of July 31, 2010 and October 31, 2009 are as
follows (Dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Net Intangible
|
|
|
|
Intangible Assets
|
|
|
Amortization
|
|
|
Assets
|
|
October 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademark and patents
|
|
$
|
35,081
|
|
|
$
|
15,457
|
|
|
$
|
19,624
|
|
Non-compete agreements
|
|
|
18,842
|
|
|
|
6,143
|
|
|
|
12,699
|
|
Customer relationships
|
|
|
110,298
|
|
|
|
17,190
|
|
|
|
93,108
|
|
Other
|
|
|
11,018
|
|
|
|
5,079
|
|
|
|
5,939
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
175,239
|
|
|
$
|
43,869
|
|
|
$
|
131,370
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademark and patents
|
|
$
|
39,868
|
|
|
$
|
16,640
|
|
|
$
|
23,228
|
|
Non-compete agreements
|
|
|
18,630
|
|
|
|
6,796
|
|
|
|
11,834
|
|
Customer relationships
|
|
|
131,954
|
|
|
|
23,771
|
|
|
|
108,183
|
|
Other
|
|
|
13,340
|
|
|
|
5,872
|
|
|
|
7,468
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
203,792
|
|
|
$
|
53,079
|
|
|
$
|
150,713
|
|
|
|
|
|
|
|
|
|
|
|
Gross
intangible assets increased by $28.5 million for the nine-month period ended July 31, 2010.
The increase in gross intangible assets consisted of $3.0 million in final purchase price
allocations related to the 2009 acquisitions in the Rigid Industrial Packaging & Services and Paper
Packaging segments, $29.9 million in preliminary purchase price allocations related to 2010
acquisitions in the Rigid Industrial Packaging & Services and Flexible Products & Services segments
and a $4.4 million decrease due to currency fluctuations both related to the Rigid Industrial
Packaging & Services and to the Flexible Products & Services segment. Amortization expense for the
nine months ended July 31, 2010 and 2009 was $10.0 million and $8.0 million, respectively.
Amortization expense for the next five years is expected to be $18.1 million in 2011, $17.8 million
in 2012, $14.2 million in 2013, $12.3 million in 2014 and $11.7 million in 2015.
All intangible assets for the periods presented are subject to amortization and are being
amortized using the straight-line method over periods that range from three to 23 years, except for
$12.4 million related to the Tri-Sure trademark and the trade names related to Blagden Express,
Closed-loop, and Box Board, all of which have indefinite lives.
NOTE 7 RESTRUCTURING CHARGES
During the first nine months of 2010, the Company recorded restructuring charges of $20.7
million, which compares to $57.7 million of restructuring charges during the first nine months of
2009. The restructuring activity for the nine month period ended July 31, 2010 consisted of $11.4
million in employee separation costs, $2.3 million in asset impairments and $6.9 million in other
costs. In addition, during that period there was a restructuring-related inventory charge of $0.1
million recorded in cost of products sold. During the first nine months of 2010, five locations
within the Rigid Industrial Packaging & Services and two locations within the Paper Packaging
segments were closed and the total number of employees severed
was 163. The restructuring activity for the nine month period ended July 31, 2009 consisted of
$29.8 million in employee separation costs, $14.6 million in asset impairments and $13.3 million in
other costs. In addition, during that period there was a restructuring-related inventory charge
for $10.1 million recorded in cost of products sold. During the nine months of 2009, sixteen
company-owned plants in the Rigid Industrial Packaging &
Services segment were closed and the total number of employees severed was 1,178.
During the three months ended July 31, 2010, the Company recorded restructuring charges of
$9.8 million, consisting of $4.7 million in employee separation costs, $2.1 million in asset
impairments, $1.1 million in professional fees, and $1.9 million in other costs. In addition, the
Company recorded $0.1 million in restructuring related inventory charges in cost of products sold.
During this period, two company owned plants in the Rigid Industrial Packaging & Services segment and two company owned
plants in the Paper Packaging segment were closed and the total
number of employees severed was 104. During the three months ended July 31, 2009,
the Company recorded restructuring charges of $10.3 million, consisting of $4.7 million in employee
separation costs, $1.7 million in asset impairments and $3.9 million in other costs. In addition,
the Company recorded $0.9 million in restructuring related inventory charges in cost of products
sold. During the three months of 2009, three company owned plants in the Rigid Industrial Packaging & Services segment were closed
and the total number employees severed was 54.
11
For each relevant business segment, costs incurred in 2010 are as follows (Dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
|
|
|
|
|
|
|
|
|
|
Amounts
Expected to
|
|
|
ended July 31,
|
|
|
Nine months ended
|
|
|
Amounts Remaining to
|
|
|
|
be Incurred
|
|
|
2010
|
|
|
July 31, 2010
|
|
|
be Incurred
|
|
Rigid Industrial Packaging & Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee separation costs
|
|
$
|
9,241
|
|
|
$
|
1,959
|
|
|
$
|
8,657
|
|
|
$
|
584
|
|
Asset impairments
|
|
|
832
|
|
|
|
594
|
|
|
|
832
|
|
|
|
|
|
Professional fees
|
|
|
4,815
|
|
|
|
1,045
|
|
|
|
2,271
|
|
|
|
2,544
|
|
Inventory adjustments
|
|
|
227
|
|
|
|
94
|
|
|
|
131
|
|
|
|
96
|
|
Other restructuring costs
|
|
|
9,384
|
|
|
|
1,661
|
|
|
|
4,173
|
|
|
|
5,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,499
|
|
|
|
5,353
|
|
|
|
16,064
|
|
|
|
8,435
|
|
Flexible Products & Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other restructuring costs
|
|
$
|
|
|
|
$
|
45
|
|
|
$
|
45
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paper Packaging
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee separation costs
|
|
$
|
2,815
|
|
|
$
|
2,699
|
|
|
$
|
2,699
|
|
|
$
|
116
|
|
Asset impairments
|
|
|
1,524
|
|
|
|
1,524
|
|
|
|
1,524
|
|
|
|
|
|
Other restructuring costs
|
|
|
2,418
|
|
|
|
252
|
|
|
|
365
|
|
|
|
2,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,757
|
|
|
|
4,475
|
|
|
|
4,588
|
|
|
|
2,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
31,256
|
|
|
$
|
9,873
|
|
|
$
|
20,697
|
|
|
$
|
10,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amounts expected to be incurred above are from open restructuring plans which are
anticipated to be realized in 2010 and 2011 or plans that are being formulated and have not been
announced as of the date of this Form 10-Q.
The following is a reconciliation of the beginning and ending restructuring reserve balances
for the nine month period ended July 31, 2010 (Dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Charges
|
|
|
Non-cash Charges
|
|
|
|
|
|
|
Employee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Separation
|
|
|
|
|
|
|
Asset
|
|
|
Inventory
|
|
|
|
|
|
|
Costs
|
|
|
Other Costs
|
|
|
Impairments
|
|
|
write-down
|
|
|
Total
|
|
|
Balance at October 31, 2009
|
|
$
|
9,239
|
|
|
$
|
6,076
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
15,315
|
|
Costs incurred and charged to expense
|
|
|
11,356
|
|
|
|
6,854
|
|
|
|
2,356
|
|
|
|
131
|
|
|
|
20,697
|
|
Costs paid or otherwise settled
|
|
|
(9,034
|
)
|
|
|
(6,698
|
)
|
|
|
(2,356
|
)
|
|
|
(131
|
)
|
|
|
(18,219
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 31, 2010
|
|
$
|
11,561
|
|
|
$
|
6,232
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
17,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 8 SIGNIFICANT NONSTRATEGIC TIMBERLAND TRANSACTIONS AND CONSOLIDATION OF VARIABLE
INTEREST ENTITIES
On March 28, 2005, Soterra LLC (a wholly owned subsidiary) entered into two real estate
purchase and sale agreements with Plum Creek Timberlands, L.P. (Plum Creek) to sell approximately
56,000 acres of timberland and related assets located primarily in Florida for an aggregate sales
price of approximately $90 million, subject to closing adjustments. In connection with the closing
of one of these agreements, Soterra LLC sold approximately 35,000 acres of timberland and
associated assets in Florida, Georgia and Alabama for $51.0 million, resulting in a pretax gain of
$42.1 million, on May 23, 2005. The purchase price was paid in the form of cash and a $50.9 million
purchase note payable by an indirect subsidiary of Plum Creek (the Purchase Note). Soterra LLC
contributed the Purchase Note to STA Timber LLC (STA Timber), one of the Companys indirect
wholly owned subsidiaries. The Purchase Note is secured by a Deed of Guarantee issued by Bank of
America, N.A., London Branch, in an amount not to exceed $52.3 million (the Deed of Guarantee),
as a guarantee of the due and punctual payment of principal and interest on the Purchase Note.
12
The Company completed the second phase of these transactions in the first quarter of 2006. In
this phase, the Company sold 15,300 acres of timberland holdings in Florida for $29.3 million in
cash, resulting in a pre-tax gain of $27.4 million. The final phase of this transaction,
approximately 5,700 acres sold for $9.7 million, occurred on April 28, 2006 and the Company
recognized additional timberland gains in its consolidated statements of operations in the periods
that these transactions occurred resulting in a pre-tax gain of $9.0 million.
On May 31, 2005, STA Timber issued in a private placement its 5.20% Senior Secured Notes due
August 5, 2020 (the Monetization Notes) in the principal amount of $43.3 million. In connection
with the sale of the Monetization Notes, STA Timber entered into note purchase agreements with the
purchasers of the Monetization Notes (the Note Purchase Agreements) and related documentation.
The Monetization Notes are secured by a pledge of the Purchase Note and the Deed of Guarantee. The
Monetization Notes may be accelerated in the event of a default in payment or a breach of the other
obligations set forth therein or in the Note Purchase Agreements or related documents, subject in
certain cases to any applicable cure periods, or upon the occurrence of certain insolvency or
bankruptcy related events. The Monetization Notes are subject to a mechanism that may cause them,
subject to certain conditions, to be extended to November 5, 2020. The proceeds from the sale of
the Monetization Notes were primarily used for the repayment of indebtedness.
In addition, Greif, Inc. and its other subsidiaries have not extended any form of guaranty of
the principal or interest on the Monetization Notes. Accordingly, Greif, Inc. and its other
subsidiaries will not become directly or contingently liable for the payment of the Monetization
Notes at any time.
The Company has consolidated the assets and liabilities of the buyer-sponsored special purpose
entity (the Buyer SPE) involved in these transactions as the result of ASC 810. However, because
the Buyer SPE is a separate and distinct legal entity from the Company, the assets of the Buyer SPE
are not available to satisfy the liabilities and obligations of the Company and its other
subsidiaries and the liabilities of the Buyer SPE are not liabilities or obligations of the Company
and its other subsidiaries.
Assets of the Buyer SPE at July 31, 2010 and October 31, 2009 consist of restricted bank
financial instruments of $50.9 million, respectively. STA Timber had long-term debt of $43.3
million as of July 31, 2010 and October 31, 2009, respectively. STA Timber is exposed to
credit-related losses in the event of nonperformance by the issuer of the Deed of Guarantee. The
accompanying consolidated income statements for the nine-month periods ended July 31, 2010 and 2009
include interest expense on STA Timber debt of $1.7 million and interest income on Buyer SPE
investments of $1.8 million, respectively.
NOTE 9 LONG-TERM DEBT
Long-term debt is summarized as follows (Dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
July 31, 2010
|
|
|
October 31, 2009
|
|
$700 Million Credit Agreement
|
|
$
|
294,007
|
|
|
$
|
192,494
|
|
Senior Notes due 2017
|
|
|
303,532
|
|
|
|
300,000
|
|
Senior Notes due 2019
|
|
|
242,158
|
|
|
|
241,729
|
|
Trade accounts receivable credit facility
|
|
|
117,800
|
|
|
|
|
|
Other long-term debt
|
|
|
11,129
|
|
|
|
4,385
|
|
|
|
|
|
|
|
|
|
|
|
968,626
|
|
|
|
738,608
|
|
Less current portion
|
|
|
(20,000
|
)
|
|
|
(17,500
|
)
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
948,626
|
|
|
$
|
721,108
|
|
|
|
|
|
|
|
|
13
$700 Million Credit Agreement
On February 19, 2009, the Company and Greif International Holding B.V., as borrowers, entered
into a $700 million Senior Secured Credit Agreement (the Credit Agreement) with a syndicate of
financial institutions. The Credit Agreement provides for a $500 million revolving multicurrency
credit facility and a $200 million term loan, both maturing in February 2012, with an option to add
$200 million to the facilities with the agreement of the lenders. The $200 million term loan is
scheduled to amortize by $2.5 million each quarter-end for the first four quarters, $5.0 million
each quarter-end for the next eight quarters and $150.0 million on the maturity date. The Credit
Agreement is available to fund ongoing working capital and capital expenditure needs, for general
corporate purposes, to finance acquisitions, and to repay amounts outstanding under the previous
$450 million credit agreement. Interest is based on a Eurodollar rate or a base rate that resets
periodically plus a calculated margin amount. As of July 31, 2010, $294.0 million was outstanding
under the Credit Agreement. The current portion of the Credit Agreement is $20.0 million and the
long-term portion is $274.0 million. The weighted average interest rate on the Credit Agreement was
3.16% for the nine months ended July 31, 2010 and the interest rate was 3.30% at July 31, 2010.
The Credit Agreement contains financial covenants that require the Company to maintain a
certain leverage ratio and a fixed charge coverage ratio. At July 31, 2010, the Company was in
compliance with these covenants.
Senior Notes due 2017
On February 9, 2007, the Company issued $300.0 million of 6.75% Senior Notes due February 1,
2017. Interest on these Senior Notes is payable semi-annually. Proceeds from the issuance of these
Senior Notes were principally used to fund the purchase of previously outstanding 8.875% Senior
Subordinated Notes in a tender offer and for general corporate purposes.
The fair value of these Senior Notes due 2017 was $311.0 million at July 31, 2010 based upon
quoted market prices. The Indenture pursuant to which these Senior Notes were issued contains
certain covenants. At July 31, 2010, the Company was in compliance with these covenants.
Senior Notes due 2019
On July 28, 2009, the Company issued $250.0 million of 7.75% Senior Notes due August 1, 2019.
Interest on these Senior Notes is payable semi-annually. Proceeds from the issuance of Senior Notes
were principally used for general corporate purposes, including the repayment of amounts
outstanding under the Companys revolving multicurrency credit facility, without any permanent
reduction of the commitments.
The fair value of these Senior Notes due 2019 was $257.5 million at July 31, 2010 based upon
quoted market prices. The Indenture pursuant to which these Senior Notes were issued contains
certain covenants. At July 31, 2010, the Company was in compliance with these covenants.
United States Trade Accounts Receivable Credit Facility
On December 8, 2008, the Company entered into a $135.0 million trade accounts receivable
credit facility with a financial institution and its affiliate, with a maturity date of December 8,
2013, subject to earlier termination of their purchase commitment on December 6, 2010, or such
later date to which the purchase commitment may be extended by agreement of the parties. The credit
facility is secured by certain of the Companys trade accounts receivable in the United States and
bears interest at a variable rate based on the applicable commercial paper rate plus a margin or
other agreed-upon rate (1.71% at July 31, 2010). In addition, the Company can terminate the credit
facility at any time upon five days prior written notice. A significant portion of the initial
proceeds from this credit facility was used to pay the obligations under the previous trade
accounts receivable credit facility, which was terminated. The remaining proceeds were and will be
used to pay certain fees, costs and expenses incurred in connection with the credit facility and
for working capital and general corporate purposes. At July 31, 2010, there was $117.8 million
outstanding under the Receivables Facility. The agreement for this receivables financing facility
contains financial covenants that require the Company to maintain a certain leverage ratio and a
fixed charge coverage ratio. At July 31, 2010, the Company was in compliance with these covenants.
Greif Receivables Funding LLC (GRF), an indirect subsidiary of the Company, has participated
in the purchase and transfer of receivables in connection with these credit facilities and is
included in the Companys consolidated financial statements. However, because GRF is a separate and
distinct legal entity from the Company and its other subsidiaries, the assets of GRF are not
available to satisfy the liabilities and obligations of the Company and its other subsidiaries, and
the liabilities of GRF are not the liabilities or obligations of the Company and its other
subsidiaries. This entity purchases and services the Companys trade accounts receivable that are
subject to these credit facilities.
14
Other
In addition to the amounts borrowed under the Credit Agreement and proceeds from these Senior
Notes and the United States Trade Accounts Receivable Credit Facility, at July 31, 2010, the
Company had outstanding other debt of $62.1 million, comprised of $11.1 million in long-term debt
and $51.0 million in short-term borrowings, compared to other debt outstanding of $24.0 million,
comprised of $4.4 million in long-term debt and $19.6 million in short-term borrowings, at October
31, 2009.
At July 31, 2010, the current portion of the Companys long-term debt was $20.0 million.
Annual maturities, including the current portion, of long-term debt under the Companys various
financing arrangements were $5.0 million in 2010, $31.1 million in 2011, $269.0 million in 2012,
$117.8 million in 2013 and $545.7 million thereafter.
At July 31, 2010 and October 31, 2009, the Company had deferred financing fees and debt
issuance costs of $11.9 million and $14.9 million, respectively, which are included in other
long-term assets.
NOTE 10 FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements
(codified under ASC
820 Fair Value Measurements and Disclosures)
. SFAS No. 157 defines fair value, establishes a
framework for measuring fair value in GAAP and expands disclosures about fair value measurements.
Additionally, this guidance established a three-level fair value hierarchy that prioritizes the
inputs used to measure fair value. This hierarchy requires entities to maximize the use of
observable inputs and minimize the use of unobservable inputs.
The three levels of inputs used to measure fair values are as follows:
|
|
|
Level 1
|
|
Observable inputs such as unadjusted quoted prices in active markets for identical assets and liabilities.
|
|
|
|
Level 2
|
|
Observable inputs other than quoted prices in active markets for identical assets and liabilities.
|
|
|
|
Level 3
|
|
Unobservable inputs that are supported by little or no market activity and that are significant to the
fair value of the assets and liabilities.
|
Recurring Fair Value Measurements
The following table presents the fair values adjustments for those assets and (liabilities)
measured on a recurring basis as of July 31, 2010 (Dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement
|
|
|
Balance sheet
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Location
|
Interest rate derivatives
|
|
$
|
|
|
|
$
|
(2,229
|
)
|
|
$
|
|
|
|
$
|
(2,229
|
)
|
|
Other long-term liabilities
|
Foreign exchange hedges
|
|
|
|
|
|
|
(2,427
|
)
|
|
|
|
|
|
|
(2,427
|
)
|
|
Other current liabilities
|
Energy hedges
|
|
|
|
|
|
|
(143
|
)
|
|
|
|
|
|
|
(143
|
)
|
|
Other current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total*
|
|
$
|
|
|
|
$
|
(4,799
|
)
|
|
$
|
|
|
|
$
|
(4,799
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
The carrying amounts of cash and cash equivalents, trade accounts receivable, accounts
payable, current liabilities and short-term borrowings at July 31, 2010 approximate their fair
values because of the short-term nature of these items and are not included in this table.
|
Derivatives and Hedging Activity
The Company uses derivatives from time to time to partially mitigate the effect of exposure to
interest rate movements, exposure to currency fluctuations, and energy cost fluctuations. Under
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities
(codified under ASC
815 Derivatives and Hedging)
, all derivatives are to be recognized as assets or liabilities in
the balance sheet and measured at fair value. Changes in the fair value of derivatives are
recognized in either net income or in other comprehensive income, depending on the designated
purpose of the derivative.
While the Company may be exposed to credit losses in the event of nonperformance by the
counterparties to its derivative financial instrument contracts, its counterparties are established
banks and financial institutions with high credit ratings. The Company has no reason to believe
that such counterparties will not be able to fully satisfy their obligations under these contracts.
15
During the next three months, the Company expects to reclassify into earnings a net loss from
accumulated other comprehensive loss of approximately $2.6 million after tax at the time the
underlying hedge transactions are realized.
Cross-Currency Interest Rate Swaps
The Company entered into cross-currency interest rate swap agreements which were designated as a
hedge of a net investment in a foreign operation. Under these swap agreements, the Company received
interest semi-annually from the counterparties in an amount equal to a fixed rate of 6.75% on
$200.0 million and paid interest in an amount equal to a fixed rate of 6.25% on
146.6 million.
During the third quarter of 2010, the Company terminated these swap agreements, including any
future cash flows. The termination of these swap agreements resulted in a cash benefit of $25.7
million ($15.8 million, net of tax) which is included within foreign currency translation adjustments.
At October 31, 2009, the Company had recorded an other comprehensive loss of $14.6 million as a
result of these swap agreements.
Interest Rate Derivatives
The Company has interest rate swap agreements with various maturities through 2012. These
interest rate swap agreements are used to manage the Companys fixed and floating rate debt mix.
Under these agreements, the Company receives interest monthly from the counterparties based upon a
designated London Interbank Offered Rate (LIBOR) and pays interest based upon a designated fixed
rate over the life of the swap agreements.
The Company has two interest rate derivatives (floating to fixed swap agreements recorded as
cash flow hedges) with a total notional amount of $125 million. Under these swap agreements, the
Company receives interest based upon a variable interest rate from the counterparties (weighted
average of 0.27% at July 31, 2010 and 0.25% at October 31, 2009) and pays interest based upon a
fixed interest rate (weighted average of 1.78% at July 31, 2010 and 2.71% at October 31, 2009).
In the first quarter of 2010, the Company entered into a $100.0 million fixed to floating swap
agreement which was recorded as a fair value hedge. Under this swap agreement, the Company received
interest from the counterparty based upon a fixed rate of 6.75% and paid interest based upon a
variable rate on a semi-annual basis. In the third quarter of 2010, the Company terminated this
swap agreement, including any future cash flows. The termination of this swap agreement resulted in
a cash benefit of $3.6 million ($2.2 million, net of tax)
which is included within long-term debt on the balance sheet.
Foreign Exchange Hedges
At July 31, 2010, the Company had outstanding foreign currency forward contracts in the
notional amount of $148.1 million ($70.5 million at October 31, 2009). The purpose of these
contracts is to hedge the Companys exposure to foreign currency transactions and short-term
intercompany loan balances in its international businesses. The fair value of these contracts at
July 31, 2010 resulted in an immaterial gain recorded in the consolidated statements of operations
and a loss of $2.4 million recorded in other comprehensive income. The fair value of similar
contracts at October 31, 2009 resulted in an immaterial loss in the consolidated statements of
operations.
Energy Hedges
The Company has entered into certain cash flow agreements to mitigate its exposure to cost
fluctuations in natural gas prices through October 31, 2010. Under these hedge agreements, the
Company agrees to purchase natural gas at a fixed price. At July 31, 2010, the notional amount of
these hedges was $3.0 million ($4.0 million at October 31, 2009). The other comprehensive loss on
these agreements was $0.1 million at July 31, 2010 and $0.6 million at October 31, 2009. As a
result of the high correlation between the hedged instruments and the underlying transactions,
ineffectiveness has not had a material impact on the Companys consolidated statements of
operations for the quarter ended July 31, 2010.
Other financial instruments
The estimated fair values of the Companys long-term debt were $991.5 million and $744.9
million compared to the carrying amounts of $968.6 million and $738.6 million at July 31, 2010 and
October 31, 2009, respectively. The current portion of the long-term debt was $20.0 million and
$17.5 million at July 31, 2010 and October 31, 2009, respectively. The fair values of the Companys
long-term obligations are estimated based on either the quoted market prices for the same or
similar issues or the current interest rates offered for debt of the same remaining maturities.
16
Non-Recurring Fair Value Measurements
The Company has reviewed its non-financial assets and non-financial liabilities for fair value
treatment under the current guidance.
Net Assets Held for Sale
Net assets held for sale are considered level three inputs which include recent purchase
offers, market comparables and/or data obtained from commercial real estate brokers. As of July 31,
2010, the Company has not recognized impairments related to the net assets held for sale.
Long-Lived Assets
As part of the Companys restructuring plans following current and future acquisitions, the
Company may shut down manufacturing facilities during the next few years. The long-lived assets
are considered level three inputs which were valued based on bids received from third parties and
using discounted cash flow analysis based on assumptions that the Company believes market
participants would use. Key inputs included anticipated revenues, associated manufacturing costs,
capital expenditures and discount, growth and tax rates. For the three-month and nine-month periods
ended July 31, 2010, the Company recorded restructuring related expenses of $2.1 million and $2.4
million, respectively on long lived assets with net book values of $3.5 million and $4.0 million,
respectively over the same period.
Goodwill
On an annual basis, the Company performs its impairment tests for goodwill as defined under
SFAS No. 142,
(codified under ASC 350 Intangibles-Goodwill and Other)
. As a result of this
review during 2009, the Company concluded that no impairment existed at that time. As of July 31,
2010, the Company has concluded that no impairment exists.
NOTE 11 STOCK-BASED COMPENSATION
On November 1, 2005, the Company adopted SFAS No. 123(R), Share-Based Payment
(codified
under ASC 718 Compensation Stock Compensation),
which requires companies to estimate the fair
value of share-based awards on the date of grant using an option-pricing model. The value of the
portion of the award that is ultimately expected to vest is recognized as expense in the Companys
consolidated statements of operations over the requisite service periods. The Company uses the
straight-line single option method of expensing stock options to recognize compensation expense in
its consolidated statements of operations for all share-based awards. Because share-based
compensation expense is based on awards that are ultimately expected to vest, share-based
compensation expense will be reduced to account for estimated forfeitures. SFAS No. 123(R) requires
forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods
if actual forfeitures differ from those estimates. No options have been granted in 2010 and 2009.
For any options granted in the future, compensation expense will be based on the grant date fair
value estimated in accordance with the provisions of SFAS No. 123(R). There was no share-based
compensation expense recognized under SFAS No. 123(R) for the first nine months of 2010 or 2009.
NOTE 12 INCOME TAXES
The quarterly effective tax rate was 18.2% and 22.7% in the third quarter of 2010 and 2009,
respectively. The year to date effective tax rate was 18.9% and 19.5% in the nine month periods
ended July 31, 2010 and 2009, respectively. The change in the effective tax rate is primarily due to a change in
the forecasted mix of income in the United States versus outside the United States for the
respective periods as well as an incremental benefit from an alternative fuel credit.
17
The Company has estimated the reasonably possible expected net change in unrecognized tax
benefits through July 31, 2011 based on expected settlements or payments of uncertain tax
positions, and lapses of the applicable statutes of limitations of unrecognized tax benefits under
FASB Interpretation No. (FIN) 48, Accounting for Uncertainty in Income Taxes. FIN 48 is an
interpretation of SFAS No. 109, Accounting for Income Taxes, and clarifies the accounting for
uncertainty in income tax positions (codified under
ASC 740 Income Taxes). The Company estimates that the range of possible change in
unrecognized tax benefits within the next 12 months is a decrease of approximately zero to $2.8
million. Actual results may differ materially from this estimate.
The Companys uncertain tax positions for the nine months ended July 31, 2010 were reduced by
approximately $1.7 million due to settlements with tax authorities. There were no other significant
changes in the Companys uncertain tax positions for this period.
NOTE 13 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
|
|
|
Nine months ended
|
|
|
|
July 31
|
|
|
July 31
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Service cost
|
|
$
|
2,293
|
|
|
$
|
1,842
|
|
|
$
|
6,879
|
|
|
$
|
5,526
|
|
Interest cost
|
|
|
3,998
|
|
|
|
4,143
|
|
|
|
11,994
|
|
|
|
12,429
|
|
Expected return on plan assets
|
|
|
(4,524
|
)
|
|
|
(4,398
|
)
|
|
|
(13,572
|
)
|
|
|
(13,194
|
)
|
Amortization of prior service cost, initial net asset and net actuarial gain
|
|
|
1,700
|
|
|
|
288
|
|
|
|
5,100
|
|
|
|
864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension costs
|
|
$
|
3,467
|
|
|
$
|
1,875
|
|
|
$
|
10,401
|
|
|
$
|
5,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company made $12.2 million in pension contributions in the nine months ended July 31, 2010. The
Company estimates $17.1 million of pension contributions for the entire 2010 fiscal year.
The components of net periodic cost for postretirement benefits include the following (Dollars
in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
July 31
|
|
|
July 31
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Service cost
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
3
|
|
|
$
|
|
|
Interest cost
|
|
|
283
|
|
|
|
374
|
|
|
|
849
|
|
|
|
1,122
|
|
Amortization of prior service cost and recognized actuarial gain
|
|
|
(251
|
)
|
|
|
(283
|
)
|
|
|
(753
|
)
|
|
|
(849
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic cost for postretirement benefits
|
|
$
|
33
|
|
|
$
|
91
|
|
|
$
|
99
|
|
|
$
|
273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 14 CONTINGENT LIABILITIES
Various lawsuits, claims and proceedings have been or may be instituted or asserted against
the Company, including those pertaining to environmental, product liability and safety and health
matters. While the amounts claimed may be substantial, the ultimate liability cannot now be
determined because of considerable uncertainties that exist. Therefore, it is possible that results
of operations or liquidity in a particular period could be materially affected by certain
contingencies.
All lawsuits, claims and proceedings are considered by the Company in establishing reserves
for contingencies in accordance with SFAS No. 5, Accounting for Contingencies
(codified under
ASC 450 Contingencies).
In accordance with the provisions of this standard, the Company accrues
for a litigation-related liability when it is probable that a liability has been incurred and the
amount of the loss can be reasonably estimated. Based on currently available information known to
the Company, the Company had no recorded legal liabilities at
July 31, 2010 and October 31, 2009. The ultimate outcome of any pending matters is not likely to have a material
adverse effect on the Companys financial position or results from operations.
The most significant contingencies of the Company relate to environmental liabilities. The
following is additional information with respect to these matters.
18
At July 31, 2010 and October 31, 2009, the Company had recorded liabilities of $31.1 million
and $33.4 million, respectively, for estimated environmental remediation costs. The liabilities
were recorded on an undiscounted basis and are included in other long-term liabilities. At July 31,
2010 and October 31, 2009, the Company had recorded environmental liability reserves of $17.4
million and $17.9 million, respectively, for its blending facility in Chicago, Illinois; $9.3
million and $10.9 million, respectively, for various European drum facilities acquired in November
2006; and $2.8 million and $3.4 million, respectively, related to the Companys facility in Lier,
Belgium. These reserves are principally based on environmental studies and cost estimates provided
by third parties, but also take into account management estimates.
