NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Business
Greif, Inc. and its subsidiaries (collectively, “Greif,” “our,” or the “Company”), principally manufacture rigid industrial packaging products, such as steel, fibre and plastic drums, rigid intermediate bulk containers, closure systems for industrial packaging products, transit protection products, water bottles and remanufactured and reconditioned industrial containers, and provides services, such as container life cycle management, filling, logistics, warehousing and other packaging services. The Company produces containerboard, corrugated and paperboard products for niche markets in North America. The Company also produces coated and uncoated recycled paperboard, which is used in a variety of applications that include industrial products (tubes and cores, construction products, protective packaging, and adhesives) and consumer packaging products (folding cartons, set-up boxes, and packaging services). The Company is a leading global producer of flexible intermediate bulk containers. The Company has operations in over 40 countries. In addition, the Company owns timber properties in the southeastern United States, which are actively harvested and regenerated.
Due to the variety of its products, the Company has many customers buying different products and due to the scope of the Company’s sales, no one customer is considered principal in the total operations of the Company.
The Company supplies a cross section of industries, such as chemicals, paints and pigments, food and beverage, petroleum, industrial coatings, agricultural, pharmaceutical, mineral, packaging, automotive and building products, and makes spot deliveries on a day-to-day basis as its products are required by its customers. The Company does not operate on a backlog to any significant extent and maintains only limited levels of finished goods. Many customers place their orders weekly for delivery during the same week.
The Company’s raw materials are principally steel, resin, containerboard, old corrugated containers, pulpwood, recycled coated and uncoated paperboard and used industrial packaging for reconditioning.
There were approximately 17,000 employees of the Company as of October 31, 2019.
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of Greif, Inc., all wholly-owned and majority-owned subsidiaries, joint ventures controlled by the Company or for which the Company is the primary beneficiary, including the joint venture relating to the Flexible Products & Services segment, and equity earnings of unconsolidated affiliates. All intercompany transactions and balances have been eliminated in consolidation. Investments in unconsolidated affiliates are accounted for using the equity method based on the Company’s ownership interest in the unconsolidated affiliate.
The Company’s consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States (“GAAP”). Certain prior year amounts have been reclassified to conform to the current year presentation.
The Company’s fiscal year begins on November 1 and ends on October 31 of the following year. Any references to the year 2024, 2023, 2022, 2021, 2020, 2019, 2018 2017, 2016, or 2015, or to any quarter of those years, relates to the fiscal year ended in that year.
Argentina Currency
The Company’s results with respect to the business of its Argentinian subsidiary have been reported under highly inflationary accounting beginning August 1, 2018. As of October 31, 2019, the Company's Argentina subsidiary represented approximately 1% of the Company’s consolidated net revenues and less than 1% of its consolidated total assets.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make certain estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The most significant estimates are related to the expected useful lives assigned to properties, plants and equipment, goodwill and other intangible assets, estimates of fair value, environmental liabilities, pension and post-retirement benefits, including plan assets, income taxes, net assets held for sale and contingencies. Actual amounts could differ from those estimates.
Cash and Cash Equivalents
The Company considers highly liquid investments with an original maturity of three months or less to be cash equivalents. The carrying value of cash equivalents approximates fair value.
Allowance for Doubtful Accounts
Trade receivables represent amounts owed to the Company through its operating activities and are presented net of allowance for doubtful accounts. The allowance for doubtful accounts totaled $6.8 million and $4.2 million as of October 31, 2019 and 2018, respectively. The Company evaluates the collectability of its accounts receivable based on a combination of factors. In circumstances where the Company is aware of a specific customer’s inability to meet its financial obligations to the Company, the Company records a specific allowance for bad debts against amounts due to reduce the net recognized receivable to the amount the Company reasonably believes will be collected. In addition, the Company recognizes allowances for bad debts based on the length of time receivables are past due with allowance percentages, based on its historical experiences, applied on a graduated scale relative to the age of the receivable amounts. If circumstances such as higher than expected bad debt experience or an unexpected material adverse change in a major customer’s ability to meet its financial obligations to the Company were to occur, the recoverability of amounts due to the Company could change by a material amount. Amounts deemed uncollectible are written-off against an established allowance for doubtful accounts.
Concentration of Credit Risk and Major Customers
The Company maintains cash depository accounts with banks throughout the world and invests in high quality short-term liquid instruments. Such investments are made only in instruments issued by high quality institutions. These investments mature within three months and the Company has not incurred any related losses for the years ended October 31, 2019, 2018, and 2017.
Trade receivables can be potentially exposed to a concentration of credit risk with customers or in particular industries. Such credit risk is considered by management to be limited due to the Company’s many customers, none of which are considered principal in the total operations of the Company, and its geographic scope of operations in a variety of industries throughout the world. The Company does not have an individual customer that exceeds 10 percent of total revenue. In addition, the Company performs ongoing credit evaluations of its customers’ financial conditions and maintains reserves for credit losses. Such losses historically have been within management’s expectations.
Inventory
The Company primarily uses the FIFO method of inventory valuation. Reserves for slow moving and obsolete inventories are provided based on historical experience, inventory aging and product demand. The Company continuously evaluates the adequacy of these reserves and makes adjustments to these reserves as required.
The Paper Packaging & Services segment trades certain inventories with third parties. These inventory trades are accounted for as non-monetary exchanges and any unfavorable imbalances, resulting from these trades, are recorded as a liability.
Net Assets Held for Sale
Net assets held for sale represent land, buildings and other assets and liabilities for locations that have met the criteria of “held for sale” accounting, as specified by Accounting Standards Codification (“ASC”) 360, “Property, Plant, and Equipment,” at the lower of carrying value or fair value less cost to sell. Fair value is based on the estimated proceeds from the sale of the assets utilizing recent purchase offers, market comparables and/or reliable third party data. The Company's estimate as to fair value is regularly reviewed and assets are subject to changes, such as in the commercial real estate markets and the Company's continuing evaluation as to the asset’s acceptable sale price. As of October 31, 2019, there were three asset groups within the Rigid Industrial Packaging & Services, three asset groups within Paper Packaging & Services segment, one asset group within Land Management segment and one asset group within the Corporate and Other segment classified as assets and liabilities held for sale. The effect of suspending depreciation on the facilities held for sale is immaterial to the results of operations. The net assets held for sale are being marketed for sale and it is the Company’s intention to complete the sales of these assets within the upcoming year. See Note 4 and Note 9 for additional information regarding assets and liabilities held for sale.
Goodwill and Indefinite-Lived Intangibles
Goodwill is the excess of the purchase price of an acquired entity over the amounts assigned to tangible and intangible assets and liabilities assumed in the business combination. The Company accounts for purchased goodwill and indefinite-lived intangible assets in accordance with ASC 350, “Intangibles – Goodwill and Other.” Under ASC 350, purchased goodwill and intangible assets with indefinite lives are not amortized, but instead are tested for impairment at least annually. The Company tests for
impairment of goodwill and indefinite-lived intangible assets as of August 1, or more frequently if certain indicators are present or changes in circumstances suggest that impairment may exist.
In accordance with ASC 350, the Company has the option to first assess qualitative factors to determine whether it is necessary to perform the quantitative test for goodwill impairment. If the Company believes, as a result of its qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. The quantitative test for goodwill impairment is conducted at the reporting unit level by comparing the carrying value of each reporting unit to the estimated fair value of the unit. If the carrying value of a reporting unit exceeds its estimated fair value, then the goodwill of the reporting unit is impaired. Goodwill impairment is recognized as the amount that the carrying value exceeds the fair value; not to exceed the balance of goodwill attributable to the reporting unit. When a portion of a reporting unit is disposed of, goodwill is allocated to the gain or loss on that disposition based on the relative fair values of the portion of the reporting unit subject to disposition and the portion of the reporting unit that will be retained.
The Company’s determinations of estimated fair value of the reporting units are based on both the market approach and a discounted cash flow analysis utilizing the income approach. Under the market approach, the principal inputs are market prices and valuation multiples for public companies engaged in businesses that are considered comparable to the reporting unit. Under the income approach, the principal inputs are the reporting unit’s cash-generating capabilities and the discount rate. The discount rates used in the income approach are based on a market participant’s weighted average cost of capital. The use of alternative estimates, including different peer groups or changes in the industry, or adjusting the discount rate, earnings before interest, taxes, depreciation, depletion and amortization forecasts or cash flow assumptions used could affect the estimated fair value of the reporting units and potentially result in goodwill impairment. Any identified impairment would result in an expense to the Company’s results of operations. See Note 4 for additional information regarding goodwill and other intangible assets.
Other Intangibles
The Company accounts for intangible assets in accordance with ASC 350. Definite lived intangible assets are amortized over their useful lives on a straight-line basis. The useful lives for definite lived intangible assets vary depending on the type of asset and the terms of contracts or the valuation performed. Amortization expense on intangible assets is recorded on the straight-line method over their useful lives as follows:
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Years
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Trade names
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1-15
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Non-competes
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1-10
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Customer relationships
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5-25
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Other intangibles
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1-20
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Acquisitions
From time to time, the Company acquires businesses and/or assets that augment and complement its operations. In accordance with ASC 805, “Business Combinations,” these acquisitions are accounted for under the purchase method of accounting. Under this method, the Company allocates 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 excess purchase consideration over the aggregate fair value of tangible and intangible assets, net of liabilities assumed, is recorded as goodwill. The Company's 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, the Company 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.
In order to assess performance, the Company classifies costs incurred in connection with acquisitions as acquisition-related costs. These costs are expensed as incurred and consist primarily of transaction costs, legal and consulting fees, integration costs and changes in the fair value of contingent payments (earn-outs) and are recorded within Acquisition-Related Costs line item presented on the consolidated income statement. Acquisition transaction costs are incurred during the initial evaluation of a potential targeted acquisition and primarily relate to costs to analyze, negotiate and consummate the transaction as well as financial and legal due diligence activities. Post-acquisition integration activities are costs incurred to combine the operations of an acquired enterprise into the Company’s operations.
The consolidated financial statements include the results of operations from these business combinations from the date of acquisition.
Internal Use Software
Internal use software is accounted for under ASC 985, “Software.” Internal use software is software that is acquired, internally developed or modified solely to meet the Company’s needs and for which, during the software’s development or modification, a plan does not exist to market the software externally. Costs incurred to develop the software during the application development stage and for upgrades and enhancements that provide additional functionality are capitalized and then amortized over a three to ten year period. Internal use software is capitalized as a component of machinery and equipment on the Consolidated Balance Sheets.
Long-Lived Assets
Properties, plants and equipment are stated at cost. Depreciation on properties, plants and equipment is provided on the straight-line method over the estimated useful lives of the assets as follows:
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Years
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Buildings
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30-40
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Machinery and equipment
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5-15
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Depreciation expense was $149.0 million, $107.5 million and $106.8 million in 2019, 2018 and 2017, respectively. Expenditures for repairs and maintenance are charged to expense as incurred. When properties are retired or otherwise disposed of, the cost and accumulated depreciation are eliminated from the asset and related allowance accounts. Gains or losses are credited or charged to income as incurred.
The Company capitalizes interest on long-term fixed asset projects using a rate that approximates the weighted average cost of borrowing. For the years ended October 31, 2019, 2018, and 2017, the Company capitalized interest costs of $5.6 million, $4.5 million, and $3.5 million, respectively.
The Company tests for impairment of properties, plants and equipment if certain indicators are present to suggest that impairment may exist. Long-lived assets are grouped together at the lowest level, generally at the plant level, for which identifiable cash flows are largely independent of cash flows of other groups of long-lived assets. As events warrant, the Company evaluates the recoverability of long-lived assets, other than goodwill and indefinite-lived intangible assets, by assessing whether the carrying value can be recovered over their remaining useful lives through the expected future undiscounted operating cash flows of the underlying business. Impairment indicators include, but are not limited to, a significant decrease in the market price of a long-lived asset; a significant adverse change in the manner in which the asset is being used or in its physical condition; a significant adverse change in legal factors or the business climate that could affect the value of a long-lived asset; an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset; current period operating or cash flow losses combined with a history of operating or cash flow losses associated with the use of the asset; or a current expectation that it is more likely than not that a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. Future decisions to change our manufacturing processes, exit certain businesses, reduce excess capacity, temporarily idle facilities and close facilities could also result in material impairment losses. Any impairment loss that may be required is determined by comparing the carrying value of the assets to their estimated fair value.
As of October 31, 2019, the Company's timber properties consisted of approximately 251,000 acres, all of which were located in the southeastern United States. The Company’s land costs are maintained by tract. Upon acquisition of a new timberland tract, the Company records separate amounts for land, merchantable timber and pre-merchantable timber allocated as a percentage of the values being purchased. The Company begins recording pre-merchantable timber costs at the time the site is prepared for planting. Costs capitalized during the establishment period include site preparation by aerial spray, costs of seedlings, including refrigeration rental and trucking, planting costs, herbaceous weed control, woody release, and labor and machinery use. The Company does not capitalize interest costs in the process. Property taxes are expensed as incurred. New road construction costs are capitalized as land improvements and depreciated over 20 years. Road repairs and maintenance costs are expensed as incurred. Costs after establishment of the seedlings, including management costs, pre-commercial thinning costs and fertilization costs, are expensed as incurred. Once the timber becomes merchantable, the cost is transferred from the pre-merchantable timber category to the merchantable timber category in the depletion block.
Merchantable timber costs are maintained by five product classes: pine sawtimber, pine chip-n-saw, pine pulpwood, hardwood sawtimber and hardwood pulpwood, within a depletion block, with each depletion block based upon a geographic district or
subdistrict. Currently, the Company has eight depletion blocks. These same depletion blocks are used for pre-merchantable timber costs. Each year, the Company estimates the volume of the Company’s merchantable timber for the five product classes by each depletion block and depletion costs recognized upon sales are calculated as volumes sold times the unit costs in the respective depletion block. Depletion expense was $3.7 million, $4.0 million and $4.0 million in 2019, 2018 and 2017, respectively.
Contingencies
Various lawsuits, claims and proceedings have been or may be instituted or asserted against the Company, including those pertaining to environmental, product liability and safety and health matters. While the amounts claimed may be substantial, the ultimate liability cannot currently be determined because of the considerable uncertainties that exist.
All lawsuits, claims and proceedings are considered by the Company in establishing reserves for contingencies in accordance with ASC 450, “Contingencies.” In accordance with the provisions of ASC 450, the Company accrues for a litigation-related liability when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Based on currently available information known to the Company, the Company believes that its reserves for these litigation-related liabilities are reasonable and that the ultimate outcome of any pending matters is not likely to have a material effect on the Company’s financial position or results of operations.
Environmental Cleanup Costs
The Company accounts for environmental cleanup costs in accordance with ASC 410, “Asset Retirement and Environmental Obligations.” The Company expenses environmental expenditures related to existing conditions resulting from past or current operations and from which no current or future benefit is discernible. Expenditures that extend the life of the related property or mitigate or prevent future environmental contamination are capitalized. The Company determines its liability on a site-by-site basis and records a liability at the time when it is probable and can be reasonably estimated. The Company’s estimated liability is 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 the relevant costs.
Self-insurance
The Company is self-insured for certain of the claims made under its employee medical and dental insurance programs. The Company had recorded liabilities totaling $7.6 million and $3.8 million for estimated costs related to outstanding claims as of October 31, 2019 and 2018, respectively. These costs include an estimate for expected settlements on pending claims, administrative fees and an estimate for claims incurred but not reported. These estimates are based on management’s assessment of outstanding claims, historical analyses and current payment trends. The Company recorded an estimate for the claims incurred, but not reported using an estimated lag period based upon historical information.
The Company has certain deductibles applied to various insurance policies including general liability, product, vehicle and workers’ compensation. The Company maintains liabilities totaling $27.5 million and $9.8 million for anticipated costs related to general liability, product, vehicle and workers’ compensation claims as of October 31, 2019 and 2018, respectively. These costs include an estimate for expected settlements on pending claims, defense costs and an estimate for claims incurred but not reported. These estimates are based on the Company’s assessment of its deductibles, outstanding claims, historical analysis, actuarial information and current payment trends.
Income Taxes
Income taxes are accounted for under ASC 740, “Income Taxes.” In accordance with ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as measured by enacted tax rates that are expected to be in effect in the periods when the deferred tax assets and liabilities are expected to be settled or realized. Valuation allowances are established when management believes it is more likely than not that some portion of the deferred tax assets will not be realized.
The Company’s effective tax rate is impacted by the amount of income generated in each taxing jurisdiction, statutory tax rates and tax planning opportunities available to the Company in the various jurisdictions in which the Company operates. Significant judgment is required in determining the Company’s effective tax rate and in evaluating its tax positions.
Tax benefits from uncertain tax positions are recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. The amount recognized is measured as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon settlement. The Company’s effective tax rate includes the impact of reserve provisions and changes to reserves on uncertain tax positions that are not more likely than not to be sustained upon examination as well as related interest and penalties.
A number of years may elapse before a particular matter, for which the Company has established a reserve, is audited and finally resolved. The number of years with open tax audits varies depending on the tax jurisdiction. While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter, the Company believes that its reserves reflect the probable outcome of known tax contingencies. Unfavorable settlement of any particular issue would require use of the Company’s cash. Favorable resolution would be recognized as a reduction to the Company’s effective tax rate in the period of resolution.
Equity earnings of unconsolidated affiliates, net of tax
Equity earnings of unconsolidated affiliates, net of tax represent the Company’s share of earnings of affiliates in which the Company does not exercise control, but has significant influence. Investments in such affiliates are accounted for using the equity method of accounting. The Company has an equity interest in two such affiliates as of October 31, 2019. If the fair value of an investment in an affiliate is below its carrying value and the difference is deemed to be other than temporary, the difference between the fair value and the carrying value is charged to earnings.
Other Comprehensive Income
The Company's other comprehensive income is significantly impacted by foreign currency translation, effective cash flow hedges and defined benefit pension and post-retirement benefit adjustments.
The impact of foreign currency translation is affected by the translation of assets, liabilities and operations of the Company's foreign subsidiaries which are denominated in functional currencies other than the U.S. dollar and the recognition of accumulated foreign currency translation upon the disposal of foreign entities. The primary assets and liabilities affecting the adjustments are: cash and cash equivalents; accounts receivable; inventory; properties, plants and equipment; accounts payable; pension and other post-retirement benefit obligations; and certain intercompany loans payable and receivable. The primary currencies in which these assets and liabilities are denominated are the Euro, Brazilian real, and Chinese yuan.
The impact of effective cash flow hedges is reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Currently, interest rate swaps are held by the Company to effectively convert a portion of floating rate debt to a fixed rate basis, thus reducing the impact of interest rate increases on future interest expense. The Company uses the regression method for assessing the effectiveness of the swaps.
The impact of defined benefit pension and post-retirement benefit adjustments is primarily affected by unrecognized actuarial gains and losses related to the Company's defined benefit and other post-retirement benefit plans, as well as the subsequent amortization of gains and losses from accumulated other comprehensive income in periods following the initial recording of such items. These actuarial gains and losses are determined using various assumptions, the most significant of which are (i) the weighted average rate used for discounting the liability, (ii) the weighted average expected long-term rate of return on pension plan assets, (iii) the method used to determine market-related value of pension plan assets, (iv) the weighted average rate of future salary increases and (v) the anticipated mortality rate tables.
Restructuring Charges
The Company accounts for all exit or disposal activities in accordance with ASC 420, “Exit or Disposal Cost Obligations.” Under ASC 420, a liability is measured at its fair value and recognized as incurred.
Employee-related costs primarily consist of one-time termination benefits provided to employees who have been involuntarily terminated. A one-time benefit arrangement is an arrangement established by a plan of termination that applies for a specified termination event or for a specified future period. A one-time benefit arrangement exists at the date the plan of termination meets all of the following criteria and has been communicated to employees:
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(1)
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Management, having the authority to approve the action, commits to a plan of termination.
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(2)
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The plan identifies the number of employees to be terminated, their job classifications or functions and their locations, and the expected completion date.
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(3)
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The plan establishes the terms of the benefit arrangement, including the benefits that employees will receive upon termination (including but not limited to cash payments), in sufficient detail to enable employees to determine the type and amount of benefits they will receive if they are involuntarily terminated.
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(4)
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Actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
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Facility exit and other costs consist of equipment relocation costs and project consulting fees. A liability for other costs associated with an exit or disposal activity shall be recognized and measured at its fair value in the period in which the liability is incurred (generally, when goods or services associated with the activity are received). The liability shall not be recognized before it is incurred, even if the costs are incremental to other operating costs and will be incurred as a direct result of a plan.
Pension and Post-retirement Benefits
Under ASC 715, “Compensation – Retirement Benefits,” employers recognize the funded status of their defined benefit pension and other post-retirement plans on the consolidated balance sheet and record as a component of other comprehensive income, net of tax, the gains or losses and prior service costs or credits that have not been recognized as components of the net periodic benefit cost.
Stock-Based Compensation Expense
The Company recognizes stock-based compensation expense in accordance with ASC 718, “Compensation – Stock Compensation.” ASC 718 requires the measurement and recognition of compensation expense, based on estimated fair values, for all share-based awards made to employees and directors, including stock options, restricted stock, restricted stock units and participation in the Company’s employee stock purchase plan.
ASC 718 requires companies to estimate the fair value of share-based awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense in the Company’s consolidated statements of income over the requisite service periods. The Company granted 291,520 shares of restricted stock with a grant date fair value of $39.83 under the Company’s Long-Term Incentive Plan for 2019. The total stock expense recorded under the Long-Term Incentive Plan was $11.6 million, $5.3 million and $1.7 million for the periods ended October 31, 2019, 2018 and 2017, respectively. All restricted stock awards under the Long-Term Incentive Plan are fully vested at the date of award. No stock options were granted in 2019, 2018 or 2017. For any options granted in the future, compensation expense will be based on the grant date fair value estimated in accordance with the standard.
Revenue Recognition
Revenue is recognized in accordance with ASC 606, "Revenue from Contracts with Customers".
The Company generates substantially all of its revenue by providing its customers with industrial packaging products serving a variety of end markets. The Company may enter into fixed term sale agreements, including multi-year master supply agreements which outline the terms under which the Company does business. The Company also sells to certain customers solely based on purchase orders. As master supply agreements do not typically include fixed volumes, customers generally purchase products pursuant to purchase orders or other communications that are short-term in nature. The Company has concluded for the vast majority of its revenues, that its contracts with customers are either a purchase order or the combination of a purchase order with a master supply agreement.
A performance obligation is considered an individual unit sold. Contracts or purchase orders with customers could include a single type of product or it could include multiple types or specifications of products. Regardless, the contracted price with the customer is agreed at the individual product level outlined in the customer contracts or purchase orders. The Company does not bundle products. Negotiations with customers are based on a variety of factors including the level of anticipated contractual volume, geographic location, complexity of the product, key input costs and a variety of other factors. The Company has concluded that prices negotiated with each individual customer are representative of the stand-alone selling price of the product.
