GREIF, INC - Quarter Report: 2022 January (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________
FORM 10-Q
_________________________________
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the quarterly period ended January 31, 2022
OR
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
Commission File Number 001-00566
_________________________________
GREIF, INC.
(Exact name of registrant as specified in its charter)
_________________________________
| Delaware | 31-4388903 | ||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
425 Winter Road Delaware Ohio | 43015 | ||||
| (Address of principal executive offices) | (Zip Code) | ||||
(740) 549-6000
(Registrant’s telephone number, including area code)
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☒ | Accelerated filer | ☐ | ||||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ | ||||||||||||||
| Emerging growth company | ☐ | ||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||||||
| Class A Common Stock | GEF | New York Stock Exchange | ||||||
| Class B Common Stock | GEF-B | New York Stock Exchange | ||||||
The number of shares outstanding of each of the issuer’s classes of common stock as of the close of business on February 28, 2022:
| Class A Common Stock | 26,602,841 shares | ||||
| Class B Common Stock | 22,007,725 shares | ||||
| Item | Page | |||||||
| 1 | ||||||||
| 2 | ||||||||
| 3 | ||||||||
| 4 | ||||||||
| 1A | ||||||||
| 2 | ||||||||
| 6 | ||||||||
3
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
GREIF, INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
| Three Months Ended January 31, | |||||||||||
| (in millions, except per share amounts) | 2022 | 2021 | |||||||||
| Net sales | $ | 1,564.3 | $ | 1,146.5 | |||||||
| Cost of products sold | 1,274.6 | 934.3 | |||||||||
| Gross profit | 289.7 | 212.2 | |||||||||
| Selling, general and administrative expenses | 151.6 | 134.3 | |||||||||
| Restructuring charges | 3.5 | 3.1 | |||||||||
| Integration related costs | 1.6 | 2.0 | |||||||||
| Non-cash asset impairment charges | 62.4 | 1.3 | |||||||||
| (Gain) loss on disposal of properties, plants and equipment, net | (1.4) | 1.6 | |||||||||
| Gain on disposal of businesses, net | — | (0.1) | |||||||||
| Operating profit | 72.0 | 70.0 | |||||||||
| Interest expense, net | 17.1 | 25.2 | |||||||||
| Non-cash pension settlement charges | — | 8.5 | |||||||||
| Other expense, net | 2.0 | — | |||||||||
Income before income tax expense and equity earnings of unconsolidated affiliates, net | 52.9 | 36.3 | |||||||||
| Income tax expense | 35.6 | 6.1 | |||||||||
Equity earnings of unconsolidated affiliates, net of tax | (1.3) | (0.7) | |||||||||
| Net income | 18.6 | 30.9 | |||||||||
| Net income attributable to noncontrolling interests | (8.3) | (7.5) | |||||||||
| Net income attributable to Greif, Inc. | $ | 10.3 | $ | 23.4 | |||||||
Basic earnings per share attributable to Greif, Inc. common shareholders: | |||||||||||
| Class A common stock | $ | 0.17 | $ | 0.40 | |||||||
| Class B common stock | $ | 0.25 | $ | 0.59 | |||||||
Diluted earnings per share attributable to Greif, Inc. common shareholders: | |||||||||||
| Class A common stock | $ | 0.18 | $ | 0.40 | |||||||
| Class B common stock | $ | 0.25 | $ | 0.59 | |||||||
Weighted-average number of Class A common shares outstanding: | |||||||||||
| Basic | 26.6 | 26.5 | |||||||||
| Diluted | 26.8 | 26.5 | |||||||||
Weighted-average number of Class B common shares outstanding: | |||||||||||
| Basic | 22.0 | 22.0 | |||||||||
| Diluted | 22.0 | 22.0 | |||||||||
| Cash dividends declared per common share: | |||||||||||
| Class A common stock | $ | 0.46 | $ | 0.44 | |||||||
| Class B common stock | $ | 0.68 | $ | 0.65 | |||||||
See accompanying Notes to Condensed Consolidated Financial Statements
4
GREIF, INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
| Three Months Ended January 31, | |||||||||||
| (in millions) | 2022 | 2021 | |||||||||
| Net income | $ | 18.6 | $ | 30.9 | |||||||
| Other comprehensive (loss) income, net of tax: | |||||||||||
| Foreign currency translation | (31.5) | 27.6 | |||||||||
| Derivative financial instruments | 11.8 | 1.9 | |||||||||
| Minimum pension liabilities | 3.1 | 22.7 | |||||||||
| Other comprehensive (loss) income, net of tax | (16.6) | 52.2 | |||||||||
| Comprehensive income | 2.0 | 83.1 | |||||||||
| Comprehensive income attributable to noncontrolling interests | 4.0 | 10.1 | |||||||||
| Comprehensive (loss) income attributable to Greif, Inc. | $ | (2.0) | $ | 73.0 | |||||||
See accompanying Notes to Condensed Consolidated Financial Statements
5
GREIF, INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
| (in millions) | January 31, 2022 | October 31, 2021 | |||||||||
| ASSETS | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ | 119.7 | $ | 124.6 | |||||||
| Trade accounts receivable, net of allowance | 816.1 | 889.5 | |||||||||
| Inventories: | |||||||||||
| Raw materials | 391.6 | 390.7 | |||||||||
| Work-in-process | — | 1.5 | |||||||||
| Finished goods | 96.7 | 107.0 | |||||||||
| Assets held for sale | 139.8 | 6.9 | |||||||||
| Prepaid expenses | 51.9 | 54.0 | |||||||||
| Other current assets | 88.2 | 89.9 | |||||||||
| 1,704.0 | 1,664.1 | ||||||||||
| Long-term assets | |||||||||||
| Goodwill | 1,500.5 | 1,515.4 | |||||||||
| Other intangible assets, net of amortization | 628.0 | 648.4 | |||||||||
| Deferred tax assets | 7.5 | 16.3 | |||||||||
| Pension asset | 50.3 | 39.9 | |||||||||
| Operating lease assets | 287.0 | 289.4 | |||||||||
| Other long-term assets | 132.5 | 121.1 | |||||||||
| 2,605.8 | 2,630.5 | ||||||||||
| Properties, plants and equipment | |||||||||||
| Timber properties, net of depletion | 227.6 | 224.6 | |||||||||
| Land | 159.9 | 161.9 | |||||||||
| Buildings | 531.7 | 543.8 | |||||||||
| Machinery and equipment | 1,977.8 | 2,042.3 | |||||||||
| Capital projects in progress | 131.3 | 137.2 | |||||||||
| 3,028.3 | 3,109.8 | ||||||||||
| Accumulated depreciation | (1,571.5) | (1,588.6) | |||||||||
| 1,456.8 | 1,521.2 | ||||||||||
| Total assets | $ | 5,766.6 | $ | 5,815.8 | |||||||
See accompanying Notes to Condensed Consolidated Financial Statements
6
GREIF, INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
| (in millions) | January 31, 2022 | October 31, 2021 | |||||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||||
| Current liabilities | |||||||||||
| Accounts payable | $ | 619.6 | $ | 704.5 | |||||||
| Accrued payroll and employee benefits | 102.1 | 160.3 | |||||||||
| Restructuring reserves | 17.0 | 20.3 | |||||||||
| Current portion of long-term debt | 120.3 | 120.3 | |||||||||
| Short-term borrowings | 37.4 | 50.5 | |||||||||
| Liabilities held for sale | 83.5 | 0.9 | |||||||||
| Current portion of operating lease liabilities | 54.3 | 54.0 | |||||||||
| Other current liabilities | 246.3 | 203.3 | |||||||||
| 1,280.5 | 1,314.1 | ||||||||||
| Long-term liabilities | |||||||||||
| Long-term debt | 2,139.1 | 2,054.8 | |||||||||
| Operating lease liabilities | 237.0 | 239.5 | |||||||||
| Deferred tax liabilities | 319.1 | 318.0 | |||||||||
| Pension liabilities | 73.0 | 78.3 | |||||||||
| Postretirement benefit obligations | 10.9 | 11.0 | |||||||||
| Contingent liabilities and environmental reserves | 20.4 | 19.5 | |||||||||
| Long-term income tax payable | 27.8 | 27.8 | |||||||||
| Other long-term liabilities | 82.4 | 153.1 | |||||||||
| 2,909.7 | 2,902.0 | ||||||||||
| Commitments and contingencies (Note 8) | |||||||||||
| Redeemable noncontrolling interests | 19.1 | 24.1 | |||||||||
| Equity | |||||||||||
| Common stock, without par value | 183.2 | 179.3 | |||||||||
| Treasury stock, at cost | (134.0) | (134.1) | |||||||||
| Retained earnings | 1,812.9 | 1,825.6 | |||||||||
| Accumulated other comprehensive loss, net of tax: | |||||||||||
| Foreign currency translation | (322.6) | (295.4) | |||||||||
| Derivative financial instruments | 8.2 | (3.6) | |||||||||
| Minimum pension liabilities | (54.4) | (57.5) | |||||||||
| Total Greif, Inc. shareholders' equity | 1,493.3 | 1,514.3 | |||||||||
| Noncontrolling interests | 64.0 | 61.3 | |||||||||
| Total shareholders' equity | 1,557.3 | 1,575.6 | |||||||||
| Total liabilities and shareholders' equity | $ | 5,766.6 | $ | 5,815.8 | |||||||
See accompanying Notes to Condensed Consolidated Financial Statements
7
GREIF, INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| Three Months Ended January 31, | |||||||||||
| (in millions) | 2022 | 2021 | |||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | 18.6 | $ | 30.9 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation, depletion and amortization | 59.4 | 59.3 | |||||||||
| Non-cash asset impairment charges | 62.4 | 1.3 | |||||||||
| Non-cash pension settlement charges | — | 8.5 | |||||||||
| Loss (gain) on disposals of properties, plants and equipment, net | (1.4) | 1.6 | |||||||||
| Gain on disposals of businesses, net | — | (0.1) | |||||||||
| Unrealized foreign exchange loss | 3.4 | — | |||||||||
| Deferred income tax expense (benefit) | 2.0 | (1.9) | |||||||||
| Non-cash lease expense | 14.6 | 14.4 | |||||||||
| Other, net | 0.6 | 1.9 | |||||||||
| Increase (decrease) in cash from changes in certain assets and liabilities: | |||||||||||
| Trade accounts receivable | (4.8) | (30.8) | |||||||||
| Inventories | (62.9) | (35.5) | |||||||||
| Accounts payable | 9.6 | 13.7 | |||||||||
| Restructuring reserves | (1.7) | (2.4) | |||||||||
| Operating leases | (16.0) | (9.9) | |||||||||
| Pension and post-retirement benefit liabilities | (10.4) | (6.1) | |||||||||
| Other, net | (51.0) | (33.4) | |||||||||
| Net cash provided by operating activities | 22.4 | 11.5 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Purchases of properties, plants and equipment | (44.5) | (27.4) | |||||||||
| Purchases of and investments in timber properties | (4.8) | (1.0) | |||||||||
| Collections of receivables held in special purpose entities | — | 50.9 | |||||||||
| Payments for issuance of loans receivable | — | (15.0) | |||||||||
| Proceeds from the sale of properties, plants, equipment and other assets | 8.2 | — | |||||||||
| Other, net | (4.7) | (3.3) | |||||||||
| Net cash provided by (used in) investing activities | (45.8) | 4.2 | |||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from issuance of long-term debt | 641.6 | 384.5 | |||||||||
| Payments on long-term debt | (551.4) | (353.5) | |||||||||
| Proceeds (payments) on short-term borrowings, net | (4.2) | 16.8 | |||||||||
| Proceeds from trade accounts receivable credit facility | — | 11.2 | |||||||||
| Payments on trade accounts receivable credit facility | (2.0) | (18.3) | |||||||||
| Payments for liabilities held in special purpose entities | — | (43.3) | |||||||||
| Dividends paid to Greif, Inc. shareholders | (27.2) | (25.9) | |||||||||
| Dividends paid to noncontrolling interests | (2.8) | (1.5) | |||||||||
| Net cash provided by (used in) financing activities | 54.0 | (30.0) | |||||||||
| Effects of exchange rates on cash | (18.6) | 9.8 | |||||||||
| Net increase (decrease) in cash and cash equivalents | 12.0 | (4.5) | |||||||||
| Cash and cash equivalents at beginning of period | 124.6 | 105.9 | |||||||||
| Cash and cash equivalents at end of period* | $ | 136.6 | $ | 101.4 | |||||||
*2022 Ending cash includes $16.9 million of cash presented within assets held for sale on the interim condensed consolidated balance sheet. See Note 13 for more information.
