SEC Form 10-Q filed by Greif Inc.
$GEF
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 April 30, 2024
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
Commission File Number 001-00566
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
| (Address of principal executive offices) | (Zip Code) | ||||
(Registrant’s telephone number, including area code: (740 ) 549-6000
Former name, former address and former fiscal year, if changed since last report: Not Applicable
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.
| ☒ | 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 | ||||||
The number of shares outstanding of each of the issuer’s classes of common stock as of the close of business on June 3, 2024:
| Class A Common Stock | |||||
| Class B Common Stock | |||||
| Item | Page | |||||||
| 1 | ||||||||
| 2 | ||||||||
| 4 | ||||||||
| 1A | ||||||||
| 6 | ||||||||
2
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
GREIF, INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
| Three Months Ended April 30, | Six Months Ended April 30, | ||||||||||||||||||||||
| (in millions, except per share amounts) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Net sales | $ | $ | $ | $ | |||||||||||||||||||
| Cost of products sold | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||||||||
| Acquisition and integration related costs | |||||||||||||||||||||||
| Restructuring charges | ( | ( | |||||||||||||||||||||
| Non-cash asset impairment charges | |||||||||||||||||||||||
| Gain on disposal of properties, plants and equipment, net | ( | ( | ( | ( | |||||||||||||||||||
| Gain on disposal of businesses, net | ( | ( | |||||||||||||||||||||
| Operating profit | |||||||||||||||||||||||
| Interest expense, net | |||||||||||||||||||||||
| Other (income) expense, net | ( | ||||||||||||||||||||||
| Income before income tax (benefit) expense and equity earnings of unconsolidated affiliates, net | |||||||||||||||||||||||
| Income tax (benefit) expense | ( | ||||||||||||||||||||||
Equity earnings of unconsolidated affiliates, net of tax | ( | ( | ( | ( | |||||||||||||||||||
| Net income | |||||||||||||||||||||||
| Net income attributable to noncontrolling interests | ( | ( | ( | ( | |||||||||||||||||||
| Net income attributable to Greif, Inc. | $ | $ | $ | $ | |||||||||||||||||||
Basic earnings per share attributable to Greif, Inc. common shareholders: | |||||||||||||||||||||||
| Class A common stock | $ | $ | $ | $ | |||||||||||||||||||
| Class B common stock | $ | $ | $ | $ | |||||||||||||||||||
Diluted earnings per share attributable to Greif, Inc. common shareholders: | |||||||||||||||||||||||
| Class A common stock | $ | $ | $ | $ | |||||||||||||||||||
| Class B common stock | $ | $ | $ | $ | |||||||||||||||||||
Weighted-average number of Class A common shares outstanding: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
Weighted-average number of Class B common shares outstanding: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
| Cash dividends declared per common share: | |||||||||||||||||||||||
| Class A common stock | $ | $ | $ | $ | |||||||||||||||||||
| Class B common stock | $ | $ | $ | $ | |||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements
3
GREIF, INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
| Three Months Ended April 30, | Six Months Ended April 30, | ||||||||||||||||||||||
| (in millions) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||||||||
| Foreign currency translation | ( | ( | ( | ||||||||||||||||||||
| Derivative financial instruments | ( | ( | ( | ||||||||||||||||||||
| Minimum pension liabilities | ( | ( | ( | ||||||||||||||||||||
| Other comprehensive income (loss), net of tax | ( | ( | ( | ||||||||||||||||||||
| Comprehensive income | |||||||||||||||||||||||
| Comprehensive income attributable to noncontrolling interests | |||||||||||||||||||||||
| Comprehensive income attributable to Greif, Inc. | $ | $ | $ | $ | |||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements
4
GREIF, INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
| (in millions) | April 30, 2024 | October 31, 2023 | |||||||||
| ASSETS | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Trade accounts receivable, net of allowance | |||||||||||
| Inventories: | |||||||||||
| Raw materials | |||||||||||
| Finished goods | |||||||||||
| Assets held for sale | |||||||||||
| Prepaid expenses | |||||||||||
| Other current assets | |||||||||||
| Long-term assets | |||||||||||
| Goodwill | |||||||||||
| Other intangible assets, net of amortization | |||||||||||
| Deferred tax assets | |||||||||||
| Pension assets | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Finance lease right-of-use assets | |||||||||||
| Other long-term assets | |||||||||||
| Properties, plants and equipment | |||||||||||
| Timber properties, net of depletion | |||||||||||
| Land | |||||||||||
| Buildings | |||||||||||
| Machinery and equipment | |||||||||||
| Capital projects in progress | |||||||||||
| Accumulated depreciation | ( | ( | |||||||||
| Total assets | $ | $ | |||||||||
See accompanying Notes to Condensed Consolidated Financial Statements
5
GREIF, INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
| (in millions) | April 30, 2024 | October 31, 2023 | |||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||
| Current liabilities | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued payroll and employee benefits | |||||||||||
| Restructuring reserves | |||||||||||
| Current portion of long-term debt | |||||||||||
| Short-term borrowings | |||||||||||
| Current portion of operating lease liabilities | |||||||||||
| Current portion of finance lease liabilities | |||||||||||
| Other current liabilities | |||||||||||
| Long-term liabilities | |||||||||||
| Long-term debt | |||||||||||
| Operating lease liabilities | |||||||||||
| Finance lease liabilities | |||||||||||
| Deferred tax liabilities | |||||||||||
| Pension liabilities | |||||||||||
| Postretirement benefit obligations | |||||||||||
| Contingent liabilities and environmental reserves | |||||||||||
| Long-term income tax payable | |||||||||||
| Other long-term liabilities | |||||||||||
| Commitments and contingencies (Note 9) | |||||||||||
| Redeemable noncontrolling interests | |||||||||||
| Equity | |||||||||||
| Common stock, without par value | |||||||||||
| Treasury stock, at cost | ( | ( | |||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive loss, net of tax: | |||||||||||
| Foreign currency translation | ( | ( | |||||||||
| Derivative financial instruments | |||||||||||
| Minimum pension liabilities | ( | ( | |||||||||
| Total Greif, Inc. shareholders’ equity | |||||||||||
| Noncontrolling interests | |||||||||||
| Total shareholders’ equity | |||||||||||
| Total liabilities and shareholders’ equity | $ | $ | |||||||||
See accompanying Notes to Condensed Consolidated Financial Statements
6
GREIF, INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| Six Months Ended April 30, | |||||||||||
| (in millions) | 2024 | 2023 | |||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation, depletion and amortization | |||||||||||
| Non-cash asset impairment charges | |||||||||||
| Gain on disposals of properties, plants and equipment, net | ( | ( | |||||||||
| Gain on disposals of businesses, net | ( | ||||||||||
| Unrealized foreign exchange loss | |||||||||||
| Deferred income tax (benefit) expense | ( | ||||||||||
| Non-cash lease expense | |||||||||||
| Other, net | ( | ||||||||||
| Increase (decrease) in cash from changes in certain assets and liabilities, net of impacts from acquisitions: | |||||||||||
| Trade accounts receivable | ( | ||||||||||
| Inventories | ( | ||||||||||
| Accounts payable | ( | ||||||||||
| Restructuring reserves | ( | ( | |||||||||
| Operating leases | ( | ( | |||||||||
| Pension and post-retirement benefit liabilities | ( | ( | |||||||||
| Other, net | ( | ( | |||||||||
| Net cash provided by operating activities | |||||||||||
| Cash flows from investing activities: | |||||||||||
| Purchases of business, net of cash acquired | ( | ( | |||||||||
| Purchases of properties, plants and equipment | ( | ( | |||||||||
| Purchases of timber properties | ( | ( | |||||||||
| Payments for deferred purchase price of acquisitions | ( | ( | |||||||||
| Proceeds from the sale of properties, plants, equipment and other assets | |||||||||||
| Proceeds from the sale of businesses | |||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from issuance of long-term debt | |||||||||||
| Payments on long-term debt | ( | ( | |||||||||
| Proceeds (payments) on short-term borrowings, net | ( | ||||||||||
| Proceeds from trade accounts receivable credit facility | |||||||||||
| Payments on trade accounts receivable credit facility | ( | ( | |||||||||
| Dividends paid to Greif, Inc. shareholders | ( | ( | |||||||||
| Dividends paid to noncontrolling interests | ( | ( | |||||||||
| Payments for share repurchases | ( | ||||||||||
| Tax withholding payments for stock-based awards | ( | ( | |||||||||
| Purchases of redeemable noncontrolling interest | ( | ||||||||||
| Other, net | ( | ( | |||||||||
| Net cash provided by financing activities | |||||||||||
| Effects of exchange rates on cash | |||||||||||
| Net increase in cash and cash equivalents | |||||||||||
| Cash and cash equivalents at beginning of period | |||||||||||
| Cash and cash equivalents at end of period | $ | $ | |||||||||
See accompanying Notes to Condensed Consolidated Financial Statements
7
GREIF, INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)
| Three Months Ended April 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common 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 January 31, 2024 | $ | $ | ( | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss): | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
Derivative financial instruments, net of $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Minimum pension liability adjustment, net of $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Comprehensive income | . | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Current period mark to redemption value of redeemable noncontrolling interest | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income allocated to redeemable noncontrolling interests | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends paid to Greif, Inc. shareholders ($ | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends paid to noncontrolling interests and other | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends earned on RSU shares | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Colleague stock purchase plan | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Share based compensation | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Restricted stock, directors | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| As of April 30, 2024 | $ | $ | ( | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Six Months Ended April 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common 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, 2023 | $ | $ | ( | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss): | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
Derivative financial instruments, net of $ | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
Minimum pension liability adjustment, net of $ | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Comprehensive income | . | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Current period mark to redemption value of redeemable noncontrolling interest and other | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income allocated to redeemable noncontrolling interests | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends paid to Greif, Inc. shareholders ($ | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends paid to noncontrolling interests and other | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends earned on RSU shares | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Colleague stock purchase plan | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Long-term incentive shares issued | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share based compensation | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Restricted stock, directors | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| As of April 30, 2024 | $ | $ | ( | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
8
| Three Months Ended April 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common 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 January 31, 2023 | $ | $ | ( | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
Net income | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss): | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
Derivative financial instruments, net of $ | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
Minimum pension liability adjustment, net of $ | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
Comprehensive income | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Current period mark to redemption value of redeemable noncontrolling interest | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income allocated to redeemable noncontrolling interests | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends paid to Greif, Inc. shareholders ($ | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends paid to noncontrolling interests and other | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends earned on RSU shares | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Colleague stock purchase plan | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Share repurchases | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Long-term incentive shares issued | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share based compensation | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Restricted stock, directors | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| As of April 30, 2023 | $ | $ | ( | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Six Months Ended April 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common 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, 2022 | $ | $ | ( | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
Net income | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss): | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative financial instruments, net of $ | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
Minimum pension liability adjustment, net of $ | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Comprehensive income | . | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Current period mark to redemption value of redeemable noncontrolling interest and other | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income allocated to redeemable noncontrolling interests | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends paid to Greif, Inc. shareholders ($ | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends paid to noncontrolling interests and other | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends earned on RSU shares | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share repurchases | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Long-term incentive shares issued | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share based compensation | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Restricted stock, directors | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| As of April 30, 2023 | $ | $ | ( | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
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 sheet as of April 30, 2024 and the condensed consolidated balance sheet as of October 31, 2023, the interim condensed consolidated statements of income, comprehensive income and changes in shareholders’ equity for the three and six months ended April 30, 2024 and 2023 and the interim condensed consolidated statements of cash flows for the six months ended April 30, 2024 and 2023 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 this 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, 2023 (the “2023 Form 10-K”).
