NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 — BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The condensed consolidated financial statements have been prepared in accordance with the U.S. Securities and Exchange Commission (“SEC”) instructions to Quarterly Reports on Form 10-Q and include all of the information and disclosures required by accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting. The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual amounts could differ from those estimates.
The Company’s fiscal year begins on November 1 and ends on October 31 of the following year. Any references to the year
2018
or
2017
, or to any quarter of those years, relates to the fiscal year or quarter, as the case may be, ended in that year.
The information filed herein reflects all adjustments that are, in the opinion of management, necessary for a fair presentation of the condensed consolidated balance sheets as of
January 31, 2018
and
October 31, 2017
, the condensed consolidated statements of income and comprehensive income for the
three
months ended
January 31, 2018
and
2017
and the condensed consolidated statements of cash flows for the
three
months ended
January 31, 2018
and
2017
of Greif, Inc. and its subsidiaries (the “Company”). The condensed consolidated financial statements include the accounts of Greif, Inc., all wholly-owned and consolidated subsidiaries and investments in limited liability companies, partnerships and joint ventures in which it has controlling influence or is the primary beneficiary. Non-majority owned entities include investments in limited liability companies, partnerships and joint ventures in which the Company does not have controlling influence and are accounted for using either the equity or cost method, as appropriate.
The unaudited condensed consolidated financial statements included in the Quarterly Report on Form 10-Q (this “Form 10-Q”) should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for its fiscal year ended
October 31, 2017
(the “
2017
Form 10-K”).
Newly Adopted Accounting Standards
In March 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2017-07, "Compensation - Retirement Benefits (Topic 715)," which provides additional guidance in Accounting Standards Codification ("ASC") 715 for the presentation of net periodic benefit cost in the income statement and on the components eligible for capitalization in assets. This ASU requires the reporting of the service cost component to be in the same line item as other compensation costs arising from services rendered by the pertinent employees. Also, the other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. This update also allows only the service cost component to be eligible for capitalization when applicable. The update is effective for the Company on November 1, 2018 using a retrospective approach for the presentation of the service cost component and the other components of net periodic pension cost and net periodic post-retirement benefit cost in the income statement and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic pension cost and net periodic post-retirement benefit in assets. The Company early adopted ASU 2017-07 on November 1, 2017 using a retrospective approach for each period presented. The impact of adoption for the period ended January 31, 2018 was
$1.8 million
of net periodic benefit costs, other than the service cost components, being recorded in the line item "Other expense, net" in the condensed consolidated statements of income. For the period ended January 31, 2017,
$23.5 million
of pension settlement charge previously presented within operating profit has been presented outside of operating profit in the condensed consolidated statement of income due to the retrospective adoption of this ASU. 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 August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815)," which amends the accounting and disclosure requirements in ASC 815, "Derivatives and Hedging." The objective of this ASU is to improve transparency and reduce the complexity of hedge accounting. This ASU eliminates the separate recognition of periodic hedge ineffectiveness for cash flow and net investment hedges. The update is effective for the Company on November 1, 2019 using a modified retrospective approach and early adoption is permitted. The Company early adopted ASU 2017-12 on November 1, 2017 using a modified retrospective approach, which resulted in a reclassification of
$0.6 million
loss out of “Accumulated other comprehensive income (loss), net of tax” and into “Retained Earnings” related to elimination of the cumulative ineffectiveness of cash flow hedges at the adoption date. 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 May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. This ASU is based on the principle that revenue is recognized 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 in exchange for those goods or services. The ASU 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 update is effective for the Company on November 1, 2018 using one of two retrospective application methods. The Company is in the process of determining the potential impact of adopting the new revenue standards including conducting internal training sessions and reviewing global revenue surveys and key revenue contracts. The Company anticipates that the impact of adoption will be limited to expanded disclosures with no material impact on its financial position, results of operations, comprehensive income or cash flows.
In February 2016, the FASB issued ASU 2016-02, "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. This ASU will require the recognition of lease assets and lease liabilities for those leases classified as operating leases under previous GAAP. The update is effective for the Company on November 1, 2019 using a modified retrospective approach. 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.
