GREIF, INC. GENERAL
The terms "Greif," "our company," "we," "us" and "our" as used in this discussion refer toGreif, Inc. and its subsidiaries. Our fiscal year begins onNovember 1 and ends onOctober 31 of the following year. Any references in unaudited interim condensed consolidated financial statements included in this 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 ofJuly 31, 2022 andOctober 31, 2021 , and for the interim condensed consolidated statements of income for the three and nine months endedJuly 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 endedOctober 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 newU.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 25
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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 may adversely affect our operations and financial performance, and (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 theSecurities 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:
In theGlobal Industrial Packaging segment, we are a leading global producer of industrial packaging products, such as steel, fibre and plastic drums, rigid 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. 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 thePaper Packaging & Services segment, we produce and sell containerboard, corrugated sheets, corrugated containers, and other corrugated products to customers inNorth 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 (tubes and cores, construction products, and protective packaging), which ultimately serve both industrial and consumer markets. In addition, we purchase and sell recycled fiber, and we also produce and sell adhesives. In the Land Management segment, we are focused on the active harvesting and regeneration of ourUnited 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 ofJuly 31, 2022 , we owned approximately 175,000 acres of timber property in the southeasternUnited 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. 26
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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.
RESULTS OF OPERATIONS
The following comparative information is presented for the three and nine months endedJuly 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 any interest expense, net, plus any debt extinguishment charges, plus any income tax expense, plus any depreciation, depletion and amortization expense, and Adjusted EBITDA is defined as EBITDA plus any restructuring charges, plus any integration related costs, plus any non-cash asset impairment charges, plus any non-cash pension settlement charges, plus any incremental COVID-19 costs, net, plus any loss (gain) on disposal of properties, plants, equipment and businesses, net, less any timberland gains, 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 any non-cash pension settlement charges, less any other (income) expense, net, less any equity earnings of unconsolidated affiliates, net of tax, plus any depreciation, depletion and amortization expense for that business segment, and Adjusted EBITDA is defined as EBITDA plus any restructuring charges, plus any integration related costs, plus any non-cash asset impairment charges, plus any non-cash pension settlement charges, plus any incremental COVID-19 costs, net, plus any (gain) loss on disposal of properties, plants, equipment and businesses, net, less any 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. 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. 27
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Third 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 endedJuly 31, 2022 and 2021: Three Months Ended July 31, (in millions) 2022 2021 Net sales: Global Industrial Packaging$ 906.7 $ 907.8 Paper Packaging & Services 710.2 578.8 Land Management 5.2 4.2 Total net sales$ 1,622.1 $ 1,490.8 Operating profit: Global Industrial Packaging$ 107.2 $ 122.0 Paper Packaging & Services 96.7 47.5 Land Management 1.8 3.6 Total operating profit$ 205.7 $ 173.1 EBITDA: Global Industrial Packaging$ 118.3 $ 145.0 Paper Packaging & Services 130.6 84.1 Land Management 2.5 4.4 Total EBITDA$ 251.4 $ 233.5 Adjusted EBITDA: Global Industrial Packaging$ 117.1 $ 146.2 Paper Packaging & Services 131.8 89.9 Land Management 2.1 1.7 Total Adjusted EBITDA$ 251.0 $ 237.8 28