Newly Adopted Accounting Standards
There have been no new accounting standards adopted since the filing of the 2023 Form 10-K that have significance, or potential significance, to the interim condensed consolidated financial statements.
Recently Issued Accounting Standards
In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, "Income Taxes (Topic 740): Improvements to Tax Disclosures,” which is intended to improve the effectiveness of income tax disclosures. This ASU is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The effective date for the Company to adopt this ASU is for the fiscal year beginning October 1, 2025. The Company is in the process of determining the potential impact of adopting this guidance on its financial position, results of operations, comprehensive income, cash flow and disclosures.
In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” which is intended to improve reportable segment disclosure requirements. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The effective date for the Company to adopt this ASU is for the fiscal year and interim periods beginning November 1, 2024 and October 1, 2025 respectively. The Company is in the process of determining the potential impact of adopting this guidance on its financial position, results of operations, comprehensive income, cash flow and disclosures.
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NOTE 2 — ACQUISITIONS AND DIVESTITURES
2024 Acquisitions
Ipackchem Acquisition
The Company acquired Ipackchem Group SAS (“Ipackchem”) on March 26, 2024 (the “Ipackchem Acquisition”). Ipackchem is a global market leader in the production of high-performance plastic packaging, including premium barrier and non-barrier jerrycans and other small plastic containers. The total purchase price for this acquisition was $582.1 million. The Company incurred transaction costs of $8.9 million to complete this acquisition.
The following table summarizes the consideration transferred to acquire Ipackchem and the preliminary valuation of identifiable assets acquired and liabilities assumed at the acquisition date:
| (in millions) | Amounts Recognized as of the Acquisition Date | ||||
| Fair value of consideration transferred | |||||
| Cash consideration | $ | ||||
Recognized amounts of identifiable assets acquired and liabilities assumed | |||||
| Cash and cash equivalents | $ | ||||
| Accounts receivable | |||||
| Inventories | |||||
| Other current assets | |||||
| Intangibles | |||||
| Operating lease right-of-use assets | |||||
| Finance lease right-of-use assets | |||||
| Other long-term assets | |||||
| Properties, plants and equipment | |||||
Total assets acquired | |||||
| Accounts payable | ( | ||||
| Short-term borrowings | ( | ||||
| Other current liabilities | ( | ||||
| Operating lease liabilities | ( | ||||
| Finance lease liabilities | ( | ||||
| Long-term deferred tax liability | ( | ||||
| Other long-term liabilities | ( | ||||
Total liabilities assumed | ( | ||||
| Total identifiable net assets | $ | ||||
| Goodwill | $ | ||||
The Company recognized goodwill related to this acquisition of $275.8 million. The goodwill recognized in this acquisition was attributable to the acquired assembled workforce, expected synergies and economies of scale, none of which qualify for recognition as a separate intangible asset. Ipackchem is reported within the Global Industrial Packaging segment to which the goodwill was assigned. The goodwill is not expected to be deductible for tax purposes.
The cost approach was used to determine the fair value for land, building, improvements and equipment. The cost approach measures the value by estimating the cost to acquire, or construct, comparable assets and adjusts for age and condition. The Company assigned to land use rights, building and improvements a useful life ranging from 1 year to 21 years and equipment a useful life ranging from 1 year to 10 years. Acquired property, plant and equipment are being depreciated over their estimated remaining useful lives on a straight-line basis.
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The fair value for acquired customer relationship intangibles was determined as of the acquisition date based on estimates and judgments regarding expectations for the future after-tax cash flows arising from the revenue from customer relationships that existed on the acquisition date over their estimated lives, including the probability of expected future contract renewals and revenue, less a contributory assets charge, all of which is discounted to present value. The fair value for acquired developed technology was determined as of the acquisition date based on estimates and judgments regarding expectations for the future after-tax cash flows arising from the revenue from developed technology that existed on the acquisition date over their estimated lives. The fair values of the trademark intangible assets were determined utilizing the relief from royalty method, which is a form of the income approach. Under this method, a royalty rate based on observed market royalties is applied to projected revenue supporting the trademarks and discounted to present value using an appropriate discount rate.
Acquired intangible assets are being amortized over the estimated useful lives on a straight-line basis. The following table summarizes the preliminary purchase price allocation and weighted average remaining useful lives for identifiable intangible assets acquired as of the acquisition date:
| (in millions) | Purchase Price Allocation | Weighted Average Estimated Useful Life | ||||||
| Customer relationships | $ | |||||||
| Developed technology | ||||||||
| Trademarks | ||||||||
| Total intangible assets | $ | |||||||
The Company has not yet finalized the determination of the fair value of assets acquired and liabilities assumed. The Company expects to finalize these amounts within one year of the acquisition date. The estimate of fair value and purchase price allocation were based on information available at the time of closing the acquisition, and the Company continues to evaluate the underlying inputs and assumptions that are being used in the fair value estimates of all assets acquired and liabilities assumed. Accordingly, these preliminary estimates are subject to adjustments during the measurement period, not to exceed one year from the acquisition date, based upon new information obtained about facts and circumstances that existed as of the date of closing the acquisition.
Ipackchem’s results of operations have been included in the Company’s financial statements for the period subsequent to the acquisition date of March 26, 2024. Ipackchem contributed net sales of $22.6 million for the three months ended April 30, 2024.
Pro Forma Results
The following unaudited supplemental pro forma data presents consolidated information as if the Ipackchem Acquisition had been completed on November 1, 2022. These amounts were calculated after adjusting Ipackchem’s results to reflect interest expense incurred on the debt to finance the acquisition, additional depreciation and amortization that would have been charged assuming the fair value of property, plant and equipment and intangible assets had been applied from November 1, 2022, the adjusted income tax expense, and related transaction costs.
| Three Months Ended April 30, | Six Months Ended April 30, | ||||||||||||||||||||||
| (in millions, except per share amounts) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Pro forma net sales | $ | $ | $ | $ | |||||||||||||||||||
| Pro forma net income attributable to Greif, Inc. | |||||||||||||||||||||||
| Basic earnings per share attributable to Greif, Inc. common shareholders: | |||||||||||||||||||||||
| Class A common stock | $ | $ | $ | $ | |||||||||||||||||||
| Class B common stock | $ | $ | $ | $ | |||||||||||||||||||
| Diluted earnings per share attributable to Greif, Inc. common shareholders: | |||||||||||||||||||||||
| Class A common stock | $ | $ | $ | $ | |||||||||||||||||||
| Class B common stock | $ | $ | $ | $ | |||||||||||||||||||
12
The unaudited supplemental pro forma financial information is based on the Company’s preliminary assignment of purchase price and therefore subject to adjustment upon finalizing the purchase price assignment. The pro forma data should not be considered indicative of the results that would have occurred if the acquisition and related financing had been consummated on the assumed completion dates, nor are they indicative of future results.
2023 Acquisitions
ColePak Acquisition
The Company acquired a 51 % ownership interest in ColePak, LLC (“ColePak”) on August 23, 2023 (the “ColePak Acquisition”). ColePak is a manufacturer of bulk and specialty partitions made from both containerboard and uncoated recycled board and is the second largest supplier of paper partitions in North America. The total purchase price for this acquisition, net of cash acquired, was $74.6 million. The fair value of the remaining noncontrolling interest of 49 % after the acquisition was $72.1 million, which was determined using a Monte Carlo option pricing model, and is redeemable through contractual terms.
The following table summarizes the consideration transferred to acquire ColePak and the preliminary valuation of identifiable assets acquired and liabilities assumed at the acquisition date:
| (in millions) | Amounts Recognized as of the Acquisition Date | Measurement Period Adjustments | Amount Recognized as of Acquisition Date (as Adjusted) | ||||||||
| Fair value of consideration transferred | |||||||||||
| Cash consideration | $ | $ | — | $ | |||||||
| Noncontrolling interest | — | ||||||||||
Recognized amounts of identifiable assets acquired and liabilities assumed | |||||||||||
| Accounts receivable | $ | $ | — | $ | |||||||
| Inventories | — | ||||||||||
| Intangibles | — | ||||||||||
| Operating lease right-of use assets | — | ||||||||||
| Properties, plants and equipment | — | ||||||||||
Total assets acquired | — | ||||||||||
| Accounts payable and other current liabilities | ( | — | ( | ||||||||
| Operating lease liabilities | ( | — | ( | ||||||||
Total liabilities assumed | ( | — | ( | ||||||||
| Total identifiable net assets | $ | $ | — | $ | |||||||
| Goodwill | $ | $ | — | $ | |||||||
The Company recognized goodwill related to this acquisition of $60.1 million. The goodwill recognized in this acquisition was attributable to the acquired assembled workforce, expected synergies, economies of scale and expanded market presence, none of which qualify for recognition as a separate intangible asset. ColePak is reported within the Paper Packaging & Services segment to which the goodwill was assigned. The goodwill is expected to be deductible for tax purposes.
The fair value for acquired customer relationship intangibles was determined as of the acquisition date based on estimates and judgments regarding expectations for the future after-tax cash flows arising from the revenue from customer relationships that existed on the acquisition date over their estimated lives, including the probability of expected future contract renewals and revenue, less a contributory assets charge, all of which is discounted to present value. The fair values of the trademark intangible assets were determined utilizing the relief from royalty method, which is a form of the income approach. Under this method, a royalty rate based on observed market royalties is applied to projected revenue supporting the trademarks and discounted to present value using an appropriate discount rate.
13
Acquired intangible assets are being amortized over the estimated useful lives on a straight-line basis. The following table summarizes the preliminary purchase price allocation and weighted average remaining useful lives for identifiable intangible assets acquired as of the acquisition date:
| (in millions) | Purchase Price Allocation | Weighted Average Estimated Useful Life | ||||||
| Customer relationships | $ | |||||||
| Trademarks | ||||||||
| Total intangible assets | $ | |||||||
The Company has not yet finalized the determination of the fair value of assets acquired and liabilities assumed, including income taxes and contingencies. The Company expects to finalize these amounts within one year of the acquisition date. The estimate of fair value and purchase price allocation were based on information available at the time of closing the acquisition, and the Company continues to evaluate the underlying inputs and assumptions that are being used in fair value estimates. Accordingly, these preliminary estimates are subject to adjustments during the measurement period, not to exceed one year from the date of the acquisition, based upon new information obtained about facts and circumstances that existed as of the date of closing the acquisition.
Centurion Acquisition
The Company completed its acquisition of controlling influence over Centurion Container LLC (“Centurion”) on March 31, 2023 (the “Centurion Acquisition”), by increasing the Company’s ownership interest in Centurion from approximately 10 % to 80 %. Centurion is a leader in the North American intermediate bulk container (“IBC”) reconditioning industry and is involved in IBC rebottling, reconditioning, and distribution. The total purchase price for this acquisition, net of cash acquired, was $144.5 million. The fair value of the remaining noncontrolling interest of 20 % after the acquisition was $40.9 million, which was determined using the implied enterprise value based on the purchase price and redemption mechanism, and is redeemable through contractual terms.
Prior to the acquisition, the Company accounted for its approximately 10 % ownership interest under the equity method of accounting. The acquisition of a controlling financial interest was accounted for as a step acquisition in accordance with Accounting Standards Codification (“ASC”) 805, “Business Combinations”. As a result, fair value of our previously held interest in Centurion of $16.8 million was valued using a discounted cash flow model, resulting in a gain of $9.8 million. The gain was reflected in the consolidated statements of income within the gain on disposal of businesses, net line.