In August of 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. The update is effective for the Company on November 1, 2018 and early adoption is permitted, including any interim period. The update should be applied using a retrospective approach, excluding amendments for which retrospective application is impractical. 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.
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. The update is effective for the Company on November 1, 2018 using a modified retrospective approach and early adoption is permitted, including any interim period. 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
For the
three
months ended
January 31, 2018
, the Company completed
no
divestitures and
no
acquisitions. Proceeds from divestitures that were completed in fiscal year 2017 and collected during the
three
months ended
January 31, 2018
were
$0.5 million
. Proceeds from divestitures that were completed in fiscal year 2015 and collected during the
three
months ended
January 31, 2018
were
$0.9 million
. The Company has
$2.9 million
of notes receivable recorded from the sale of businesses.
For the
three
months ended
January 31, 2017
, the Company completed
no
divestitures and
no
acquisitions. The Company deconsolidated
one
nonstrategic business in the Flexible Products & Services segment during the first quarter of 2017, generating a loss on disposal of the business of
$0.5 million
.
NOTE 3 — SALE OF NON-UNITED STATES ACCOUNTS RECEIVABLE
On April 27, 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 18, 2017, the Main SPV and Seller amended and extended the term of the existing European RPA. Under the European RPA, as amended, the maximum amount of receivables that may be sold and outstanding under the European RPA at any time is
€100.0 million
(
$123.8 million
as of
January 31, 2018
). Under the terms of the European RPA, the Company has the ability to loan excess cash to the Purchasing Bank Affiliates in the form of a subordinated loan receivable.
Under the terms of the European RPA, the Company has agreed to sell trade receivables meeting certain eligibility requirements that the Seller had purchased from other indirect wholly-owned subsidiaries of the Company under a factoring agreement. The structure of the transactions provide for a legal true sale, on a revolving basis, of the receivables transferred from the Company's various subsidiaries to the respective Purchasing Bank Affiliates. The purchaser funds 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 is settled upon collection of the receivables. At the balance sheet reporting dates, the Company removes from accounts receivable the amount of proceeds received from the initial purchase price since they meet the applicable criteria of ASC 860, “Transfers and Servicing,” and the Company continues to recognize the deferred purchase price in prepaid expenses and other current assets or other current liabilities. The receivables are sold on a non-recourse basis with the total funds in the servicing collection accounts pledged to the banks between settlement dates.
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 (
$11.4 million
as of
January 31, 2018
). 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 the receivables.
The table below contains certain information related to the Company’s accounts receivable sales programs:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
January 31,
|
(in millions)
|
2018
|
|
2017
|
European RPA
|
|
|
|
Gross accounts receivable sold to third party financial institution
|
$
|
163.9
|
|
|
$
|
137.6
|
|
Cash received for accounts receivable sold under the programs
|
145.6
|
|
|
122.0
|
|
Deferred purchase price related to accounts receivable sold
|
18.3
|
|
|
15.6
|
|
Loss associated with the programs
|
—
|
|
|
0.1
|
|
Expenses associated with the programs
|
—
|
|
|
—
|
|
|
|
|
|
Singapore RPA
|
|
|
|
Gross accounts receivable sold to third party financial institution
|
$
|
10.8
|
|
|
$
|
9.9
|
|
Cash received for accounts receivable sold under the program
|
8.9
|
|
|
8.0
|
|
Deferred purchase price related to accounts receivable sold
|
1.9
|
|
|
1.9
|
|
Loss associated with the program
|
—
|
|
|
—
|
|
Expenses associated with the program
|
—
|
|
|
—
|
|
|
|
|
|
Total RPAs and Agreements
|
|
|
|
Gross accounts receivable sold to third party financial institution
|
$
|
174.7
|
|
|
$
|
147.5
|
|
Cash received for accounts receivable sold under the program
|
154.5
|
|
|
130.0
|
|
Deferred purchase price related to accounts receivable sold
|
20.2
|
|
|
17.5
|
|
Loss associated with the program
|
—
|
|
|
0.1
|
|
Expenses associated with the program
|
—
|
|
|
—
|
|
The table below contains certain information related to the Company’s accounts receivable sales programs and the impact it has on the condensed consolidated balance sheets:
|
|
|
|
|
|
|
|
|
(in millions)
|
January 31,
2018
|
|
October 31,
2017
|
European RPA
|
|
|
|
Accounts receivable sold to and held by third party financial institution
|
$
|
119.4
|
|
|
$
|
116.3
|
|
Deferred purchase price asset (liability) related to accounts receivable sold
|
18.4
|
|
|
(4.2
|
)
|
|
|
|
|
Singapore RPA
|
|
|
|
Accounts receivable sold to and held by third party financial institution
|
$
|
6.3
|
|
|
$
|
3.8
|
|
Deferred purchase price asset related to accounts receivable sold
|
0.9
|
|
|
0.5
|
|
|
|
|
|
Total RPAs and Agreements
|
|
|
|
Accounts receivable sold to and held by third party financial institution
|
$
|
125.7
|
|
|
$
|
120.1
|
|
Deferred purchase price asset (liability) related to accounts receivable sold
|
19.3
|
|
|
(3.7
|
)
|
The deferred purchase price related to the accounts receivable sold is reflected as prepaid expenses and other current assets or other current liabilities on the Company’s condensed consolidated balance sheets and was initially recorded at an amount which approximates its fair value due to the short-term nature of these items. The cash received initially and the deferred purchase price relate to the sale or ultimate collection of the underlying receivables and are not subject to significant other risks given their short term nature; therefore, the Company reflects all cash flows under the accounts receivable sales programs as operating cash flows on the Company’s condensed consolidated statements of cash flows.
Additionally, the Company performs collections and administrative functions on the receivables sold, similar to the procedures it uses for collecting all of its receivables, including receivables that are not sold under the European RPA and the Singapore RPA. The servicing liability for these receivables is not material to the condensed consolidated financial statements.
NOTE 4 — ASSETS AND LIABILITIES HELD FOR SALE AND DISPOSALS OF PROPERTIES, PLANTS AND EQUIPMENT, NET
As of
January 31, 2018
, there were
two
asset groups within the Rigid Industrial Packaging & Services segment classified as assets and liabilities 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 as held for sale.
As of
October 31, 2017
, there were
two
asset groups in the Rigid Industrial Packaging & Services segment classified as assets and liabilities held for sale.
For the three months ended
January 31, 2018
, the Company recorded a gain on disposal of properties, plants and equipment, net of
$4.6 million
. This included disposals of assets in the Rigid Industrial Packaging & Services segment that resulted in gains of
$3.4 million
and special use property sales that resulted in gains of
$1.2 million
in the Land Management segment.
For the three months ended
January 31, 2017
, the Company recorded a gain on disposal of properties, plants and equipment, net of
$1.0 million
. This included disposals of assets in the Rigid Industrial Packaging & Services segment that resulted in gains of
$0.6 million
and special use property sales that resulted in gains of
$0.4 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
three
month period ended
January 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Rigid
Industrial
Packaging
& Services
|
|
Paper
Packaging
& Services
|
|
Total
|
Balance at October 31, 2017
|
$
|
725.9
|
|
|
$
|
59.5
|
|
|
$
|
785.4
|
|
Currency translation
|
22.6
|
|
|
—
|
|
|
22.6
|
|
Balance at January 31, 2018
|
$
|
748.5
|
|
|
$
|
59.5
|
|
|
$
|
808.0
|
|
The following table summarizes the carrying amount of net other intangible assets by class as of
January 31, 2018
and
October 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Gross
Intangible
Assets
|
|
Accumulated
Amortization
|
|
Net
Intangible
Assets
|
January 31, 2018:
|
|
|
|
|
|
Indefinite lived:
|
|
|
|
|
|
Trademarks and patents
|
$
|
13.8
|
|
|
$
|
—
|
|
|
$
|
13.8
|
|
Definite lived:
|
|
|
|
|
|
Customer relationships
|
$
|
170.0
|
|
|
$
|
101.9
|
|
|
$
|
68.1
|
|
Trademarks and patents
|
11.6
|
|
|
5.1
|
|
|
6.5
|
|
Other
|
24.8
|
|
|
17.3
|
|
|
7.5
|
|
Total
|
$
|
220.2
|
|
|
$
|
124.3
|
|
|
$
|
95.9
|
|
|
|
|
|
|
|
October 31, 2017:
|
|
|
|
|
|
Indefinite lived:
|
|
|
|
|
|
Trademarks and patents
|
$
|
13.4
|
|
|
$
|
—
|
|
|
$
|
13.4
|
|
Definite lived:
|
|
|
|
|
|
Customer relationships
|
$
|
170.2
|
|
|
$
|
99.7
|
|
|
$
|
70.5
|
|
Trademarks and patents
|
11.6
|
|
|
4.9
|
|
|
6.7
|
|
Other
|
23.4
|
|
|
16.0
|
|
|
7.4
|
|
Total
|
$
|
218.6
|
|
|
$
|
120.6
|
|
|
$
|
98.0
|
|
Amortization expense for the
three
months ended
January 31, 2018
and
2017
was
$3.8 million
and
$3.8 million
, respectively. Amortization expense for the next five years is expected to be
$15.4 million
in 2018,
$15.0 million
in 2019,
$14.5 million
in 2020,
$12.8 million
in 2021 and
$8.9 million
in 2022.