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The following table sets forth EBITDA and Adjusted EBITDA, reconciled to net income and operating profit, for our consolidated results for the three months endedJuly 31, 2022 and 2021: Three Months Ended July 31, (in millions) 2022 2021 Net income$ 146.1 $ 118.4 Plus: interest expense, net 14.0 23.9 Plus: income tax expense 39.9 33.1 Plus: depreciation, depletion and amortization expense 51.4 58.1 EBITDA$ 251.4 $ 233.5 Net income$ 146.1 $ 118.4 Plus: interest expense, net 14.0 23.9 Plus: income tax expense 39.9 33.1 Plus: non-cash pension settlement charges - 0.4 Plus: other expense (income), net 7.3 (0.6) Plus: equity earnings of unconsolidated affiliates, net of tax (1.6) (2.1) Operating profit 205.7 173.1 Less: non-cash pension settlement charges - 0.4 Less: other expense (income), net 7.3 (0.6) Less: equity earnings of unconsolidated affiliates, net of tax (1.6) (2.1) Plus: depreciation, depletion and amortization expense 51.4 58.1 EBITDA 251.4 233.5 Plus: restructuring charges 3.1 3.7 Plus: integration related costs 2.2 2.4 Plus: non-cash asset impairment charges 0.7 - Plus: non-cash pension settlement charges - 0.4 Plus: incremental COVID-19 costs, net - 0.8 Plus: gain on disposal of properties, plants, equipment, and businesses, net (6.4) (3.0) Adjusted EBITDA$ 251.0 $ 237.8 29
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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
Three Months Ended
July 31,
(in millions) 2022 2021
Global Industrial Packaging
Operating profit $ 107.2 $ 122.0
Less: other expense (income), net 7.6 (0.6)
Less: non-cash pension settlement charges - 0.3
Less: equity earnings of unconsolidated affiliates, net of tax (1.6) (2.1)
Plus: depreciation and amortization expense 17.1 20.6
EBITDA 118.3 145.0
Plus: restructuring charges 1.5 1.6
Plus: integration related costs 0.3 -
Plus: non-cash pension settlement charges - 0.3
Plus: incremental COVID-19 costs, net - 0.5
Plus: gain on disposal of properties, plants, equipment, and
businesses, net (3.0) (1.2)
Adjusted EBITDA $ 117.1 $ 146.2
Paper Packaging & Services
Operating profit $ 96.7 $ 47.5
Less: non-cash pension settlement charges - 0.1
Less: other income, net (0.3) -
Plus: depreciation and amortization expense 33.6 36.7
EBITDA 130.6 84.1
Plus: restructuring charges 1.6 2.1
Plus: integration related costs 1.9 2.4
Plus: non-cash asset impairment charges 0.7 -
Plus: non-cash pension settlement charges - 0.1
Plus: incremental COVID-19 costs, net - 0.3
Plus: (gain) loss on disposal of properties, plants, equipment, and
businesses, net (3.0) 0.9
Adjusted EBITDA $ 131.8 $ 89.9
Land Management
Operating profit $ 1.8 $ 3.6
Plus: depreciation and depletion expense 0.7 0.8
EBITDA 2.5 4.4
Plus: gain on disposal of properties, plants, equipment, and
businesses, net (0.4) (2.7)
Adjusted EBITDA $ 2.1 $ 1.7
Net Sales
Net sales were $1,622.1 million for the third quarter of 2022 compared with
$1,490.8 million for the third quarter of 2021. The $131.3 million increase was
primarily due to higher average sale prices and higher published containerboard
and boxboard prices across the Global Industrial Packaging and the Paper
Packaging & Services segments, respectively, partially offset by the impact to
net sales resulting from the divestiture of the Flexibles Product & Services
business in the second quarter of 2022 (the "FPS Divestiture"). See the "Segment
Review" below for additional information on net sales by segment for the third
quarter of 2022.
Gross Profit
Gross profit was $346.9 million for the third quarter of 2022 compared with
$318.8 million for the third quarter of 2021. The $28.1 million increase was
primarily due to the same factors that impacted net sales, partially offset by
higher raw material,
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transportation, labor and utility costs. See the "Segment Review" below for additional information on gross profit by segment. Gross profit margin was 21.4 percent for both the third quarter of 2022 and 2021.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses were $141.6 million for
the third quarter of 2022 and $142.6 million for the third quarter of 2021. SG&A
expenses were 8.7 percent and 9.6 percent of net sales for the third quarter of
2022 and 2021, respectively.