See accompanying Notes to Condensed Consolidated Financial Statements
8
GREIF, INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)
| Three Months Ended January 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Capital Stock | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Greif, Inc. Equity | Non controlling Interests | Total Equity | |||||||||||||||||||||||||||||||||||||||||||||||
| (in millions, except for shares which are in thousands) | Common Shares | Amount | Treasury Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||
| As of October 31, 2021 | 48,559 | $ | 179.3 | 28,283 | $ | (134.1) | $ | 1,825.6 | $ | (356.5) | $ | 1,514.3 | $ | 61.3 | $ | 1,575.6 | |||||||||||||||||||||||||||||||||||||
| Net income | 10.3 | 10.3 | 8.3 | 18.6 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation | (27.2) | (27.2) | (4.3) | (31.5) | |||||||||||||||||||||||||||||||||||||||||||||||||
Derivative financial instruments, net of $4.0 million of income tax benefit | 11.8 | 11.8 | 11.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Minimum pension liability adjustment, net of $0.5 million income tax benefit | 3.1 | 3.1 | 3.1 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Comprehensive income | . | (2.0) | 2.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Current period mark to redemption value of redeemable noncontrolling interest and other | 5.0 | 5.0 | 5.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income allocated to redeemable noncontrolling interests | — | 0.4 | 0.4 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends paid to Greif, Inc. shareholders ($0.46 and $0.68 per Class A share and Class B share, respectively) | (27.2) | (27.2) | (27.2) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends paid to noncontrolling interests and other | — | (1.7) | (1.7) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends earned on RSU shares | (0.8) | (0.8) | (0.8) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Long-term incentive shares issued | 46 | 2.7 | (46) | 0.1 | 2.8 | 2.8 | |||||||||||||||||||||||||||||||||||||||||||||||
| Share based compensation | — | 1.1 | — | — | 1.1 | 1.1 | |||||||||||||||||||||||||||||||||||||||||||||||
| Restricted stock, executive | 3 | 0.1 | (3) | — | 0.1 | 0.1 | |||||||||||||||||||||||||||||||||||||||||||||||
| As of January 31, 2022 | 48,608 | $ | 183.2 | 28,234 | $ | (134.0) | $ | 1,812.9 | $ | (368.8) | $ | 1,493.3 | $ | 64.0 | $ | 1,557.3 | |||||||||||||||||||||||||||||||||||||
| Three Months Ended January 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Capital Stock | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Greif, Inc. Equity | Non controlling Interests | Total Equity | |||||||||||||||||||||||||||||||||||||||||||||||
| (in millions, except for shares which are in thousands) | Common Shares | Amount | Treasury Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||
| As of October 31, 2020 | 48,450 | $ | 170.2 | 28,392 | $ | (134.4) | $ | 1,543.9 | $ | (427.5) | $ | 1,152.2 | $ | 48.5 | $ | 1,200.7 | |||||||||||||||||||||||||||||||||||||
Net income | 23.4 | 23.4 | 7.5 | 30.9 | |||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss): | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation | 25.0 | 25.0 | 2.6 | 27.6 | |||||||||||||||||||||||||||||||||||||||||||||||||
Derivative financial instruments, net of $0.6 million income tax expense | 1.9 | 1.9 | 1.9 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Minimum pension liability adjustment, net of $7.4 million income tax expense | 22.7 | 22.7 | 22.7 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Comprehensive income | 73.0 | 83.1 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Current period mark to redemption value of redeemable noncontrolling interest and other | 0.6 | 0.6 | 0.6 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income allocated to redeemable noncontrolling interests | — | (0.3) | (0.3) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends paid to Greif, Inc. shareholders ($0.44 and $0.65 per Class A share and Class B share, respectively) | (25.9) | (25.9) | (25.9) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends paid to noncontrolling interests and other | — | (1.0) | (1.0) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Long-term incentive shares issued | 80 | 3.9 | (80) | 0.2 | 4.1 | 4.1 | |||||||||||||||||||||||||||||||||||||||||||||||
| Share based compensation | — | 1.2 | — | — | 1.2 | 1.2 | |||||||||||||||||||||||||||||||||||||||||||||||
| Restricted stock, executive | 3 | 0.1 | (3) | — | 0.1 | 0.1 | |||||||||||||||||||||||||||||||||||||||||||||||
| As of January 31, 2021 | 48,533 | $ | 175.4 | 28,309 | $ | (134.2) | $ | 1,542.0 | $ | (377.9) | $ | 1,205.3 | $ | 57.3 | $ | 1,262.6 | |||||||||||||||||||||||||||||||||||||
9
GREIF, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 — BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The interim condensed 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 interim condensed consolidated financial statements and accompanying notes. Actual amounts could differ from those estimates.
The fiscal year of Greif, Inc. and its subsidiaries (the “Company”) begins on November 1 and ends on October 31 of the following year. Any references to years or to any quarter of those years, relates to the fiscal year or quarter, as the case may be, ended in that year, unless otherwise stated.
The information filed herein reflects all adjustments that are, in the opinion of management, necessary for a fair presentation of the interim condensed consolidated balance sheets as of January 31, 2022 and October 31, 2021, the interim condensed consolidated statements of income, comprehensive income and changes in shareholders' equity for the three months ended January 31, 2022 and 2021 and the interim condensed consolidated statements of cash flows for the three months ended January 31, 2022 and 2021 of the Company. The interim condensed consolidated financial statements include the accounts of Greif, Inc., all wholly-owned and consolidated subsidiaries and investments in limited liability companies, partnerships and joint ventures in which it has controlling influence or is the primary beneficiary. Non-majority owned entities include investments in limited liability companies, partnerships and joint ventures in which the Company does not have controlling interest and are accounted for using either the equity or cost method, as appropriate.
The unaudited interim condensed 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 Company’s Annual Report on Form 10-K for its fiscal year ended October 31, 2021 (the “2021 Form 10-K”).
Newly Adopted Accounting Standards
In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes", which is intended to simplify accounting for income taxes. This ASU is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years, with early adoption permitted. The Company adopted this ASU on November 1, 2021. The adoption of this guidance did not have a material impact on the Company's financial position, results of operations, comprehensive income, cash flows or disclosures.
Recently Issued Accounting Standards
Except for the accounting pronouncement described above, there have been no new accounting pronouncements issued since the filing of the 2021 Form 10-K that have significance, or potential significance, to the interim condensed consolidated financial statements.
10
NOTE 2 — RESTRUCTURING CHARGES
The following is a reconciliation of the beginning and ending restructuring reserve balances for the three months ended January 31, 2022:
| (in millions) | Employee Separation Costs | Other Costs | Total | ||||||||||||||
| Balance at October 31, 2021 | $ | 18.6 | $ | 1.7 | $ | 20.3 | |||||||||||
| Costs incurred and charged to expense | 1.6 | 1.9 | 3.5 | ||||||||||||||
| Costs paid or otherwise settled | (4.4) | (2.4) | (6.8) | ||||||||||||||
| Balance at January 31, 2022 | $ | 15.8 | $ | 1.2 | $ | 17.0 | |||||||||||
The focus for restructuring activities in 2022 is to optimize operations and close under-performing assets.
During the three months ended January 31, 2022, the Company recorded restructuring charges of $3.5 million, as compared to $3.1 million of restructuring charges recorded during the three months ended January 31, 2021. The restructuring activity for the three months ended January 31, 2022 consisted of $1.6 million in employee separation costs and $1.9 million in other restructuring costs, primarily consisting of professional fees and other fees associated with restructuring activities.
The following is a reconciliation of the total amounts expected to be incurred from open restructuring plans or plans that are being formulated and have not been announced as of the filing date of this Form 10-Q. Remaining amounts expected to be incurred were $14.6 million as of January 31, 2022:
| (in millions) | Total Amounts Expected to be Incurred | Amounts Incurred During the Three Months Ended January 31, 2022 | Amounts Remaining to be Incurred | ||||||||||||||
| Global Industrial Packaging | |||||||||||||||||
| Employee separation costs | $ | 10.5 | $ | 1.5 | $ | 9.0 | |||||||||||
| Other restructuring costs | 3.3 | 0.6 | 2.7 | ||||||||||||||
| 13.8 | 2.1 | 11.7 | |||||||||||||||
| Paper Packaging & Services | |||||||||||||||||
| Employee separation costs | 1.1 | 0.1 | 1.0 | ||||||||||||||
| Other restructuring costs | 3.2 | 1.3 | 1.9 | ||||||||||||||
| 4.3 | 1.4 | 2.9 | |||||||||||||||
| $ | 18.1 | $ | 3.5 | $ | 14.6 | ||||||||||||
NOTE 3 — LONG-TERM DEBT
Long-term debt is summarized as follows:
| (in millions) | January 31, 2022 | October 31, 2021 | |||||||||
| 2019 Credit Agreement - Term Loans | $ | 1,217.2 | $ | 1,247.3 | |||||||
| Senior Notes due 2027 | 496.1 | 495.9 | |||||||||
| Accounts receivable credit facilities | 384.5 | 391.1 | |||||||||
| 2019 Credit Agreement - Revolving Credit Facility | 170.6 | 50.5 | |||||||||
| Other debt | 0.4 | 0.6 | |||||||||
| 2,268.8 | 2,185.4 | ||||||||||
| Less: current portion | 120.3 | 120.3 | |||||||||
| Less: deferred financing costs | 9.4 | 10.3 | |||||||||
| Long-term debt, net | $ | 2,139.1 | $ | 2,054.8 | |||||||
2019 Credit Agreement
11
On February 11, 2019, the Company and certain of its subsidiaries entered into an amended and restated senior secured credit agreement (the “2019 Credit Agreement”) with a syndicate of financial institutions. The Company's obligations under the 2019 Credit Agreement are guaranteed by certain of its U.S. and non-U.S. subsidiaries.
The 2019 Credit Agreement provides for (a) an $800.0 million secured revolving credit facility, consisting of a $600.0 million multicurrency facility and a $200.0 million U.S. dollar facility, maturing on February 11, 2024, (b) a $1,275.0 million secured term loan A-1 facility, with quarterly principal installments that commenced on April 30, 2019, that matures on January 31, 2024, (c) a $400.0 million secured term loan A-2 facility, with quarterly principal installments that commenced on April 30, 2019, that matures on January 31, 2026, and (d) a $225.0 million secured term A-3 loan with quarterly principal installments commenced on July 31, 2021 and continue through maturity on July 15, 2026. In addition, the Company has an option to add an aggregate of $475.0 million to the secured revolving credit facility under the 2019 Credit Agreement with the agreement of the lenders. The revolving credit facility is available to fund ongoing working capital and capital expenditure needs, for general corporate purposes, and to finance acquisitions.
As of January 31, 2022, $1,387.8 million was outstanding under the 2019 Credit Agreement. The current portion of such outstanding amount was $120.3 million, and the long-term portion was $1,267.5 million. The weighted average interest rate for borrowings under the 2019 Credit Agreement was 1.33% for the three months ended January 31, 2022. The actual interest rate for borrowings under the 2019 Credit Agreement was 1.24% as of January 31, 2022. The deferred financing costs associated with the term loan portion of the 2019 Credit Agreement totaled $7.6 million as of January 31, 2022 and are recorded as a reduction of long-term debt on the interim condensed consolidated balance sheets. The deferred financing costs associated with the revolver portion of the 2019 Credit Agreement totaled $3.8 million as of January 31, 2022 and are recorded within other long-term assets on the interim condensed consolidated balance sheets.