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The following table summarizes the consideration transferred to acquire Centurion and the final valuation of identifiable assets acquired and liabilities assumed at the acquisition date:
| (in millions) | Amounts Recognized as of the Acquisition Date | Measurement Period Adjustments | Amount Recognized as of Acquisition Date (as Adjusted) | ||||||||
| Fair value of consideration transferred | |||||||||||
| Cash consideration | $ | $ | — | $ | |||||||
| Noncontrolling interest | — | ||||||||||
| Previously held interest | — | ||||||||||
Recognized amounts of identifiable assets acquired and liabilities assumed | |||||||||||
| Accounts receivable | $ | $ | — | $ | |||||||
| Inventories | — | ||||||||||
| Prepaid and other current assets | — | ||||||||||
| Intangibles | |||||||||||
| Operating lease right-of use assets | — | ||||||||||
| Properties, plants and equipment | — | ||||||||||
Total assets acquired | |||||||||||
| Accounts payable | ( | — | ( | ||||||||
| Other current liabilities | ( | — | ( | ||||||||
| Operating lease liabilities | ( | — | ( | ||||||||
Total liabilities assumed | ( | — | ( | ||||||||
| Total identifiable net assets | $ | $ | $ | ||||||||
| Goodwill | $ | $ | ( | $ | |||||||
The Company recognized goodwill related to this acquisition of $95.4 million. The goodwill recognized in this acquisition was attributable to the acquired assembled workforce, expanded market presence and enhanced business network, none of which qualify for recognition as a separate intangible asset. Centurion is reported within the Global Industrial Packaging segment to which the goodwill was assigned. The goodwill is expected to be deductible for tax purposes.
The fair value for acquired customer relationship intangibles was determined as of the acquisition date based on estimates and judgments regarding expectations for the future after-tax cash flows arising from the revenue from customer relationships that existed on the acquisition date over their estimated lives, including the probability of expected future contract renewals and revenue, less a contributory assets charge, all of which is discounted to present value. The fair values of the trademark intangible assets were determined utilizing the relief from royalty method, which is a form of the income approach. Under this method, a royalty rate based on observed market royalties is applied to projected revenue supporting the trademarks and discounted to present value using an appropriate discount rate.
Acquired intangible assets are being amortized over the estimated useful lives on a straight-line basis. The following table summarizes the final purchase price allocation and weighted average remaining useful lives for identifiable intangible assets acquired as of the acquisition date:
| (in millions) | Purchase Price Allocation | Weighted Average Estimated Useful Life | ||||||
| Customer relationships | $ | |||||||
| Favorable leases | ||||||||
| Trademarks | ||||||||
| Total intangible assets | $ | |||||||
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As of April 30, 2024, the Company had completed the determination of the fair value of assets acquired and liabilities assumed related to the Centurion Acquisition.
Lee Container Acquisition
The Company acquired Lee Container Corporation, Inc. (“Lee Container”) on December 15, 2022 (the “Lee Container Acquisition”). Lee Container is an industry-leading manufacturer of high-performance barrier and conventional blow molded containers, jerrycans and other small plastics. The total purchase price for this acquisition, net of cash acquired, was $303.0 million.
The following table summarizes the consideration transferred to acquire Lee Container and the final valuation of identifiable assets acquired and liabilities assumed at the acquisition date:
| (in millions) | Amounts Recognized as of the Acquisition Date | Measurement Period Adjustments | Amount Recognized as of Acquisition Date (as Adjusted) | ||||||||
| Fair value of consideration transferred | |||||||||||
| Cash consideration | $ | $ | $ | ||||||||
Recognized amounts of identifiable assets acquired and liabilities assumed | |||||||||||
| Accounts receivable | $ | $ | ( | $ | |||||||
| Inventories | ( | ||||||||||
| Prepaid and other current assets | — | ||||||||||
| Intangibles | — | ||||||||||
| Finance lease right-of use assets | |||||||||||
| Properties, plants and equipment | — | ||||||||||
Total assets acquired | ( | ||||||||||
| Accounts payable | ( | — | ( | ||||||||
| Accrued payroll and employee benefits | ( | — | ( | ||||||||
| Other current liabilities | ( | ( | |||||||||
| Finance lease liabilities | ( | ( | ( | ||||||||
Total liabilities assumed | ( | ( | |||||||||
| Total identifiable net assets | $ | ( | |||||||||
| Goodwill | $ | $ | $ | ||||||||
The Company recognized goodwill related to this acquisition of $75.9 million. The goodwill recognized in this acquisition was attributable to the acquired assembled workforce, expected synergies and economies of scale, none of which qualify for recognition as a separate intangible asset. Lee Container is reported within the Global Industrial Packaging segment to which the goodwill was assigned. The goodwill is expected to be deductible for tax purposes.
The cost approach was used to determine the fair value for building improvements and equipment. The cost approach measures the value by estimating the cost to acquire, or construct, comparable assets and adjusts for age and condition. The Company assigned building improvements a useful life ranging from 1 year to 9 years and equipment a useful life ranging from 1 year to 19 years. Acquired property, plant and equipment are being depreciated over their estimated remaining useful lives on a straight-line basis.
The fair value for acquired customer relationship intangibles was determined as of the acquisition date based on estimates and judgments regarding expectations for the future after-tax cash flows arising from the revenue from customer relationships that existed on the acquisition date over their estimated lives, including the probability of expected future contract renewals and revenue, less a contributory assets charge, all of which is discounted to present value. The fair values of the trademark intangible assets were determined utilizing the relief from royalty method, which is a form of the income approach. Under this method, a royalty rate based on observed market royalties is applied to projected revenue supporting the trademarks and discounted to present value using an appropriate discount rate.
16
Acquired intangible assets are being amortized over the estimated useful lives on a straight-line basis. The following table summarizes the final purchase price allocation and weighted average remaining useful lives for identifiable intangible assets acquired as of the acquisition date:
| (in millions) | Purchase Price Allocation | Weighted Average Estimated Useful Life | ||||||
| Customer relationships | $ | |||||||
| Trademarks | ||||||||
| Total intangible assets | $ | |||||||
As of January 31, 2024, the Company had completed the determination of the fair value of assets acquired and liabilities assumed related to the Lee Container Acquisition.
Pro Forma Results
The following unaudited supplemental pro forma data presents consolidated information as if the Centurion Acquisition and Lee Container Acquisition had been completed on November 1, 2021. These amounts were calculated after adjusting Centurion’s and Lee Container’s results to reflect interest expense incurred on the debt to finance the acquisition, additional depreciation and amortization that would have been charged assuming the fair value of property, plant and equipment and intangible assets had been applied from November 1, 2021, the adjusted income tax expense, and related transaction costs.
| Three Months Ended April 30, | Six Months Ended April 30, | |||||||||||||
| (in millions, except per share amounts) | 2023 | 2023 | ||||||||||||
| Pro forma net sales | $ | $ | ||||||||||||
| Pro forma net income attributable to Greif, Inc. | ||||||||||||||
| Basic earnings per share attributable to Greif, Inc. common shareholders: | ||||||||||||||
| Class A common stock | $ | $ | ||||||||||||
| Class B common stock | $ | $ | ||||||||||||
| Diluted earnings per share attributable to Greif, Inc. common shareholders: | ||||||||||||||
| Class A common stock | $ | $ | ||||||||||||
| Class B common stock | $ | $ | ||||||||||||
The pro forma data should not be considered indicative of the results that would have occurred if the acquisition and related financing had been consummated on the assumed completion dates, nor are they indicative of future results.
Divestitures
Tama Divestiture
During the first quarter of 2023, the Company completed its divestiture of a U.S. business in the Paper Packaging & Services segment, Tama Paperboard, LLC (the “Tama Divestiture”), for current net cash proceeds of $100.2 million. The Tama Divestiture did not qualify as discontinued operations because it did not represent a strategic shift that has had a major impact on the Company’s operations or financial results. The Tama Divestiture resulted in $54.6 million gain on sale of business, including goodwill allocated to the sale of $22.5 million.
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NOTE 3 — RESTRUCTURING CHARGES
The following is a reconciliation of the beginning and ending restructuring reserve balances for the six months ended April 30, 2024:
| (in millions) | Employee Separation Costs | Other Costs | Total | ||||||||||||||
| Balance at October 31, 2023 | $ | $ | $ | ||||||||||||||
| Costs incurred and charged to expense | ( | ( | |||||||||||||||
| Costs paid or otherwise settled | ( | ( | ( | ||||||||||||||
| Balance at April 30, 2024 | $ | $ | $ | ||||||||||||||
The focus for restructuring activities in 2024 is to optimize operations.
During the three months ended April 30, 2024, the Company recorded restructuring charges of $(6.8 ) million, as compared to $2.4 million of restructuring charges recorded during the three months ended April 30, 2023. The restructuring activity for the three months ended April 30, 2024 consisted of ($9.0 ) million release of prior period restructuring severance accrual no longer probable of occurring, $0.4 million in employee separation costs and $1.8 million in other restructuring costs, primarily consisting of professional fees and other fees associated with restructuring activities.
During the six months ended April 30, 2024, the Company recorded restructuring charges of $(1.1 ) million, as compared to $4.8 million of restructuring charges recorded during the six months ended April 30, 2023. The restructuring activity for the six months ended April 30, 2024 consisted of ($9.0 ) million release of prior period restructuring severance accrual no longer probable of occurring, $3.3 million in employee separation costs and $4.6 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 $13.7 million as of April 30, 2024:
| (in millions) | Total Amounts Expected to be Incurred | Amounts Incurred During the Six Months Ended April 30, 2024 | Amounts Remaining to be Incurred | ||||||||||||||
| Global Industrial Packaging | |||||||||||||||||
| Employee separation costs | $ | ( | $ | ( | $ | ||||||||||||
| Other restructuring costs | |||||||||||||||||
| ( | ( | ||||||||||||||||
| Paper Packaging & Services | |||||||||||||||||
| Employee separation costs | |||||||||||||||||
| Other restructuring costs | |||||||||||||||||
| $ | $ | ( | $ | ||||||||||||||
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NOTE 4 — LONG-TERM DEBT
Long-term debt is summarized as follows:
| (in millions) | April 30, 2024 | October 31, 2023 | |||||||||
| 2022 Credit Agreement - Term Loans | $ | $ | |||||||||
| 2023 Credit Agreement - Term Loan | |||||||||||
| Accounts receivable credit facilities | |||||||||||
| 2022 Credit Agreement - Revolving Credit Facility | |||||||||||
| Other debt | |||||||||||
| Less: current portion | |||||||||||
| Less: deferred financing costs | |||||||||||
| Long-term debt, net | $ | $ | |||||||||
Credit Agreements
The Company and certain of its subsidiaries are parties to a senior secured credit agreement (the “2022 Credit Agreement”) with a syndicate of financial institutions.
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 that commenced on July 31, 2022 and continue 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, (c) a $515.0 million secured term loan A-2 facility with quarterly principal installments that commenced on July 31, 2022 and continue 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, and (d) as further described below, a $300.0 million incremental secured term loan A-4 facility with quarterly principal installments that commenced on April 30, 2024 and continue through January 31, 2027, with any outstanding principal balance of such term loan A-4 being due and payable on maturity on March 1, 2027. Subject to the terms of the 2022 Credit Agreement, the Company has an option to borrow additional funds under the 2022 Credit Agreement with the agreement of the lenders.
