GREIF, INC. The terms "Greif," the "Company," "we," "us" and "our" as used in this
discussion refer to
RESULTS OF OPERATIONS
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance withU.S. Generally Accepted Accounting Principles ("GAAP"). The preparation of these 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 at the date of our consolidated financial statements.
Historical revenues and earnings may or may not be representative of future operating results due to various economic and other factors. See "Risk Factors" in Item 1A of this Form 10-K.
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 debt extinguishment
charges, plus income tax expense, plus depreciation, depletion and amortization,
and Adjusted EBITDA is defined as EBITDA plus restructuring charges, plus
timberland gains, net, plus acquisition and integration related costs, plus
non-cash asset impairment charges, plus non-cash pension settlement (income)
charges, plus incremental COVID-19 costs, net, plus (gain) loss on disposal of
properties, plants, equipment and businesses, net.
Since we do not calculate net income by reportable segment, EBITDA and Adjusted
EBITDA by reportable segment are reconciled to operating profit by reportable
segment. In that case, EBITDA is defined as operating profit by reportable
segment less other (income) expense, net, less non-cash pension settlement
(income) charges, less equity earnings of unconsolidated affiliates, net of tax,
plus depreciation, depletion and amortization expense for that reportable
segment, and Adjusted EBITDA is defined as EBITDA plus restructuring charges,
plus timberland gains, net, plus acquisition and integration related costs, plus
non-cash asset impairment charges, plus non-cash pension settlement charges,
plus incremental COVID-19 costs, net, plus (gain) loss on disposal of
properties, plants, equipment and businesses, net, for that reportable 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.
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The following table sets forth the net sales, operating profit, EBITDA and Adjusted EBITDA for each of our reportable segments for 2022, 2021 and 2020:
Year Ended October 31, (in millions) 2022 2021 2020 Net sales: Global Industrial Packaging$ 3,652.4 $ 3,316.7 $ 2,571.8 Paper Packaging & Services 2,675.1 2,218.4 1,916.9 Land Management 22.0 21.0 26.3 Total net sales$ 6,349.5 $ 5,556.1 $ 4,515.0 Operating profit: Global Industrial Packaging$ 313.7 $ 350.2 $ 225.4 Paper Packaging & Services 298.5 131.0 71.0 Land Management 9.0 104.0 8.5 Total operating profit$ 621.2 $ 585.2 $ 304.9 EBITDA: Global Industrial Packaging$ 383.5 $ 432.7 $ 307.0 Paper Packaging & Services 439.0 269.9 225.9 Land Management 11.8 107.3 13.0 Total EBITDA$ 834.3 $ 809.9 $ 545.9 Adjusted EBITDA: Global Industrial Packaging$ 458.2 $ 453.3 $ 324.3 Paper Packaging & Services 450.5 302.0 306.4 Land Management 8.8 8.9 11.9 Total Adjusted EBITDA$ 917.5 $ 764.2 $ 642.6 24
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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 2022, 2021 and 2020: Year Ended October 31, (in millions) 2022 2021 2020 Net income$ 394.0 $ 413.2 $ 124.3 Plus: interest expense, net 61.2 92.7 115.8 Plus: debt extinguishment charges 25.4 - - Plus: income tax expense 137.1 69.6 63.3 Plus: depreciation, depletion and amortization expense 216.6 234.4 242.5 EBITDA$ 834.3 $ 809.9 $ 545.9 Net income$ 394.0 $ 413.2 $ 124.3 Plus: interest expense, net 61.2 92.7 115.8 Plus: debt extinguishment charges 25.4 - - Plus: income tax expense 137.1 69.6 63.3 Plus: non-cash pension settlement charges - 9.1 0.3 Plus: other expense, net 8.9 4.8 2.7 Plus: equity earnings of unconsolidated affiliates, net of tax (5.4) (4.2) (1.5) Operating profit 621.2 585.2 304.9 Less: other expense, net 8.9 4.8 2.7 Less: non-cash pension settlement charges - 9.1 0.3
Less: equity earnings of unconsolidated affiliates, net of tax
(5.4) (4.2) (1.5)
Plus: depreciation, depletion and amortization expense 216.6 234.4 242.5
EBITDA 834.3 809.9 545.9
Plus: restructuring charges 13.0 23.1 38.7
Plus: timberland gains, net - (95.7) -
Plus: acquisition and integration related costs 8.7 9.1 17.0
Plus: non-cash asset impairment charges 71.0 8.9 18.5
Plus: non-cash pension settlement charges - 9.1 0.3