The Company typically satisfies the obligation to provide packaging to customers at a point in time when control is transferred to customers. The point in time when control of goods is transferred is largely dependent on delivery terms. Revenue is recorded at the time of shipment for delivery terms designated shipping point. For sales transactions designated destination, revenue is recorded when the product is delivered to the customer’s delivery site. Purchases by the Company’s customers are generally manufactured and shipped with minimal lead time; therefore, performance obligations are generally settled shortly after manufacturing and shipment.
The Company manufactures certain products that have no alternative use to the Company once they are printed or manufactured to customer specifications; however, in the majority of cases, the Company does not have an enforceable right to payment that includes a reasonable profit for custom products at all times in the manufacturing process, and therefore revenue is recognized at the point in time at which control transfers. As revenue recognition is dependent upon individual contractual terms, the Company evaluates any new or amended contracts entered into.
Revenue is measured as the amount of consideration the Company expects to be entitled to in exchange for transferring goods or providing services. Standalone selling prices for each performance obligation are generally stated in the contract. When the Company offers variable consideration in the form of volume rebates to customers, it estimates the amount of revenue to which it is expected to be entitled to based on contract terms and historical experience of actual results, and includes the estimate in the transaction price, limited to the amount which is probable will not result in reversal of cumulative revenue recognized when the variable consideration is resolved. The Company provides prompt pay discounts to certain customers if invoices are paid within a predetermined period. Prompt payment discounts are treated as a reduction of revenue and are determinable within a short period of the sale.
Contract Balances
Contract liabilities relate primarily to prepayments received from the Company’s customers before revenue is recognized and before volume rebates to customers. These amounts are included in other current liabilities in the consolidated balance sheets. The Company does not have any material contract assets.
Practical Expedients
The Company’s contracts generally include standard commercial payment terms generally acceptable in each region. Customer payment terms are typically less than one year and as such, the Company has applied the practical expedient to exclude consideration of significant financing components from the determination of transaction price.
Taxes collected from customers and remitted to governmental authorities are excluded from net sales.
Costs to obtain a contract are generally immaterial, but the Company has elected the practical expedient to expense these costs as incurred if the amortization period of the capitalized cost would be one year or less.
The Company has applied the practical expedient to exclude disclosure of remaining performance obligations as the Company's contracts typically have a term of one year or less.
Freight charged to customers is included in net sales in the income statement. For shipping and handling activities performed after a customer obtains control of the goods, the Company has elected to account for these costs as activities to fulfill the promise to transfer the goods; therefore, these activities are not assessed as separate performance obligations.
Disaggregation of Revenues
The Company's contracts with customers are broadly similar in nature throughout its reportable segments, but the amount, timing and uncertainty of revenue and cash flows may vary in each reportable segment due to geographic factors. See Note 16 to the Consolidated Financial Statements for additional disclosures of revenue disaggregated by geography for each reportable segment.
Shipping and Handling Fees and Costs
The Company includes shipping and handling fees and costs in cost of products sold.
Other Expense, net
Other expense, net primarily represents Foreign Receivables Facilities, as defined in Note 3 to the Consolidated Financial Statements, program fees, foreign currency transaction gains and losses, non-service cost components of net periodic post-retirement benefit costs and other infrequent non-operating items.
Currency Translation
In accordance with ASC 830, “Foreign Currency Matters,” the assets and liabilities denominated in a foreign currency are translated into United States dollars at the rate of exchange existing at period-end, and revenues and expenses are translated at average exchange rates.
The cumulative translation adjustments, which represent the effects of translating assets and liabilities of the Company’s international operations, are presented in the consolidated statements of changes in shareholders’ equity in accumulated other comprehensive income (loss). Transaction gains and losses on foreign currency transactions denominated in a currency other than an entity’s functional currency are credited or charged to income. The amounts included in other expense, net related to foreign currency transaction losses were $2.1 million, $8.8 million and $6.4 million in 2019, 2018 and 2017, respectively.
Derivative Financial Instruments
In accordance with ASC 815, “Derivatives and Hedging,” the Company records all derivatives in the consolidated balance sheet as either assets or liabilities measured at fair value. Dependent on the designation of the derivative instrument, changes in fair value are recorded to earnings or shareholders’ equity through other comprehensive income (loss).
The Company may from time to time use interest rate swap agreements to hedge against changing interest rates. For interest rate swap agreements designated as cash flow hedges, the net gain or loss on the derivative instrument is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The Company's interest rate swap agreements effectively convert a portion of floating rate debt to a fixed rate basis, thus reducing the impact of interest rate increases on future interest expense.
The Company's cross currency interest rate swap agreement synthetically swaps U.S. dollar denominated fixed rate debt for Euro denominated fixed rate debt and is designated as a net investment hedge for accounting purposes. The gain or loss on this derivative instrument is included in the foreign currency translation component of other comprehensive income until the net investment is sold, diluted, or liquidated. Interest payments received 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 Company enters into currency forward contracts to hedge certain currency transactions and short-term intercompany loan balances with its international businesses. Such contracts limit the Company’s exposure to both favorable and unfavorable currency fluctuations. These contracts are adjusted to reflect market value as of each balance sheet date, with the resulting changes in fair value being recognized in other expense, net.
Any derivative contract that is either not designated as a hedge, or is so designated but is ineffective, has its changes to market value recognized in earnings immediately. If a cash flow or fair value hedge ceases to qualify for hedge accounting, the contract would continue to be carried on the balance sheet at fair value until settled and have the adjustments to the contract’s fair value recognized in earnings. If a forecasted transaction were no longer probable to occur, amounts previously deferred in accumulated other comprehensive income (loss) would be recognized immediately in earnings.
Variable Interest Entities
The Company evaluates whether an entity is a variable interest entity (“VIE”) and determines if the primary beneficiary status is appropriate on a quarterly basis. The Company consolidates VIEs for which it is the primary beneficiary. If the Company is not the primary beneficiary and an ownership interest is held, the VIE is accounted for under the equity method of accounting. When assessing the determination of the primary beneficiary, the Company considers all relevant facts and circumstances, including: the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance; the obligation to absorb the expected losses; and/or the right to receive the expected returns of the VIE.
Fair Value
The Company uses ASC 820, “Fair Value Measurements and Disclosures” to account for fair value. ASC 820 defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about assets and liabilities measured at fair value. Additionally, this standard established a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs.
The three levels of inputs used to measure fair values are as follows:
|
|
|
|
•
|
Level 1 – Observable inputs such as unadjusted quoted prices in active markets for identical assets and liabilities.
|
|
|
|
|
•
|
Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities.
|
|
|
|
|
•
|
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities.
|
The Company presents various fair value disclosures in Notes 9 and 12 to these consolidated financial statements.
Newly Adopted Accounting Standards
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, "Revenue from Contracts with Customers (Topic 606)," which supersedes the revenue recognition requirements in ASC 605, "Revenue Recognition." This new revenue standard introduces a five-step revenue recognition model in which an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which
the entity expects to be entitled to in exchange for those goods or services. The new revenue standard also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The Company adopted the ASU, and all of the related amendments, using the modified retrospective method on November 1, 2018. The adoption of the ASU and related amendments did not impact the Company’s financial position, results of operations, comprehensive income or cash flows. Additionally, no cumulative effect adjustment was recorded to opening retained earnings as of November 1, 2018. Based on current operations, the Company does not expect a material impact on an ongoing basis as a result of the adoption of the new standard.
In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230)," which amends the classification of certain cash receipts and cash payments on the statement of cash flows. This update clarifies guidance on eight specific cash flow items. The ASU requires the beneficial interests obtained through securitization of financial assets be disclosed as a non-cash activity and cash receipts from beneficial interests be classified as cash inflows from investing activities. Under previous guidance, the Company classified cash receipts from beneficial interests in securitized receivables and cash payments resulting from debt prepayment or extinguishment as cash flows from operating activities. The amendments in this update are required to be applied using a retrospective approach, excluding amendments for which retrospective application is impractical. On November 1, 2018, the Company adopted the provisions of ASU 2016-15 on a retrospective basis with the exception of the Company's beneficial interests obtained through securitization of financial assets, for which the Company adopted this update on a prospective basis due to the impracticality of the retrospective basis. The adoption of this update did not have a material impact on the Company's financial position, results of operations, comprehensive income, cash flows or disclosures for the periods presented.
In October 2016, the FASB issued ASU 2016-16, "Intra-Entity Transfers of Assets Other Than Inventory (Topic 740)," which improves the accounting for income tax consequences of intra-entity transfers of assets other than inventory. This update requires transferring entities to recognize a current tax expense or benefit at the time of transfer and receiving entities to recognize a corresponding deferred tax asset or liability. The Company adopted this standard on November 1, 2018 using a modified retrospective approach. The adoption of this update resulted in a reclassification of approximately $15.1 million from "Prepaid Tax Assets" to "Retained Earnings", offset by the establishment of a deferred tax asset of $13.0 million for a net impact on retained earnings of $2.1 million as of November 1, 2018. The adoption did not have a material impact on the Company's financial position, results of operations, comprehensive income, cash flows or disclosures, other than the impact discussed above.
In January 2017, the FASB issued ASU 2017-01, "Clarifying the Definition of a Business," which narrows the existing definition of a business and provides a framework for evaluating whether a transaction should be accounted for as an acquisition (or disposal) of assets or a business. The ASU requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities (collectively, the set) is not a business. To be considered a business, the set would need to include an input and a substantive process that together significantly contribute to the ability to create outputs. The standard also narrows the definition of outputs. The definition of a business affects areas of accounting such as acquisitions, disposals and goodwill. Under the new guidance, fewer acquired sets are expected to be considered businesses. The Company adopted this standard effective November 1, 2018 on a prospective basis. The Company applied this guidance to its respective acquisitions of Caraustar Industries, Inc. and its subsidiaries ("Caraustar") and Tholu B.V. and its wholly owned subsidiary A. Thomassen Transport B.V. (collectively “Tholu”), which qualified as business combinations. See Note 2 to the Consolidated Financial Statements for additional disclosures related to these acquisitions. The adoption did not have a material impact on the Company's financial position, results of operations, comprehensive income, cash flows or disclosures, other than the impact discussed above.
Recently Issued Accounting Standards
In February 2016 and July 2018, the FASB issued ASU 2016-02 and ASU 2018-11, "Leases (Topic 842)," which amends the lease accounting and disclosure requirements in ASC 840, "Leases." The objective of this update is to increase transparency and comparability among organizations recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about lease arrangements. The Company adopted ASU 2018-11 on November 1, 2019, utilizing a modified retrospective approach and will not adjust its comparative period financial information. The Company plans to adopt the practical expedient package which permits the Company to not reassess previous conclusions whether a contract is or contains a lease, lease classification, or treatment of indirect costs for existing contracts as of the adoption date. The Company also plans to adopt the short-term lease recognition exemption and the practical expedient allowing for the combination of lease and non-lease components for equipment leases. The Company has preliminarily completed the lease collection and evaluation process, implemented a technology tool to assist with the accounting and reporting requirements of the new standard, and designed new processes and controls around leases. The Company expects to recognize a right-of-use asset and lease liability between approximately $275-$325 million and does not expect the ASU will have a material impact on its financial position, results of operations, comprehensive income, or cash flows, other than the impact discussed above.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses”. The ASU sets forth a “current expected credit loss” (CECL) model which requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. The Company plans to adopt this ASU on November 1, 2020. 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 flows and disclosures.
NOTE 2 – ACQUISITIONS AND DIVESTITURES
Acquisitions
The Company accounts for acquisitions in accordance with ASC 805, "Business Combinations". The estimated fair values of all assets acquired and liabilities assumed in the acquisitions are provisional and may be revised as a result of additional information obtained during the measurement period of up to one year from the acquisition date.
Caraustar Acquisition
On February 11, 2019, the Company completed its acquisition of Caraustar (the "Caraustar Acquisition"), a leader in the production of coated and uncoated recycled paperboard, which is used in a variety of applications that include industrial products (tubes and cores, construction products, protective packaging, and adhesives) and consumer packaging products (folding cartons, set-up boxes, and packaging services). The total purchase price for this acquisition, net of cash acquired, was $1,834.9 million. The Company incurred transaction costs of $62.1 million to complete this acquisition. Of this amount, $34.0 million was recognized immediately in the consolidated statements of income and the remaining $28.1 million in transaction costs was capitalized in accordance with ASC 470, "Debt", and is presented as part of the consolidated balance sheet ($20.8 million within Long-Term Debt and $7.3 million within Other Long-Term Assets).
The following table summarizes the consideration transferred to acquire Caraustar and the current preliminary valuation of identifiable assets acquired and liabilities assumed at the acquisition date, as well as measurement period adjustments made during the year ended October 31, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Amounts Recognized as of the Acquisition Date
|
Measurement Period Adjustments (1)
|
Amount Recognized as of Acquisition Date (as Adjusted)
|
|
Fair value of consideration transferred
|
|
|
|
|
Cash consideration
|
$
|
1,834.9
|
|
$
|
—
|
|
1,834.9
|
|
|
|
|
|
|
|
Recognized amounts of identifiable assets acquired and liabilities assumed
|
|
|
|
|
Accounts receivable
|
147.0
|
|
—
|
|
147.0
|
|
|
Inventories
|
103.9
|
|
(1.1
|
)
|
102.8
|
|
|
Prepaid and other current assets
|
21.5
|
|
(0.8
|
)
|
20.7
|
|
|
Intangibles
|
717.1
|
|
8.4
|
|
725.5
|
|
|
Other long-term assets
|
1.3
|
|
5.7
|
|
7.0
|
|
|
Properties, plants and equipment
|
521.3
|
|
(12.4
|
)
|
508.9
|
|
|
Total assets acquired
|
1,512.1
|
|
(0.2
|
)
|
1,511.9
|
|
|
|
|
|
|
|
Accounts payable
|
(99.5
|
)
|
—
|
|
(99.5
|
)
|
|
Accrued payroll and employee benefits
|
(42.9
|
)
|
(6.4
|
)
|
(49.3
|
)
|
|
Other current liabilities
|
(21.8
|
)
|
(6.7
|
)
|
(28.5
|
)
|
|
Long-term deferred tax liability
|
(185.7
|
)
|
46.6
|
|
(139.1
|
)
|
|
Pension and post-retirement obligations
|
(67.1
|
)
|
—
|
|
(67.1
|
)
|
|
Other long-term liabilities
|
(12.7
|
)
|
(7.4
|
)
|
(20.1
|
)
|
|
Total liabilities assumed
|
(429.7
|
)
|
26.1
|
|
(403.6
|
)
|
|
Total identifiable net assets
|
$
|
1,082.4
|
|
$
|
25.9
|
|
$
|
1,108.3
|
|
|
Goodwill
|
$
|
752.5
|
|
$
|
(25.9
|
)
|
$
|
726.6
|
|
(1) The measurement adjustments were primarily due to refinement to third party appraisals and carrying amounts of certain assets and liabilities, as well as adjustments to certain tax accounts based on, among other things, adjustments to deferred tax liabilities. The net impact of the measurement period adjustments resulted in a net $25.9 million decrease to Goodwill. The measurement adjustments recorded in 2019 did not have a significant impact on the Company's consolidated statements of income for the year ended October 31, 2019.
The Company recognized goodwill related to this acquisition of $726.6 million. The goodwill recognized in this acquisition is attributable to the acquired assembled workforce, expected synergies, and economies of scale, none of which qualify for recognition as a separate intangible asset. Caraustar is reported within the Paper Packaging & Services 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 buildings, improvements and equipment, and the market approach was used to determine the fair value for land. 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 buildings and improvements a useful life ranging from 1 year to 20 years and equipment a useful life ranging from 1 year to 15 years. Acquired property, plant and equipment will be depreciated over its 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 value of the trade name 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 trade names and discounted to present value using an appropriate discount rate.
Acquired intangible assets will be amortized over the estimated useful lives, primarily on a straight-line basis. The following table summarizes the current preliminary purchase price allocation and weighted average remaining useful lives for identifiable intangible assets acquired:
|
|
|
|
|
|
|
|
|
(in millions)
|
Current Preliminary Purchase Price Allocation
|
Weighted Average Estimated Useful Life
|
|
Customer relationships
|
$
|
708.0
|
|
15.0
|
|
Trademarks
|
15.0
|
|
3.0
|
|
Other
|
2.5
|
|
4.6
|
|
Total intangible assets
|
$
|
725.5
|
|
|
Caraustar's results of operations have been included in the Company's financial statements for the period subsequent to the acquisition date of February 11, 2019. Caraustar contributed net sales of $936.3 million for the year ended October 31, 2019.
The following unaudited supplemental pro forma data presents consolidated information as if the acquisition had been completed on November 1, 2017. These amounts were calculated after adjusting Caraustar'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, 2017, the adjusted tax expense, and related transaction costs of $34.0 million. These adjustments also include an additional one-time charge of $9.0 million for the fair value adjustment for inventory acquired.
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended October 31,
|
|
(in millions, except per share amounts)
|
2019
|
|
2018
|
|
Pro forma net sales
|
$
|
4,958.8
|
|
|
$
|
5,249.4
|
|
|
Pro forma net (loss) income attributable to Greif, Inc.
|
$
|
154.8
|
|
|
$
|
152.7
|
|
|
Basic earnings per share attributable to Greif, Inc. common shareholders:
|
|
|
|
|
Class A common stock
|
$
|
2.62
|
|
|
$
|
2.60
|
|
|
Class B common stock
|
$
|
3.92
|
|
|
$
|
3.88
|
|
|
Diluted earnings per share attributable to Greif, Inc. common shareholders:
|
|
|
|
|
Class A common stock
|
$
|
2.62
|
|
|
$
|
2.59
|
|
|
Class B common stock
|
$
|
3.92
|
|
|
$
|
3.88
|
|
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. The pro forma results do not include the Tholu Acquisition, as the impact of this acquisition is not material to prior year results of operations.
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 current preliminary 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, based upon new information obtained about facts and circumstances that existed as of the date of closing the acquisition.
Tholu Acquisition
On June 11, 2019, the Company completed its acquisition of Tholu (the “Tholu Acquisition”). Tholu is a Netherlands-based market leader in IBC rebottling, reconditioning and distribution.
The total purchase price for this acquisition was $52.2 million, net of cash acquired of $2.1 million, of which $25.1 million was paid upon closing and the remaining $29.2 million was deferred according to a set payment schedule. The current portion of the deferred obligation is $2.5 million, recorded in Other Current Liabilities, and the remaining $26.7 million has been recorded in Other Long-Term Liabilities within the consolidated balance sheets. The legal form of the Tholu Acquisition is a joint venture with the former Tholu owner, but due to the economic structure of the transaction the Company is deemed to be the 100% economic owner, and under GAAP, the Company will record and report 100% of all future income or loss.
The following table summarizes the consideration transferred to acquire Tholu and the current preliminary valuation of identifiable assets acquired and liabilities assumed at the acquisition date, as well as measurement period adjustments made during the year ended October 31, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Amounts Recognized as of the Acquisition Date
|
Measurement Period Adjustments (2)
|
Amount Recognized as of Acquisition Date (as Adjusted)
|
|
Fair value of consideration transferred
|
|
|
|
|
Cash consideration
|
$
|
25.1
|
|
$
|
—
|
|
$
|
25.1
|
|
|
Deferred payments
|
$
|
29.2
|
|
—
|
|
$
|
29.2
|
|
|
Cash received
|
$
|
(2.1
|
)
|
$
|
—
|
|
$
|
(2.1
|
)
|
|
Total consideration
|
$
|
52.2
|
|
$
|
—
|
|
$
|
52.2
|
|
|
|
|
|
|
|
Recognized amounts of identifiable assets acquired and liabilities assumed
|
|
|
|
|
Accounts receivable
|
7.3
|
|
—
|
|
$
|
7.3
|
|
|
Inventories
|
3.0
|
|
0.4
|
|
$
|
3.4
|
|
|
Intangibles
|
24.1
|
|
—
|
|
$
|
24.1
|
|
|
Properties, plants and equipment
|
6.4
|
|
—
|
|
$
|
6.4
|
|
|
Other assets
|
1.2
|
|
—
|
|
$
|
1.2
|
|
|
Total assets acquired
|
42.0
|
|
0.4
|
|
42.4
|
|
|
|
|
|
|
|
Accounts payable
|
(4.0
|
)
|
—
|
|
(4.0
|
)
|
|
Capital lease obligations
|
(1.7
|
)
|
—
|
|
(1.7
|
)
|
|
Long-term deferred tax liability
|
(5.4
|
)
|
(0.4
|
)
|
(5.8
|
)
|
|
Other liabilities
|
(1.0
|
)
|
—
|
|
(1.0
|
)
|
|
Total liabilities assumed
|
(12.1
|
)
|
(0.4
|
)
|
(12.5
|
)
|
|
Total identifiable net assets
|
$
|
29.9
|
|
$
|
—
|
|
$
|
29.9
|
|
|
Goodwill
|
$
|
22.3
|
|
$
|
—
|
|
$
|
22.3
|
|
(2) The measurement adjustments were primarily due to refinement to third party appraisals and carrying amounts of certain assets and liabilities, as well as adjustments to certain tax accounts based on, among other things, adjustments to deferred tax liabilities. The net impact of the measurement period adjustments resulted in no net impact to Goodwill. The measurement adjustments recorded in 2019 did not have a significant impact on our consolidated statements of income for the twelve months ended October 31, 2019.
The Company recognized goodwill related to this acquisition of $22.3 million. The goodwill recognized in this acquisition is attributable to the acquired assembled workforce, economies of scale, vertical integration and new market penetration. Tholu is reported within the Rigid Industrial Packaging & Services segment to which the goodwill was assigned. The goodwill is not expected to be deductible for tax purposes.
Acquired property, plant and equipment will be depreciated over its estimated remaining useful lives on a straight-line basis.
Acquired intangible assets will be amortized over the estimated useful lives, primarily 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:
|
|
|
|
|
|
|
|
|
(in millions)
|
Preliminary Fair Value
|
Weighted Average Estimated Useful Life
|
|
Customer relationships
|
$
|
21.9
|
|
15.0
|
|
Trademarks
|
1.2
|
|
9.0
|
|
Other
|
1.0
|
|
2.0
|
|
Total intangible assets
|
$
|
24.1
|
|
|
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 current preliminary 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, based upon new information obtained about facts and circumstances that existed as of the date of closing the acquisition.
Divestitures
For the year ended October 31, 2019, the Company completed two divestitures of non-U.S. businesses in the Rigid Industrial Packaging & Services segment, liquidated two non-strategic non-U.S. business in the Rigid Industrial Packaging & Services segment, and deconsolidated one wholly-owned non-U.S. business in the Rigid Industrial Packaging & Services segment. The loss on disposal of businesses was $3.7 million for the year ended October 31, 2019. Proceeds from divestitures were $1.5 million for the year ended October 31, 2019. Proceeds from divestitures that were completed in 2015 and collected during the year ended October 31, 2019 were $0.8 million. Proceeds from divestitures that were completed in 2016 and collected during the year ended October 31, 2019 were $1.6 million.