On March 25, 2024, the Company and certain of its subsidiaries entered into an incremental term loan agreement (the “Incremental Term Loan A-4 Agreement”) with a syndicate of financial institutions. The Incremental Term Loan A-4 Agreement is an amendment to the 2022 Credit Agreement. The Incremental Term Loan A-4 Agreement provided for a loan in the aggregate principal amount of $300.0 million that was made available in a single draw on March 25, 2024 (the “Incremental Term Loan A-4”). Amounts repaid or prepaid in respect of the Incremental Term Loan A-4 may not be reborrowed. The Incremental Term Loan A-4 amortizes at 2.50 % per annum in equal quarterly principal installments, with the remaining outstanding principal balance due on March 1, 2027. The terms and provisions of the Incremental Term Loan A-4 are identical in all material respects to the terms and provisions of the other term loans made under the 2022 Credit Agreement. The Company’s obligations with respect to the Incremental Term Loan A-4 are secured and guaranteed with the other obligations under the 2022 Credit Agreement on a pari passu basis. The Company used the proceeds from the Incremental Term Loan A-4 to repay funds drawn on the revolving credit facility under the 2022 Credit Agreement for the purchase of Ipackchem on March 26, 2024.
Interest is based on Secured Overnight Financing Rate (“SOFR”) plus a credit spread adjustment or a base rate that resets periodically plus, in each case, a calculated margin amount that is based on the Company’s leverage ratio.
On May 17, 2023, the Company and Greif Packaging LLC, a direct wholly owned subsidiary of Greif, Inc. (“Greif Packaging”), entered into a $300.0 million senior secured credit agreement (the “2023 Credit Agreement” and, together with the 2022 Credit Agreement, the “2022 and 2023 Credit Agreements”) with CoBank, ACB (“CoBank”), which acted as a lender and is acting as administrative agent of the 2023 Credit Agreement. The 2023 Credit Agreement is permitted incremental equivalent debt under the terms of the 2022 Credit Agreement. The 2023 Credit Agreement provides for a $300.0 million secured term loan facility with quarterly principal installments that commenced on July 31, 2023 and will continue through January 31, 2028, with any outstanding principal balance of such term loan being due and payable on maturity on May 17, 2028. The Company
19
used the borrowing under the 2023 Credit Agreement to repay and refinance a portion of the outstanding borrowings under the 2022 Credit Agreement.
Interest accruing under the 2023 Credit Agreement is based on SOFR plus a credit spread adjustment or a base rate that resets periodically plus, in each case, a calculated margin amount that is based on the Company’s leverage ratio.
As of April 30, 2024, $2,536.3 million was outstanding under the 2022 and 2023 Credit Agreements. The current portion was $95.8 million, and the long-term portion was $2,440.5 million. The weighted average interest rate for borrowings under the 2022 and 2023 Credit Agreements was 6.36 % for the six months ended April 30, 2024. The actual interest rate for borrowings under the 2022 and 2023 Credit Agreements was 6.81 % as of April 30, 2024. The deferred financing costs associated with the term loan portion of the 2022 and 2023 Credit Agreements totaled $8.4 million as of April 30, 2024 and are recorded as a reduction of long-term debt on the interim condensed consolidated balance sheets. The deferred financing costs associated with the revolving portion of the 2022 Credit Agreement totaled $3.0 million as of April 30, 2024 and are recorded within other long-term assets on the interim condensed consolidated balance sheets.
United States Trade Accounts Receivable Credit Facility
Greif Receivables Funding LLC (“Greif Funding”), Greif Packaging, and certain other U.S. subsidiaries of the Company are parties to an amended and restated U.S. Receivables Financing Facility Agreement (the “U.S. RFA”). On May 17, 2024, the maturity date of the U.S. RFA was extended to May 16, 2025. The U.S. RFA provides an accounts receivable financing facility of $300.0 million. As of April 30, 2024, there was a $259.3 million ($270.9 million as of October 31, 2023) outstanding under the U.S. RFA 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.
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
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 Nieuw Amsterdam Receivables Financing Agreement (the “European RFA”) with affiliates of a major international bank. On April 19, 2024, the maturity date of the European RFA was extended to April 22, 2025. The European RFA provides an accounts receivable financing facility of up to €100.0 million ($106.9 million as of April 30, 2024) secured by certain European accounts receivable. As of April 30, 2024, $87.5 million ($80.1 million as of October 31, 2023) was outstanding on the European RFA 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.
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NOTE 5 — 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 April 30, 2024 and October 31, 2023:
| April 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||
| Assets | Liabilities | ||||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||||||||||||||||
| Interest rate derivatives | $ | $ | $ | $ | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||||||||
| Foreign exchange hedges | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Insurance annuity | |||||||||||||||||||||||||||||||||||||||||||||||
| Cross currency swap | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| October 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||
| Assets | Liabilities | ||||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||||||||||||||||
| Interest rate derivatives | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Foreign exchange hedges | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Insurance annuity | |||||||||||||||||||||||||||||||||||||||||||||||
| Cross currency swap | |||||||||||||||||||||||||||||||||||||||||||||||
The carrying amounts of cash and cash equivalents, trade accounts receivable, accounts payable, current liabilities and short-term borrowings as of April 30, 2024 and October 31, 2023 approximate their fair values because of the short-term nature of these items and are not included in this table.
Interest Rate Derivatives
As of April 30, 2024, the Company has various interest rate swaps with a total notional amount of $1,400.0 million ($1,300.0 million as of October 31, 2023), maturing between March 1, 2027 and July 16, 2029. The Company will receive variable rate interest payments based upon one-month U.S. dollar SOFR, and in return the Company will be obligated to pay interest at a weighted average fixed interest rate of 2.97 %. This effectively converted the borrowing rate on an amount of debt equal to the notional amount of the interest rate swaps 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 is 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 SOFR and interest paid based upon a designated fixed rate over the life of the swap agreements.
Gains reclassified to earnings under these contracts were $8.9 million and $6.6 million for the three months ended April 30, 2024, and 2023, respectively. Gains reclassified to earnings under these contracts were $18.6 million and $11.3 million for the six months ended April 30, 2024, and 2023, respectively. A derivative gain of $31.5 million, based upon interest rates at April 30, 2024, 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 April 30, 2024, and October 31, 2023, the Company had outstanding foreign currency forward contracts in the notional amount of $101.0 million and $66.0 million, respectively.
21
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.
For the three months ended April 30, 2024, and 2023, the Company recorded realized gains of $2.9 million and $0.6 million, respectively, under fair value contracts in other expense, net. For the six months ended April 30, 2024, and 2023, the Company recorded realized gains of $2.9 million and $0.7 million, respectively, under fair value contracts in other expense, net.
For the three months ended April 30, 2024, and 2023, the Company recorded unrealized net gains (losses) of $(2.8 ) million and $1.3 million, respectively, in other expense, net. For the six months ended April 30, 2024, and 2023, the Company recorded unrealized net losses of $0.4 million and $1.5 million, respectively, in other expense, net.
Cross Currency Swap
The Company has operations and investments in various international locations and is subject to risks associated with changing foreign exchange rates. As of April 30, 2024, the Company has various cross currency interest rate swaps that synthetically swap $447.6 million ($319.3 million as of October 31, 2023) of U.S. fixed rate debt to Euro denominated fixed rate debt. The Company receives a weighted average rate of 1.27 % on these swaps. These agreements are designated as either net investment hedges or cash flow hedges for accounting purposes and will mature between August 10, 2026 and November 3, 2028.
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 April 30, 2024 and 2023, gains recorded in interest expense, net under the cross currency swap agreements were $1.6 million and $1.2 million, respectively,. For the six months ended April 30, 2024 and 2023, gains recorded in interest expense, net under the cross currency swap agreements were $3.5 million and $2.6 million, respectively.
Other Financial Instruments
The fair values of the Company’s 2022 Credit Agreement, the 2023 Credit Agreement, the U.S. RFA, 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 ASC Topic 820, “Fair Value Measurements and Disclosures.”
NOTE 6 – STOCK-BASED COMPENSATION
Long-Term Incentive Plan
The Company granted 120,843 restricted stock units (“RSUs”) on December 12, 2023, for the performance period commencing on November 1, 2023 and ending September 30, 2026. The weighted average fair value of the RSUs granted on that date was $62.83 .
During 2024, the Company issued 53,060 shares of Class A Common Stock excluding shares withheld for the payment of taxes owed by recipients for RSUs vested for the performance period commenced on November 1, 2020 and ended October 31, 2023.
The Company granted 202,402 performance stock units (“PSUs”) on December 12, 2023, for the performance period commencing on November 1, 2023 and ending September 30, 2026. 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 $60.77 .
During 2024, the Company issued 229,859 shares of Class A Common Stock excluding shares withheld for the payment of taxes owed by recipients for PSUs vested for the performance period commenced on November 1, 2020 and ended October 31, 2023.
22
NOTE 7 — INCOME TAXES
Income tax expense for the quarter and income tax benefit for 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 income tax expense under ASC 740-270, and the impact of discrete items in the respective quarter.
For the six months ended April 30, 2024 and April 30, 2023, income tax (benefit) expense was $(21.2 ) million and $76.8 million, respectively. The $98.0 million net decrease in income tax expense was primarily attributable to the following:
•A $22.7 million decrease in tax due to changes in the 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 income tax expense under ASC 740-270.
•One-time discrete tax benefits of $48.1 million related to the recognition of deferred tax assets due to the onshoring of certain non-U.S. intangible property.
•An $8.4 million decrease due to changes in income tax expense related to prior year tax returns and audits.
•In 2023, $18.8 million of expense was recorded for nondeductible goodwill associated with the Tama Divestiture.
NOTE 8 — POST RETIREMENT BENEFIT PLANS
The components of net periodic pension cost include the following:
| Three Months Ended April 30, | Six Months Ended April 30, | ||||||||||||||||||||||
| (in millions) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Service cost | $ | $ | $ | $ | |||||||||||||||||||
| Interest cost | |||||||||||||||||||||||
| Expected return on plan assets | ( | ( | ( | ( | |||||||||||||||||||
Amortization of prior service benefit | ( | ( | ( | ( | |||||||||||||||||||
| Recognized net actuarial gain | ( | ( | ( | ( | |||||||||||||||||||
| Net periodic pension (benefit) cost | $ | ( | $ | $ | ( | $ | |||||||||||||||||
The Company expects to make employer contributions of $8.0 million, including benefits paid directly by the Company, during 2024.
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 expense, net” in the interim condensed consolidated statements of income.
NOTE 9 — 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.
23
Environmental Reserves
As of April 30, 2024, and October 31, 2023, the Company’s environmental reserves were $18.3 million and $17.3 million, respectively (including $9.8 million for the Diamond Alkali Superfund Site in the New Jersey). 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. 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 10 — 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, 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
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The following table provides EPS information for each period, respectively:
| Three Months Ended April 30, | Six Months Ended April 30, | ||||||||||||||||||||||
| (in millions) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Numerator for basic and diluted EPS | |||||||||||||||||||||||
| Net income attributable to Greif, Inc. | $ | $ | $ | $ | |||||||||||||||||||
| Cash dividends | ( | ( | ( | ( | |||||||||||||||||||
| Undistributed earnings attributable to Greif, Inc. | $ | $ | $ | $ | |||||||||||||||||||
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.