Plus: incremental COVID-19 costs, net - 3.3 2.6
Plus: (gain) loss on disposal of properties, plants, equipment, and businesses, net
(9.5) (3.5) 19.6
Adjusted EBITDA $ 917.5 $ 764.2 $ 642.6
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The following table sets forth EBITDA and Adjusted EBITDA for each of our reportable segments, reconciled to the operating profit for each reportable segment, for 2022, 2021 and 2020:
Year Ended October 31, (in millions) 2022 2021 2020Global Industrial Packaging Operating profit$ 313.7 $ 350.2 $ 225.4 Less: other expense, net 9.5 4.5 4.0 Less: non-cash pension settlement charges - 0.3 0.4
Less: equity earnings of unconsolidated affiliates, net of tax
(5.4) (4.2) (1.5)
Plus: depreciation and amortization expense 73.9 83.1 84.5
EBITDA 383.5 432.7 307.0
Plus: restructuring charges 9.1 17.1 28.8
Plus: acquisition and integration related costs 0.4 - -
Plus: non-cash asset impairment charges 69.4 2.7 6.0
Plus: non-cash pension settlement charges - 0.3 0.4
Plus: incremental COVID-19 costs, net - 1.8 0.7
Plus: gain on disposal of properties, plants, equipment,
and businesses, net (4.2) (1.3) (18.6)
Adjusted EBITDA $ 458.2 $ 453.3 $ 324.3
Paper Packaging & Services
Operating profit $ 298.5 $ 131.0 $ 71.0
Less: other (income) expense, net (0.6) 0.3 (1.3)
Less: non-cash pension settlement charges (income) - 8.8 (0.1)
Plus: depreciation and amortization expense 139.9 148.0 153.5
EBITDA 439.0 269.9 225.9
Plus: restructuring charges 3.9 5.9 9.9
Plus: acquisition and integration related costs 8.3 9.1 17.0
Plus: non-cash asset impairment charges 1.6 5.0 12.5
Plus: non-cash pension settlement charges (income) - 8.8 (0.1)
Plus: incremental COVID-19 costs, net - 1.5 1.9
Plus: (gain) loss on disposal of properties, plants, equipment, and businesses, net
(2.3) 1.8 39.3
Adjusted EBITDA $ 450.5 $ 302.0 $ 306.4
Land Management
Operating profit $ 9.0 $ 104.0 $ 8.5
Plus: depreciation and depletion expense 2.8 3.3 4.5
EBITDA 11.8 107.3 13.0
Plus: restructuring charges - 0.1 -
Plus: timberland gains, net - (95.7) -
Plus: non-cash asset impairment charges - 1.2 -
Plus: gain on disposal of properties, plants, equipment,
and businesses, net (3.0) (4.0) (1.1)
Adjusted EBITDA $ 8.8 $ 8.9 $ 11.9
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Year 2022 Compared to Year 2021
Net sales were$6,349.5 million for 2022 compared with$5,556.1 million for 2021. The$793.4 million increase was primarily due to higher average selling prices across the reportable segments, partially offset by lower volumes, foreign currency translation, and 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 reportable segment during 2021.
Gross Profit
Gross profit increased$192.4 million to$1,285.4 million for 2022 from$1,093.0 million for 2021. The respective reasons for changes in gross profit for each reportable segment are described below in the "Segment Review." Gross profit margin was 20.2 percent for 2022 compared to 19.7 percent for 2021.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses increased $15.1 million to
$581.0 million for 2022 from $565.9 million for 2021. SG&A expenses were 9.2
percent of net sales for 2022 compared with 10.2 percent of net sales for 2021.
Financial Measures
Operating profit was$621.2 million for 2022 compared with$585.2 million for 2021. Net income was$394.0 million for 2022 compared with$413.2 million for 2021. Adjusted EBITDA was$917.5 million for 2022 compared with$764.2 million for 2021. The respective reasons for the improvement or decline in Adjusted EBITDA, as the case may be, for each reportable segment are described below in the "Segment Review." Trends We anticipate that overall customer demand for ourGlobal Industrial Packaging products will continue to weaken through the first quarter and remain soft through the second quarter due to the unsettled macroeconomic environment. In addition, we expect steel prices to continue to decline inEurope andNorth America through the first quarter, which will continue to compress gross profit margins in theGlobal Industrial Packaging business segment through the second quarter. During the second half of the year, we expect customer demand to improve and higher priced steel inventory to work through our system, which in turn will improve gross profit margins.