For the year ended October 31, 2018, the Company completed no divestitures. The Company liquidated two non-strategic non-U.S. business in the Flexible Products & Services segment. The gain on disposal of businesses was $0.8 million for the year ended October 31, 2018. Proceeds from divestitures that were completed in 2017 and collected during the year ended October 31, 2018 were $0.5 million. Proceeds from divestitures that were completed in 2015 and collected during the year ended October 31, 2018 were $0.9 million. The Company had $2.9 million of notes receivable recorded from the sale of businesses for the year ended October 31, 2018.
For the year ended October 31, 2017, the Company completed two divestitures in the Rigid Industrial Packaging & Services segment, deconsolidated one nonstrategic business in the Flexible Products & Services segment and one nonstrategic business in the Rigid Industrial Packaging & Services segment, and liquidated two non-U.S. nonstrategic businesses in the Rigid Industrial Packaging & Services segment. The loss on disposal of businesses was $1.7 million for the year ended October 31, 2017. Proceeds from divestitures were $5.1 million for the year ended October 31, 2017. Proceeds from divestitures that were completed in fiscal year 2015 and collected during the year ended October 31, 2017 were $0.8 million. The Company had $4.3 million of notes receivable recorded from the sale of businesses for the year ended October 31, 2017.
None of the above-referenced divestitures in 2019, 2018, or 2017 qualified as discontinued operations as they do not, individually or in the aggregate, represent a strategic shift that has had a major impact on the Company's operations or financial results.
NOTE 3 – SALE OF NON-UNITED STATES ACCOUNTS RECEIVABLE
In 2012, Cooperage Receivables Finance B.V. (the “Main SPV”) and Greif Coordination Center BVBA, an indirect wholly owned subsidiary of Greif, Inc. (“Seller”), entered into the Nieuw Amsterdam Receivables Purchase Agreement (the “European RPA”) with affiliates of a major international bank (the “Purchasing Bank Affiliates”). On April 17, 2019, the Main SPV and Seller amended and extended the term of the existing European RPA through April 17, 2020. On June 17, 2019, the Main SPV and Seller entered into an agreement to replace the European RPA with the Nieuw Amsterdam Receivables Financing Agreement (the "European RFA"). The European RFA provides an accounts receivable financing facility of up to €100.0 million ($111.1 million as of October 31, 2019) secured by certain European accounts receivable. The $96.4 million outstanding on the European RFA as of October 31, 2019 is reported as long-term debt in the consolidated balance sheet because the Company intends to refinance these obligations on a long-term basis and has the intent and ability to consummate a long-term refinancing by exercising the renewal option in the respective agreement or entering into new financing arrangements.
During the first quarter of 2019, a parent-level guarantee was added to the European RPA and Singapore RPA (as such term is defined below). During the third quarter of 2019, in conjunction with execution of the European RFA, the parent level guarantee was removed for the European RFA. The $1.9 million outstanding on the Singapore RPA as of October 31, 2019 is reported as short-term debt in the consolidated balance sheet because the agreement expires in 2020 and will not be renewed.
Under the previous European RPA, as amended, the maximum amount of receivables that could be sold and outstanding under the European RPA at any time was €100 million ($111.1 million as of October 31, 2019). Under the terms of the European RPA, the Company had the ability to loan excess cash to the Purchasing Bank Affiliates in the form of the subordinated loan receivable.
Under the terms of the previous European RPA, we had agreed to sell trade receivables meeting certain eligibility requirements that the Seller had purchased from other indirect wholly-owned subsidiaries under a factoring agreement. Prior to November 1, 2018, the structure of the transactions provided for a legal true sale, on a revolving basis, of the receivables transferred to the
respective Purchasing Bank Affiliates. The purchaser funded an initial purchase price of a certain percentage of eligible receivables based on a formula, with the initial purchase price approximating 75 percent to 90 percent of eligible receivables. The remaining deferred purchase price was settled upon collection of these receivables.
In October 2007, Greif Singapore Pte. Ltd., an indirect wholly-owned subsidiary of Greif, Inc., entered into the Singapore Receivable Purchase Agreement (the “Singapore RPA”) with a major international bank. The maximum amount of aggregate receivables that may be financed under the Singapore RPA is 15.0 million Singapore dollars ($11.0 million as of October 31, 2019).
Under the terms of the Singapore RPA, the Company has agreed to sell trade receivables in exchange for an initial purchase price of approximately 90 percent of the eligible receivables. The remaining deferred purchase price is settled upon collection of those receivables.
Prior to November 1, 2018, the Company removed from accounts receivable the amount of proceeds received from the initial purchase price since they met the applicable criteria of ASC 860, “Transfers and Servicing,” and the Company continued to recognize the deferred purchase price in other current assets or other current liabilities on the Company’s consolidated balance sheets, as appropriate. The receivables were sold on a non-recourse basis with the total funds in the servicing collection accounts pledged to the banks between settlement dates. The cash initially received, along with the deferred purchase price, related to the sale or ultimate collection of the underlying receivables and was not subject to significant other risks given their short-term nature. Therefore, the Company reflected all cash flows under the accounts receivable sales programs as operating cash flows on the Company’s consolidated statements of cash flows.
The Company performs collection and administrative functions on the receivables related to the European RPA, the European RFA and the Singapore RPA (collectively, "Foreign Receivables Facilities"), similar to the procedures it uses for collecting all of its receivables. The servicing liability for these receivables is not material to the consolidated financial statements.
NOTE 4 – ASSETS AND LIABILITIES HELD FOR SALE AND DISPOSALS OF PROPERTY, PLANT AND EQUIPMENT, NET
As of October 31, 2019, there was one asset group within the Rigid Industrial Packaging & Services segment, three asset groups within the Paper Packaging & Services segment, one asset group in the Land Management segment, and one corporate asset group classified as assets held for sale. The assets held for sale are being marketed for sale, and it is the Company's intention to complete the sales of these assets within twelve months following their initial classification into assets held for sale.
During 2019, the Company recorded a gain on disposal of properties, plants and equipment, net of $13.9 million. This included disposals of assets in the Rigid Industrial Packaging & Services segment that resulted in gains of $7.5 million, disposals of assets in the Paper Packaging & Services segment that resulted in losses of $0.9 million, disposals of assets in the Flexible Packaging & Services segment that resulted in gains of $5.1 million, and special use property sales that resulted in gains of $2.2 million in the Land Management segment.
For the year ended October 31, 2018, the Company recorded a gain on disposal of properties, plants and equipment, net of $5.6 million. This included disposals of assets in the Rigid Industrial Packaging & Services segment that resulted in gains of $3.3 million and special use property sales that resulted in gains of $2.3 million in the Land Management segment.
NOTE 5 – GOODWILL AND OTHER INTANGIBLE ASSETS
The following table summarizes the changes in the carrying amount of goodwill by segment for the years ended October 31, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Rigid Industrial Packaging & Services (1)
|
|
Paper
Packaging & Services
|
|
Flexible Products & Services (1)
|
|
Land
Management
|
|
Total
|
|
Balance at October 31, 2017
|
$
|
725.9
|
|
|
$
|
59.5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
785.4
|
|
|
Goodwill acquired
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Goodwill allocated to divestitures and businesses held for sale
|
(0.7
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.7
|
)
|
|
Goodwill adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Goodwill impairment charge
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Currency translation
|
(8.7
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8.7
|
)
|
|
Balance at October 31, 2018
|
$
|
716.5
|
|
|
$
|
59.5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
776.0
|
|
|
Goodwill acquired
|
22.3
|
|
|
726.6
|
|
|
—
|
|
|
—
|
|
|
748.9
|
|
|
Goodwill allocated to divestitures and businesses held for sale
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Goodwill adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Goodwill impairment charge
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Currency translation
|
(7.1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7.1
|
)
|
|
Balance at October 31, 2019
|
$
|
731.7
|
|
|
$
|
786.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,517.8
|
|
(1)Accumulated goodwill impairment loss was $63.3 million as of October 31, 2019, 2018 and 2017. Included in the accumulated goodwill impairment loss was $13.0 million related to the Rigid Industrial Packaging & Services segment and $50.3 million related to the Flexible Products & Services segment.
The Caraustar Acquisition added $726.6 million of goodwill to the Paper Packaging & Services segment and the Tholu Acquisition added $22.3 million of goodwill to the Rigid Industrial Packaging & Services segment. See Note 2 to the Consolidated Financial Statements for additional disclosure of goodwill added by these acquisitions.
The Company reviews goodwill by reporting unit and indefinite-lived intangible assets for impairment as required by ASC 350, “Intangibles – Goodwill and Other,” either annually August 1, or whenever events and circumstances indicate impairment may have occurred. A reporting unit is the operating segment, or a business unit one level below that operating segment (the component level) if discrete financial information is prepared and regularly reviewed by segment management. The components are aggregated into reporting units for purposes of goodwill impairment testing to the extent they share similar qualitative and quantitative characteristics.
The Company performed its annual goodwill impairment test as of August 1, 2019 which resulted in no goodwill impairment. The majority of the Company's goodwill reporting units were tested utilizing a qualitative assessment. However, for the Rigid Industrial Packaging & Services - Asia Pacific reporting unit, the Company proceeded directly to the quantitative impairment test. The fair value of the reporting unit exceeded the carrying value by 32%, resulting in no impairment. Discount rates, growth rates and cash flow projections are the assumptions that are most sensitive and susceptible to change as they require significant management judgment. In addition, certain future events and circumstances, including deterioration of market conditions, higher cost of capital, a decline in actual and expected consumption and demand, could result in changes to these assumptions and judgments. A revision of these assumptions could cause the fair value of the reporting unit to fall below its respective carrying value. As for all of the Company's reporting units, if in future years, the reporting unit's actual results are not consistent with the Company's estimates and assumptions used to calculate fair value, the Company may be required to recognize material impairments to goodwill.
The Company performed its annual goodwill review as of August 1, 2018, for each of the reporting units, which resulted in no goodwill impairment. The majority of the Company's goodwill reporting units were tested utilizing a qualitative assessment. However, for the Rigid Industrial Packaging & Services - Asia Pacific reporting unit, the Company proceeded directly to the quantitative impairment test. The fair value of the reporting unit exceeded the carrying value by 20%, resulting in no impairment. Discount rates, growth rates and cash flow projections are the assumptions that are most sensitive and susceptible to change as they require significant management judgment. In addition, certain future events and circumstances, including deterioration of market conditions, higher cost of capital, a decline in actual and expected consumption and demand, could result in changes to these assumptions and judgments. A revision of these assumptions could cause the fair value of the reporting unit to fall below its respective carrying value. As for all of the Company's reporting units, if in future years, the reporting unit's actual results are not consistent with the Company's estimates and assumptions used to calculate fair value, the Company may be required to recognize material impairments to goodwill.
During the fourth quarter of 2017, the Company performed an assessment of its operating segments and determined that as a result of changes in the way the chief operating decision maker receives and reviews financial information, a realignment of its operating segment structure was necessary. As a result of the operating segment realignment, the Company's reporting unit structure was updated for consistency. As of August 1, 2017, the Company realigned its operating segments to include eight operating segments: Rigid Industrial Packaging & Services – North America; Rigid Industrial Packaging & Services – Latin America; Rigid Industrial Packaging & Services – Europe, Middle East and Africa; Rigid Industrial Packaging & Services – Asia Pacific; Rigid Industrial Packaging & Services – Tri-Sure; Paper Packaging & Services; Flexible Products & Services; and Land Management. The Company's eight operating segments are aggregated into four reportable business segments by combining the Rigid Industrial Packaging & Services – North America; Rigid Industrial Packaging & Services – Latin America; Rigid Industrial Packaging & Services – Europe, Middle East and Africa; Rigid Industrial Packaging & Services – Asia Pacific; and Rigid Industrial Packaging & Services – Tri-Sure operating segments. The Company’s reporting units are the same as the operating segments. As a result of the realignment, goodwill was reassigned to each of the Rigid Industrial Packaging & Services reporting units using a relative fair value approach.
The Company performed its annual goodwill review as of August 1, 2017, for each of the reporting units with a goodwill balance under both the former and current reporting unit structure. The impairment test under the former reporting unit structure concluded that no impairment existed as of August 1, 2017. The impairment test under the updated reporting unit structure concluded that the carrying value of the Rigid Industrial Packaging & Services – Latin America reporting unit exceeded the fair value of the reporting unit and the goodwill of the Rigid Industrial Packaging & Services – Latin America reporting unit of $13.0 million was fully impaired.
The fair value of the Rigid Industrial Packaging & Services – Latin America reporting unit was determined using a combination of the income approach by discounting estimated future cash flows and the market multiple approach. The cash flow projections were prepared based upon the evaluation of the historical performance and future growth expectations for the reporting unit. Revenue was based on the 2017 forecast as of August 1, 2017 with a long-term growth rate applied to future periods. The most critical assumptions within the cash flow projections are revenue growth rates and forecasted gross margin percentages. The most critical assumption within the market multiple calculation is the multiple selected.
See Note 2 to the Consolidated Financial Statements for further discussion regarding goodwill allocated to divestitures and businesses held for sale.
The following table summarizes the carrying amount of net intangible assets by class as of October 31, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Gross
Intangible
Assets
|
|
Accumulated
Amortization
|
|
Net Intangible
Assets
|
|
October 31, 2019:
|
|
|
|
|
|
|
Indefinite lived:
|
|
|
|
|
|
|
Trademarks and patents
|
$
|
13.1
|
|
|
$
|
—
|
|
|
$
|
13.1
|
|
|
Definite lived:
|
|
|
|
|
|
|
Customer relationships
|
$
|
890.6
|
|
|
$
|
150.3
|
|
|
$
|
740.3
|
|
|
Trademarks and patents
|
27.0
|
|
|
9.3
|
|
|
17.7
|
|
|
Non-compete agreements
|
2.3
|
|
|
0.7
|
|
|
1.6
|
|
|
Other
|
21.9
|
|
|
18.1
|
|
|
3.8
|
|
|
Total
|
$
|
954.9
|
|
|
$
|
178.4
|
|
|
$
|
776.5
|
|
|
|
|
|
|
|
|
|
October 31, 2018:
|
|
|
|
|
|
|
Indefinite lived:
|
|
|
|
|
|
|
Trademarks and patents
|
$
|
13.3
|
|
|
$
|
—
|
|
|
$
|
13.3
|
|
|
Definite lived:
|
|
|
|
|
|
|
Customer relationships
|
$
|
162.2
|
|
|
$
|
105.8
|
|
|
$
|
56.4
|
|
|
Trademarks and patents
|
10.9
|
|
|
5.1
|
|
|
5.8
|
|
|
Other
|
21.2
|
|
|
16.1
|
|
|
5.1
|
|
|
Total
|
$
|
207.6
|
|
|
$
|
127.0
|
|
|
$
|
80.6
|
|
Gross intangible assets increased by $747.3 million for the year ended October 31, 2019. The increase was attributable to $725.5 million from the Caraustar Acquisition, $24.1 million from the Tholu Acquisition and $0.3 million of asset adjustment, offset by $2.6 million of currency fluctuations. See Note 2 to the Consolidated Financial Statements for additional disclosure of intangibles added by these acquisitions.
Amortization expense was $53.2 million, $15.2 million and $13.5 million for the years ended October 31, 2019, 2018 and 2017, respectively. Amortization expense for the next five years is expected to be $69.3 million in 2020, $67.1 million in 2021, $59.1 million in 2022, $56.3 million in 2023 and $52.9 million in 2024.
Definite lived intangible assets for the periods presented are subject to amortization and are being amortized using the straight-line method over periods that are contractually or legally determined, or over the period a market participant would benefit from the asset. Indefinite lived intangibles of approximately $13.1 million as of October 31, 2019, related primarily to the Tri-Sure trademark and trade names related to Closures, Blagden Express, Closed-loop, Box Board and Pachmas, are not amortized.
NOTE 6 – RESTRUCTURING CHARGES
The following is a reconciliation of the beginning and ended restructuring reserve balances for the years ended October 31, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Employee
Separation
Costs
|
|
Other Costs
|
|
Total
|
|
Balance at October 31, 2017
|
$
|
3.9
|
|
|
$
|
1.3
|
|
|
$
|
5.2
|
|
|
Costs incurred and charged to expense
|
14.8
|
|
|
3.8
|
|
|
18.6
|
|
|
Costs paid or otherwise settled
|
(14.5
|
)
|
|
(4.9
|
)
|
|
(19.4
|
)
|
|
Balance at October 31, 2018
|
$
|
4.2
|
|
|
$
|
0.2
|
|
|
$
|
4.4
|
|
|
Costs incurred and charged to expense
|
22.5
|
|
|
3.6
|
|
|
26.1
|
|
|
Costs paid or otherwise settled
|
(17.2
|
)
|
|
(2.0
|
)
|
|
(19.2
|
)
|
|
Balance at October 31, 2019
|
$
|
9.5
|
|
|
$
|
1.8
|
|
|
$
|
11.3
|
|
The focus for restructuring activities in 2019 was to optimize and integrate operations in the Paper Packaging & Services segment related to the Caraustar Acquisition and continue to rationalize operations and close underperforming assets in the Rigid Industrial Packaging & Services and the Flexible Products & Services segments. During the year ended October 31, 2019, the Company recorded restructuring charges of $26.1 million, as compared to $18.6 million of restructuring charges recorded during the year ended October 31, 2018. The restructuring activity for the year ended October 31, 2019 consisted of $22.5 million in employee separation costs and $3.6 million in other restructuring costs, primarily consisting of professional fees and other fees associated with restructuring activities. There were twelve plants closed in 2019, and a total of 430 employees severed throughout 2019 as part of the Company’s restructuring efforts.
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-K. Remaining amounts expected to be incurred were $24.7 million as of October 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Total Amounts
Expected to be
Incurred
|
|
Amounts
Incurred During
the year ended October 31, 2019
|
|
Amounts
Remaining to be
Incurred
|
|
Rigid Industrial Packaging & Services:
|
|
|
|
|
|
|
Employee separation costs
|
$
|
32.3
|
|
|
$
|
15.4
|
|
|
16.9
|
|
|
Other restructuring costs
|
9.1
|
|
|
3.4
|
|
|
5.7
|
|
|
|
41.4
|
|
|
18.8
|
|
|
22.6
|
|
|
Flexible Products & Services:
|
|
|
|
|
|
|
Employee separation costs
|
1.2
|
|
|
0.9
|
|
|
0.3
|
|
|
Other restructuring costs
|
0.1
|
|
|
0.1
|
|
|
—
|
|
|
|
1.3
|
|
|
1.0
|
|
|
0.3
|
|
|
Paper Packaging & Services:
|
|
|
|
|
|
|
Employee separation costs
|
6.1
|
|
|
6.1
|
|
|
—
|
|
|
Other restructuring costs
|
1.9
|
|
|
0.1
|
|
|
1.8
|
|
|
|
8.0
|
|
|
6.2
|
|
|
1.8
|
|
|
Land Management
|
|
|
|
|
|
|
Employee separation costs
|
0.1
|
|
|
0.1
|
|
|
—
|
|
|
Total
|
$
|
50.8
|
|
|
$
|
26.1
|
|
|
$
|
24.7
|
|
The focus for restructuring activities in 2018 was to continue to rationalize operations and close underperforming assets in the Rigid Industrial Packaging & Services and Flexible Products & Services segments. During 2018, the Company recorded restructuring charges of $18.6 million, consisting of $14.8 million in employee separation costs and $3.8 million in other restructuring costs, primarily consisting of professional fees and other fees associated with restructuring activities. There were five plants closed and a total of 322 employees severed throughout 2018 as part of the Company’s restructuring efforts.
The focus for restructuring activities in 2017 was to rationalize and close underperforming assets in the Rigid Industrial Packaging & Services and Flexible Products & Services segments. During 2017, the Company recorded restructuring charges of $12.7 million, consisting of $9.0 million in employee separation costs and $3.7 million in other restructuring costs, primarily consisting of professional fees incurred for services specifically associated with employee separation and relocation. There were two plants closed and a total of 157 employees severed throughout 2017 as part of the Company’s restructuring efforts.
NOTE 7 – CONSOLIDATION OF VARIABLE INTEREST ENTITIES
The Company evaluates whether an entity is a variable interest entity (“VIE”) whenever reconsideration events occur and performs reassessments of all VIE’s quarterly to determine if the primary beneficiary status is appropriate. The Company consolidates VIE’s for which it is the primary beneficiary. If the Company is not the primary beneficiary and an ownership interest is held, the VIE is accounted for under the equity or cost methods of accounting, as appropriate. When assessing the determination of the primary beneficiary, the Company considers all relevant facts and circumstances, including: the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance; and the obligation to absorb the expected losses and/or the right to receive the expected returns of the VIE.
Significant Nonstrategic Timberland Transactions
On March 28, 2005, Soterra LLC (a wholly owned subsidiary) entered into two real estate purchase and sale agreements with Plum Creek Timberlands, L.P. (“Plum Creek”) to sell approximately 56,000 acres of timberland and related assets located primarily in Florida for an aggregate sales price of approximately $90 million, subject to closing adjustments. In connection with the closing of one of these agreements, Soterra LLC sold approximately 35,000 acres of timberland and associated assets in Florida, Georgia and Alabama for $51.0 million, resulting in a pretax gain of $42.1 million, on May 23, 2005. The purchase price was paid in the form of cash and a $50.9 million purchase note payable (the “Purchase Note”) by an indirect subsidiary of Plum Creek (the “Buyer SPE”). Soterra LLC contributed the Purchase Note to STA Timber LLC (“STA Timber”), one of the Company’s indirect wholly owned subsidiaries. The Purchase Note is secured by a Deed of Guarantee issued by Bank of America, N.A., London Branch, in an amount not to exceed $52.3 million (the “Deed of Guarantee”), as a guarantee of the due and punctual payment of principal and interest on the Purchase Note.
The Company completed the second and final phase of these transactions in the first and second quarters of 2006, respectively, with the sale of 15,300 acres and another approximately 5,700 acres.
On May 31, 2005, STA Timber issued in a private placement its 5.20% Senior Secured Notes due August 5, 2020 (the “Monetization Notes”) in the principal amount of $43.3 million. In connection with the sale of the Monetization Notes, STA Timber entered into note purchase agreements with the purchasers of the Monetization Notes (the “Note Purchase Agreements”) and related documentation. The Monetization Notes are secured by a pledge of the Purchase Note and the Deed of Guarantee. The Monetization Notes may be accelerated in the event of a default in payment or a breach of the other obligations set forth therein or in the Note Purchase Agreements or related documents, subject in certain cases to any applicable cure periods, or upon the occurrence of certain insolvency or bankruptcy related events. Although the maturity date of the Monetization Notes is August 5, 2020, STA Timber has the discretion to extend to the maturity date to November 5, 2020. STA Timber has the ability and intent to extend the maturity date to November 5, 2020. The proceeds from the sale of the Monetization Notes were primarily used for the repayment of indebtedness. Greif, Inc. and its other subsidiaries have not extended any form of guaranty of the principal or interest on the Monetization Notes. Accordingly, Greif, Inc. and its other subsidiaries will not become directly or contingently liable for the payment of the Monetization Notes at any time.