These environmental liabilities were not individually material. The
Company only reserves for those unasserted claims that it believes are probable of being asserted
at some time in the future. The liabilities recorded are based upon an evaluation of currently
available facts with respect to each individual site, including the results of environmental
studies and testing, and considering existing technology, presently enacted laws and regulations,
and prior experience in remediation of contaminated sites. The Company initially provides for the
estimated cost of environmental-related activities when costs can be reasonably estimated. If the
best estimate of costs can only be identified as a range and no specific amount within that range
can be determined more likely than any other amount within the range, the minimum of the range is
accrued.
The estimated liabilities are reduced to reflect the anticipated participation of other
potentially responsible parties in those instances where it is probable that such parties are
legally responsible and financially capable of paying their respective shares of relevant costs.
For sites that involve formal actions subject to joint and several liability, these actions have
formal agreements in place to apportion the liability. The Companys potential future obligations
for environmental contingencies related to facilities acquired in the 2001 Van Leer Industrial
Packaging acquisition may, under certain circumstances, be reduced by insurance coverage and seller
cost sharing provisions. In connection with that acquisition, the Company was issued a 10-year term
insurance policy, which insures the Company against environmental contingencies unidentified at the
acquisition date, subject to a $50.0 million aggregate self-insured retention. Liability for this
first $50.0 million of unidentified environmental contingencies is shared 70 percent by the seller
and 30 percent by the Company if such contingency is identified within 10 years following the
acquisition date. The Company is liable for identified environmental contingencies at the
acquisition date up to an aggregate $10.0 million, and thereafter the liability is shared 70
percent by the Company and 30 percent by the seller.
The Company anticipates that cash expenditures in future periods for remediation costs at
identified sites will be made over an extended period of time. Given the inherent uncertainties in
evaluating environmental exposures, actual costs may vary from those estimated at July 31, 2010.
The Companys 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, the
Company believes that the chance of a series of adverse developments occurring in the same quarter
or fiscal year is remote. Future information and developments will require the Company to
continually reassess the expected impact of these environmental matters.
NOTE 15 EARNINGS PER SHARE
Earnings per share
The Company has two classes of common stock and, as such, applies the two-class method of
computing earnings per share as prescribed in SFAS No. 128, Earnings Per Share
(codified under
ASC 260 Earnings Per Share).
In accordance with guidance, earnings are allocated first to
Class A and Class B Common Stock to the extent that dividends are actually paid and the remainder
allocated assuming all of the earnings for the period have been distributed in the form of
dividends.
19
The following table summarizes the Companys Class A and Class B common and treasury shares at
the specified dates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
|
|
|
|
Authorized Shares
|
|
|
Issued Shares
|
|
|
Shares
|
|
|
Treasury Shares
|
|
July 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A Common Stock
|
|
|
128,000,000
|
|
|
|
42,281,920
|
|
|
|
24,731,074
|
|
|
|
17,550,846
|
|
Class B Common Stock
|
|
|
69,120,000
|
|
|
|
34,560,000
|
|
|
|
22,412,266
|
|
|
|
12,147,734
|
|
October 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A Common Stock
|
|
|
128,000,000
|
|
|
|
42,281,920
|
|
|
|
24,474,773
|
|
|
|
17,807,147
|
|
Class B Common Stock
|
|
|
69,120,000
|
|
|
|
34,560,000
|
|
|
|
22,462,266
|
|
|
|
12,097,734
|
|
The following is a reconciliation of the shares used to calculate basic and diluted earnings
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
July 31
|
|
|
July 31
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Class A Common Stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares
|
|
|
24,687,006
|
|
|
|
24,386,195
|
|
|
|
24,623,262
|
|
|
|
24,289,802
|
|
Assumed conversion of stock options
|
|
|
312,895
|
|
|
|
361,572
|
|
|
|
307,577
|
|
|
|
307,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares
|
|
|
24,999,901
|
|
|
|
24,747,767
|
|
|
|
24,930,839
|
|
|
|
24,597,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class B Common Stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted shares
|
|
|
22,444,488
|
|
|
|
22,462,266
|
|
|
|
22,456,340
|
|
|
|
22,480,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No stock options were antidilutive for the three or nine months ended July 31, 2010. There
were no stock options that were antidilutive for the three months ended July 31, 2009 and 20,000
stock options that were antidilutive for the nine months ended July 31, 2009.
Dividends per share
The following dividends per share were paid during the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months ended July 31
|
|
|
Nine Months ended July 31
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Class A Common Stock
|
|
$
|
0.42
|
|
|
$
|
0.38
|
|
|
$
|
1.18
|
|
|
$
|
1.14
|
|
Class B Common Stock
|
|
$
|
0.63
|
|
|
$
|
0.57
|
|
|
$
|
1.76
|
|
|
$
|
1.70
|
|
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 one half (1/2) cent per
share per year. Further distribution in any year must be made in proportion of one cent a share for
Class A Common Stock to one and one-half (1 1/2) 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 or unless changes are proposed to the Companys certificate of
incorporation. The Class B Common Stock has full voting rights. There is no cumulative voting for
the election of directors.
Common stock repurchases
The Companys Board of Directors has authorized the purchase of up to four million shares of
Class A Common Stock or Class B Common Stock or any combination of the foregoing. During the first
nine months of 2010, the Company did not repurchase any shares of Class A Common Stock, but did
purchase 50,000 shares of Class B Common Stock. As of July 31, 2010, the Company had
repurchased 2,883,272 shares, including 1,416,752 shares of Class A Common Stock and 1,466,520
shares of Class B Common Stock, under this program. The total cost of the shares repurchased from
November 1, 2008 through July 31, 2010 was approximately $5.8 million.
20
NOTE
16 EQUITY EARNINGS (LOSSES) OF UNCONSOLIDATED AFFILIATES, NET OF TAX AND NONCONTROLLING
INTERESTS
Equity earnings (losses) of unconsolidated affiliates, net of tax
Equity earnings (losses) of unconsolidated affiliates, net of tax represent investments in
affiliates in which the Company does not exercise control and has a 20 percent or more voting
interest. Such investments in affiliates are accounted for using the equity method of accounting.
If the fair value of an investment in an affiliate is below its carrying value and the difference
is deemed to be other than temporary, the difference between the fair value and the carrying value
is charged to earnings. The Company has an equity interest in six affiliates, and the equity
earnings of these interests were recorded in net income. Equity earnings (losses) of unconsolidated
affiliates, net of tax for the three months ended July 31, 2010 and 2009 were $3.1 and $0.4 million,
respectively. Equity earnings (losses) of unconsolidated affiliates, net of tax for the nine months ended
July 31, 2010 and 2009 were $3.3 and ($0.2) million, respectively. There were no dividends received
from the Companys equity method affiliates for the nine months ended July 31, 2010 and 2009.
Noncontrolling interests
Noncontrolling interests reflect the portion of earnings or losses of operations that are
majority owned by the Company which are applicable to the noncontrolling interest partners.
Noncontrolling interests for the three months ended July 31, 2010 and 2009 were $1.8 million and $1.7
million, respectively. Noncontrolling interests for the nine months ended July 31, 2010 and 2009
were $5.4 million and $2.2 million, respectively, and were deducted from net income to arrive at
net income attributable to Greif, Inc.
NOTE 17 COMPREHENSIVE INCOME
Comprehensive income is comprised of net income and other charges and credits to equity that
are not the result of transactions with the Companys owners. The components of comprehensive
income are as follows (Dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
July 31
|
|
|
July 31
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
(As Adjusted)
|
|
|
|
|
|
(As Adjusted)
|
|
Net income
|
|
$
|
67,759
|
|
|
$
|
39,547
|
|
|
$
|
138,822
|
|
|
$
|
39,275
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
79,050
|
|
|
|
8,989
|
|
|
|
(13,078
|
)
|
|
|
(29,343
|
)
|
Changes in fair value of interest rate derivatives, net of tax
|
|
|
(1,432
|
)
|
|
|
(178
|
)
|
|
|
35
|
|
|
|
610
|
|
Changes in fair value of energy and other derivatives, net of
tax
|
|
|
309
|
|
|
|
1,300
|
|
|
|
298
|
|
|
|
3,217
|
|
Minimum pension liability adjustment, net of tax
|
|
|
136
|
|
|
|
(137
|
)
|
|
|
1,079
|
|
|
|
(728
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
145,822
|
|
|
$
|
49,521
|
|
|
$
|
127,156
|
|
|
$
|
13,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is the income tax benefit (expense) for each other comprehensive income line
items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
July 31
|
|
|
July 31
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
(As Adjusted)
|
|
|
|
|
|
(As Adjusted)
|
|
Income tax benefit (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in fair value of interest rate derivatives, net of tax
|
|
|
771
|
|
|
|
96
|
|
|
|
(19
|
)
|
|
|
(328
|
)
|
Changes in fair value of energy and other derivatives, net of
tax
|
|
|
(166
|
)
|
|
|
(700
|
)
|
|
|
(160
|
)
|
|
|
(1,732
|
)
|
Minimum pension liability adjustment, net of tax
|
|
|
(30
|
)
|
|
|
40
|
|
|
|
(251
|
)
|
|
|
176
|
|
21
NOTE 18 BUSINESS SEGMENT INFORMATION
The Company operates in four business segments: Rigid Industrial Packaging & Services,
Flexible Products & Services, Paper Packaging, and Land Management.
Operations in the Rigid Industrial Packaging & Services segment involve the production and
sale of industrial packaging products, such as steel, fiber and plastic drums, intermediate bulk
containers, closure systems for industrial packaging products, transit protection products,
polycarbonate water bottles and reconditioned containers, and
services, such as container lifecycle management, blending, filling and
other packaging services, logistics and warehousing. These products are manufactured and sold in
over 50 countries throughout the world.
Operations in the Flexible Products & Services segment involve the production, global
distribution and sale of flexible intermediate bulk containers as well as industrial and consumer
multiwall bag products, and related services in the North America market. These products are
manufactured in North America, Europe, the Middle East, and Asia and sold throughout the world.
Operations in the Paper Packaging segment involve the production and sale of containerboard
(both semi-chemical and recycled), corrugated sheets, corrugated containers and related services.
These products are manufactured and sold in North America. Operations
related to the Companys industrial and consumer
multiwall bag products have been reclassified from this segment to the Flexible Products &
Services segment.
Operations in the Land Management segment involve the management and sale of timber and
special use properties from approximately 267,000 acres of timber properties in the southeastern
United States. The Company also owns approximately 24,700 acres of timber properties in Canada,
which are not actively managed at this time. In addition, the Company sells, from time to time,
timberland and special use land, which consists of surplus land, higher and better use land, and
development land.
The Companys reportable segments are strategic business units that offer different products.
The accounting policies of the reportable segments are substantially the same as those described in
the Description of Business and Summary of Significant Accounting Policies note (see Note 1) in
the 2009 Form 10-K.
22
The following segment information is presented for the periods indicated (Dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
July 31
|
|
|
July 31
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
(As Adjusted)
|
|
|
|
|
|
(As Adjusted)
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rigid Industrial Packaging & Services
|
|
$
|
681,709
|
|
|
$
|
594,236
|
|
|
$
|
1,883,017
|
|
|
$
|
1,650,825
|
|
Flexible Products & Services
|
|
|
66,938
|
|
|
|
9,222
|
|
|
|
128,679
|
|
|
|
29,120
|
|
Paper Packaging
|
|
|
168,758
|
|
|
|
110,971
|
|
|
|
444,548
|
|
|
|
339,522
|
|
Land Management
|
|
|
3,928
|
|
|
|
3,138
|
|
|
|
11,351
|
|
|
|
12,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
921,333
|
|
|
$
|
717,567
|
|
|
$
|
2,467,595
|
|
|
$
|
2,031,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit, before the impact of restructuring
charges, restructuring-related inventory charges
and acquisition-related costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rigid Industrial Packaging & Services
|
|
$
|
79,417
|
|
|
$
|
67,467
|
|
|
$
|
206,836
|
|
|
$
|
117,406
|
|
Flexible Products & Services
|
|
|
5,747
|
|
|
|
1,754
|
|
|
|
12,277
|
|
|
|
5,085
|
|
Paper Packaging
|
|
|
23,337
|
|
|
|
4,578
|
|
|
|
34,784
|
|
|
|
27,095
|
|
Land Management
|
|
|
2,522
|
|
|
|
4,340
|
|
|
|
6,013
|
|
|
|
9,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit, before the impact of restructuring
charges, restructuring-related inventory charges and
acquisition-related costs
|
|
|
111,023
|
|
|
|
78,139
|
|
|
|
259,910
|
|
|
|
159,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rigid Industrial Packaging & Services
|
|
|
5,259
|
|
|
|
10,022
|
|
|
|
15,933
|
|
|
|
54,760
|
|
Flexible Products & Services
|
|
|
45
|
|
|
|
|
|
|
|
45
|
|
|
|
|
|
Paper Packaging
|
|
|
4,475
|
|
|
|
245
|
|
|
|
4,588
|
|
|
|
2,828
|
|
Land Management
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring charges
|
|
|
9,779
|
|
|
|
10,277
|
|
|
|
20,566
|
|
|
|
57,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring-related inventory charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rigid Industrial Packaging & Services
|
|
|
94
|
|
|
|
830
|
|
|
|
131
|
|
|
|
10,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring-related inventory charges
|
|
|
94
|
|
|
|
830
|
|
|
|
131
|
|
|
|
10,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition-related costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rigid Industrial Packaging & Services
|
|
|
2,587
|
|
|
|
|
|
|
|
6,390
|
|
|
|
|
|
Flexible Products & Services
|
|
|
2,889
|
|
|
|
|
|
|
|
13,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total acquisition-related costs
|
|
|
5,476
|
|
|
|
|
|
|
|
20,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating profit
|
|
$
|
95,674
|
|
|
$
|
67,032
|
|
|
$
|
219,094
|
|
|
$
|
91,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rigid Industrial Packaging & Services
|
|
$
|
18,394
|
|
|
$
|
18,058
|
|
|
$
|
59,585
|
|
|
$
|
53,071
|
|
Flexible Products & Services
|
|
|
902
|
|
|
|
398
|
|
|
|
1,882
|
|
|
|
764
|
|
Paper Packaging
|
|
|
7,801
|
|
|
|
5,818
|
|
|
|
21,611
|
|
|
|
19,220
|
|
Land Management
|
|
|
652
|
|
|
|
770
|
|
|
|
1,850
|
|
|
|
1,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation, depletion and amortization expense
|
|
$
|
27,749
|
|
|
$
|
25,044
|
|
|
$
|
84,928
|
|
|
$
|
74,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2010
|
|
|
October 31, 2009
|
|
|
|
|
|
|
(As Adjusted)
|
|
Assets:
|
|
|
|
|
|
|
|
|
Rigid Industrial Packaging & Services
|
|
$
|
1,960,887
|
|
|
$
|
1,783,821
|
|
Flexible Products & Services
|
|
|
177,953
|
|
|
|
15,296
|
|
Paper Packaging
|
|
|
434,813
|
|
|
|
402,787
|
|
Land Management
|
|
|
273,827
|
|
|
|
254,856
|
|
|
|
|
|
|
|
|
Total segments
|
|
|
2,847,480
|
|
|
|
2,456,760
|
|
|
|
|
|
|
|
|
Corporate and other
|
|
|
369,778
|
|
|
|
367,169
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,217,258
|
|
|
$
|
2,823,929
|
|
|
|
|
|
|
|
|
23
The following table presents net sales to external customers by geographic area (Dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended July 31,
|
|
|
Nine months ended July 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
(As Adjusted)
|
|
|
|
|
|
(As Adjusted)
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
465,268
|
|
|
$
|
374,636
|
|
|
$
|
1,247,095
|
|
|
$
|
1,129,996
|
|
Europe, Middle East and Africa
|
|
|
313,756
|
|
|
|
233,504
|
|
|
|
826,674
|
|
|
|
608,215
|
|
Other
|
|
|
142,309
|
|
|
|
109,427
|
|
|
|
393,826
|
|
|
|
293,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
921,333
|
|
|
$
|
717,567
|
|
|
$
|
2,467,595
|
|
|
$
|
2,031,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents total assets by geographic area (Dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
July 31, 2010
|
|
|
October 31, 2009
|
|
|
|
|
|
|
(As Adjusted)
|
|
Assets:
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
1,960,081
|
|
|
$
|
1,826,840
|
|
Europe, Middle East and Africa
|
|
|
757,489
|
|
|
|
601,841
|
|
Other
|
|
|
499,688
|
|
|
|
395,248
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,217,258
|
|
|
$
|
2,823,929
|
|
|
|
|
|
|
|
|
ITEM 2.
MANAGEMENTS 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 2010 or 2009, or to any quarter
of those years, relates to the fiscal year or quarter, as the case may be, ending in that year.
The discussion and analysis presented below relates to the material changes in financial
condition and results of operations for our consolidated balance sheets as of July 31, 2010 and
October 31, 2009, and for the consolidated statements of
operations for the three and nine months ended
July 31, 2010 and 2009. This discussion and analysis should be read in conjunction with the
consolidated financial statements that appear elsewhere in this Form 10-Q and Managements
Discussion and Analysis of Financial Condition and Results of Operations included in our Annual
Report on Form 10-K for the fiscal year ended October 31, 2009 (the 2009 Form 10-K) and our Form
8-K filed on May 27, 2010 (the May 27 Form 8-K) to update certain sections of the 2009 Form 10-K
to reflect revised financial information and disclosures resulting from the application of a change
in an accounting principle from using a combination of the last-in, first-out (LIFO) and the
first-in, first-out (FIFO) inventory accounting methods to the FIFO method for all of our
businesses effective November 1, 2009. All references in this Form 10-Q to the 2009 Form 10-K also
include the financial information and disclosures contained in the May 27 Form 8-K. Readers are
encouraged to review the entire 2009 Form 10-K, as it includes information regarding Greif not
discussed in this Form 10-Q. This information will assist in your understanding of the discussion
of our current period financial results.
All statements, other than statements of historical facts, included in this Form 10-Q,
including without limitation, statements regarding our future financial position, business
strategy, budgets, projected costs, goals and plans and objectives of management for future
operations, are forward-looking statements within the meaning of Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Forward-looking statements generally can be identified by the use of forward-looking terminology
such as may, will, expect, intend, estimate, anticipate, project, believe,
continue, on track or target or the negative thereof or variations thereon or similar
terminology. All forward-looking statements made in this Form 10-Q are based on information
currently 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 might cause a difference
include, but are not limited to, the following: (i) the current and future challenging global
economy may adversely affect our business, (ii) historically our business has been sensitive to
changes in general economic or business conditions, (iii) our operations are subject to currency
exchange and political risks, (iv) we operate in highly competitive industries, (v) our business is
sensitive to changes in industry demands, (vi) the continuing consolidation of our customer base
24
may
intensify pricing pressure, (vii) raw material and energy price fluctuations and shortages may adversely impact our manufacturing operations and costs, (viii)
tax legislation initiatives or challenges to our tax positions may adversely impact our financial
results or condition, (ix) we may encounter difficulties arising from our acquisitions or joint
ventures, or both (x) environmental and health and safety matters and product liability claims may
adversely impact our operations or financial performance, (xi) our business may be adversely
impacted by work stoppages and other labor relations disputes, (xii) we may be subject to losses that might
not be covered in whole or in part by existing insurance reserves or insurance coverage, (xiii) the
volatility in the frequency and volume of our timber and timberland sales impacts our financial
performance, and (xiv) our restructuring efforts may not realize the expected benefits. The risks
described above are not all inclusive and given these and other possible risks and uncertainties,
investors should not place undue reliance on forward-looking statements as a prediction of actual
results. For a more detailed discussion of the most significant risks and uncertainties that could
cause Greifs actual results to differ materially from those projected, see Risk Factors in Part
I, Item 1A of the 2009 Form 10-K, updated by Part II, Item 1A of this Form 10-Q. All
forward-looking statements made in this Form 10-Q are expressly qualified in their entirety by
reference to such risk factors. Except to the limited extent required by applicable law, Greif
undertakes no obligation to update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise.
OVERVIEW
We operate in four business segments: Rigid Industrial Packaging & Services; Flexible
Products & Services; Paper Packaging; and Land Management.
We are a leading global provider of rigid industrial packaging products, such as steel, fibre
and plastic drums, rigid intermediate bulk containers, closure systems for industrial packaging
products, transit protection products, polycarbonate water bottles and reconditioned containers, and
services, such as container lifecycle management, blending, filling and other packaging services, logistics and warehousing. We
sell our industrial packaging products to customers in industries such as chemicals, paints and
pigments, food and beverage, petroleum, industrial coatings, agricultural, pharmaceutical and
mineral, among others.
We are a leading global provider of flexible intermediate bulk containers and North American
provider of industrial and consumer multiwall bag products. Our flexible intermediate bulk
containers consist of a polypropylene-based woven fabric that is partly produced at our fully
integrated production sites, as well as sourced from strategic regional suppliers. Our flexible
products are sold globally and service similar customers and market segments as our Rigid
Industrial Packaging & Services segment. Additionally, our flexible products significantly expand
our presence in the agricultural and food industries, among others. Our industrial and consumer
multiwall bag products are used to ship a wide range of industrial and consumer products, such as
seed, fertilizers, chemicals, concrete, flour, sugar, feed, pet foods, popcorn, charcoal and salt,
primarily for the agricultural, chemical, building products and food industries.
We sell containerboard, corrugated sheets and other corrugated products to customers in North
America in industries such as packaging, automotive, food and building products. 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. Operations related to our industrial and consumer multiwall bag products have been
reclassified to our Flexible Products & Services segment.
As of July 31, 2010, we owned approximately 267,000 acres of timber properties in the
southeastern United States, which were actively managed, and approximately 24,700 acres of timber
properties in Canada. Our Land Management team is focused on the active harvesting and
regeneration of our United States timber properties to achieve sustainable long-term yields. While
timber sales are subject to fluctuations, we seek to maintain a consistent cutting schedule, within
the limits of market and weather conditions. We also sell, from time to time, timberland and
special use land, which consists of surplus land, higher and better use (HBU) land, and
development land.
In 2003, we began a transformation to become a leaner, more market-focused, performance-driven
company what we call the Greif Business System. We believe the Greif Business System has and
will continue to generate productivity improvements and achieve permanent cost reductions. The
Greif Business System continues to focus on opportunities such as improved labor productivity,
material yield and other manufacturing efficiencies, along with further plant consolidations. In
addition, as part of the Greif Business System, we have 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. In response to the economic slowdown that began at the end of 2008, we
accelerated the implementation of certain Greif Business System initiatives.
25
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 these principles, require us to make estimates and
assumptions that affect the reported amount of assets and liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities at the date of our consolidated financial
statements.
Our significant accounting policies are discussed in Part II, Item 7 Managements Discussion
and Analysis of Financial Condition and Results of Operation of the 2009 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 results of operations and
financial condition. The following accounting policy is important to the portrayal of our results
of operations and financial condition for the three and nine-month periods ended July 31, 2010.
Inventory.
At the beginning of fiscal 2010, we changed our method of accounting for
inventories at certain of our U.S. locations from the lower of cost, as determined by the LIFO
method of accounting, or market to the lower of cost, as determined by the FIFO method of
accounting, or market. We believe that this change is preferable because: (1) the change conforms
to a single method of accounting for all of our inventories on a U.S. and global basis, (2) the
change simplifies financial disclosures, (3) financial statement comparability and analysis for
investors and analysts is improved, and (4) the majority of our key competitors use FIFO. The
financial information presented has been adjusted for all prior periods presented as if we had used
FIFO instead of LIFO for each reporting period for all of our operations. The change in accounting
principle is further discussed in Note 4 to the Consolidated Financial Statements included in this
Form 10-Q.
Other Items.
Other items that could have a significant impact on the financial statements
include the risks and uncertainties listed in Part I, Item 1ARisk Factors, of the 2009 Form 10-K,
as updated by Part II, Item 1A of this Form 10-Q. Actual 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 nine-month periods
ended July 31, 2010 and 2009. 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 the impact of restructuring charges,
restructuring-related inventory charges and acquisition-related costs is used throughout the
following discussion of our results of operations. Operating profit before the impact of
restructuring charges, restructuring-related inventory charges and acquisition-related costs is
equal to operating profit plus restructuring charges, restructuring-related inventory charges and
acquisition-related costs. We use operating profit before the impact of restructuring charges,
restructuring-related inventory charges and acquisition-related costs because we believe that this
measure provides a better indication of our operational performance because it excludes
restructuring charges, restructuring-related inventory charges and acquisition-related costs, which
are not representative of ongoing operations, and it provides a more stable platform on which to
compare our historical performance.
As discussed in Critical Accounting Policies, at the beginning of fiscal 2010, we changed
our method of accounting for inventories at certain of our U.S. locations from the LIFO method of
accounting to the FIFO method of accounting. The financial information presented in Results of
Operations has been adjusted for all prior periods presented as if we had used the FIFO method of
accounting instead of the LIFO method of accounting for each reporting period for all of our
operations. Refer to the May 27 Form 8-K which updated certain sections of the 2009 Form 10-K for
revised financial information and disclosures resulting from the application of a change in an
accounting principle from using a combination of the LIFO and the FIFO inventory accounting methods
to the FIFO method for all of our businesses effective November 1, 2009.
In the second quarter of 2010, we acquired Storsack Holding GmbH and its subsidiaries
(Storsack), which is the worlds largest producer of flexible intermediate bulk containers.
Based on an analysis of the qualitative and quantitative standards, Storsacks results are included
in a new reporting segment called Flexible Products & Services. Our multiwall bag operations,
previously included in the Paper Packaging segment, are also included in Flexible Products &
Services. The Industrial Packaging segment has been renamed Rigid Industrial Packaging & Services.
26
Third Quarter Results
Overview
Net sales increased 28 percent to $921.3 million in the third quarter of 2010 compared to
$717.6 million in the third quarter of 2009. The 28 percent increase was due to higher sales
volumes (23 percent or 10 percent excluding acquisitions) and higher selling prices (5 percent).
The $203.7 million increase was due to Rigid Industrial Packaging & Services ($87.5 million
increase), Flexible Products & Services ($57.7 million increase), Paper Packaging ($57.8 million
increase) and Land Management ($0.7 million increase).
Operating profit was $95.7 million and $67.0 million in the third quarter of 2010 and 2009,
respectively. Operating profit before the impact of restructuring charges, restructuring-related
inventory charges and acquisition-related costs was $111.1 million for the third quarter of 2010
compared to $78.1 million for the third quarter of 2009. The
$33.0 million increase in operating deficit before the impact of
restructuring charges, restructuringrelated inventory charges
and acquisitionrelated costs was due to
Rigid Industrial Packaging & Services ($11.9 million increase), Flexible Products & Services ($4.0
million increase) and Paper Packaging ($18.9 million increase), partially offset by Land Management
($1.8 million decrease).
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 July 31,
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
(As Adjusted)
|
|
Net Sales
|
|
|
|
|
|
|
|
|
Rigid Industrial Packaging & Services
|
|
$
|
681,709
|
|
|
$
|
594,236
|
|
Flexible Products & Services
|
|
|
66,938
|
|
|
|
9,222
|
|
Paper Packaging
|
|
|
168,758
|
|
|
|
110,971
|
|
Land Management
|
|
|
3,928
|
|
|
|
3,138
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
921,333
|
|
|
$
|
717,567
|
|
|
|
|
|
|
|
|
Operating Profit:
|
|
|
|
|
|
|
|
|
Operating profit, before the impact of
restructuring charges, restructuring-related
inventory charges and
acquisition-related costs:
|
|
|
|
|
|
|
|
|
Rigid Industrial Packaging & Services
|
|
$
|
79,417
|
|
|
$
|
67,467
|
|
Flexible Products & Services
|
|
|
5,747
|
|
|
|
1,754
|
|
Paper Packaging
|
|
|
23,337
|
|
|
|
4,578
|
|
Land Management
|
|
|
2,522
|
|
|
|
4,340
|
|
|
|
|
|
|
|
|
Total operating profit before the impact of
restructuring charges,
restructuring-related inventory charges and
acquisition-related costs:
|
|
$
|
111,023
|
|
|
$
|
78,139
|
|
|
|
|
|
|
|
|
Restructuring charges:
|
|
|
|
|
|
|
|
|
Rigid Industrial Packaging & Services
|
|
$
|
5,259
|
|
|
$
|
10,022
|
|
Flexible Products & Services
|
|
|
45
|
|
|
|
|
|
Paper Packaging
|
|
|
4,475
|
|
|
|
245
|
|
Land Management
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
Restructuring charges
|
|
$
|
9,779
|
|
|
$
|
10,277
|
|
|
|
|
|
|
|
|
Restructuring-related inventory charges:
|
|
|
|
|
|
|
|
|
Rigid Industrial Packaging & Services
|
|
$
|
94
|
|
|
$
|
830
|
|
Acquisition-related costs:
|
|
|
|
|
|
|
|
|
Rigid Industrial Packaging & Services
|
|
$
|
2,587
|
|
|
$
|
|
|
Flexible Products & Services
|
|
|
2,889
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition-related costs
|
|
$
|
5,476
|
|
|
$
|
|
|
|
|
|
|
|
|
|
Operating profit:
|
|
|
|
|
|
|
|
|
Rigid Industrial Packaging & Services
|
|
$
|
71,477
|
|
|
$
|
56,615
|
|
Flexible Products & Services
|
|
|
2,813
|
|
|
|
1,754
|
|
Paper Packaging
|
|
|
18,862
|
|
|
|
4,333
|
|
Land Management
|
|
|
2,522
|
|
|
|
4,330
|
|
|
|
|
|
|
|
|
Total operating profit
|
|
$
|
95,674
|
|
|
$
|
67,032
|
|
|
|
|
|
|
|
|
27
Segment Review
Rigid Industrial Packaging & Services
Our Rigid Industrial Packaging & Services segment offers a comprehensive line of industrial
packaging products, such as steel, fibre and plastic drums, intermediate bulk containers, closure
systems for industrial packaging products, transit protection products, polycarbonate water
bottles and reconditioned containers, and services, such as container
lifecycle management, blending, filling and other packaging
services, logistics and warehousing. The key factors influencing profitability in the Rigid
Industrial Packaging & Services segment are:
|
|
|
Selling prices, customer demand and sales volumes;
|
|
|
|
|
Raw material costs, primarily steel, resin and containerboard;
|
|
|
|
|
Energy and transportation costs;
|
|
|
|
|
Benefits from executing the Greif Business System;
|
|
|
|
|
Restructuring charges;
|
|
|
|
|
Contributions from recent acquisitions;
|
|
|
|
|
Divestiture of business units; and
|
|
|
|
|
Impact of foreign currency translation.
|
In this segment, net sales were $681.7 million in the third quarter of 2010 compared to $594.2
million in the third quarter of 2009. The 15 percent increase in net sales was due to higher sales
volumes (11 percent or 6 percent excluding acquisitions) and higher selling prices (5 percent) due
to the pass-through of higher input costs, partially offset by the impact of foreign currency
translation (1 percent).
