Greif, Inc. — FY2010 Form 10-K Summary
Reporting period: Fiscal year ended October 31, 2010. The filing is an annual report, not a standalone quarterly filing; fourth-quarter data are unaudited. Dollar amounts below are in U.S. dollars.
Business context and reporting period
Greif is a global industrial-packaging producer operating in more than 50 countries. Its four segments are Rigid Industrial Packaging & Services, Flexible Products & Services, Paper Packaging, and Land Management. It also sells timber and special-use properties. During 2010, Greif completed 12 acquisitions and formed a 50%-owned, Greif-managed flexible-packaging joint venture, whose results it consolidated.
Financial performance and liquidity
| Metric | FY2010 | FY2009 |
|---|---|---|
| Net sales | $3,461.5 million | $2,792.2 million |
| Gross profit / gross margin | $703.7 million / 20.3% | $499.6 million / 17.9% |
| Operating profit | $325.4 million | $199.9 million |
| Operating profit before specified restructuring, inventory, timberland-disposal and acquisition items | $379.5 million | $277.3 million |
| Net income attributable to Greif | $210.0 million | $110.6 million |
| Diluted EPS, Class A / Class B | $3.58 / $5.40 | $1.91 / $2.86 |
| Net cash from operating activities | $178.1 million | $266.5 million |
| Cash and cash equivalents at year-end | $107.0 million | $111.9 million |
| Long-term debt, including current portion | $965.6 million | $738.6 million |
- Sales rose 24.0%, driven by higher volumes, selling prices, favorable currency translation, and acquired businesses. Cost of products sold fell to 79.7% of sales from 82.1%, supporting margin improvement.
- Interest expense increased to $65.8 million from $53.6 million, mainly because of higher average debt and borrowing costs. The effective tax rate was 16.1%, versus 17.4%.
- Operating cash flow declined despite higher earnings, with working-capital investment among the cash-flow movements. Capital expenditures were $144.1 million, excluding $21.0 million for timberland; acquisitions used $179.5 million net of cash acquired.
- At year-end, Greif reported $695.6 million of available borrowing capacity under its new credit agreement. Current assets were $1,165.9 million and current liabilities $761.8 million.
Fourth-quarter results and changes versus comparable periods
For the quarter ended October 31, 2010, net sales were $993.9 million, gross profit $206.4 million, net income $76.6 million, and net income attributable to Greif $76.6 million. Basic and diluted EPS were $1.31 and $1.30 for Class A and $1.97 for Class B. Compared with the prior-year fourth quarter, sales rose from $760.5 million and Greif-attributable net income from $73.6 million.
- Full-year net sales increased from the recession-affected 2009 level, but remained below 2008’s $3,790.5 million. Greif-attributable net income recovered to $210.0 million from $110.6 million in 2009, but was below $241.7 million in 2008.
- Rigid Industrial Packaging & Services sales grew 14.2% to $2,587.9 million; segment operating profit rose to $262.3 million from $134.4 million. Paper Packaging sales grew 35.5% to $624.1 million, and operating profit rose to $55.5 million from $34.8 million.
- Flexible Products & Services sales increased to $233.1 million, primarily due to acquisitions. The segment reported a $1.4 million operating loss, including $19.5 million of acquisition-related costs; its adjusted operating profit measure was $18.8 million. Land Management sales fell to $16.5 million and operating profit to $9.0 million, including $3.3 million of profit from special-use property sales, compared with $14.8 million of such profit in 2009.
- Reported operating profit included $26.7 million of restructuring charges, $0.1 million of restructuring-related inventory charges, and $27.2 million of acquisition-related costs. Greif recorded $11.4 million of net gains on property, plant and equipment disposals, versus $34.4 million in 2009.
Outlook, risks, contingencies, and unusual items
- Management expected operating cash flows, receivables programs, and available credit to meet anticipated working-capital, capital-spending, debt-service, and potential acquisition needs for at least 12 months. Planned FY2011 capital expenditures were approximately $140 million, excluding potential timberland purchases. The filing does not provide a specific earnings or revenue forecast.
- A new $1.0 billion senior secured credit facility was entered into October 29, 2010, comprising a $750 million revolving facility and a $250 million term loan, both maturing in 2015. Greif reported compliance with its leverage and fixed-charge covenants at year-end. Its $300 million 6.75% notes mature in 2017 and $250 million 7.75% notes in 2019.
- Key risks include cyclical demand and pricing, competition and customer/supplier consolidation, steel and resin and other raw-material and energy-price volatility, currency and political risks, acquisition integration, joint-venture governance, labor relations, environmental and product-liability exposure, and climate-related regulation and weather events.
- Environmental remediation reserves were $26.2 million at October 31, 2010, down from $33.4 million a year earlier, including $14.5 million for the Chicago blending facility. Management said actual costs could differ from estimates; timing of payments beyond 2010 was not clear.
- Greif changed inventory accounting to FIFO for all businesses, applying the change retrospectively to prior periods. Its auditor issued an unqualified opinion on the financial statements and internal controls; the control assessment excluded certain recently acquired businesses.
- The filing reports no pending material legal proceedings and no subsequent events. It notes that the 2010 fourth quarter included $6.2 million of restructuring charges and $7.1 million of acquisition-related charges.
Most important facts for investors to verify
- How much of sales and earnings growth came from acquisitions, currency and pricing versus organic volume, and whether acquired businesses can sustain or improve margins.
- Whether operating cash flow recovers as working-capital needs normalize, and how receivables-sale programs, fees and outstanding borrowings affect liquidity.
- Debt levels, covenant headroom, the repayment profile, and the effect of variable-rate borrowing and refinancing needs.
- The assumptions supporting environmental reserves, goodwill and acquisition valuations, and planned special-use land sales.
- The impact of the retrospective FIFO change when comparing reported results with earlier company disclosures.