Senior Notes due 2027
On February 11, 2019, the Company issued $500.0 million of 6.50% Senior Notes due March 1, 2027 (the "Senior Notes due 2027"). Semi-annual interest payments on the Senior Notes due 2027 commenced on September 1, 2019. The Company's obligations under the Senior Notes due 2027 are guaranteed by its U.S. subsidiaries that guarantee the 2019 Credit Agreement, as described above. The deferred financing cost associated with the Senior Notes due 2027 totaled $1.8 million as of January 31, 2022 and is recorded as a reduction of long-term debt on the interim condensed consolidated balance sheets.
United States Trade Accounts Receivable Credit Facility
On May 26, 2021, Greif Receivables Funding LLC (“Greif Funding”), Greif Packaging LLC (“Greif Packaging”), and certain other U.S. subsidiaries of the Company amended and restated its U.S. receivables financing facility (the “U.S. Receivables Facility”). The U.S. Receivables Facility provides an accounts receivable financing facility of $275.0 million, with a new maturity date of May 26, 2022. As of January 31, 2022, there was $275.0 million outstanding balance under the U.S. Receivables Facility that is reported as long-term debt on the interim condensed consolidated balance sheets because the Company intends to refinance these obligations on a long-term basis and has the intent and ability to consummate a long-term refinancing by exercising the renewal option in the respective agreement or entering into new financing arrangements.
Greif Funding is a direct subsidiary of Greif Packaging and is included in the Company’s consolidated financial statements. However, because Greif Funding is a separate and distinct legal entity from the Company, the assets of Greif Funding are not available to satisfy the liabilities and obligations of the Company, Greif Packaging or other subsidiaries of the Company, and the liabilities of Greif Funding are not the liabilities or obligations of the Company or its other subsidiaries.
International Trade Accounts Receivable Credit Facility
On July 27, 2021, Cooperage Receivables Finance B.V. and Greif Services Belgium BV, an indirect wholly owned subsidiary of Greif, Inc., amended and restated the Nieuw Amsterdam Receivables Financing Agreement (the "European RFA") with affiliates of a major international bank. The amended and restated European RFA matures April 26, 2022. The European RFA provides an accounts receivable financing facility of up to €100.0 million ($111.5 million as of January 31, 2022) secured by certain European accounts receivable. The $109.5 million outstanding on the European RFA as of January 31, 2022 is reported as long-term debt on the interim condensed consolidated balance sheets because the Company intends to refinance these obligations on a long-term basis and has the intent and ability to consummate a long-term refinancing by exercising the renewal option in the respective agreement or entering into new financing arrangements.
12
NOTE 4 — FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
Recurring Fair Value Measurements
The following table presents the fair value for those assets and (liabilities) measured on a recurring basis as of January 31, 2022 and October 31, 2021:
| January 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||
| Assets | Liabilities | ||||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||||||||||||||||
| Interest rate derivatives | $ | — | $ | 10.7 | $ | — | $ | 10.7 | $ | — | $ | (9.2) | $ | — | $ | (9.2) | |||||||||||||||||||||||||||||||
| Foreign exchange hedges | — | 1.6 | — | 1.6 | — | (0.6) | — | (0.6) | |||||||||||||||||||||||||||||||||||||||
| Insurance annuity | — | — | 20.1 | 20.1 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Cross currency swap | — | 18.8 | — | 18.8 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| October 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||
| Assets | Liabilities | ||||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||||||||||||||||
| Interest rate derivatives | $ | — | $ | 7.6 | $ | — | $ | 7.6 | $ | — | $ | (16.8) | $ | — | $ | (16.8) | |||||||||||||||||||||||||||||||
| Foreign exchange hedges | — | 0.1 | — | 0.1 | — | (0.1) | — | (0.1) | |||||||||||||||||||||||||||||||||||||||
| Insurance annuity | — | — | 20.9 | 20.9 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Cross currency swap | — | 10.2 | — | 10.2 | — | (1.2) | — | (1.2) | |||||||||||||||||||||||||||||||||||||||
The carrying amounts of cash and cash equivalents, trade accounts receivable, accounts payable, current liabilities and short-term borrowings as of January 31, 2022 and October 31, 2021 approximate their fair values because of the short-term nature of these items and are not included in this table.
Interest Rate Derivatives
The Company has various borrowing facilities which charge interest based on the one-month U.S. dollar LIBOR rate plus a spread.
In 2020, the Company entered into four interest rate swaps with a total notional amount of $200.0 million, maturing on July 15, 2029. The Company receives variable rate interest payments based upon one-month U.S. dollar LIBOR, and in return the Company is obligated to pay interest at a weighted-average interest rate of 0.90% plus a spread. This effectively converted the borrowing rate on an amount of debt equal to the outstanding notional amount of the interest rate swap from a variable rate to a fixed rate.
In 2019, the Company entered into six interest rate swaps with a total notional amount of $1,300.0 million that amortize to $200.0 million over a five-year term, maturing on March 11, 2024. The outstanding notional amount as of January 31, 2022 is $500.0 million. The Company receives variable rate interest payments based upon one-month U.S. dollar LIBOR, and in return the Company is obligated to pay interest at a weighted-average interest rate of 2.49% plus a spread. This effectively converted the borrowing rate on an amount of debt equal to the outstanding notional amount of the interest rate swap from a variable rate to a fixed rate.
In 2017, the Company entered into three interest rate swaps with a notional amount of $300.0 million, maturing on February 1, 2022. The Company receives variable rate interest payments based upon one-month U.S. dollar LIBOR, and in return the Company is obligated to pay interest at a fixed rate of 1.19% plus a spread. This effectively converted the borrowing rate on an amount of debt equal to the outstanding notional amount of the interest rate swap from a variable rate to a fixed rate.
These derivatives are designated as cash flow hedges for accounting purposes. Accordingly, the gain or loss on these derivative instruments are reported as a component of other comprehensive income and reclassified into earnings in the same line item associated with the forecasted transaction and in the same period during which the hedged transaction affects earnings. See Note 11 to the interim condensed consolidated financial statements for additional disclosures of the aggregate gain or loss included within other comprehensive income. The assumptions used in measuring fair value of these interest rate derivatives are considered level 2 inputs, which are based upon observable market rates, including LIBOR and interest paid based upon a designated fixed rate over the life of the swap agreements.
13
Losses reclassified to earnings under these contracts were $4.3 million and $4.4 million for the three months ended January 31, 2022, and 2021, respectively. A derivative loss of $5.8 million, based upon interest rates at January 31, 2022, is expected to be reclassified from accumulated other comprehensive income (loss) to earnings in the next twelve months.
Foreign Exchange Hedges
The Company conducts business in various international currencies and is subject to risks associated with changing foreign exchange rates. The Company’s objective is to reduce volatility associated with foreign exchange rate changes. Accordingly, the Company enters into various contracts that change in value as foreign exchange rates change to protect the value of certain existing foreign currency assets and liabilities, commitments and anticipated foreign currency cash flows. As of January 31, 2022, and October 31, 2021, the Company had outstanding foreign currency forward contracts in the notional amount of $184.5 million and $81.8 million, respectively.
Adjustments to fair value are recognized in earnings, offsetting the impact of the hedged profits. The assumptions used in measuring fair value of foreign exchange hedges are considered level 2 inputs, which are based on observable market pricing for similar instruments, principally foreign exchange futures contracts.
Realized gains (losses) recorded in other expense, net under fair value contracts were $(2.4) million and $2.0 million for the three months ended January 31, 2022, and 2021, respectively. Within other expense, net, the Company recognized an unrealized net gain (loss) of $1.0 million and $(0.6) million during the three months ended January 31, 2022 and 2021, respectively.
Cross Currency Swap
The Company has operations and investments in various international locations and is subject to risks associated with changing foreign exchange rates.
In October 2021, the Company entered into two cross currency interest rate swap agreements that synthetically swap $116.8 million of fixed rate debt to Euro denominated fixed rate debt at a weighted average rate of 1.26%. These agreements are designated as cash flow hedges for accounting purposes and will mature on October 2026.
In August 2021, the Company entered into two cross currency interest rate swap agreements that synthetically swap $117.6 million of fixed rate debt to Euro denominated fixed rate debt at a weighted average rate of 1.19%. These agreements are designated as net investment hedges for accounting purposes and will mature in August 2026.
In March 2018, the Company entered into two cross currency interest rate swap agreement that synthetically swaps $100.0 million of fixed rate debt to Euro denominated fixed rate debt at a rate of 2.35%. The agreement is designated as a net investment hedge for accounting purposes and will mature in March 2023.
The gain or loss on these net investment hedge derivative instruments is included in the foreign currency translation component of other comprehensive income until the net investment is sold, diluted, or liquidated. See Note 11 to the interim condensed consolidated financial statements for additional disclosures of the aggregate gain or loss included within other comprehensive income. The gain or loss on the cash flow hedge derivative instruments is included in the unrealized foreign exchange component of other expense, offset by the underlying gain or loss on the underlying cash flows that are being hedged. Interest payments received for the cross currency swap are excluded from the net investment hedge effectiveness assessment and are recorded in interest expense, net on the consolidated statements of income. The assumptions used in measuring fair value of the cross currency swap are considered level 2 inputs, which are based upon the Euro to United States dollar exchange rate market.
For the three months ended January 31, 2022 and 2021, gains recorded in interest expense, net under the cross currency swap agreements were $1.4 million and $0.6 million, respectively.
Other Financial Instruments
The fair values of the Company’s 2019 Credit Agreement, the U.S. Receivables Facility and the European RFA do not materially differ from carrying value as the Company’s cost of borrowing is variable and approximates current borrowing rates. The fair values of the Company’s 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 the debt of the same remaining maturities, which are considered level 2 inputs in accordance with Accounting Standard Codification ("ASC") Topic 820, "Fair Value Measurements and Disclosures."
14
The following table presents the estimated fair values of the Company’s Senior Notes due 2027:
| (in millions) | January 31, 2022 | October 31, 2021 | |||||||||
| Senior Notes due 2027 estimated fair value | $ | 516.3 | $ | 520.0 | |||||||
Non-Recurring Fair Value Measurements
The Company recognized asset impairment charges of $62.4 million and $1.3 million during the three months ended January 31, 2022 and 2021, respectively.
The following table presents quantitative information about the significant unobservable inputs used to determine the fair value of the impairment of long-lived assets held and used and net assets held for sale for the three months ended January 31, 2022 and 2021:
| Quantitative Information about Level 3 Fair Value Measurements | |||||||||||||||||||||||
| (in millions) | Impairment Amount | Valuation Technique | Unobservable Input | Range of Input Values | |||||||||||||||||||
| January 31, 2022 | |||||||||||||||||||||||
| Net Assets Held for Sale | $ | 62.4 | Indicative Bids | Indicative Bids | N/A | ||||||||||||||||||
| Total | $ | 62.4 | |||||||||||||||||||||
| January 31, 2021 | |||||||||||||||||||||||
| Long Lived Assets | $ | 1.3 | Discounted Cash Flows; Indicative Bids | Discounted Cash Flows; Indicative Bids | N/A | ||||||||||||||||||
| Total | $ | 1.3 | |||||||||||||||||||||
Assets and Liabilities Held for Sale
During the three months ended January 31, 2022, the Company entered into a definitive agreement to divest its approximately 50% equity interest in the Flexible Products & Services business to its joint venture partner, Gulf Refined Packaging (the "FPS Divestiture"). This agreement triggered the reclassification of the Flexible Products & Services business to assets and liabilities held for sale, which further resulted in recognized impairment charges of $62.4 million. Included in the asset impairment, was $112.0 million related to the expected release of cumulative translation adjustment losses associated with the foreign subsidiaries classified as held for sale. During the three months ended January 31, 2021, the Company recorded no impairment charges related to assets and liabilities held for sale.
The assumptions used in measuring fair value of assets and liabilities held for sale are considered level 3 inputs, which include recent purchase offers, market comparables and/or data obtained from commercial real estate brokers.