In our
We anticipate resin prices and the prices of other direct materials, as well as prices for transportation, labor, and utilities, to remain relatively stable through the year. We continue to actively monitor the impact and consequences of the invasion ofUkraine byRussia . As ofOctober 31, 2022 , our operations inRussia account for approximately 3 percent of our total sales, approximately 6 percent of our operating profit, and approximately 2 percent of our total assets.
Segment Review
Key factors influencing profitability in the
•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;
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•Acquisition of businesses and facilities;
•Divestiture of businesses and facilities; and
•Impact of foreign currency translation.
Net sales were
Gross profit was$692.6 million for 2022 compared with$684.1 million for 2021. The$8.5 million increase in gross profit was primarily due to the same factors that impacted net sales, partially offset by higher raw material, utility and transportation costs. Gross profit margin decreased to 19.0 percent in 2022 from 20.6 percent in 2021. Operating profit was$313.7 million for 2022 compared with$350.2 million for 2021. The$36.5 million decrease 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 and a reduction in SG&A expenses. Adjusted EBITDA was$458.2 million for 2022 compared with$453.3 million for 2021. The$4.9 million increase was primarily due to the same factors that impacted gross profit.Paper Packaging & Services
Key factors influencing profitability in the
•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;
•Restructuring charges;
•Acquisition of businesses and facilities; and
•Divestiture of businesses and facilities.
Net sales were
Gross profit was$584.5 million for 2022 compared with$401.3 million for 2021. The$183.2 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 increased to 21.8 percent in 2022 from 18.1 percent in 2021. Operating profit was$298.5 million for 2022 compared with$131.0 million for 2021. The$167.5 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$450.5 million for 2022 compared with$302.0 million for 2021. The$148.5 million increase was due primarily to the same factors that impacted operating profit.
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").
As ofOctober 31, 2022 , we estimated that there were 18,800 acres inthe United States of special use property, which we expect will be available for sale in the next four to six years.
Net sales increased to
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Operating profit decreased to$9.0 million for 2022 from$104.0 million for 2021. During 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$8.8 million and$8.9 million for 2022 and 2021, respectively.
In order to maximize the value of our timber properties, 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 timberland property in "timberland gains, net," 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 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
We had operations in over 35 countries during 2022. Operations outside
The Inflation Reduction Act ("IRA") was enacted on August 16, 2022 . The Act
includes various tax provisions including a 1 percent excise tax on stock
repurchases, various tax credits to incentivize clean energy investments and a
corporate minimum tax generally applicable to US corporations with average
adjusted financial statement income exceeding $1.0 billion . We have evaluated
the IRA provisions and determined they will not have a material impact on our
financial positions or cash flows, nor will it materially change any accounting
policies, business processes or internal controls.
Preparation of our financial statements requires the use of estimates and
assumptions that affect the reported amounts of our assets and liabilities; and
revenues and expenses as of the balance sheet date. The numerous tax
jurisdictions in which we operate, along with the variety and complexity of the
various tax laws, creates a level of uncertainty, and requires judgment when
addressing the impact of complex tax issues. Our effective tax rate and the
amount of tax expense are dependent upon various factors, including the
following: the tax laws of the jurisdictions in which income is earned; the
ability to realize deferred tax assets; negotiation and dispute resolution with
taxing authorities in the U.S. and international jurisdictions; and changes in
tax laws.
The provision for income taxes is computed using the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized currently
based on the anticipated future tax consequences of changes in the temporary
differences between the book and tax bases of assets and liabilities. This
method includes an estimate of the future realization of tax benefits associated
with tax losses. Deferred tax assets and liabilities are measured using the
currently enacted tax rates that apply to taxable income in effect for the years
in which those assets are expected to be realized or settled.