The Buyer SPE is deemed to be a VIE since the assets of the Buyer SPE are not available to satisfy the liabilities of the Buyer SPE. The Buyer SPE is a separate and distinct legal entity from the Company and no ownership interest in the Buyer SPE is held by the Company, but the Company is the primary beneficiary because it has (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and (2) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. As a result, Buyer SPE has been consolidated into the operations of the Company.
As of October 31, 2019 and 2018, assets of the Buyer SPE consisted of $50.9 million of restricted bank financial instruments which are expected to be held to maturity. For each of the years ended October 31, 2019, 2018 and 2017, the Buyer SPE recorded interest income of $2.4 million.
As of October 31, 2019 and 2018, STA Timber had long-term debt of $43.3 million. For each of the years ended October 31, 2019, 2018 and 2017, STA Timber recorded interest expense of $2.2 million. STA Timber is exposed to credit-related losses in the event of nonperformance by the issuer of the Deed of Guarantee.
Flexible Packaging Joint Venture
On September 29, 2010, Greif, Inc. and one of its indirect subsidiaries formed a joint venture (referred to herein as the “Flexible Packaging JV” or "FPS VIE") with Dabbagh Group Holding Company Limited and one of its subsidiaries, originally National Scientific Company Limited and now Gulf Refined Packaging for Industrial Packaging Company LTD ("GRP"). The Flexible Packaging JV owns the operations in the Flexible Products & Services segment. The Flexible Packaging JV has been consolidated into the operations of the Company since its formation date of September 29, 2010.
The Flexible Packaging JV is deemed to be a VIE since the total equity investment at risk is not sufficient to permit the legal entity to finance its activities without additional subordinated financial support. The major factors that led to the conclusion that the Company was the primary beneficiary of this VIE was that (1) the Company has the power to direct the most significant activities due to its ability to direct the operating decisions of the FPS VIE, which power is derived from the significant CEO discretion over the operations of the FPS VIE combined with the Company's sole and exclusive right to appoint the CEO of the FPS VIE, and (2) the significant variable interest through the Company's equity interest in the FPS VIE.
The economic and business purpose underlying the Flexible Packaging JV is to establish a global industrial flexible products enterprise through a series of targeted acquisitions and major investments in plant, machinery and equipment. All entities contributed to the Flexible Packaging JV were existing businesses acquired by an indirect subsidiary of the Company and that were reorganized under Greif Flexibles Asset Holding B.V. and Greif Flexibles Trading Holding B.V. (“Asset Co.” and “Trading Co.”), respectively. The Company has 51 percent ownership in Trading Co. and 49 percent ownership in Asset Co. However, the Company and GRP have equal economic interests in the Flexible Packaging JV, notwithstanding the actual ownership interests in the various legal entities.
All investments, loans and capital contributions are to be shared equally by the Company and GRP and each partner has committed to contribute capital of up to $150.0 million and obtain third party financing for up to $150.0 million as required.
The following table presents the Flexible Packaging JV total net assets:
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
October 31, 2019
|
|
October 31, 2018
|
|
Cash and cash equivalents
|
$
|
16.9
|
|
|
$
|
22.2
|
|
|
Trade accounts receivable, less allowance of $0.7 in 2019 and $0.6 in 2018
|
51.2
|
|
|
53.2
|
|
|
Inventories
|
46.4
|
|
|
49.0
|
|
|
Properties, plants and equipment, net
|
22.3
|
|
|
28.8
|
|
|
Other assets
|
29.3
|
|
|
21.5
|
|
|
Total assets
|
$
|
166.1
|
|
|
$
|
174.7
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
28.9
|
|
|
$
|
29.0
|
|
|
Other liabilities
|
23.6
|
|
|
24.8
|
|
|
Total liabilities
|
$
|
52.5
|
|
|
$
|
53.8
|
|
Net income attributable to the noncontrolling interest in the Flexible Packaging JV for the years ended October 31, 2019, 2018 and 2017 were $12.4 million, $9.9 million and $6.3 million, respectively.
Paper Packaging Joint Venture
On April 20, 2018, Greif, Inc. and one of its indirect subsidiaries formed a joint venture (referred to herein as the “Paper Packaging JV” or "PPS VIE") with a third party. The Paper Packaging JV has been consolidated into the operations of the Company since its formation date of April 20, 2018.
The Paper Packaging JV is deemed to be a VIE as the equity investors at risk, as a group, lack the characteristics of a controlling financial interest. The structure of the Paper Packaging JV has governing provisions that are the functional equivalent of a limited partnership whereby the Company is the managing member that makes all the decisions related to the activities that most significantly affect the economic performance of the PPS VIE. In addition, the third party does not have any substantive kick-out rights or substantive participating rights in the Paper Packaging JV. The major factors that led to the conclusion that the Paper Packaging JV is a VIE was that all limited partnerships are considered to be VIE’s unless the limited partners have substantive kick-out rights or substantive participating rights.
As of October 31, 2019 and 2018, the Paper Packaging JV’s net assets consist mainly of properties, plants, and equipment, net of $29.4 million and $7.2 million, respectively. There was $0.1 million net loss related to interest expense for the year ended October 31, 2019, and there was no net income or loss for the year ended October 31, 2018, as the PPS JV was in the startup phase and had not yet commenced operations.
Non-United States Accounts Receivable VIE
As further described in Note 3 to the Consolidated Financial Statements, Cooperage Receivables Finance B.V. is a party to the European RFA. Cooperage Receivables Finance B.V. is deemed to be a VIE since this entity is not able to satisfy its liabilities without the financial support from the Company. While this entity is a separate and distinct legal entity from the Company and no ownership interest in this entity is held by the Company, the Company is the primary beneficiary because it has (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and (2) the obligation to absorb losses of the VIE that could potentially be significant to the VIE. As a result, Cooperage Receivables Finance B.V. has been consolidated into the operations of the Company.
NOTE 8 – LONG-TERM DEBT
Long-term debt is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
October 31, 2019
|
|
October 31, 2018
|
|
2019 Credit Agreement - Term Loans
|
$
|
1,612.2
|
|
|
$
|
—
|
|
|
2017 Credit Agreement - Term Loan
|
—
|
|
|
277.5
|
|
|
Senior Notes due 2027
|
494.3
|
|
|
—
|
|
|
Senior Notes due 2021
|
221.7
|
|
|
226.5
|
|
|
Senior Notes due 2019
|
—
|
|
|
249.1
|
|
|
Accounts receivable credit facilities
|
351.6
|
|
|
150.0
|
|
|
2019 Credit Agreement - Revolving Credit Facility
|
76.1
|
|
|
—
|
|
|
2017 Credit Agreement - Revolving Credit Facility
|
—
|
|
|
3.8
|
|
|
Other debt
|
0.4
|
|
|
0.7
|
|
|
|
2,756.3
|
|
|
907.6
|
|
|
Less current portion
|
83.7
|
|
|
18.8
|
|
|
Less deferred financing costs
|
13.6
|
|
|
4.7
|
|
|
Long-term debt, net
|
$
|
2,659.0
|
|
|
$
|
884.1
|
|
2019 Credit Agreement
On February 11, 2019, the Company and certain of its subsidiaries entered into an amended and restated senior secured credit agreement (the “2019 Credit Agreement”) with a syndicate of financial institutions. The 2019 Credit Agreement amended, restated, and replaced in its entirety the prior $800.0 million senior secured credit agreement (the "2017 Credit Agreement"). The Company's obligations under the 2019 Credit Agreement are guaranteed by certain of its U.S. subsidiaries and certain of its non-U.S. subsidiaries.
The 2019 Credit Agreement provides for (a) an $800.0 million secured revolving credit facility, consisting of a $600.0 million multicurrency facility and a $200.0 million U.S. dollar facility, maturing on February 11, 2024, (b) a $1,275.0 million secured term loan A-1 facility with quarterly principal installments commencing on April 30, 2019 and continuing through maturity on January 31, 2024, and (c) a $400.0 million secured term loan A-2 facility with quarterly principal installments commencing on April 30, 2019 and continuing through maturity on January 31, 2026. In addition, the Company has an option to add an aggregate of $700.0 million to the secured revolving credit facility under the 2019 Credit Agreement with the agreement of the lenders.
The Company used borrowings under the 2019 Credit Agreement, together with the net proceeds from the issuance of the Senior Notes due March 1, 2027 (described below), to fund the purchase price of the Caraustar Acquisition, to redeem its $250.0 million Senior Notes due August 1, 2019 (the "Senior Notes due 2019"), to repay outstanding borrowings under the 2017 Credit Agreement, to fund ongoing working capital and capital expenditure needs and for general corporate purposes, and to pay related fees and expenses. Interest is based on either a Eurodollar rate or a base rate that resets periodically plus a calculated margin amount. On February 11, 2019, proceeds from borrowings under the 2019 Credit Agreement were used to pay the obligations outstanding under the 2017 Credit Agreement.
The 2019 Credit Agreement contains certain covenants, which include financial covenants that require the Company to maintain a certain leverage ratio and an interest coverage ratio. The leverage ratio generally requires that, at the end of any quarter, the Company will not permit the ratio of (a) its total consolidated indebtedness, to (b) its 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 4.75 to 1.00 and stepping down annually by 0.25 increments beginning on July 31, 2020 to 4.00 on July 31, 2023. The interest coverage ratio generally requires that, at the end of any quarter, the Company will not permit the ratio of (a) its consolidated EBITDA, to (b) its 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.
The terms of the 2019 Credit Agreement contain restrictive covenants, which limit the ability of the Company and its restricted subsidiaries, among other things, to incur additional indebtedness or issue certain preferred stock, pay dividends, redeem stock or make other distributions, or make certain investments; create restrictions on the ability of its restricted subsidiaries to pay dividends or make other payments to the Company; create certain liens; transfer or sell certain assets; merge or consolidate; enter into certain transactions with the Company's affiliates; and designate subsidiaries as unrestricted subsidiaries. These covenants are subject to a number of important exceptions and qualifications.
The repayment of this facility is secured by a security interest in the personal property of the Company and certain of its U.S. subsidiaries, including equipment and inventory and certain intangible assets, as well as a pledge of the capital stock of substantially all of the Company's U.S. subsidiaries, and is secured, in part, by the capital stock of the non-U.S. borrowers. However, in the event that the Company receives and maintains an investment grade rating from either Moody’s Investors Service, Inc. or Standard & Poor’s Financial Services LLC, the Company may request the release of such collateral.
The 2019 Credit Agreement provides for events of default (subject in certain cases to customary grace and cure periods), which include, among others, nonpayment of principal or interest when due, breach of covenants or other agreements in the 2019 Credit Agreement, defaults in payment of certain other indebtedness and certain events of bankruptcy or insolvency.
As of October 31, 2019, $1,688.3 million was outstanding under the 2019 Credit Agreement. The current portion of such outstanding amount was $83.7 million, and the long-term portion was $1,604.6 million. The weighted average interest rate for borrowings under the 2019 Credit Agreement was 4.05% for the year ended October 31, 2019. The actual interest rate for borrowings under the 2019 Credit Agreement was 3.71% as of October 31, 2019. The deferred financing costs associated with the term loan portion of the 2019 Credit Agreement totaled $10.8 million as of October 31, 2019 and are recorded as a direct deduction from the balance sheet line Long-Term Debt. The deferred financing costs associated with the revolver portion of the 2019 Credit Agreement totaled $8.0 million as of October 31, 2019 and are recorded within Other Long-Term Assets.
As a result of the refinancing, $0.8 million of unamortized deferred financing costs related to the 2017 Credit Agreement and $5.5 million of newly incurred financing costs related to the 2019 Credit Agreement were expensed as Debt Extinguishment Charges in the consolidated statements of income.
Senior Notes due 2027
On February 11, 2019, the Company issued $500.0 million of 6.50% Senior Notes due March 1, 2027 (the "Senior Notes due 2027"). Interest on the Senior Notes due 2027 is payable semi-annually commencing on September 1, 2019. The Company's obligations under the Senior Notes due 2027 are guaranteed by its U.S. subsidiaries that guarantee the 2019 Credit Agreement, as described above. The Company used the net proceeds from the issuance of the Senior Notes due 2027, together with borrowings under the 2019 Credit Agreement, to fund the purchase price of the Caraustar Acquisition, to redeem all of the Senior Notes due 2019, to repay outstanding borrowings under the 2017 Credit Agreement, and to pay related fees and expenses. The deferred financing cost associated with the Senior Notes due 2027 totaled $2.6 million as of October 31, 2019 and are recorded as a direct deduction from the balance sheet line Long-Term Debt.
Senior Notes due 2021
On July 15, 2011, Greif, Inc.’s wholly-owned subsidiary, Greif Nevada Holdings, Inc., S.C.S. issued €200.0 million of 7.375% Senior Notes due July 15, 2021 (the "Senior Notes due 2021"). The Senior Notes due 2021 are guaranteed on a senior basis by Greif, Inc. Interest on the Senior Notes due 2021 is payable semiannually.
Senior Notes due 2019
On April 1, 2019, the Company redeemed all of its outstanding 7.75% Senior Notes due 2019, which were issued by the Company on July 28, 2009 for $250.0 million. The total redemption price for the Senior Notes due 2019 was $253.9 million, which was equal to the aggregate principal amount outstanding of $250.0 million plus a premium of $3.9 million. The premium was recognized as a debt extinguishment cost. The payment of the redemption price was funded by borrowings under the Company’s 2019 Credit Agreement.
As a result of redeeming the Senior Notes due 2019, $0.7 million of unamortized deferred financing costs were expensed to Debt Extinguishment Charges in the consolidated statements of income.
United States Trade Accounts Receivable Credit Facility
On September 24, 2019, certain U.S. subsidiaries of Greif, Inc. (the “Company”) amended and restated the existing receivables financing facility (the “U.S. Receivables Facility”). Greif Receivables Funding LLC (“Greif Funding”), Greif Packaging LLC (“Greif Packaging”), for itself and as servicer, and certain other U.S. subsidiaries of the Company entered into a Third Amended and Restated Transfer and Administration Agreement, dated as of September 24, 2019 (the “Third Amended TAA”), with Bank of America, N.A. (“BANA”), as the agent, managing agent, administrator and committed investor, and various investor groups, managing agents, and administrators, from time to time parties thereto. The Third Amended TAA, as of September 24, 2019, replaced in its entirety the prior facility agreement, which provided for a $150.0 million U.S. Receivables Facility. The Third Amended TAA provides a $275.0 million U.S. Receivables Facility. The financing costs associated with the U.S. Receivables Facility are $0.4 million as of October 31, 2019, and are recorded as a direct deduction from the balance sheet line Long-Term Debt.
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.
The Third Amended TAA provides for the ongoing purchase by BANA of receivables from Greif Funding, which Greif Funding will have purchased from Greif Packaging and certain other U.S. subsidiaries of the Company as the originators under the Third Amended and Restated Sale Agreement, dated as of September 24, 2019 (the “Third Amended Sale Agreement”). Greif Packaging will service and collect on behalf of Greif Funding those receivables sold to Greif Funding under the Third Amended Sale Agreement. The commitment termination date of the U.S. Receivables Facility is September 24, 2020, subject to earlier termination as provided in the Third Amended TAA (including acceleration upon an event of default as provided therein), or such later date to which the purchase commitment may be extended by agreement of the parties. In addition, Greif Funding may terminate the U.S. Receivables Facility at any time upon five days’ prior written notice. The Company has guaranteed the performance by Greif Funding, Greif Packaging and its other participating subsidiaries of their respective obligations under the Third Amended TAA, the Third Amended Sale Agreement and related agreements thereto, but has not guaranteed the collectability of the receivables thereunder. A significant portion of the proceeds from the U.S. Receivables Facility was used to pay the obligations under the Second Amended TAA. The remaining proceeds were used to pay certain fees, costs and expenses incurred in connection with the U.S. Receivables Facility and to repay borrowings on our Revolving Credit Facility.
The U.S. Receivables Facility is secured by certain trade accounts receivables related to the Rigid Industrial Packaging & Services and the Paper Packaging & Services businesses of Greif Packaging and other subsidiaries of the Company in the United States and bears interest at a variable rate based on the London InterBank Offered Rate or an applicable base rate, plus a margin, or a commercial paper rate, all as provided in the Third Amended TAA. Interest is payable on a monthly basis and the principal balance is payable upon termination of the U.S. Receivables Facility. The $255.1 million outstanding balance under the U.S. Receivables Facility as of October 31, 2019 is reported in long-term debt in the condensed consolidated balance sheets because the Company intends to refinance this obligation on a long-term basis and has the intent and ability to consummate a long-term refinancing.
International Trade Accounts Receivable Credit Facilities
For additional disclosures related to the Foreign Receivables Facilities, as defined see Note 3 to the Consolidated Financial Statements.
Other
In addition to the amounts borrowed under the 2019 Credit Agreement and proceeds from the Senior Notes and the Accounts Receivables Facilities, as of October 31, 2019, the Company had outstanding other debt of $0.4 million in long-term debt and $9.2 million in short-term borrowings, compared to outstanding other debt of $0.7 million in long-term debt and $7.3 million in short-term borrowings, as of October 31, 2018. There are no financial covenants associated with this other debt.
As of October 31, 2019, annual maturities, including the current portion of long-term debt, were $511.5 million in 2020, $353.8 million in 2021, $147.5 million in 2022, $147.5 million in 2023, $51.9 million in 2024 and $1,549.4 million thereafter.
NOTE 9 – FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
Recurring Fair Value Measurements
The following table presents the fair value of those assets and (liabilities) measured on a recurring basis as of October 31, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2019
|
|
|
|
|
Fair Value Measurement
|
|
Balance Sheet Location
|
|
(in millions)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
Interest rate derivatives
|
$
|
—
|
|
|
$
|
1.3
|
|
|
$
|
—
|
|
|
$
|
1.3
|
|
|
Other long-term assets and other current assets
|
|
Interest rate derivatives
|
—
|
|
|
(25.0
|
)
|
|
—
|
|
|
(25.0
|
)
|
|
Other long-term liabilities and other current liabilities
|
|
Foreign exchange hedges
|
—
|
|
|
0.9
|
|
|
—
|
|
|
0.9
|
|
|
Other current assets
|
|
Foreign exchange hedges
|
—
|
|
|
(0.2
|
)
|
|
—
|
|
|
(0.2
|
)
|
|
Other current liabilities
|
|
Insurance annuity
|
—
|
|
|
—
|
|
|
20.0
|
|
|
20.0
|
|
|
Other long-term assets
|
|
Cross currency swap
|
—
|
|
|
10.6
|
|
|
—
|
|
|
10.6
|
|
|
Other long-term assets and other current assets
|
|
Total
|
$
|
—
|
|
|
$
|
(12.4
|
)
|
|
$
|
20.0
|
|
|
$
|
7.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2018
|
|
|
|
|
Fair Value Measurement
|
|
Balance Sheet Location
|
|
(in millions)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
Interest rate derivatives
|
$
|
—
|
|
|
$
|
16.5
|
|
|
$
|
—
|
|
|
$
|
16.5
|
|
|
Other long-term assets and other current assets
|
|
Foreign exchange hedges
|
—
|
|
|
2.6
|
|
|
—
|
|
|
2.6
|
|
|
Other current assets
|
|
Foreign exchange hedges
|
—
|
|
|
(0.7
|
)
|
|
—
|
|
|
(0.7
|
)
|
|
Other current liabilities
|
|
Insurance annuity
|
—
|
|
|
—
|
|
|
20.4
|
|
|
20.4
|
|
|
Other long-term assets
|
|
Cross currency swap
|
—
|
|
|
5.2
|
|
|
—
|
|
|
5.2
|
|
|
Other long-term assets and other current assets
|
|
Total
|
$
|
—
|
|
|
$
|
23.6
|
|
|
$
|
20.4
|
|
|
$
|
44.0
|
|
|
|
The carrying amounts of cash and cash equivalents, trade accounts receivable, notes receivable, accounts payable, current liabilities and short-term borrowings as of October 31, 2019 and 2018 approximate their fair values because of the short-term nature of these items and are not included in this table.
Interest Rate Derivatives
The Company has various borrowing facilities which charge interest based on the one month U.S. dollar LIBOR plus an interest spread. In 2019, the Company entered into six amortizing interest rate swaps. These six interest rate swaps have a total initial notional amount of $1,300.0 million and amortize to $200.0 million over a five year term. The outstanding notional as of October 31, 2019 is $1,000.0 million. The Company will receive variable rate interest payments based upon one month U.S. dollar LIBOR, and in return the Company is obligated to pay interest at a weighted-average interest rate of 2.49% plus an interest spread. This effectively converted the borrowing rate on an amount of debt equal to the outstanding notional amount of the interest rate swap from a variable rate to a fixed rate.
In 2017, the Company entered into an interest swap with a notional amount of $300.0 million. As of February 1, 2017, the Company began to receive variable rate interest payments based upon one month U.S. dollar LIBOR and in return was obligated to pay interest at a fixed rate of 1.19% plus an interest spread. This effectively converted the borrowing rate on $300.0 million of debt from a variable rate to a fixed rate.
These derivatives are designated as cash flow hedges for accounting purposes. Accordingly, the gain or loss on these derivative instruments are reported as a component of other comprehensive income and reclassified into earnings in the same line item associated with the forecasted transaction and in the same period during which the hedged transaction affects earnings. See Note 17 to the Consolidated Financial Statements for additional disclosures of the gain or loss included within other comprehensive income. The assumptions used in measuring fair value of these interest rate derivatives are considered level 2 inputs, which are based upon observable market rates, including LIBOR and interest paid based upon a designated fixed rate over the life of the swap agreements.
Gains reclassified to earnings under these contracts were $3.0 million for the year ended October 31, 2019. Gains reclassified to earnings under these contracts were $1.8 million for the year ended October 31, 2018. A derivative loss of $8.1 million, based upon interest rates at October 31, 2019, 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 October 31, 2019, the Company had outstanding foreign currency forward contracts in the notional amount of $275.0 million ($194.4 million as of October 31, 2018). 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 were based on observable market pricing for similar instruments, principally foreign exchange futures contracts.
Realized gains (losses) recorded in other expense, net under fair value contracts were $4.6 million, $(9.2) million and $(1.8) million for the years ended October 31, 2019, 2018 and 2017, respectively. The Company recognized in other expense, net an unrealized net gain (loss) of $0.7 million, $1.9 million and $(0.5) million in the years ended October 31, 2019, 2018 and 2017, respectively.