The following table summarizes the shares of the Company’s Class A and Class B Common Stock as of the specified dates:
| Authorized Shares | Issued Shares | Outstanding Shares | Treasury Shares | ||||||||||||||||||||
| April 30, 2024 | |||||||||||||||||||||||
| Class A Common Stock | |||||||||||||||||||||||
| Class B Common Stock | |||||||||||||||||||||||
| October 31, 2023 | |||||||||||||||||||||||
| Class A Common Stock | |||||||||||||||||||||||
| Class B Common Stock | |||||||||||||||||||||||
The following is a reconciliation of the shares used to calculate basic and diluted earnings per share:
| Three Months Ended April 30, | Six Months Ended April 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Class A Common Stock: | |||||||||||||||||||||||
| Basic shares | |||||||||||||||||||||||
| Assumed conversion of restricted shares | |||||||||||||||||||||||
| Diluted shares | |||||||||||||||||||||||
| Class B Common Stock: | |||||||||||||||||||||||
| Basic and diluted shares | |||||||||||||||||||||||
NOTE 11 — COMPREHENSIVE INCOME (LOSS)
The following table provides the rollforward of accumulated other comprehensive income (loss) for the six months ended April 30, 2024:
| (in millions) | Foreign Currency Translation | Derivative Financial Instruments | Minimum Pension Liability Adjustment | Accumulated Other Comprehensive Income (Loss) | |||||||||||||||||||
| Balance as of October 31, 2023 | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
| Other comprehensive loss | ( | ( | ( | ( | |||||||||||||||||||
| Balance as of April 30, 2024 | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
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The following table provides the rollforward of accumulated other comprehensive income (loss) for the six months ended April 30, 2023:
| (in millions) | Foreign Currency Translation | Derivative Financial Instruments | Minimum Pension Liability Adjustment | Accumulated Other Comprehensive Income (Loss) | |||||||||||||||||||
| Balance as of October 31, 2022 | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
| Other comprehensive income (loss) | ( | ( | |||||||||||||||||||||
| Balance as of April 30, 2023 | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
The components of accumulated other comprehensive income (loss) above are presented net of tax, as applicable.
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 2023 Form 10-K.
On March 26, 2024, the Company completed the Ipackchem Acquisition. Ipackchem is a global market leader in the production of high performance plastic packaging, including premium barrier and non-barrier jerrycans and other small plastic containers, which complement the Company’s Global Industrial Packaging specialty portfolio. The results of Ipackchem are recorded within the Global Industrial Packaging segment while the Company evaluates the impact of the Ipackchem Acquisition on its reportable business segments.
The following tables present net sales disaggregated by geographic area for each reportable segment for the three and six months ended April 30, 2024:
| Three Months Ended April 30, 2024 | |||||||||||||||||||||||
| (in millions) | United States | Europe, Middle East and Africa | Asia Pacific and Other Americas | Total | |||||||||||||||||||
| Global Industrial Packaging | $ | $ | $ | $ | |||||||||||||||||||
| Paper Packaging & Services | |||||||||||||||||||||||
| Land Management | |||||||||||||||||||||||
| Total net sales | $ | $ | $ | $ | |||||||||||||||||||
| Six Months Ended April 30, 2024 | |||||||||||||||||||||||
| (in millions) | United States | Europe, Middle East and Africa | Asia Pacific and Other Americas | Total | |||||||||||||||||||
| Global Industrial Packaging | $ | $ | $ | $ | |||||||||||||||||||
| Paper Packaging & Services | |||||||||||||||||||||||
| Land Management | |||||||||||||||||||||||
| Total net sales | $ | $ | $ | $ | |||||||||||||||||||
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The following tables present net sales disaggregated by geographic area for each reportable segment for the three and six months ended April 30, 2023:
| Three Months Ended April 30, 2023 | |||||||||||||||||||||||
| (in millions) | United States | Europe, Middle East and Africa | Asia Pacific and Other Americas | Total | |||||||||||||||||||
| Global Industrial Packaging | $ | $ | $ | $ | |||||||||||||||||||
| Paper Packaging & Services | |||||||||||||||||||||||
| Land Management | |||||||||||||||||||||||
Total net sales | $ | $ | $ | $ | |||||||||||||||||||
| Six Months Ended April 30, 2023 | |||||||||||||||||||||||
| (in millions) | United States | Europe, Middle East and Africa | Asia Pacific and Other Americas | Total | |||||||||||||||||||
| Global Industrial Packaging | $ | $ | $ | $ | |||||||||||||||||||
| Paper Packaging & Services | |||||||||||||||||||||||
| Land Management | |||||||||||||||||||||||
Total net sales | $ | $ | $ | $ | |||||||||||||||||||
The following segment information is presented for the periods indicated:
| Three Months Ended April 30, | Six Months Ended April 30, | ||||||||||||||||||||||
| (in millions) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Operating profit: | |||||||||||||||||||||||
| Global Industrial Packaging | $ | $ | $ | $ | |||||||||||||||||||
| Paper Packaging & Services | |||||||||||||||||||||||
| Land Management | |||||||||||||||||||||||
| Total operating profit | $ | $ | $ | $ | |||||||||||||||||||
| Depreciation, depletion and amortization expense: | |||||||||||||||||||||||
| Global Industrial Packaging | $ | $ | $ | $ | |||||||||||||||||||
| Paper Packaging & Services | |||||||||||||||||||||||
| Land Management | |||||||||||||||||||||||
| Total depreciation, depletion and amortization expense | $ | $ | $ | $ | |||||||||||||||||||
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The following table presents total assets by segment and total properties, plants and equipment, net by geographic area:
| (in millions) | April 30, 2024 | October 31, 2023 | |||||||||
| Assets: | |||||||||||
| Global Industrial Packaging | $ | $ | |||||||||
| Paper Packaging & Services | |||||||||||
| Land Management | |||||||||||
| Total segments | |||||||||||
| Corporate and other | |||||||||||
| Total assets | $ | $ | |||||||||
| Property, plant and equipment, net and lease right-of-use assets: | |||||||||||
| United States | $ | $ | |||||||||
| Europe, Middle East and Africa | |||||||||||
| Asia Pacific and other Americas | |||||||||||
| Total long-lived assets, net | $ | $ | |||||||||
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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 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 the interim condensed consolidated balance sheet as of April 30, 2024 and the condensed consolidated balance sheet as of October 31, 2023, and for the interim condensed consolidated statements of income for the three and six months ended April 30, 2024 and 2023. 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, 2023 (the “2023 Form 10-K”). Readers are encouraged to review the entire 2023 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 (the “Exchange Act”). 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 current and future challenging global economy and disruption and volatility of the financial and credit markets may adversely affect our business, (iv) the continuing consolidation of our customer base and suppliers may intensify pricing pressure, (v) we operate in highly competitive industries, (vi) our business is sensitive to changes in industry demands and customer preferences, (vii) raw material shortages, price fluctuations, global supply chain disruptions and high inflation may adversely impact our results of operations, (viii) energy and transportation price fluctuations and shortages may adversely impact our manufacturing operations and costs, (ix) we may encounter difficulties or liabilities arising from acquisitions or divestitures, (x) we may incur additional rationalization costs and there is no guarantee that our efforts to reduce costs will be successful, (xi) several operations are conducted by joint ventures that we cannot operate solely for our benefit, (xii) certain of the agreements that govern our joint ventures provide our partners with put or call options, (xiii) our ability to attract, develop and retain talented and qualified employees, managers and executives is critical to our success, (xiv) our business may be adversely impacted by work stoppages and other labor relations matters, (xv) 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, (xvi) our business depends on the uninterrupted operations of our facilities, systems and business functions, including our information technology and other business systems, (xvii) a cyber-attach, 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, (xviii) 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, (xix) we have a significant amount of goodwill and long-lived assets which, if impaired in the future, would adversely impact our results of operations, (xx) changing climate, global climate change regulations and greenhouse gas effects may adversely affect our operations and financial performance, (xxi) we may be unable to achieve our greenhouse gas emission reduction targets by 2030, (xxii) legislation/regulation related to environmental and health and safety matters could negatively impact our operations and financial performance, (xxiii) product liability claims and other legal proceedings could adversely affect our operations and financial performance, and (xxiv) we may incur fines or penalties,
29
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.
Forward looking statements are subject to risks and uncertainties that could cause our actual results to differ materially from those forecasted or anticipated, whether expressed in or implied by the statements. 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 2023 Form 10-K and our other filings with the United States Securities and Exchange Commission (“SEC”).
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.
BUSINESS SEGMENTS
We operate in three reportable business segments: Global Industrial Packaging; Paper Packaging & Services; and Land Management.
In the Global Industrial Packaging reportable segment, we are a leading global producer of industrial packaging products, such as steel, fibre and plastic drums, rigid intermediate bulk containers, jerrycans and other small plastics, 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 the Paper Packaging & Services reportable 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 are used to produce and sell industrial products (tubes and cores, construction products and protective packaging), which ultimately serve both industrial and consumer markets. We also produce and sell bulk and specialty partitions made from both containerboard and uncoated recycled board. In addition, we purchase and sell recycled fiber and produce and sell adhesives used in our paperboard products.
In the Land Management reportable 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 April 30, 2024, we owned approximately 176,000 acres of timber property in the southeastern United States, which includes 6,500 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 2023 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 2023 Form 10-K.
Business Combinations
We acquired Ipackchem Group SAS (“Ipackchem”) on March 26, 2024 (the “Ipackchem Acquisition”). Ipackchem is a global market leader in the production of high-performance plastic packaging, including premium barrier and non-barrier jerrycans
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and small plastic containers, and this acquisition expanded our Global Industrial Packaging segment portfolio. Ipackchem’s results of operations have been included in our financial results for the period subsequent to its acquisition date.
Under the acquisition method of accounting, we allocate the fair value of purchase consideration transferred to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values on the date of the acquisition. The fair values assigned, defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants, are based on estimates and assumptions determined by management. The excess purchase consideration over the aggregate fair value of tangible and intangible assets, net of liabilities assumed, is recorded as goodwill.
When determining the fair value of assets acquired and liabilities assumed, we make significant estimates and assumptions, especially with respect to intangible assets. Our estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.
During the measurement period, not to exceed one year from the date of acquisition, we may record adjustments to the assets acquired and liabilities assumed, with a corresponding offset to goodwill if new information is obtained related to facts and circumstances that existed as of the acquisition date. After the measurement period, any subsequent adjustments are reflected in the consolidated statements of operations. Acquisition costs, such as legal and consulting fees, are expensed as incurred.
See Note 2 to the interim condensed consolidated financial statements included in Item 1 of this Form 10-Q.