Long-Lived Assets
As necessary, based on triggering events, the Company measures long-lived assets at fair value on a non-recurring basis. The Company recorded no impairment charges related to both properties, plants and equipment, net and intangible assets during the three months ended January 31, 2022 and $1.3 million impairment charges related to both properties, plants and equipment, net and intangible assets during the three months ended January 31, 2021, respectively.
The assumptions used in measuring fair value of long-lived assets are considered level 3 inputs, which include bids received from third parties, recent purchase offers, market comparable information and discounted cash flows based on assumptions that market participants would use.
NOTE 5 – STOCK-BASED COMPENSATION
Long-Term Incentive Plan
15
The Company's 2020 Long-Term Incentive Plan (the "2020 LTIP") is intended to focus management on the key measures that drive superior performance over the longer term. The 2020 LTIP provides key employees with incentive compensation based upon consecutive and overlapping three-year performance periods that commence at the start of every year. For each three-year performance period, the performance goals are based on performance criteria as determined by the Compensation Committee of the Company’s Board of Directors. For each three-year performance period commencing at the beginning of the year, participants may be granted restricted stock units (“RSUs”) or performance stock units (“PSUs”) or a combination of both.
The Company may grant RSUs based on a three-year vesting period on the basis of service only. The RSUs are an equity-classified plan measured at fair value on the grant date recognized ratably over the service period. Dividend-equivalent rights may be granted in connection with an RSU award and are recognized in conjunction with the Company's dividend issuance and settled upon vesting of the award.
The Company granted 99,006 RSUs on December 16, 2021, for the performance period commencing on November 1, 2021 and ending October 31, 2024. The weighted average fair value of the RSUs granted on that date was $60.54.
Under the 2020 LTIP, the Company may grant PSUs for a three-year performance period based upon service, performance criteria and market conditions. The performance criteria are based on targeted levels of earnings before interest, taxes, depreciation, depletion and amortization and total shareholder return as determined by the Compensation Committee. The PSUs are a liability-classified plan wherein the fair value of the PSUs awarded is determined at each reporting period using a Monte Carlo simulation. A Monte Carlo simulation uses assumptions including the risk-free interest rate, expected volatility of the Company’s stock price, and expected life of the awards to determine a fair value of the market condition throughout the vesting period.
The Company granted 162,392 PSUs on December 16, 2021, for the performance period commencing on November 1, 2021 and ending October 31, 2024. If earned, the PSUs are to be awarded in shares of Class A Common Stock. The weighted average fair value of the PSUs granted on that date was $60.08. The weighted average fair value of the PSUs at January 31, 2022 was $58.03.
NOTE 6 — INCOME TAXES
Income tax expense for the quarter and year to date was computed in accordance with ASC 740-270 "Income Taxes - Interim Reporting." Under this method, losses from jurisdictions for which a valuation allowance has been provided have not been included in the amount to which the ASC 740-270 rate was applied. Income tax expense of the Company may fluctuate due to changes in estimated losses and income from jurisdictions for which a valuation allowance has been provided, the timing of recognition of the related tax expense under ASC 740-270, and the impact of discrete items in the respective quarter.
For the three months ended January 31, 2022 and January 31, 2021, income tax expense was $35.6 million and $6.1 million, respectively. The increase in income tax expense for the three months ended January 31, 2022 was primarily attributable to an increase in pretax book income and an increase of unfavorable discrete items of $8.9 million. The increase in discrete items is primarily due to adjustments of certain assumptions regarding 2021 tax-only capital losses previously applied to timberland sales in 2021 and tax basis in certain tangible property, net of reductions in previously unrecognized tax benefits due to expiration of statutes of limitation and audit settlements. Additionally, a $62.4 million book impairment loss was recorded in the quarter relating to the FPS Divestiture on which there is expected to be no tax benefit.
NOTE 7 — POST RETIREMENT BENEFIT PLANS
The components of net periodic pension cost include the following:
| Three Months Ended January 31, | |||||||||||
| (in millions) | 2022 | 2021 | |||||||||
| Service cost | $ | 3.0 | $ | 3.1 | |||||||
| Interest cost | 5.1 | 4.5 | |||||||||
| Expected return on plan assets | (8.2) | (7.9) | |||||||||
Amortization of prior service cost | (0.1) | — | |||||||||
| Recognized net actuarial loss | 2.0 | 3.8 | |||||||||
| Net periodic pension cost | $ | 1.8 | $ | 3.5 | |||||||
16
As previously disclosed in the Company's Annual Report on Form 10-K for the year ended October 31, 2021, the Company expects to make employer contributions of $35.5 million, including benefits paid directly by the Company, during 2022.
The components of net periodic pension cost and net periodic post-retirement benefit, other than the service cost components, are included in the line item "Other income, net" in the interim condensed consolidated statements of income.
During the three months ended January 31, 2021, an annuity contract for approximately $100.0 million was purchased with United States defined benefit plan assets and the pension obligation for certain retirees in the United States under that plan was irrevocably transferred from that plan to the annuity contract. Additionally, lump sum payments totaling $1.5 million were made from the defined benefit plan assets to certain participants who agreed to such payments, representing the current fair value of the participant’s respective pension benefit. The settlement items described above resulted in a decrease in the fair value of both the plan assets and the projected benefit obligation of $101.5 million and a non-cash pension settlement charge of $8.5 million of unrecognized net actuarial loss included in accumulated other comprehensive loss.
NOTE 8 — CONTINGENT LIABILITIES AND ENVIRONMENTAL RESERVES
Litigation-related Liabilities
The Company may become involved from time-to-time in litigation and regulatory matters incidental to its business, including governmental investigations, enforcement actions, personal injury claims, product liability, employment health and safety matters, commercial disputes, intellectual property matters, disputes regarding environmental clean-up costs, litigation in connection with acquisitions and divestitures, and other matters arising out of the normal conduct of its business. The Company intends to vigorously defend itself in such litigation. The Company does not believe that the outcome of any pending litigation will have a material adverse effect on its interim condensed consolidated financial statements.
The Company may accrue for contingencies related to litigation and regulatory matters if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Because litigation is inherently unpredictable and unfavorable resolutions can occur, assessing contingencies is highly subjective and requires judgments about future events. The Company regularly reviews contingencies to determine whether its accruals are adequate. The amount of ultimate loss may differ from these estimates.
Environmental Reserves
As of January 31, 2022, and October 31, 2021, the Company's environmental reserves were $20.4 million and $19.5 million, respectively. These reserves are principally based on environmental studies and cost estimates provided by third parties, but also take into account management estimates. 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 liabilities, these actions have formal agreements in place to apportion the liability.
As of January 31, 2022 and October 31, 2021, the Company has accrued $11.0 million for the Diamond Alkali Superfund Site in New Jersey.
Aside from the Diamond Alkali Superfund Site, other environmental reserves of the Company as of January 31, 2022 and October 31, 2021 included $9.4 million and $8.5 million, respectively, for its various facilities around the world. It is possible that there could be resolution of uncertainties in the future that would require the Company to record charges that could be material to future earnings.
The Company’s 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 year, the Company believes that the chance of a series of adverse developments occurring in the same quarter or year is remote. Future information and developments will require the Company to continually reassess the expected impact of these environmental matters.
NOTE 9 — EARNINGS PER SHARE
The Company has two classes of common stock and, as such, applies the “two-class method” of computing earnings per share (“EPS”) as prescribed in ASC 260, “Earnings Per Share.” In accordance with this guidance, earnings are allocated in the same fashion as dividends would be distributed. Under the Company’s certificate of incorporation, any distribution of dividends in any year must be made in proportion of one cent a share for Class A Common Stock to one and one-half cents a share for Class B Common Stock, which results in a 40% to 60% split to Class A and B shareholders, respectively. In accordance with this,
17
earnings are allocated first to Class A and Class B Common Stock to the extent that dividends are actually paid and the remainder is allocated assuming all of the earnings for the period have been distributed in the form of dividends.
The Company calculates EPS as follows:
| Basic Class A EPS | = | 40% * Average Class A Shares Outstanding | * | Undistributed Net Income | + | Class A Dividends Per Share | ||||||||||||||
| 40% * Average Class A Shares Outstanding + 60% * Average Class B Shares Outstanding | Average Class A Shares Outstanding | |||||||||||||||||||
| Diluted Class A EPS | = | 40% * Average Class A Shares Outstanding | * | Undistributed Net Income | + | Class A Dividends Per Share | ||||||||||||||
| 40% * Average Class A Shares Outstanding + 60% * Average Class B Shares Outstanding | Average Diluted Class A Shares Outstanding | |||||||||||||||||||
| Basic Class B EPS | = | 60% * Average Class B Shares Outstanding | * | Undistributed Net Income | + | Class B Dividends Per Share | ||||||||||||||
| 40% * Average Class A Shares Outstanding + 60% * Average Class B Shares Outstanding | Average Class B Shares Outstanding | |||||||||||||||||||
*Diluted Class B EPS calculation is identical to Basic Class B calculation
The following table provides EPS information for each period, respectively:
| Three Months Ended January 31, | |||||||||||
| (in millions) | 2022 | 2021 | |||||||||
| Numerator for basic and diluted EPS | |||||||||||
| Net income attributable to Greif, Inc. | $ | 10.3 | $ | 23.4 | |||||||
| Cash dividends | (27.2) | (25.9) | |||||||||
| Undistributed earnings attributable to Greif, Inc. | $ | (16.9) | $ | (2.5) | |||||||
The Class A Common Stock has no voting rights unless four quarterly cumulative dividends upon the Class A Common Stock are in arrears. The Class B Common Stock has full voting rights. There is no cumulative voting for the election of directors.
18
The following table summarizes the Company’s Class A and Class B common and treasury shares as of the specified dates:
| Authorized Shares | Issued Shares | Outstanding Shares | Treasury Shares | ||||||||||||||||||||
| January 31, 2022 | |||||||||||||||||||||||
| Class A Common Stock | 128,000,000 | 42,281,920 | 26,600,442 | 15,681,478 | |||||||||||||||||||
| Class B Common Stock | 69,120,000 | 34,560,000 | 22,007,725 | 12,552,275 | |||||||||||||||||||
| October 31, 2021 | |||||||||||||||||||||||
| Class A Common Stock | 128,000,000 | 42,281,920 | 26,550,924 | 15,730,996 | |||||||||||||||||||
| Class B Common Stock | 69,120,000 | 34,560,000 | 22,007,725 | 12,552,275 | |||||||||||||||||||
The following is a reconciliation of the shares used to calculate basic and diluted earnings per share:
| Three Months Ended January 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Class A Common Stock: | |||||||||||
| Basic shares | 26,573,932 | 26,456,071 | |||||||||
| Assumed conversion of restricted shares | 176,538 | 75,332 | |||||||||
| Diluted shares | 26,750,470 | 26,531,403 | |||||||||
| Class B Common Stock: | |||||||||||
| Basic and diluted shares | 22,007,725 | 22,007,725 | |||||||||
NOTE 10 — LEASES
The Company leases certain buildings, warehouses, land, transportation equipment, operating equipment, and office equipment with remaining lease terms from less than 1 year up to 20 years. The Company reviews all options to extend, terminate, or purchase a right of use asset at the time of lease inception and accounts for options deemed reasonably certain.
The Company combines lease and non-lease components for all leases, except real estate, for which these components are presented separately. Leases with an initial term of twelve months or less are not capitalized and are recognized on a straight-line basis over the lease term. The implicit rate is not readily determinable for substantially all of the Company's leases, and therefore the initial present value of lease payments is calculated utilizing an estimated incremental borrowing rate determined at the portfolio level based on market and Company specific information.
Certain of the Company’s leases include variable costs. As the right of use asset recorded on the balance sheet was determined based upon factors considered at the commencement date, changes in these variable expenses are not capitalized and are expensed as incurred throughout the lease term.
As of January 31, 2022, the Company does not have material exposure to finance leases and has not entered into any significant leases which have not yet commenced.