Financial Measures
Operating profit was$205.7 million for the third quarter of 2022 compared with$173.1 million for the third quarter of 2021. Net income was$146.1 million for the third quarter of 2022 compared with$118.4 million for the third quarter of 2021. Adjusted EBITDA was$251.0 million for the third quarter of 2022 compared with$237.8 million for the third quarter of 2021. The reasons for the changes in operating profit, net income, and Adjusted EBITDA for each segment are described below in the "Segment Review."
Trends
The overall macro-economic environment for our fourth quarter is mixed. There are economic indicators that reflect strength, while others are negative. We experienced softening customer demand in July with continuation into August. We anticipate this softening to continue through the fourth quarter. We anticipate global steel costs will continue to decline at a moderate pace. Resin and old corrugated container prices are also expected to decline, but we anticipate other direct materials, such as transportation, labor and utilities, to continue to see inflationary pressure through the year. We will continue to actively monitor the impact and consequences of the invasion ofUkraine byRussia . As ofJuly 31, 2022 , our operations inRussia account for approximately 3% of our total sales and approximately 2% of our total assets. Segment ReviewGlobal Industrial Packaging OurGlobal Industrial Packaging segment offers a comprehensive line of industrial packaging products, such as steel, fibre and plastic drums, rigid 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 theGlobal 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$906.7 million for the third quarter of 2022 compared with$907.8 million for the third quarter of 2021. The$1.1 million decrease was primarily due to the impact to net sales resulting from the FPS Divestiture, foreign currency translation and lower volumes, offset by higher average selling prices. Gross profit was$177.7 million for the third quarter of 2022 compared with$199.4 million for the third quarter of 2021. The$21.7 million decrease in gross profit was primarily due to the same factors that impacted net sales and higher raw material costs, partially offset by lower labor costs. Gross profit margin was 19.6 percent and 22.0 percent for the three months endedJuly 31, 2022 and 2021, respectively.
Operating profit was
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lower SG&A expenses. Adjusted EBITDA was$117.1 million for the third quarter of 2022 compared with$146.2 million for the third quarter of 2021. The$29.1 million decrease in Adjusted EBITDA was primarily due to the same factors that impacted operating profit.Paper Packaging & Services OurPaper Packaging & Services segment produces and sells containerboard, corrugated sheets, corrugated containers, and other corrugated products to customers inNorth 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 (tubes and cores, construction products, and protective packaging), which ultimately serve both industrial and consumer markets. In addition, we purchase and sell recycled fiber, and we also produce and sell adhesives. Key factors influencing profitability in thePaper 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$710.2 million for the third quarter of 2022 compared with$578.8 million for the third quarter of 2021. The$131.4 million increase was primarily due to higher published containerboard and boxboard prices, partially offset by lower volumes.
Gross profit was
Operating profit was$96.7 million for the third quarter of 2022 compared with$47.5 million for the third quarter of 2021. The$49.2 million increase was primarily due to the same factors that impacted gross profit. Adjusted EBITDA was$131.8 million for the third quarter of 2022 compared with$89.9 million for the third quarter of 2021. The$41.9 million increase in Adjusted EBITDA was primarily due to the same factors that impacted operating profit, partially offset by higher SG&A expenses.
Land Management
As of
•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").
Net sales were
Gross profit was
Operating profit was$1.8 million for the third quarter of 2022 compared with$3.6 million for the third quarter of 2021. Adjusted EBITDA was$2.1 million and$1.7 million for the third 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: 32
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•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.
As of
Income Tax Expense
Our quarterly income tax expense was computed in accordance with Accounting
Standards Codification ("ASC") 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 third quarter of 2022 was $39.9 million on
$184.4 million of pretax income and income tax expense for the third quarter of
2021 was $33.1 million on $149.4 million of pretax income. The quarterly
increase in income tax expense in 2022 was primarily attributable to an increase
in pre-tax earnings. Changes in the expected mix of earnings among tax
jurisdictions, including jurisdictions for which valuation allowances have been
recorded, as well as the timing of recognition of the related tax expense under
ASC 740-270 also contributed to the increase in tax expense in 2022. Increases
in tax expense as a result of increased pre-tax book earnings were offset by net
favorable discrete items in 2022 resulting in an additional $4.8 million tax
benefit compared to 2021. Decreases in discrete tax expense of $6.2 million were
the result of return to provision adjustments and the recognition of certain
state basis adjustments and a decrease in withholding taxes, offset by an
increase in discrete tax expense of $1.4 million resulting from the recognition
of the impact of foreign and U.S. statutory tax rate changes on deferred tax
liabilities.