Cross Currency Swap
The Company has operations and investments in various international locations and is subject to risks associated with changing foreign exchange rates. On March 6, 2018, the Company entered into a cross currency interest rate swap agreement that synthetically swaps $100.0 million of fixed rate debt to Euro denominated fixed rate debt at a rate of 2.35%. The agreement is designated as a net investment hedge for accounting purposes and will mature on March 6, 2023. Accordingly, the gain or loss on this derivative instrument is included in the foreign currency translation component of other comprehensive income until the net investment is sold, diluted, or liquidated. Interest payments received 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. For the year ended October 31, 2019 and 2018, gains recorded in interest expense, net under the cross currency swap agreement were $2.4 million and $1.6 million, respectively. See Note 17 to the Consolidated Financial Statements for additional disclosure of the gain or loss included within other comprehensive 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.
Other Financial Instruments
The fair values of the Company’s 2019 Credit Agreement, 2017 Credit Agreement, and U.S. Receivables Facility and Foreign Receivables Facilities (collectively, "Accounts Receivables Facilities") 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.”
The following table presents the estimated fair values for the Company’s Senior Notes and Assets held by special purpose entities:
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
October 31, 2019
|
|
October 31, 2018
|
|
Senior Notes due 2019 estimated fair value
|
$
|
—
|
|
|
$
|
257.4
|
|
|
Senior Notes due 2021 estimated fair value
|
248.1
|
|
|
263.4
|
|
|
Senior Notes due 2027 estimated fair value
|
537.9
|
|
|
—
|
|
|
Assets held by special purpose entities estimated fair value
|
51.9
|
|
|
51.6
|
|
Pension Plan Assets
On an annual basis the Company compares the asset holdings of its pension plan to targets it previously established. The pension plan assets are categorized as equity securities, debt securities, fixed income securities, insurance annuities or other assets, which are considered level 1, level 2 and level 3 fair value measurements. The typical asset holdings include:
|
|
|
|
•
|
Common stock: Valued based on quoted prices and are primarily exchange-traded.
|
|
|
|
|
•
|
Mutual funds: Valued at the Net Asset Value “NAV” available daily in an observable market.
|
|
|
|
|
•
|
Common collective trusts: Unit value calculated based on the observable NAV of the underlying investment.
|
|
|
|
|
•
|
Pooled separate accounts: Unit value calculated based on the observable NAV of the underlying investment.
|
|
|
|
|
•
|
Government and corporate debt securities: Valued based on readily available inputs such as yield or price of bonds of comparable quality, coupon, maturity and type.
|
|
|
|
|
•
|
Insurance annuity: Value is derived based on the value of the corresponding liability.
|
Non-Recurring Fair Value Measurements
The Company recognized asset impairment charges of $7.8 million and $8.3 million for the years ended October 31, 2019 and 2018.
The following table presents quantitative information about the significant unobservable inputs used to determine the fair value of the impairment of long-lived assets held and used and net assets held for sale for the twelve months ended October 31, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quantitative Information about Level 3 Fair Value Measurements
|
|
(in millions)
|
Fair Value of
Impairment
|
|
Valuation
Technique
|
|
Unobservable
Input
|
|
Range
of Input Values
|
|
October 31, 2019
|
|
|
|
|
|
|
|
|
Impairment of Net Assets Held for Sale
|
$
|
2.1
|
|
|
Indicative Bids
|
|
Indicative Bids
|
|
N/A
|
|
Impairment of Long Lived Assets
|
5.7
|
|
|
Sales Value
|
|
Sales Value
|
|
N/A
|
|
Total
|
$
|
7.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2018
|
|
|
|
|
|
|
|
|
Impairment of Net Assets Held for Sale
|
$
|
0.7
|
|
|
Broker Quote /
Indicative Bids
|
|
Indicative Bids
|
|
N/A
|
|
Impairment of Long Lived Assets
|
7.6
|
|
|
Sales Value
|
|
Sales Value
|
|
N/A
|
|
Total
|
$
|
8.3
|
|
|
|
|
|
|
|
Long-Lived Assets
During the year ended October 31, 2019, the Company wrote down long-lived assets with a carrying value of $5.9 million to a fair value of $0.2 million, resulting in recognized asset impairment charges of $5.7 million. These charges include $0.6 million related to properties, plants and equipment, net, in the Rigid Industrial Packaging & Services segment, and $5.1 million related to properties, plants and equipment, net, in the Paper Packaging & Services segment.
During the year ended October 31, 2018, the Company wrote down long-lived assets with a carrying value of $10.7 million to a fair value of $3.1 million, resulting in recognized asset impairment charges of $7.6 million. The $7.6 million of impairment charges was all related to properties, plants and equipment, net, in the Rigid Industrial Packaging & Services segment.
During the year ended October 31, 2017, the Company wrote down long-lived assets with a carrying value of $3.8 million to a fair value of $1.6 million, resulting in recognized asset impairment charges of $2.2 million. These charges include $1.9 million related to properties, plants and equipment, net, in the Rigid Industrial Packaging & Services segment and $0.3 million of properties, plants and equipment, net, in the Flexible Products & Services segment.
The assumptions used in measuring fair value of long-lived assets are considered level 3 inputs, which include bids received from third parties, recent purchase offers, market comparable information and discounted cash flows based on assumptions that market participants would use.
Assets and Liabilities Held for Sale
During the year ended October 31, 2019, the Company wrote down the assets and liabilities of one asset group that was held for sale with a carrying value of $2.1 million to a fair value of zero, resulting in recognized asset impairment charges of $2.1 million.
During the year ended October 31, 2018, the Company wrote down the assets and liabilities of one asset group that was held for sale with a carrying value of $2.9 million to a fair value of $2.2 million, resulting in recognized asset impairment charges of $0.7 million for goodwill allocated to the business classified as held for sale.
During the year ended October 31, 2017, the Company wrote down the assets and liabilities of one asset group that was held for sale with a carrying value of $69.2 million to a fair value of $63.6 million, resulting in recognized asset impairment charges of $5.6 million for goodwill allocated to the business classified as held for sale. Additionally, during the year ended October 31, 2017, one asset group that was classified as held for sale at October 31, 2016 was reclassified to held and used at net realizable value, resulting in no impairment.
The assumptions used in measuring fair value of assets and liabilities held for sale are considered level 3 inputs, which include recent purchase offers, market comparables and/or data obtained from commercial real estate brokers.
Goodwill and Indefinite-Lived Intangibles
On an annual basis or when events or circumstances indicate impairment may have occurred, the Company performs impairment tests for goodwill and indefinite-lived intangibles as defined under ASC 350, “Intangibles-Goodwill and Other.” There was no goodwill impairment for the years ended October 31, 2019 and 2018. On August 1, 2017, the Company concluded that the carrying amount of the Rigid Industrial Packaging & Services - Latin America reporting unit exceeded at the fair value of the reporting unit, and the goodwill of Rigid Industrial Packaging & Services - Latin America of $13.0 million was fully impaired.
NOTE 10 – STOCK-BASED COMPENSATION
Stock-based compensation is accounted for in accordance with ASC 718, “Compensation – Stock Compensation,” which requires companies to estimate the fair value of share-based awards on the date of grant using an option-pricing model. The Company maintains two stock-based compensation plans, the 2001 Management Equity Incentive and Compensation Plan (the “2001 Plan”) and the 2005 Outside Directors Equity Award Plan (the “2005 Directors Plan”) however no stock options were granted in 2019, 2018 or 2017. No shares were forfeited or exercised in 2019, 2018 or 2017.
The Company’s Amended and Restated Long-Term Incentive Plan ("Long-Term Incentive Plan") is intended to focus management on the key measures that drive superior performance over the longer term. The Long-Term Incentive Plan is based on three-year performance periods that commence at the start of every fiscal year. For each three-year performance period, the performance goals are based on targeted levels of earnings before interest, taxes, depreciation, depletion and amortization as determined by the Special Subcommittee of the Company’s Compensation Committee of the Board of Directors (the “Special Subcommittee”).
The Company granted 291,520 shares of restricted stock with a grant date fair value of $39.83 under the Company’s Long-Term Incentive Plan for 2019. The total stock expense recorded under the Long-Term Incentive Plan was $11.6 million, $5.3 million and $1.7 million for the periods ended October 31, 2019, 2018 and 2017, respectively. All restricted stock awards under the Long-Term Incentive Plan are fully vested at the date of award.
Under the Company’s 2005 Directors Plan, the Company granted 25,144 shares of restricted stock with a grant date fair value of $42.95 in 2019. The Company granted 20,529 shares of restricted stock with a grant date fair value of $59.18 under the Company’s 2005 Directors Plan in 2018. The total expense recorded under the plan was $1.1 million, $1.2 million and $1.1 million for the periods ended October 31, 2019, 2018, and 2017, respectively. All restricted stock awards under the 2005 Directors Plan are fully vested at the date of award.
During 2019, the Company awarded an officer, as part of the terms of the officer's initial employment arrangement, 9,000 shares of Class A Common Stock under the 2001 Plan. These shares were issued subject to vesting and post-vesting restrictions on the sale or transfer until November 5, 2023. These shares will fully vest in equal installments of 3,000 on November 5, 2019, 2020 and 2021. Share-based compensation expense was $0.1 million, for the period ended October 31, 2019.
During 2014, the Company awarded an officer, as part of the terms of the officer's initial employment arrangement, 15,000 shares of Class A Common Stock under the 2001 Plan. These shares were issued subject to vesting and post-vesting restrictions on the sale or transfer until May 12, 2019. These shares fully vested in equal installments of 5,000 on May 12, 2015, 2016 and 2017. Share-based compensation expense was $0.1 million, for the period ended October 31, 2017.
The total stock compensation expenses recorded under the plans were $12.7 million, $6.5 million and $2.9 million for periods ended October 31, 2019, 2018 and 2017 respectively.
NOTE 11 – INCOME TAXES
On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act of 2017 (the “Tax Reform Act”). The legislation significantly changed U.S. tax law by, among other items, (1) lowering the corporate income tax rate from 35% to 21%, effective January 1, 2018; (2) allowing for the acceleration of expensing of qualified business assets; (3) requiring companies to pay a one-time transition tax on certain unremitted earnings of foreign subsidiaries that may be payable over eight years; (4) a new limitation on deductible interest expense; (5) limitations on the deductibility of certain executive compensation; and (6) eliminating U.S. federal income tax on dividends from foreign subsidiaries. The corporate income tax rate change was administratively effective beginning 2018. Therefore, the Company used a blended statutory rate for 2018 of 23.33% on U.S. earnings.
The SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. The Bulletin also provides for a measurement period that should not extend beyond one year from the U.S. Tax Reform enactment date. In accordance with the Bulletin, the Company recorded a tax benefit of $72.0 million related to the revaluation of deferred tax assets and liabilities during the year ended October 31, 2018 as well as a provisional tax expense of $52.8 million for the transition tax liability. During the first quarter of 2019, the Company revised its calculation for the transition tax liability to $55.1 million. In addition, the Company re-evaluated its indefinite reinvestment assertion, concluding that the unremitted earnings and profits of certain non-U.S. subsidiaries and affiliates will no longer be indefinitely reinvested. These changes in assertion required the recognition of a tax benefit of $1.7 million due to Section 986(c) currency losses. The provisional calculations related to the Tax Reform Act are now complete.
In addition, the Tax Reform Act established new tax provisions that affected the Company in 2019, including (1) eliminating the U.S. manufacturing deduction; (2) establishing new limitations on deductible interest expense and certain executive compensation; (3) creating the base erosion anti-abuse tax (“BEAT”); (4) creating a new provision designed to tax global intangible low-tax income (“GILTI”); (5) establishing a deduction for foreign-derived intangible income (“FDII”); and (6) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries. Regarding the new GILTI tax rules, the Company is allowed to make an accounting policy election to either (1) treat taxes due on future GILTI inclusions in U.S. taxable income as a current period expense when incurred or (2) reflect such portion of the future GILTI exclusions in U.S. taxable income that relate to existing basis differences in the Company’s measurement of deferred taxes. The Company has elected to treat taxes due to future GILTI inclusions in U.S. taxable income as a current period expense.
With respect to pre-October 31, 2016 undistributed foreign earnings, the Company is indefinitely reinvested as defined under ASC 740-30-25-1. For post-October 31, 2016 foreign earnings, the Company is not indefinitely reinvested. Accordingly, during 2017, the Company began recording a deferred tax liability with respect to post-October 31, 2016 foreign unremitted earnings, generally based on foreign jurisdiction withholding taxes. As disclosed above, Company no longer asserts that the unremitted earnings and profits of certain non-U.S. subsidiaries and affiliates is indefinitely reinvested and has recorded the appropriate U.S. federal and state impacts. Total deferred taxes accrued by the Company relative to undistributed earnings were $6.6 million and $8.4 million at October 31, 2019 and 2018, respectively. The decrease in the liability is primarily attributable to tax-deductible foreign currency losses that would be recognized on distributions of previously taxed earnings to the U.S.
The provision for income taxes consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31,
|
|
(in millions)
|
2019
|
|
2018
|
|
2017
|
|
Current
|
|
|
|
|
|
|
Federal
|
$
|
26.6
|
|
|
$
|
74.0
|
|
|
$
|
33.0
|
|
|
State and local
|
6.1
|
|
|
8.0
|
|
|
6.0
|
|
|
Non-U.S.
|
35.9
|
|
|
36.1
|
|
|
25.9
|
|
|
|
68.6
|
|
|
118.1
|
|
|
64.9
|
|
|
Deferred
|
|
|
|
|
|
|
Federal
|
2.1
|
|
|
(45.2
|
)
|
|
4.5
|
|
|
State and local
|
0.9
|
|
|
0.8
|
|
|
(2.0
|
)
|
|
Non-U.S.
|
(0.9
|
)
|
|
(0.4
|
)
|
|
(0.2
|
)
|
|
|
2.1
|
|
|
(44.8
|
)
|
|
2.3
|
|
|
|
$
|
70.7
|
|
|
$
|
73.3
|
|
|
$
|
67.2
|
|
The non-U.S. income before income tax expense was $132.1 million, $102.3 million and $85.2 million in 2019, 2018, and 2017, respectively. The U.S. income before income tax was $129.9 million, $197.5 million and $115.1 million in 2019, 2018, and 2017, respectively.
The following is a reconciliation of the provision for income taxes based on the federal statutory rate to the Company’s effective income tax rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
Federal statutory rate
|
21.00
|
%
|
|
23.33
|
%
|
|
35.00
|
%
|
|
Impact of foreign tax rate differential
|
0.10
|
%
|
|
(0.57
|
)%
|
|
(9.86
|
)%
|
|
State and local taxes, net of federal tax benefit
|
1.99
|
%
|
|
2.38
|
%
|
|
1.35
|
%
|
|
Net impact of changes in valuation allowances
|
2.41
|
%
|
|
5.65
|
%
|
|
20.74
|
%
|
|
Non-deductible write-off and impairment of goodwill and other intangible assets
|
0.29
|
%
|
|
0.06
|
%
|
|
(0.02
|
)%
|
|
Unrecognized tax benefits
|
(0.76
|
)%
|
|
3.41
|
%
|
|
(2.00
|
)%
|
|
Permanent book-tax differences
|
(0.87
|
)%
|
|
(4.03
|
)%
|
|
(15.71
|
)%
|
|
Withholding taxes
|
2.43
|
%
|
|
1.84
|
%
|
|
1.88
|
%
|
|
Tax Reform Act (1)
|
(0.19
|
)%
|
|
(7.31
|
)%
|
|
—
|
%
|
|
Other items, net
|
0.58
|
%
|
|
(0.33
|
)%
|
|
2.20
|
%
|
|
|
26.98
|
%
|
|
24.43
|
%
|
|
33.58
|
%
|
(1)Reflects the net impact of the change in deferred tax assets and liabilities and the estimated transition tax resulting from the Tax Reform Act.
The primary items which increased the Company’s effective income tax rate from the federal statutory rate in 2019 were state and local taxes, increases in valuation allowances, and withholding tax liabilities.
The primary items which increased the Company’s effective income tax rate from the federal statutory rate in 2018 were increases in valuation allowances and unrecognized tax benefits; offset primarily by the remeasurement of the domestic deferred tax liabilities, net of the transition tax liability due to the Tax Reform Act, and permanent book-tax differences.
The primary items which decreased the Company’s effective income tax rate from the federal statutory rate in 2017 were permanent book-tax differences, unrecognized tax benefits, the impact of foreign tax rates that differ from the federal statutory tax rate, and other immaterial items; offset primarily by increases in valuation allowances. Also, in 2017, the Company included in the table
above a $38.6 million and 19.26% change in valuation allowance, with offsetting amounts in permanent book-tax differences, for certain intercompany financing transactions.
The components of the Company’s deferred tax assets and liabilities as of October 31 for the years indicated were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
2019
|
|
2018
|
|
Deferred Tax Assets
|
|
|
|
|
Net operating loss and other carryforwards
|
$
|
206.9
|
|
|
$
|
122.8
|
|
|
Foreign tax credits
|
21.5
|
|
|
20.7
|
|
|
Pension liabilities
|
24.1
|
|
|
12.2
|
|
|
Incentive liabilities
|
12.0
|
|
|
12.1
|
|
|
Workers compensation accruals
|
12.1
|
|
|
6.6
|
|
|
Inventories
|
6.7
|
|
|
4.9
|
|
|
State income taxes
|
9.4
|
|
|
4.5
|
|
|
Deferred compensation
|
2.3
|
|
|
2.2
|
|
|
Other
|
41.2
|
|
|
16.5
|
|
|
Total Deferred Tax Assets
|
336.2
|
|
|
202.5
|
|
|
Valuation allowance
|
(175.0
|
)
|
|
(157.2
|
)
|
|
Net Deferred Tax Assets
|
$
|
161.2
|
|
|
$
|
45.3
|
|
|
|
|
|
|
|
Deferred Tax Liabilities
|
|
|
|
|
Properties, plants and equipment
|
$
|
152.7
|
|
|
$
|
78.9
|
|
|
Timberland transactions
|
74.2
|
|
|
73.5
|
|
|
Goodwill and other intangible assets
|
207.5
|
|
|
49.2
|
|
|
Other
|
23.9
|
|
|
15.6
|
|
|
Total Deferred Tax Liabilities
|
458.3
|
|
|
217.2
|
|
|
Net Deferred Tax Liability
|
$
|
297.1
|
|
|
$
|
171.9
|
|
As of October 31, 2019 and 2018, the Company had deferred income tax benefits of $206.9 million and $122.8 million, respectively, from net operating loss carryforwards and interest expense limitation carryforwards. These carryforwards are composed of $49.4 million, $27.3 million, and $130.2 million in U.S. Federal, state, and non-U.S. jurisdictions, respectively. The Company has recorded valuation allowances of $142.3 million and $137.1 million against non-U.S. deferred tax assets as of October 31, 2019 and 2018 respectively. The Company has also recorded valuation allowances of $32.7 million and $20.1 million, as of October 31, 2019 and 2018, respectively, against U.S. deferred tax assets. The Company had net changes in valuation allowances in 2019 of $17.8 million.
As discussed in Note 2 - Acquisitions and Divestitures, the table above reflects a net deferred tax liability of $139.1 million related to the Caraustar Acquisition, as well as a net deferred tax liability of $5.8 million related to the Tholu Acquisition.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
2019
|
|
2018
|
|
2017
|
|
Balance at November 1
|
$
|
36.2
|
|
|
$
|
26.8
|
|
|
$
|
29.7
|
|
|
Increases in tax positions for prior years
|
5.1
|
|
|
7.8
|
|
|
2.1
|
|
|
Decreases in tax positions for prior years
|
(0.7
|
)
|
|
(1.4
|
)
|
|
(1.8
|
)
|
|
Increases in tax positions for current years
|
4.3
|
|
|
8.0
|
|
|
6.7
|
|
|
Settlements with taxing authorities
|
(3.6
|
)
|
|
—
|
|
|
(7.4
|
)
|
|
Lapse in statute of limitations
|
(2.0
|
)
|
|
(3.6
|
)
|
|
(4.6
|
)
|
|
Currency translation
|
(0.5
|
)
|
|
(1.4
|
)
|
|
2.1
|
|
|
Balance at October 31
|
$
|
38.8
|
|
|
$
|
36.2
|
|
|
$
|
26.8
|
|
The 2019 net increase in unrecognized tax benefits is primarily related to increases in unrecognized tax benefits related to prior years and the current year, offset by decreases related to the settlement of prior years’ tax audits and lapse in statute of limitations. The Company files income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions and various non-U.S. jurisdictions and is subject to audit by various taxing authorities for 2012 through the current year. The Company has completed its U.S. federal tax audit for the tax years through 2013.
The October 31, 2019, 2018, 2017 balances include $34.1 million, $36.2 million and $26.8 million, respectively, of unrecognized tax benefits that, if recognized, would have an impact on the effective tax rate. The Company also recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense net of tax, as applicable. As of October 31, 2019 and October 31, 2018, the Company had $6.3 million and $4.9 million, respectively, accrued for the payment of interest and penalties.
The Company has estimated the reasonably possible expected net change in unrecognized tax benefits through October 31, 2019 under ASC 740. The Company’s estimate is based on lapses of the applicable statutes of limitations, settlements and payments of uncertain tax positions. The estimated net decrease in unrecognized tax benefits for the next 12 months ranges from zero to $5.9 million. Actual results may differ materially from this estimate.
NOTE 12 – POST-RETIREMENT BENEFIT PLANS
Defined Benefit Pension Plans
The Company has certain non-contributory defined benefit pension plans for salaried and hourly employees in the United States, Canada, Germany, the Netherlands, South Africa and the United Kingdom. The Company uses a measurement date of October 31 for fair value purposes for its pension plans. The salaried employees plans’ benefits are based primarily on years of service and earnings. The hourly employees plans’ benefits are based primarily upon years of service, and certain benefit provisions are subject to collective bargaining. The Company contributes an amount that is not less than the minimum funding and not more than the maximum tax-deductible amount to these plans. Salaried employees in the United States who commence service on or after November 1, 2007 are not eligible to participate in the defined benefit pension plans, but are eligible to participate in a defined contribution retirement program. Salaried employees outside the U.S. also have various dates in which they are not eligible to participate in the defined benefit pension plans, but are eligible to participate in a defined contribution retirement program. The category “Other International” represents the noncontributory defined benefit pension plans in Canada and South Africa.
Pension plan contributions by the Company totaled $26.5 million during 2019, which consisted of $22.6 million of employer contributions and $3.9 million of benefits paid directly by the Company. Pension plan contributions, including benefits paid directly by the Company, totaled $85.5 million and $14.4 million during 2018 and 2017, respectively. Contributions, including benefits paid directly by the Company, during 2020 are expected to be approximately $27.7 million.