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, legally determined, or over the period a market participant would benefit from the asset.
NOTE 6 — RESTRUCTURING CHARGES
The following is a reconciliation of the beginning and ending restructuring reserve balances for the
three
month period ended
January 31, 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
|
2.8
|
|
|
1.3
|
|
|
4.1
|
|
Costs paid or otherwise settled
|
(3.1
|
)
|
|
(1.4
|
)
|
|
(4.5
|
)
|
Balance at January 31, 2018
|
$
|
3.6
|
|
|
$
|
1.2
|
|
|
$
|
4.8
|
|
The focus for restructuring activities in
2018
is to continue to rationalize operations and close underperforming assets in the Rigid Industrial Packaging & Services and Flexible Products & Services segments. During the three months ended
January 31, 2018
, the Company recorded restructuring charges of
$4.1 million
, as compared to a benefit of
$0.3 million
recorded during the
three
months ended
January 31, 2017
. The restructuring activity for the
three
months ended
January 31, 2018
consisted of
$2.8 million
in employee separation costs and
$1.3 million
in other restructuring costs.
The following is a reconciliation of the total amounts expected to be incurred from approved restructuring plans or plans that are being formulated and have not been announced as of the date of this Form 10-Q. Remaining amounts expected to be incurred are
$16.1 million
as of
January 31, 2018
compared to
$14.9 million
as of
October 31, 2017
. The change was due to the formulations of new plans during the period.
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Total Amounts
Expected to
be Incurred
|
|
Amounts Incurred During the three month period ended January 31, 2018
|
|
Amounts
Remaining
to be Incurred
|
Rigid Industrial Packaging & Services
|
|
|
|
|
|
Employee separation costs
|
$
|
17.6
|
|
|
$
|
2.6
|
|
|
$
|
15.0
|
|
Other restructuring costs
|
1.2
|
|
|
1.2
|
|
|
—
|
|
|
18.8
|
|
|
3.8
|
|
|
15.0
|
|
Flexible Products & Services
|
|
|
|
|
|
Employee separation costs
|
0.5
|
|
|
0.2
|
|
|
0.3
|
|
Other restructuring costs
|
0.9
|
|
|
0.1
|
|
|
0.8
|
|
|
1.4
|
|
|
0.3
|
|
|
1.1
|
|
|
$
|
20.2
|
|
|
$
|
4.1
|
|
|
$
|
16.1
|
|
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 VIEs quarterly to determine if the primary beneficiary status is appropriate. 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 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
In 2005, the Company sold certain timber properties to Plum Creek Timberlands, L.P. (“Plum Creek”) in a series of transactions that included the creation of two separate legal entities that are now consolidated as separate VIEs. One is an indirect subsidiary of Plum Creek (the “Buyer SPE”), and the other is STA Timber LLC, an indirect wholly owned subsidiary of the Company (“STA Timber”). As of
January 31, 2018
and
October 31, 2017
, consolidated assets of the Buyer SPE consisted of
$50.9 million
of restricted bank financial instruments which are expected to be held to maturity. For both of the three month periods ended
January 31, 2018
and
2017
, Buyer SPE recorded interest income of
$0.6 million
.