The following table presents the lease expense components for the three months ended January 31, 2022 and 2021:
| Three Months Ended January 31, | |||||||||||
| (in millions) | 2022 | 2021 | |||||||||
| Operating lease cost | $ | 17.0 | $ | 17.3 | |||||||
| Other lease cost* | 5.7 | 5.7 | |||||||||
| Total lease cost | $ | 22.7 | $ | 23.0 | |||||||
*includes variable, short-term, and finance lease costs | |||||||||||
19
Future maturity for the Company's lease liabilities, during the next five years, and in the aggregate for the years thereafter, are as follows:
| (in millions) | January 31, 2022 | ||||
| 2022 | $ | 65.7 | |||
| 2023 | 58.2 | ||||
| 2024 | 48.6 | ||||
| 2025 | 42.2 | ||||
| 2026 | 34.3 | ||||
| Thereafter | 111.6 | ||||
| Total lease payments | $ | 360.6 | |||
| Less: interest | (69.3) | ||||
| Lease liabilities | $ | 291.3 | |||
The following table presents the weighted-average lease term and discount rate as of January 31, 2022 and 2021:
| January 31, 2022 | January 31, 2021 | ||||||||||
| Weighted-average remaining lease term (years) for operating lease liabilities | 10.1 | 10.9 | |||||||||
| Weighted-average discount rate for operating lease liabilities | 3.58 | % | 3.68 | % | |||||||
The following table presents other required lease related information for the three months ended January 31, 2022 and 2021:
| Three Months Ended January 31, | |||||||||||
| (in millions) | 2022 | 2021 | |||||||||
| Operating cash flows used for operating liabilities | $ | 17.1 | $ | 17.4 | |||||||
| Leased assets obtained in exchange for new operating lease liabilities | 7.7 | 1.9 | |||||||||
NOTE 11 — COMPREHENSIVE INCOME (LOSS)
The following table provides the rollforward of accumulated other comprehensive income (loss) for the three months ended January 31, 2022:
| (in millions) | Foreign Currency Translation | Derivative Financial Instruments | Minimum Pension Liability Adjustment | Accumulated Other Comprehensive Income (Loss) | |||||||||||||||||||
| Balance as of October 31, 2021 | $ | (295.4) | $ | (3.6) | $ | (57.5) | $ | (356.5) | |||||||||||||||
| Other comprehensive income (loss) | (27.2) | 11.8 | 3.1 | (12.3) | |||||||||||||||||||
| Balance as of January 31, 2022 | $ | (322.6) | $ | 8.2 | $ | (54.4) | $ | (368.8) | |||||||||||||||
The following table provides the rollforward of accumulated other comprehensive income (loss) for the three months ended January 31, 2021:
| (in millions) | Foreign Currency Translation | Derivative Financial Instruments | Minimum Pension Liability Adjustment | Accumulated Other Comprehensive Income (Loss) | |||||||||||||||||||
| Balance as of October 31, 2020 | $ | (294.9) | $ | (24.7) | $ | (107.9) | $ | (427.5) | |||||||||||||||
| Other comprehensive income | 25.0 | 1.9 | 22.7 | 49.6 | |||||||||||||||||||
| Balance as of January 31, 2021 | $ | (269.9) | $ | (22.8) | $ | (85.2) | $ | (377.9) | |||||||||||||||
The components of accumulated other comprehensive income (loss) above are presented net of tax, as applicable.
20
NOTE 12 — BUSINESS SEGMENT INFORMATION
The Company has six operating segments, which are aggregated into three reportable business segments: Global Industrial Packaging; Paper Packaging & Services; and Land Management.
The Company’s reportable business segments offer different products and services. The accounting policies of the reportable business segments are substantially the same as those described in the “Basis of Presentation and Summary of Significant Accounting Policies” note in the 2021 Form 10-K.
The following tables present net sales disaggregated by geographic area for each reportable segment for the three months ended January 31, 2022:
| Three Months Ended January 31, 2022 | |||||||||||||||||||||||
| (in millions) | United States | Europe, Middle East and Africa | Asia Pacific and Other Americas | Total | |||||||||||||||||||
| Global Industrial Packaging | $ | 318.8 | $ | 457.3 | $ | 173.0 | $ | 949.1 | |||||||||||||||
| Paper Packaging & Services | 600.8 | — | 9.2 | 610.0 | |||||||||||||||||||
| Land Management | 5.2 | — | — | 5.2 | |||||||||||||||||||
| Total net sales | $ | 924.8 | $ | 457.3 | $ | 182.2 | $ | 1,564.3 | |||||||||||||||
The following tables present net sales disaggregated by geographic area for each reportable segment for the three months ended January 31, 2021:
| Three Months Ended January 31, 2021 | |||||||||||||||||||||||
| (in millions) | United States | Europe, Middle East and Africa | Asia Pacific and Other Americas | Total | |||||||||||||||||||
| Global Industrial Packaging | $ | 202.8 | $ | 330.5 | $ | 126.0 | $ | 659.3 | |||||||||||||||
| Paper Packaging & Services | 473.5 | — | 7.4 | 480.9 | |||||||||||||||||||
| Land Management | 6.3 | — | — | 6.3 | |||||||||||||||||||
Total net sales | $ | 682.6 | $ | 330.5 | $ | 133.4 | $ | 1,146.5 | |||||||||||||||
The following segment information is presented for the periods indicated:
| Three Months Ended January 31, | |||||||||||
| (in millions) | 2022 | 2021 | |||||||||
| Operating profit: | |||||||||||
| Global Industrial Packaging | $ | 31.0 | $ | 54.0 | |||||||
| Paper Packaging & Services | 38.3 | 14.3 | |||||||||
| Land Management | 2.7 | 1.7 | |||||||||
| Total operating profit | $ | 72.0 | $ | 70.0 | |||||||
| Depreciation, depletion and amortization expense: | |||||||||||
| Global Industrial Packaging | $ | 20.6 | $ | 21.0 | |||||||
| Paper Packaging & Services | 38.0 | 37.2 | |||||||||
| Land Management | 0.8 | 1.1 | |||||||||
| Total depreciation, depletion and amortization expense | $ | 59.4 | $ | 59.3 | |||||||
21
The following table presents total assets by segment and total properties, plants and equipment, net by geographic area:
| (in millions) | January 31, 2022 | October 31, 2021 | |||||||||
| Assets: | |||||||||||
| Global Industrial Packaging | $ | 2,791.9 | $ | 2,735.1 | |||||||
| Paper Packaging & Services | 2,449.5 | 2,506.5 | |||||||||
| Land Management | 250.0 | 249.2 | |||||||||
| Total segments | 5,491.4 | 5,490.8 | |||||||||
| Corporate and other | 275.2 | 325.0 | |||||||||
| Total assets | $ | 5,766.6 | $ | 5,815.8 | |||||||
| Long lived assets, net: | |||||||||||
| United States | $ | 1,302.8 | $ | 1,321.8 | |||||||
| Europe, Middle East and Africa | 329.5 | 374.5 | |||||||||
| Asia Pacific and other Americas | 111.5 | 114.3 | |||||||||
| Total long-lived assets, net | $ | 1,743.8 | $ | 1,810.6 | |||||||
NOTE 13 — ASSETS AND LIABILITIES HELD FOR SALE
On December 31, 2021, the Company entered into a definitive agreement to divest its approximately 50% equity interest in the Flexible Products & Services business to its joint venture partner, Gulf Refined Packaging, for a total cash consideration of approximately $123.0 million, subject to certain conditions and post-closing adjustments. The transaction is expected to close by March 31, 2022. As of January 31, 2022, the assets and liabilities in the Flexible Packaging joint venture were classified as assets and liabilities held for sale.
The following table presents assets and liabilities classified as held for sale as of January 31, 2022:
| (in millions) | January 31, 2022 | ||||
| Cash and cash equivalents | $ | 16.9 | |||
| Trade accounts receivable, net of allowance | 59.6 | ||||
| Inventories | 61.8 | ||||
| Properties, plants and equipment, net | 41.0 | ||||
| Other assets | 22.9 | ||||
| Impairment to net realizable value | (62.4) | ||||
| Total assets held for sale | $ | 139.8 | |||
| Accounts payable | $ | 50.5 | |||
| Other liabilities | 33.0 | ||||
| Total liabilities held for sale | $ | 83.5 | |||
NOTE 14 — SUBSEQUENT EVENTS
On March 1, 2022, the Company and certain of our subsidiaries entered into a second amended and restated senior secured credit agreement (the “2022 Credit Agreement”) with a syndicate of financial institutions. The 2022 Credit Agreement amended, restated and replaced in its entirety the 2019 Credit Agreement. The 2022 Credit Agreement provides for (a) an $800.0 million secured revolving credit facility, consisting of a $725.0 million multicurrency facility and a $75.0 million U.S. dollar facility, maturing on March 1, 2027, (b) a $1,100 million secured term loan A-1 facility with quarterly principal installments commencing on July 31, 2022 and continuing through January 31, 2027, with any outstanding principal balance of such term loan A-1 facility being due and payable on maturity on March 1, 2027, and (c) a $515.0 million secured term loan A-2 facility with quarterly principal installments commencing on July 31, 2022 and continuing through January 31, 2027, with
22
any outstanding principal balance of such term loan A-2 being due and payable on maturity on March 1, 2027. The term loan A-2 facility reflects the combination of the outstanding balances of the secured term A-2 and A-3 loans under the 2019 Credit Agreement. The Company used the borrowings under the 2022 Credit Agreement on March 1, 2022, to redeem the Senior Notes due 2027, and to repay and refinance all of the outstanding borrowings under the 2019 Credit Agreement, and will use the borrowings thereunder to fund ongoing working capital and capital expenditure needs and for general corporate purposes, including acquisitions, and to pay related fees and expenses.
23
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The terms “Greif,” “our company,” “we,” “us” and “our” as used in this discussion refer to Greif, Inc. and its subsidiaries. Our fiscal year begins on November 1 and ends on October 31 of the following year. Any references in unaudited interim condensed consolidated financial statements included in the Quarterly Report on Form 10-Q ("this Form 10-Q") to the years, or to any quarter of those years, relates to the fiscal year or quarter, as the case may be, ended in that year, unless otherwise stated.
The discussion and analysis presented below relates to the material changes in financial condition and results of operations for our interim condensed consolidated balance sheets as of January 31, 2022 and October 31, 2021, and for the interim condensed consolidated statements of income for the three months ended January 31, 2022 and 2021. This discussion and analysis should be read in conjunction with the interim condensed consolidated financial statements that appear elsewhere in this Form 10-Q and “Management’s 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, 2021 (the “2021 Form 10-K”). Readers are encouraged to review the entire 2021 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, trends, 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,” “aspiration,” “objective,” “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 assumptions, expectations and other information currently available to 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 our actual results to differ materially from those forecasted, projected or anticipated, whether 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) historically, our business has been sensitive to changes in general economic or business conditions, (ii) our global operations subject us to political risks, instability and currency exchange that could adversely affect our results of operations, (iii) the COVID-19 pandemic could continue to impact any combination of our business, financial condition, results of operations and cash flows, (iv) the current and future challenging global economy and disruption and volatility of the financial and credit markets may adversely affect our business, (v) the continuing consolidation of our customer base and suppliers may intensify pricing pressure, (vi) we operate in highly competitive industries, (vii) our business is sensitive to changes in industry demands and customer preferences, (viii) raw material, price fluctuations, global supply chain disruptions and inflation may adversely impact our results of operations, (ix) energy and transportation price fluctuations and shortages may adversely impact our manufacturing operations and costs, (x) the frequency and volume of our timber and timberland sales will impact our financial performance, (xi) we may not successfully implement our business strategies, including achieving our growth objectives, (xii) we may encounter difficulties or liabilities arising from acquisitions or divestitures, (xiii) we may incur additional restructuring costs and there is no guarantee that our efforts to reduce costs will be successful, (xiv) several operations are conducted by joint ventures that we cannot operate solely for our benefit, (xv) certain of the agreements that govern our joint ventures provide our partners with put or call options, (xvi) our ability to attract, develop and retain talented and qualified employees, managers and executives is critical to our success, (xvii) our business may be adversely impacted by work stoppages and other labor relations matters, (xviii) we may be subject to losses that might not be covered in whole or in part by existing insurance reserves or insurance coverage and general insurance premium and deductible increases, (xix) our business depends on the uninterrupted operations of our facilities, systems and business functions, including our information technology and other business systems, (xx) a security breach of customer, employee, supplier or our information and data privacy risks and costs of compliance with new regulations may have a material adverse effect on our business, financial condition, results of operations and cash flows, (xxi) we could be subject to changes to our tax rates, the adoption of new U.S. or foreign tax legislation or exposure to additional tax liabilities, (xxii) full realization of our deferred tax assets may be affected by a number of factors, (xxiii) we have a significant amount of goodwill and long-lived assets which, if impaired in the future, would adversely impact our results of operations, (xxiv) our pension and post-retirement plans are underfunded and will require future cash contributions, and our required future cash contributions could be higher than we expect, each of which could have a material adverse effect on our financial condition and liquidity, (xxv) legislation/regulation related to environmental and health and safety matters and corporate social responsibility could negatively impact our operations and financial performance, (xxvi) product liability claims and other legal proceedings could adversely affect our operations and financial performance, (xxvii) we may incur fines or penalties, damage to our reputation or other adverse consequences if our employees, agents or business partners violate, or are alleged to have violated, anti-bribery, competition or other laws, (xxviii) changing climate, global climate change regulations and greenhouse gas effects
24
may adversely affect our operations and financial performance, (xxix) we may be unable to achieve our greenhouse gas emission reduction targets by 2030. 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 detailed discussion of the most significant risks and uncertainties that could cause our actual results to differ materially from those forecasted, projected or anticipated, see “Risk Factors” in Part I, Item 1A of our most recently filed Form 10-K and our other filings with the Securities and Exchange Commission. 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, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
OVERVIEW
Business Segments
We operate in three reportable business segments: Global Industrial Packaging; Paper Packaging & Services; and Land Management.