Operating profit was $71.5 million in the third quarter of 2010 and $56.7 million in the third
quarter of 2009. Operating profit before the impact of restructuring charges, restructuring-related
inventory charges and acquisition-related costs increased to $79.4 million in the third quarter of
2010 from $67.5 million in the third quarter of 2009. The
$11.9 million increase in operating profit before the impact of
restructuring charges, restructuring-related inventory charges and
acquisition-related costs was primarily due
to higher sales volumes, slight margin expansion, disciplined execution of the Greif Business
System and further benefits from the permanent cost savings achieved during 2009.
Flexible Products & Services
Our Flexible Products & Services segment offers a comprehensive line of flexible products,
such as flexible intermediate bulk containers and multiwall bags. The key factors influencing
profitability in the Flexible Products & Services segment are:
|
|
|
Selling prices, customer demand and sales volumes;
|
|
|
|
|
Raw material costs, primarily resin and containerboard;
|
|
|
|
|
Energy and transportation costs;
|
|
|
|
|
Benefits from executing the Greif Business System;
|
|
|
|
|
Contributions from recent acquisitions; and
|
|
|
|
|
Impact of foreign currency translation.
|
In this segment, net sales were $66.9 million in the third quarter of 2010 compared to $9.2
million in the third quarter of 2009. The increase was primarily due to the acquisition of Storsack
during the second quarter of 2010. Both periods included our multiwall bag
operations, which were previously included in the Paper Packaging
segment, but which have been
reclassified to conform to the current years presentation.
28
Operating profit was $2.8 million in the third quarter of 2010 and $1.8 million in the third
quarter of 2009. Operating profit before the impact of restructuring charges and
acquisition-related costs increased to $5.8 million in the third quarter of 2010 from $1.8 million
in the third quarter of 2009 primarily as a result of the Storsack acquisition in the second
quarter of 2010.
Paper Packaging
Our Paper Packaging segment sells containerboard, corrugated sheets, and corrugated containers
in North America. The key factors influencing profitability in the Paper Packaging segment are:
|
|
|
Selling prices, customer demand and sales volumes;
|
|
|
|
|
Raw material costs, primarily old corrugated containers;
|
|
|
|
|
Energy and transportation costs;
|
|
|
|
|
Benefits from executing the Greif Business System;
|
|
|
|
|
Contributions from recent acquisitions; and
|
|
|
|
|
Restructuring charges.
|
In this segment, net sales were $168.8 million in the third quarter of 2010 compared to $116.0
million in the third quarter of 2009. The 46 percent increase in
net sales was due to higher sales volumes, recent acquisitions and higher selling prices.
Operating profit was $18.9 million and $4.2 million in the third quarter of 2010 and 2009,
respectively. Operating profit before the impact of restructuring charges increased to $23.4
million in the third quarter of 2010 from $4.5 million in the third quarter of 2009 primarily due
to higher sales volumes, improved selling prices, recent acquisitions and disciplined execution of
the Greif Business System.
Land Management
As of July 31, 2010, our Land Management segment consists of approximately 267,000 acres of
timber properties in the southeastern United States, which are actively harvested and regenerated,
and approximately 24,700 acres in Canada. The key factors influencing profitability in the Land
Management segment are:
|
|
|
Planned level of timber sales;
|
|
|
|
|
Selling prices and customer demand;
|
|
|
|
|
Gains (losses) on sale of timberland; and
|
|
|
|
|
Gains on the sale of special use properties (surplus, HBU, and development properties).
|
Net sales were $3.9 million and $3.2 million in the third quarter of 2010 and 2009,
respectively.
Operating profit was $2.5 million and $4.3 million in the third quarter of 2010 and 2009,
respectively. Included in these amounts were profits from the sale of special use properties
(surplus, HBU, and development properties) of $1.3 million and $3.9 million in the third quarters
of 2010 and 2009, respectively.
29
Other Income Statement Changes
Cost of products sold
Cost of products sold, as a percentage of net sales, decreased to 79 percent for the third
quarter of 2010 compared to 81 percent for the third quarter of 2009. The lower cost of products
sold, as a percentage of net sales, was primarily due to higher sales volumes, slight margin
expansion, disciplined execution of the Greif Business System and further benefits from the
permanent cost savings achieved during 2009.
Selling, general and administrative (SG&A) expenses
SG&A expenses were $90.5 million, or 10 percent of net sales, in the third quarter of 2010
compared to $67.3 million, or 9 percent of net sales, in the third quarter of 2009. The increase in
SG&A expenses was primarily due to the inclusion of SG&A of acquired companies, acquisition-related
costs, and higher employment-related costs as compared to the same period in 2009, when normal
increases and certain benefits were curtailed.
Restructuring charges
The focus of the 2010 restructuring activities is primarily related to the business
realignment due to the economic downturn and further implementation
of the Greif Business System.
During the third quarter of 2010, we recorded restructuring charges of $9.7 million, consisting of
$4.7 million in employee separation costs, $2.1 million in asset impairments and $2.9 million in
other costs.
The focus of the 2009 restructuring activities was on business realignment due to the economic
downturn. During the third quarter of 2009, we recorded restructuring charges of $10.3 million,
consisting of $4.7 million in employee separation costs, $1.7 million in asset impairments, and
$3.9 million in other costs.
Gain on disposal of properties, plants and equipment, net
During
the third quarter of 2010, we recorded gains on disposals of properties, plants and
equipment, net of $4.9 million, primarily from gains on the sale of properties in the Rigid
Industrial Packaging & Services segment of $2.0 million,
the sale of equipment in the Paper Packaging segment
of $1.6 million and the sale of special use properties (surplus, HBU, and development properties) in the Land
Management segment of $1.3 million. During the third quarter of
2009, we recorded gains on
disposals of properties, plants and equipment, net of $5.3 million, primarily from gains on the sale
of properties in the Rigid Industrial Packaging & Services segment of $1.4 million and special use
properties (surplus, HBU, and development properties) in the Land Management segment of $3.9
million.
Interest expense, net
Interest expense, net was $16.0 million and $12.1 million for the third quarter of 2010 and
2009, respectively. The increase in interest expense, net was primarily attributable to a higher
amount of average debt outstanding and an increase in our borrowing costs. We refinanced our senior
secured credit facility in February 2009 and also issued new senior notes in July 2009, both at
higher interest rates.
Other expense, net
Other expense, net was $0.7 million and $4.2 million for the third quarter of 2010 and 2009,
respectively. The decrease in other expense, net was primarily due to fees associated with the sale
of non-United States account receivable as well as favorable foreign currency exchange translation
in the third quarter of 2010 compared to the third quarter of 2009.
Income tax expense
The effective tax rate was 18.2% in the third quarter of 2010 compared to an adjusted
effective tax rate of 22.7% in the third quarter of 2009. The change in the effective tax rate was
primarily due to a change in the forecasted mix of income in the United States versus outside the
United States for the respective periods as well as an incremental benefit from an alternative fuel
credit.
30
Equity earnings of unconsolidated affiliates, net of tax
During the third quarter of 2010 and 2009, we recorded equity earnings of unconsolidated
affiliates, net of tax of $3.1 million and $0.4 million, respectively.
Noncontrolling interests
Noncontrolling interests reflect the portion of earnings or losses of operations that are
majority owned by us which are applicable to the noncontrolling interest partners. During the
third quarter of 2010 and 2009, noncontrolling interests were $1.8 million and $1.7 million,
respectively, and were deducted from net income to arrive at net income attributable to us.
Net income
Based on the foregoing, we recorded net income of $65.8 million for the third quarter of 2010
compared to net income of $37.8 million in the third quarter of 2009.
Year-to-Date Results
Overview
Net sales increased 22 percent (19 percent excluding the impact of foreign currency
translation) to $2,467.6 million in the first nine months of 2010 compared to $2,031.7 million in
the first nine months of 2009. The $435.9 million increase was due to Rigid Industrial Packaging &
Services ($232.2 million increase), Flexible Products & Services ($99.6 million increase) and Paper
Packaging ($105.0 million increase), slightly offset by Land Management ($0.9 million decrease).
Operating profit was $219.1 million and $91.7 million in the first nine months of 2010 and
2009, respectively. Operating profit before the impact of restructuring charges,
restructuring-related inventory charges and acquisition-related costs was $259.9 million for the
first nine months of 2010 compared to $159.5 million for the first nine months of 2009. The $100.4
million increase in operating profit before the impact of
restructuring charges, restructuring-related inventory charges and
acquisition-related costs was principally due to higher operating profit in Rigid Industrial Packaging &
Services ($89.4 million increase), Flexible Products & Services ($7.2 million increase) and Paper
Packaging ($7.7 million increase), partially offset by Land Management ($3.9 million decrease).
31
The following table sets forth the net sales and operating profit for each of our
business segments (Dollars in thousands):
|
|
|
|
|
|
|
|
|
For the nine months ended July 31,
|
|
2010
|
|
|
2009
|
|
Net Sales
|
|
|
|
|
|
|
|
|
Rigid Industrial Packaging & Services
|
|
$
|
1,883,017
|
|
|
$
|
1,650,825
|
|
Flexible Products & Services
|
|
|
128,679
|
|
|
|
29,120
|
|
Paper Packaging
|
|
|
444,548
|
|
|
|
339,522
|
|
Land Management
|
|
|
11,351
|
|
|
|
12,257
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
2,467,595
|
|
|
$
|
2,031,724
|
|
|
|
|
|
|
|
|
Operating Profit:
|
|
|
|
|
|
|
|
|
Operating profit, before the impact of
restructuring charges, restructuring-related
inventory charges and acquisition-related
costs:
|
|
|
|
|
|
|
|
|
Rigid Industrial Packaging & Services
|
|
$
|
206,836
|
|
|
$
|
117,406
|
|
Flexible Products & Services
|
|
|
12,277
|
|
|
|
5,085
|
|
Paper Packaging
|
|
|
34,784
|
|
|
|
27,095
|
|
Land Management
|
|
$
|
6,013
|
|
|
$
|
9,924
|
|
|
|
|
|
|
|
|
Total operating profit before
the impact of restructuring
charges, restructuring-related
inventory charges and
acquisition related costs:
|
|
$
|
259,910
|
|
|
$
|
159,510
|
|
|
|
|
|
|
|
|
Restructuring charges:
|
|
|
|
|
|
|
|
|
Rigid Industrial Packaging & Services
|
|
$
|
15,933
|
|
|
$
|
54,760
|
|
Flexible Products & Services
|
|
|
45
|
|
|
|
|
|
Paper Packaging
|
|
|
4,588
|
|
|
|
2,828
|
|
Land Management
|
|
|
|
|
|
|
160
|
|
|
|
|
|
|
|
|
Restructuring charges
|
|
$
|
20,566
|
|
|
$
|
57,748
|
|
|
|
|
|
|
|
|
Restructuring-related inventory charges:
|
|
|
|
|
|
|
|
|
Rigid Industrial Packaging & Services
|
|
$
|
131
|
|
|
$
|
10,115
|
|
Acquisition-related costs:
|
|
|
|
|
|
|
|
|
Rigid Industrial Packaging & Services
|
|
$
|
6,390
|
|
|
$
|
|
|
Flexible Products & Services
|
|
|
13,729
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition-related costs
|
|
$
|
20,119
|
|
|
$
|
|
|
|
|
|
|
|
|
|
Operating profit (loss):
|
|
|
|
|
|
|
|
|
Rigid Industrial Packaging & Services
|
|
$
|
184,382
|
|
|
$
|
52,531
|
|
Flexible Products & Services
|
|
|
(1,497
|
)
|
|
|
5,085
|
|
Paper Packaging
|
|
|
30,196
|
|
|
|
24,267
|
|
Land Management
|
|
|
6,013
|
|
|
|
9,764
|
|
|
|
|
|
|
|
|
Total operating profit
|
|
$
|
219,094
|
|
|
$
|
91,647
|
|
|
|
|
|
|
|
|
Segment Review
Rigid Industrial Packaging & Services
Our Rigid Industrial Packaging & Services segment offers a comprehensive line of industrial
packaging products, such as steel, fibre and plastic drums, intermediate bulk containers, closure
systems for industrial packaging products, transit protection products, polycarbonate water
bottles and reconditioned containers, and services, such as container
lifecycle management, blending, filling and other packaging
services, logistics and warehousing. The key factors influencing profitability in the Rigid
Industrial Packaging & Services segment are:
|
|
|
Selling prices and sales volumes;
|
|
|
|
Raw material costs, primarily steel, resin and containerboard;
|
|
|
|
Energy and transportation costs;
|
|
|
|
|
Benefits from executing the Greif Business System;
|
32
|
|
|
Contributions from recent acquisitions;
|
|
|
|
Divestiture of business units; and
|
|
|
|
Impact of foreign currency translation.
|
In this segment, net sales increased to $1,883.0 million in the first nine months of 2010
compared to $1,650.8 million in the first nine months of 2009 an increase of 14 percent
excluding the impact of foreign currency translation. The increase in net sales was primarily
attributable to the higher sales volumes and higher selling prices due to the pass-through of
higher input costs in most of the Rigid Industrial Packaging & Services businesses.
Operating profit was $184.4 million in the first nine months of 2010 compared to $52.6 million
in the first nine months of 2009. Operating profit before the impact of restructuring charges,
restructuring-related inventory charges and acquisition-related costs increased to $206.8 million
in the first nine months of 2010 compared to $117.4 million in the first nine months of 2009. The
$89.4 million increase was primarily due to higher sales volumes, slight margin expansion,
disciplined execution of the Greif Business System and further benefits from the permanent cost
savings achieved during 2009.
Flexible Products & Services
Our Flexible Products & Services segment offers a comprehensive line of flexible industrial
packaging products, such as flexible intermediate bulk containers and multiwall bags. The key
factors influencing profitability in the Flexible Products & Services segment are:
|
|
|
Selling prices, customer demand and sales volumes;
|
|
|
|
Raw material costs, primarily resin and containerboard;
|
|
|
|
Energy and transportation costs;
|
|
|
|
Benefits from executing the Greif Business System;
|
|
|
|
Contributions from recent acquisitions; and
|
|
|
|
Impact of foreign currency translation.
|
In this segment, net sales were $128.7 million in the first nine months of 2010 compared to
$29.1 million in the first nine months of 2009. The increase was primarily due to the acquisition
of Storsack during the second quarter of 2010. Both periods include our multiwall bag operations,
which were previously included in the Paper Packaging segment but
which have been reclassified to conform to the
current years presentation.
Operating loss was $1.5 million in the first nine months of 2010 and operating profit was $5.1
million in the first nine months of 2009. Operating profit before the impact of restructuring
charges and acquisition-related costs increased to $12.3 million in the first nine months of 2010
from $5.1 million in the first nine months of 2009 primarily as a result of the Storsack
acquisition in the second quarter of 2010.
Paper Packaging
Our Paper Packaging segment sells containerboard, corrugated sheets, and corrugated containers
in North America. The key factors influencing profitability in the Paper Packaging segment are:
|
|
|
Selling prices, customer demand and sales volumes;
|
|
|
|
|
Raw material costs, primarily old corrugated containers;
|
33
|
|
|
Energy and transportation costs;
|
|
|
|
Benefits from executing the Greif Business System;
|
|
|
|
Contributions from recent acquisition, and
|
In this segment, net sales were $444.5 million in the first nine months of 2010 compared to
$339.5 million in the first nine months of 2009. The increase in net sales was principally due to
strong volume recovery, recent acquisitions and higher selling prices in the first nine months of
2010 compared to first nine months of 2009.
Operating profit was $30.2 million and $24.3 million in the first nine months of 2010 and
2009, respectively. Operating profit before the impact of restructuring charges increased to $34.8
million in the first nine months of 2010 compared to $27.1 million in the first nine months of
2009. The $7.7 million increase in operating profit before the
impact of restructuring charges was primarily due to higher sales volumes,
improved selling prices, recent acquisitions and disciplined execution of the Greif Business
System.
Land Management
As of July 31, 2010, our Land Management segment consists of approximately 267,000 acres of
timber properties in the southeastern United States, which are actively harvested and regenerated,
and approximately 24,700 acres in Canada. The key factors influencing profitability in the Land
Management segment are:
|
|
|
Planned level of timber sales;
|
|
|
|
Selling prices and customer demand
|
|
|
|
Gains (losses) on sale of timberland; and
|
|
|
|
Sale of special use properties (surplus, HBU, and development properties).
|
Net sales were $11.4 million in the first nine months of 2010 and $12.3 million in the first
nine months of 2009.
Operating profit was $6.0 million and $9.7 million in the first nine months of 2010 and 2009,
respectively. Operating profit before the impact of restructuring charges was $6.0 million in the
first nine months of 2010 compared to $9.9 million in the first nine months of 2009. Included in
these amounts were profits from the sale of special use properties of $4.1 million in the first
nine months of 2010 and $5.4 million in the first nine months of 2009.
Other Income Statement Changes
Cost of products sold
The cost of products sold, as a percentage of net sales, was 80 percent for the first
nine months of 2010 compared to 84 percent for the first nine months of 2009. The lower cost of
products sold as a percentage of net sales were primarily due to higher net sales which were driven
by higher selling prices and lower raw material costs in the Rigid Industrial Packaging & Services
segment on a period over period basis. In addition, we achieved permanent cost savings during 2009
from the execution of our Greif Business System.
SG&A expenses
SG&A expenses were $264.5 million, or 11 percent of net sales, in the first nine months
of 2010 compared to $191.5 million, or 9
percent of net sales, in the first nine months of 2009. The increase in SG&A expense as a percent
of sales was due to the inclusion of SG&A of acquired companies, acquisition-related costs, and
higher employment-related costs as compared to the same period in 2009, when normal increases and
certain benefits were curtailed.
34
Restructuring charges
During the first nine months of 2010, we recorded restructuring charges of $20.6 million,
consisting of $11.4 million in employee separation costs, $2.3 million in asset impairments
and $6.9 million in other costs. The focus of the 2010 restructuring activities is on
continued business realignment due to the economic downturn and further implementation of the Greif
Business System.
During the first nine months of 2009, we recorded restructuring charges of $57.7 million,
consisting of $29.8 million in employee separation costs, $13.3 million in asset impairments
and $14.6 million in other costs. The focus of the 2009 restructuring activities was on
business realignment due to the economic downturn and further implementation of the Greif Business
System.
Gain on disposal of properties, plants, and equipment, net
During the first nine months of 2010, we recorded gains on disposals of properties,
plants and equipment, net of $6.9 million, primarily from gains on the sale of properties and
equipment in the Rigid Industrial Packaging & Services segment of $3.5 million, the sale of properties and
equipment in the Paper Packaging segment of $1.3 million, and the sale of special use properties (surplus, HBU,
and development properties) in the Land Management segment of $2.1 million. During the first nine
months of 2009, we recorded gains on disposals of properties, plants and equipment, net of $9.8
million, primarily from gains on the sale of properties in the Rigid Industrial Packaging &
Services segment of $3.0 million, properties in the Paper Packaging segment of $1.3 million, and
special use properties (surplus, HBU, and development properties) in the Land Management segment of
$5.5 million.
Interest expense, net
Interest expense, net was $47.6 million and $37.7 million for the first nine months
of 2010 and 2009, respectively. The increase in interest expense, net was primarily
attributable to higher average debt outstanding and an increase in our borrowing costs. We
refinanced our senior secured credit facility in February 2009 and also issued new senior notes in
July 2009, both at higher interest rates.
Debt extinguishment charge
In the first nine months of 2009, we completed a $700 million senior secured credit facility
which replaced an existing $450 million revolving credit facility. As a result of this transaction,
a debt extinguishment charge of $0.8 million in non-cash items, such as write-off of unamortized
capitalized debt issuance costs, was recorded. There were no debt extinguishment charges in 2010.
Other expense, net
Other expense, net for the first nine months of 2010 and 2009 was $4.4 million and $4.1
million, respectively. The increase in other expense, net was primarily due to fees
associated with the sale of non-United States account receivable.
Income tax expense
The effective tax rate was 18.9% and 19.5% in the first nine months of 2010 and 2009,
respectively. The change in the effective tax rate was primarily due to a change in the forecasted
mix of income in the United States for the respective periods as well as an incremental benefit
from an alternative fuel credit.
Equity earnings (losses) of unconsolidated affiliates, net of tax
Equity earnings of unconsolidated affiliates, net of tax were $3.3 million for the first nine
months of 2010 while equity losses of unconsolidated affiliates, net of tax were $0.2 million for
the first nine months of 2009.
Noncontrolling interests
Noncontrolling interests reflect the portion of earnings or losses of operations that are
majority owned by us which are applicable to the noncontrolling interest partners. Noncontrolling
interests were $5.4 million and $2.2 million during the first nine months of 2010 and 2009,
respectively, and were deducted from net income to arrive at net income attributable to us.
35
Net income
Based on the foregoing, we recorded net income of $133.4 million for the first nine
months of 2010 compared to net income of $37.1 million in the first nine months of 2009.
BALANCE SHEET CHANGES
Accounts receivable increased $127.7 million from October 31, 2009 to July 31, 2010 primarily
due to higher sales activity, acquisitions in our Rigid Industrial Packaging & Services segment and
Flexible Products & Services segment, and the impact of foreign currency translation.
Inventories increased $114.2 million from October 31, 2009 to July 31, 2010 primarily due to
acquisitions in our Rigid Industrial Packaging & Services segment and Flexible Products & Services
segment, higher steel and resin costs, and growth in our Latin America and Asia Pacific regions.
Goodwill increased $69.0 million from October 31, 2009 to July 31, 2010 due to acquisitions in
the Rigid Industrial Packaging & Services segment and Flexible Products & Services segment, a
contingent purchase price payment related to a 2008 Rigid Industrial Packaging & Services segment
acquisition and final purchase price adjustments from our 2009 acquisitions less foreign currency
translation adjustments.
Property, plant and equipment increased $119.2 million from October 31, 2009 to July 31, 2010
primarily due to assets acquired through acquisitions and additional capital projects.
Accounts payable increased $45.1 million from October 31, 2009 to July 31, 2010 due to
acquisitions in the Flexible Products & Services segment, seasonality factors and the timing of
payments, which were partially offset by the impact of foreign currency translation.
Short-term borrowings increased $31.4 million from October 31, 2009 to July 31, 2010 due to
acquisitions in the Rigid Industrial Packaging & Services segment and Flexible Products & Services
segment.
Other current liabilities increased $38.9 million from October 31, 2009 to July 31, 2010 due
to acquisitions in the Rigid Industrial Packaging & Services segment and timing of accruals and
payments.
Long-term debt increased $227.5 million through the $700 million credit facility and the trade
accounts receivable credit facility to finance acquisitions, payment of dividends, and continued
capital expenditures.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity are operating cash flows, the proceeds from our trade
accounts receivable credit facility, proceeds from the sale of our non-United States accounts
receivable and borrowings under our Credit Agreement and Senior Notes, further 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 trade accounts
receivable credit facility, proceeds from the sale of our non-United States accounts receivable and
borrowings under our Credit Agreement and Senior Notes will be sufficient to fund our currently
anticipated working capital, capital expenditures, debt repayment, potential acquisitions of
businesses and other liquidity needs for at least 12 months.
Capital Expenditures
During the first nine months of 2010, we invested $101.0 million in capital expenditures,
excluding timberland purchases of $19.5 million, compared with capital expenditures of $81.4
million, excluding timberland purchases of $0.6 million, during the same period last year.
We expect capital expenditures, excluding timberland purchases, to be approximately $130
million in 2010. The expenditures will primarily be to replace and improve equipment.
36
Business Acquisitions and Divestitures
During the first nine months of 2010, we completed acquisitions of three rigid industrial
packaging companies and two flexible products companies and made a contingent purchase price
payment related to a 2008 rigid industrial packaging acquisition. The five 2010 acquisitions
consisted of the acquisition of a European rigid industrial packaging company in November 2009,
an Asian rigid industrial packaging company in
June 2010, two European flexible products companies, one in
February and the other in June 2010, and a North American drum
reconditioning company in July 2010. The aggregate purchase price for the five 2010 acquisitions
was less than $200 million.
There were $20.1 million of acquisition-related costs recognized in the nine month period
ended July 31, 2010 included in SG&A expenses. This amount included $16.1 million of acquisition
costs previously capitalized as part of the purchase price of acquisitions, of which $6.1 million
was incurred prior to November 1, 2009, the date on which we adopted SFAS No. 141(R) (codified
under ASC 805, Business Combinations). In addition, we recorded post acquisition-related
integration costs of $4.0 million which represented costs associated with integrating acquired
companies, such as costs associated with Greif Business System initiatives, sourcing and supply
chain initiatives, and finance and administrative reorganizations.
Borrowing Arrangements
Credit Agreements
We have a $700 million Senior Secured Credit Agreement (the Credit Agreement) with a
syndicate of financial institutions. The Credit Agreement provides us with a $500.0 million
revolving multicurrency credit facility and a $200.0 million term loan, both maturing in February
2012, with an option to add $200.0 million to the facilities with the agreement of the lenders. The
$200 million term loan is scheduled to amortize by $2.5 million per quarter for the first four
quarters, $5.0 million per quarter for the next eight quarters and $150.0 million on the maturity
date. The Credit Agreement is available to fund ongoing working capital and capital expenditure
needs, to finance acquisitions and for general corporate purposes. Interest is based on either a
Eurodollar rate or a base rate that resets periodically plus a calculated margin amount. There was
$294.0 million outstanding under the Credit Agreement at July 31, 2010.
The Credit Agreement contains certain covenants, which include financial covenants that
require us to maintain a certain leverage ratio and a fixed charge coverage ratio. The leverage
ratio generally requires that at the end of any fiscal quarter we will not permit the ratio of (a)
our total consolidated indebtedness, to (b) our consolidated net income plus depreciation,
depletion and amortization, interest expense (including capitalized interest), income taxes, and
minus certain extraordinary gains and non-recurring gains (or plus certain extraordinary losses and
non-recurring losses) and plus or minus certain other items for the preceding twelve months
(EBITDA) to be greater than 3.5 to 1. The fixed charge coverage ratio generally requires that at
the end of any fiscal quarter we will not permit the ratio of (a) (i) consolidated EBITDA, less
(ii) the aggregate amount of certain cash capital expenditures, and less (iii) the aggregate amount
of Federal, state, local and foreign income taxes actually paid in cash (other than taxes related
to asset sales not in the ordinary course of business), to (b) the sum of (i) consolidated interest
expense to the extent paid or payable in cash during such period and (ii) the aggregate principal
amount of all regularly scheduled principal payments or redemptions or similar acquisitions for
value of outstanding debt for borrowed money, but excluding any such payments to the extent
refinanced through the incurrence of additional indebtedness, to be less than 1.5 to 1. At July 31,
2010, we were in compliance with the covenants under the Credit Agreement.
The terms of the Credit Agreement limit our ability to make restricted payments, which
includes dividends and purchases, redemptions and acquisitions of our equity interests. The
repayment of this facility is secured by a security interest in our personal property and the
personal property of our United States subsidiaries, including equipment and inventory and certain
intangible assets, as well as a pledge of the capital stock of substantially all of our United
States subsidiaries and, in part, by the capital stock of international borrowers. The payment of
outstanding principal under the Credit Agreement and accrued interest thereon may be accelerated
and become immediately due and payable upon the default in our payment or other performance
obligations or our failure to comply with the financial and other covenants in the Credit
Agreement, subject to applicable notice requirements and cure periods as provided in the Credit
Agreement.
See Note 9 to the Consolidated Financial Statements included in Item 1 of Part I of this Form
10-Q for additional disclosures regarding the Credit Agreement.
37
Senior Notes
We have issued $300.0 million of our 6.75% Senior Notes due February 1, 2017. Proceeds from
the issuance of these Senior Notes were principally used to fund the purchase of our previously
outstanding senior subordinated notes and for general corporate purposes. These Senior Notes are
general unsecured obligations of Greif, Inc. only, provide for semi-annual payments of interest at a fixed rate
of 6.75%, and do not require any principal payments prior to maturity on February 1, 2017. These
Senior Notes are not guaranteed by any of our subsidiaries and thereby are effectively subordinated
to all of our subsidiaries existing and future indebtedness. The Indenture pursuant to which these
Senior Notes were issued contains covenants, which, among other things, limit our ability to create
liens on our assets to secure debt and to enter into sale and leaseback transactions. These
covenants are subject to a number of limitations and exceptions as set forth in the Indenture. At
July 31, 2010, we were in compliance with these covenants.
We have issued $250.0 million of our 7.75% Senior Notes due August 1, 2019. Proceeds from the
issuance of these Senior Notes were principally used for general corporate purposes, including the
repayment of amounts outstanding under our revolving multicurrency credit facility under the Credit
Agreement, without any permanent reduction of the commitments. These Senior Notes are general
unsecured obligations of Greif, Inc. only, provide for semi-annual payments of interest at a fixed rate of 7.75%,
and do not require any principal payments prior to maturity on August 1, 2019. These Senior Notes
are not guaranteed by any of our subsidiaries and thereby are effectively subordinated to all of
our subsidiaries existing and future indebtedness. The Indenture pursuant to which these Senior
Notes were issued contains covenants, which, among other things, limit our ability to create liens
on our assets to secure debt and to enter into sale and leaseback transactions. These covenants are
subject to a number of limitations and exceptions as set forth in the Indenture. At July 31, 2010,
we were in compliance with these covenants.