As of
January 31, 2018
and
October 31, 2017
, STA Timber had consolidated long-term debt of
$43.3 million
. For both of the three month periods ended
January 31, 2018
and
2017
, STA Timber recorded interest expense of
$0.6 million
. The intercompany borrowing arrangement between the two VIEs is eliminated in consolidation. STA Timber is exposed to credit-related losses in the event of nonperformance by an issuer of a deed of guarantee in the transaction.
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. 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 as of 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.
All entities contributed to the Flexible Packaging JV were existing businesses acquired by one of the Company's indirect subsidiaries that were reorganized under Greif Flexibles Asset Holding B.V. and Greif Flexibles Trading Holding B.V.
The following table presents the Flexible Packaging JV total net assets:
|
|
|
|
|
|
|
|
|
(in millions)
|
January 31,
2018
|
|
October 31,
2017
|
Cash and cash equivalents
|
$
|
17.1
|
|
|
$
|
14.4
|
|
Trade accounts receivable, less allowance of $1.7 in 2018 and $2.1 in 2017
|
55.4
|
|
|
52.5
|
|
Inventories
|
59.3
|
|
|
53.3
|
|
Properties, plants and equipment, net
|
31.1
|
|
|
31.2
|
|
Other assets
|
25.5
|
|
|
25.8
|
|
Total Assets
|
$
|
188.4
|
|
|
$
|
177.2
|
|
|
|
|
|
Accounts payable
|
$
|
34.6
|
|
|
$
|
33.8
|
|
Other liabilities
|
27.8
|
|
|
30.2
|
|
Total Liabilities
|
$
|
62.4
|
|
|
$
|
64.0
|
|
Net income attributable to the noncontrolling interest in the Flexible Packaging JV for the three months ended
January 31, 2018
and
2017
was
$1.1 million
and
$0.6 million
, respectively.
Non-United States Accounts Receivable VIE
As further described in Note 3, Cooperage Receivables Finance B.V. is a party to the European RPA. 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)
|
January 31, 2018
|
|
October 31, 2017
|
2017 Credit Agreement
|
$
|
383.2
|
|
|
$
|
323.8
|
|
Senior Notes due 2019
|
248.3
|
|
|
248.0
|
|
Senior Notes due 2021
|
246.3
|
|
|
230.9
|
|
Receivables Facility
|
147.2
|
|
|
150.0
|
|
Other debt
|
6.8
|
|
|
6.5
|
|
|
1,031.8
|
|
|
959.2
|
|
Less current portion
|
15.0
|
|
|
15.0
|
|
Less deferred financing costs
|
6.0
|
|
|
6.4
|
|
Long-term debt
|
$
|
1,010.8
|
|
|
$
|
937.8
|
|
2017 Credit Agreement
On November 3, 2016, the Company and certain of its international subsidiaries entered into a new senior secured credit agreement (the “2017 Credit Agreement”) with a syndicate of financial institutions. The 2017 Credit Agreement replaced in its entirety the
$1.0 billion
senior secured credit agreement entered into on December 19, 2012, by the Company and two of its international subsidiaries ("Prior Credit Agreement") with a syndicate of financial institutions. The total available borrowing under the 2017 Credit Agreement was
$687.4 million
as of
January 31, 2018
, which has been reduced by
$14.4 million
for outstanding letters of credit, all of which was then available without violating covenants.
The 2017 Credit Agreement provides for an
$800.0 million
revolving multicurrency credit facility expiring November 3, 2021, and a
$300.0 million
term loan, with quarterly principal installments that commenced on April 30, 2017, through maturity on November 3, 2021, both with an option to add an aggregate of
$550.0 million
to the facilities with the agreement of the lenders. The Company used the term loan on February 1, 2017, to repay the principal of the Company’s
$300.0 million
6.75%
Senior Notes that matured on that date. The revolving credit facility is available to fund ongoing working capital and capital expenditure needs, for general corporate purposes, and to finance acquisitions. Interest is based on either a Eurodollar rate or a base rate that resets periodically plus a calculated margin amount. The financing costs associated with the 2017 Credit Agreement totaled
$5.3 million
as of
January 31, 2018
, and are recorded as a direct deduction from the long-term debt liability.