In the Global Industrial Packaging segment, we are a leading global producer of industrial packaging products, such as steel, fibre and plastic drums, rigid and flexible intermediate bulk containers, closure systems for industrial packaging products, transit protection products, water bottles and remanufactured and reconditioned industrial containers, and services, such as container life cycle management, filling, logistics, warehousing and other packaging services. Our flexible intermediate bulk containers consist of a polypropylene-based woven fabric that is produced at our production sites, as well as sourced from strategic regional suppliers. We sell our industrial packaging products on a global basis to customers in industries such as chemicals, paints and pigments, food and beverage, petroleum, industrial coatings, agriculture, pharmaceutical and minerals, among others.
In the Paper Packaging & Services segment, we produce and sell containerboard, corrugated sheets, corrugated containers, 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, automotive components, books and furniture, as well as numerous other applications. We also produce and sell coated recycled paperboard and uncoated recycled paperboard, some of which we use to produce and sell industrial products (tubes and cores, construction products, protective packaging, and adhesives). In addition, we also purchase and sell recycled fiber.
In the Land Management segment, we are 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. As of January 31, 2022, we owned approximately 175,000 acres of timber property in the southeastern United States, which includes 18,800 acres of special use land.
CRITICAL ACCOUNTING POLICIES
The discussion and analysis of our financial condition and results of operations are based upon our interim condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these interim condensed 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 as of the date of our interim condensed consolidated financial statements.
Our critical accounting policies are discussed in Part II, Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations of the 2021 Form 10-K. We believe that the consistent application of these policies enables us to provide readers of the interim condensed consolidated financial statements with useful and reliable information about our results of operations and financial condition. There have been no material changes to our critical accounting policies from the disclosures contained in the 2021 Form 10-K.
Recently Issued and Newly Adopted Accounting Standards
See Note 1 to the interim condensed consolidated financial statements included in Item 1 of this Form 10-Q for a detailed description of recently issued and newly adopted accounting standards.
25
RESULTS OF OPERATIONS
The following comparative information is presented for the three months ended January 31, 2022 and 2021. Historical revenues and earnings may or may not be representative of future operating results as a result of various economic and other factors.
Items that could have a significant impact on the financial statements include the risks and uncertainties listed in Part I, Item 1A — Risk Factors, of the 2021 Form 10-K. Actual results could differ materially using different estimates and assumptions, or if conditions are significantly different in the future.
The non-GAAP financial measures of EBITDA and Adjusted EBITDA are used throughout the following discussion of our results of operations, both for our consolidated and segment results. For our consolidated results, EBITDA is defined as net income, plus interest expense, net, plus income tax expense, plus depreciation, depletion and amortization expense, and Adjusted EBITDA is defined as EBITDA plus restructuring charges, plus integration related costs, plus non-cash asset impairment charges, plus non-cash pension settlement charges, plus incremental COVID-19 costs, net, plus loss (gain) on disposal of properties, plants, equipment and businesses, net. Since we do not calculate net income by business segment, EBITDA and Adjusted EBITDA by business segment are reconciled to operating profit by business segment. In that case, EBITDA is defined as operating profit by business segment less non-cash pension settlement charges, less other expense, net, less equity earnings of unconsolidated affiliates, net of tax, plus depreciation, depletion and amortization expense for that business segment, and Adjusted EBITDA is defined as EBITDA plus any restructuring charges, plus integration related costs, plus non-cash asset impairment charges, plus non-cash pension settlement charges, plus incremental COVID-19 costs, net, plus loss (gain) on disposal of properties, plants, equipment and businesses, net, plus timberlands gains, net, for that business segment.
We use EBITDA and Adjusted EBITDA as financial measures to evaluate our historical and ongoing operations and believe that these non-GAAP financial measures are useful to enable investors to perform meaningful comparisons of our historical and current performance. In addition, we present our U.S. and non-U.S. income before income taxes after eliminating the impact of restructuring charges, integration related costs, non-cash asset impairment charges, non-cash pension settlement charges, incremental COVID-19 costs, net and (gain) loss on disposal of properties, plants, equipment and businesses, net which are non-GAAP financial measures. We believe that excluding the impact of these adjustments enables investors to perform a meaningful comparison of our current and historical performance that investors find valuable. The foregoing non-GAAP financial measures are intended to supplement, and should be read together with, our financial results. These non-GAAP financial measures should not be considered an alternative or substitute for, and should not be considered superior to, our reported financial results. Accordingly, users of this financial information should not place undue reliance on the non-GAAP financial measures.
26
First Quarter Results
The following table sets forth the net sales, operating profit, EBITDA and Adjusted EBITDA for each of our business segments for the three months ended January 31, 2022 and 2021:
| Three Months Ended January 31, | |||||||||||
| (in millions) | 2022 | 2021 | |||||||||
| Net sales: | |||||||||||
| Global Industrial Packaging | $ | 949.1 | $ | 659.3 | |||||||
| Paper Packaging & Services | 610.0 | 480.9 | |||||||||
| Land Management | 5.2 | 6.3 | |||||||||
| Total net sales | $ | 1,564.3 | $ | 1,146.5 | |||||||
| Operating profit: | |||||||||||
| Global Industrial Packaging | $ | 31.0 | $ | 54.0 | |||||||
| Paper Packaging & Services | 38.3 | 14.3 | |||||||||
| Land Management | 2.7 | 1.7 | |||||||||
| Total operating profit | $ | 72.0 | $ | 70.0 | |||||||
| EBITDA: | |||||||||||
| Global Industrial Packaging | $ | 51.0 | $ | 75.8 | |||||||
| Paper Packaging & Services | 76.2 | 42.9 | |||||||||
| Land Management | 3.5 | 2.8 | |||||||||
| Total EBITDA | $ | 130.7 | $ | 121.5 | |||||||
| Adjusted EBITDA: | |||||||||||
| Global Industrial Packaging | $ | 114.2 | $ | 79.5 | |||||||
| Paper Packaging & Services | 80.5 | 56.1 | |||||||||
| Land Management | 2.1 | 2.9 | |||||||||
| Total Adjusted EBITDA | $ | 196.8 | $ | 138.5 | |||||||
27
The following table sets forth EBITDA and Adjusted EBITDA, reconciled to net income and operating profit, for our consolidated results for the three months ended January 31, 2022 and 2021:
| Three Months Ended January 31, | |||||||||||
| (in millions) | 2022 | 2021 | |||||||||
| Net income | $ | 18.6 | $ | 30.9 | |||||||
| Plus: interest expense, net | 17.1 | 25.2 | |||||||||
| Plus: income tax expense | 35.6 | 6.1 | |||||||||
| Plus: depreciation, depletion and amortization expense | 59.4 | 59.3 | |||||||||
| EBITDA | $ | 130.7 | $ | 121.5 | |||||||
| Net income | $ | 18.6 | $ | 30.9 | |||||||
| Plus: interest expense, net | 17.1 | 25.2 | |||||||||
| Plus: income tax expense | 35.6 | 6.1 | |||||||||
| Plus: non-cash pension settlement charges | — | 8.5 | |||||||||
| Plus: other expense, net | 2.0 | — | |||||||||
| Plus: equity earnings of unconsolidated affiliates, net of tax | (1.3) | (0.7) | |||||||||
| Operating profit | 72.0 | 70.0 | |||||||||
| Less: non-cash pension settlement charges | — | 8.5 | |||||||||
| Less: other expense, net | 2.0 | — | |||||||||
| Less: equity earnings of unconsolidated affiliates, net of tax | (1.3) | (0.7) | |||||||||
| Plus: depreciation, depletion and amortization expense | 59.4 | 59.3 | |||||||||
| EBITDA | 130.7 | 121.5 | |||||||||
| Plus: restructuring charges | 3.5 | 3.1 | |||||||||
| Plus: integration related costs | 1.6 | 2.0 | |||||||||
| Plus: non-cash asset impairment charges | 62.4 | 1.3 | |||||||||
| Plus: non-cash pension settlement charges | — | 8.5 | |||||||||
| Plus: incremental COVID-19 costs, net | — | 0.6 | |||||||||
| Plus: (gain) loss on disposal of properties, plants, equipment, and businesses, net | (1.4) | 1.5 | |||||||||
| Adjusted EBITDA | $ | 196.8 | $ | 138.5 | |||||||
28
The following table sets forth EBITDA and Adjusted EBITDA for our business segments, reconciled to the operating profit for each segment, for the three months ended January 31, 2022 and 2021:
| Three Months Ended January 31, | |||||||||||
| (in millions) | 2022 | 2021 | |||||||||
| Global Industrial Packaging | |||||||||||
| Operating profit | $ | 31.0 | $ | 54.0 | |||||||
| Less: other expense (income), net | 1.9 | (0.1) | |||||||||
| Less: equity earnings of unconsolidated affiliates, net of tax | (1.3) | (0.7) | |||||||||
| Plus: depreciation and amortization expense | 20.6 | 21.0 | |||||||||
| EBITDA | 51.0 | 75.8 | |||||||||
| Plus: restructuring charges | 2.1 | 2.8 | |||||||||
| Plus: non-cash asset impairment charges | 62.4 | 1.3 | |||||||||
| Plus: incremental COVID-19 costs, net | — | 0.3 | |||||||||
| Plus: gain on disposal of properties, plants, equipment, and businesses, net | (1.3) | (0.7) | |||||||||
| Adjusted EBITDA | $ | 114.2 | $ | 79.5 | |||||||
| Paper Packaging & Services | |||||||||||
| Operating profit | $ | 38.3 | $ | 14.3 | |||||||
| Less: non-cash pension settlement charges | — | 8.5 | |||||||||
| Less: other expense, net | 0.1 | 0.1 | |||||||||
| Plus: depreciation and amortization expense | 38.0 | 37.2 | |||||||||
| EBITDA | 76.2 | 42.9 | |||||||||
| Plus: restructuring charges | 1.4 | 0.3 | |||||||||
| Plus: integration related costs | 1.6 | 2.0 | |||||||||
| Plus: non-cash pension settlement charges | — | 8.5 | |||||||||
| Plus: incremental COVID-19 costs, net | — | 0.3 | |||||||||
| Plus: loss on disposal of properties, plants, equipment, and businesses, net | 1.3 | 2.1 | |||||||||
| Adjusted EBITDA | $ | 80.5 | $ | 56.1 | |||||||
| Land Management | |||||||||||
| Operating profit | $ | 2.7 | $ | 1.7 | |||||||
| Plus: depreciation, depletion and amortization expense | 0.8 | 1.1 | |||||||||
| EBITDA | 3.5 | 2.8 | |||||||||
| Plus: (gain) loss on disposal of properties, plants, equipment, and businesses, net | (1.4) | 0.1 | |||||||||
| Adjusted EBITDA | $ | 2.1 | $ | 2.9 | |||||||
Net Sales
Net sales were $1,564.3 million for the first quarter of 2022 compared with $1,146.5 million for the first quarter of 2021. The $417.8 million increase was primarily due to higher volumes and higher average sale prices across the Global Industrial Products and the Paper Packaging & Services segments. See the "Segment Review" below for additional information on net sales by segment for the first quarter of 2022.