See Note 9 to the Consolidated Financial Statements included in Item 1 of Part I of this Form
10-Q for additional disclosures regarding the Senior Notes.
United States Trade Accounts Receivable Credit Facility
We have a $135.0 million trade accounts receivable facility (the Receivables Facility) with
a financial institution and its affiliate (the Purchasers). The Receivables Facility matures in
December 2013, subject to earlier termination by the Purchasers of their purchase commitment in
December 2010. In addition, we can terminate the Receivables Facility at any time upon five days
prior written notice. The Receivables Facility is secured by certain of our United States trade
receivables and bears interest at a variable rate based on the commercial paper rate, or
alternatively, the LIBOR, plus a margin. Interest is payable on a monthly
basis and the principal balance is payable upon termination of the Receivables Facility. The
Receivables Facility contains certain covenants, including financial covenants for leverage and
fixed charge ratios identical to the Credit Agreement. Proceeds of the Receivables Facility are
available for working capital and general corporate purposes. At July 31, 2010, $117.8 million was
outstanding under the Receivables Facility.
See Note 9 to the Consolidated Financial Statements included in Item 1 of Part I of this Form
10-Q for additional disclosures regarding this credit facility.
Sale of Non-United States Accounts Receivable
Certain of our international subsidiaries have entered into discounted receivables purchase
agreements and factoring agreements (the RPAs) pursuant to which trade receivables generated from
certain countries other than the United States and which meet certain eligibility requirements are
sold to certain international banks or their affiliates. The structure of these transactions
provides for a legal true sale, on a revolving basis, of the receivables transferred from our
various subsidiaries to the respective banks. The banks fund an initial purchase price of a certain
percentage of eligible receivables based on a formula with the initial purchase price approximating
75 percent to 90 percent of eligible receivables. The remaining deferred purchase price is settled
upon collection of the receivables. At the balance sheet reporting dates, we remove from accounts
receivable the amount of proceeds received from the initial purchase price since they meet the
applicable criteria of SFAS No. 140, Accounting for Transfer and Servicing of Financial Assets and
Extinguishments of Liabilities
(codified under ASC 860 Transfers and Servicing)
, and continue to
recognize the deferred purchase price in our accounts receivable. The receivables are sold on a
non-recourse basis with the total funds in the servicing collection accounts pledged to the
respective banks between the settlement dates. The maximum amount of aggregate receivables that may
be sold under our various RPAs was $165.2 million at July 31, 2010. At July 31, 2010, total
accounts receivable of $129.0 million were sold under the various RPAs.
38
At the time the receivables are initially sold, the difference between the carrying amount and
the fair value of the assets sold are included as a loss on sale and classified as other expense
in the consolidated statements of operations. Expenses associated with the various RPAs totaled
$1.8 million for the three months ended July 31, 2010. Additionally, we perform collections and
administrative functions on the receivables sold similar to the procedures we use for collecting
all of our receivables. The servicing liability for these receivables is not material to the
consolidated financial statements.
See Note 3 to the Consolidated Financial Statements included in Item 1 of Part I of this Form
10-Q for additional information regarding these various RPAs.
Other
In addition to the amounts borrowed against the Credit Agreement and proceeds from the Senior
Notes and the United States trade accounts receivable credit facility, at July 31, 2010, we had
outstanding other debt of $62.1 million, comprised of $11.1 million in long-term debt and $51.0
million in short-term borrowings.
At July 31, 2010, annual maturities, including current portion, of our long-term debt under
our various financing arrangements were $5.0 million in 2010, $31.1 million in 2011, $269.0 million
in 2012, $117.8 million in 2013 and $545.7 million thereafter.
At July 31, 2010 and October 31, 2009, we had deferred financing fees and debt issuance costs
of $11.9 million and $14.9 million, respectively, which were included in other long-term assets.
Financial Instruments
Cross-Currency Interest Rate Swaps
We entered into cross-currency interest rate swap agreements which were designated as a hedge
of a net investment in a foreign operation. Under these swap agreements, we received interest
semi-annually from the counterparties in an amount equal to a fixed rate of 6.75% on $200.0 million
and paid interest in an amount equal to a fixed rate of 6.25% on 146.6 million. During the third
quarter of 2010, we terminated these swap agreements, including any future cash flows. The
termination of these swap agreements resulted in a cash benefit of
$25.7 million ($15.8 million, net of tax) which is included
within foreign currency translation adjustments. At October 31,
2009, we had recorded an other comprehensive loss of
$14.6 million as a result of these swap agreements.
Interest Rate Derivatives
We have interest rate swap agreements with various maturities through 2012. These interest
rate swap agreements are used to manage our fixed and floating rate debt mix. Under these swap
agreements, we receive interest monthly from the counterparties based on LIBOR, and we pay interest based upon a designated fixed rate over the
life of the swap agreements.
We have two interest rate derivatives (floating to fixed swap agreements recorded as cash flow
hedges) with a total notional amount of $125 million. Under these swap agreements, we receive
interest based upon a variable interest rate from the counterparties (weighted average of 0.27% at
July 31, 2010 and 0.25% at October 31, 2009) and pays interest based upon a fixed interest rate
(weighted average of 1.78% at July 31, 2010 and 2.71% at October 31, 2009).
In the first quarter of 2010, we entered into a $100.0 million fixed to floating swap
agreement which was recorded as a fair value hedge. Under this swap agreement, we received interest
from the counterparty based upon a fixed rate of 6.75% and paid interest based upon a variable rate
on a semi-annual basis. In the third quarter of 2010, we terminated this swap agreement, including
any future cash flows. The termination of this swap agreement
resulted in a cash benefit of $3.6 million ($2.2 million,
net of tax) which is included within long-term debt on the balance
sheet.
Foreign Exchange Hedges
At July 31, 2010, we had outstanding foreign currency forward contracts in the notional amount
of $148.1 million ($70.5 million at October 31, 2009). The purpose of these contracts is to hedge
our exposure to foreign currency transactions and short-term intercompany loan balances in our
international businesses. The fair value of these contracts at July 31, 2010 resulted in an
immaterial gain recorded in the consolidated statements of operations and a loss of $2.4 million
recorded in other comprehensive income. The fair
value of similar contracts at October 31, 2009 resulted in an immaterial loss recorded in the
consolidated statements of operations.
39
Energy Hedges
We have entered into certain cash flow hedge agreements to mitigate our exposure to cost
fluctuations in natural gas prices through October 31, 2010. Under these hedge agreements, we have
agreed to purchase natural gas at a fixed price. At July 31, 2010, the notional amount of these
hedge agreements was $3.0 million ($4.0 million at October 31, 2009). The other
comprehensive loss on these hedge agreements was $0.1 million at July 31, 2010 and $0.6 million at
October 31, 2009. As a result of the high correlation between the hedged instruments and the
underlying transactions, ineffectiveness has not had a material impact on the our consolidated
statements of operations for the quarter ended July 31, 2010.
Contractual Obligations
As of July 31, 2010, we had the following contractual obligations (Dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
Total
|
|
|
Less than 1 year
|
|
|
1-3 years
|
|
|
3-5 years
|
|
|
After 5 years
|
|
Long-term debt
|
|
$
|
1,310.3
|
|
|
$
|
13.0
|
|
|
$
|
540.2
|
|
|
$
|
79.3
|
|
|
$
|
677.8
|
|
Current portion of long-term debt
|
|
|
20.0
|
|
|
|
5.0
|
|
|
|
15.0
|
|
|
|
|
|
|
|
|
|
Short-term borrowing
|
|
|
54.1
|
|
|
|
51.8
|
|
|
|
2.3
|
|
|
|
|
|
|
|
|
|
Capital lease obligations
|
|
|
0.4
|
|
|
|
0.1
|
|
|
|
0.2
|
|
|
|
0.1
|
|
|
|
|
|
Operating leases
|
|
|
6.9
|
|
|
|
0.6
|
|
|
|
3.9
|
|
|
|
2.0
|
|
|
|
0.4
|
|
Liabilities held by special purpose entities
|
|
|
67.3
|
|
|
|
0.6
|
|
|
|
4.5
|
|
|
|
2.2
|
|
|
|
60.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,459.0
|
|
|
$
|
71.1
|
|
|
$
|
566.1
|
|
|
$
|
83.6
|
|
|
$
|
738.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: Amounts presented in the contractual obligation table include interest.
Our unrecognized tax benefits under FIN 48, Accounting for Uncertainty in Income Taxes
(codified under ASC 740 Income Taxes) have been excluded from the contractual obligations table
because of the inherent uncertainty and the inability to reasonably estimate the timing of cash
outflows.
Significant Nonstrategic Timberland Transactions
In connection with a 2005 timberland transaction with Plum Creek Timberlands, L.P. (Plum
Creek), Soterra LLC (one of our wholly-owned subsidiaries) received cash and a $50.9 million
purchase note payable by an indirect subsidiary of Plum Creek (the Purchase Note). Soterra LLC
contributed the Purchase Note to STA Timber LLC (STA Timber), one of our indirect wholly-owned
subsidiaries. The Purchase Note is secured by a Deed of Guarantee issued by Bank of America, N.A.,
London Branch, in an amount not to exceed $52.3 million (the Deed of Guarantee). STA Timber has
issued in a private placement 5.20% Senior Secured Notes due August 5, 2020 (the Monetization
Notes) in the principal amount of $43.3 million. The Monetization Notes are secured by a pledge of
the Purchase Note and the Deed of Guarantee. Greif, Inc. and its other subsidiaries have not
extended any form of guaranty of the principal or interest on the Monetization Notes. Accordingly,
Greif, Inc. and its other subsidiaries will not become directly or contingently liable for the
payment of the Monetization Notes at any time. See Note 8 to the Consolidated Financial Statements
included in Item 1 of this Form 10-Q for additional information regarding these transactions.
RECENT ACCOUNTING STANDARDS
Newly Adopted Accounting Standards
In December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 141(R),
(codified under ASC 805 Business Combinations), which replaces SFAS No. 141. The objective of
SFAS No. 141(R) is to improve the relevance, representational faithfulness and comparability of the
information that a reporting entity provides in its financial reports about a business combination
and its effects. SFAS No. 141(R) establishes principles and requirements for how the acquirer
recognizes and
measures in its financial statements the identifiable assets acquired, the liabilities assumed
and any noncontrolling interest in the acquiree; recognizes and measures the goodwill acquired in
the business combination or a gain from a bargain purchase; and determines what information to
disclose to enable users of the financial statements to evaluate the nature and financial effects
of the business combination. SFAS No. 141(R) applies to all transactions or other events in which
an entity (the acquirer) obtains control of
one or more businesses (the acquiree), including those
sometimes referred to as true mergers or mergers of equals and combinations achieved without
the transfer of consideration. SFAS No. 141(R) applies to any acquisition entered into on or after
November 1, 2009. We adopted the new guidance beginning on November 1, 2009, which impacted our
financial position, results of operations, cash flows and related disclosures.
40
In December 2007, the FASB issued SFAS No. 160, Accounting and Reporting of Noncontrolling
Interests in Consolidated Financial Statements, an amendment of ARB No. 51,
(codified under ASC
810 Consolidation)
. The objective of SFAS No. 160 is to improve the relevance, comparability and
transparency of the financial information that a reporting entity provides in its consolidated
financial statements. SFAS No. 160 amends ARB No. 51 to establish accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. SFAS No. 160 also changes the way the consolidated financial statements are presented,
establishes a single method of accounting for changes in a parents ownership interest in a
subsidiary that do not result in deconsolidation, requires that a parent recognize a gain or loss
in net income when a subsidiary is deconsolidated and expands disclosures in the consolidated
financial statements that clearly identify and distinguish between the parents ownership interest
and the interest of the noncontrolling owners of a subsidiary. The provisions of SFAS No. 160 are
to be applied prospectively as of the beginning of the fiscal year in which SFAS No. 160 is
adopted, except for the presentation and disclosure requirements, which are to be applied
retrospectively for all periods presented. We adopted the new guidance beginning November 1, 2009,
and the adoption of the new guidance did not impact our financial position, results of operations
or cash flows, other than the related disclosures.
In December 2008, the FASB issued FASB Staff Position FAS 132(R)-1, Employers Disclosures
About Postretirement Benefit Plan Assets (FSP FAS 132(R)-1)
(codified under ASC 715
Compensation Retirement Benefits)
, to provide guidance on employers disclosures about assets
of a defined benefit pension or other postretirement plan. FSP FAS 132(R)-1 requires employers to
disclose information about fair value measurements of plan assets similar to SFAS No. 157, Fair
Value Measurements. The objectives of the disclosures are to provide an understanding of: (a) how
investment allocation decisions are made, including the factors that are pertinent to an
understanding of investment policies and strategies, (b) the major categories of plan assets, (c)
the inputs and valuation techniques used to measure the fair value of plan assets, (d) the effect
of fair value measurements using significant unobservable inputs on changes in plan assets for the
period and (e) significant concentrations of risk within plan assets. We adopted the new guidance
beginning November 1, 2009, and the adoption of the new guidance did not impact our financial
position, results of operations or cash flows, other than the related disclosures.
Recently Issued Accounting Standards
In June 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Assetsan
amendment of FASB Statement No. 140
(codified under ASC 860 Transfers and Servicing).
The
Statement amends SFAS No. 140 to improve the information provided in financial statements
concerning transfers of financial assets, including the effects of transfers on financial position,
financial performance and cash flows, and any continuing involvement of the transferor with the
transferred financial assets. The provisions of SFAS 166 are effective for our financial statements
for the fiscal year beginning November 1, 2010. We are in the process of evaluating the impact that
the adoption of the guidance may have on our consolidated financial statements and related
disclosures. However, we do not anticipate a material impact on our financial position, results of
operations or cash flows.
In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R)
(codified under ASC 810 Consolidation).
SFAS 167 amends FIN 46(R) to require an enterprise to
perform an analysis to determine whether the enterprises variable interest or interests give it a
controlling financial interest in a variable interest entity. It also amends FIN 46(R) to require
enhanced disclosures that will provide users of financial statements with more transparent
information about an enterprises involvement in a variable interest entity. The provisions of SFAS
167 are effective for our financial statements for the fiscal year beginning November 1, 2010. We
are in the process of evaluating the impact, if any, that the adoption of SFAS No. 167 may have on
our consolidated financial statements and related disclosures. However, we do not anticipate a
material impact on our financial position, results of operations or cash flows.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
There has not been a significant change in the quantitative and qualitative disclosures about
our market risk from the disclosures contained in the 2009 Form 10-K.
41
ITEM 4.
CONTROLS AND PROCEDURES
With the participation of our principal executive officer and principal financial officer,
Greifs management has evaluated the effectiveness of our disclosure controls and procedures (as
defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange
Act)), as of the end of the period covered by this report. Based upon that evaluation, our
principal executive officer and principal financial officer have concluded that, as of the end of
the period covered by this report:
|
|
|
Information required to be disclosed by us in the reports that we file or submit under
the Exchange Act is recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the Securities and Exchange Commission;
|
|
|
|
Information required to be disclosed by us in the reports that we file or submit under
the Exchange Act is accumulated and communicated to our management, including our principal
executive officer and principal financial officer, as appropriate to allow timely decisions
regarding required disclosure; and
|
|
|
|
Our disclosure controls and procedures are effective.
|
There has been no change in our internal controls over financial reporting that occurred
during the most recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal controls over financial reporting.
PART II. OTHER INFORMATION
ITEM 1A.
RISK FACTORS
There have been no other material changes in our risk factors from those disclosed in the 2009 Form
10-K under Part I, Item 1A Risk Factors.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Class A Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum Number (or
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Approximate Dollar
|
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased as
|
|
|
Value) of Shares that
|
|
|
|
Total Number
|
|
|
|
|
|
|
Part of Publicly
|
|
|
May Yet Be
|
|
|
|
of Shares
|
|
|
Average Price
|
|
|
Announced Plans or
|
|
|
Purchased under the
|
|
Period
|
|
Purchased
|
|
|
Paid Per Share
|
|
|
Programs (1)
|
|
|
Plans or Programs (1)
|
|
November 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,166,728
|
|
December 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,166,728
|
|
January 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,166,728
|
|
February 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,166,728
|
|
March 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,166,728
|
|
April 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,166,728
|
|
May 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,166,728
|
|
June 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,116,728
|
|
July 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,116,728
|
|
Issuer Purchases of Class B Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum Number (or
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Approximate Dollar
|
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased as
|
|
|
Value) of Shares that
|
|
|
|
Total Number
|
|
|
|
|
|
|
Part of Publicly
|
|
|
May Yet Be
|
|
|
|
of Shares
|
|
|
Average Price
|
|
|
Announced Plans or
|
|
|
Purchased under the
|
|
Period
|
|
Purchased
|
|
|
Paid Per Share
|
|
|
Programs (1)
|
|
|
Plans or Programs (1)
|
|
November 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,166,728
|
|
December 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,166,728
|
|
January 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,166,728
|
|
February 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,166,728
|
|
March 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,166,728
|
|
April 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,166,728
|
|
May 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,166,728
|
|
June 2010
|
|
|
50,000
|
|
|
|
53.92
|
|
|
|
50,000
|
|
|
|
1,116,728
|
|
July 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,116,728
|
|
|
|
|
(1)
|
|
Our Board of Directors has authorized a stock repurchase program which permits us to purchase
up to 4.0 million shares of our Class A Common Stock or Class B Common Stock, or any
combination thereof. As of July 31, 2010, the maximum number of shares that may yet be
purchased was 1,116,728 shares, which may be any combination of Class A Common Stock or Class
B Common Stock.
|
42
ITEM 6.
EXHIBITS
|
|
|
Exhibit No.
|
|
Description of Exhibit
|
10.1
|
|
Fourth Amendment (dated as of June 22, 2010) to the Transfer and Administration Agreement dated as of December
8, 2008, by and among Greif Receivables Funding LLC, Greif Packaging LLC, YC SUSI Trust, as Conduit Investor
and Uncommitted Investor, and Bank of America National Association, as Agent, Managing Agent, an Administrator
and a Committed Investor.
|
10.2
|
|
Formation Agreement dated as of June 14, 2010, by and among Greif, Inc. and Greif International Holding Supra
C.V. and National Scientific Company Limited and Dabbagh Group Holding Company Limited.
|
31.1
|
|
Certification of Chief Executive Officer Pursuant to Rule 13a 14(a) of the Securities Exchange Act of 1934.
|
31.2
|
|
Certification of Chief Financial Officer Pursuant to Rule 13a 14(a) of the Securities Exchange Act of 1934.
|
32.1
|
|
Certification of Chief Executive Officer required by Rule 13a 14(b) of the Securities Exchange Act of 1934
and Section 1350 of Chapter 63 of Title 18 of the United States Code.
|
32.2
|
|
Certification of Chief Financial Officer required by Rule 13a 14(b) of the Securities Exchange Act of 1934
and Section 1350 of Chapter 63 of Title 18 of the United States Code.
|
43
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: September 9, 2010
|
/s/ Donald S. Huml
|
|
|
Donald S. Huml,
|
|
|
Executive Vice President and Chief Financial Officer
(Duly Authorized Signatory)
|
|
|
44
Exhibit 10.2
FORMATION AGREEMENT
by and among
GREIF, INC.
and
GREIF INTERNATIONAL HOLDING SUPRA C.V.
and
NATIONAL SCIENTIFIC COMPANY LIMITED
and
DABBAGH GROUP HOLDING COMPANY LIMITED
dated as of JUNE 14, 2010
CONTENTS
|
|
|
|
|
Section
|
|
Page
|
|
|
|
|
|
|
1. Formation of the Global Alliance
|
|
|
5
|
|
1.1 Purpose and Scope; Commitments
|
|
|
5
|
|
1.2 Formation of the Global Alliance Entities
|
|
|
7
|
|
1.3 Transaction Documents
|
|
|
8
|
|
2. Closing
|
|
|
9
|
|
2.1 The Closing
|
|
|
9
|
|
2.2 Conditions to Greifs Obligations to Consummate the Closing
|
|
|
10
|
|
2.3 Conditions to NSCs Obligations to Consummate the Closing
|
|
|
11
|
|
2.4 Covenants Pending the Closing
|
|
|
12
|
|
2.5 Termination Prior to the Closing
|
|
|
13
|
|
2.6 Survival of Certain Terms
|
|
|
13
|
|
3. Representations and Warranties
|
|
|
13
|
|
3.1 Representations and Warranties of Greif
|
|
|
13
|
|
3.2 Representations and Warranties of NSC
|
|
|
15
|
|
4. Covenants
|
|
|
19
|
|
4.1 Global Alliance Entity Board Composition
|
|
|
19
|
|
4.2 Acquisitions
|
|
|
20
|
|
4.3 Capital Commitments; Financing Matters
|
|
|
21
|
|
4.4 Confidentiality
|
|
|
24
|
|
4.5 Fiduciary Duties
|
|
|
25
|
|
4.6 Compliance with Agreement
|
|
|
25
|
|
4.7 Compliance with Laws
|
|
|
25
|
|
4.8 Cooperation; Resolution of Objections
|
|
|
27
|
|
4.9 Further Assurances
|
|
|
28
|
|
5. Indemnification
|
|
|
28
|
|
5.1 Indemnification for Representations, Warranties, Covenants and Agreements
|
|
|
28
|
|
5.2 Indemnification for Post-Closing Matters
|
|
|
29
|
|
5.3 Notice
|
|
|
29
|
|
5.4 Defense of Third-Party Claims
|
|
|
30
|
|
5.5 Indemnification Payments
|
|
|
30
|
|
6. Dispute Resolution
|
|
|
31
|
|
6.1 General
|
|
|
31
|
|
6.2 Arbitration
|
|
|
32
|
|
2
|
|
|
|
|
Section
|
|
Page
|
|
|
|
|
|
|
7. Miscellaneous
|
|
|
33
|
|
7.1 Notices
|
|
|
33
|
|
7.2 Governing Law; Jurisdiction
|
|
|
35
|
|
7.3 Severability
|
|
|
36
|
|
7.4 Amendments
|
|
|
36
|
|
7.5 Waiver
|
|
|
36
|
|
7.6 Counterparts
|
|
|
37
|
|
7.7 Entire Agreement
|
|
|
37
|
|
7.8 No Assignment; No Third Party Beneficiaries
|
|
|
37
|
|
7.9 Expenses
|
|
|
37
|
|
7.10 Publicity
|
|
|
37
|
|
7.11 Construction
|
|
|
37
|
|
7.12 Interpretation and Construction of this Agreement
|
|
|
38
|
|
7.13 Disclaimer of Agency
|
|
|
38
|
|
7.14 Relationship of Greif, Greif Parent, NSC and Dabbagh Parent
|
|
|
39
|
|
7.15 Language
|
|
|
39
|
|
7.16 Interest
|
|
|
39
|
|
|
|
|
|
|
Signatories
|
|
|
40
|
|
|
|
|
|
|
Exhibits
|
|
|
|
|
|
|
|
|
|
Exhibit 1 Corporate Structure Chart
|
|
|
|
|
Exhibit 2 Joint Venture Agreement
|
|
|
|
|
3
FORMATION AGREEMENT
THIS FORMATION AGREEMENT
(this
Agreement
), dated as of June 14, 2010, is made and entered into
AMONG:
(1)
|
|
GREIF, INC.,
a corporation formed under the laws of Delaware (
Greif Parent
), solely for the
purpose of the obligations set forth in
Section 4.4
(
Confidentiality
) and
Section
7
(
Miscellaneous)
;
|
(2)
|
|
GREIF INTERNATIONAL HOLDING SUPRA C.V.
, a limited partnership formed under the laws of the
Netherlands (
Greif
);
|
(3)
|
|
DABBAGH GROUP HOLDING COMPANY LIMITED,
a corporation formed under the laws of Saudi Arabia
(
Dabbagh Parent
), solely for the purpose of the obligations set forth in
Section 4.7
(
Compliance with Laws
),
Section 4.4
(
Confidentiality
) and
Section 7
(
Miscellaneous
); and
|
(4)
|
|
NATIONAL SCIENTIFIC COMPANY LIMITED,
a limited liability company formed under the laws of
Saudi Arabia (
NSC
).
|
WHEREAS:
(A)
|
|
Greif is engaged, directly and indirectly, in the business of producing industrial packaging
products, such as steel, fibre and plastic drums, intermediate bulk containers, closure
systems for industrial packaging products, certain transit protection products, and
polycarbonate water bottles, and services, such as blending, filling and other packaging
services, logistics and warehousing. NSC is engaged, directly and indirectly, in the business
of wholesale and retail trading of human and veterinary medicine, chemicals, medical
equipment, scientific equipment, scientific instruments, laboratory equipment and furniture,
and providing maintenance and installation services for such equipment.
|
(B)
|
|
Since 2007, Greif (indirectly through its portfolio company Greif International Holding B.V.)
and an Affiliate of Dabbagh Parent, Petromin Corporation, have been participating in a
fifty-one percent-forty-nine percent (51%/49%) joint venture called Greif Saudi Arabia Ltd.
|
(C)
|
|
Greif and NSC regard each other as valuable partners and wish to expand their relationship by
participating in a new joint venture that will engage in the Polywoven Industrial Packaging
Business (as defined herein).
|
(D)
|
|
Greif and NSC desire to locate polywoven fabric manufacturing in Saudi Arabia and possibly
other countries.
|
(E)
|
|
Greif wishes to contribute capital and the Greif Brand, Channel and Expertise (as defined
herein) and NSC wishes to contribute capital and KSA Expertise and Support (as defined herein)
to newly-formed entities in accordance with the provisions of this Agreement and the other
Transaction Documents (as defined herein), and to create cross-ownership in each of these
entities and joint management in a manner that will promote long-term cooperation, growth,
coordination and synergies among such entities as provided herein (the
Global Alliance
).
|
4
(F)
|
|
The Global Alliance will benefit from Greifs expertise, know-how and branding and NSCs
access to capital, proven record of successful asset management and understanding of the Saudi
Arabian market and regional business environment, local knowledge and local presence.
|
(G)
|
|
Greif and NSC intend to make certain strategic acquisitions of businesses that are engaged in
the Polywoven Industrial Packaging Business through the Global Alliance.
|
(H)
|
|
Greif and NSC intend that the Global Alliance will provide highly competitive services and
products in the Polywoven Industrial Packaging Business more cost effectively, more
efficiently and more rapidly than they each could provide alone.
|
(I)
|
|
Greif and NSC intend that the Global Alliance will be a fifty percent-fifty percent (50%/50%)
joint venture between Greif and NSC in all respects notwithstanding the Ownership Interests
(as defined herein) in individual Global Alliance Entities and that all of the Global Alliance
Entities will be operated in a transparent and operationally efficient manner.
|
(J)
|
|
In furtherance of the objectives set forth above, Greif Parent, Greif, Dabbagh Parent and NSC
desire to enter into this Agreement and the other Transaction Documents to govern the ongoing
operation of the Global Alliance. Certain terms used in this Agreement and the other
Transaction Documents shall have the meanings ascribed to such terms in
Annex 1
. The
Annexes, Schedules and Exhibits to this Agreement are all integral parts of this Agreement.
|
NOW, THEREFORE
, each of Greif Parent, Greif, Dabbagh Parent and NSC, intending to be legally bound
to the extent provided in this Agreement, hereby agree as follows:
1.
|
|
FORMATION OF THE GLOBAL ALLIANCE
|
|
1.1
|
|
Purpose and Scope; Commitments
|
|
(a)
|
|
Purpose and Scope of the Global Alliance
|
Each of Greif and NSC agree to establish the Global Alliance in accordance with the corporate
structure chart attached as
Exhibit 1
, and the Transaction Documents for the purpose
of establishing a Polywoven Industrial Packaging Business as provided herein throughout the
world through cross-ownership of entities and the coordination of activities and cooperation
among such entities. Following the consummation of the Transactions, the parties shall
conduct the Polywoven Industrial Packaging Business globally through Greif HoldCo and Dabbagh
HoldCo and their three (3) principal subsidiaries, ChannelCo, AssetCo and KSA Hub, and the
parties shall contribute their respective expertise and access on an ongoing basis to these
entities.
|
(i)
|
|
General Commitment
. Greif shall use, and shall cause each
of its Affiliates to use, commercially reasonable efforts to provide the Global
Alliance with access to expertise, know-how and branding, as well as access to
Greif customer relationships.
|
5
|
(ii)
|
|
Specific Commitment
. As of the Closing, and upon the
reasonable request of the relevant Global Alliance Entity, Greif shall provide
such Global Alliance Entity with the following:
|
|
(A)
|
|
a commitment to fund Greifs Capital Contribution (as
defined in
Section 4.3(a)
) in accordance with the Strategic Plan;
|
|
(B)
|
|
management support to conduct the Polywoven
Industrial Packaging Business through such Global Alliance Entity;
|
|
(C)
|
|
its commercially reasonable efforts to make qualified
personnel available to such Global Alliance Entity on a permanent or
temporary basis and provide technical and other services to such Global
Alliance Entity on an arms length basis in accordance with the terms of
the Shared Services Agreement;
|
|
(D)
|
|
support with regard to mergers and acquisitions in
connection with acquiring the Acquired Businesses by such Global Alliance
Entity;
|
|
(E)
|
|
access to Greifs name and the Greif Business System
through the IP License Agreement; and
|
|
(F)
|
|
access to Greifs customer relationships,
distribution network, sales infrastructure and shared services.
|
|
(i)
|
|
General Commitment
. NSC shall use, and shall cause each of
its Affiliates to use, commercially reasonable efforts to provide the Global
Alliance with the benefit of NSCs understanding of the Saudi Arabian market and
regional business environment, local knowledge and local presence.
|
|
(ii)
|
|
Specific Commitment
. As of the Closing, and upon the
reasonable request of the relevant Global Alliance Entity, NSC shall provide such
Global Alliance Entity with the following:
|
|
(A)
|
|
a commitment to fund NSCs Capital Contribution (as
defined in
Section 4.3(a)
) in accordance with the Strategic Plan;
|
|
(B)
|
|
assistance in obtaining permits and approvals for the
construction of KSA Hub;
|
|
(C)
|
|
expertise in obtaining the most favorable terms for
resin, land, energy, labor and building;
|
|
|
(D)
|
|
services of NSC portfolio companies as needed; and
|
|
(E)
|
|
support in recruiting and training employees of such
Global Alliance Entity.
|
6
1.2
|
|
Formation of the Global Alliance Entities
|
Subject to the provisions of this Agreement and the other Transaction Documents:
|
(i)
|
|
Dabbagh Parent and NSC will form Gulf Packaging Industrial Co. as a
new Saudi limited liability company (
Dabbagh HoldCo
) with capital of SR 1,000,000
of which one hundred percent (100%) will be initially held by Dabbagh Parent and
NSC;
|
|
(ii)
|
|
Greif and Greif Capital B.V. will form Pinwheel General Partnership
as a new Bermuda general partnership (
Greif HoldCo
);
|
|
(iii)
|
|
Greif, through its Affiliate Greif Capital B.V., will form
Pinwheel Holding Spain, S.L. as a new Spanish limited liability company (
Greif
Spain HoldCo
) and Greif Capital B.V. shall contribute 3,006.00 Euros to Pinwheel
Holding Spain, S.L. in exchange for all of the economic and voting interests in
Pinwheel Holding Spain, S.L.;
|
|
(iv)
|
|
Greif, through its Affiliate Greif Capital B.V., has incorporated
Pinwheel Trading Holding B.V. as a new Dutch limited liability Company (
besloten
vennootschap
) (
ChannelCo
), Greif Capital B.V. has transferred 100 percent (100%)
of the economic and voting interests in ChannelCo to Greif HoldCo and Greif
HoldCo will transfer at Closing forty-nine percent (49%) of the economic and
voting interests (shares) in ChannelCo to Dabbagh HoldCo for a purchase price per
share equal to the nominal value (EUR10) of such share (the
ChannelCo Formation
);
|
|
(v)
|
|
Greif, through its Affiliate Greif Capital B.V., has incorporated
Pinwheel Asset Holding B.V. as a new as a new Dutch limited liability Company
(
besloten vennootschap
) (
AssetCo
), Greif Capital B.V. has transferred 100 percent
(100%) of the economic and voting interests in AssetCo to Greif HoldCo and Greif
HoldCo will transfer at Closing fifty-one percent (51%) of the economic and
voting interests (shares) in AssetCo to Dabbagh HoldCo for a purchase price per
share equal to the nominal value (EUR10) of such share (the
AssetCo Formation
);
|
|
(vi)
|
|
Each of Greif and NSC shall cause ChannelCo and AssetCo and KSA Hub
to form new Subsidiaries as needed in connection with any acquisition of Acquired
Businesses (each, a
Global Alliance Subsidiary
). Each Global Alliance Subsidiary
shall be Wholly-Owned by either ChannelCo or AssetCo or KSA Hub. Each of Greif
and NSC shall cause each Global Alliance Subsidiary (as and when formed) to be
established and operated in accordance with Constituent Documents that are
consistent with the Constituent Documents of the parent entity of such Global
Alliance Subsidiary. Each of Greif and NSC shall cause each Global Alliance
Subsidiary (as and when formed) to be managed exclusively by or under the
direction of a Board of Directors designated by the parent entity of such Global
Alliance Subsidiary; and
|
7
Dabbagh HoldCo and Greif Spain HoldCo will use their respective commercially
reasonable efforts to jointly license, form and register as soon as reasonably
practicable after the date hereof, but in any event within four (4) months after the
date hereof, KSA Hub as a new Saudi limited liability company (
KSA Hub
), with share
capital of SR1,000,000 in which Dabbagh HoldCo shall hold fifty-one percent (51%) of
the economic and voting interests and Greif Spain HoldCo shall hold forty-nine percent
(49%) of the economic and voting interests (the
KSA Hub Formation
).