The 2017 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 fiscal quarter the Company will not permit the ratio of (a) its total consolidated indebtedness, to (b) the Company's net income plus depreciation, depletion, and amortization, interest expense (including capitalized interest), and income taxes, 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 ("adjusted EBITDA") to be greater than
4.00
to
1.00
(or
3.75
to
1.00
, during any collateral release period). The interest coverage ratio generally requires that at the end of any fiscal quarter the Company will not permit the ratio of (a) adjusted EBITDA, to (b) the consolidated interest expense to the extent paid or payable, to be less than
3.00
to
1.00
, during the applicable preceding twelve month period.
As of
January 31, 2018
,
$383.2 million
was outstanding under the 2017 Credit Agreement. The current portion of the 2017 Credit Agreement was
$15.0 million
and the long-term portion was
$368.2 million
. The weighted average interest rate on the 2017 Credit Agreement was
2.69%
for the
three
months ended
January 31, 2018
. The actual interest rate on the 2017 Credit Agreement was
2.74%
as of
January 31, 2018
.
Senior Notes due 2019
On July 28, 2009, the Company issued
$250.0 million
of
7.75%
Senior Notes due
August 1, 2019
. Interest on these Senior Notes is payable semi-annually. The financing costs associated with the Senior Notes due 2019 totaled
$0.7 million
as of
January 31, 2018
, and are recorded as a direct deduction from the long-term liability.
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
. These Senior Notes are fully and unconditionally guaranteed on a senior basis by Greif, Inc. Interest on these Senior Notes is payable semi-annually.
United States Trade Accounts Receivable Credit Facility
On September 27, 2017 the Company amended and restated its existing receivables facility in the United States which matured in September of 2017 to establish a
$150.0 million
United States Trade Accounts Receivable Credit Facility (the "Receivables Facility") with a financial institution. The Receivables Facility matures on September 26, 2018. The
$147.2 million
outstanding balance as of January 31, 2018 is reported in long-term debt in the condensed consolidated balance sheets because the Company intends to refinance the obligation on a long-term basis and has the intent and ability to consummate a long-term refinancing.
NOTE 9 — FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
Recurring Fair Value Measurements
The following table presents the fair value for those assets and (liabilities) measured on a recurring basis as of
January 31, 2018
and
October 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2018
|
|
|
|
Fair Value Measurement
|
|
|
(in millions)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Balance Sheet Location
|
Interest rate derivatives
|
$
|
—
|
|
|
$
|
14.2
|
|
|
$
|
—
|
|
|
$
|
14.2
|
|
|
Other long-term assets and other current assets
|
Foreign exchange hedges
|
—
|
|
|
0.6
|
|
|
—
|
|
|
0.6
|
|
|
Other current assets
|
Foreign exchange hedges
|
—
|
|
|
(3.5
|
)
|
|
—
|
|
|
(3.5
|
)
|
|
Other current liabilities
|
Insurance annuity
|
—
|
|
|
—
|
|
|
22.0
|
|
|
22.0
|
|
|
Other long-term assets
|
Total
|
$
|
—
|
|
|
$
|
11.3
|
|
|
$
|
22.0
|
|
|
$
|
33.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2017
|
|
|
|
Fair Value Measurement
|
|
|
(in millions)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Balance Sheet Location
|
Interest rate derivatives
|
$
|
—
|
|
|
$
|
8.9
|
|
|
$
|
—
|
|
|
$
|
8.9
|
|
|
Other long-term assets and other current assets
|
Foreign exchange hedges
|
—
|
|
|
0.1
|
|
|
—
|
|
|
0.1
|
|
|
Other current assets
|
Foreign exchange hedges
|
—
|
|
|
(0.6
|
)
|
|
—
|
|
|
(0.6
|
)
|
|
Other current liabilities
|
Insurance annuity
|
—
|
|
|
—
|
|
|
20.7
|
|
|
20.7
|
|
|
Other long-term assets
|
Total
|
$
|
—
|
|
|
$
|
8.4
|
|
|
$
|
20.7
|
|
|
$
|
29.1
|
|
|
|
The carrying amounts of cash and cash equivalents, trade accounts receivable, accounts payable, current liabilities and short-term borrowings as of
January 31, 2018
and
October 31, 2017
approximate their fair values because of the short-term nature of these items and are not included in this table.