Gross Profit
Gross profit was $289.7 million for the first quarter of 2022 compared with $212.2 million for the first quarter of 2021. The reasons for the changes in gross profit for each segment are described below in the “Segment Review.” Gross profit margin was 18.5 percent for both the first quarter of 2022 and 2021.
29
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses were $151.6 million for the first quarter of 2022 and $134.3 million for the first quarter of 2021. SG&A expenses were 9.7 percent and 11.7 percent of net sales for the first quarter of 2022 and 2021, respectively. The increase in SG&A expenses was primarily due to increased incentive accruals.
Financial Measures
Operating profit was $72.0 million for the first quarter of 2022 compared with $70.0 million for the first quarter of 2021. Net income was $18.6 million for the first quarter of 2022 compared with $30.9 million for the first quarter of 2021. Adjusted EBITDA was $196.8 million for the first quarter of 2022 compared with $138.5 million for the first quarter of 2021. The reasons for the changes in Adjusted EBITDA for each segment are described below in the "Segment Review."
Trends
We anticipate that overall customer demand for our products will continue to be consistent and solid through 2022, although inflation, supply chain disruptions and labor shortages may negatively impact some of our customers. Prices for steel are expected to continue to decline slightly around the world, but less so in North America, and prices for resin and old corrugated containers are expected to remain relatively stable. In addition, we anticipate that other raw material prices and costs of transportation, labor and energy will continue to increase through the year.
The foregoing is subject to the impact and consequences of the invasion of the Ukraine by Russia. As described in Part I, Item 1A — Risk Factors, of the 2021 Form 10-K, our global operations subject us to general economic and business conditions and political, social, economic and labor instability, including war, invasion and civil disturbance, that could adversely affect our business and results of operations. In addition, demand for our products and services has historically corresponded to changes in general economic and business conditions of the industries and countries in which we operate. However, our operations in Russia and the Ukraine on a combined basis account for approximately 3% of our total sales and approximately 1.3% of our total assets. We will continue to actively monitor this situation.
Segment Review
Global Industrial Packaging
Our Global Industrial Packaging segment offers a comprehensive line of industrial packaging products, such as steel, fibre and plastic drums, rigid and flexible intermediate bulk containers, closure systems for industrial packaging products, transit protection products, water bottles and remanufactured and reconditioned industrial containers, and services, such as container life cycle management, filling, logistics, warehousing and other packaging services. Key factors influencing profitability in the Global Industrial Packaging segment are:
•Selling prices, product mix, customer demand and sales volumes;
•Raw material costs, primarily steel, resin, containerboard and used industrial packaging for reconditioning;
•Energy and transportation costs;
•Benefits from executing the Greif Business System;
•Restructuring charges;
•Acquisition of businesses and facilities;
•Divestiture of businesses and facilities; and
•Impact of foreign currency translation.
Net sales were $949.1 million for the first quarter of 2022 compared with $659.3 million for the first quarter of 2021. The $289.8 million increase in net sales was primarily due to higher volumes and higher average sale prices.
Gross profit was $177.1 million for the first quarter of 2022 compared with $130.3 million for the first quarter of 2021. The $46.8 million increase in gross profit was primarily due to the same factors that impacted net sales, partially offset by higher raw material costs. Gross profit margin was 18.7 percent and 19.8 percent for the three months ended January 31, 2022 and 2021, respectively.
30
Operating profit was $31.0 million for the first quarter of 2022 compared with operating profit of $54.0 million for the first quarter of 2021. The $23.0 million decrease is primarily due to a $62.4 million non-cash impairment charge related to a definitive agreement to divest our approximately 50% equity interest in the Flexible Products and Services business to our joint venture partner, Gulf Refined Packaging (the “FPS Divestiture”), offset by the same factors that impacted gross profit. Adjusted EBITDA was $114.2 million for the first quarter of 2022 compared with $79.5 million for the first quarter of 2021. The $34.7 million increase in Adjusted EBITDA was primarily due to the same factors that impacted gross profit.
Paper Packaging & Services
Our Paper Packaging & Services segment produces and sells containerboard, corrugated sheets, corrugated containers, 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, automotive components, books and furniture, as well as numerous other applications. We also produce and sell coated recycled paperboard and uncoated recycled paperboard, some of which we use to produce and sell products which ultimately serve both industrial and consumer markets. In addition, we also purchase and sell recycled fiber. Key factors influencing profitability in the Paper Packaging & Services segment are:
•Selling prices, product mix, customer demand and sales volumes;
•Raw material costs, primarily old corrugated containers;
•Energy and transportation costs;
•Benefits from executing the Greif Business System;
•Acquisition of businesses and facilities;
•Restructuring charges; and
•Divestiture of businesses and facilities.
Net sales were $610.0 million for the first quarter of 2022 compared with $480.9 million for the first quarter of 2021. The $129.1 million increase was primarily due to higher volumes and higher published containerboard and boxboard prices.
Gross profit was $110.8 million for the first quarter of 2022 compared with $79.6 million for the first quarter of 2021. The increase in gross profit was primarily due to the same factors that impacted net sales, partially offset by higher raw material, transportation and utility costs. Gross profit margin was 18.2 percent and 16.6 percent for the first quarter of 2022 and 2021, respectively.
Operating profit was $38.3 million for the first quarter of 2022 compared with $14.3 million for the first quarter of 2021 primarily due to the same factors as gross profit. Adjusted EBITDA was $80.5 million for the first quarter of 2022 compared with $56.1 million for the first quarter of 2021. The $24.4 million increase in Adjusted EBITDA was primarily due to the same factors that impacted operating profit.
Land Management
As of January 31, 2022, our Land Management segment consisted of approximately 175,000 acres of timber properties in the southeastern United States. Key factors influencing profitability in the Land Management segment are:
•Planned level of timber sales;
•Selling prices and customer demand;
•Gains on timberland sales; and
•Gains on the disposal of development, surplus and HBU properties (“special use property”).
As of January 31, 2022, we had approximately 18,800 acres of special use property in the United States.
Net sales decreased to $5.2 million for the first quarter of 2022 compared with $6.3 million for the first quarter of 2021, primarily due to reduced timber available for sale as a result of acreage sold in the prior year.
Gross profit was $1.8 million for the first quarter of 2022 compared with $2.3 million for the first quarter of 2021.
31
Operating profit increased to $2.7 million for the first quarter of 2022 compared with $1.7 million for the first quarter of 2021. Adjusted EBITDA was $2.1 million and $2.9 million for the first quarter of 2022 and 2021, respectively.
In order to maximize the value of our timber property, we continue to review our current portfolio and explore the development of certain of these properties. This process has led us to characterize our property as follows:
•Surplus property, meaning land that cannot be efficiently or effectively managed by us, whether due to parcel size, lack of productivity, location, access limitations or for other reasons;
•HBU property, meaning land that in its current state has a higher market value for uses other than growing and selling timber;
•Development property, meaning HBU land that, with additional investment, may have a significantly higher market value than its HBU market value; and
•Core timberland, meaning land that is best suited for growing and selling timber.
We report the sale of core timberland property in timberland gains, the sale of HBU and surplus property in gain on disposal of properties, plants and equipment, net and the sale of timber and development property under net sales and cost of products sold in our interim condensed consolidated statements of income. All HBU and development property, together with surplus property, is used to productively grow and sell timber until the property is sold.
Whether timberland has a higher value for uses other than growing and selling timber is a determination based upon several variables, such as proximity to population centers, anticipated population growth in the area, the topography of the land, aesthetic considerations, including access to lakes or rivers, the condition of the surrounding land, availability of utilities, markets for timber and economic considerations both nationally and locally. Given these considerations, the characterization of land is not a static process, but requires an ongoing review and re-characterization as circumstances change.
Income Tax Expense
Our quarterly income tax expense was computed in accordance with Accounting Standards Codification 740-270 "Income Taxes - Interim Reporting." In accordance with this accounting standard, annual estimated tax expense is computed based on forecasted annual earnings and other forecasted annual amounts, including, but not limited to items such as uncertain tax positions and withholding taxes. Additionally, losses from jurisdictions for which a valuation allowance has been provided have not been included in the annual estimated tax rate. Income tax expense each quarter is provided for on a current year-to-date basis using the annual estimated tax rate, adjusted for discrete taxable events that occur during the interim period.
Income tax expense for the first quarter of 2022 was $35.6 million on $52.9 million of pretax income and income tax expense for the first quarter of 2021 was $6.1 million on $36.3 million of pretax income. In addition to higher pretax income, this increase was impacted by the increase of unfavorable discrete items of $8.9 million. The increase in discrete items was primarily due to adjustments of certain assumptions regarding 2021 tax-only capital losses previously applied to the 2021 timberland sale and tax basis in certain tangible property, net of reductions in previously unrecognized tax benefits due to expiration of statutes of limitation and audit settlements. Additionally, a $62.4 million impairment loss was recorded in the first quarter of 2022 related to the FPS Divestiture, for which no tax benefit is expected.
We are subject to audits by U.S. federal, state and local tax authorities and foreign tax authorities. We believe that adequate provisions have been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in the tax audits are resolved in a manner not consistent with management’s expectations, we could be required to adjust our provision for income taxes in the period such resolution occurs.
The estimated net decrease in unrecognized tax benefits for the next 12 months ranges from zero to $9.1 million. Actual results may differ materially from this estimate.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity are operating cash flows and borrowings under our senior secured credit facilities and proceeds from our trade accounts receivable credit facilities. We use these sources to fund our working capital needs, capital expenditures, cash dividends, debt repayment and acquisitions. We anticipate continuing to fund these items in a like manner. We currently expect that operating cash flows, borrowings under our senior secured credit facilities and proceeds from our trade accounts receivable credit facilities will be sufficient to fund our anticipated working capital, capital expenditures, cash dividends, debt repayment, potential acquisitions of businesses and other liquidity needs for at least 12 months.
32
Cash Flow
Three Months Ended January 31, (in millions) | 2022 | 2021 | |||||||||
| Net cash provided by operating activities | $ | 22.4 | $ | 11.5 | |||||||
| Net cash provided by (used in) investing activities | (45.8) | 4.2 | |||||||||
| Net cash provided by (used in) financing activities | 54.0 | (30.0) | |||||||||
| Effects of exchange rates on cash | (18.6) | 9.8 | |||||||||
| Net increase (decrease) in cash and cash equivalents | 12.0 | (4.5) | |||||||||
| Cash and cash equivalents at beginning of year | 124.6 | 105.9 | |||||||||
| Cash and cash equivalents at end of period* | $ | 136.6 | $ | 101.4 | |||||||
*2022 Ending cash includes $16.9 million of cash presented within assets held for sale on the interim condensed consolidated balance sheet. See Note 13 to the interim condensed consolidated financial statements included in Item 1 of this Form 10-Q for more information on assets held for sale.
Operating Activities
The $73.4 million decrease in accounts receivable to $816.1 million as of January 31, 2022 from $889.5 million as of October 31, 2021 was primarily due to the FPS Divestiture and related assets classified as held for sale, offset by higher volumes and higher average sale prices.