1.3
|
|
Transaction Documents
|
Each Global Alliance Entity will be established and operated in accordance with this
Agreement, its Constituent Documents (as more fully described below) and each of the other
documents and agreements described below (together with this Agreement, the
Transaction
Documents
):
|
(a)
|
|
Constituent Documents:
|
|
(i)
|
|
the Constituent Documents for Dabbagh HoldCo (
Dabbagh HoldCo
Constituent Documents
) in the form agreed upon in writing by the parties;
|
|
(ii)
|
|
the Constituent Documents for Greif HoldCo (
Greif HoldCo
Constituent Documents
) in the form agreed upon in writing by the parties;
|
|
(iii)
|
|
the Constituent Documents for Greif Spain HoldCo (
Greif Spain
HoldCo Constituent Documents
) in the form agreed upon in writing by the parties;
|
|
(iv)
|
|
the Constituent Documents for ChannelCo (the
ChannelCo Constituent
Documents
) in the form agreed upon in writing by the parties;
|
|
(v)
|
|
the Constituent Documents for AssetCo (the
AssetCo Constituent
Documents
) in the form agreed upon in writing by the parties; and
|
|
(vi)
|
|
the Constituent Documents for KSA Hub (the
KSA Hub Constituent
Documents
) in in the form agreed upon in writing by the parties.
|
|
(b)
|
|
Joint Venture Documents:
|
|
(i)
|
|
the Joint Venture Agreement in the form of
Exhibit 2
; and
|
|
(ii)
|
|
the Shared Services Agreement in the form agreed upon in writing by
the parties.
|
|
(c)
|
|
Operational Documents:
|
|
(i)
|
|
the Supply Agreement in the form agreed upon in writing by the
parties;
|
|
(ii)
|
|
the IP License Agreement in the form agreed upon in writing by the
parties; and
|
|
(iii)
|
|
the Initial Strategic Plan in the form agreed upon in writing by
the parties.
|
8
2.
|
|
CLOSING
|
|
2.1
|
|
The Closing
|
|
(a)
|
|
Location; Time
. The transactions described in
Section 2.1(b)
shall take place at or prior to a closing (the
Closing
) at a location to be mutually
agreed upon by each of Greif and NSC, and shall be effective as of 12:01 a.m., local
time in New York, New York, five Business Days after the fulfillment (or waiver) of the
conditions set forth in
Section 2.2
and
Section 2.3
(except for such
conditions that are to be fulfilled concurrently with the Closing, but subject to the
satisfaction of such conditions) or at such other date and time as each of Greif and NSC
may agree in writing. At the Closing, upon the terms and subject to the conditions set
forth herein, each of Greif and NSC will and will cause its Affiliates to take the
actions described in
Section 2.1(b)
and
Section 2.2
and execute and
deliver such other instruments and take all such other reasonable actions as are
necessary to consummate the Transactions contemplated by the Transaction Documents to be
consummated by it and its Affiliates at or prior to the Closing.
|
|
(b)
|
|
Items to Be Delivered and Actions to Be Taken in Connection with the
Closing
. At or prior to the Closing and subject to the terms and conditions herein
contained, each of Greif and NSC shall, and shall cause their respective Affiliates to,
deliver the documents and take the actions described in this
Section 2.1(b)
(the
Closing Date Transactions
) to the extent not previously completed. Each of Greif and
NSC acknowledge and agree that all such actions shall be deemed to be taken in the order
set forth in this
Section 2.1(b)
prior to the Closing if the Closing is
consummated, but that if the Closing is not promptly consummated, such actions shall be
rescinded and rendered null and void and of no effect and all necessary steps will
promptly be taken to cancel all licenses and approvals issued for the Global Alliance
Entities, withdraw all pending applications for such licenses and approvals and refund
all contributions of capital.
|
|
(i)
|
|
Dabbagh Parent shall form Dabbagh HoldCo and shall take the actions described in
Section 1.2(a)(i)
.
|
|
(ii)
|
|
Greif and Greif Capital B.V. shall form Greif HoldCo and shall take the actions
described in
Section 1.2(a)(ii)
.
|
|
(iii)
|
|
Greif HoldCo shall form Greif Spain HoldCo and shall take the actions described
in
Section 1.2(a)(iii)
.
|
|
(iv)
|
|
Greif shall cause its Affiliates to take the actions described in
Section
1.2(a)(iv)
.
|
|
(v)
|
|
Greif shall cause its Affiliates to take the actions described in
Section
1.2(a)(v)
.
|
|
(vi)
|
|
At Closing, each of Greif and NSC shall (A) provide the funding commitments to
fund their respective Capital Contributions, as described in
Section 4.3
and
that are required to be made at the Closing and (B) reimburse the other for fifty
percent (50%) of the Acquired Business Costs and any Transaction Costs that are incurred
by the other or its Affiliates in connection with this Agreement or the other
Transaction Documents.
|
|
(vii)
|
|
Each of Greif and NSC shall cause ChannelCo, AssetCo or KSA Hub (as the case may
be) to take any of the actions set forth in
Section 1.2(a)(vi)
as they
reasonably determine, with effect from and after the Closing.
|
9
|
(viii)
|
|
Each of Greif, Dabbagh Parent and NSC and (to the extent contemplated by the
Transaction Documents) each Global Alliance Entity shall execute and deliver each of the
other Transaction Documents and the other agreements, certificates and documents and
instruments referred to in
Section 1
and this
Section 2
required to be
delivered at the Closing.
|
2.2
|
|
Conditions to Greifs Obligations to Consummate the Closing
|
The obligations of Greif and its Affiliates to take the actions described in
Section
2.1
and to consummate the Closing and otherwise to consummate the Transactions are
subject to the fulfillment to the satisfaction of Greif, as of the Closing, of the following
conditions:
|
(a)
|
|
Accuracy of Representations and Warranties
. The representations and
warranties made by NSC and its Affiliates in each Transaction Document to which they are
a party or made in writing pursuant thereto shall be true and correct (without any
reference to materiality or Material Adverse Effect) on and as of the Closing as if made
on and as of the Closing (except for such representations and warranties that expressly
relate to an earlier date, which shall be true and correct (without any reference to
materiality or Material Adverse Effect) on and as of such earlier date), in each case,
except for such failures to be true and correct as would not, individually or in the
aggregate, have a Material Adverse Effect on NSC or Dabbagh Parent.
|
|
(b)
|
|
Performance of Obligations
. NSC and its Affiliates shall have performed
or complied in all material respects with their respective covenants and agreements
contained herein and in the other Transaction Documents required to be performed or
complied with by them on or prior to the Closing.
|
|
(c)
|
|
No Material Adverse Effect
. Since the date of this Agreement, there
shall have been no Material Adverse Effect on NSC or Dabbagh Parent.
|
|
(d)
|
|
No Proceedings
. (i) No Governmental Order shall be in existence that
restrains, prohibits, or prevents the consummation of the Transactions or materially
changes the terms of the Transactions, and (ii) no Proceeding shall be pending or
threatened that presents a substantial possibility of restraining, prohibiting,
preventing or materially changing, the terms of the Transactions, or resulting in
material damages to, or imposing a Burdensome Condition upon, either of Greif or NSC or
their respective Affiliates in connection with the Transactions.
|
|
(e)
|
|
Governmental Approvals
. All Governmental Approvals, including approvals
required to be obtained to consummate the Closing Date Transactions shall have been
obtained, and all applicable pre-consummation waiting periods shall have expired, except
for such Governmental Approvals and waiting periods the failure of which to obtain or
satisfy would not, individually or in the aggregate, be reasonably likely to impose a
Burdensome Condition on a party, ChannelCo, AssetCo or KSA Hub or materially and
adversely affect the ability of a party to perform its obligations hereunder or under
the other Transaction Documents.
|
|
(f)
|
|
Transaction Documents
. Each of the Transaction Documents to be executed
by NSC and its Affiliates shall have been executed and delivered in escrow in a manner
acceptable to Greif.
|
10
|
(g)
|
|
Delivery of Certificates
. NSC shall have delivered to Greif such
certificates or documents (A) as may be reasonably necessary to evidence the
satisfaction in all material respects of the conditions to Closing; (B)
certifying that attached thereto is a true and complete copy of the Dabbagh HoldCo
Constituent Documents, the KSA Hub Constituent Documents, the Supply Agreement, the
Initial Strategic Plan and the Joint Venture Compliance Policy; and (C) certifying the
identity of the owners of NSC and Dabbagh Holdco.
|
|
(h)
|
|
Joint Venture Compliance Policy
. NSC shall have formally adopted and
agreed to implement the Global Alliance compliance policy and procedures to be
applicable to (i) the Global Alliance, the Global Alliance Entities, the Global Alliance
Subsidiaries, and (ii) Greif, NSC, their Affiliates and their respective directors,
officers, employees and agents with respect to Greif, the Global Alliance, the Global
Alliance Entities and the Global Alliance Subsidiaries in the form agreed upon by the
parties (the
Joint Venture Compliance Policy
).
|
2.3
|
|
Conditions to NSCs Obligations to Consummate the Closing
|
The obligations of NSC and its Affiliates to take the actions described in
Section
2.1
and to consummate the Closing and otherwise to consummate the Transactions are
subject to the fulfillment to the satisfaction of NSC, as of the Closing, of the following
conditions:
|
(a)
|
|
Accuracy of Representations and Warranties
. The representations and
warranties made by Greif and its Affiliates in each Transaction Document to which they
are a party or made in writing pursuant thereto shall be true and correct (without any
reference to materiality or Material Adverse Effect) on and as of the Closing as if made
on and as of the Closing (except for such representations and warranties that expressly
relate to an earlier date, which shall be true and correct (without any reference to
materiality or Material Adverse Effect) on and as of such earlier date), in each case,
except for such failures to be true and correct as would not, individually or in the
aggregate, have a Material Adverse Effect on Greif or Greif Parent.
|
|
(b)
|
|
Performance of Obligations
. Greif and its Affiliates shall have
performed or complied in all material respects with their respective covenants and
agreements contained herein and in the other Transaction Documents required to be
performed or complied with by them on or prior to the Closing.
|
|
(c)
|
|
No Material Adverse Effect
. Since the date of this Agreement, there
shall have been no Material Adverse Effect on Greif or Greif Parent.
|
|
(d)
|
|
No Proceedings
. (i) No Governmental Order shall be in existence that
restrains, prohibits, or prevents the consummation of the Transactions or materially
changes the terms of the Transactions, and (ii) no Proceeding shall be pending or
threatened that presents a substantial possibility of restraining, prohibiting,
preventing or materially changing, the terms of the Transactions, or resulting in
material damages to, or imposing a Burdensome Condition upon, either of Greif or NSC or
their respective Affiliates in connection with the Transactions.
|
|
(e)
|
|
Governmental Approvals
. All Governmental Approvals, including approvals
required to be obtained to consummate the Closing Date Transactions shall have been
obtained, and all applicable pre-consummation waiting periods shall have expired, except
for such Governmental Approvals and waiting periods the failure of which to obtain or
satisfy would not, individually or in the aggregate, be reasonably likely to impose a
Burdensome Condition on a party, ChannelCo, AssetCo or KSA Hub or materially and
adversely affect the ability of a party to perform its obligations hereunder or under
the other Transaction Documents.
|
11
|
(f)
|
|
Transaction Documents
. Each of the Transaction Documents to be executed
by Greif and its Affiliates shall have been executed and delivered in escrow in a manner
acceptable to NSC.
|
|
(g)
|
|
Delivery of Certificates
. Greif shall have delivered to NSC such
certificates or documents (A) as may be reasonably necessary to evidence the
satisfaction in all material respects of the conditions to Closing; (B) certifying that
attached thereto is a true and complete copy of the Greif HoldCo Constituent Documents,
the Greif Spain HoldCo Constituent Documents, the ChannelCo Constituent Documents, the
AssetCo Constituent Documents, the Supply Agreement, the Initial Strategic Plan, the
Joint Venture Compliance Policy, Greifs Global Transfer Pricing Policy and the Greif
Business System; and (C) certifying the identity of the owners of Greif and Greif
Holdco.
|
|
(h)
|
|
Joint Venture Compliance Policy
. Greif shall have formally adopted and
agreed to implement the Joint Venture Compliance Policy to be applicable to (i) the
Global Alliance, the Global Alliance Entities, the Global Alliance Subsidiaries, and
(ii) Greif, NSC, their Affiliates and their respective directors, officers, employees
and agents with respect to Greif, the Global Alliance, the Global Alliance Entities and
the Global Alliance Subsidiaries in the form agreed upon by the parties.
|
2.4
|
|
Covenants Pending the Closing
|
Each of Greif and NSC covenant and agree to take the following actions between the date of
this Agreement and the Closing Date:
|
(a)
|
|
Compliance with Laws
.
|
|
(i)
|
|
Each of Greif and NSC and their respective Affiliates shall comply
with all applicable Laws, the noncompliance with which might materially affect
the Greif Brand, Channel and Expertise or KSA Expertise and Support.
|
|
(ii)
|
|
Neither Greif nor NSC nor any of their respective Affiliates shall
take any action that would, if the Closing had occurred, violate
Section
4.7
.
|
|
(b)
|
|
Update Schedules
. Each of Greif and NSC shall promptly disclose to each
other any information contained in its representations and warranties or the Schedules
that is incomplete or is no longer correct as of all times after the date hereof until
the Closing;
provided
,
however
, that none of such disclosures shall be
deemed to modify, amend or supplement the representations and warranties of either Greif
or NSC or the schedules hereto for the purposes of
Section 2.2
, unless (i) with
respect to disclosures made by NSC, Greif shall have consented thereto in writing, and
(ii) with respect to disclosures made by Greif, NSC shall have consented thereto in
writing.
|
|
(c)
|
|
Fulfilment of Conditions
. Each of Greif and NSC shall use its
commercially reasonable efforts and shall cause its respective Affiliates to use its
commercially reasonable efforts to ensure that the conditions to the Closing set forth
herein to be satisfied by it are satisfied on or prior to the Closing and that its
representations and warranties are true, complete, correct and accurate in all material
respects at the Closing.
|
|
(d)
|
|
Books and Records
. Each of Greif and NSC shall, and shall cause its
respective Affiliates to, continue to maintain its and its respective Affiliates books,
accounts and records relating to Greif Brand, Channel and Expertise or KSA Expertise and
Support, as the case may be, to be transferred to a Global Alliance Entity
in the usual, regular and ordinary manner on a basis consistent with prior years and
periods, except as required by applicable Law or applicable GAAP, as the case may be.
|
12
2.5
|
|
Termination Prior to the Closing
|
This Agreement may be terminated at any time prior to the Closing:
|
(a)
|
|
Impossibility
. By any party if it has become impossible to satisfy any
material condition precedent to its obligations under this Agreement or any other
Transaction Document related to the Closing,
provided
that
if such
condition precedent has become impossible to satisfy as a result of the failure of (i)
Greif or any of its Affiliates to take any reasonable action or perform its obligations
under this Agreement or any other Transaction Document, then Greif and Greif Parent may
not exercise such right, and (ii) NSC or any of its Affiliates to take any reasonable
action or perform its obligations under this Agreement or any other Transaction
Document, then NSC and Dabbagh Parent may not exercise such right.
|
|
|
(b)
|
|
Mutual Consent
. By consent in writing executed by each party.
|
|
(c)
|
|
Termination Date
. By Greif if the Closing has not occurred within one
hundred and eighty (180) calendar days after the date of this Agreement through no fault
of Greif or its Affiliates; and by NSC if the Closing has not occurred within one
hundred and eighty (180) calendar days after the date of this Agreement through no fault
of NSC or its Affiliates.
|
2.6
|
|
Survival of Certain Terms
|
If this Agreement is terminated pursuant to
Section 2.5,
this Agreement shall
forthwith cease to have effect between Greif, NSC, Greif Parent and Dabbagh Parent and all
further obligations of each of Greif, NSC, Greif Parent and Dabbagh Parent shall terminate
without further Liability, except that the covenants and agreements contained in
Section
2.4
shall survive for a period of six (6) months following such termination, except as
may be otherwise specified herein and subject to applicable Law. No party may bring a claim
for breach of any such covenant or agreement after such survival period.
3.
|
|
REPRESENTATIONS AND WARRANTIES
|
|
3.1
|
|
Representations and Warranties of Greif
|
Unless otherwise stated, Greif hereby represents and warrants to NSC, as of the date of this
Agreement and as of the Closing Date, that except as set forth on a Schedule delivered by
Greif concurrently with the execution and delivery of this Agreement (for the purpose of this
Section 3.1
, any terms that are defined in this
Section 3.1
shall apply only
to Greif and its Affiliates):
|
(a)
|
|
Organization and Standing
.
|
|
(i)
|
|
Greif Parent is a corporation duly organized, validly existing and
in good standing under the Laws of the State of Delaware and is qualified to do
business as a foreign corporation in any jurisdiction where the failure to be so
qualified would have a Material Adverse Effect on Greif Parent, and Greif Parent
has all requisite corporate power and corporate authority necessary to enable it
to own, lease or otherwise hold its properties and assets and to carry on its
business as presently conducted.
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13
|
(ii)
|
|
Greif is a limited partnership duly organized and validly existing
under the Laws of the Netherlands, and Greif has all requisite corporate power
and corporate authority necessary to enable it to own, lease or otherwise hold
its properties and assets and to carry on its business as presently conducted.
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(b)
|
|
Authorization; Validity
. Greif and each of its applicable Affiliates
have all requisite corporate power and corporate authority to enter into and perform
their obligations under this Agreement and to consummate the Transactions to be
consummated by them, as applicable. Greif and each of its applicable Affiliates have or
will have at the Closing Date, all requisite corporate power and corporate authority to
enter into and perform their obligations under the other Transaction Documents to which
they are a party and to consummate the Transactions to be consummated by them. The
execution, delivery and performance by Greif and Greif Parent of this Agreement has
been, and the execution, delivery and performance by Greif and each of its applicable
Affiliates of the other Transaction Documents to which they are a party and the
consummation by Greif and each of its applicable Affiliates of the Transactions to be
consummated by them have been or at the Closing Date, will have been, duly authorized by
all necessary corporate action on the part of Greif and each of its applicable
Affiliates. This Agreement has been, and the other Transaction Documents to which Greif
and each of its Affiliates are a party, have been or at the Closing Date, will have
been, duly executed and delivered by Greif and each of its Affiliates, as applicable.
This Agreement constitutes, and the other Transaction Documents to which Greif or any of
its Affiliates is a party will constitute, legal, valid and binding obligations of Greif
or such Affiliate, as applicable, enforceable against it or them in accordance with (i)
their respective terms and (ii) the applicable Law to which they are expressed to be
subject.
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|
(c)
|
|
No Conflicts
. The execution, delivery and performance by Greif and each
of its applicable Affiliates of this Agreement do not, and the execution, delivery and
performance by Greif and each of its Affiliates of the other Transaction Documents to
which it is a party, the consummation of the Transactions to be consummated by it and
the compliance with the terms of the Transaction Documents to which it is a party will
not, conflict with, result in any violation of or default (with or without notice or
lapse of time or both) under, give rise to a right of termination, cancellation or
acceleration of any obligation (in each case by any third party) or to the loss of any
benefit under, or result in or require the creation, imposition or extension of any
Encumbrance upon any of its properties or assets under (i) any provision of the
Constituent Documents of Greif or any of its applicable Affiliates or (ii) any Judgment,
Injunction, applicable Law or Contract to which Greif or any of its applicable
Affiliates is a party or by which they or any of their properties is bound (except, with
respect to clause (ii), for such conflicts, violations, defaults, rights or losses that,
individually or in the aggregate, would not have a Material Adverse Effect on Greif or
Greif Parent, such that Greif or its Affiliates, as applicable, would not be able to
perform in all material respects its obligations under this Agreement and the other
Transaction Documents to which it is a party in accordance with their respective terms).
To the knowledge of Greif, except for filing with the competition authorities in
Pakistan and the Ukraine, no Third Party Approval and no Governmental Approval is
required to be obtained or made by Greif or any of its Affiliates in connection with the
execution, delivery and performance of this Agreement and the Transactions contemplated
by this Agreement, except for Third Party Approvals or Governmental Approvals the
absence of which, individually or in the aggregate, would not have a Material Adverse
Effect on Greif or Greif Parent, such that Greif or its Affiliates, as applicable, would
not be able to perform in all material respects its obligations under this Agreement and
the other Transaction Documents to which it is a party in accordance with its terms.
|
14
|
(d)
|
|
Legal Proceedings and Compliance with Laws
.
|
|
(i)
|
|
Litigation
. There are no material Proceedings pending or,
to Greifs knowledge, threatened against or relating to it or Greif Parent.
|
|
(ii)
|
|
Compliance with Laws
. There has been no Default by Greif
or its Affiliates under any Laws applicable to it and Greif or any of its
Affiliates has not received any notices from any Governmental Authority or third
party regarding any alleged Defaults applicable to Greif or any of its Affiliates
under any Laws, except for Defaults the existence of which has not had, or would
not reasonably be expected to have, a material adverse effect on Greif or Greif
Parent, or, if such Default were to be continuing, the Global Alliance. Greif
and its Affiliates (which Affiliates are directly or indirectly engaged in the
Polywoven Industrial Packaging Business) would be in full compliance with
Section 4.7
hereof if such section were in effect on the date hereof.
|
|
|
(iii)
|
|
Governmental Permits
.
|
|
(A)
|
|
Greif has obtained and is in compliance with all
Governmental Approvals relating to it, that are required for its
operations, except for any failure to obtain or non-compliance that would
not have a Material Adverse Effect on Greif. All of such Governmental
Approvals are currently valid and in full force and Greif has filed such
timely and complete renewal applications as may be required with respect
to such Governmental Approvals. To the knowledge of Greif, no revocation,
cancellation or withdrawal thereof has been threatened.
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|
(B)
|
|
Greif Parent has obtained and is in compliance with
all Governmental Approvals relating to it, that are required for its
operations, except for any failure to obtain or non-compliance that would
not have a Material Adverse Effect on Greif Parent. All of such
Governmental Approvals are currently valid and in full force and Greif
Parent has filed such timely and complete renewal applications as may be
required with respect to such Governmental Approvals. To the knowledge of
Greif Parent, no revocation, cancellation or withdrawal thereof has been
threatened.
|
|
(e)
|
|
No Other Warranties
. Except for the representations and warranties
expressly set forth in this Agreement, there are no other warranties (INCLUDING, WITHOUT
LIMITATION, ANY WARRANTY OF HABITABILITY, MERCHANTABILITY OR WARRANTY FOR A PARTICULAR
PURPOSE), express or implied.
|
3.2
|
|
Representations and Warranties of NSC
|
Unless otherwise stated, NSC hereby represents and warrants to Greif as of the date of this
Agreement and as of the Closing Date, that, except as set forth on a Schedule delivered by
NSC concurrently with the execution and delivery of this Agreement (for the purpose of this
Section 3.2
, any terms that are defined in this
Section 3.2
shall apply only
to NSC and its Affiliates):
Organization and Standing
.
|
(i)
|
|
NSC is a corporation duly organized, validly existing and in good
standing under the Laws of Saudi Arabia and is qualified to do business as a
foreign corporation in any jurisdiction where the failure to be so qualified
would have a Material Adverse Effect on NSC, and NSC has all requisite corporate
power and corporate authority necessary to enable it to own, lease or otherwise
hold its properties and assets and to carry on its business as presently
conducted.
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15
|
(ii)
|
|
Dabbagh Parent is a corporation duly organized, validly existing
and in good standing under the Laws of Saudi Arabia and is qualified to do
business as a foreign corporation in any jurisdiction where the failure to be so
qualified would have a Material Adverse Effect on Dabbagh Parent, and Dabbagh
Parent has all requisite corporate power and corporate authority necessary to
enable it to own, lease or otherwise hold its properties and assets and to carry
on its business as presently conducted.
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|
(iii)
|
|
As of the Closing Date, Dabbagh HoldCo is a corporation duly
organized, validly existing and in good standing under the Laws of Saudi Arabia
and is qualified to do business as a foreign corporation in any jurisdiction
where the failure to be so qualified would have a Material Adverse Effect on
Dabbagh HoldCo, and Dabbagh HoldCo has all requisite corporate power and
corporate authority necessary to enable it to own, lease or otherwise hold its
properties and assets and to carry on its business as presently conducted.
|
Authorization; Validity
. NSC and each of its applicable Affiliates have all
requisite corporate power and corporate authority to enter into and perform their
obligations under this Agreement and to consummate the Transactions to be consummated
by them, as applicable. NSC and each of its applicable Affiliates have or will have at
the Closing Date, all requisite corporate power and corporate authority to enter into
and perform their obligations under the other Transaction Documents to which they are a
party and to consummate the Transactions to be consummated by them. The execution,
delivery and performance by NSC and Dabbagh Parent of this Agreement has been, and the
execution, delivery and performance by NSC and each of its applicable Affiliates of the
other Transaction Documents to which they are a party and the consummation by NSC and
each of its applicable Affiliates of the Transactions to be consummated by them have
been or at the Closing Date, will have been, duly authorized by all necessary corporate
action on the part of NSC and each of its applicable Affiliates. This Agreement has
been, and the other Transaction Documents to which NSC and each of its Affiliates are a
party, have been or at the Closing Date, will have been, duly executed and delivered by
NSC and each of its Affiliates, as applicable. This Agreement constitutes, and the
other Transaction Documents to which NSC or any of its Affiliates is a party will
constitute, legal, valid and binding obligations of NSC or such Affiliate, as
applicable, enforceable against it or them in accordance with (i) their
respective terms and (ii) the applicable Law to which they are expressed to be
subject.
16
No Conflicts
. The execution, delivery and performance by NSC and each of its
applicable Affiliates of this Agreement do not, and the execution, delivery and
performance by NSC and each of its Affiliates of the other Transaction Documents to
which it is a party, the consummation of the Transactions to be consummated by it and
the compliance with the terms of the Transaction Documents to which it is a party will
not, conflict with, result in any violation of or default (with or without notice or
lapse of time or both) under, give rise to a right of termination, cancellation or
acceleration of any obligation (in each case by any third party) or to the loss of any
benefit under, or result in or require the creation, imposition or extension of any
Encumbrance upon any of its properties or assets under (i) any provision of the
Constituent Documents of NSC or any of its applicable Affiliates or (ii) any Judgment,
Injunction, applicable Law or Contract to which NSC or any of its applicable Affiliates
is a party or by which they or any of their properties is bound (except, with respect
to clause (ii), for such conflicts, violations, defaults, rights or losses that,
individually or in the aggregate, would not have a Material Adverse Effect on NSC or
Dabbagh Parent, such that NSC or its Affiliates, as applicable, would not be able to
perform in all material respects its obligations under this Agreement and the other
Transaction Documents to which it is a party in accordance with their respective terms
and would not have a Material Adverse Effect on NSC). To the knowledge of NSC, except
for filing with the competition authorities in Pakistan and the Ukraine, no Third Party
Approval and no Governmental Approval is required to be obtained or made by NSC or any
of its Affiliates in connection with the execution, delivery and performance of this
Agreement and the Transactions contemplated by this Agreement, except for Third Party
Approvals or Governmental Approvals the absence of which, individually or in the
aggregate, would not have a Material Adverse Effect on NSC or Dabbagh Parent, such that
NSC or its Affiliates, as applicable, would not be able to perform in all material
respects its obligations under this Agreement and the other Transaction Documents to
which it is a party in accordance with its terms.