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 $8.0 million . Actual results may differ materially from this
estimate.
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Year-to-Date Results
The following table sets forth the net sales, operating profit, EBITDA and Adjusted EBITDA for each of our business segments for the nine months endedJuly 31, 2022 and 2021: Nine Months Ended July 31, (in millions) 2022 2021 Net sales: Global Industrial Packaging$ 2,827.5 $ 2,365.1 Paper Packaging & Services 2,009.5 1,596.7 Land Management 16.7 16.1 Total net sales$ 4,853.7 $ 3,977.9 Operating profit: Global Industrial Packaging$ 246.2 $ 252.4 Paper Packaging & Services 215.1 89.1 Land Management 6.5 102.2 Total operating profit$ 467.8 $ 443.7 EBITDA: Global Industrial Packaging$ 301.1 $ 315.9 Paper Packaging & Services 322.1 191.1 Land Management 8.7 104.8 Total EBITDA$ 631.9 $ 611.8 Adjusted EBITDA: Global Industrial Packaging$ 362.2 $ 331.9 Paper Packaging & Services 329.7 214.3 Land Management 6.9 6.7 Total Adjusted EBITDA$ 698.8 $ 552.9 34
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The following table sets forth EBITDA and Adjusted EBITDA, reconciled to net income and operating profit, for our consolidated results for the nine months endedJuly 31, 2022 and 2021: Nine Months Ended July 31, (in millions) 2022 2021 Net income$ 291.4 $ 303.3 Plus: interest expense, net 44.3 75.8 Plus: debt extinguishment charges 25.4 - Plus: income tax expense 105.4 56.5 Plus: depreciation, depletion and amortization expense 165.4 176.2 EBITDA$ 631.9 $ 611.8 Net income$ 291.4 $ 303.3 Plus: interest expense, net 44.3 75.8 Plus: non-cash pension settlement charges - 9.0 Plus: debt extinguishment charges 25.4 - Plus: income tax expense 105.4 56.5 Plus: other expense, net 4.9 2.2 Plus: equity earnings of unconsolidated affiliates, net of tax (3.6) (3.1) Operating profit 467.8 443.7 Less: other expense, net 4.9 2.2 Less: non-cash pension settlement charges - 9.0 Less: equity earnings of unconsolidated affiliates, net of tax (3.6) (3.1) Plus: depreciation, depletion and amortization expense 165.4 176.2 EBITDA$ 631.9 $ 611.8 Plus: restructuring charges 10.3 18.8 Plus: timberland gains - (95.7) Plus: integration related costs 5.8 6.2 Plus: non-cash asset impairment charges 63.1 1.5 Plus: non-cash pension settlement charges - 9.0 Plus: incremental COVID-19 costs, net - 2.6 Plus: gain on disposal of properties, plants, equipment, and businesses, net (12.3) (1.3) Adjusted EBITDA$ 698.8 $ 552.9 35
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The following table sets forth EBITDA and Adjusted EBITDA for our business
segments, reconciled to the operating profit for each segment, for the nine
months ended
Nine Months Ended
July 31,
(in millions) 2022 2021
Global Industrial Packaging
Operating profit $ 246.2 $ 252.4
Less: other expense, net 5.2 2.1
Less: non-cash pension settlement charges - 0.3
Less: equity earnings of unconsolidated affiliates, net of tax (3.6) (3.1)
Plus: depreciation and amortization expense 56.5 62.8
EBITDA $ 301.1 $ 315.9
Plus: restructuring charges 6.3 14.6
Plus: integration related costs 0.3 -
Plus: non-cash impairment charges 62.4 1.5
Plus: non-cash pension settlement charges - 0.3
Plus: incremental COVID-19 costs, net - 1.3
Plus: gain on disposal of properties, plants and equipment, and
businesses, net (7.9) (1.7)
Adjusted EBITDA $ 362.2 $ 331.9
Paper Packaging & Services
Operating profit $ 215.1 $ 89.1
Less: other (income) expense, net (0.3) 0.1
Less: non-cash pension settlement charges - 8.7
Plus: depreciation and amortization expense 106.7 110.8
EBITDA $ 322.1 $ 191.1
Plus: restructuring charges 4.0 4.1
Plus: integration related costs 5.5 6.2
Plus: non-cash impairment charges 0.7 -