The $10.9 million decrease in inventories to $488.3 million as of January 31, 2022 from $499.2 million as of October 31, 2021 was primarily due to the FPS Divestiture and related assets classified as held for sale, offset by an increase in raw material prices.
The $84.9 million decrease in accounts payable to $619.6 million as of January 31, 2022 from $704.5 million as of October 31, 2021 was primarily due to the FPS Divestiture and related liabilities classified as held for sale, offset by an increase in prices of raw materials and other operating costs, as well as timing of payable settlements.
Investing Activities
During the first three months of 2022 and 2021, we invested $44.5 million and $27.4 million, respectively, of cash in capital expenditures.
Financing Activities
During the first three months of 2022 and 2021, we paid cash dividends to stockholders of Greif, Inc. in the amount of $27.2 million and $25.9 million, respectively. During the first three months of 2022 and 2021, we issued $90.2 million and $31.0 million of long-term debt, net of payments, respectively. This $59.2 million increase was primarily to support increased operating working capital needs in the current quarter.
Financial Obligations
Borrowing Arrangements
Long-term debt is summarized as follows:
33
| (in millions) | January 31, 2022 | October 31, 2021 | |||||||||
| 2019 Credit Agreement - Term Loans | $ | 1,217.2 | $ | 1,247.3 | |||||||
| Senior Notes due 2027 | 496.1 | 495.9 | |||||||||
| Accounts receivable credit facilities | 384.5 | 391.1 | |||||||||
| 2019 Credit Agreement - Revolving Credit Facility | 170.6 | 50.5 | |||||||||
| Other debt | 0.4 | 0.6 | |||||||||
| 2,268.8 | 2,185.4 | ||||||||||
| Less: current portion | 120.3 | 120.3 | |||||||||
| Less: deferred financing costs | 9.4 | 10.3 | |||||||||
| Long-term debt, net | $ | 2,139.1 | $ | 2,054.8 | |||||||
2022 Credit Agreement
On March 1, 2022, we and certain of our subsidiaries entered into a second amended and restated senior secured credit agreement (the “2022 Credit Agreement”) with a syndicate of financial institutions. The 2022 Credit Agreement amended, restated and replaced in its entirety our senior secured credit agreement dated February 11, 2019 (the "2019 Credit Agreement"), which is described below. The 2022 Credit Agreement provides for (a) an $800.0 million secured revolving credit facility, consisting of a $725.0 million multicurrency facility and a $75.0 million U.S. dollar facility, maturing on March 1, 2027, (b) a $1,100 million secured term loan A-1 facility with quarterly principal installments commencing on July 31, 2022 and continuing through January 31, 2027, with any outstanding principal balance of such term loan A-1 facility being due and payable on maturity on March 1, 2027, and (c) a $515.0 million secured term loan A-2 facility with quarterly principal installments commencing on July 31, 2022 and continuing through January 31, 2027, with any outstanding principal balance of such term loan A-2 being due and payable on maturity on March 1, 2027. The term loan A-2 facility reflects the combination of the outstanding balances of the secured term A-2 and A-3 loans under the Prior Credit Agreement. We used the borrowings under the 2022 Credit Agreement on March 1, 2022, to redeem the Senior Notes due 2027, discussed below, and to repay and refinance all of the outstanding borrowings under the Prior Credit Agreement, and will use the borrowings thereunder to fund ongoing working capital and capital expenditure needs and for general corporate purposes, including acquisitions, and to pay related fees and expenses. Interest is based on SOFR plus a credit spread adjustment, EURIBOR or a base rate that resets periodically plus, in each case, a calculated margin amount that is based on our leverage ratio. Subject to the terms of the 2022 Credit Agreement, we have an option to add borrowings to the New Credit Agreement with the agreement of the lenders.
The 2022 Credit Agreement contains certain covenants, which include financial covenants that require us to maintain a certain leverage ratio and an interest 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 (less the aggregate amount of our unrestricted cash and cash equivalents), 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 (as used in this paragraph only “EBITDA”) to be greater than 4.00 to 1.00; provided that such leverage ratio is subject to (i) a covenant step-up (as defined in the 2022 Credit Agreement) increase adjustment of 0.50 upon the consummation of, and the following three fiscal quarters after, certain specified acquisitions and (ii) a collateral release decrease adjustment of 0.25x during any collateral release period (as defined in the 2022 Credit Agreement). The interest coverage ratio generally requires that at the end of any fiscal quarter we will not permit the ratio of (a) our consolidated EBITDA, to (b) our consolidated interest expense to the extent paid or payable, to be less than 3.00 to 1.00, during the applicable preceding twelve-month period.
2019 Credit Agreement
We and certain of our subsidiaries were borrowers under the 2019 Credit Agreement. The 2019 Credit Agreement provided for (a) an $800.0 million secured revolving credit facility, which consisted of a $600.0 million multicurrency facility and a $200.0 million U.S. dollar facility, maturing on February 11, 2024, (b) a $1,275.0 million secured term loan A-1 facility, with quarterly principal installments, maturing on January 31, 2024, (c) a $400.0 million secured term loan A-2 facility, with quarterly principal installments, maturing on January 31, 2026, and (d) a $225.0 million secured term A-3 loan, with quarterly principal installments, maturing on July 15, 2026. As of January 31, 2022, we had $629.4 million of available borrowing capacity under the $800.0 million secured revolving credit facility.
34
The 2019 Credit Agreement contained certain covenants, which included financial covenants that required us to maintain a certain leverage ratio and an interest coverage ratio. As of January 31, 2022, we were in compliance with all of covenants and other agreements in the 2019 Credit Agreement.
Senior Notes due 2027
On March 1, 2022, we redeemed $500.0 million of our 6.50% Senior Notes due March 1, 2027 (the "Senior Notes due 2027"), which represented all of the outstanding Senior Notes due 2027, with proceeds from our 2022 Credit Agreement.
United States Trade Accounts Receivable Credit Facility
Greif Receivables Funding LLC, Greif Packaging LLC, and certain of our other U.S. subsidiaries are parties to an amended and restated U.S. receivables financing facility (the “U.S. Receivables Facility”). The U.S. Receivables Facility provides an accounts receivable financing facility of $275.0 million, with a maturity date of May 26, 2022. As of January 31, 2022, there was $275.0 million outstanding balance under the U.S. Receivables Facility that is reported as long-term debt on the interim condensed consolidated balance sheets because we intend to refinance these obligations on a long-term basis and has the intent and ability to consummate a long-term refinancing by exercising the renewal option in the respective agreement or entering into new financing arrangements.
We may terminate the U.S. Receivables Facility at any time upon five days prior written notice. The U.S. Receivables Facility is secured by certain of our United States trade accounts receivables and bears interest at a variable rate based on the London Interbank Offered Rate (“LIBOR”) or an applicable base rate, plus a margin, or a commercial paper rate plus a margin. Interest is payable on a monthly basis and the principal balance is payable upon termination of the U.S. Receivables Facility. The U.S. Receivables Facility also contains events of default and covenants, which are substantially the same as the covenants under the 2019 Credit Agreement, as defined above. As of January 31, 2022, we were in compliance with these covenants. Proceeds of the U.S. Receivables Facility are available for working capital and general corporate purposes.
International Trade Accounts Receivable Credit Facilities
Cooperage Receivables Finance B.V. and Greif Services Belgium BV, an indirect wholly owned subsidiary of Greif, Inc., are parties to an amended and restated the Nieuw Amsterdam Receivables Financing Agreement (the "European RFA"). The European RFA provides an accounts receivable financing facility of up to €100.0 million ($111.5 million as of January 31, 2022) secured by certain European accounts receivable. The $109.5 million outstanding on the European RFA as of January 31, 2022 is reported as long-term debt on the interim condensed consolidated balance sheets because we intend to refinance these obligations on a long-term basis and have the intent and ability to consummate a long-term refinancing by exercising the renewal option in the respective agreement or entering into new financing arrangements.
We may terminate the European RFA at any time upon one calendar month prior written notice. The European RFA is secured by certain of our international trade accounts receivables and bears interest at a commercial paper rate plus a margin. Interest is payable on a monthly basis and the principal balance is payable upon termination of the European RFA. The European RFA also contains events of default and covenants, which are substantially the same as the covenants under the 2019 Credit Agreement, as defined above. As of January 31, 2022, we were in compliance with these covenants. Proceeds of the European RFA are available for working capital and general corporate purposes.
Financial Instruments
Interest Rate Derivatives
As of January 31, 2022, we have various interest rate swaps with a total notional amount of $1,000 million in which we receive variable interest rate payments and in return are obligated to pay interest at a weighted average fixed interest rate of 1.78%, plus an interest spread.
These derivatives are designated as cash flow hedges for accounting purposes. Accordingly, the gain or loss on these derivative instruments are reported as a component of other comprehensive income and reclassified into earnings in the same line item associated with the forecasted transactions and in the same period during which the hedged transaction affects earnings.
Foreign Exchange Hedges
We conduct business in international currencies and are subject to risks associated with changing foreign exchange rates. Our objective is to reduce volatility associated with foreign exchange rate changes to allow management to focus its attention on business operations. Accordingly, we enter into various contracts that change in value as foreign exchange rates change to
35
protect the value of certain existing foreign currency assets and liabilities, commitments and anticipated foreign currency cash flows.
As of January 31, 2022, and October 31, 2021, we had outstanding foreign currency forward contracts in the notional amount of $184.5 million, and $81.8 million, respectively.
Cross Currency Swap
We have operations and investments in various international locations and are subject to risks associated with changing foreign exchange rates. We have cross currency interest rate swaps that synthetically swap $334.4 million of fixed rate debt to Euro denominated fixed rate debt. We receive a weighted average rate of 1.56%. These agreements are designated a mixture of net investment hedges and cash flow hedges for accounting purposes and will mature between March 6, 2023 and October 5, 2026. Accordingly, the gain or loss on this derivative instrument is included in the foreign currency translation component of other comprehensive income until the net investment is sold, diluted, or liquidated. Interest payments received from the cross currency swap are excluded from the net investment hedge effectiveness assessment and are recorded in interest expense, net on the consolidated statements of income.
See Note 4 to the interim condensed consolidated financial statements included in Item 1 of this Form 10-Q for additional disclosure regarding our financial instruments.
36
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
There have been no significant changes in the quantitative and qualitative disclosures about our market risk from the disclosures contained in the 2021 Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting that occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Disclosure Controls and Procedures
With the participation of our principal executive officer and principal financial officer, our 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.
37
PART II. OTHER INFORMATION
ITEM 1A. RISK FACTORS
There have been no material changes in our risk factors from those disclosed in the 2021 Form 10-K under Part I, Item 1A –– Risk Factors.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 6. EXHIBITS
(a.) Exhibits
| Exhibit No. | Description of Exhibit | |||||||
| Certification of Chief Executive Officer Pursuant to Rule 13a — 14(a) of the Securities Exchange Act of 1934. | ||||||||
| Certification of Chief Financial Officer Pursuant to Rule 13a — 14(a) of the Securities Exchange Act of 1934. | ||||||||
| 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. | ||||||||
| 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. | ||||||||
| Second Amended and Restated Credit Agreement, dated as of March 1, 2022, among Greif, Inc., Greif Packaging LLC, Greif International Holding B.V., and Greif Beheer B.V., as borrowers, each financial institution party thereto, as lenders, Wells Fargo Securities, LLC, JPMorgan Chase Bank, National Association, BOFA Securities, Inc., MUFG Bank, Ltd, U.S. Bank National Association, and TD Bank, N.A., as joint lead arrangers and joint book managers, and JPMorgan Chase Bank, as administrative agent for the lenders. | ||||||||
| 101 | The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2022, formatted in Inline XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Statements of Income and Comprehensive Income (Loss), (ii) Condensed Consolidated Balance Sheets, (iii) Condensed Consolidated Statements of Cash Flow and (iv) Notes to Condensed Consolidated Financial Statements. | |||||||
38
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: March 4, 2022 | /s/ LAWRENCE A. HILSHEIMER | |||||||
| Lawrence A. Hilsheimer | ||||||||
| Executive Vice President and Chief Financial Officer | ||||||||
39