The following table presents the number of participants in the defined benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2019
|
Consolidated
|
|
United States
|
|
Germany
|
|
United Kingdom
|
|
Netherlands
|
|
Other
International
|
|
Active participants
|
2,455
|
|
|
2,351
|
|
|
41
|
|
|
—
|
|
|
63
|
|
|
—
|
|
|
Vested former employees and deferred members
|
5,236
|
|
|
4,643
|
|
|
86
|
|
|
366
|
|
|
97
|
|
|
44
|
|
|
Retirees and beneficiaries
|
6,462
|
|
|
5,074
|
|
|
258
|
|
|
662
|
|
|
414
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2018
|
Consolidated
|
|
United States
|
|
Germany
|
|
United Kingdom
|
|
Netherlands
|
|
Other
International
|
|
Active participants
|
1,332
|
|
|
1,214
|
|
|
47
|
|
|
—
|
|
|
71
|
|
|
—
|
|
|
Vested former employees and deferred members
|
1,433
|
|
|
790
|
|
|
85
|
|
|
419
|
|
|
95
|
|
|
44
|
|
|
Retirees and beneficiaries
|
2,389
|
|
|
942
|
|
|
253
|
|
|
699
|
|
|
441
|
|
|
54
|
|
The actuarial assumptions are used to measure the year-end benefit obligations as of October 31, 2019 and the pension costs for the year were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended October 31, 2019
|
Consolidated(1)
|
|
United States
|
|
Germany
|
|
United Kingdom
|
|
Netherlands
|
|
Other
International
|
|
Discount rate
|
2.74
|
%
|
|
3.27
|
%
|
|
0.73
|
%
|
|
1.76
|
%
|
|
0.74
|
%
|
|
3.98
|
%
|
|
Expected return on plan assets
|
4.12
|
%
|
|
5.10
|
%
|
|
N/A
|
|
|
3.60
|
%
|
|
1.51
|
%
|
|
6.00
|
%
|
|
Rate of compensation increase
|
2.85
|
%
|
|
3.00
|
%
|
|
2.75
|
%
|
|
N/A
|
|
|
2.25
|
%
|
|
N/A
|
|
|
For the year ended October 31, 2018
|
Consolidated(1)
|
|
United States
|
|
Germany
|
|
United Kingdom
|
|
Netherlands
|
|
Other
International
|
|
Discount rate
|
3.48
|
%
|
|
4.59
|
%
|
|
1.80
|
%
|
|
2.50
|
%
|
|
1.64
|
%
|
|
4.84
|
%
|
|
Expected return on plan assets
|
4.53
|
%
|
|
6.25
|
%
|
|
N/A
|
|
|
3.60
|
%
|
|
1.45
|
%
|
|
5.69
|
%
|
|
Rate of compensation increase
|
2.85
|
%
|
|
3.00
|
%
|
|
2.75
|
%
|
|
N/A
|
|
|
2.25
|
%
|
|
N/A
|
|
|
For the year ended October 31, 2017
|
Consolidated(1)
|
|
United States
|
|
Germany
|
|
United Kingdom
|
|
Netherlands
|
|
Other
International
|
|
Discount rate
|
3.01
|
%
|
|
3.79
|
%
|
|
1.72
|
%
|
|
2.37
|
%
|
|
1.55
|
%
|
|
4.46
|
%
|
|
Expected return on plan assets
|
5.39
|
%
|
|
6.25
|
%
|
|
N/A
|
|
|
6.00
|
%
|
|
1.20
|
%
|
|
5.70
|
%
|
|
Rate of compensation increase
|
2.87
|
%
|
|
3.00
|
%
|
|
2.75
|
%
|
|
N/A
|
|
|
2.25
|
%
|
|
N/A
|
|
(1)This column represents the weighted average of the regions.
The discount rate is determined by developing a hypothetical portfolio of individual high-quality corporate bonds available at the measurement date, the coupon and principal payments of which would be sufficient to satisfy the plans’ expected future benefit payments as defined for the projected benefit obligation. The discount rate by country is equivalent to the average yield on that hypothetical portfolio of bonds and is a reflection of current market settlement rates on such high quality bonds, government treasuries, and annuity purchase rates. To determine the expected long-term rate of return on pension plan assets, the Company considers current and expected asset allocations, as well as historical and expected returns on various categories of plan assets. In developing future return expectations for the defined benefit pension plans’ assets; the Company formulates views on the future economic environment, both in the U.S. and globally. The Company evaluates general market trends and historical relationships among a number of key variables that impact asset class returns, such as expected earnings growth, inflation, valuations, yields and spreads, using both internal and external sources. The Company takes into account expected volatility by asset class and diversification across classes to determine expected overall portfolio results given current and expected allocations. The Company uses published mortality tables for determining the expected lives of plan participants and believe that the tables selected are most-closely associated with the expected lives of plan participants as the tables are based on the country in which the participant is employed.
Based on the Company's analysis of future expectations of asset performance, past return results, and its current and expected asset allocations, the Company has assumed a 4.12% long-term expected return on those assets for cost recognition in 2019. For the defined benefit pension plans, the Company applies its expected rate of return to a market-related value of assets, which stabilizes variability in the amounts to which the Company applies that expected return.
The Company amortizes experience gains and losses as well as the effects of changes in actuarial assumptions and plan provisions over a period no longer than the average future service of employees.
During the year ended October 31, 2018, in the United Kingdom, lump sum payments totaling $4.7 million were made from the defined benefit plan assets to certain participants who agreed to such payments representing the current fair value of the participant's respective pension benefit. These lump sum payments resulted in a non-cash pension settlement charge of $1.3 million for the year ended October 31, 2018.
During the year ended October 31, 2017, in the United States, an annuity contract for approximately $49.2 million was purchased with defined benefit plan assets, and the pension obligation for certain retirees was irrevocably transferred from that plan to the annuity contract. Additionally, lump sum payments totaling $45.2 million were made from the defined benefit plan assets to certain participants who voluntarily agreed to such payments, representing the current fair value of the participant's respective pension benefit. The settlement items described above resulted in a decrease in the fair value of plan assets and the projected benefit obligation of $94.4 million and a non-cash pension settlement charge of $25.9 million of unrecognized net actuarial loss that was included in accumulated other comprehensive loss. Additionally, in the United Kingdom, lump sum payments totaling $7.3 million were made from the defined benefit plan assets to certain participants who voluntarily agreed to such payments, representing the current fair value of the participant's respective pension benefit. These lump sum payments resulted in a non-cash pension settlement charge of $1.2 million of unrecognized net actuarial loss that was included in accumulated other comprehensive loss. Finally, $1.8 million of projected benefit obligation for certain retirees in Germany was irrevocably transferred to a third-party buyer through
the sale of a business resulting in $0.7 million of unrecognized net actuarial loss that was included in accumulated other comprehensive loss that was recognized as a loss on sale of business.
Benefit Obligations
The components of net periodic pension cost include the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended October 31, 2019
|
Consolidated
|
|
United States
|
|
Germany
|
|
United Kingdom
|
|
Netherlands
|
|
Other
International
|
|
(in millions)
|
|
|
|
|
|
|
Service cost
|
$
|
14.1
|
|
|
$
|
12.7
|
|
|
$
|
0.3
|
|
|
$
|
0.5
|
|
|
$
|
0.5
|
|
|
$
|
0.1
|
|
|
Interest cost
|
31.0
|
|
|
25.4
|
|
|
0.5
|
|
|
3.9
|
|
|
0.9
|
|
|
0.3
|
|
|
Expected return on plan assets
|
(38.8
|
)
|
|
(30.5
|
)
|
|
—
|
|
|
(6.2
|
)
|
|
(1.3
|
)
|
|
(0.8
|
)
|
|
Amortization of prior service (cost) benefit
|
(0.1
|
)
|
|
(0.1
|
)
|
|
—
|
|
|
0.1
|
|
|
(0.1
|
)
|
|
—
|
|
|
Recognized net actuarial loss
|
7.1
|
|
|
5.0
|
|
|
0.9
|
|
|
1.2
|
|
|
—
|
|
|
—
|
|
|
Net periodic pension (benefit) cost
|
$
|
13.3
|
|
|
$
|
12.5
|
|
|
$
|
1.7
|
|
|
$
|
(0.5
|
)
|
|
$
|
—
|
|
|
$
|
(0.4
|
)
|
|
For the year ended October 31, 2018
|
Consolidated
|
|
United States
|
|
Germany
|
|
United Kingdom
|
|
Netherlands
|
|
Other
International
|
|
(in millions)
|
|
|
|
|
|
|
Service cost
|
$
|
12.3
|
|
|
$
|
10.8
|
|
|
$
|
0.4
|
|
|
$
|
0.5
|
|
|
$
|
0.5
|
|
|
$
|
0.1
|
|
|
Interest cost
|
18.9
|
|
|
13.2
|
|
|
0.5
|
|
|
4.0
|
|
|
0.9
|
|
|
0.3
|
|
|
Expected return on plan assets
|
(25.5
|
)
|
|
(16.8
|
)
|
|
—
|
|
|
(6.5
|
)
|
|
(1.4
|
)
|
|
(0.8
|
)
|
|
Amortization of prior service cost
|
(0.2
|
)
|
|
(0.1
|
)
|
|
—
|
|
|
—
|
|
|
(0.1
|
)
|
|
—
|
|
|
Recognized net actuarial loss
|
11.0
|
|
|
8.1
|
|
|
1.1
|
|
|
1.7
|
|
|
—
|
|
|
0.1
|
|
|
Other Adjustments
|
2.8
|
|
|
—
|
|
|
—
|
|
|
2.8
|
|
|
—
|
|
|
—
|
|
|
Special Events
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement
|
1.3
|
|
|
—
|
|
|
—
|
|
|
1.3
|
|
|
—
|
|
|
—
|
|
|
Net periodic pension (benefit) cost
|
$
|
20.6
|
|
|
$
|
15.2
|
|
|
$
|
2.0
|
|
|
$
|
3.8
|
|
|
$
|
(0.1
|
)
|
|
$
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended October 31, 2017
|
Consolidated
|
|
United States
|
|
Germany
|
|
United Kingdom
|
|
Netherlands
|
|
Other
International
|
|
(in millions)
|
|
|
|
|
|
|
Service cost
|
$
|
13.3
|
|
|
$
|
11.8
|
|
|
$
|
0.5
|
|
|
$
|
0.5
|
|
|
$
|
0.4
|
|
|
$
|
0.1
|
|
|
Interest cost
|
18.2
|
|
|
12.9
|
|
|
0.5
|
|
|
3.8
|
|
|
0.7
|
|
|
0.3
|
|
|
Expected return on plan assets
|
(27.7
|
)
|
|
(15.6
|
)
|
|
—
|
|
|
(10.2
|
)
|
|
(1.2
|
)
|
|
(0.7
|
)
|
|
Amortization of prior service cost
|
(0.1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.1
|
)
|
|
—
|
|
|
Recognized net actuarial loss
|
10.9
|
|
|
8.1
|
|
|
1.3
|
|
|
1.5
|
|
|
—
|
|
|
—
|
|
|
Special Events
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement*
|
27.8
|
|
|
$
|
25.9
|
|
|
$
|
0.7
|
|
|
$
|
1.2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Net periodic pension (benefit) cost
|
$
|
42.4
|
|
|
$
|
43.1
|
|
|
$
|
3.0
|
|
|
$
|
(3.2
|
)
|
|
$
|
(0.2
|
)
|
|
$
|
(0.3
|
)
|
|
*Includes $0.7M that was recorded as a loss on sale of business
|
|
|
|
|
|
|
|
|
Benefit obligations are described in the following tables. Accumulated and projected benefit obligations (ABO and PBO) represent the obligations of a pension plan for past service as of the measurement date. ABO is the present value of benefits earned to date with benefits computed based on current compensation levels. PBO is ABO increased to reflect expected future compensation.
The following table sets forth the plans’ change in projected benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended October 31, 2019
|
Consolidated
|
|
United States
|
|
Germany
|
|
United Kingdom
|
|
Netherlands
|
|
Other
International
|
|
(in millions)
|
|
|
|
|
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
$
|
662.4
|
|
|
$
|
351.9
|
|
|
$
|
38.1
|
|
|
$
|
176.3
|
|
|
$
|
85.4
|
|
|
$
|
10.7
|
|
|
Service cost
|
14.1
|
|
|
12.7
|
|
|
0.3
|
|
|
0.5
|
|
|
0.5
|
|
|
0.1
|
|
|
Interest cost
|
31.0
|
|
|
25.4
|
|
|
0.5
|
|
|
3.9
|
|
|
0.9
|
|
|
0.3
|
|
|
Plan participant contributions
|
0.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.2
|
|
|
—
|
|
|
Expenses paid from assets
|
(5.9
|
)
|
|
(5.1
|
)
|
|
—
|
|
|
(0.7
|
)
|
|
—
|
|
|
(0.1
|
)
|
|
Actuarial loss
|
131.0
|
|
|
105.5
|
|
|
7.4
|
|
|
6.0
|
|
|
11.0
|
|
|
1.1
|
|
|
Foreign currency effect
|
(1.8
|
)
|
|
—
|
|
|
(0.9
|
)
|
|
1.1
|
|
|
(1.9
|
)
|
|
(0.1
|
)
|
|
Benefits paid
|
(61.6
|
)
|
|
(48.7
|
)
|
|
(1.3
|
)
|
|
(6.3
|
)
|
|
(4.8
|
)
|
|
(0.5
|
)
|
|
Acquisitions
|
389.3
|
|
|
389.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Benefit obligation at end of year
|
$
|
1,158.7
|
|
|
$
|
831.0
|
|
|
$
|
44.1
|
|
|
$
|
180.8
|
|
|
$
|
91.3
|
|
|
$
|
11.5
|
|
|
For the year ended October 31, 2018
|
Consolidated
|
|
United States
|
|
Germany
|
|
United Kingdom
|
|
Netherlands
|
|
Other
International
|
|
(in millions)
|
|
|
|
|
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
$
|
717.8
|
|
|
$
|
387.6
|
|
|
$
|
39.9
|
|
|
$
|
186.9
|
|
|
$
|
91.8
|
|
|
$
|
11.6
|
|
|
Service cost
|
12.3
|
|
|
10.8
|
|
|
0.4
|
|
|
0.5
|
|
|
0.5
|
|
|
0.1
|
|
|
Interest cost
|
18.9
|
|
|
13.2
|
|
|
0.5
|
|
|
4.0
|
|
|
0.9
|
|
|
0.3
|
|
|
Plan participant contributions
|
0.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.2
|
|
|
—
|
|
|
Expenses paid from assets
|
(1.7
|
)
|
|
(1.0
|
)
|
|
—
|
|
|
(0.6
|
)
|
|
—
|
|
|
(0.1
|
)
|
|
Plan Amendments
|
3.3
|
|
|
—
|
|
|
—
|
|
|
3.5
|
|
|
(0.2
|
)
|
|
—
|
|
|
Actuarial gain
|
(39.1
|
)
|
|
(33.5
|
)
|
|
(0.5
|
)
|
|
(3.9
|
)
|
|
(0.9
|
)
|
|
(0.3
|
)
|
|
Foreign currency effect
|
(7.1
|
)
|
|
—
|
|
|
(0.8
|
)
|
|
(4.3
|
)
|
|
(1.7
|
)
|
|
(0.3
|
)
|
|
Benefits paid
|
(42.2
|
)
|
|
(25.2
|
)
|
|
(1.4
|
)
|
|
(9.8
|
)
|
|
(5.2
|
)
|
|
(0.6
|
)
|
|
Benefit obligation at end of year
|
$
|
662.4
|
|
|
$
|
351.9
|
|
|
$
|
38.1
|
|
|
$
|
176.3
|
|
|
$
|
85.4
|
|
|
$
|
10.7
|
|
The following tables set forth the PBO, ABO, plan assets and instances where the ABO exceeds the plan assets for the respective years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial value of benefit obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Consolidated
|
|
United States
|
|
Germany
|
|
United
Kingdom
|
|
Netherlands
|
|
Other
International
|
|
October 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
$
|
1,158.7
|
|
|
$
|
831.0
|
|
|
$
|
44.1
|
|
|
$
|
180.8
|
|
|
$
|
91.3
|
|
|
$
|
11.5
|
|
|
Accumulated benefit obligation
|
1,131.3
|
|
|
806.8
|
|
|
42.6
|
|
|
180.8
|
|
|
89.6
|
|
|
11.5
|
|
|
Plan assets
|
1,017.0
|
|
|
698.7
|
|
|
—
|
|
|
209.8
|
|
|
94.5
|
|
|
14.0
|
|
|
October 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
$
|
662.4
|
|
|
$
|
351.9
|
|
|
$
|
38.1
|
|
|
$
|
176.3
|
|
|
$
|
85.4
|
|
|
$
|
10.7
|
|
|
Accumulated benefit obligation
|
638.9
|
|
|
330.4
|
|
|
37.2
|
|
|
176.3
|
|
|
84.3
|
|
|
10.7
|
|
|
Plan assets
|
594.8
|
|
|
311.9
|
|
|
—
|
|
|
178.7
|
|
|
90.6
|
|
|
13.6
|
|
|
Plans with ABO in excess of Plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation
|
$
|
860.9
|
|
|
$
|
806.8
|
|
|
$
|
42.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11.5
|
|
|
Plan assets
|
709.7
|
|
|
698.9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10.8
|
|
|
October 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation
|
$
|
171.1
|
|
|
$
|
28.8
|
|
|
$
|
37.2
|
|
|
$
|
104.6
|
|
|
$
|
—
|
|
|
$
|
0.5
|
|
|
Plan assets
|
94.7
|
|
|
—
|
|
|
—
|
|
|
94.2
|
|
|
—
|
|
|
0.5
|
|
Future benefit payments for the Company's global plans, which reflect expected future service, as appropriate, during the next five years, and in the aggregate for the five years thereafter, are as follows:
|
|
|
|
|
|
|
|
(in millions)
|
Expected
Benefit
Payments
|
|
Year(s)
|
|
|
2020
|
$
|
59.7
|
|
|
2021
|
60.2
|
|
|
2022
|
62.0
|
|
|
2023
|
65.6
|
|
|
2024
|
67.2
|
|
|
2025-2029
|
323.6
|
|
Plan assets
The plans’ assets consist of U.S. and non-U.S. equity securities, government and corporate bonds, cash, insurance annuity mutual funds and not more than the allowable number of shares of the Company’s common stock. The plans' assets include shares of the Company's common stock in the amount of 175,320 Class A shares and 111,270 Class B shares at October 31, 2019 and 247,504 Class A shares and 160,710 Class B shares at October 31, 2018.
The investment policy reflects the long-term nature of the plans’ funding obligations. The assets are invested to provide the opportunity for both income and growth of principal. This objective is pursued as a long-term goal designed to provide required benefits for participants without undue risk. It is expected that this objective can be achieved through a well-diversified asset portfolio. All equity investments are made within the guidelines of quality, marketability and diversification mandated by the Employee Retirement Income Security Act and/or other relevant statutes. Investment managers are directed to maintain equity portfolios at a risk level approximately equivalent to that of the specific benchmark established for that portfolio.