Plus: non-cash pension settlement charges - 8.7
Plus: incremental COVID-19 costs, net - 1.3
Plus: (gain) loss on disposal of properties, plants and equipment,
and businesses, net (2.6) 2.9
Adjusted EBITDA $ 329.7 $ 214.3
Land Management
Operating profit $ 6.5 $ 102.2
Plus: depreciation and depletion expense 2.2 2.6
EBITDA $ 8.7 $ 104.8
Plus: restructuring charges - 0.1
Plus: timberland gains - (95.7)
Plus: gain on disposal of properties, plants and equipment, and
businesses, net (1.8) (2.5)
Adjusted EBITDA $ 6.9 $ 6.7
Net Sales
Net sales were $4,853.7 million for the first nine months of 2022 compared with
$3,977.9 million for the first nine months of 2021. The $875.8 million increase
was primarily due to higher average sale prices across the Global Industrial
Packaging segment and higher published containerboard and boxboard prices in the
Paper Packaging & Services segment, partially offset by the impact to net sales
resulting from the FPS Divestiture. See the "Segment Review" below for
additional information on net sales by segment during the first nine months of
2022.
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Gross Profit
Gross profit was$975.3 million for the first nine months of 2022 compared with$796.9 million for the first nine months of 2021. The$178.4 million increase was primarily due to the same factors that impacted net sales, offset by higher raw material, transportation, labor and utility costs. See "Segment Review" below for additional information on gross profit by segment. Gross profit margin was 20.1 percent and 20.0 percent for first nine months of 2022 and 2021, respectively.
Selling, General and Administrative Expenses
SG&A expenses increased to$440.6 million for the first nine months of 2022 from$423.7 million for the first nine months of 2021. SG&A expenses were 9.1 percent and 10.7 percent of net sales for first nine months of 2022 and 2021, respectively. The increase in SG&A expenses was primarily due to increased incentive accruals.
Financial Measures
Operating profit was$467.8 million for the first nine months of 2022 compared with$443.7 million for the first nine months of 2021. Net income was$291.4 million for the first nine months of 2022 compared with$303.3 million for the first nine months of 2021. Adjusted EBITDA was$698.8 million for the first nine months of 2022 compared with$552.9 million for the first nine months of 2021. The reasons for the changes in operating profit, net income, and Adjusted EBITDA for each segment are described below in the "Segment Review."
Segment Review
Net sales were$2,827.5 million for the first nine months of 2022 compared with$2,365.1 million for the first nine months of 2021. The$462.4 million increase in net sales was primarily due to higher average selling prices, partially offset by the impact to net sales resulting from the FPS Divestiture, lower volumes and foreign currency translation. Gross profit was$540.1 million for the first nine months of 2022 compared with$499.8 million for the first nine months of 2021. The$40.3 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 19.1 percent and 21.1 percent for the first nine months of 2022 and 2021, respectively. Operating profit was$246.2 million for the first nine months of 2022 compared with$252.4 million for the first nine months of 2021. The$6.2 million decrease in operating profit was primarily due to the$62.4 million non-cash impairment charge related to the FPS Divestiture, partially offset by the same factors that increased gross profit. Adjusted EBITDA was$362.2 million for the first nine months of 2022 compared with$331.9 million for the first nine months of 2021. The$30.3 million increase in Adjusted EBITDA was primarily due to the same factors that impacted gross profit.