Legal Proceedings and Compliance with Laws
.
|
(i)
|
|
Litigation
. There are no material Proceedings pending or,
to NSCs knowledge, threatened against or relating to it or Dabbagh Parent.
|
17
|
(ii)
|
|
Compliance with Laws
. There has been no Default by NSC or
its Affiliates under any Laws applicable to it and NSC or any of its Affiliates
has not received any notices from any Governmental Authority or third party
regarding any alleged Defaults applicable to NSC or any of its Affiliates under
any Laws, except for Defaults the existence of which has not had, or would not
reasonably be expected to have, a material adverse effect on NSC or Dabbagh
Parent, or, if such Default were to be continuing, the Global Alliance. NSC and
its Affiliates (which Affiliates are directly or indirectly engaged in the
Polywoven Industrial Packaging Business) would be in full compliance with
Section 4.7
hereof if such section were in effect on the date hereof.
None of NSC, Dabbagh Parent, their respective officers, directors, employees or,
to their knowledge, their respective agents or others acting on their behalf are
or have been included on the list of Specially Designated Nationals and Blocked
Persons (
SDN List
) maintained by the Office of Foreign Assets Control (
OFAC
) of
the United States Treasury Department or any similar list maintained by other
relevant Governmental Authorities and, to the knowledge of NSC, none of the
foregoing are being investigated or considered for inclusion on any such lists.
None of NSC, Dabbagh Parent, their respective officers, directors, employees or,
to their knowledge, their respective agents or others acting on their behalf are
Government Officials, and in connection with this Agreement and the anticipated
formation of the Global Alliance none of the foregoing have made any Prohibited
Payments.
|
|
|
(iii)
|
|
Governmental Permits
.
|
|
(A)
|
|
NSC has obtained and is in compliance with all
Governmental Approvals relating to it, that are required for its
operations, except for any failure to obtain or non-compliance that would
not have a Material Adverse Effect on NSC. All of such Governmental
Approvals are currently valid and in full force and NSC has filed such
timely and complete renewal applications as may be required with respect
to such Governmental Approvals. To the knowledge of NSC, no revocation,
cancellation or withdrawal thereof has been threatened.
|
|
(B)
|
|
Dabbagh Parent has obtained and is in compliance with
all Governmental Approvals relating to it, that are required for its
operations, except for any failure to obtain or non-compliance that would
not have a Material Adverse Effect on Dabbagh Parent. All of such
Governmental Approvals are currently valid and in full force and Dabbagh
Parent has filed such timely and complete renewal applications as may be
required with respect to such Governmental Approvals. To the knowledge of
Dabbagh Parent, no revocation, cancellation or withdrawal thereof has been
threatened.
|
|
(e)
|
|
No Other Warranties
. Except for the representations and warranties
expressly set forth in this Agreement, there are no other warranties (INCLUDING, WITHOUT
LIMITATION, ANY WARRANTY OF HABITABILITY, MERCHANTABILITY OR WARRANTY FOR A PARTICULAR
PURPOSE), express or implied.
|
18
4.
|
|
COVENANTS
|
|
4.1
|
|
Global Alliance Entity Board Composition
|
|
(a)
|
|
Establishment of ChannelCo, AssetCo and KSA Hub Boards of Directors
.
|
|
(i)
|
|
Board Representation of each of Greif and NSC
. Each of
Greif and NSC shall constitute, effective at the Closing, and in accordance with
the Constituent Documents of each Global Alliance Entity, the Board of Directors
for each of ChannelCo, AssetCo and KSA Hub (
Board of Directors
). Each Board of
Directors shall consist of eight (8) or ten (10) individuals, as agreed between
Greif and NSC. The parties shall cause the shareholders of the Global Alliance
Entities to appoint, on the nomination of Greif, half of the individuals to serve
on the Board of Directors of each of ChannelCo, AssetCo and KSA Hub and, on the
nomination of NSC, the other half of the individuals to serve on the Board of
Directors of each of ChannelCo, AssetCo and KSA Hub. Board of Director
nominations made by either Greif or NSC in accordance with the provisions of the
Joint Venture Agreement shall not be objected to by Greif or NSC (as the case may
be).
|
|
(ii)
|
|
Chairman of ChannelCo, AssetCo and KSA Hub
. Greif shall
designate a representative of Greif to serve as the Chairman of the ChannelCo
Board of Directors, and NSC shall designate a representative of NSC to serve as
the Chairman of the AssetCo Board of Directors and a representative of NSC to
serve as the Chairman of the KSA Hub Board of Directors. Pursuant to the
applicable Constituent Documents, each of the ChannelCo Chairman, the AssetCo
Chairman and the KSA Hub Chairman shall have the power to break tie votes on any
matter that comes before the applicable Board of Directors. For the avoidance of
doubt, none of the ChannelCo Chairman, the AssetCo Chairman or the KSA Hub
Chairman may break a tie vote (nor be entitled to an additional vote) on any
decision requiring a Board Supermajority Approval unless such chairmans vote,
together with all other votes cast with respect to such matter, meets the minimum
number of votes required for such approval pursuant to
Section 1.3(a)
of
the Joint Venture Agreement.
|
|
(b)
|
|
Appointment of Executives; Removal and Replacement
.
|
|
|
|
|
Notwithstanding any other provisions to the contrary contained in this Agreement or in
any Constituent Documents, at all times, Greif will, after consultation with NSC,
designate the Chief Executive Officer (the
CEO
) of each of ChannelCo, AssetCo and KSA
Hub and NSC will, after consultation with Greif, designate the Chief Financial Officer
(the
CFO
) of each of ChannelCo, AssetCo and KSA Hub. At least seven (7) calendar days
prior to the Closing, Greif will notify NSC of its initial CEO designee and NSC will
notify Greif of its initial CFO designee. The parties shall cause the shareholders of
the applicable Global Alliance Entity, at the direction of either Greif or NSC (and
after consultation with Greif or NSC, as the case may be), to appoint the CEO and to
remove the CEO in the event that the CEO (1) is convicted of any criminal offense
under applicable Law, (2) becomes physically incapable of discharging his obligations
as CEO, or (3) in the reasonable judgment of either Greif or NSC, is not properly
discharging his duties as CEO. The applicable Global Alliance Entity Board of
Directors shall, at the direction of either Greif or NSC (and after consultation with
either Greif or NSC, as the case may be), remove the CFO in the event that the CFO (1)
is convicted of any criminal offense under applicable Law, (2) becomes physically
incapable of discharging his obligations as CFO, or (3) in the reasonable judgment of
either Greif or NSC, is not properly discharging his duties as CFO.
|
19
|
|
|
Notwithstanding any other provisions to the contrary contained in this Agreement or in
any Constituent Documents, at all times, Greif will, after consultation with NSC,
designate the Chief Executive Officer of each Global Alliance Subsidiary (the
Subsidiary CEO
) and NSC will, after consultation with Greif, designate the Chief
Financial Officer of each Global Alliance Subsidiary (the
Subsidiary CFO
). At least
seven (7) calendar days prior to the Closing, Greif will notify NSC of its initial
Subsidiary CEO designee and NSC will notify Greif of its initial Subsidiary CFO
designee. The applicable Global Alliance Entity Board of Directors shall, at the
direction of either Greif or NSC (and after consultation with either Greif or NSC, as
the case may be), remove such Subsidiary CEO in the event that such Subsidiary CEO (1)
is convicted of any criminal offense under applicable Law, (2) becomes physically
incapable of discharging his obligations as Subsidiary CEO, or (3) in the reasonable
judgment of either Greif or NSC, is not properly discharging his duties as Subsidiary
CEO. The applicable Global Alliance Entity Board of Directors shall, at the direction
of either Greif or NSC (and after consultation with either Greif or NSC, as the case
may be), remove such Subsidiary CFO in the event that such Subsidiary CFO (1) is
convicted of any criminal offense under applicable Law, (2) becomes physically
incapable of discharging his obligations as Subsidiary CFO, or (3) in the reasonable
judgment of either Greif or NSC, is not properly discharging his duties as Subsidiary
CFO.
|
|
|
(c)
|
|
Appointment of Global Alliance Entities Staff
.
|
The CEO shall have the authority to appoint such executive staff as he may determine
is desirable in order to assist the CEO and CFO in the performance of their duties;
provided
that
the CFO shall have the authority to appoint finance
staff who will report directly to the CFO.
|
(a)
|
|
Target Split Mechanism
. Greif and NSC intend to make through the Global
Alliance Entities certain strategic acquisitions of entities that are engaged in the
Polywoven Industrial Packaging Business (the
Acquired Businesses
), whereby certain
assets of the Acquired Businesses shall be allocated to AssetCo and certain assets of
the Acquired Businesses shall be allocated to ChannelCo. Within a reasonable period of
time after the acquisition of an Acquired Business but in no event later than sixty (60)
days after such acquisition to the extent practicable under applicable Law, the
management of ChannelCo and AssetCo shall determine which assets of such Acquired
Business are to be allocated to ChannelCo and which assets of such Acquired Business are
to be allocated to AssetCo in accordance with the following guidelines:
|
|
(i)
|
|
the split of assets of an Acquired Business shall be based on
operational flexibility to meet customer requirements, with the goal of
minimizing the splitting of individual sites between ChannelCo and AssetCo;
|
|
(ii)
|
|
the split of assets of an Acquired Business shall be focused on an
effective and efficient structure from an operational point of view;
|
|
(iii)
|
|
ChannelCo shall hold all sales and sales-related assets (subject
to
Section 4.2(d)
below), including warehouses, finished goods, and fifty
percent (50%) of goodwill;
|
|
(iv)
|
|
AssetCo shall hold all manufacturing-related assets (e.g., PPE, WIP
inventory) and fifty percent (50%) of goodwill;
|
20
|
(v)
|
|
a reallocation of the proposed asset split of an Acquired Business
shall be made if the initial allocation made by the management of ChannelCo and
AssetCo would result in a violation of applicable Law by either of ChannelCo or
AssetCo if such allocation were implemented;
|
|
(vi)
|
|
the costs and expenses in connection with the Acquired Business
(including any Transaction Costs incurred in connection with the analysis,
preparation and execution of the acquisition thereof (and including the fees and
expenses of McKinsey & Company and the purchase price paid for the Acquired
Business) (
Acquired Business Costs
) shall be borne by Greif and NSC on a 50%-50%
basis, and each of Greif and NSC shall reimburse the other for fifty percent
(50%) of the Acquired Business Costs incurred by the other or its Affiliates; and
|
|
(vii)
|
|
if an Acquired Business includes a site that qualifies to be held
by both ChannelCo and AssetCo, the management of ChannelCo and AssetCo shall
collectively make the ultimate determination, based on the case-by-case specifics
of such site.
|
With respect to any acquisition of an Acquired Business that is made prior to Closing,
the management of ChannelCo and AssetCo shall determine within a reasonable period of
time after Closing (but in no event later than 60 days after Closing to the extent
practicable under applicable Law), which assets of such Acquired Business are to be
allocated to ChannelCo and which assets of such Acquired Business are to be allocated
to AssetCo in accordance with the guidelines set forth above.
|
(b)
|
|
Board Approval
. The management of ChannelCo and AssetCo shall submit
their proposals with respect to the allocation of assets to the Board of Directors of
each of ChannelCo and AssetCo for approval, such approval not to be unreasonably
withheld, delayed or conditioned.
|
|
(c)
|
|
Divestitures
. Any divestiture of a portion of the Acquired Businesses
shall require the approval of the Board of Directors of each of ChannelCo and AssetCo in
accordance with
Section 1.3(a)
of the Joint Venture Agreement.
|
|
(d)
|
|
Tax Efficiency
. Acquired Businesses shall initially be held through
ChannelCo or AssetCo;
provided
that
each of Greif and NSC shall cause
ChannelCo and AssetCo to restructure the possession of such assets within the Global
Alliance to achieve more efficient tax planning for each of Greif and NSC and their
respective Affiliates. Such restructurings may include but are not limited to the
transfer of legal entities or assets; the conversion of legal entity forms; and the
approval of and the filing of associated US tax elections including those under Treas.
Reg. §301.7701-3.
|
4.3
|
|
Capital Commitments; Financing Matters
|
Each of Greif and NSC acknowledge and agree that the Global Alliance will require capital
commitments in an aggregate amount of six hundred million dollars ($600,000,000) to fund the
development of the Polywoven Industrial Packaging Business to be conducted by the Global
Alliance, including the acquisition of the Acquired Businesses. Each of Greif and NSC hereby
commits to provide one hundred fifty million dollars ($150,000,000) of equity capital (each,
a
Capital Contribution
) for an aggregate equity capitalization of three hundred million
dollars ($300,000,000) as set forth in the Strategic Plan. In addition, the Global Alliance
intends to incur stand-alone indebtedness at one or more Global Alliance Entities from third
party financing sources for an aggregate amount of three hundred
million dollars ($300,000,000) to
21
achieve a fifty-fifty
(50/50) debt to equity capitalization ratio. In the event that the Global Alliance, despite
all commercially reasonable efforts, is unable to obtain all or part of such indebtedness on
a stand-alone, non-recourse basis, each of Greif and NSC shall, in addition to their equity
commitments, take such actions as may be necessary to ensure that the Global Alliance obtains
such indebtedness (which could include making loan guarantees available or loaning the
indebtedness directly on market terms (in each case by Greif and NSC on a pro rata
fifty-fifty (50/50) basis in accordance with
Section 4.3(b)
). Each of Greif and NSC
further acknowledge and agree that their obligations to make Capital Contributions set forth
in this
Section 4.3(a)
shall be reviewed and adjusted as mutually agreed to the
extent that the milestones set forth in the Initial Strategic Plan are either achieved
earlier than planned or not satisfied by the dates intended.
|
(i)
|
|
Procedures
. Each of Greif and NSC will make all Capital Contributions to
the Global Alliance on a pro rata fifty-fifty (50/50) basis. Such Capital Contributions
shall be in the amounts and at the times as set forth in the Strategic Plan, as such
Strategic Plan may be amended from time to time by Greif and NSC. Except as set forth
in this
Section 4.3(a)
, neither Greif nor NSC nor any of their respective
Affiliates shall be required to make any Capital Contributions to the Global Alliance.
All requests for Capital Contributions from the Global Alliance will (i) be given by
written notice from the Boards of Directors of each of ChannelCo and AssetCo to Greif
and NSC stating that the Capital Contribution request has been approved by the
applicable Board of Directors and designating the legal entity to be funded, (ii) be
made in accordance with the terms of the Strategic Plan, (iii) state the aggregate
amount of the Capital Contribution, which is to be allocated fifty-fifty (50/50) between
Greif and NSC, and (iv) specify the date that the Capital Contribution is to be made,
and such date shall not be sooner than ten (10) calendar days following the receipt of
such Capital Contribution request notice by Greif and NSC.
|
|
(ii)
|
|
Failure to Make Capital Contributions
. If either Greif or NSC fails to
make a Capital Contribution properly requested in accordance with
Section
4.3(a)(i)
, then the other party may, at its option, exercise one or more of the
following remedies to cure the defaulted Capital Contribution of the other party:
|
|
(A)
|
|
Proceeding to Compel
. The non-defaulting party may
institute a Proceeding either in its own name or on behalf of the Global Alliance
to compel the defaulting party to make its portion of the Capital Contribution;
|
|
(B)
|
|
Loan by Non-Defaulting Party
. The non-defaulting party may
loan the Global Alliance Entity the amount of the defaulting partys portion of
the Capital Contribution, in which case the defaulting party will be liable to
the non-defaulting party for the amount of such loan, plus interest at eight
percent (8%) and all fees and expenses incurred by the non-defaulting party and
the Global Alliance in connection with the provision of such loan (including
attorneys fees);
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(C)
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Refusal to Make Additional Capital Contributions or Loans
.
The non-defaulting party may refuse to make any additional Capital Contributions
or Credit Support to the Global Alliance without being in default under any
provision of this Agreement or any other Transaction Document; or
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(D)
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Availability of Other Transaction Document Rights
. The
non-defaulting party may avail itself of any other rights or remedies provided
for under any of the other Transaction Documents in connection with the failure
of a party to make a Capital Contribution under this Agreement, including
termination of the Global Alliance in accordance with
Section 4.2(b)
of
the Joint Venture Agreement.
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(b)
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Additional Financing.
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(i)
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Third Party Financing/Credit Support
. Each of Greif and NSC agree that
the Global Alliance shall incur indebtedness on a stand-alone basis at one or more
Global Alliance Entities to achieve a fifty-fifty (50/50) debt to equity capitalization
ratio. Each of Greif and NSC intend that such indebtedness shall be non-recourse to
Greif and NSC and shall be secured only by the business operations and assets of the
Global Alliance. In the event that the Global Alliance, despite all commercially
reasonable efforts, is unable to obtain all or part of such indebtedness on a
non-recourse basis, each of Greif and NSC shall take such actions as may be necessary to
ensure that the Global Alliance obtains the required indebtedness (which could include
making loan guarantees available or loaning the indebtedness directly on market terms
(in each case by Greif and NSC on a pro-rata fifty-fifty (50/50) basis) (any such loan
guarantee or direct loan being referred to herein as a
Credit Support
)). Each of Greif
and NSC hereby severally and not jointly commits to provide up to one hundred fifty
million dollars ($150,000,000) of Credit Support (for an aggregate Global Alliance debt
capitalization of three hundred million dollars ($300,000,000)).
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(ii)
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Procedure
. Each of Greif and NSC will make Credit Support available to
the Global Alliance on a pro rata fifty-fifty (50/50) basis. Such Credit Support shall
be of the type, in the amounts and at the times as set forth in the Strategic Plan, as
such Strategic Plan may be amended from time to time by Greif and NSC. Except as set
forth in this
Section 4.3(b)
, neither Greif nor NSC nor any of their respective
Affiliates shall be required to make any Credit Support available to the Global
Alliance. All requests for Credit Support from the Global Alliance will (i) be given by
written notice from the Board of Directors of each of ChannelCo and AssetCo to Greif and
NSC stating that the Credit Support request has been approved by the applicable Board of
Directors and designating the legal entity to be supported, (ii) be made in accordance
with the terms of the Strategic Plan, (iii) state the aggregate amount of the Credit
Support, which is to be allocated fifty-fifty (50/50) between Greif and NSC, and (iv)
specify the date that the Credit Support is to be made available, and such date shall
not be sooner than fifteen (15) calendar days following the receipt of such Credit
Support request notice by Greif and NSC.
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(iii)
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Failure to Make Credit Support Available
. If either Greif or NSC fails
to make Credit Support available that is properly requested in accordance with
Section 4.3(b)(ii)
, then the other party may, at its option, exercise one or
more of the following remedies to cure the default of the other party:
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(A)
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Proceeding to Compel
. The non-defaulting party may
institute a Proceeding either in its own name or on behalf of the Global Alliance
to compel the defaulting party to make its portion of the Credit Support
available;
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(B)
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Credit Support by Non-Defaulting Party
. The non-defaulting
party may make or guarantee the amount of the defaulting partys portion of the
Credit Support, in which case the defaulting party will be liable to the
non-defaulting party for the amount of such guarantee or loan, plus interest and
all fees and expenses incurred by the non-defaulting party and the Global
Alliance in connection with the provision of such guarantee or loan (including
attorneys fees);
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(C)
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Refusal to Make Additional Capital Contributions or Credit
Support
. The non-defaulting party may refuse to make any additional Capital
Contributions or Credit Support to the Global Alliance without being in default
under any provision of this Agreement or any other Transaction Document; or
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(D)
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Availability of Other Transaction Document Rights
. The
non-defaulting party may avail itself of any other rights or remedies provided
for under any of the other Transaction Documents in connection with the failure
of a party to make any Credit Support available under this Agreement, including
termination of the Global Alliance in accordance with
Section 4.2(b)
of
the Joint Venture Agreement.
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(a)
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Covenant of Confidentiality
. Except as may be required by applicable
Law, each of Greif Parent, Greif, Dabbagh Parent and NSC shall treat all Confidential
Information of each other and any Global Alliance Entity that is obtained in connection
with participation in the Global Alliance, and not otherwise known to them or already in
the public domain (other than through a breach by any Person of any duty or obligation
of confidentiality), as confidential.
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(b)
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No Disclosure or Unauthorized Use of Confidential Information
. Each of
Greif Parent, Greif, Dabbagh Parent and NSC acknowledge that the Confidential
Information described in
Section 4.4(a)
is a valuable and unique asset and
covenants that it will not allow the disclosure of any such Confidential Information to
any Person, other than its advisors (who shall receive such Confidential Information
with no right to disclose the same or use it except for the same use as permitted to the
disclosing party), for any reason whatsoever, unless such information is in the public
domain through no wrongful act of such disclosing party or such disclosure is required
by Law. Neither Greif Parent, Greif, Dabbagh Parent nor NSC shall use the Confidential
Information described in
Section 4.4(a)
in any manner or for any purpose except
as expressly permitted by the other or the Global Alliance Entity that owns the
Confidential Information or from which it was obtained.
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(c)
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Affiliates
. The terms of this
Section 4.4
shall apply to any
Affiliate of Greif Parent or Dabbagh Parent to the same extent as if such Affiliate were
either Greif Parent or Dabbagh Parent, and each of Greif Parent and Dabbagh Parent shall
take whatever actions may be necessary to cause any of its Affiliates to adhere to the
terms of this
Section 4.4
.
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(d)
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Injunctive Relief
.
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(i)
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In the event of any breach or threatened breach by Greif Parent or Greif of any
provision of this
Section 4.4
, NSC shall be entitled to injunctive or other
equitable relief, restraining Greif Parent and Greif from using or disclosing any
Confidential Information, in whole or in part, or from engaging in conduct that would
constitute a breach of their obligations under this
Section 4.4
. Such relief
shall be in addition to and not in lieu of any other remedies that may be available,
including an action for the recovery of damages.
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(ii)
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In the event of any breach or threatened breach by Dabbagh Parent or NSC of any
provision of this
Section 4.4
, Greif shall be entitled to injunctive or other
equitable relief, restraining Dabbagh Parent and NSC from using or disclosing any
Confidential Information, in whole or in part, or from engaging in conduct that would
constitute a breach of their obligations under this
Section 4.4
. Such relief
shall be in addition to and not in lieu of any other remedies that may be available,
including an action for the recovery of damages.
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24
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(a)
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Each of Greif and NSC, acting through the respective representatives appointed on each Global
Alliance Entity Board of Directors on their nomination, may, in its sole discretion, approve
or decline to approve (and direct the representatives so appointed by it to approve or decline
to approve) any matter presented to such Board of Directors. To the extent permitted by
applicable Law, no member of a Global Alliance Entity Board of Directors (in his role as a
member of such Board of Directors) will have a fiduciary or other duty to Greif, NSC or their
respective Affiliates or any Global Alliance Entity other than to the Person that nominated
such member to be appointed to such Board of Directors.
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(b)
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Subject to applicable Law, neither Greif nor any of its Affiliates nor any officer, director,
employee or former employee of Greif or its Affiliates nor any member of a Global Alliance
Entity Board of Directors (in either case, other than an officer of any Global Alliance
Entity) shall have any obligation, or be liable, to NSC or any Global Alliance Entity for
exercising any of the rights of Greif or such Affiliate under this Agreement or any other
Transaction Document to which it is or will be a party, or for exercising or failing to
exercise its rights as a shareholder, member or manager of any Global Alliance Entity (other
than a breach of any Transaction Document) or for breach of any fiduciary or other similar
duty to NSC or any Global Alliance Entity by reason of such conduct.
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(c)
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Subject to applicable Law, neither NSC nor any of its Affiliates nor any officer, director,
employee or former employee of NSC or its Affiliates nor any member of a Global Alliance
Entity Board of Directors (in either case, other than an officer of any Global Alliance
Entity) shall have any obligation, or be liable to Greif or any Global Alliance Entity for
exercising any of the rights of NSC or such Affiliate under this Agreement or any other
Transaction Document to which it is or will be a party, or for exercising or failing to
exercise its rights as a shareholder, member or manager of any Global Alliance Entity (other
than a breach of any Transaction Document) or for breach of any fiduciary or other similar
duty to Greif or any Global Alliance Entity by reason of such conduct.
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4.6
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Compliance with Agreement
|
Each of Greif and NSC shall, and shall cause its respective employees and agents to, take all
actions as a shareholder or member or director or officer of any other entity that is
required to cause any other entity to conduct its business and to take such actions as shall
be necessary in order to effect this Agreement, the Transactions or the Transaction
Documents.
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(a)
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Notwithstanding anything to the contrary contained in this Agreement or any other
Transaction Document, from and after the Closing, each of Greif and NSC and their
respective Affiliates (which Affiliates are directly or indirectly engaged in the
Polywoven Industrial Packaging Business) and each Global Alliance Entity and each Global
Alliance Subsidiary shall comply with the requirements of all Laws applicable to each
respective party in all material respects and shall make such filings, take such
actions, refrain from such actions and otherwise provide all cooperation as may
reasonably be requested by the affected party from time to time to ensure that neither
Greif nor NSC nor their respective Affiliates (including the Global Alliance Entities
and Global Alliance Subsidiaries) is in violation of any Law applicable to them
(including by reason of their ownership in any Global Alliance Entity or Global Alliance
Subsidiary) and to the extent that the exercise of any right or fulfillment of any
obligation under
this Agreement would cause Greif or NSC, their respective Affiliates or a Global
Alliance Entity or Global Alliance Subsidiary to violate any applicable Law in any
material respect, then such right will be exercised or such obligation will be
complied with only to the extent that (i) the applicable Law will not be so violated
and (ii) such is in accordance with each of Greifs and NSCs compliance policies,
including the Joint Venture Compliance Policy.
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25
|
(b)
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Each of Greif and NSC shall formally adopt, implement and from time to time amend
the Joint Venture Compliance Policy and shall cooperate in good faith to develop and
implement any other appropriate compliance policies designed to ensure that the Global
Alliance, each Global Alliance Entity, each Global Alliance Subsidiary and NSC and its
Affiliates in connection with their direct or indirect participation in the Global
Alliance, complies in all material respects with all applicable Laws, including
anti-terrorism sanctions and Laws concerning worker health and safety, environmental
protection, anti-corruption, anti-boycott and anti-money-laundering and shall implement
and maintain adequate internal financial and management controls and procedures to
monitor, audit, detect and prevent the violation of such applicable Laws. Greif shall
from time to time provide NSC and each Global Alliance Entity with information
concerning applicable U.S. anti-bribery and anti-corruption Laws and the sanctions
programs administered by OFAC; the parties agree that such provision of information
shall not be construed as providing legal advice to NSC.
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(c)
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Neither Greif nor NSC nor any of their respective Affiliates (which Affiliates
are directly or indirectly engaged in the Polywoven Industrial Packaging Business), nor
any Global Alliance Entity or any Global Alliance Subsidiary nor any of their respective
directors, officers, employees who are working for a Person that is involved directly or
indirectly in the Global Alliance, or, so far as Greif or NSC is aware, any agent,
distributor or any other Person acting for or on behalf of the foregoing (individually
and collectively, an
Applicable Person
), shall violate any anti-bribery or
anti-corruption Laws, nor shall any Applicable Person, directly or indirectly, offer,
pay, promise to pay, or authorize the payment or giving of any bribe, influence payoff,
payment, kickback, gift, money or anything of value (a
Prohibited Payment
) to any
officer or employee of, or any other person acting in an official capacity for any
Governmental Authority, or instrumentality thereof, to any political party or official
thereof, or to any candidate for political office, or to any family member of or any
other person who is connected or associated personally with any of the foregoing
(individually and collectively, a
Government Official
) or to any person under
circumstances where such Applicable Person knew or was aware of a reasonable probability
that all or a portion of such money or thing of value would be offered, given or
promised, directly or indirectly, to any Government Official, for the purpose of:
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(i)
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either influencing any act or decision of such Government Official
in his official capacity, inducing such Government Official to do or omit to do
any act in relation to his lawful duty, securing any improper advantage, or
inducing such Government Official to influence or affect any act or decision of
any Governmental Authority or instrumentality; or
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(ii)
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assisting Greif, NSC, any Global Alliance Entity, any Global
Alliance Subsidiary or any of their respective Affiliates in obtaining or
retaining business for or with, or directing business to any of them.
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(iii)
|
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Each of Greif, NSC, Greif Parent and Dabbagh Parent agrees to
promptly report to the other parties any Prohibited Payment made in connection
with the Global Alliance, any Global Alliance
Entity or any Global Alliance Subsidiary of which any of them obtains knowledge
or has reasonable grounds to believe has occurred.