Income tax expense for 2022 was $137.1 million on $525.7 million of pretax
income and for 2021 was $69.6 million on $478.6 million of pretax income. The
$67.5 million increase in income tax expense for 2022 was primarily attributable
to an increase in pre-tax earnings in 2022 and a net $58.6 million of book
losses that were recorded as a result of the disposal of the Flexible Products
and other businesses for which limited tax benefits were available. Further, in
2021 we recognized deferred tax assets related to capital losses, which offset
capital gains resulting from the sale of timberland.
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We analyze potential income tax liabilities related to uncertain tax positions inthe United States and international jurisdictions. The analysis of potential income tax liabilities results in estimates recognized for uncertain tax positions following the guidance of ASC 740, "Income Taxes." The estimation of potential tax liabilities related to uncertain tax positions involves significant judgment in evaluating the impact of uncertainties in the application of ASC 740 and complex tax laws. We periodically analyze both potential income tax liabilities and existing liabilities for uncertain tax positions resulting in both new reserves and adjustments to existing reserves in light of changing facts and circumstances. This includes the release of existing liabilities for uncertain tax positions based on the expiration of statutes of limitation. During 2022, lapses in the statute of limitations, which were partially offset by the recognition of new uncertain tax position liabilities recorded during the current year, resulted in an overall net decrease in our uncertain tax position liability. The net 2022 activity in uncertain tax positions provided a$2.5 million benefit over the prior year. The ultimate resolution of potential income tax liabilities may result in a payment that is materially different from our current estimates. If our estimates recognized under ASC 740 prove to be different than what is ultimately resolved, such resolution could have a material impact on our financial condition and results of operations. While predicting the final outcome or the timing of the resolution of any particular tax matter is subject to various risks and uncertainties, we believe that our tax accounts related to uncertain tax positions are appropriately stated.
See Note 8 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for further information.
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 consolidated statements of changes in equity in accumulated other comprehensive income (loss). During 2022, we completed the FPS Divestiture and$113.1 million of foreign currency translation adjustment was released. Recent Events OnDecember 15, 2022 , we completed our previously announced acquisition ofLee Container Corporation, Inc. for a purchase price of$300.0 million in cash. The all-cash transaction was funded through our existing credit facility. The operations of the acquired business will be reported in ourGlobal Industrial Packaging business segment. Due to the limited time since we have completed the acquisition, we have not yet completed the initial acquisition accounting for the transaction, including the determination of the fair values of the assets acquired and the liabilities assumed. We anticipate completing the preliminary purchase price allocation in the first fiscal quarter of 2023, which would then be reflected in ourJanuary 31, 2023 financial statements. The results of operations of the acquired business will be included in our results fromDecember 15, 2022 , the date of the closing of the acquisition.
Year 2021 Compared to Year 2020
Results of our fiscal year 2021 compared to our fiscal year 2020 are included in our Annual Report on Form 10-K for the year endedOctober 31, 2021 , File No. 001-00566 (see Item 7 therein).
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity are operating cash flows and borrowings under
our senior secured credit facilities, proceeds from the senior notes we have
issued and proceeds from our trade accounts receivable credit facilities. We use
these sources to fund our working capital needs, capital expenditures, cash
dividends, debt repayment and acquisitions. We anticipate continuing to fund
these items in a like manner. We currently expect that operating cash flows,
borrowings under our senior secured credit facilities and proceeds from our
trade accounts receivable credit facilities will be sufficient to fund our
anticipated working capital, capital expenditures, cash dividends, debt
repayment, potential acquisitions of businesses and other liquidity needs for at
least 12 months.
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Cash Flow
Year Ended October 31, (in millions) 2022 2021 Net cash provided by operating activities$ 657.5 $ 396.0
Net cash (used in) provided by investing activities (28.2) 46.8 Net cash used in financing activities
(531.0) (422.9)
Reclassification of cash to assets held for sale - 0.5
Effects of exchange rates on cash (75.8) (1.7)
Net increase in cash and cash equivalents 22.5 18.7
Cash and cash equivalents at beginning of year 124.6 105.9 Cash and cash equivalents at end of year
$ 147.1 $ 124.6
Operating Activities
The
The$95.9 million decrease in inventories to$403.3 million as ofOctober 31, 2022 from$499.2 million as ofOctober 31, 2021 was primarily due to decreases in raw material prices and decreased purchases during the last fiscal quarter of 2022, in line with decreased demand.
The
Investing Activities
During 2022 and 2021, we invested$176.3 million and$140.7 million , respectively, of cash in capital expenditures. These investments exclude$6.7 million and$6.6 million of cash purchases and investments in timber properties during 2022 and 2021, respectively.
