GEF

Business Context and Reporting Period

Company: Greif, Inc.
Filing Type: Form 10-K (Annual Report)
Period Ended: October 31, 2009
Business Overview: Greif is a leading global producer of industrial packaging products (steel, fibre, and plastic drums; intermediate bulk containers) and paper packaging (containerboard, corrugated products). It also operates a Land Management segment, actively harvesting timber on approximately 256,700 acres in the southeastern U.S. and owning timberland in Canada. Operations span over 45 countries.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Net sales decreased 26.3% year-over-year, driven by a 16.7% drop in sales volumes due to the global economic downturn, a 6.0% impact from foreign currency translation, and a 3.6% decrease in selling prices.
• Profitability: Net income fell 43.5% to $132.4 million. While operating profit declined significantly, the adjusted operating margin (excluding one-time items) improved slightly to 11.2% from 10.9%, reflecting cost containment efforts.
• Restructuring: The company recorded $66.6 million in restructuring charges in 2009 (up from $43.2 million in 2008), including $28.4 million in employee separation costs and $19.6 million in asset impairments. Additionally, $10.8 million in restructuring-related inventory charges were recorded.
• Asset Disposals: The company recorded a $34.4 million gain on the disposal of properties, plants, and equipment, primarily from the sale of North American industrial packaging assets and surplus timber properties.
• Debt Structure: Long-term debt increased by $65.4 million. The company entered a new $700 million Senior Secured Credit Agreement and issued $250 million in 7.75% Senior Notes due 2019.

Guidance, Outlook, and Risks

• Outlook: Management anticipates that operating cash flows and borrowing facilities will be sufficient to fund working capital, capital expenditures, and debt repayment for at least 12 months. Future capital expenditures are expected to be approximately $125 million through October 31, 2010.
• Management Commentary: The company accelerated the implementation of the "Greif Business System" to improve productivity and achieve permanent cost reductions in response to the economic slowdown. Nineteen company-owned plants were closed in the Industrial Packaging segment.
• Risks:
  • Economic Sensitivity: Operations are highly sensitive to global economic conditions, raw material price fluctuations (steel, resin, pulpwood), and energy costs.
  • Customer Consolidation: Consolidation among customers has intensified pricing pressures.
  • Environmental Liabilities: The company maintains $33.4 million in reserves for environmental remediation costs, primarily related to a blending facility in Chicago and European drum facilities.
  • Timber Sales: Financial performance in the Land Management segment is subject to volatility in timber and special use property sales.

Investor Verification Checklist

• Restructuring Execution: Verify the realization of cost savings from the 19 plant closures and 1,294 employee severances against the $66.6 million charge.
• Debt Covenants: Confirm continued compliance with the leverage ratio (max 3.5:1) and fixed charge coverage ratio (min 1.5:1) under the new $700 million Credit Agreement.
• Environmental Reserves: Monitor the $33.4 million environmental liability reserve, specifically the $17.9 million related to the Chicago blending facility, for potential increases in remediation costs.
• Timberland Valuation: Assess the valuation and sale timeline of the 58,900 acres of special use property (surplus, HBU, and development land) expected to be available for sale in the next 5-7 years.
• Acquisition Integration: Review the integration progress of the six acquisitions made in 2009 (total purchase price $90.8 million) and their contribution to future growth.