Business Context and Reporting Period
Company: Greif Bros. Corporation (Greif, Inc.)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: July 31, 2002 (Third Quarter of Fiscal Year 2002)
Business Overview: Greif is a global provider of industrial shipping containers (steel, fiber, plastic drums, IBCs), containerboard, corrugated products, and timber. The company operates in three segments: Industrial Shipping Containers, Containerboard & Corrugated Products, and Timber. Results are significantly influenced by the March 2001 acquisition of Van Leer Industrial Packaging.
Key Financial Metrics
| Metric (in thousands) | Q3 2002 | Q3 2001 | 9 Months 2002 | 9 Months 2001 |
|---|---|---|---|---|
| Net Sales | $435,148 | $435,766 | $1,197,251 | $1,011,247 |
| Net Income | $7,951 | $12,913 | $18,673 | $74,446 |
| EBITDA | $54,086 | $56,739 | $142,232 | $195,188 |
| Diluted EPS (Class A) | $0.28 | $0.46 | $0.66 | $2.63 |
| Diluted EPS (Class B) | $0.42 | $0.68 | $0.99 | $3.94 |
| Cash & Equivalents | $21,164 | $29,720 | $21,164 | $56,301 |
| Operating Cash Flow (9mo) | N/A | $84,085 | $87,392 | |
| Total Debt (Long-term + Current) | $648,252 | $697,514 | $648,252 | $697,514 |
Note: EBITDA is defined by management as earnings before interest, taxes, depreciation, depletion, amortization, minority interest, equity in earnings of affiliates, and debt extinguishment charges.
Material Changes vs. Prior Period
- Revenue: Q3 2002 net sales were flat ($435.1M) compared to Q3 2001 ($435.8M). Year-to-date (YTD) sales increased 18.4% to $1.2B, driven by the inclusion of nine months of Van Leer Industrial Packaging sales in 2002 versus only five months in 2001.
- Profitability: Net income dropped 38.4% in Q3 2002 ($8.0M vs $12.9M) and 74.9% YTD ($18.7M vs $74.4M). The YTD decline is primarily due to a $69.0 million decrease in gains from timberland sales compared to the prior year.
- Segment Performance:
- Industrial Shipping Containers: Sales and EBITDA increased due to Van Leer integration and favorable currency rates in Europe.
- Containerboard & Corrugated Products: Sales and EBITDA declined significantly due to lower average sales prices for linerboard and higher raw material costs (OCC).
- Timber: EBITDA decreased due to the absence of large timberland sale gains recorded in the prior year.
- Debt: Total debt decreased slightly. The company issued $250 million in 8 7/8% Senior Subordinated Notes in July 2002 to repay amounts under its $900 million Senior Secured Credit Agreement, incurring a $4.4 million debt extinguishment charge.
Guidance, Outlook, and Risks
- Restructuring: The company is executing a consolidation plan to eliminate duplicate facilities from the Van Leer acquisition. Management expects to complete these activities in 2002, with anticipated annualized earnings contributions of approximately $27.5 million upon completion.
- Debt Refinancing: On August 23, 2002 (subsequent to the reporting period), the company entered into a new $550 million Amended and Restated Senior Secured Credit Agreement to refinance the existing $900 million facility. A debt extinguishment loss is anticipated in Q4 2002.
- Accounting Changes: The company will adopt SFAS No. 142 (Goodwill) in fiscal 2003, which will stop goodwill amortization and increase net income, though impairment testing will be required.
- Risks: Key risks include economic downturns, raw material cost volatility (steel, resin, OCC), foreign currency fluctuations, and environmental liabilities. The Containerboard segment faces industry over-capacity and weak U.S. economic conditions.
Investor Verification Checklist
- Timberland Gains: Verify the sustainability of earnings given the $69 million drop in timberland sale gains compared to the prior year.
- Debt Covenants: Review the financial covenants (leverage ratio, interest coverage) in the new $550 million credit agreement and the impact of the anticipated Q4 debt extinguishment charge.
- Restructuring Progress: Monitor the completion of facility closures and the realization of the projected $27.5 million annualized savings.
- Raw Material Costs: Assess the impact of rising Old Corrugated Containers (OCC) and steel costs on the Containerboard and Industrial Shipping segments' margins.
- Goodwill Impairment: Evaluate the potential for goodwill impairment charges upon the adoption of SFAS No. 142 in fiscal 2003.