During 2022, we received
During 2021, we sold approximately 69,200 acres of our timberland properties in southwestAlabama to Weyerhaeuser Company for approximately$145.1 million in cash after closing costs, which totaled$4.3 million . Proceeds were applied to debt repayment. Financing Activities We paid cash dividends to stockholders ofGreif, Inc. in the amount of$111.3 million and$105.8 million for the years endedOctober 31, 2022 and 2021, respectively. We paid dividends to non-controlling interests in the amount of$17.2 million and$7.8 million for the years endedOctober 31, 2022 and 2021, respectively.
During 2022, we paid down
During 2022, we paid
During 2021, we paid at maturity the €200.0 million Senior Notes due 2021 in
full from the proceeds of the
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Long-term debt is summarized as follows:
October 31, October 31,
(in millions) 2022 2021
2022 Credit Agreement - Term Loans $ 1,565.0 $ -
2019 Credit Agreement - Term Loans - 1,247.3
Senior Notes due 2027 - 495.9
Accounts receivable credit facilities 311.4 391.1
2022 Credit Agreement - Revolving Credit Facility 41.9 -
2019 Credit Agreement - Revolving Credit Facility - 50.5
Other debt 0.4 0.6
1,918.7 2,185.4
Less current portion 71.1 120.3
Less deferred financing costs 8.3 10.3
Long-term debt, net $ 1,839.3 $ 2,054.8
2022 Credit Agreement
On March 1, 2022 , we and certain of our U.S. 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 previous credit
agreement, referred to as 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
$1,100.0 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 2019 Credit
Agreement.
The repayment of this facility is secured by a security interest in our personal
property and the personal property of certain of our U.S. subsidiaries,
including equipment and inventory and certain intangible assets, as well as a
pledge of the capital stock of substantially all of our U.S. subsidiaries, and
is secured, in part, by the capital stock of the non-U.S. borrowers. However, in
the event that we receive and maintain an investment grade rating from either
Moody's Investors Services, Inc. or Standard & Poor's Financial Services LLC , we
may request the release of such collateral.
We used the borrowings under the 2022 Credit Agreement on March 1, 2022 , to
redeem our 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. Interest is based on Secured Overnight Financing Rate
("SOFR") plus a credit spread adjustment, Euro Interbank Offer Rate ("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 2022 Credit
Agreement with the agreement of the lenders.
As of October 31, 2022 , we had $758.1 million of available borrowing capacity
under the $800.0 million secured revolving credit facility provided by the 2022
Credit Agreement, as defined in Note 5 of the Notes to Consolidated Financial
Statements included in Item 8 of this Form 10-K. On December 15, 2022 , we
completed the Lee Container acquisition. The all-cash transaction was funded
through Greif's existing credit facility.
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
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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. As ofOctober 31, 2022 , we were in compliance with the covenants and other agreements in the 2022 Credit Agreement.
Senior Notes due 2027
OnMarch 1, 2022 , we redeemed all of our outstanding 6.50% Senior Notes due 2027 for$500.0 million , plus a call premium of$16.3 million , with proceeds from our 2022 Credit Agreement.
United States Trade Accounts Receivable Credit Facility
We have a$300.0 million U.S. Receivables Facility, as defined in Note 5 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K, which matures onMay 17, 2023 . As ofOctober 31, 2022 , there was a$215.0 million outstanding balance under theU.S. Receivables Facility that is reported as long-term debt in the 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 renewing the existing agreement or entering into new financing arrangements. TheU.S. Receivables Facility also contains events of default and covenants, which are substantially the same as the covenants under the 2022 Credit Agreement. As ofOctober 31, 2022 we were in compliance with these covenants. Proceeds of theU.S. Receivables Facility are available for working capital and general corporate purposes.
International Trade Accounts Receivable Credit Facilities
We have a €100.0 million ($99.6 million as ofOctober 31, 2022 ) European Receivables Financing Agreement (the "European RFA that matures onApril 24, 2023 . The$96.4 million outstanding on the European RFA as ofOctober 31, 2022 is reported as long-term debt in the 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 renewing the existing agreement or entering into new financing arrangements. As ofOctober 31, 2022 we were in compliance with the covenants that relate to the European RFA. Proceeds of the European RFA are available for working capital and general corporate purposes.