The Company’s weighted average asset allocations at the measurement date and the target asset allocations by category are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Category
|
2020 Target
|
|
2019 Target
|
|
2019 Actual
|
|
Equity securities
|
29
|
%
|
|
15
|
%
|
|
31
|
%
|
|
Debt securities
|
55
|
%
|
|
63
|
%
|
|
51
|
%
|
|
Other
|
16
|
%
|
|
22
|
%
|
|
18
|
%
|
|
Total
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
The fair value of the pension plans’ investments is presented below. The inputs and valuation techniques used to measure the fair value of the assets are consistently applied and described in Note 9.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended October 31, 2019
|
Consolidated
|
|
United States
|
|
Germany
|
|
United Kingdom
|
|
Netherlands
|
|
Other
International
|
|
(in millions)
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
$
|
594.8
|
|
|
$
|
311.9
|
|
|
$
|
—
|
|
|
$
|
178.7
|
|
|
$
|
90.6
|
|
|
$
|
13.6
|
|
|
Actual return on plan assets
|
140.1
|
|
|
93.4
|
|
|
—
|
|
|
35.2
|
|
|
10.7
|
|
|
0.8
|
|
|
Expenses paid
|
(5.9
|
)
|
|
(5.1
|
)
|
|
—
|
|
|
(0.7
|
)
|
|
—
|
|
|
(0.1
|
)
|
|
Plan participant contributions
|
0.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.2
|
|
|
—
|
|
|
Foreign currency impact
|
(0.7
|
)
|
|
—
|
|
|
—
|
|
|
1.3
|
|
|
(2.1
|
)
|
|
0.1
|
|
|
Employer contributions
|
22.7
|
|
|
21.0
|
|
|
—
|
|
|
1.6
|
|
|
—
|
|
|
0.1
|
|
|
Benefits paid out of plan
|
(57.8
|
)
|
|
(46.1
|
)
|
|
—
|
|
|
(6.3
|
)
|
|
(4.9
|
)
|
|
(0.5
|
)
|
|
Acquisitions
|
323.6
|
|
|
323.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Fair value of plan assets at end of year
|
$
|
1,017.0
|
|
|
$
|
698.7
|
|
|
$
|
—
|
|
|
$
|
209.8
|
|
|
$
|
94.5
|
|
|
$
|
14.0
|
|
|
For the year ended October 31, 2018
|
Consolidated
|
|
United States
|
|
Germany
|
|
United Kingdom
|
|
Netherlands
|
|
Other
International
|
|
(in millions)
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
$
|
568.6
|
|
|
$
|
268.6
|
|
|
$
|
—
|
|
|
$
|
188.9
|
|
|
$
|
97.5
|
|
|
$
|
13.6
|
|
|
Actual return on plan assets
|
(8.7
|
)
|
|
(12.9
|
)
|
|
—
|
|
|
3.2
|
|
|
(0.1
|
)
|
|
1.1
|
|
|
Expenses paid
|
(1.7
|
)
|
|
(1.0
|
)
|
|
—
|
|
|
(0.6
|
)
|
|
—
|
|
|
(0.1
|
)
|
|
Plan participant contributions
|
0.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.2
|
|
|
—
|
|
|
Foreign currency impact
|
(6.9
|
)
|
|
—
|
|
|
—
|
|
|
(4.6
|
)
|
|
(1.8
|
)
|
|
(0.5
|
)
|
|
Employer contributions
|
81.7
|
|
|
80.0
|
|
|
—
|
|
|
1.6
|
|
|
—
|
|
|
0.1
|
|
|
Benefits paid out of plan
|
(38.4
|
)
|
|
(22.8
|
)
|
|
—
|
|
|
(9.8
|
)
|
|
(5.2
|
)
|
|
(0.6
|
)
|
|
Fair value of plan assets at end of year
|
$
|
594.8
|
|
|
$
|
311.9
|
|
|
$
|
—
|
|
|
$
|
178.7
|
|
|
$
|
90.6
|
|
|
$
|
13.6
|
|
The following table presents the fair value measurements for the pension assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of October 31, 2019 (in millions)
|
Fair Value Measurement
|
|
Asset Category
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Mutual funds
|
$
|
25.6
|
|
|
$
|
137.4
|
|
|
$
|
—
|
|
|
$
|
163.0
|
|
|
Common stock
|
27.6
|
|
|
—
|
|
|
—
|
|
|
27.6
|
|
|
Cash
|
6.5
|
|
|
—
|
|
|
—
|
|
|
6.5
|
|
|
Corporate bonds
|
—
|
|
|
134.8
|
|
|
—
|
|
|
134.8
|
|
|
Government bonds
|
—
|
|
|
39.8
|
|
|
—
|
|
|
39.8
|
|
|
Other assets
|
—
|
|
|
0.2
|
|
|
—
|
|
|
0.2
|
|
|
Total Assets in the Fair Value Hierarchy
|
$
|
59.7
|
|
|
$
|
312.2
|
|
|
$
|
—
|
|
|
$
|
371.9
|
|
|
Investments Measured at Net Asset Value
|
|
|
|
|
|
|
|
|
|
Mutual funds
|
|
|
|
|
|
|
358.5
|
|
|
Insurance contracts
|
|
|
|
|
|
|
130.2
|
|
|
Common stock funds
|
|
|
|
|
|
|
81.5
|
|
|
Corporate bond funds
|
|
|
|
|
|
|
70.8
|
|
|
Government bond funds
|
|
|
|
|
|
|
4.1
|
|
|
Investments at Fair Value
|
$
|
59.7
|
|
|
$
|
312.2
|
|
|
$
|
—
|
|
|
$
|
1,017.0
|
|
|
|
|
|
|
|
|
|
|
|
As of October 31, 2018 (in millions)
|
Fair Value Measurement
|
|
Asset Category
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Mutual funds
|
$
|
63.0
|
|
|
$
|
140.7
|
|
|
$
|
—
|
|
|
$
|
203.7
|
|
|
Common stock
|
35.9
|
|
|
—
|
|
|
—
|
|
|
35.9
|
|
|
Cash
|
1.9
|
|
|
—
|
|
|
—
|
|
|
1.9
|
|
|
Corporate bonds
|
—
|
|
|
26.1
|
|
|
—
|
|
|
26.1
|
|
|
Government bonds
|
—
|
|
|
17.8
|
|
|
—
|
|
|
17.8
|
|
|
Other assets
|
—
|
|
|
0.8
|
|
|
—
|
|
|
0.8
|
|
|
Total Assets in the Fair Value Hierarchy
|
$
|
100.8
|
|
|
$
|
185.4
|
|
|
$
|
—
|
|
|
$
|
286.2
|
|
|
Investments Measured at Net Asset Value
|
|
|
|
|
|
|
|
|
|
Mutual funds
|
|
|
|
|
|
|
44.6
|
|
|
Insurance contracts
|
|
|
|
|
|
|
124.0
|
|
|
Common stock funds
|
|
|
|
|
|
|
42.7
|
|
|
Corporate bond funds
|
|
|
|
|
|
|
97.3
|
|
|
Investments at Fair Value
|
$
|
100.8
|
|
|
$
|
185.4
|
|
|
$
|
—
|
|
|
$
|
594.8
|
|
Financial statement presentation including other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of October 31, 2019
|
Consolidated
|
|
United States
|
|
Germany
|
|
United Kingdom
|
|
Netherlands
|
|
Other
International
|
|
(in millions)
|
|
|
|
|
|
|
Unrecognized net actuarial loss
|
$
|
171.8
|
|
|
$
|
120.5
|
|
|
$
|
19.2
|
|
|
$
|
25.3
|
|
|
$
|
3.1
|
|
|
$
|
3.7
|
|
|
Unrecognized prior service cost (credit)
|
0.8
|
|
|
(1.0
|
)
|
|
—
|
|
|
3.3
|
|
|
(1.5
|
)
|
|
—
|
|
|
Accumulated other comprehensive loss (gain) - Pre-tax
|
$
|
172.6
|
|
|
$
|
119.5
|
|
|
$
|
19.2
|
|
|
$
|
28.6
|
|
|
$
|
1.6
|
|
|
$
|
3.7
|
|
|
Amounts recognized in the Consolidated Balance Sheets consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid benefit cost
|
$
|
35.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
29.0
|
|
|
$
|
3.2
|
|
|
$
|
3.2
|
|
|
Accrued benefit liability
|
(177.0
|
)
|
|
(132.2
|
)
|
|
(44.1
|
)
|
|
—
|
|
|
—
|
|
|
(0.7
|
)
|
|
Accumulated other comprehensive loss
|
172.6
|
|
|
119.5
|
|
|
19.2
|
|
|
28.6
|
|
|
1.6
|
|
|
3.7
|
|
|
Net amount recognized
|
$
|
31.0
|
|
|
$
|
(12.7
|
)
|
|
$
|
(24.9
|
)
|
|
$
|
57.6
|
|
|
$
|
4.8
|
|
|
$
|
6.2
|
|
|
As of October 31, 2018
|
Consolidated
|
|
United States
|
|
Germany
|
|
United Kingdom
|
|
Netherlands
|
|
Other
International
|
|
(in millions)
|
|
|
|
|
|
|
Unrecognized net actuarial loss
|
$
|
149.7
|
|
|
$
|
82.9
|
|
|
$
|
13.1
|
|
|
$
|
49.5
|
|
|
$
|
1.5
|
|
|
$
|
2.7
|
|
|
Unrecognized prior service cost (credit)
|
0.7
|
|
|
(1.1
|
)
|
|
—
|
|
|
3.5
|
|
|
(1.7
|
)
|
|
—
|
|
|
Accumulated other comprehensive loss (gain) - Pre-tax
|
$
|
150.4
|
|
|
$
|
81.8
|
|
|
$
|
13.1
|
|
|
$
|
53.0
|
|
|
$
|
(0.2
|
)
|
|
$
|
2.7
|
|
|
Amounts recognized in the Consolidated Balance Sheets consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid benefit cost
|
$
|
10.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2.3
|
|
|
$
|
5.0
|
|
|
$
|
3.1
|
|
|
Accrued benefit liability
|
(78.0
|
)
|
|
(39.9
|
)
|
|
(38.1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Accumulated other comprehensive loss (gain)
|
150.4
|
|
|
81.8
|
|
|
13.1
|
|
|
53.0
|
|
|
(0.2
|
)
|
|
2.7
|
|
|
Net amount recognized
|
$
|
82.8
|
|
|
$
|
41.9
|
|
|
$
|
(25.0
|
)
|
|
$
|
55.3
|
|
|
$
|
4.8
|
|
|
$
|
5.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
October 31, 2019
|
|
October 31, 2018
|
|
Accumulated other comprehensive loss at beginning of year
|
$
|
150.4
|
|
|
$
|
168.1
|
|
|
Increase or (decrease) in accumulated other comprehensive loss
|
|
|
|
|
Net prior service benefit amortized
|
0.1
|
|
|
0.2
|
|
|
Net loss amortized
|
(7.1
|
)
|
|
(11.0
|
)
|
|
Loss recognized due to settlement
|
—
|
|
|
(1.4
|
)
|
|
Prior service credit
|
—
|
|
|
3.3
|
|
|
Liability loss (gain)
|
131.0
|
|
|
(39.2
|
)
|
|
Asset (gain) loss
|
(101.3
|
)
|
|
34.6
|
|
|
Other adjustments
|
—
|
|
|
(2.7
|
)
|
|
Increase (decrease) in accumulated other comprehensive loss
|
$
|
22.7
|
|
|
$
|
(16.2
|
)
|
|
Foreign currency impact
|
(0.5
|
)
|
|
(1.5
|
)
|
|
Accumulated other comprehensive loss at year end
|
$
|
172.6
|
|
|
$
|
150.4
|
|
In 2020, the Company expects to record an amortization gain of $0.2 million of prior service credits from shareholders’ equity into pension costs.
Supplemental Employee Retirement Plan
The Company has a supplemental employee retirement plan which is an unfunded plan providing supplementary retirement benefits primarily to certain executives and longer-service employees. The present benefit obligation of the supplemental employee retirement plan is included in the United States defined benefit pension plans above.
Defined contribution plans
The Company has several voluntary 401(k) savings plans that cover eligible employees. For certain plans, the Company matches a percentage of each employee’s contribution up to a maximum percentage of base salary. Company contributions to the 401(k) plans were $21.8 million in 2019, $9.4 million in 2018 and $8.3 million in 2017.
Post-retirement Health Care and Life Insurance Benefits
The Company has certain post-retirement unfunded health and life insurance benefit plans in the United States and South Africa. The Company uses a measurement date of October 31 for its post-retirement benefit plans.
Benefits paid directly by the Company totaled $0.9 million, $1.0 million and $0.8 million for the years ending 2019, 2018 and 2017 respectively. Benefits paid directly by the Company during 2020 are expected to be approximately $1.3 million.
The following table presents the number of participants in the post-retirement health and life insurance benefit plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2019
|
Consolidated
|
|
United States
|
|
South Africa
|
|
Active participants
|
9
|
|
|
3
|
|
|
6
|
|
|
Retirees and beneficiaries
|
1,065
|
|
|
986
|
|
|
79
|
|
|
|
|
|
|
|
|
|
October 31, 2018
|
Consolidated
|
|
United States
|
|
South Africa
|
|
Active participants
|
12
|
|
|
5
|
|
|
7
|
|
|
Retirees and beneficiaries
|
625
|
|
|
542
|
|
|
83
|
|
The discount rate actuarial assumptions at October 31 used to measure the year-end benefit obligations and the pension costs for the subsequent year were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended:
|
Consolidated
|
|
United States
|
|
South Africa
|
|
October 31, 2019
|
3.52
|
%
|
|
2.95
|
%
|
|
9.20
|
%
|
|
October 31, 2018
|
5.02
|
%
|
|
4.39
|
%
|
|
10.10
|
%
|
The components of net periodic income for the post-retirement benefits include the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31,
|
|
(in millions)
|
2019
|
|
2018
|
|
2017
|
|
Interest cost
|
$
|
0.5
|
|
|
$
|
0.5
|
|
|
$
|
0.5
|
|
|
Amortization of prior service benefit
|
(1.3
|
)
|
|
(1.4
|
)
|
|
(1.4
|
)
|
|
Recognized net actuarial gain
|
(0.3
|
)
|
|
(0.2
|
)
|
|
(0.2
|
)
|
|
Net periodic income
|
$
|
(1.1
|
)
|
|
$
|
(1.1
|
)
|
|
$
|
(1.1
|
)
|
The following table sets forth the plans’ change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
October 31, 2019
|
|
October 31, 2018
|
|
Benefit obligation at beginning of year
|
$
|
10.7
|
|
|
$
|
12.6
|
|
|
Interest cost
|
0.5
|
|
|
0.5
|
|
|
Actuarial loss (gain)
|
0.5
|
|
|
(1.4
|
)
|
|
Benefits paid
|
(1.0
|
)
|
|
(1.0
|
)
|
|
Acquisition
|
1.5
|
|
|
—
|
|
|
Benefit obligation at end of year
|
$
|
12.2
|
|
|
$
|
10.7
|
|
Financial statement presentation included other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
October 31, 2019
|
|
October 31, 2018
|
|
Unrecognized net actuarial gain
|
$
|
(2.8
|
)
|
|
$
|
(3.6
|
)
|
|
Unrecognized prior service credit
|
(0.4
|
)
|
|
(1.6
|
)
|
|
Accumulated other comprehensive income
|
$
|
(3.2
|
)
|
|
$
|
(5.2
|
)
|
The accumulated post-retirement health and life insurance benefit obligation and fair value of plan assets for the consolidated plans were $12.2 million and zero, respectively, as of October 31, 2019 compared to $10.7 million and zero, respectively, as of October 31, 2018.
The healthcare cost trend rates on gross eligible charges are as follows:
|
|
|
|
|
|
|
|
Medical
|
|
Current trend rate
|
6.3
|
%
|
|
Ultimate trend rate
|
4.7
|
%
|
|
Year ultimate trend rate reached (South Africa)
|
2020
|
|
|
Year ultimate trend rate reached (US)
|
2026
|
|
A one-percentage point change in assumed health care cost trend rates would have the following effects:
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
1-Percentage-Point
Increase
|
|
1-Percentage-Point
Decrease
|
|
Effect on total of service and interest cost components
|
$
|
—
|
|
|
$
|
—
|
|
|
Effect on post-retirement benefit obligation
|
0.2
|
|
|
(0.2
|
)
|
Future benefit payments, which reflect expected future service, as appropriate, during the next five years, and in the aggregate for the five years thereafter, are expected to be as follows:
|
|
|
|
|
|
|
|
(in millions)
|
Expected
Benefit
Payments
|
|
Year(s)
|
|
|
2020
|
$
|
1.3
|
|
|
2021
|
1.3
|
|
|
2022
|
1.2
|
|
|
2023
|
1.1
|
|
|
2024
|
1.0
|
|
|
2025-2029
|
4.2
|
|
NOTE 13 – 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 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.
The Company is currently involved in legal proceedings outside of the United States related to various wrongful termination lawsuits filed by former employees and benefit claims filed by some existing employees of the Company's Flexible Products & Services segment. The lawsuits include claims for severance for employment periods prior to the Company’s ownership in the business. As of October 31, 2019 and October 31, 2018, the estimated liability recorded related to these matters were $0.6 million and $2.0 million, respectively. The estimated liability has been determined based on the number of active cases and the settlements and rulings on previous cases. It is reasonably possible the estimated liability could increase if additional cases are filed or adverse rulings are made.
Since 2017, three reconditioning facilities in the Milwaukee, Wisconsin area that are owned by Container Life Cycle Management LLC ("CLCM"), the Company’s U.S. reconditioning joint venture company, have been subject to investigations conducted by federal, state and local governmental agencies concerning, among other matters, potential violations of environmental laws and regulations. As a result of these investigations, the United States Environmental Protection Agency (“U.S. EPA”) and the Wisconsin Department of Natural Resources (“WDNR”) have issued notices of violations to the Company and CLCM regarding violations of certain federal and state environmental laws and regulations. The remedies being sought in these proceedings include compliance with the applicable environmental laws and regulations as being interpreted by the U.S. EPA and WDNR and monetary sanctions. The Company has cooperated with the governmental agencies in these investigations and proceedings. As of December 17, 2019, no material citations have been issued or material fines assessed with respect to any violation of environmental laws and regulations. Since these proceedings are in their investigative stage, the Company is unable to predict the outcome of these proceedings or estimate a range of reasonable possible monetary sanctions or costs associated with any remedial actions that may be required or requested by the U.S. EPA or WDNR.
In addition, on November 8, 2017, the Company, CLCM and other parties were named as defendants in a punitive class action lawsuit filed in Wisconsin state court concerning one of CLCM’s Milwaukee reconditioning facilities. The plaintiffs are alleging that odors from this facility have invaded their property and are interfering with the use and enjoyment of their property and causing damage to the value of their property. Plaintiffs are seeking compensatory and punitive damages, along with their legal fees. The Company and CLCM are vigorously defending themselves in this lawsuit. The Company is unable to predict the outcome of this lawsuit or estimate a range of reasonably possible losses.
Environmental Reserves
As a result of the Caraustar Acquisition, the Company acquired The Newark Group, Inc., a subsidiary of Caraustar (“Newark”), and became subject to Newark’s Lower Passaic River environmental and litigation liability. By letters dated February 14, 2006 and June 2, 2006, the United States Environment Protection Agency (“EPA”) notified Newark of its potential liability under Section 107(a) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (“CERCLA”) relating to the Diamond Alkali Superfund Site, which includes a 17-mile stretch of the Lower Passaic River that EPA has denominated the Lower Passaic River Study Area (“LPRSA”). Newark is one of at least 70 potentially responsible parties identified in this case. The EPA alleges that hazardous substances were released from Newark’s now-closed Newark, New Jersey recycled paperboard mill into the Lower Passaic River. The EPA informed the Company that it may be potentially liable for response costs that the government may incur relating to the study of the LPRSA and for unspecified natural resource damages.
In April 2014, EPA issued a Focused Feasibility Study that proposed alternatives for the remediation of the lower 8 miles of the Lower Passaic River. On March 3, 2016, EPA issued its Record of Decision for the lower 8 miles of the Lower Passaic River,
which presented a bank-to-bank dredging remedy selected by the agency for the lower 8 miles and which EPA estimates will cost approximately $1,380.0 million to implement. Newark is participating in an allocation process to determine its allocable share.
On June 30, 2018, Occidental Chemical Corporation (“OCC”) filed litigation in the U.S. District Court for the District of New Jersey styled Occidental Chemical Corp. v. 21st Century Fox America, Inc., et al., Civil Action No. 2:18-CV-11273 (D.N.J.), that names Newark and approximately 119 other parties as defendants. OCC’s Complaint alleges claims under CERCLA against all defendants for cost recovery, contribution, and declaratory judgment for costs OCC allegedly has incurred and will incur at the Diamond Alkali Superfund Site. The litigation is in its early stages, and the Company intends to vigorously defend itself in this litigation.
The Company has completed its initial assessment of these matters as part of our purchase price allocation. As of October 31, 2019, the Company has accrued $11.2 million for LPRSA and the Diamond Alkali Superfund Site. It is possible that, once the Company finalizes its purchase price allocation, it could record a material adjustment to this environmental reserve related to the acquisition. Further, it is possible that there could be resolution of uncertainties in the future that would require the Company to record charges, which could be material to future earnings.
As of October 31, 2019 and October 31, 2018, the Company's environmental reserves were $18.7 million and $6.8 million, respectively. These reserves are principally based on environmental studies and cost estimates provided by third parties, but also take into account management estimates. The estimated liabilities are reduced to reflect the anticipated participation of other potentially responsible parties in those instances where it is probable that such parties are legally responsible and financially capable of paying their respective shares of relevant costs. For sites that involve formal actions subject to joint and several liabilities, these actions have formal agreements in place to apportion the liability.
Aside from the Diamond Alkali Superfund Site, other environmental reserves of the Company as of October 31, 2019 and October 31, 2018 included $3.3 million and $3.7 million, respectively, for various European drum facilities acquired from Blagden and Van Leer; $0.1 million and $0.2 million, respectively, for its various container life cycle management and recycling facilities acquired in 2011 and 2010; $0.3 million and $0.9 million, respectively, for remediation of sites no longer owned by the Company; $2.0 million and $1.0 million, respectively, for landfill closure obligations in the Company's Paper Packaging & Services segment; and $1.8 million and $1.0 million, respectively, for various other facilities around the world.
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 14 – 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 articles 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
|
=
|
40% * Average Class A Shares Outstanding
|
*
|
Undistributed Net Income
|
+
|
Class A Dividends
Per Share
|
|
Class A EPS
|
40% * Average Class A Shares Outstanding + 60% * Average Class B Shares Outstanding
|
Average Class A Shares Outstanding
|
|
Diluted
|
=
|
40% * Average Class A Shares Outstanding
|
*
|
Undistributed Net Income
|
+
|
Class A Dividends
Per Share
|
|
Class A EPS
|
40% * Average Class A Shares Outstanding + 60% * Average Class B Shares Outstanding
|
Average Diluted Class A Shares Outstanding
|
|
Basic
|
=
|
60% * Average Class B Shares Outstanding
|
*
|
Undistributed Net Income
|
+
|
Class B Dividends
Per Share
|
|
Class B EPS
|
40% * Average Class A Shares Outstanding + 60% * Average Class B Shares Outstanding
|
Average Class B Shares Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
* Diluted Class B EPS calculation is identical to Basic Class B calculation
|
The following table provides EPS information for each period, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31,
|
|
(in millions, except per share data)
|
2019
|
|
2018
|
|
2017
|
|
Numerator
|
|
|
|
|
|
|
Numerator for basic and diluted EPS –
|
|
|
|
|
|
|
Net income attributable to Greif
|
$
|
171.0
|
|
|
$
|
209.4
|
|
|
$
|
118.6
|
|
|
Cash dividends
|
104.0
|
|
|
100.0
|
|
|
98.6
|
|
|
Undistributed net income (loss) attributable to Greif, Inc.
|
$
|
67.0
|
|
|
$
|
109.4
|
|
|
$
|
20.0
|
|
|
Denominator
|
|
|
|
|
|
|
Denominator for basic EPS –
|
|
|
|
|
|
|
Class A common stock
|
26.2
|
|
|
25.9
|
|
|
25.8
|
|
|
Class B common stock
|
22.0
|
|
|
22.0
|
|
|
22.0
|
|
|
Denominator for diluted EPS –
|
|
|
|
|
|
|
Class A common stock
|
26.2
|
|
|
26.0
|
|
|
25.8
|
|
|
Class B common stock
|
22.0
|
|
|
22.0
|
|
|
22.0
|
|
|
EPS Basic
|
|
|
|
|
|
|
Class A common stock
|
$
|
2.89
|
|
|
$
|
3.56
|
|
|
$
|
2.02
|
|
|
Class B common stock
|
$
|
4.33
|
|
|
$
|
5.33
|
|
|
$
|
3.02
|
|
|
EPS Diluted
|
|
|
|
|
|
|
Class A common stock
|
$
|
2.89
|
|
|
$
|
3.55
|
|
|
$
|
2.02
|
|
|
Class B common stock
|
$
|
4.33
|
|
|
$
|
5.33
|
|
|
$
|
3.02
|
|
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.
Common Stock Repurchases
The Board of Directors has authorized the Company to repurchase shares of the Company's Class A Common Stock or Class B Common Stock or any combination of the foregoing. As of October 31, 2019 and 2018, the remaining amount of shares that may be repurchased under this authorization were 4,703,487 and 4,703,487, respectively. There were no shares repurchased under this program from November 1, 2017 through October 31, 2019.
The following table summarizes the Company’s Class A and Class B common and treasury shares at the specified dates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Authorized Shares
|
|
Issued Shares
|
|
Outstanding
Shares
|
|
Treasury Shares
|
|
October 31, 2019:
|
|
|
|
|
|
|
|
|
Class A common stock
|
128,000,000
|
|
|
42,281,920
|
|
|
26,257,943
|
|
|
16,023,977
|
|
|
Class B common stock
|
69,120,000
|
|
|
34,560,000
|
|
|
22,007,725
|
|
|
12,552,275
|
|
|
October 31, 2018:
|
|
|
|
|
|
|
|
|
Class A common stock
|
128,000,000
|
|
|
42,281,920
|
|
|
25,941,279
|
|
|
16,340,641
|
|
|
Class B common stock
|
69,120,000
|
|
|
34,560,000
|
|
|
22,007,725
|
|
|
12,552,275
|
|
The following is a reconciliation of the shares used to calculate basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
Class A Common Stock:
|
|
|
|
|
|
|
Basic shares
|
26,189,445
|
|
|
25,915,887
|
|
|
25,820,470
|
|
|
Assumed conversion of stock options and unvested shares
|
25,666
|
|
|
49,969
|
|
|
2,470
|
|
|
Diluted shares
|
26,215,111
|
|
|
25,965,856
|
|
|
25,822,940
|
|
|
Class B Common Stock:
|
|
|
|
|
|
|
Basic and diluted shares
|
22,007,725
|
|
|
22,007,725
|
|
|
22,009,193
|
|
No stock options were antidilutive for the years ended October 31, 2019, 2018, or 2017.