Net sales were$2,009.5 million for the first nine months of 2022 compared with$1,596.7 million for the first nine months of 2021. The$412.8 million increase in net sales was primarily due to higher published containerboard and boxboard prices. Gross profit was$428.9 million for the first nine months of 2022 compared with$291.5 million for the first nine months of 2021. The$137.4 million increase in gross profit was primarily due to the same factors that impacted net sales, partially offset by higher raw material, transportation, labor and utility costs. Gross profit margin was 21.3 percent and 18.3 percent for the first nine months of 2022 and 2021, respectively. Operating profit was$215.1 million for the first nine months of 2022 compared with$89.1 million for the first nine months of 2021. The$126.0 million increase in operating profit was primarily due to the same factors that impacted gross profit, partially offset by higher SG&A expenses. Adjusted EBITDA was$329.7 million for the first nine months of 2022 compared with$214.3 million for the first nine months of 2021. The$115.4 million increase in Adjusted EBITDA was primarily due to the same factors that impacted operating profit.
Land Management
Net sales were
Gross profit was
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Operating profit decreased to$6.5 million for the first nine months of 2022 compared with$102.2 million for the first nine months of 2021. During the first nine months of 2021, we completed the sale of approximately 69,200 acres of timberlands in southwestAlabama (the "2021 Timberland Sale") which resulted in timberland gains of$95.7 million . Adjusted EBITDA was$6.9 million and$6.7 million for the first nine months of 2022 and 2021, respectively.
Income tax expense
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. Our income tax expense 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. Income tax expense for the first nine months of 2022 was$105.4 million on$393.2 million of pretax income and income tax expense for the first nine months of 2021 was$56.5 million on$356.7 million of pretax income. The$48.9 million increase in income tax expense in 2022 was primarily attributable to an increase in pre-tax earnings, excluding the gain on the 2021 Timberland Sale and the gain on the FPS Divestiture, the tax impact of which were recognized discretely. Changes in the expected mix of earnings among tax jurisdictions, including jurisdictions for which valuation allowances have been recorded, as well as the timing of recognition of the related tax expense under ASC 740-270 also contributed to the increase in tax expense in 2022. Additionally, favorable discrete items decreased by a net$1.7 million in 2022 compared to 2021. The net decrease in favorable discrete adjustments consists of an increase in tax expense of$5.4 million due to tax basis adjustments in certain tangible property and state basis differences; an increase in tax expense of$2.4 million related to the impact of statutory tax rate changes on deferred tax liabilities; and an increase in tax expense of$0.3 million related to other miscellaneous items; offset by a$3.6 million decrease in unrecognized tax liabilities primarily as a result of expiration of the statute of limitations; and a net$2.8 million tax expense decrease related to certain assumptions regarding capital losses that are expected to offset capital gains resulting from the 2021 Timberland Sale, return to provision adjustments, and prior year settlement ofU.S. Federal and Canadian income tax audits. Additionally, a net$58.6 million book expense was recorded in 2022 related to the FPS Divestiture and the disposition of other businesses on which there is expected to be no tax benefit.
Other Comprehensive Income (Loss) Changes
Foreign currency translation
In accordance with ASC 830, "Foreign Currency Matters," the assets and liabilities denominated in a foreign currency are translated intoUnited States Dollars at the rate of exchange existing at the end of the current period, and revenues and expenses are translated at average exchange rates over the month in which they are incurred. The cumulative translation adjustments, which represent the effects of translating assets and liabilities of our international operations, are presented in the interim condensed consolidated statements of changes in equity in accumulated other comprehensive income (loss). During the first nine months of 2022, we completed the FPS Divestiture and$113.1 million of foreign currency translation adjustment was released. 38
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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.
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