See Note 5 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for additional information regarding our financial obligations.
Financial Instruments Interest Rate Derivatives As ofOctober 31, 2022 , we have various interest rate swaps with a total notional amount of$1,150.0 million , amortizing down over the term, in which we receive variable interest rate payments based on SOFR and in return are obligated to pay interest at a weighted average fixed interest rate of 2.50%, plus a spread. These derivatives are designated as cash flow hedges for accounting purposes and will mature betweenMarch 11, 2024 andJuly 15, 2029 .
We are actively monitoring the interest rate market and will execute new
interest rate swaps as appropriate. Subsequent to
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
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protect the value of certain existing foreign currency assets and liabilities, commitments and anticipated foreign currency cash flows.
As of
Cross Currency Swaps
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 as either net investment hedges or cash flow hedges for accounting purposes and will mature betweenMarch 6, 2023 andOctober 5, 2026 . Accordingly, the gain or loss on the 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. 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 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 6 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for additional disclosures regarding our financial instruments.
Other Liquidity Considerations
Post-Retirement Benefit Plans
We have no near-term post-retirement benefit plan funding obligations. We intend to make a post-retirement benefit plan contribution of$29.4 million during 2023, which we anticipate will consist of$24.2 million of employer contributions and$5.2 million of benefits paid directly by the employer. See Note 9 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for additional information regarding our post-retirement benefit plans.
Contingent Liabilities and Environmental Reserves
Environmental reserves are estimates based on current remediation plans; actual liabilities could significantly differ from the reserve estimates. See Note 10 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for additional information regarding our contingent liabilities and environmental reserves. Stock Repurchase Program InJune 2022 , the Stock Repurchase Committee of our Board of Directors authorized a program to repurchase up to$150.0 million of shares of our Class A or Class B Common Stock or any combination thereof. OnJune 23, 2022 , we entered into a$75.0 million accelerated share repurchase agreement ("ASR") withBank of America, N.A . for the repurchase of shares of our Class A Common Stock. In addition, we plan to repurchase an aggregate of$75.0 million of shares of our Class A or Class B Common Stock, or any combination thereof, in open market purchases ("OSR program"). Under the ASR, onJune 24, 2022 , we made a payment of$75.0 million and received an initial delivery of approximately 80% of the expected share repurchases, or 1,021,451 shares of Class A Common Stock, with any remaining shares expected to be delivered by our second quarter 2023. The ASR has been accounted for as a purchase of shares of Class A Common Stock and a forward purchase contract. The final number of shares of Class A Common Stock to be repurchased will be based on the volume-weighted average price of the shares of our Class A Common Stock during the term of the ASR less a discount. We have treated the shares of Class A Common Stock delivered as treasury shares as of the date the shares were physically delivered in computing the weighted average shares outstanding of Class A Common Stock for both basic and diluted earnings per share. The forward stock purchase contract was determined to be indexed to our own stock and met all of the applicable criteria for equity classification. We began making repurchases of Class B Common Stock under the OSR program onSeptember 9, 2022 , and we may continue to make open market repurchases over the next 12 to 18 months under this program, all in accordance with Rule 10b-18 promulgated under the Securities Exchange Act of 1934. The timing of any such repurchases will depend on market conditions and will be made at our discretion. While we intend to repurchase up to$75.0 million of shares, we are not obligated to 34
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repurchase any dollar amount or number or class of shares and may suspend or discontinue repurchases at any time. As ofOctober 31, 2022 , 170,980 shares of Class B Common Stock had been repurchased under the OSR program.
See Note 11 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for additional information regarding this program and the repurchase of shares of Class A and B Common Stock.
Critical Accounting Policies
A summary of our significant accounting policies is included in Note 1 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K. We believe that the consistent application of these policies enables us to provide readers of the consolidated financial statements with useful and reliable information about our results of operations and financial condition. The following are the accounting policies that we believe are most important to the portrayal of our results of operations and financial condition and require our most difficult, subjective or complex judgments. Other items that could have a significant impact on the financial statements include the risks and uncertainties listed in Part I, Item 1A - Risk Factors. Actual results could differ materially using different estimates and assumptions, or if conditions are significantly different in the future.