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 six months ended April 30, 2024 and 2023. 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 2023 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 (benefit) expense, plus depreciation, depletion and amortization, and Adjusted EBITDA is defined as EBITDA plus restructuring charges, plus acquisition and integration related costs, plus non-cash asset impairment charges, plus (gain) loss on disposal of properties, plants and equipment, net, plus (gain) loss on disposal of businesses, net, plus fiscal year-end change costs. 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 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 acquisition and integration related costs, plus non-cash asset impairment charges, plus (gain) loss on disposal of properties, plants and equipment, net, plus (gain) loss on disposal of businesses, net, plus fiscal year-end change costs, 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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Second 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 April 30, 2024 and 2023:
| Three Months Ended April 30, | |||||||||||
| (in millions) | 2024 | 2023 | |||||||||
| Net sales: | |||||||||||
| Global Industrial Packaging | $ | 804.8 | $ | 748.2 | |||||||
| Paper Packaging & Services | 560.8 | 554.8 | |||||||||
| Land Management | 5.4 | 5.9 | |||||||||
| Total net sales | $ | 1,371.0 | $ | 1,308.9 | |||||||
| Operating profit: | |||||||||||
| Global Industrial Packaging | $ | 83.4 | $ | 111.3 | |||||||
| Paper Packaging & Services | 12.6 | 67.6 | |||||||||
| Land Management | 2.1 | 2.2 | |||||||||
| Total operating profit | $ | 98.1 | $ | 181.1 | |||||||
| EBITDA: | |||||||||||
| Global Industrial Packaging | $ | 115.2 | $ | 131.5 | |||||||
| Paper Packaging & Services | 47.1 | 100.8 | |||||||||
| Land Management | 2.8 | 2.8 | |||||||||
| Total EBITDA | $ | 165.1 | $ | 235.1 | |||||||
| Adjusted EBITDA: | |||||||||||
| Global Industrial Packaging | $ | 118.3 | $ | 121.2 | |||||||
| Paper Packaging & Services | 49.0 | 104.9 | |||||||||
| Land Management | 2.6 | 2.5 | |||||||||
| Total Adjusted EBITDA | $ | 169.9 | $ | 228.6 | |||||||
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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 ended April 30, 2024 and 2023:
| Three Months Ended April 30, | |||||||||||
| (in millions) | 2024 | 2023 | |||||||||
| Net income | $ | 52.0 | $ | 116.0 | |||||||
| Plus: interest expense, net | 30.2 | 23.4 | |||||||||
| Plus: income tax expense | 17.0 | 39.1 | |||||||||
| Plus: depreciation, depletion and amortization expense | 65.9 | 56.6 | |||||||||
| EBITDA | $ | 165.1 | $ | 235.1 | |||||||
| Net income | $ | 52.0 | $ | 116.0 | |||||||
| Plus: interest expense, net | 30.2 | 23.4 | |||||||||
| Plus: other (income) expense, net | (0.4) | 2.9 | |||||||||
| Plus: income tax expense | 17.0 | 39.1 | |||||||||
| Plus: equity earnings of unconsolidated affiliates, net of tax | (0.7) | (0.3) | |||||||||
| Operating profit | 98.1 | 181.1 | |||||||||
| Less: other (income) expense, net | (0.4) | 2.9 | |||||||||
| Less: equity earnings of unconsolidated affiliates, net of tax | (0.7) | (0.3) | |||||||||
| Plus: depreciation, depletion and amortization expense | 65.9 | 56.6 | |||||||||
| EBITDA | 165.1 | 235.1 | |||||||||
| Plus: acquisition and integration related costs | 11.5 | 4.6 | |||||||||
| Plus: restructuring charges | (6.8) | 2.4 | |||||||||
| Plus: non-cash asset impairment charges | 0.4 | 1.3 | |||||||||
| Plus: gain on disposal of properties, plants and equipment, net | (0.3) | (5.0) | |||||||||
| Plus: gain on disposal of businesses, net | — | (9.8) | |||||||||
| Adjusted EBITDA | $ | 169.9 | $ | 228.6 | |||||||
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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 April 30, 2024 and 2023:
| Three Months Ended April 30, | |||||||||||
| (in millions) | 2024 | 2023 | |||||||||
| Global Industrial Packaging | |||||||||||
| Operating profit | $ | 83.4 | $ | 111.3 | |||||||
| Less: other expense, net | — | 3.3 | |||||||||
| Less: equity earnings of unconsolidated affiliates, net of tax | (0.7) | (0.3) | |||||||||
| Plus: depreciation and amortization expense | 31.1 | 23.2 | |||||||||
| EBITDA | 115.2 | 131.5 | |||||||||
| Plus: acquisition and integration related costs | 11.5 | 2.5 | |||||||||
| Plus: restructuring charges | (8.6) | 0.8 | |||||||||
| Plus: non-cash asset impairment charges | 0.4 | 1.0 | |||||||||
| Plus: gain on disposal of properties, plants and equipment, net | (0.2) | (4.7) | |||||||||
| Plus: gain on disposal of businesses, net | — | (9.9) | |||||||||
| Adjusted EBITDA | $ | 118.3 | $ | 121.2 | |||||||
| Paper Packaging & Services | |||||||||||
| Operating profit | $ | 12.6 | $ | 67.6 | |||||||
| Less: other income, net | (0.4) | (0.4) | |||||||||
| Plus: depreciation and amortization expense | 34.1 | 32.8 | |||||||||
| EBITDA | 47.1 | 100.8 | |||||||||
| Plus: acquisition and integration related costs | — | 2.1 | |||||||||
| Plus: restructuring charges | 1.8 | 1.6 | |||||||||
| Plus: non-cash asset impairment charges | — | 0.3 | |||||||||
| Plus: loss on disposal of properties, plants and equipment, net | 0.1 | — | |||||||||
| Plus: loss on disposal of businesses, net | — | 0.1 | |||||||||
| Adjusted EBITDA | $ | 49.0 | $ | 104.9 | |||||||
| Land Management | |||||||||||
| Operating profit | $ | 2.1 | $ | 2.2 | |||||||
| Plus: depreciation and depletion expense | 0.7 | 0.6 | |||||||||
| EBITDA | 2.8 | 2.8 | |||||||||
| Plus: gain on disposal of properties, plants and equipment, net | (0.2) | (0.3) | |||||||||
| Adjusted EBITDA | $ | 2.6 | $ | 2.5 | |||||||
Net Sales
Net sales were $1,371.0 million for the second quarter of 2024 compared with $1,308.9 million for the second quarter of 2023. The $62.1 million increase was primarily due to higher average selling prices and higher volumes across the Global Industrial Packaging segment, higher volumes across the Paper Packaging & Services segment, and the contribution from recent acquisitions, partially offset by lower average selling prices across the Paper Packaging & Services segment. See the “Segment Review” below for additional information on net sales by segment.
Gross Profit
Gross profit was $270.1 million for the second quarter of 2024 compared with $311.8 million for the second quarter of 2023. The $41.7 million decrease was primarily due to higher raw material, transportation and manufacturing costs, partially offset by the same factors that impacted net sales. See the “Segment Review” below for additional information on gross profit by segment. Gross profit margin was 19.7 percent and 23.8 percent for the second quarter of 2024 and 2023, respectively.
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Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses were $167.2 million for the second quarter of 2024 compared with $137.2 million for the second quarter of 2023. The $30.0 million increase was primarily related to higher compensation expenses, costs incurred for strategic investments and amortization expenses due to recent acquisitions. SG&A expenses were 12.2 percent and 10.5 percent of net sales for the second quarter of 2024 and 2023, respectively.
Financial Measures
Operating profit was $98.1 million for the second quarter of 2024 compared with $181.1 million for the second quarter of 2023. Net income was $52.0 million for the second quarter of 2024 compared with $116.0 million for the second quarter of 2023. Adjusted EBITDA was $169.9 million for the second quarter of 2024 compared with $228.6 million for the second quarter of 2023. The reasons for the changes in operating profit, net income, and Adjusted EBITDA for each segment are described below in the “Segment Review.”
Trends
We anticipate continuation of the slight sequential improvement in customer demand patterns experienced in our second quarter through the end of the year, but we note that customers in some end use markets and geographies have expressed uncertainty in their business volumes, which could make demand in some regions choppy.
We anticipate prices for steel and resin to be relatively stable through the rest of the year, subject to potential slight increases in certain geographies. Prices for old corrugated containers [which just increased $___ per ton as of June 5, 2024], transportation, labor and utilities are also expected to remain relatively stable through the rest of the year.
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 intermediate bulk containers, jerrycans and other small plastics, 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 $804.8 million for the second quarter of 2024 compared with $748.2 million for the second quarter of 2023. The $56.6 million increase was primarily due to higher average selling prices, higher volumes and the contribution from recent acquisitions.
Gross profit was $181.5 million for the second quarter of 2024 compared with $177.9 million for the second quarter of 2023. The $3.6 million increase in gross profit was primarily due to the same factors that impacted net sales and higher raw material, transportation, and manufacturing costs. Gross profit margin was 22.6 percent and 23.8 percent for the three months ended April 30, 2024 and 2023, respectively.
Operating profit was $83.4 million for the second quarter of 2024 compared with operating profit of $111.3 million for the second quarter of 2023. The $27.9 million decrease was primarily due to higher SG&A expenses related to higher compensation expenses, costs incurred for strategic investments and amortization expenses from recent acquisitions and a $9.8 million gain recognized during the second quarter of 2023 related to our previously held minority ownership interest in Centurion, partially offset by the same factors that impacted gross profit. Adjusted EBITDA was $118.3 million for the second
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quarter of 2024 compared with $121.2 million for the second quarter of 2023. The $2.9 million decrease in Adjusted EBITDA was primarily due to higher SG&A expenses related to higher compensation expenses, costs incurred for strategic investments and amortization expenses from recent acquisitions, partially offset by 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 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. We also produce and sell bulk and specialty partitions made from both containerboard and uncoated recycled paperboard. In addition, we purchase and sell recycled fiber, and we also produce and sell adhesives. 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;
•Restructuring charges;
•Acquisition of businesses and facilities; and
•Divestiture of businesses and facilities.
Net sales were $560.8 million for the second quarter of 2024 compared with $554.8 million for the second quarter of 2023. The $6.0 million increase was primarily due to higher volumes and the contribution from recent acquisitions, partially offset by lower average selling prices.
Gross profit was $86.0 million for the second quarter of 2024 compared with $131.4 million for the second quarter of 2023. The $45.4 million decrease in gross profit was primarily due to higher raw material, transportation, and manufacturing costs, partially offset by the same factors that impacted net sales. Gross profit margin was 15.3 percent and 23.7 percent for the second quarter of 2024 and 2023, respectively.
Operating profit was $12.6 million for the second quarter of 2024 compared with $67.6 million for the second quarter of 2023. The $55.0 million decrease was primarily due to the same factors that impacted gross profit and higher SG&A expenses related to higher incentive expenses and costs incurred for strategic investments. Adjusted EBITDA was $49.0 million for the second quarter of 2024 compared with $104.9 million for the second quarter of 2023. The $55.9 million decrease in Adjusted EBITDA was primarily due to the same factors that impacted operating profit.
Land Management
As of April 30, 2024, our Land Management segment consisted of approximately 176,000 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”).
Net sales were $5.4 million for the second quarter of 2024 compared with $5.9 million for the second quarter of 2023.
Gross profit was $2.6 million for the second quarter of 2024 compared with $2.5 million for the second quarter of 2023.
Operating profit was $2.1 million for the second quarter of 2024 compared with $2.2 million for the second quarter of 2023. Adjusted EBITDA was $2.6 million and $2.5 million for the second quarter of 2024 and 2023.
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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.
As of April 30, 2024, we had approximately 6,500 acres of special use property in the United States.
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 income 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 second quarter of 2024 was $17.0 million on $68.3 million of pretax income, and income tax expense for the second quarter of 2023 was $39.1 million on $154.8 million of pretax income. The $22.1 million net decrease in income tax expense was primarily attributable to the following:
•A $14.7 million benefit due to changes in the 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 income tax expense under ASC740-270.
•A $7.4 million decrease due to changes in income tax expense related to prior year tax returns.
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 $5.7 million. Actual results may differ materially from this estimate.
The Organization for Economic Co-operation and Development proposed a global minimum tax of 15% of reported profits (“Pillar 2”) that has been agreed upon in principle by over 140 countries. During 2023, many countries began to incorporate Pillar 2 model rule concepts into their domestic laws. Although the model rules provide a framework for applying the minimum tax, countries may enact Pillar 2 slightly differently than the model rules and on different timelines and may adjust domestic tax incentives in response to Pillar 2. Accordingly, we still are evaluating the potential impacts of Pillar 2 on our longer-term business, financial position and results of operations. Pillar 2 will be effective for the Company as of the first quarter of its fiscal year beginning November 1, 2024.