NOTE 15 – LEASES
The table below contains information related to the Company’s rent expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31,
|
|
(in millions)
|
2019
|
|
2018
|
|
2017
|
|
Rent Expense
|
$
|
86.2
|
|
|
$
|
47.1
|
|
|
$
|
41.0
|
|
The following table provides the Company’s minimum rent commitments under operating leases in the next five years and the remaining years thereafter:
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Operating
Leases
|
Capital Leases
|
|
Year(s):
|
|
|
|
2020
|
$
|
64.8
|
|
$
|
1.8
|
|
|
2021
|
57.0
|
|
1.6
|
|
|
2022
|
48.7
|
|
1.3
|
|
|
2023
|
40.1
|
|
1.0
|
|
|
2024
|
31.6
|
|
0.6
|
|
|
Thereafter
|
117.5
|
|
0.3
|
|
|
Total
|
$
|
359.7
|
|
$
|
6.6
|
|
Minimum rent commitments under capital leases in 2020 and thereafter are attributable to addition of capital leases through the Caraustar Acquisition.
NOTE 16 – BUSINESS SEGMENT INFORMATION
The Company has eight operating segments, which are aggregated into four reportable business segments: Rigid Industrial Packaging & Services; Paper Packaging & Services; Flexible Products & Services; and Land Management. The Rigid Industrial Packaging & Services reportable business segment is the aggregation of five operating segments: Rigid Industrial Packaging & Services – North America; Rigid Industrial Packaging & Services – Latin America; Rigid Industrial Packaging & Services – Europe, Middle East and Africa; Rigid Industrial Packaging & Services – Asia Pacific; and Rigid Industrial Packaging & Services – Tri-Sure.
Operations in the Rigid Industrial Packaging & Services segment involve the production and sale of rigid industrial packaging products, such as steel, fibre and plastic drums, rigid intermediate bulk containers, closure systems for industrial packaging products, transit protection products, water bottles and remanufactured and reconditioned industrial containers, and services, such as container life cycle management, filling, logistics, warehousing and other packaging services. The Company’s rigid industrial packaging products and services are sold to customers in industries such as chemicals, paints and pigments, food and beverage, petroleum, industrial coatings, agricultural, pharmaceutical and mineral products, among others.
On June 11, 2019, the Company completed the Tholu Acquisition. Tholu is a Netherlands-based leader in IBC rebottling, reconditioning and distribution. The results of Tholu are recorded within the Rigid Industrial Packaging & Services segment, which incorporates IBC packaging services.
Operations in the Paper Packaging & Services segment involve the production and sale of containerboard, corrugated sheets, corrugated containers and other corrugated and specialty products to customers in North America in industries such as packaging, automotive, food and building products. The Company’s 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. The Company also produces and sells coated and uncoated recycled paperboard, along with tubes and cores and a diverse mix of specialty products to customers in North America. In addition, the segment is involved in purchase and sale of recycled fiber.
On February 11, 2019, the Company completed the Caraustar Acquisition. Caraustar produces coated and uncoated recycled paperboard, which is used in a variety of applications that include industrial products (tubes and cores, construction products, protective packaging, and adhesives) and consumer packaging products (folding cartons, set-up boxes, and packaging services that complement the Company's Paper Packaging & Services specialty portfolio. The results of Caraustar are recorded within the Paper Packaging & Services segment while the Company evaluates the impact of the Caraustar Acquisition on its reportable business segments.
Operations in the Flexible Products & Services segment involve the production and sale of flexible intermediate bulk containers and related services on a global basis. The Company’s flexible intermediate bulk containers are constructed from a polypropylene-based woven fabric that is produced at its production sites, as well as sourced from strategic regional suppliers. Flexible products are sold to customers and in market segments similar to those of the Company’s Rigid Industrial Packaging & Services segment. The Company’s flexible products are sold to customers in industries such as agricultural, construction and food industries.
Operations in the Land Management segment involve the management and sale of timber and special use properties from approximately 251,000 acres of timber properties in the southeastern United States. Land Management’s operations focus on the active harvesting and regeneration of its timber properties to achieve sustainable long-term yields. While timber sales are subject to fluctuations, the Company seeks to maintain a consistent cutting schedule, within the limits of market and weather conditions. The Company also sells, from time to time, timberland and special use properties, which consists of surplus properties, HBU properties, and development properties.
In order to maximize the value of timber property, the Company continues to review its current portfolio and explore the development of certain of these properties. This process has led the Company to characterize property as follows:
|
|
|
|
•
|
Surplus property, meaning land that cannot be efficiently or effectively managed by the Company, 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.
|
|
|
|
|
•
|
Timberland, meaning land that is best suited for growing and selling timber.
|
The disposal of surplus and HBU property is reported in the consolidated statements of income under “gain on disposals of properties, plants and equipment, net” and the sale of development property is reported under “net sales” and “cost of products sold.” All HBU, development and surplus property is used by the Company to productively grow and sell timber until 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 water, 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.
The following tables present net sales disaggregated by geographic area for each reportable segment for the year ended October 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31, 2019
|
|
(in millions)
|
United States
|
|
Europe, Middle East and Africa
|
|
Asia Pacific and Other Americas
|
|
Total
|
|
Rigid Industrial Packaging & Services
|
$
|
906.3
|
|
|
$
|
1,118.0
|
|
|
$
|
466.3
|
|
|
$
|
2,490.6
|
|
|
Paper Packaging & Services
|
1,758.8
|
|
|
—
|
|
|
21.2
|
|
|
1,780.0
|
|
|
Flexible Products & Services
|
35.7
|
|
|
232.4
|
|
|
29.4
|
|
|
297.5
|
|
|
Land Management
|
26.9
|
|
|
—
|
|
|
—
|
|
|
26.9
|
|
|
Total net sales
|
$
|
2,727.7
|
|
|
$
|
1,350.4
|
|
|
$
|
516.9
|
|
|
$
|
4,595.0
|
|
The following tables present net sales disaggregated by geographic area for each reportable segment for the year ended October 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31, 2018
|
|
(in millions)
|
United States
|
|
Europe, Middle East and Africa
|
|
Asia Pacific and Other Americas
|
|
Total
|
|
Rigid Industrial Packaging & Services
|
$
|
960.5
|
|
|
$
|
1,147.7
|
|
|
$
|
515.4
|
|
|
$
|
2,623.6
|
|
|
Paper Packaging & Services
|
898.5
|
|
|
—
|
|
|
—
|
|
|
898.5
|
|
|
Flexible Products & Services
|
34.0
|
|
|
263.2
|
|
|
27.0
|
|
|
324.2
|
|
|
Land Management
|
27.5
|
|
|
—
|
|
|
—
|
|
|
27.5
|
|
|
Total net sales
|
$
|
1,920.5
|
|
|
$
|
1,410.9
|
|
|
$
|
542.4
|
|
|
$
|
3,873.8
|
|
The following segment information is presented for each of the three years in the period ended October 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
2019
|
|
2018
|
|
2017
|
|
Operating profit (loss):
|
|
|
|
|
|
|
Rigid Industrial Packaging & Services
|
179.6
|
|
|
183.2
|
|
|
190.1
|
|
|
Paper Packaging & Services
|
184.3
|
|
|
158.3
|
|
|
93.5
|
|
|
Flexible Products & Services
|
25.3
|
|
|
19.4
|
|
|
5.8
|
|
|
Land Management
|
9.9
|
|
|
9.6
|
|
|
10.1
|
|
|
Total operating profit
|
$
|
399.1
|
|
|
$
|
370.5
|
|
|
$
|
299.5
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization expense:
|
|
|
|
|
|
|
Rigid Industrial Packaging & Services
|
$
|
76.3
|
|
|
$
|
81.2
|
|
|
$
|
77.0
|
|
|
Paper Packaging & Services
|
119.3
|
|
|
34.2
|
|
|
31.9
|
|
|
Flexible Products & Services
|
6.2
|
|
|
6.9
|
|
|
7.0
|
|
|
Land Management
|
4.3
|
|
|
4.6
|
|
|
4.6
|
|
|
Total depreciation, depletion and amortization expense
|
$
|
206.1
|
|
|
$
|
126.9
|
|
|
$
|
120.5
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
Rigid Industrial Packaging & Services
|
$
|
53.6
|
|
|
$
|
76.8
|
|
|
$
|
57.6
|
|
|
Paper Packaging & Services
|
81.2
|
|
|
39.2
|
|
|
23.2
|
|
|
Flexible Products & Services
|
4.8
|
|
|
3.7
|
|
|
2.6
|
|
|
Land Management
|
0.2
|
|
|
0.4
|
|
|
0.5
|
|
|
Total segment
|
139.8
|
|
|
120.1
|
|
|
83.9
|
|
|
Corporate and other
|
17.1
|
|
|
19.0
|
|
|
16.2
|
|
|
Total capital expenditures
|
$
|
156.9
|
|
|
$
|
139.1
|
|
|
$
|
100.1
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
Rigid Industrial Packaging & Services
|
$
|
2,006.3
|
|
|
$
|
1,963.0
|
|
|
$
|
1,976.7
|
|
|
Paper Packaging & Services
|
2,686.3
|
|
|
474.3
|
|
|
459.8
|
|
|
Flexible Products & Services
|
148.2
|
|
|
153.9
|
|
|
163.2
|
|
|
Land Management
|
348.7
|
|
|
347.2
|
|
|
345.4
|
|
|
Total segment
|
5,189.5
|
|
|
2,938.4
|
|
|
2,945.1
|
|
|
Corporate and other
|
237.2
|
|
|
256.4
|
|
|
287.2
|
|
|
Total assets
|
$
|
5,426.7
|
|
|
$
|
3,194.8
|
|
|
$
|
3,232.3
|
|
The following table presents properties, plants and equipment, net by geographic region:
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
October 31, 2019
|
|
October 31, 2018
|
|
Properties, plants and equipment, net:
|
|
|
|
|
United States
|
$
|
1,295.8
|
|
|
$
|
796.3
|
|
|
Europe, Middle East, and Africa
|
277.1
|
|
|
276.9
|
|
|
Asia Pacific and other Americas
|
117.4
|
|
|
118.7
|
|
|
Total properties, plants and equipment, net
|
$
|
1,690.3
|
|
|
$
|
1,191.9
|
|
NOTE 17 – COMPREHENSIVE INCOME (LOSS)
The following table provides the roll forward of accumulated other comprehensive loss for the year ended October 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Foreign Currency
Translation
|
|
Derivative Financial Instruments
|
|
Minimum
Pension Liability
Adjustment
|
|
Accumulated
Other
Comprehensive
Loss
|
|
Balance as of October 31, 2018
|
$
|
(292.8
|
)
|
|
$
|
13.4
|
|
|
$
|
(97.7
|
)
|
|
$
|
(377.1
|
)
|
|
Other Comprehensive Loss
|
(5.2
|
)
|
|
(26.1
|
)
|
|
(25.3
|
)
|
|
(56.6
|
)
|
|
Balance as of October 31, 2019
|
$
|
(298.0
|
)
|
|
$
|
(12.7
|
)
|
|
$
|
(123.0
|
)
|
|
$
|
(433.7
|
)
|
The following table provides the roll forward of accumulated other comprehensive loss for the year ended October 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Foreign Currency
Translation
|
|
Derivative Financial Instruments
|
|
Minimum
Pension Liability
Adjustment
|
|
Accumulated
Other
Comprehensive
Loss
|
|
Balance as of October 31, 2017
|
$
|
(249.3
|
)
|
|
$
|
5.1
|
|
|
$
|
(114.0
|
)
|
|
$
|
(358.2
|
)
|
|
Other Comprehensive Income (Loss)
|
(43.5
|
)
|
|
8.3
|
|
|
16.3
|
|
|
(18.9
|
)
|
|
Balance as of October 31, 2018
|
$
|
(292.8
|
)
|
|
$
|
13.4
|
|
|
$
|
(97.7
|
)
|
|
$
|
(377.1
|
)
|
The components of accumulated other comprehensive income above are presented net of tax, as applicable.
NOTE 18 – QUARTERLY FINANCIAL DATA (UNAUDITED)
The quarterly results of operations for 2019 and 2018 are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
(in millions, except per share amounts)
|
January 31,
|
|
April 30,
|
|
July 31,
|
|
October 31,
|
|
Net sales
|
$
|
897.0
|
|
|
$
|
1,213.3
|
|
|
$
|
1,252.6
|
|
|
$
|
1,232.1
|
|
|
Gross profit
|
$
|
172.8
|
|
|
$
|
248.7
|
|
|
$
|
279.4
|
|
|
$
|
259.0
|
|
|
Net income(1)
|
$
|
35.8
|
|
|
$
|
21.1
|
|
|
$
|
67.5
|
|
|
$
|
69.8
|
|
|
Net income attributable to Greif, Inc.(1)
|
$
|
29.7
|
|
|
$
|
13.6
|
|
|
$
|
62.7
|
|
|
$
|
65.0
|
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
Class A Common Stock
|
$
|
0.51
|
|
|
$
|
0.23
|
|
|
$
|
1.06
|
|
|
$
|
1.09
|
|
|
Class B Common Stock
|
$
|
0.75
|
|
|
$
|
0.34
|
|
|
$
|
1.59
|
|
|
$
|
1.65
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
Class A Common Stock
|
$
|
0.51
|
|
|
$
|
0.23
|
|
|
$
|
1.06
|
|
|
$
|
1.09
|
|
|
Class B Common Stock
|
$
|
0.75
|
|
|
$
|
0.34
|
|
|
$
|
1.59
|
|
|
$
|
1.65
|
|
|
Earnings per share were calculated using the following number of shares:
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
Class A Common Stock
|
25,991,433
|
|
|
26,250,460
|
|
|
26,257,943
|
|
|
26,257,943
|
|
|
Class B Common Stock
|
22,007,725
|
|
|
22,007,725
|
|
|
22,007,725
|
|
|
22,007,725
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
Class A Common Stock
|
25,991,433
|
|
|
26,255,112
|
|
|
26,257,943
|
|
|
26,360,148
|
|
|
Class B Common Stock
|
22,007,725
|
|
|
22,007,725
|
|
|
22,007,725
|
|
|
22,007,725
|
|
|
Market price (Class A Common Stock):
|
|
|
|
|
|
|
|
|
High
|
$
|
49.28
|
|
|
$
|
41.49
|
|
|
$
|
39.15
|
|
|
$
|
40.59
|
|
|
Low
|
$
|
31.22
|
|
|
$
|
37.10
|
|
|
$
|
30.74
|
|
|
$
|
30.05
|
|
|
Close
|
$
|
37.67
|
|
|
$
|
38.59
|
|
|
$
|
34.57
|
|
|
$
|
39.17
|
|
|
Market price (Class B Common Stock):
|
|
|
|
|
|
|
|
|
High
|
$
|
50.55
|
|
|
$
|
48.57
|
|
|
$
|
47.69
|
|
|
$
|
48.76
|
|
|
Low
|
$
|
36.87
|
|
|
$
|
42.48
|
|
|
$
|
41.10
|
|
|
$
|
37.96
|
|
|
Close
|
$
|
43.18
|
|
|
$
|
47.23
|
|
|
$
|
42.39
|
|
|
$
|
47.03
|
|
(1) The Company recorded the following significant transactions during the fourth quarter of 2019: (i) acquisition-related costs of $7.5 million; (ii) restructuring charges of $5.8 million; (iii) non-cash asset impairment charges of $5.7 million; (v) gain on disposals of properties, plants, equipment, net of $(6.8) million; and (vi) loss on disposals of businesses, net of $0.7 million. See the Company's Form 10-Q filings with the SEC for prior quarter significant transactions or trends.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
(in millions, except per share amounts)
|
January 31
|
|
April 30
|
|
July 31
|
|
October 31
|
|
Net sales
|
$
|
905.7
|
|
|
$
|
968.3
|
|
|
$
|
1,012.1
|
|
|
$
|
987.7
|
|
|
Gross profit
|
$
|
171.7
|
|
|
$
|
195.3
|
|
|
$
|
217.1
|
|
|
$
|
204.8
|
|
|
Net income(1)
|
$
|
60.1
|
|
|
$
|
51.9
|
|
|
$
|
72.0
|
|
|
$
|
45.5
|
|
|
Net income attributable to Greif, Inc.(1)
|
$
|
56.5
|
|
|
$
|
45.1
|
|
|
$
|
67.7
|
|
|
$
|
40.1
|
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
Class A Common Stock
|
$
|
0.96
|
|
|
$
|
0.77
|
|
|
$
|
1.15
|
|
|
$
|
0.68
|
|
|
Class B Common Stock
|
$
|
1.44
|
|
|
$
|
1.14
|
|
|
$
|
1.72
|
|
|
$
|
1.03
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
Class A Common Stock
|
$
|
0.96
|
|
|
$
|
0.77
|
|
|
$
|
1.15
|
|
|
$
|
0.67
|
|
|
Class B Common Stock
|
$
|
1.44
|
|
|
$
|
1.14
|
|
|
$
|
1.72
|
|
|
$
|
1.03
|
|
|
Earnings per share were calculated using the following number of shares:
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
Class A Common Stock
|
25,845,758
|
|
|
25,934,680
|
|
|
25,941,279
|
|
|
25,941,279
|
|
|
Class B Common Stock
|
22,007,725
|
|
|
22,007,725
|
|
|
22,007,725
|
|
|
22,007,725
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
Class A Common Stock
|
25,845,758
|
|
|
25,934,680
|
|
|
25,941,279
|
|
|
26,139,524
|
|
|
Class B Common Stock
|
22,007,725
|
|
|
22,007,725
|
|
|
22,007,725
|
|
|
22,007,725
|
|
|
Market price (Class A Common Stock):
|
|
|
|
|
|
|
|
|
High
|
$
|
62.94
|
|
|
$
|
59.09
|
|
|
$
|
60.89
|
|
|
$
|
58.82
|
|
|
Low
|
$
|
49.68
|
|
|
$
|
48.80
|
|
|
$
|
51.71
|
|
|
$
|
44.72
|
|
|
Close
|
$
|
57.76
|
|
|
$
|
57.63
|
|
|
$
|
54.03
|
|
|
$
|
47.30
|
|
|
Market price (Class B Common Stock):
|
|
|
|
|
|
|
|
|
High
|
$
|
68.71
|
|
|
$
|
63.52
|
|
|
$
|
64.02
|
|
|
$
|
63.50
|
|
|
Low
|
$
|
55.90
|
|
|
$
|
52.07
|
|
|
$
|
56.01
|
|
|
$
|
48.35
|
|
|
Close
|
$
|
61.60
|
|
|
$
|
61.56
|
|
|
$
|
57.20
|
|
|
$
|
51.36
|
|
(1)The Company recorded the following significant transactions during the fourth quarter of 2018: (i) restructuring charges of $4.8 million; (ii) non-cash asset impairment charges of $4.2 million; (iii) pension settlement charges of $0.9 million; (iv) loss on disposals of properties, plants, equipment, net of $1.9 million; and (v) gain on disposals of businesses, net of ($0.9) million. See the Company's Form 10-Q filings with the SEC for prior quarter significant transactions or trends.
Shares of the Company’s Class A Common Stock and Class B Common Stock are listed on the New York Stock Exchange where the symbols are GEF and GEF.B, respectively.
As of December 13, 2019, there were 386 stockholders of record of the Class A Common Stock and 75 stockholders of record of the Class B Common Stock.
NOTE 19 – REDEEMABLE NONCONTROLLING INTERESTS
Mandatorily Redeemable Noncontrolling Interests
The terms of the joint venture agreement for one joint venture within the Rigid Industrial Packaging & Services segment include mandatory redemption by the Company, in cash, of the noncontrolling interest holders’ equity at a formulaic price after the expiration of a lockout period specific to each noncontrolling interest holder. The redemption features cause the interest to be classified as a mandatorily redeemable instrument under the accounting guidance, and this interest is included at the current redemption value each period in long-term or short-term liabilities of the Company, as applicable. The impact of marking to redemption value at each period end is recorded in interest expense. The Company has a contractual obligation to redeem the outstanding equity interest of each remaining partner in 2021 and 2022, respectively.
The following table provides a rollforward of the mandatorily redeemable noncontrolling interest for the years ended October 31, 2018 and 2019:
|
|
|
|
|
|
|
|
(in millions)
|
Mandatorily Redeemable Noncontrolling Interest
|
|
Balance as of October 31, 2017
|
$
|
9.2
|
|
|
Current period mark to redemption value
|
(0.6
|
)
|
|
Balance as of October 31, 2018
|
8.6
|
|
|
Current period mark to redemption value
|
(0.2
|
)
|
|
Balance as of October 31, 2019
|
$
|
8.4
|
|
Redeemable Noncontrolling Interests
Redeemable noncontrolling interests related to two joint ventures within the Paper Packaging & Services segment and one joint venture within the Rigid Industrial Packaging & Services segment are held by the respective noncontrolling interest owners. The holders of these interests share in the profits and losses of these entities on a pro-rata basis with the Company. However, the noncontrolling interest owners have the right to put all or a portion of those noncontrolling interests to the Company at a formulaic price after a set period of time, specific to each agreement.
On November 15, 2018, one of the noncontrolling interest owners related to one of the Paper Packaging & Services joint ventures exercised their put option for all of their ownership interests. As of October 31, 2019, the Company made a payment for approximately $10.1 million to the noncontrolling interest owner. The Company also entered into a Stock Purchase Agreement with another noncontrolling interest owner related to the same Paper Packaging & Services joint venture, pursuant to which the owner received a $1.8 million payment for certain of its equity.
Redeemable noncontrolling interests are reflected in the consolidated balance sheets at redemption value. The following table provides the rollforward of the redeemable noncontrolling interest for the years ended October 31, 2018 and 2019:
|
|
|
|
|
|
|
|
(in millions)
|
Redeemable Noncontrolling Interest
|
|
Balance as of October 31, 2017
|
$
|
31.5
|
|
|
Current period mark to redemption value
|
(0.5
|
)
|
|
Redeemable noncontrolling interest share of income and other
|
3.7
|
|
|
Dividends to redeemable noncontrolling interest and other
|
0.8
|
|
|
Balance as of October 31, 2018
|
35.5
|
|
|
Current period mark to redemption value
|
(4.9
|
)
|
|
Repurchase of redeemable shareholder interest
|
(11.9
|
)
|
|
Redeemable noncontrolling interest share of income and other
|
2.3
|
|
|
Dividends to redeemable noncontrolling interest and other
|
0.3
|
|
|
Balance as of October 31, 2019
|
$
|
21.3
|
|