Interest Rate Derivatives
The Company has various borrowing facilities which charge interest based on the one month U.S. dollar LIBOR rate plus an interest spread. During the first quarter of 2017, the Company entered into a forward interest rate 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
1.194%
. This effectively converted the borrowing rate on
$300.0 million
of debt from a variable rate to a fixed rate. This derivative is designated as a cash flow hedge for accounting purposes. Accordingly, the gain or loss on this derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same line item associated with the forecasted transaction and in the same period during which the hedged transaction affects earnings. For additional disclosures of the gain or loss included with other comprehensive income, see also Note 15 to the interim condensed consolidated financial statements. The assumptions used in measuring fair value of the interest rate derivative are considered level 2 inputs, which are based upon LIBOR and interest paid based upon a designated fixed rate over the life of the swap agreements.
Losses reclassified to earnings under these contracts were
$0.2 million
and
zero
for the
three
months ended
January 31, 2018
, and
2017
, respectively. A derivative gain of
$2.3 million
, based upon interest rates at
January 31, 2018
, is expected to be reclassified from other comprehensive income (loss) to earnings in the next twelve months.
Foreign Exchange Hedges
The Company conducts business in various international currencies and is subject to risks associated with changing foreign exchange rates. The Company’s objective is to reduce volatility associated with foreign exchange rate changes. Accordingly, the Company enters into various contracts that change in value as foreign exchange rates change to protect the value of certain existing foreign currency assets and liabilities, commitments and anticipated foreign currency cash flows. As of
January 31, 2018
, the Company had outstanding foreign currency forward contracts in the notional amount of
$139.2 million
(
$80.1 million
as of
October 31, 2017
). 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 losses recorded in other expense, net under fair value contracts were
$0.5 million
and
$1.3 million
for the three months ended
January 31, 2018
and 2017, respectively. The Company recognized in other expense, net an unrealized net loss of
$3.1 million
and
$1.5 million
during the
three
months ended
January 31, 2018
and
2017
, respectively.
Other Financial Instruments
The fair values of the Company’s 2017 Credit Agreement and the Receivables Facility 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 of the Company’s senior notes:
|
|
|
|
|
|
|
|
|
(in millions)
|
January 31,
2018
|
|
October 31,
2017
|
Senior Notes due 2019 estimated fair value
|
$
|
266.2
|
|
|
$
|
272.0
|
|
Senior Notes due 2021 estimated fair value
|
298.2
|
|
|
281.0
|
|
Assets held by special purpose entities estimated fair value
|
51.7
|
|
|
52.5
|
|
Non-Recurring Fair Value Measurements
The following table presents quantitative information about the significant unobservable inputs used to determine the fair value of the impairment of long-lived assets held and used and net assets held for sale for the
three
months ended
January 31, 2018
and
2017
:
|
|
|
|
|
|
|
|
|
|
|
|
Quantitative Information about Level 3
Fair Value Measurements
|
(in millions)
|
Fair Value of
Impairment
|
|
Valuation
Technique
|
|
Unobservable
Input
|
|
Range of
Input
Values
|
January 31, 2018
|
|
|
|
|
|
|
|
Impairment of Long Lived Assets
|
$
|
2.9
|
|
|
Discounted Cash Flows
|
|
Discounted Cash Flows
|
|
N/A
|
Total
|
$
|
2.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2017
|
|
|
|
|
|
|
|
Impairment of Net Assets Held for Sale
|
$
|
1.5
|
|
|
Broker Quote/
Indicative Bids
|
|
Indicative Bids
|
|
N/A
|
Impairment of Long Lived Assets
|
0.4
|
|
|
Sales Value
|
|
Sales Value
|
|
N/A
|
Total
|
$
|
1.9
|
|
|
|
|
|
|
|
Long-Lived Assets
The Company recognized asset impairment charges of
$2.9 million
during the
three
months ended
January 31, 2018
and
$1.9 million
for the three months ended January 31, 2017. As a result of the Company measuring long-lived assets at fair value on a non-recurring basis, during the three months ended January 31, 2018, the Company recorded impairment charges related to properties, plants and equipment, net, of
$1.5 million
and charges related to intangible assets of
$1.4 million
in the Rigid Industrial Packaging & 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
three
month period ended
January 31, 2018
,
one
asset group was reclassified to assets and liabilities held for sale, resulting in a
$0.4 million
impairment to net realizable value. During the three month period ended January 31, 2017,
one
asset group was reclassified to assets and liabilities held for sale, resulting in
$1.5 million
impairment to net realizable value.