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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 six months ended April 30, 2024 and 2023:
| Six Months Ended April 30, | |||||||||||
| (in millions) | 2024 | 2023 | |||||||||
| Net sales: | |||||||||||
| Global Industrial Packaging | $ | 1,491.4 | $ | 1,454.0 | |||||||
| Paper Packaging & Services | 1,075.4 | 1,115.0 | |||||||||
| Land Management | 10.0 | 10.9 | |||||||||
| Total net sales | $ | 2,576.8 | $ | 2,579.9 | |||||||
| Operating profit: | |||||||||||
| Global Industrial Packaging | $ | 134.3 | $ | 157.2 | |||||||
| Paper Packaging & Services | 29.4 | 176.7 | |||||||||
| Land Management | 3.3 | 3.6 | |||||||||
| Total operating profit | $ | 167.0 | $ | 337.5 | |||||||
| EBITDA: | |||||||||||
| Global Industrial Packaging | $ | 182.5 | $ | 195.7 | |||||||
| Paper Packaging & Services | 98.8 | 243.3 | |||||||||
| Land Management | 4.5 | 4.8 | |||||||||
| Total EBITDA | $ | 285.8 | $ | 443.8 | |||||||
| Adjusted EBITDA: | |||||||||||
| Global Industrial Packaging | $ | 189.2 | $ | 193.0 | |||||||
| Paper Packaging & Services | 104.5 | 195.6 | |||||||||
| Land Management | 4.2 | 4.5 | |||||||||
| Total Adjusted EBITDA | $ | 297.9 | $ | 393.1 | |||||||
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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 six months ended April 30, 2024 and 2023:
| Six Months Ended April 30, | |||||||||||
| (in millions) | 2024 | 2023 | |||||||||
| Net income | $ | 126.3 | $ | 209.1 | |||||||
| Plus: interest expense, net | 54.4 | 46.2 | |||||||||
| Plus: income tax (benefit) expense | (21.2) | 76.8 | |||||||||
| Plus: depreciation, depletion and amortization expense | 126.3 | 111.7 | |||||||||
| EBITDA | $ | 285.8 | $ | 443.8 | |||||||
| Net income | $ | 126.3 | $ | 209.1 | |||||||
| Plus: interest expense, net | 54.4 | 46.2 | |||||||||
| Plus: other expense, net | 8.7 | 6.2 | |||||||||
| Plus: income tax (benefit) expense | (21.2) | 76.8 | |||||||||
| Plus: equity earnings of unconsolidated affiliates, net of tax | (1.2) | (0.8) | |||||||||
| Operating profit | 167.0 | 337.5 | |||||||||
| Less: other expense, net | 8.7 | 6.2 | |||||||||
| Less: equity earnings of unconsolidated affiliates, net of tax | (1.2) | (0.8) | |||||||||
| Plus: depreciation, depletion and amortization expense | 126.3 | 111.7 | |||||||||
| EBITDA | $ | 285.8 | $ | 443.8 | |||||||
| Plus: acquisition and integration related costs | 14.1 | 12.1 | |||||||||
| Plus: restructuring charges | (1.1) | 4.8 | |||||||||
| Plus: non-cash asset impairment charges | 1.7 | 1.8 | |||||||||
| Plus: gain on disposal of properties, plants and equipment, net | (3.0) | (5.0) | |||||||||
| Plus: gain on disposal of businesses, net | — | (64.4) | |||||||||
| Plus: fiscal year-end change costs | 0.4 | — | |||||||||
| Adjusted EBITDA | $ | 297.9 | $ | 393.1 | |||||||
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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 six months ended April 30, 2024 and 2023:
| Six Months Ended April 30, | |||||||||||
| (in millions) | 2024 | 2023 | |||||||||
| Global Industrial Packaging | |||||||||||
| Operating profit | $ | 134.3 | $ | 157.2 | |||||||
| Less: other expense, net | 9.5 | 6.9 | |||||||||
| Less: equity earnings of unconsolidated affiliates, net of tax | (1.2) | (0.8) | |||||||||
| Plus: depreciation and amortization expense | 56.5 | 44.6 | |||||||||
| EBITDA | $ | 182.5 | $ | 195.7 | |||||||
| Plus: acquisition and integration related costs | 14.1 | 7.5 | |||||||||
| Plus: restructuring charges | (7.7) | 2.9 | |||||||||
| Plus: non-cash impairment charges | 0.4 | 1.5 | |||||||||
| Plus: gain on disposal of properties, plants and equipment, net | (0.3) | (4.7) | |||||||||
| Plus: gain on disposal of businesses, net | — | (9.9) | |||||||||
| Plus: fiscal year-end change costs | 0.2 | — | |||||||||
| Adjusted EBITDA | $ | 189.2 | $ | 193.0 | |||||||
| Paper Packaging & Services | |||||||||||
| Operating profit | $ | 29.4 | $ | 176.7 | |||||||
| Less: other income, net | (0.8) | (0.7) | |||||||||
| Plus: depreciation and amortization expense | 68.6 | 65.9 | |||||||||
| EBITDA | $ | 98.8 | $ | 243.3 | |||||||
| Plus: acquisition and integration related costs | — | 4.6 | |||||||||
| Plus: restructuring charges | 6.6 | 1.9 | |||||||||
| Plus: non-cash impairment charges | 1.3 | 0.3 | |||||||||
| Plus: gain on disposal of properties, plants and equipment, net | (2.4) | — | |||||||||
| Plus: gain on disposal of businesses, net | — | (54.5) | |||||||||
| Plus: fiscal year-end change costs | 0.2 | — | |||||||||
| Adjusted EBITDA | $ | 104.5 | $ | 195.6 | |||||||
| Land Management | |||||||||||
| Operating profit | $ | 3.3 | $ | 3.6 | |||||||
| Plus: depreciation and depletion expense | 1.2 | 1.2 | |||||||||
| EBITDA | $ | 4.5 | $ | 4.8 | |||||||
| Plus: gain on disposal of properties, plants and equipment, net | (0.3) | (0.3) | |||||||||
| Adjusted EBITDA | $ | 4.2 | $ | 4.5 | |||||||
Net Sales
Net sales were $2,576.8 million for the first six months of 2024 compared with $2,579.9 million for the first six months of 2023. The $3.1 million decrease was primarily due to lower average selling prices and lower volumes across the Paper Packaging & Services segment and lower volumes across the Global Industrial Packaging segment, partially offset by higher average selling prices across the Global Industrial Packaging segment and the contribution from recent acquisitions. See the “Segment Review” below for additional information on net sales by segment.
Gross Profit
Gross profit was $491.7 million for the first six months of 2024 compared with $563.4 million for the first six months of 2023. The $71.7 million decrease was primarily due to the same factors that impacted net sales and higher raw material, transportation, and manufacturing costs. See “Segment Review” below for additional information on gross profit by segment. Gross profit margin was 19.1 percent and 21.8 percent for first six months of 2024 and 2023, respectively.
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Selling, General and Administrative Expenses
SG&A expenses were $313.0 million for the first six months of 2024 compared with $276.6 million for the first six months of 2023. The $36.4 million increase in SG&A expenses was primarily related to higher compensation expenses, costs incurred for strategic investments and amortization expenses due to recent acquisitions. SG&A expenses were 12.1 percent and 10.7 percent of net sales for first six months of 2024 and 2023, respectively.
Financial Measures
Operating profit was $167.0 million for the first six months of 2024 compared with $337.5 million for the first six months of 2023. Net income was $126.3 million for the first six months of 2024 compared with $209.1 million for the first six months of 2023. Adjusted EBITDA was $297.9 million for the first six months of 2024 compared with $393.1 million for the first six months of 2023. 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
Global Industrial Packaging
Net sales were $1,491.4 million for the first six months of 2024 compared with $1,454.0 million for the first six months of 2023. The $37.4 million increase in net sales was primarily due to higher average selling prices and the contribution from recent acquisitions, partially offset by lower volumes and negative foreign currency translation impacts.
Gross profit was $316.8 million for the first six months of 2024 compared with $303.2 million for the first six months of 2023. The $13.6 million increase in gross profit was primarily due to the same factors that impacted net sales, partially offset by higher raw material, transportation, and manufacturing costs. Gross profit margin was 21.2 percent and 20.9 percent for the first six months of 2024 and 2023, respectively.
Operating profit was $134.3 million for the first six months of 2024 compared with $157.2 million for the first six months of 2023. The $22.9 million decrease in operating profit was primarily due to higher SG&A expenses related to higher compensation expenses, costs incurred for strategic investments and amortization expenses from recent acquisitions and a $9.8 million gain recognized during the second quarter of 2023 related to our previously held minority ownership interest in Centurion, partially offset by the same factors that impacted gross profit. Adjusted EBITDA was $189.2 million for the first six months of 2024 compared with $193.0 million for the first six months of 2023. The $3.8 million decrease in Adjusted EBITDA was primarily due to higher SG&A expenses related to higher compensation expenses, costs incurred for strategic investments and amortization expenses from recent acquisitions, partially offset by the same factors that impacted gross profit.
Paper Packaging & Services
Net sales were $1,075.4 million for the first six months of 2024 compared with $1,115.0 million for the first six months of 2023. The $39.6 million decrease in net sales was primarily due to lower average selling prices and lower volumes, partially offset by the contribution from recent acquisitions.
Gross profit was $170.4 million for the first six months of 2024 compared with $255.6 million for the first six months of 2023. The $85.2 million decrease in gross profit was primarily due to the same factors that impacted net sales and higher raw material, transportation, and manufacturing costs. Gross profit margin was 15.8 percent and 22.9 percent for the first six months of 2024 and 2023, respectively.
Operating profit was $29.4 million for the first six months of 2024 compared with $176.7 million for the first six months of 2023. The $147.3 million decrease in operating profit was primarily due to the same factors that impacted gross profit, a $54.6 million gain from divestiture of Tama Paperboard, LLC (the “Tama Divestiture”) during the first quarter of 2023 and higher SG&A expenses related to higher compensation expenses, costs incurred for strategic investments and amortization expenses from recent acquisitions. Adjusted EBITDA was $104.5 million for the first six months of 2024 compared with $195.6 million for the first six months of 2023. The $91.1 million decrease in Adjusted EBITDA was primarily due to the same factors that impacted gross profit and higher SG&A expenses related to higher compensation expenses, costs incurred for strategic investments and amortization expenses from recent acquisitions.
Land Management
Net sales were $10.0 million for the first six months of 2024 compared with $10.9 million for the first six months of 2023.
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Gross profit was $4.5 million for the first six months of 2024 compared with $4.6 million for the first six months of 2023.
Operating profit was $3.3 million for the first six months of 2024 compared with $3.6 million for the first six months of 2023. Adjusted EBITDA was $4.2 million and $4.5 million for the first six months of 2024 and 2023, respectively.
Income tax (benefit) expense
Income tax benefit for the first six months of 2024 was $(21.2) million on $103.9 million of pretax income, and income tax expense for the first six months of 2023 was $76.8 million on $285.1 million of pretax income. The $98.0 million net decrease in income tax expense was primarily attributable to the following:
•A $22.7 million decrease in tax due to changes in the 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 income tax expense under ASC 740-270.
•One-time discrete tax benefits of $48.1 million related to the recognition of deferred tax assets due to the onshoring of certain non-U.S. intangible property.
•An $8.4 million decrease due to changes in income tax expense related to prior year tax returns and audits.
•In 2023, $18.8 million of expense was recorded for nondeductible goodwill associated with the Tama Divestiture.
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.