Valuation of
We account for goodwill in accordance with ASC 350, "Intangibles -Goodwill and Other." Under ASC 350, goodwill is not amortized, but instead is tested for impairment either annually onAugust 1 or when events and circumstances indicate an impairment may have occurred. Our goodwill impairment assessment is performed by reporting unit. A reporting unit is the operating segment, or a business one level below that operating segment (the component level) if discrete financial information is prepared and regularly reviewed by segment management. However, components are aggregated as a single reporting unit if they have similar economic characteristics. In conducting the annual impairment tests, the estimated fair value of each of our reporting units is compared to its carrying amount including goodwill. If the estimated fair value exceeds the carrying amount, then no impairment exists. If the carrying amount exceeds the estimated fair value we record an impairment of goodwill equal to the amount by which the carrying value exceeds the fair value of the reporting unit, not to exceed the recorded amount of goodwill.The Global Industrial Packaging reportable segment consists of four operating segments:Global Industrial Packaging -North America ;Global Industrial Packaging -Latin America ;Global Industrial Packaging -Europe ,Middle East andAfrica ;Global Industrial Packaging -Asia Pacific . Each of these operating segments also qualify as a component that has discrete financial information available that is reviewed by segment management on a regular basis. As such, these components also represent our reporting units for purposes of goodwill impairment testing.The Paper Packaging & Services reportable segment is also an operating segment. This operating segment consists of multiple components that have discrete financial information available that is reviewed by segment management on a regular basis. We have evaluated those components and concluded that they are economically similar and should be aggregated into single reporting unit. For the purpose of aggregating our components, we review the long-term performance of gross profit margin and operating profit margin. Additionally, we review qualitative factors such as common customers, similar products, similar manufacturing processes, sharing of resources, level of integration and interdependency of processes across components. We place greater weight on the qualitative factors outlined in ASC 280 "Segment Reporting" and consider the guidance in ASC 350 in determining whether two or more components of an operating segment are economically similar and can be aggregated into a single reporting unit. The estimated fair value of the reporting units utilized in the impairment test is based on a discounted cash flow analysis or income approach and market multiple approach. Under this method, the principal valuation focus is on the reporting unit's cash-generating capabilities. The discount rates used for impairment testing are based on a market participant's weighted average cost of capital. The use of alternative estimates, peer groups or changes in the industry, or adjusting the discount rate, earnings before interest, taxes, depreciation, depletion and amortization, multiples or price earnings ratios used could affect the estimated fair value of the assets and potentially result in impairment. Any identified impairment would result in an adjustment to our results of operations. In performing the test, we first evaluate qualitative factors, such as macroeconomic conditions and our overall financial performance to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. We then evaluate how significant each of the identified factors could be to the fair value or carrying amount of a reporting unit and weigh those factors in totality in forming a conclusion of whether or not it is more likely than not that the fair value of a reporting unit is less than its carrying amount (the Step 0 Test). If necessary, the next step 35
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in the goodwill impairment test involves comparing the fair value of each of the reporting units to the carrying value of those reporting units. If the carrying value of a reporting unit exceeds the fair value of the reporting unit, an impairment loss would be recognized (not to exceed the carrying amount of goodwill). We did not utilize any Step 0 tests in 2022. For all reporting units with goodwill balances, we proceeded directly to the quantitative impairment testing and the fair value exceeded carrying value by at least 29%, so no impairment was deemed to exist. Discount rates and revenue growth rates are the assumptions that are most sensitive and susceptible to change as they require significant management judgment. In addition, certain future events and circumstances, including deterioration of market conditions, higher cost of capital, a decline in actual and expected consumption and demand, could result in changes to those assumptions and judgments. A revision of those assumptions could cause the fair value of the reporting unit to fall below its respective carrying value. If in future years, our reporting units' actual results are not consistent with our estimates and assumptions used to calculate fair value, we may be required to recognize material impairments to goodwill.
The following table summarizes the carrying amount of goodwill by reporting unit
for the year ended
Goodwill Balance
(in millions) October 31, 2022 October 31, 2021
Global Industrial Packaging
North America $ 286.0 $ 286.0
Europe, Middle East and Africa 315.4 364.1
Asia Pacific 95.2 97.2
Paper Packaging & Services 767.9 768.1
Total $
1,464.5 $ 1,515.4
*
Recent Accounting Standards
See Note 1 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for a detailed description of recently issued and newly adopted accounting standards.
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