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26
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(d)
|
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Neither Greif nor NSC nor any of their respective Affiliates (which Affiliates
are directly or indirectly engaged in the Polywoven Industrial Packaging Business), nor
any Global Alliance Entity or Global Alliance Subsidiary nor any of their respective
officers, employees, directors or agents (individually and collectively, a
Relevant
Person
) shall engage directly or indirectly in transactions connected with any
government, country, or other entity or Person that is the target of or subject to
sanctions administered by OFAC or any other relevant Governmental Authority, including
all entities owned by any Persons identified on the SDN List. No Relevant Person is any
such Person or entity. Notwithstanding the foregoing, Greif acknowledges that, NSC and
its Affiliates may engage in transactions with (i) countries or governments that are
subject to sanctions administered by OFAC or any other relevant Governmental Authority
and (ii) Persons identified on OFACs SDN List solely due to their being owned or
controlled by a government that is subject to OFAC sanctions under a country regime
(rather than a bad actor regime),
provided
that
: (x) such activities
do not violate laws applicable to NSC or its Affiliates, (y) such activities are wholly
unrelated to any of Greif or its Affiliates, the Global Alliance, any Global Alliance
Entity or any Global Alliance Subsidiary and do not contravene the Joint Venture
Compliance Policy and (z) such activities do not constitute the predominant share of the
business activities (as constituted by revenues generated) of NSC or Dabbagh Parent or
result in NSC or Dabbagh Parent materially acting on behalf of such Persons, countries
or governments. Each of Greif, NSC, Greif Parent and Dabbagh Parent agrees to promptly
report to the other parties upon obtaining knowledge or having reasonable grounds to
believe that a Relevant Person has become or is reasonably likely to become the target
of any such sanctions which may be grounds for termination of the Global Alliance
pursuant to
Section 4.2(a)
of the Joint Venture Agreement.
|
4.8
|
|
Cooperation; Resolution of Objections
|
|
(a)
|
|
From and after the date of this Agreement, each of Greif and NSC shall make (and
cooperate with the other in making) all filings with Governmental Authorities in
connection with the Transactions and shall obtain (and cooperate with the other in
obtaining) any Governmental Approvals or Third Party Approvals required to be obtained
or made by it in connection with any of the Transactions to be consummated by it at the
Closing as promptly as practicable after the date of this Agreement and to use its
commercially reasonable efforts to furnish or cause to be furnished, as promptly as
practicable, all information and documents reasonably required by the relevant
Governmental Authorities to obtain such approvals and shall otherwise cooperate in all
reasonable respects with the applicable Governmental Authorities to obtain any required
Governmental Approvals in as expeditious a manner as possible.
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(b)
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Each of Greif and NSC shall use commercially reasonable efforts to resolve such
objections, if any, as any Governmental Authority may assert with respect to this
Agreement and the other Transaction Documents and the Transactions under Applicable
Laws, including requesting reconsideration (which may be initiated by Greif if it is
affected thereby or by NSC if it is affected thereby or requested by Greif if Greif is
not affected thereby or requested by NSC if NSC is not affected thereby) of any adverse
ruling of any Governmental Authority and taking administrative appeals, if available and
reasonably likely to result in a reversal of such adverse ruling. If any Proceeding is
instituted by any Person challenging this Agreement, the other Transaction Documents or
the Transactions, each of Greif and NSC shall promptly consult with each other to
determine the most appropriate response to such Proceeding and shall cooperate in all
reasonable respects with the Person subject to any such Proceeding,
provided
that
the
decision whether to initiate, and the control of, any Proceeding shall remain within
the sole discretion of the Person subject to the Proceeding.
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27
Each of Greif and NSC shall use its commercially reasonable efforts to do or cause to be
done, and to cause its respective Affiliates to do or cause to be done, such further acts and
things and deliver or cause to be delivered to the other or its designees such additional
assignments, agreements, powers and instruments as the other or its designees may reasonably
require or deem advisable to carry into effect the purpose of the Transaction Documents or to
better assure and confirm unto the other or its designees its rights, powers and remedies
hereunder and thereunder, except that none of Greif and NSC shall be required to agree to or
comply with any Burdensome Condition.
5.
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INDEMNIFICATION
|
|
5.1
|
|
Indemnification for Representations, Warranties, Covenants and Agreements
|
|
(a)
|
|
Indemnification by Greif
. Except as specifically set forth in the Shared
Services Agreement in connection with the provision of certain services thereunder
following the Closing, Greif shall pay, indemnify and reimburse NSC and its Affiliates,
officers, directors, executives, employees and agents (the
Dabbagh Indemnified Parties
),
and the Global Alliance Entities (collectively, the
Greif Protected Parties
) for any and
all Losses suffered or incurred by any of them (directly or indirectly) as a result of,
or with respect to any breach or inaccuracy of any representation, warranty, covenant or
agreement by Greif or its Affiliates contained herein or in any other Transaction
Document (subject, in the case of any Transaction Document other than this Agreement, to
(A) any express provision in any such other Transaction Document that this
Section
5
(or any part thereof) shall not apply to such other Transaction Document and (B)
any limitation on the indemnification rights or obligations of a party contained in any
such other Transaction Document), whether or not resulting from third party claims.
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(b)
|
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Indemnification by NSC
. NSC shall pay, indemnify and reimburse Greif and
its Affiliates, officers, directors, executives, employees and agents (the
Greif
Indemnified Parties
) and the Global Alliance Entities (collectively, the
Dabbagh
Protected Parties
and, together with the Greif Protected Parties, the
Protected Parties
)
for any and all Losses suffered or incurred by any of them (directly or indirectly) as a
result of, or with respect to any breach or inaccuracy of any representation, warranty,
covenant or agreement by NSC or its Affiliates contained herein or in any other
Transaction Document (subject, in the case of any Transaction Document other than this
Agreement, to (A) any express provision in any such other Transaction Document that this
Section 5
(or any part thereof) shall not apply to such other Transaction
Document and (B) any limitation on the indemnification rights or obligations of a party
contained in any such other Transaction Document), whether or not resulting from third
party claims.
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(c)
|
|
Survival of Representations and Warranties
. The representations and
warranties contained herein and in the other Transaction Documents shall not be
extinguished by the Closing, but shall survive until the second anniversary of the
Closing (subject, in the case of any Transaction Document other than this Agreement, to
(i) any express provision in any such other Transaction Document that this
Section
5
(or any part thereof) shall not apply to such other Transaction Document, and (ii)
any limitation on the indemnification rights or obligations of a party contained in any
such other Transaction Document). No investigation or other examination by the
Protected Parties or their respective representatives shall affect
the term of survival of the representations and warranties set forth above. The
survival of the representations and warranties for a specified period as provided
above shall mean that no Protected Party may bring a claim for breach of any such
representation or warranty after such period. It is understood that, except as
expressly provided herein, all representations and warranties contained herein shall
be of no further force or effect after the termination of this Agreement.
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28
|
(d)
|
|
Threshold
. No party shall make any claim for indemnification under this
Section 5
in respect of a breach of a representation or warranty contained in
Section 3
of this Agreement or in any other Transaction Document (subject, in
the case of any Transaction Document other than this Agreement, to (A) any express
provision in any such other Transaction Document that this
Section 5
(or any
part thereof) shall not apply to such other Transaction Document, and (B) any limitation
on the indemnification rights or obligations of a party contained in any such other
Transaction Document), unless and until the aggregate Loss or Losses arising out of or
resulting from all such breaches by a party, as the case may be, exceeds five hundred
thousand dollars ($500,000) in which event indemnification for the total amount of such
Losses may be claimed, including such threshold amount. The limitations set forth in
this
Section 5
shall not preclude a party from making a claim for
indemnification under this
Section 5
(or affect the amount of such claim) that
does not relate to a breach of a representation or warranty contained in
Section
3
, regardless of whether a claim for indemnification for such breach could also be
made.
|
5.2
|
|
Indemnification for Post-Closing Matters
|
Each Global Alliance Entity shall be primarily obligated for all Losses suffered or incurred
by it, which are attributable to events or occurrences that take place after the Closing
Date, with respect to the assets, properties, rights, business and obligations of such Global
Alliance Entity, except for Losses for which indemnification by a party is otherwise provided
for in this
Section 5
or Liabilities not assumed by such Global Alliance Entity
pursuant hereto. The Global Alliance Entities shall pay, indemnify and reimburse each of the
other Protected Parties for any and all Losses suffered or incurred by any of them (directly
or indirectly through a Global Alliance Entity or otherwise) that are attributable to events
or occurrences that take place after the Closing Date, with respect to the assets,
properties, rights, business and obligations of any Global Alliance Entity, except for Losses
for which indemnification by a party is otherwise provided for in this
Section 5
or
Liabilities not assumed by any Global Alliance Entity pursuant hereto.
If a party wishes to make a claim hereunder on behalf of itself or any Protected Party, it
shall promptly notify the Person that may be required to provide indemnification pursuant to
this
Section 5
(the
Indemnifying Parties
), in writing, of any claim thereunder,
specifying in reasonable detail the nature of the Loss suffered by the Protected Parties,
and, if known, the amount, or an estimate of the amount, of the Loss arising therefrom,
provided
that
a failure of a party to give the Indemnifying Parties prompt
notice as provided herein shall not relieve the Indemnifying Parties of any of their
obligations hereunder, except to the extent both any of the Indemnifying Parties are
prejudiced by such failure and none of the Indemnifying Parties control the Protected Party
or Parties that has suffered the Loss. A party that makes a claim shall provide to the
Indemnifying Parties as promptly as practicable thereafter information and documentation
reasonably requested by the Indemnifying Parties to support and verify the claim asserted,
unless the party that makes a claim has been advised by counsel that it is reasonably likely
that a loss of privilege will occur with respect to such information and documentation in
which event the parties shall enter into an appropriate joint defense agreement.
29
5.4
|
|
Defense of Third-Party Claims
|
If a party has made a claim under this
Section 5
with respect to a Loss suffered by a
Protected Party that arises out of the claim of any third party, the Indemnifying Party may
assume the defense thereof, including the employment of counsel or accountants, at the
Indemnifying Partys cost and expense;
provided
that
, prior to the
Indemnifying Party assuming control of such defense, it shall first verify to the Protected
Party in writing that the Indemnifying Party shall be fully responsible (with no reservation
of rights) for all Liabilities and obligations relating to such claim for indemnification and
that it shall provide full indemnification (whether or not otherwise required hereunder) to
the Protected Party with respect to such Proceeding or other claim giving rise to such claim
for indemnification hereunder. The Protected Party shall have the right to employ counsel
separate from counsel employed by the Indemnifying Party in any such action and to
participate therein, but the fees and expenses of such counsel employed by the Protected
Party shall be at its expense, unless counsel for the Protected Party shall have advised that
it is reasonably likely that any Protected Party may raise a defense or claim that is
inconsistent with any defense or claim available to an Indemnifying Party, in which case such
reasonable fees and expenses shall be borne by the Indemnifying Party. The Indemnifying
Party shall not be liable for any settlement of any such claim effected without its prior
written consent, which shall not be unreasonably withheld or delayed;
provided
that
if the Indemnifying Party does not assume the defense of a claim within thirty
(30) days of notice thereof, the Protected Party may settle such claim without the consent of
the Indemnifying Party. The Indemnifying Party shall not agree to a settlement of or settle
any claim that provides for any relief other than the payment of monetary damages or that
could have a Material Adverse Effect on any Protected Party and its Subsidiaries taken as a
whole (if applicable) without the prior written consent of such Protected Party, which shall
not be unreasonably withheld or delayed. Whether or not the Indemnifying Party chooses to so
defend such claim, each party shall cooperate in the defense thereof and shall furnish such
records, information and testimony, and attend such conferences, discovery Proceedings,
hearings, trials and appeals, as may be reasonably requested in connection therewith except
to the extent that a party has been advised by counsel that it is reasonably likely that a
loss of privilege will occur with respect to such information, documentation and testimony
(in which event the parties shall enter into an appropriate joint defense agreement). The
Indemnifying Party shall be subrogated to all rights and remedies of the Protected Party in
respect of a Loss suffered by the Protected Party, but only to the extent the Indemnifying
Party has discharged in full any obligations they may have with respect to such Loss pursuant
to this
Section 5
.
5.5
|
|
Indemnification Payments
|
It is the intention of each party that the indemnifying Person shall be obligated to make
payments in respect of their indemnification obligations hereunder directly to the Protected
Parties of such indemnifying Person. Each party may agree in writing from time to time to
modify any payment arrangements related to Protected Parties hereunder without the consent of
any Protected Party other than a party. Nothing in this
Section 5
is intended to
confer any rights upon any Person other than a party and their respective successors and
assigns.
30
6.
|
|
DISPUTE RESOLUTION
|
|
6.1
|
|
General
|
Except as otherwise provided herein or in any other Transaction Document (it being understood
and agreed that provisions of any Transaction Document that provide for equitable or
injunctive relief are not subject to the operation of following), any dispute, controversy or
claim arising out of or relating to this Agreement or any other Transaction Document (except
to the extent expressly provided otherwise
therein), including the negotiation or breach, termination or validity thereof and any
dispute relating to non-contractual obligations arising out of or in connection therewith (a
Dispute
) shall be settled in accordance with the following procedure:
(a)
|
|
Internal Management Discussion
.
|
Upon awareness of a Dispute, either of Greif or NSC shall give notice thereof to the other.
Each of Greif and NSC shall then promptly forward such notice to the management of the
entities involved in the Dispute. For a period of twenty (20) calendar days from receipt of
the notice, the management of the entities involved in the Dispute shall consult with each
other in a good faith effort to resolve the Dispute.
(b)
|
|
Board Intervention and Review
.
|
If the management of the entities involved in the Dispute are unable to settle the Dispute
after good faith efforts within such twenty (20) calendar day period, then either of Greif or
NSC may provide the other with a notice for board intervention. Each of Greif and NSC shall
promptly forward such notice to the Board of Directors of the Global Alliance Entities
involved in the Dispute. For a period of twenty (20) calendar days from receipt of the
notice, the Board of Directors of the entities involved in the Dispute shall consult with
each other in a good faith effort to resolve the Dispute. The Board of Directors of the
entities involved in the Dispute are allowed to consult third party experts on technical or
other questions.
(c)
|
|
Review by Management of Greif and NSC
.
|
If the Board of Directors of the entities involved in the Dispute do not settle the Dispute
within such twenty (20) calendar day period, either of Greif or NSC may provide the other
with a notice for review by the management of Greif and NSC. Each of Greif and NSC shall
promptly forward such notice to its management. For a period of twenty (20) calendar days
from receipt of the notice, the management of Greif and NSC shall consult with each other in
a good faith effort to resolve the Dispute.
(d)
|
|
Discussion CEO to CEO
.
|
If the management of Greif and NSC do not settle the Dispute within such twenty (20) calendar
days period, either of Greif or NSC may provide the other with a notice for CEO to CEO
discussion. Each of Greif and NSC shall promptly forward such notice to the CEO of its
parent. For a period of twenty (20) calendar days from receipt of the notice, the CEOs of
Greif Parent and Dabbagh Parent shall consult with each other in a good faith effort to
resolve the Dispute.
(e)
|
|
Mandatory Mediation
.
|
If the CEOs of Greif Parent and Dabbagh Parent do not settle the Dispute within such twenty
(20) calendar days period, either of Greif or NSC may provide the other with a notice for
mandatory mediation. After delivery of such notice, Greif and NSC will attempt in good faith
to settle the matter by mediation in accordance with the International Institute for Conflict
Prevention & Resolutions then current CPR Mediation Procedure. The place of mediation shall
be London, England.
Any and all Disputes that are not settled by completing the entire dispute resolution
procedure set forth in paragraphs (a) through (e) of this
Section 6.1
shall be fully
and finally resolved by arbitration in accordance with
Section 6.2
.
31
|
(a)
|
|
Rules
. Any and all Disputes between the parties to any Transaction
Document that have not been settled after completing the entire dispute resolution
procedure set forth in
Section 6.1
shall be fully and finally resolved by
arbitration under the Rules of Arbitration of the International Chamber of Commerce then
in force (the
ICC Rules
).
|
|
(b)
|
|
Tribunal
. The arbitral tribunal (
Tribunal
) shall consist of three (3)
arbitrators. Each party shall nominate one (1) arbitrator and the two party-nominated
arbitrators shall select the third arbitrator who shall serve as the chairman of the
Tribunal. If the two party nominated arbitrators are unable to agree upon the third
arbitrator within thirty (30) days of their confirmation under the ICC Rules, the third
arbitrator shall be selected by the ICC International Court of Arbitration. The third
arbitrator shall be fluent in the English language and shall not be a national of either
Saudi Arabia or the United States.
|
|
|
(c)
|
|
Place of Arbitration
. The place of arbitration shall be London, England.
|
|
|
(d)
|
|
Language
. The arbitration shall be conducted in the English language.
|
|
(e)
|
|
Power
. The Tribunal shall have the authority to award temporary, interim
or permanent injunctive relief or relief providing for the specific performance of any
Transaction Document or portion thereof, but it shall have no power or authority to
award punitive damages.
|
|
(f)
|
|
Currency
. Any monetary award shall be expressed in U.S. Dollars or Saudi
Riyal, as the Tribunal may decide. Any such monetary award shall include interest from
the date of any breach or any violation of any Transaction Document. The arbitrators
shall fix an appropriate rate of interest from the date of the breach or other violation
to the date when the award is paid in full. In no event shall the interest rate on
dollars and on Riyal during such period be lower than a rate equal to the Applicable
LIBOR Rate plus two (2.00) percentage points per annum.
|
|
(g)
|
|
Interim Relief
. Any party shall have the right to seek from any court of
competent jurisdiction, either before or after the confirmation of the Tribunal, interim
or provisional relief in aid of arbitration to protect the rights of such party.
|
|
(h)
|
|
Judgment on Award
. Any award rendered by the Tribunal shall be final and
binding, and judgment on any award may be entered in and enforced by any court of
competent jurisdiction.
|
|
(i)
|
|
Confidential Treatment
. Any Dispute and any mediation, arbitration or
negotiations between the parties in relation to any Dispute, and any information,
documents or materials produced for the purposes of, or used in, negotiations, mediation
or arbitration of any Dispute, and any order or award arising out of any arbitration
between the parties in relation to any Dispute, shall be deemed Confidential Information
and shall be treated as such in accordance with
Section 4.4
of this Agreement.
|
32
|
(j)
|
|
Consolidation of Disputes
. If any two (2) parties have two (2) or more
Disputes at any given time with each other, then any of the parties may appeal to the
Tribunal appointed for the Dispute that arose first in time to join the resolution of
the Disputes into one for a joinder order in relation to the Dispute(s) that arose later
in time.
|
7.
|
|
MISCELLANEOUS
|
|
7.1
|
|
Notices
|
All notices that are required or permitted hereunder shall be in writing and shall be
sufficient if personally delivered or sent by email, registered or certified mail, facsimile
message or internationally recognized courier service. Any notices shall be deemed given
upon the earlier of the date when received at, or the fifth calendar day after the date when
sent by an internationally recognized courier service, or the day after the date when sent by
email to or facsimile to, the address or facsimile number set forth below, unless such
address or facsimile number is changed by notice to the other parties, and shall be delivered
by hand or courier service, mailed or sent by email, graphic scanning or other telegraphic
communications equipment of the sending party, as follows:
Greif:
Greif International Holding Supra C.V.
Bergseweg 6, 3633 AK Vreeland
The Netherlands
Attn: SBU Controller
Fax: +31 294 232 441
with required copies (which copies shall not constitute notice) to:
Greif, Inc.
425 Winter Road
Delaware, OH 43015
Attn: President
Fax: +1 740 549 6101
and
Greif, Inc.
425 Winter Road
Delaware, OH 43015
Attn: General Counsel
Fax: +1 740 549 6101
and
Allen & Overy LLP
1221 Avenue of the Americas
New York, NY 10020
Attn: Eric S. Shube
email:
eric.shube@allenovery.com
Fax: +1 212 610 6399
33
Greif Parent:
Greif, Inc.
425 Winter Road
Delaware, OH 43015
Attn: President
Fax: +1 740 549 6101
with a required copy (which copy shall not constitute notice) to:
Greif, Inc.
425 Winter Road
Delaware, OH 43015
Attn: General Counsel
Fax: +1 740 549 6101
and
Allen & Overy LLP
1221 Avenue of the Americas
New York, NY 10020
Attn: Eric S. Shube
email:
eric.shube@allenovery.com
Fax: +1 212 610 6399
NSC:
National Scientific Company Limited
P.O. Box 1039
Jeddah 21431
Kingdom of Saudi Arabia
Attn: M H Jazeel
email:
jazeel@dabbagh.com
Fax: +966 2 669 6184
with required copies (which copies shall not constitute notice) to:
Dabbagh Group Holding Company Limited
P.O. Box 1039
Jeddah 21431
Kingdom of Saudi Arabia
Attn: M H Jazeel
email:
jazeel@dabbagh.com
Fax: +966 2 669 6184
34
and
Legal Advisors, In Association with Baker & McKenzie
Olayan Complex
Tower II, 3rd Floor
Riyadh 11491
Saudi Arabia
Attn: George Sayen
email:
george.sayen@bakermckenzie.com
Fax: +966 1 291 5571
Dabbagh Parent:
Dabbagh Group Holding Company Limited
P.O. Box 1039
Jeddah 21431
Kingdom of Saudi Arabia
Attn: M H Jazeel
email:
jazeel@dabbagh.com
Fax: +966 2 669 6184
with a required copy (which copy shall not constitute notice) to:
Legal Advisors, In Association with Baker & McKenzie
Olayan Complex
Tower II, 3rd Floor
Riyadh 11491
Saudi Arabia
Attn: George Sayen
email:
george.sayen@bakermckenzie.com
Fax: +966 1 291 5571
7.2
|
|
Governing Law; Jurisdiction
|
|
(a)
|
|
This Agreement, any non-contractual obligations arising out of or in connection
with this Agreement (and any Disputes arising out of or related hereto or to the
Transactions or to the inducement of any party to enter herein, whether for breach of
contract, tortious conduct or otherwise and whether predicated on common law, statute or
otherwise), shall in all respects be governed by and construed in accordance with the
laws of England and Wales, including all matters of construction, validity and
performance, in each case without reference to any conflict of law rules that might lead
to the application of the laws of another jurisdiction. The English courts have
exclusive jurisdiction to settle any Dispute arising out of or in connection with this
Agreement (including a Dispute relating to any non-contractual obligations arising out
of or in connection with this Agreement) and each of Greif Parent, Greif, Dabbagh Parent
and NSC hereby irrevocably and unconditionally submit to the exclusive jurisdiction of
the English courts, for the purposes of any Proceeding, including for the enforcement of
any resolution, relief or award in connection with
Section 6
of this Agreement.
|
35
|
(b)
|
|
Each of Greif Parent and Greif irrevocably appoints Greif UK Limited, Business
Unit Manager of Merseyside Works, Oil Sites Road, Ellesmere Port, Cheshire CH65 4EZ as
its agent in England for service of process.
|
|
(c)
|
|
Each of Dabbagh Parent and NSC irrevocably appoints Law Debenture Corporate
Services Limited, of 100 Wood Street, London EC2V 7EX as their agent in England for
service of process.
|
|
(d)
|
|
Each of Greif (on behalf of Greif and its Affiliates) and NSC (on behalf of NSC
and its Affiliates) irrevocably and unconditionally waives, to the fullest extent
permitted by applicable Law, any objection to the laying of venue of any such Proceeding
in English courts, and hereby and thereby further irrevocably and unconditionally waives
and agrees not to plead or claim in any such court that any such Proceeding brought in
any such court has been brought in an inappropriate or inconvenient forum.
|
|
(e)
|
|
Each of Greif (on behalf of Greif and its Affiliates) and NSC (on behalf of NSC
and its Affiliates) irrevocably and unconditionally waives, to the fullest extent
permitted by applicable Law, any right it may have to a trial by jury in any Proceeding
arising, directly or indirectly, out of or relating to this Agreement, any other
Transaction Document or the transactions contemplated herein or therein and for any
counterclaim therein (in each case whether based on contract, tort or any other theory
and whether predicated on common law, statute or otherwise). Each of Greif (on behalf
of Greif and its Affiliates) and NSC (on behalf of NSC and its Affiliates) (1) certifies
that no representative, agent or attorney of any other party has represented, expressly
or otherwise, that such other party would not, in the event of a Proceeding, seek to
enforce the foregoing waiver, and (2) acknowledges that it and the other parties have
been induced to enter into this agreement by, amongst other things, the mutual waivers
and certifications in this clause.
|
If any provision of this Agreement shall be held to be illegal, invalid or unenforceable,
Greif, NSC, Greif Parent and Dabbagh Parent agree that such provision will be enforced to the
maximum extent permissible so as to effect the intent of Greif, NSC, Greif Parent and Dabbagh
Parent and the validity, legality and enforceability of the remaining provisions of this
Agreement shall not in any way be affected or impaired thereby. If necessary to effect the
intent of Greif, NSC, Greif Parent and Dabbagh Parent, each of Greif, NSC, Greif Parent and
Dabbagh Parent will negotiate in good faith to amend this Agreement to replace the
unenforceable language with enforceable language that as closely as possible reflects such
intent.
This Agreement may be modified only by a written amendment signed by each of Greif, NSC,
Greif Parent and Dabbagh Parent.
Any term or provision of this Agreement may be waived at any time by the Person entitled to
the benefit thereof by a written instrument duly executed by such Person. The waiver by
Greif, NSC, Greif Parent or Dabbagh Parent of any instance of another Persons noncompliance
with any obligation or responsibility herein shall be in writing and signed by the waiving
Person and shall not be deemed a waiver of other instances of such other Persons
noncompliance.
36
This Agreement may be executed in two or more counterparts, each of which shall be binding as
of the date first written above, and all of which shall constitute one and the same
instrument. Each such copy shall be deemed an original, and it shall not be necessary in
making proof of this Agreement to produce or account for more than one such counterpart.
The provisions of this Agreement set forth the entire agreement and understanding among each
of Greif, NSC, Greif Parent and Dabbagh Parent as to the formation of the Global Alliance and
supersede all prior agreements, oral or written, and all other prior communications between
Greif, NSC, Greif Parent and Dabbagh Parent relating to the formation of such Global
Alliance, other than the other Transaction Documents.
7.8
|
|
No Assignment; No Third Party Beneficiaries
|
This Agreement shall be binding upon and inure to the benefit of and be enforceable by the
respective heirs, legal representatives, successors and permitted assigns of Greif, NSC,
Greif Parent and Dabbagh Parent. Nothing in this Agreement shall confer any rights upon any
Person other than Greif, NSC, Greif Parent and Dabbagh Parent and their respective heirs,
legal representatives, successors and permitted assigns, except as provided in this
Section 7.8
. None of Greif, NSC, Greif Parent and Dabbagh Parent shall assign this
Agreement, or any right, benefit or obligation hereunder. Any attempted assignment of this
Agreement in violation of this
Section 7.8
shall be void and of no effect.
Notwithstanding any provision to the contrary in this Agreement, all Transaction Costs
incurred in connection with the drafting and negotiation of this Agreement and the Joint
Venture Agreement and the other Transaction Documents shall be paid by the Person incurring
such cost or expense.
Each of Greif, NSC, Greif Parent and Dabbagh Parent shall consult in good faith with each
other with a view to agreeing upon any press release or public announcement relating to the
Transactions or by the other Transaction Documents prior to the consummation thereof.
Notwithstanding the foregoing, each party may make any public disclosures required by Law or
stock exchange regulation, but will make commercially reasonable efforts to give the other
parties an opportunity to review any such disclosure prior to release (to the extent
practicable).
This Agreement has been negotiated by Greif, NSC, Greif Parent and Dabbagh Parent and their
respective counsel and shall be fairly interpreted in accordance with its terms and without
any strict construction in favor of or against any of Greif, NSC, Greif Parent and Dabbagh
Parent.
37
7.12
|
|
Interpretation and Construction of this Agreement
|
The definitions in
Annex 1
shall apply equally to both the singular and plural forms
of the terms defined. Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter
forms. The words include, includes and including shall be deemed to be followed by the
phrase without limitation. Unless the context shall require otherwise, the word or shall
be inclusive and not exclusive. All references herein to Articles, Sections, Annexes,
Exhibits and Schedules shall be deemed to be references to Articles and Sections of, and
Annexes, Exhibits and Schedules to, this Agreement unless the context shall otherwise
require. The table of contents and the headings of the Articles and Sections are inserted
for convenience of reference only and are not intended to be a part of or to affect the
meaning or interpretation of this Agreement. Unless the context shall otherwise require, any
reference to any agreement or other instrument or statute or regulation is to such agreement,
instrument, statute or regulation as amended and supplemented from time to time (and, in the
case of a statute or regulation, to any successor provision). Any reference in this
Agreement to a day or a number of days (without the explicit qualification of Business)
shall be interpreted as a reference to a calendar day or number of calendar days. If any
action or notice is to be taken or given on or by a particular calendar day, and such
calendar day is not a Business Day, then such action or notice shall be deferred until, or
may be taken or given, on the next Business Day. In the event of a conflict between any
provision of a Transaction Document (other than the Joint Venture Agreement) and any
provision of this Agreement, each of Greif, Greif Parent, NSC and Dabbagh Parent agree to
cause the provision of the Transaction Document to be amended to conform to the relevant
provision of this Agreement to the fullest extent permitted by applicable Law. Unless
otherwise noted, all references in this Agreement to $ shall refer to U.S. Dollars.
Each of Greif, NSC, Greif Parent and Dabbagh Parent agrees that the ChannelCo Constituent
Documents, the AssetCo Constituent Documents and the KSA Hub Constituent Documents, including
their respective rights and obligations thereunder, shall at any time be interpreted and
construed in accordance with the provisions of this Agreement. If there is a conflict
between a provision of this Agreement on the one hand and a provision of the ChannelCo
Constituent Documents, the AssetCo Constituent Documents and the KSA Hub Constituent
Documents on the other hand, each of Greif, NSC, Greif Parent and Dabbagh Parent agrees to
use its rights under the ChannelCo Constituent Documents, the AssetCo Constituent Documents
and the KSA Hub Constituent Documents, inter alia, as shareholder, so as to give maximum
effect to the provisions and purposes of this Agreement in all respects and not in a manner
which is inconsistent with this Agreement. If at any time, for the full implementation of
this Agreement in all respects, the ChannelCo Constituent Documents and/or the AssetCo
Constituent Documents and/or the KSA Hub Constituent Documents need to be amended, Greif,
NSC, Greif Parent and Dabbagh Parent shall, at the first request of either one, discuss the
amendment of the ChannelCo Constituent Documents and/or the AssetCo Constituent Documents
and/or the KSA Hub Constituent Documents to give maximum effect to the provisions and
purposes of this Agreement in all respects.
1
7.13
|
|
Disclaimer of Agency
|
Except for provisions herein expressly authorizing one (1) Person to act for another, this
Agreement shall not constitute any of Greif, NSC, Greif Parent or Dabbagh Parent as a legal
representative or agent of another party, nor shall any of Greif, NSC, Greif Parent and
Dabbagh Parent have the right or authority to assume, create or incur any Liability or any
obligation of any kind, expressed or implied, against or in the name or on behalf of another
party or any of its Affiliates or any of the Global Alliance Entities unless otherwise
expressly permitted by each of Greif, NSC, Greif Parent and Dabbagh Parent.
|
|
|
1
|
|
Same language as in JV Agreement.
|
38
7.14
|
|
Relationship of Greif, Greif Parent, NSC and Dabbagh Parent
|
Nothing contained in this Agreement shall be deemed to create a partnership entity among any
of Greif Parent, Greif, Dabbagh Parent and NSC or any of their Affiliates.