Cash Flow
Six Months Ended April 30, (in millions) | 2024 | 2023 | |||||||||
| Net cash provided by operating activities | $ | 92.0 | $ | 243.7 | |||||||
| Net cash used in investing activities | (662.6) | (451.0) | |||||||||
| Net cash provided by financing activities | 584.9 | 215.6 | |||||||||
| Effects of exchange rates on cash | 0.8 | 3.1 | |||||||||
| Net increase in cash and cash equivalents | 15.1 | 11.4 | |||||||||
| Cash and cash equivalents at beginning of year | 180.9 | 147.1 | |||||||||
| Cash and cash equivalents at end of period | $ | 196.0 | $ | 158.5 | |||||||
Operating Activities
During the first six months of 2024 and 2023, cash (used in) provided by change in accounts receivable was $(65.9) million and $66.0 million, respectively. The unfavorable change in accounts receivable levels was primarily due to an increase in net sales.
During the first six months of 2024 and 2023, cash (used in) provided by change in inventories was $(37.5) million and $38.6 million, respectively. The unfavorable change in inventories was primarily due to increases in raw material prices and purchases to meet demand.
During the first six months of 2024 and 2023, cash (used in) provided by change in accounts payable was $49.1 million and $(66.9) million, respectively. The favorable change in accounts payable levels was primarily due to increase in raw material prices and purchases to meet demand.
Investing Activities
During the first six months of 2024 and 2023, we invested $96.6 million and $91.1 million, respectively, of cash in capital expenditures.
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During the first six months of 2024, we paid $567.6 million for the purchases of business, net of cash acquired, primarily for the Ipackchem Acquisition. During the first six months of 2023, we paid $447.5 million for purchases of businesses, net of cash acquired, primarily for the Lee Container Acquisition and the Centurion Acquisition.
During the first six months of 2023, we received $105.6 million of cash from sale of businesses, primarily from the Tama Divestiture.
Financing Activities
During the first six months of 2024 and 2023, we paid cash dividends to our stockholders in the amount of $59.7 million and $57.9 million, respectively. During the first six months of 2024 and 2023, we borrowed $669.0 million and $332.5 million of long-term debt, net of payments, respectively. During the first six months of 2023, we paid $59.6 million to repurchase Class A Common Stock through an accelerated share repurchase agreement and to repurchase Class A and Class B Common Stock through open market purchases.
Financial Obligations
Borrowing Arrangements
Long-term debt is summarized as follows:
| (in millions) | April 30, 2024 | October 31, 2023 | |||||||||
| 2022 Credit Agreement - Term Loans | $ | 1,751.6 | $ | 1,493.8 | |||||||
| 2023 Credit Agreement - Term Loan | 292.5 | 296.3 | |||||||||
| Accounts receivable credit facilities | 346.8 | 351.0 | |||||||||
| 2022 Credit Agreement - Revolving Credit Facility | 492.2 | 77.3 | |||||||||
| Other debt | 4.0 | — | |||||||||
| 2,887.1 | 2,218.4 | ||||||||||
| Less: current portion | 95.8 | 88.3 | |||||||||
| Less: deferred financing costs | 8.4 | 8.7 | |||||||||
| Long-term debt, net | $ | 2,782.9 | $ | 2,121.4 | |||||||
2022 Credit Agreement
We and certain of our subsidiaries are parties to a senior secured credit agreement (the “2022 Credit Agreement”) with a syndicate of financial institutions.
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 that commenced on July 31, 2022 and continue 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, (c) a $515.0 million secured term loan A-2 facility with quarterly principal installments that commenced on July 31, 2022 and continue 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, and (d) as further described below, a $300.0 million incremental secured term loan A-4 facility with quarterly principal installments that commenced on April 30, 2024 and continue through January 31, 2027, with any outstanding principal balance of such term loan A-4 being due and payable on maturity on March 1, 2027. Subject to the terms of the 2022 Credit Agreement, the Company has an option to borrow additional funds under the 2022 Credit Agreement with the agreement of the lenders.
On March 25, 2024, we entered into an incremental term loan agreement (the “Incremental Term Loan A-4 Agreement”) with a syndicate of financial institutions. The Incremental Term Loan A-4 Agreement is an amendment to the 2022 Credit Agreement. The Incremental Term Loan A-4 Agreement provided for a loan in the aggregate principal amount of $300.0 million that was made available in a single draw on March 25, 2024 (the “Incremental Term Loan A-4”). Amounts repaid or prepaid in respect of the Incremental Term Loan A-4 may not be reborrowed. The Incremental Term Loan A-4 amortizes at 2.50% per annum in equal quarterly principal installments, with the remaining outstanding principal balance due on March 1, 2027. The terms and provisions of the Incremental Term Loan A-4 are identical in all material respects to the terms and provisions of the other term loans made under the 2022 Credit Agreement. Our obligations with respect to the Incremental Term Loan A-4 are secured and
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guaranteed with the other obligations under the 2022 Credit Agreement on a pari passu basis. We used the proceeds from the Incremental Term Loan A-4 to repay funds drawn on the revolving credit facility under the 2022 Credit Agreement for the purchase of Ipackchem on March 26, 2024.
Interest is based on Secured Overnight Financing Rate (“SOFR”) plus a credit spread adjustment 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 April 30, 2024, we had $307.8 million of available borrowing capacity under the $800.0 million secured revolving credit facility.
The repayment of all borrowings under the 2022 Credit Agreement is secured by a security interest in certain of our personal property and certain of 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.
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 4.50 to 1.00 through the quarter ending January 31, 2025, and thereafter 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 of April 30, 2024, we were in compliance with the covenants and other agreements in the 2022 Credit Agreement.
2023 Credit Agreement
On May 17, 2023, we and Greif Packaging LLC, a direct wholly owned subsidiary of Greif, Inc., entered into a $300.0 million senior secured credit agreement (the “2023 Credit Agreement”) with CoBank, ACB (“CoBank”), who acted as lender and is acting as administrative agent of the 2023 Credit Agreement. The 2023 Credit Agreement is permitted incremental equivalent debt under the terms of the 2022 Credit Agreement. The 2023 Credit Agreement provides for a $300.0 million secured term loan facility with quarterly principal installments that commenced on July 31, 2023 and will continue through January 31, 2028, with any outstanding principal balance of such term loan being due and payable on maturity on May 17, 2028. We used the borrowing under the 2023 Credit Agreement to repay and refinance a portion of the outstanding borrowings under the 2022 Credit Agreement. Interest accruing under the 2023 Credit Agreement is based on SOFR plus a credit spread adjustment or a base rate that resets periodically plus, in each case, a calculated margin amount that is based on our leverage ratio.
The repayment of all borrowings under the 2023 Credit Agreement is secured by a security interest in certain of our personal property and certain of 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. 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. Our obligations under the 2023 Credit Agreement are secured on a pari passu basis with the obligations arising under the 2022 Credit Agreement.
The 2023 Credit Agreement contains covenants, including financial covenants, substantially the same as the covenants in 2022 Credit Agreement, as described above, and a “most favored lender” provision related to the 2022 Credit Agreement. As of April 30, 2024, we were in compliance with the covenants and other agreements in the 2023 Credit Agreement.
United States Trade Accounts Receivable Credit Facility
We have a $300.0 million U.S. Receivables Financing Facility Agreement (the “U.S. RFA”). On May 17, 2024, the maturity date of the U.S. RFA was extended to May 16, 2025. As of April 30, 2024, there was a $259.3 million ($270.9 million as of October 31, 2023) outstanding balance under the U.S. RFA. The U.S. RFA also contains events of default and covenants that
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are substantially the same as the covenants under the 2022 Credit Agreement. As of April 30, 2024, we were in compliance with these covenants. Proceeds of the U.S. RFA are available for working capital and general corporate purposes.
International Trade Accounts Receivable Credit Facility
We have a €100.0 million ($106.9 million as of April 30, 2024) European Receivables Financing Agreement (the “European RFA”). On April 19, 2024, the maturity date of the European RFA was extended to April 22, 2025. As of April 30, 2024, $87.5 million ($80.1 million as of October 31, 2023) was outstanding on the European RFA. As of April 30, 2024, we were in compliance with covenants contained in the European RFA. Proceeds of the European RFA are available for working capital and general corporate purposes.
See Note 4 to the interim condensed consolidated financial statements included in Item 1 of this Form 10-Q for additional disclosures regarding our financial obligations.
Financial Instruments
Interest Rate Derivatives
As of April 30, 2024, we have various interest rate swaps with a total notional amount of $1,400.0 million ($1,300.0 million as of October 31, 2023), 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 2.97%, plus a spread. These derivatives are designated as cash flow hedges for accounting purposes and will mature between March 1, 2027 and July 16, 2029.
Accordingly, the gain or loss on these derivative instruments is 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 protect the value of certain existing foreign currency assets and liabilities, commitments, and anticipated foreign currency cash flows.
As of April 30, 2024, and October 31, 2023, we had outstanding foreign currency forward contracts in the notional amount of $101.0 million, and $66.0 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 $447.6 million ($319.3 million as of October 31, 2023) of U.S. fixed rate debt to Euro denominated fixed rate debt. We receive a weighted average rate of 1.27%. These agreements are designated either net investment hedges or cash flow hedges for accounting purposes and will mature between August 10, 2026 and November 3, 2028.
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 5 to the interim condensed consolidated financial statements included in Item 1 of this Form 10-Q for additional disclosures regarding our financial instruments.
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ITEM 4. CONTROLS AND PROCEDURES
Changes in Internal Control Over Financial Reporting
The Company completed the Ipackchem Acquisition on March 26, 2024. The scope of the Company’s assessment of the effectiveness of internal controls over financial reporting for the fiscal year ending October 31, 2024, will not include the Ipackchem Acquisition. This exclusion is in accordance with the SEC’s general guidance that an assessment of a recently acquired business may be omitted from the Company’s scope in the year of acquisition.
We are currently integrating the processes and internal controls of Ipackchem. Except for the Ipackchem Acquisition, 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 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 SEC;
•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.
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PART II. OTHER INFORMATION
ITEM 1A. RISK FACTORS
There have been no material changes in our risk factors from those disclosed in the 2023 Form 10-K under Part I, Item 1A –– Risk Factors.
ITEM 6. EXHIBITS
(a.) Exhibits
| Exhibit No. | Description of Exhibit | |||||||
| Letter dated April 19, 2024, between Coöperatieve Rabobank U.A., Nieuw Amsterdam Receivables Corporation B.V., Greif, Inc., Greif Service Belgium BV and Cooperage Receivables Finance B.V., extending the maturity date of the European receivables financing arrangement to April 22, 2025 | ||||||||
| Omnibus Amendment No. 6 dated May 17, 2024, to Third Amended and Restated Transfer and Administration Agreement dated September 24, 2019, by and among Greif Receivables Funding LLC, as seller, Container Life Cycle Management LLC, Lee Container, LLC, and Lee Container Iowa, LLC, Greif Packaging LLC, Delta Petroleum Company, Inc., American Flange & Manufacturing Co. Inc., Caraustar Mill Group, Inc., Caraustar Industrial and Consumer Products Group, Inc., Caraustar Recovered Fiber Group, Inc., The Newark Group, Inc., Caraustar Consumer Products Group, LLC, and Cascade Paper Converters Co., as originators. | ||||||||
| 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. | ||||||||
| 101 | The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended April 30, 2024, formatted in Inline XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Statements of Income (ii) Condensed Consolidated Statements of Comprehensive Income, (iii) Condensed Consolidated Balance Sheets, (iv) Condensed Consolidated Statements of Cash Flows (v) Condensed Consolidated Statements of Changes in Shareholders’ Equity and (vi) Notes to Condensed Consolidated Financial Statements. | |||||||
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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: June 6, 2024 | /s/ LAWRENCE A. HILSHEIMER | |||||||
| Lawrence A. Hilsheimer | ||||||||
| Executive Vice President and Chief Financial Officer | ||||||||
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