Each of Greif, NSC, Greif Parent and Dabbagh Parent have negotiated this Agreement in, and
the definitive version of this Agreement shall be in, the English language and all
communications relating hereto shall be in the English language.
If at any time any amount of interest to be charged pursuant to any provision of this
Agreement exceeds the maximum permitted by English law for such charge, such charge shall be
reduced to such legal maximum amount.
39
SIGNATORIES
IN WITNESS WHEREOF
, Greif Parent, Greif, Dabbagh Parent and NSC have caused their respective duly
authorized officers to execute this Agreement as of the day and year first above written.
|
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GREIF, INC.
|
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By:
|
/s/ Michael J. Gasser
|
|
|
|
Name:
|
Michael J. Gasser
|
|
|
|
Title:
|
Chairman and Chief Executive Officer
|
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GREIF INTERNATIONAL HOLDING SUPRA C.V.
|
|
|
By:
|
/s/ Michael J. Gasser
|
|
|
|
Name:
|
Michael J. Gasser
|
|
|
|
Title:
|
Chairman
|
|
|
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DABBAGH GROUP HOLDING COMPANY LIMITED
|
|
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By:
|
/s/ M.H. Jazeel
|
|
|
|
Name:
|
M. H. Jazeel
|
|
|
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Title:
|
Chief Financial Officer
|
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NATIONAL SCIENTIFIC COMPANY LIMITED
|
|
|
By:
|
/s/ Waheed A. Shaikh
|
|
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Name:
|
Waheed A. Shaikh
|
|
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Title:
|
Chief Operation Officer
|
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40
ANNEX 1
CERTAIN DEFINITIONS
Acquired Business Costs
shall have the meaning ascribed to such term in
Section 4.2(a)(vi)
of the Formation Agreement.
Acquired Businesses
shall have the meaning ascribed to such term in
Section 4.2(a)
of the
Formation Agreement.
Affiliate
shall mean, with respect to any Person, any other Person that directly, or indirectly
through one or more intermediaries, Controls or is Controlled by, or is under common Control with,
such first Person. For purposes of this Agreement, (a) neither Greif nor any of its Subsidiaries
shall be deemed Affiliates of any Global Alliance Entity of which Greif is not the majority holder
of the economic and voting interests, (b) neither NSC nor any of its Subsidiaries shall be deemed
Affiliates of any Global Alliance Entity of which NSC is not the majority holder of the economic
and voting interests, (c) Greif and its Subsidiaries, on the one hand, and NSC and its
Subsidiaries, on the other hand, shall not be deemed Affiliates of each other, and (d) the term
Affiliate
shall not include any Governmental Authority of Saudi Arabia or the United States of
America or any Person Controlled by any such Governmental Authority.
Agreement
shall have the meaning ascribed to such term in the Introduction to the Formation
Agreement.
Applicable LIBOR Rate
shall mean the one-month London Interbank Offered Rate (the
Quoted Rate
)
listed in the Money Rates Box of
The Wall Street Journal
(New York Edition) (or any successor
publication) on the day on which such interest is to begin to accrue,
provided
that
if such day is a day on which the Quoted Rate is not listed in
The Wall Street Journal
(New York
Edition) (or such successor publication) or
The Wall Street Journal
(New York Edition) (or such
successor publication) is not published, the Applicable LIBOR Rate shall be the Quoted Rate on the
most recent day prior to such date on which a Quoted Rate is listed in
The Wall Street Journal
(New
York Edition) (or such successor publication).
Applicable Person
shall have the meaning ascribed to such term in
Section 4.7(c)
of the
Formation Agreement.
Approval
shall mean any consent, approval, license, permit or authorization.
AssetCo
shall have the meaning ascribed to such term in
Section 1.2(a)(v)
of the Formation
Agreement.
AssetCo Chairman
shall have the meaning ascribed to such term in
Section 1.1(c)
of the
Joint Venture Agreement.
AssetCo Constituent Document
shall have the meaning ascribed to such term in
Section
1.3(a)(v)
of the Formation Agreement.
AssetCo Formation
shall have the meaning ascribed to such term in
Section 1.2(a)(v)
of the
Formation Agreement.
Bankruptcy Event
shall have the meaning ascribed to such term in
Section 4.2(b)
of the
Joint Venture Agreement.
Board of Directors
shall have the meaning ascribed to such term in
Section 4.1(a)(i)
of the
Formation Agreement.
Board Ordinary Approval
shall have the meaning ascribed to such term in
Section 1.3(b)
of
the Joint Venture Agreement.
41
Board Supermajority Approval
shall have the meaning ascribed to such term in
Section 1.3(a)
of the Joint Venture Agreement.
Burdensome Condition
shall mean any requirement, provision or condition that: (a)(i) imposes any
material limitation on the ability or right of Greif, NSC or any of their respective Affiliates to
hold, or requires Greif or NSC or any of their respective Affiliates to dispose of, any of their
material assets, (ii) imposes any material limitation on the ability or right of Greif, NSC or any
of their respective Affiliates to contribute to a Global Alliance Entity (or any of its
Subsidiaries) any material portion of the assets to be contributed to such entity pursuant to the
Transaction Documents, or (iii) imposes any material limitation on the ability or right of any
Global Alliance Entity or any of its respective Affiliates to hold, or requires a Global Alliance
Entity or any of its respective Affiliates to dispose of, any material interest in any material
portion of the assets of such Global Alliance Entity and its Affiliates taken as a whole (including
the assets, if any, to be contributed to such Global Alliance Entity and its Affiliates pursuant to
the Transaction Documents), (b)(i) imposes any material limitation on the ability or right of Greif
or NSC or any of their respective Affiliates to conduct any business or (ii) imposes any material
limitation on the ability or right of any Global Alliance Entity to conduct its business, (c)
materially limits the ability or right of Greif or NSC to exercise its governance rights with
respect to any Global Alliance Entity, (d) otherwise would have a Material Adverse Effect on any
Global Alliance Entity or is materially adverse to the ability of Greif or NSC to receive the
economic benefits contemplated by this Agreement, or (e) materially and adversely affects the
ability of Greif or NSC or any Global Alliance Entity to perform its obligations under, or puts in
doubt in any material respect the validity of, this Agreement or the other Transaction Documents;
provided
that
if each foregoing Person so affected, directly or indirectly, by any
condition or requirement (or, in the case of an Affiliate so affected, the parent or parents
thereof) provides a notice to the other stating that such condition or requirement shall no longer
be deemed a Burdensome Condition, such condition or requirement shall no longer be deemed a
Burdensome Condition for any purpose under this Agreement; and provided, further, that, following
the Applicable Closing Date, no requirement or condition of a type described in clause (a)(ii),
(a)(iii) or (b)(ii) shall constitute a Burdensome Condition with respect to a Global Alliance
Entity.
Business Day
shall mean any day other than a day on which commercial banks in the City of New York,
New York or Riyadh, Saudi Arabia are required or authorized by applicable Law to be closed.
Business Opportunity
shall have the meaning ascribed to such term in
Section 2.5(a)
of the
Joint Venture Agreement.
Capital Contribution
shall have the meaning ascribed to such term in
Section 4.3(a)
of the
Formation Agreement.
Cash
shall mean any cash and any cash equivalents.
CEO
shall have the meaning ascribed to such term in
Section 4.1(b)
of the Formation
Agreement.
CFO
shall have the meaning ascribed to such term in
Section 4.1(b)
of the Formation
Agreement.
Chairman
shall mean any of the ChannelCo Chairman, AssetCo Chairman and KSA Hub Chairman.
ChannelCo
shall have the meaning ascribed to such term in
Section 1.2(a)(iv)
of the
Formation Agreement.
ChannelCo Chairman
shall have the meaning ascribed to such term in
Section 1.1(c)
of the
Joint Venture Agreement.
ChannelCo Constituent Document
shall have the meaning ascribed to such term in
Section
1.3(a)(iv)
of the Formation Agreement.
42
ChannelCo Formation
shall have the meaning ascribed to such term in
Section 1.2(a)(iv)
of
the Formation Agreement.
Closing
shall have the meaning ascribed to such term in
Section 2.1(a)
of the Formation
Agreement.
Closing Date
shall mean the date on which the Closing shall occur.
Closing Date Transactions
shall have the meaning ascribed to such term in
Section 2.1(b)
of
the Formation Agreement.
Combined Net Income
shall have the meaning ascribed to such term in
Section 1.8(a)
of the
Joint Venture Agreement.
Confidential Information
shall mean, with respect to each of Greif and NSC or a Global Alliance
Entity, any confidential information or trade secrets of such Person or its Affiliates, including
software, data, process technology, plans, drawings, innovations, designs, ideas, proprietary
information and blue prints and other technical information, personnel information, advertising and
marketing plans or systems, distribution and sales methods or systems, sales and profit figures,
customer and client lists, customer, client and supplier information and any relationships with
dealers, distributors, wholesalers, customers, clients, suppliers and any other Persons who have,
or have had, business dealings with such Person or its Affiliates, in each case owned, used or
licensed either directly or indirectly (as licensor or licensee) by such Person or its Affiliates,
except for any such item that at the time of receipt is otherwise known by the party receiving the
Confidential Information or is generally available to the public, other than by breach of any duty
or obligation of confidentiality of any Person.
Constituent Documents
shall mean such entitys limited liability company agreement, certificate of
formation, articles of incorporation, by-laws or equivalent governing documents.
Contract
shall mean any written or oral contract, agreement, lease, plan, instrument or other
document, commitment, arrangement, undertaking, practice or authorization that is or may be binding
on any Person or its property under applicable Law.
Control
(including, with its correlative meanings,
Controlled by
and
under common Control with
)
shall mean, with respect to any Person, any of the following: (a) ownership, directly or
indirectly, by such Person of equity securities entitling it to exercise in the aggregate more than
fifty percent (50%) of the voting power of the entity in question, or (b) the possession by such
Person of the power, directly or indirectly, (i) to elect a majority of the board of directors (or
equivalent governing body) of the entity in question, or (ii) to direct or cause the direction of
the management and policies of or with respect to the entity in question, whether through ownership
of securities, by Contract or otherwise.
Credit Support
shall have the meaning ascribed to such term in
Section 4.3(b)(i)
of the
Formation Agreement.
Customer
shall have the meaning ascribed to such term in
Section 2.4(b)(iv)
of the Joint
Venture Agreement.
Dabbagh Call Notice
shall have the meaning ascribed to such term in
Section 3.2(e)(i)
of
the Joint Venture Agreement.
Dabbagh HoldCo
shall have the meaning ascribed to such term in
Section 1.2(a)(i)
of the
Formation Agreement.
Dabbagh HoldCo Constituent Document
shall have the meaning ascribed to such term in
Section
1.3(a)(i)
of the Formation Agreement.
Dabbagh Indemnified Parties
shall have the meaning ascribed to such term in
Section 5.1(a)
of the Formation Agreement.
43
Dabbagh Parent
shall have the meaning ascribed to such term in the Introduction to the Formation
Agreement.
Dabbagh Protected Parties
shall have the meaning ascribed to such term in
Section 5.1(b)
of
the Formation Agreement.
Debt
shall mean without duplication, in each case, (i) the principal of and premium (if any) in
respect of all indebtedness for borrowed money, including accrued interest, (ii) the principal of
and premium in respect of obligations evidenced by bonds, debentures, notes or other similar
instruments, including accrued interest, (iii) the principal component of all obligations to pay
the deferred and unpaid purchase price of property and equipment which have been delivered, (iv)
capital lease obligations and associated debt financing, (v) any Liability under any sale and
leaseback transaction, any synthetic lease or tax ownership operating lease transaction (whether or
not recorded on a balance sheet), (vi) negative balances in bank accounts, (vii) amounts in respect
of checks in transit, (viii) net cash payment obligations under swaps, options, derivatives and
other hedging agreements or arrangements that will be payable upon termination thereof (assuming
they were terminated on the date of determination), (ix) all Debt of another Person referred to in
clauses (i) through (viii) above guaranteed directly or indirectly, jointly or severally, in any
manner, and (x) any costs, fees or other expenses arising from or in connection with the repayment,
liquidation or termination of any Debt referred to in clauses (i) through (ix), including any
prepayment, breakage, termination, penalty or similar costs, fees or expenses.
Default
shall mean (a) a breach, default or violation, (b) the occurrence of an event that with or
without the passage of time or the giving of notice, or both, would constitute a breach, default or
violation or cause an Encumbrance to arise, or (c) with respect to any Contract, the occurrence of
an event that with or without the passage of time or the giving of notice, or both, would give rise
to a right of termination, renegotiation or acceleration or a right to receive damages or a payment
of penalties.
Default Event
shall occur when a Person:
(a)
|
|
materially defaults in performing and observing any of its material obligations under any
Transaction Document and, where such default is capable of remedy, fails to remedy such
default within thirty (30) calendar days after service of written notice from the other of
such default;
|
(b)
|
|
fails to comply with any applicable Law, specifically with respect to fraud, bribery, money
laundering, unethical behavior or other criminal behavior involving moral turpitude;
|
(c)
|
|
files a petition in bankruptcy or for reorganization or rehabilitation (or any similar or
equivalent event) under applicable Law for the relief of debtors;
|
(d)
|
|
enters into an arrangement with its creditors or a moratorium is declared in respect of any
of its indebtedness (or any similar or equivalent event);
|
(e)
|
|
takes any action to appoint, to request the appointment of, or suffers the appointment of, a
receiver, administrative receiver, administrator, trustee or similar officer over all or a
material part of its assets (or any similar or equivalent event);
|
(f)
|
|
has a winding-up or administration petition presented in relation to it or has documents
filed with a court for an administration in relation to it (or any similar or equivalent
event); or
|
(g)
|
|
attempts at any time to Transfer a direct or indirect Ownership Interest in a Global Alliance
Entity in violation of the Joint Venture Agreement, except as otherwise permitted pursuant to
Section 3.2
of the Joint Venture Agreement.
|
44
Dispute
shall have the meaning ascribed to such term in
Section 6.1
of the Formation
Agreement.
Distribution Policy
shall have the meaning ascribed to such term in
Section 1.8
of the
Joint Venture Agreement.
Encumbrances
shall mean any lien, mortgage, security interest, pledge, restriction on
transferability, defect of title or other claim, charge or encumbrance of any nature whatsoever on
any property or property interest, including any restriction on the use, voting, transfer, receipt
of income or other exercise of any attributes of ownership.
EBITDA
shall mean earnings before interest, taxes, depreciation and amortization, calculated in
accordance with IFRS standards.
Fair Market Value
shall mean, with respect to any asset, as of the date of determination, the cash
price at which a willing seller would sell, and a willing buyer would buy, each being apprised of
all relevant facts and neither acting under compulsion, such asset in an arms-length negotiated
transaction with an unaffiliated third party without time constraints.
FIBC
shall mean flexible intermediate bulk container.
Fiscal Year
shall mean the period commencing November 1 in any year and ending on October 31 in the
next calendar year, except that the first Fiscal Year with respect to each such Global Alliance
Entity shall commence on the Closing Date and end on October 31 of the year in which the Closing
Date occurs.
Formation Agreement
shall mean the Formation Agreement, dated as of June 14, 2010, by and between
Greif Parent, Greif, Dabbagh Parent and NSC.
Formula Value
shall mean, with respect to a Global Alliance Entity: (A) from the date hereof until
the second anniversary of the Closing Date, the greater of (x) six (6) times EBITDA (for the most
recent 12 month period for which management accounts are available) decreased with the amount of
outstanding Debt and increased with the amount of available Cash of such Global Alliance Entity,
and (y) the aggregate amount of that partys equity contributions to the capital of such Global
Alliance Entity; and (B) as of the second anniversary of the Closing date, six (6) times EBITDA
decreased with the amount of outstanding Debt and increased with the amount of available Cash of
such Global Alliance Entity.
GAAP
shall mean generally accepted accounting principles applicable in the relevant jurisdiction
or, if applicable, IFRS.
Global Alliance
shall have the meaning ascribed to such term in the Introduction to the Formation
Agreement and Joint Venture Agreement.
Global Alliance Entity
shall mean ChannelCo, AssetCo and KSA Hub and each other Person formed
pursuant to the terms hereof to conduct the Polywoven Industrial Packaging Business in which Greif
and NSC have a direct or indirect Ownership Interest. Greif and NSC and their respective
Subsidiaries (other than ChannelCo, AssetCo and KSA Hub) and the Global Alliance Subsidiaries shall
not be deemed to be Global Alliance Entities.
Global Alliance Subsidiary
shall have the meaning ascribed to such term in
Section
1.2(a)(vi)
of the Formation Agreement.
Global Alliance Subsidiary Chairman
shall have the meaning ascribed to such term in
Section
1.1(d)
of the Joint Venture Agreement.
45
Governmental Approval
shall mean any permit, consent, approval, authorization, waiver, grant,
concession, license, exemption or order of, registration, certificate, declaration or filing with,
or report or notice to, any Governmental Authority.
Governmental Authority
shall mean any federation, nation, state, sovereign or government, any
federal, supranational, regional, state or local political subdivision, any governmental or
administrative body, instrumentality, department or agency or any court, administrative hearing
body, commission or other similar Dispute resolving panel or body, and any other entity exercising
executive, legislative, judicial, regulatory or administrative functions of a government;
provided
that
the term Governmental Authority shall not include any of NSC and
its Affiliates or any arbitration panel formed pursuant to
Section 6
of the Formation
Agreement.
Governmental Order
shall mean any order, writ, judgment, injunction, decree, stipulation,
determination or award entered with or by any Governmental Authority.
Government Official
shall have the meaning ascribed to such term in
Section 4.7(c)
of the
Formation Agreement.
Greif
shall have the meaning ascribed to such term in the Introduction to the Formation Agreement.
Greif Business System
shall mean the system described in the document certified by Greif to NSC.
Greif Brand, Channel and Expertise
shall mean access to Greifs name and the architecture of the
Greif Business System through the IP License Agreement, access to management employees of Greif
through the Shared Services Agreement, access to employees of Greif who have expertise in mergers
and acquisitions, and access to Greifs global channels and distribution network.
Greif Call Notice
shall have the meaning ascribed to such term in
Section 3.2(e)(ii)
of the
Joint Venture Agreement.
Greifs Global Transfer Pricing Policy
means the policy described in the document certified by
Greif to NSC.
Greif HoldCo
shall have the meaning ascribed to such term in
Section 1.2(a)(ii)
of the
Formation Agreement.
Greif HoldCo Constituent Documents
shall have the meaning ascribed to such term in
Section
1.3(a)(ii)
.
Greif Indemnified Parties
shall have the meaning ascribed to such term in
Section 5.1(b)
of
the Formation Agreement.
Greif Parent
shall have the meaning ascribed to such term in the Introduction to the Formation
Agreement.
Greif Protected Parties
shall have the meaning ascribed to such term in
Section 5.1(a)
of
the Formation Agreement.
Greif Spain HoldCo
shall have the meaning ascribed to such term in
Section 1.2(a)(iii)
of
the Formation Agreement.
Greif Spain HoldCo Constituent Document
shall have the meaning ascribed to such term in
Section
1.3(a)(iii)
of the Formation Agreement.
ICC Rules
shall have the meaning ascribed to such term in
Section 6.2(a)
of the Formation
Agreement.
IFRS
means the standards, interpretations and framework for the preparation and presentation of
financial statements adopted by the International Accounting Standards Board.
46
Indemnifying Parties
shall have the meaning ascribed to such term in
Section 5.3
of the
Formation Agreement.
Initial Strategic Plan
shall have the meaning ascribed to such term in
Section 2.1(b)
of
the Joint Venture Agreement.
Injunction
shall mean any preliminary, temporary, interim or final injunction, temporary
restraining order or other court ordered legal prohibition or equitable remedy requiring or
prohibiting action.
Intellectual Property
shall mean any copyrights and registrations or applications for registration
of copyrights in any jurisdiction, and any renewals or extensions thereof, patents, trademarks,
data, technology rights and licenses, Confidential Information, franchises, inventions,
discoveries, know-how, formulae, specifications and ideas, rights in research and development, and
commercially practiced processes and inventions, whether patentable or not in any jurisdiction and
any other intellectual property used by either Greif or NSC in the Greif Polywoven Business or with
regard to KSA Expertise and Support, as the case may be.
IP License Agreement
shall mean that certain IP License Agreement, dated as of the Closing Date,
among Greif Parent and ChannelCo and/or AssetCo.
IPO
shall mean the listing of new shares in Greif HoldCo or Dabbagh HoldCo and/or any existing
shares in either such entity that comprise a minority interest in such entity, as the case may be,
on any major internationally recognized stock exchange selected for that purpose by Greif HoldCo or
Dabbagh HoldCo, which listing results in an active public trading market for the class of shares so
listed on such stock exchange.
Joint Venture Agreement
shall mean the Joint Venture Agreement, dated as of the Closing Date, by
and between Greif Parent, Greif, Dabbagh Parent and NSC and substantially in the form attached as
Exhibit 2
to the Formation Agreement.
Joint Venture Compliance Policy
shall have the meaning ascribed to such term in
Section
2.2(h)
of the Formation Agreement.
Judgment
shall mean any judgment, order, judicial decree or arbitral award.
KSA Expertise and Support
shall mean access to NSCs understanding of the Saudi Arabian market and
regional business environment, local knowledge and local presence, including (i) assistance in
obtaining permits and approvals for the construction of KSA Hub; (ii) expertise in obtaining the
most favorable terms for resin, land, energy, labor and building; (iii) services of NSC portfolio
companies as needed; and (iv) support in recruiting and training employees of the Global Alliance
Entities.
KSA Hub
shall have the meaning ascribed to such term in
Section 1.2(b)
of the Formation
Agreement.
KSA Hub Chairman
shall have the meaning ascribed to such term in
Section 1.1(c)
of the
Joint Venture Agreement.
KSA Hub Constituent Documents
shall have the meaning ascribed to such term in
Section
1.3(a)(vi)
of the Formation Agreement.
KSA Hub Formation
shall have the meaning ascribed to such term in
Section 1.2(b)
of the
Formation Agreement.
Law
shall mean all relevant provisions of all applicable (a) constitutions, treaties, statutes,
laws (including common law), directives, rules, regulations, ordinances or codes of any applicable
Governmental Authority, and (b) orders, decisions, injunctions, judgments, awards, decrees and
Governmental Approvals of any applicable Governmental Authority.
47
Liability
shall mean any direct or indirect liability, indebtedness, obligation, expense, claim,
loss, damage, deficiency, guaranty or endorsement of or by any Person, absolute or contingent,
accrued or unaccrued, due or to become due, liquidated or unliquidated.
Liquidator
shall have the meaning ascribed to such term in
Section 4.4(a)
of the Joint
Venture Agreement.
Losses
shall mean any and all claims, losses, liabilities, damages (including fines, penalties, and
criminal or civil judgments and settlements), costs (including court costs and environmental and
other investigation and removal costs) and expenses (including reasonable attorneys, environmental
consultants and accountants fees).
Material Adverse Effect
shall mean (a) with respect to Greif or a business unit of Greif, the
effect of any event, occurrence, fact, condition or change that (i) is materially adverse to or
reduces Greifs ability to provide Greif Brand, Channel and Expertise or (ii) makes it impossible
to reach the key performance milestones set forth in the Strategic Plan, (b) with respect to NSC or
a business unit of NSC, the effect of any event, occurrence, fact, condition or change that is
materially adverse to or reduces NSCs ability to provide KSA Expertise and Support or (ii) makes
it impossible to reach the key performance milestones set forth in the Strategic Plan, or (c) with
respect to the Global Alliance, the effect of any event, occurrence, fact, condition or change that
makes it impossible to reach the key performance milestones set forth in the Strategic Plan.
Non-Presenting Entity
shall have the meaning ascribed to such term in
Section 2.5(a)
of the
Joint Venture Agreement.
Non-Selling Party
shall have the meaning ascribed to such term in
Section 3.2(b)
of the
Joint Venture Agreement.
NSC
shall have the meaning ascribed to such term in the Introduction to the Formation Agreement.
OECD Guidelines
shall mean the Organization for Economic Cooperation and Development Guidelines for
Transfer Pricing Among Multinational Enterprises.
OFAC
shall have the meaning ascribed to such term in
Section 3.2(d)(ii)
of the Formation
Agreement.
Operating Plan
shall mean the annual detailed plan by the management of a Global Alliance Entity
that is presented to the Board of Directors of such Global Alliance Entity for approval and that
shall focus on tactical objectives to achieve the goals included in the Strategic Plan, including
sales, profitability, working capital management, cash flow, capital investments, capital budget,
other financial key performance indicators and strategy deployment plans.
Ownership Interest
with respect to any Persons investment in another Person, shall mean such
Persons ownership interest therein (whether voting or nonvoting) and whether expressed as a
percentage or balance of the total outstanding ownership interest in the equity and profits and
losses of such other Person (voting and nonvoting) of the total equity or otherwise.
Parent Approval
shall have the meaning ascribed to such term in
Section 1.3(c)
of the Joint
Venture Agreement.
Person
shall mean any natural person, business trust, corporation, partnership, limited liability
company, joint stock company, proprietorship, association, trust, joint venture, unincorporated
association or any other legal entity of whatever nature organized under any applicable Law, an
unincorporated organization or any Governmental Authority.
Polywoven Industrial Packaging Business
shall mean the business of manufacturing and selling
polywoven fabric and manufacturing and selling polywoven FIBCs, polywoven shipping sacks, polywoven
dunnage bags and other applications
added as a result of a change in the scope of operation of the Global Alliance in accordance with
the Joint Venture Agreement.
48
Presenting Entity
shall have the meaning ascribed to such term in
Section 2.5(a)
of the
Joint Venture Agreement.
Proceeding
shall mean any action, arbitration, litigation, suit, proceeding or investigation,
review or inquiry of any nature, civil, criminal, regulatory or otherwise, by or before any
Governmental Authority or private tribunal.
Prohibited Payment
shall have the meaning ascribed to such term in
Section 4.7(c)
of the
Formation Agreement.
Protected Parties
shall have the meaning ascribed to such term in
Section 5.1(b)
of the
Formation Agreement.
Relevant Person
shall have the meaning ascribed to such term in
Section 4.7(d)
of the
Formation Agreement.
Rigid Industrial Packaging Business
shall have the meaning ascribed to such term in
Section
2.4(b)(iii)
of the Joint Venture Agreement
ROFO Expiration Date
shall have the meaning ascribed to such term in
Section 3.2(b)
of the
Joint Venture Agreement.
Sale Period
shall have the meaning ascribed to such term in
Section 4.3(b)
of the Joint
Venture Agreement.
Saudi Arabia
shall mean the Kingdom of Saudi Arabia and its territories and possessions.
SDN List
shall have the meaning ascribed to such term in
Section 3.2(d)(ii)
of the
Formation Agreement.
Selling Party
shall have the meaning ascribed to such term in
Section 3.2(b)
of the Joint
Venture Agreement.
Shared Services Agreement
shall mean the agreement in a form to be agreed prior to Closing between
Greif, NSC and certain of their respective Affiliates with regard to certain services to be
provided to the Global Alliance Entities.
Strategic Plan
shall mean the Initial Strategic Plan in the form agreed upon in writing by the
parties and any subsequent Strategic Plans agreed by and between each of Greif and NSC with respect
to the Global Alliance.
Subsidiary
shall mean, with respect to Greif and NSC, any other Person in which either Greif or
NSC, one or more of their respective direct or indirect Subsidiaries of either Greif or NSC, or
either Greif or NSC and one or more of their respective direct or indirect Subsidiaries (a) have
the ability, through ownership of securities individually or as a group, ordinarily, in the absence
of contingencies, to elect a majority of the directors (or individuals performing similar
functions) of such other Person, and (b) own more than fifty percent (50%) of the equity interests.
The Global Alliance Entities and their Subsidiaries will not be deemed Subsidiaries of Greif or
NSC or their Affiliates for purposes of this Agreement.
Subsidiary CEO
shall have the meaning ascribed to such term in
Section 4.1(b)
of the
Formation Agreement.
Subsidiary CFO
shall have the meaning ascribed to such term in
Section 4.1(b)
of the
Formation Agreement.
Supply Agreement
shall mean the Supply Agreement in the form agreed upon in writing by the parties.
Termination Conditions
shall have the meaning ascribed to such term in
Section 4.2
of the
Joint Venture Agreement.
49
Termination Condition Date
shall have the meaning ascribed to such term in
Section 4.3(a)
of the Joint Venture Agreement.
Territory
shall have the meaning ascribed to such term in
Section 2.4(a)(i)
of the Joint
Venture Agreement.
Third Party Approval
shall mean the Approval of any Person other than a Governmental Authority,
Greif and NSC or their respective Affiliates or a Global Alliance Entity.
Third Party Sale
shall have the meaning ascribed to such term in
Section 3.2(a)(vi)
of the
Joint Venture Agreement.
Transaction Costs
shall mean, with respect to any transaction, all costs and expenses incurred by a
party in connection with that transaction, including the fees and expenses of any attorneys,
accountants, consultants, investment bankers, brokers, finders or other intermediaries.
Transaction Documents
shall have the meaning ascribed to such term in
Section 1.3
of the
Formation Agreement.
Transactions
shall mean the transactions contemplated by the Transaction Documents.
Transfer
shall have the meaning ascribed to such term in
Section 3.1(a)
of the Joint
Venture Agreement.
Tribunal
shall have the meaning ascribed to such term in
Section 6.2(b)
of the Formation
Agreement.
United States
shall mean the United States of America and its territories and possessions.
Unrealized Appreciation
shall mean the amount by which the agreed value of the assets to be
distributed exceeds their book value.
Wholly-Owned
shall mean, when used to designate the ownership interest of any Person in an entity,
that such Person owns directly or indirectly all of the outstanding economic interests and voting
power of such entity, other than any de minimis ownership in such entity as required by applicable
Law.
50