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.
NOTE 10 — INCOME TAXES
Income tax expense for the quarter was computed in accordance with ASC 740-270 "Income Taxes - Interim Reporting". Under this method, losses from jurisdictions for which a valuation allowance have been provided have not been included in the amount to which the ASC 740-270 rate was applied. Income tax expense of the Company fluctuates primarily due to changes in income mix by jurisdiction, including changes in losses and income from jurisdictions for which a valuation allowance has been provided, and the impact of discrete items in the respective quarter.
The income tax benefit for the three months ended January 31, 2018 was
$15.6 million
; whereas, the income tax expense for the three months ended January 31, 2017 was
$11.8 million
.
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 things, lowering the corporate income tax rate from 35% to 21%, effective January 1, 2018; allowing for the acceleration of expensing for certain business assets; requiring companies to pay a one-time transition tax on certain un-remitted earnings of foreign subsidiaries; and eliminating U.S. federal income tax on dividends from foreign subsidiaries. The rate change is administratively effective as of the beginning of our fiscal year, resulting in the Company using a blended statutory rate for the annual period of
23.33%
. The SEC staff issued Staff Accounting Bulletin
No. 118 (“SAB 118”) to address the application of U.S. 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 Company has recognized the provisional tax impacts related to deemed repatriated earnings of
$35.9 million
tax expense and the revaluation of deferred tax assets and liabilities of
$65.0 million
tax benefit, and, as a result, the net benefit included in its consolidated financial statements for the quarter ended January 31, 2018 is
$29.1 million
. The final impact may differ from these provisional amounts, possibly materially, due to, among other things, additional analyses, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a result of the Tax Reform Act.
NOTE 11 — POST RETIREMENT BENEFIT PLANS
The components of net periodic pension cost include the following:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
January 31,
|
(in millions)
|
2018
|
|
2017
|
Service cost
|
$
|
3.3
|
|
|
$
|
3.3
|
|
Interest cost
|
4.6
|
|
|
4.6
|
|
Expected return on plan assets
|
(6.1
|
)
|
|
(7.1
|
)
|
Amortization of prior service cost and net actuarial gain
|
3.6
|
|
|
2.8
|
|
Net periodic pension costs
|
$
|
5.4
|
|
|
$
|
3.6
|
|
The Company made
$6.8 million
and
$3.8 million
in pension contributions in the
three
months ended
January 31, 2018
and 2017, respectively.
The components of net periodic cost for post retirement benefits include the following:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
January 31,
|
(in millions)
|
2018
|
|
2017
|
Service cost
|
$
|
—
|
|
|
$
|
—
|
|
Interest cost
|
0.1
|
|
|
0.1
|
|
Amortization of prior service cost and net actuarial gain
|
(0.4
|
)
|
|
(0.3
|
)
|
Net periodic benefit for post retirement benefits
|
$
|
(0.3
|
)
|
|
$
|
(0.2
|
)
|
The components of net periodic pension cost and net periodic cost for post retirement benefits, other than the service cost components, are included in the line item "Other expense, net" in the condensed consolidated statements of income.
During the three months ended
January 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 in the United States under that plan was irrevocably transferred from that plan to the annuity contract. Additionally, lump sum payments totaling
$35.1 million
were made from the defined benefit plan assets to certain participants who agreed to such payments, representing the current fair value of the participant’s respective pension benefit. The settlement items described above resulted in a decrease in the fair value of plan assets and the projected benefit obligation of
$84.3 million
and a non-cash pension settlement charge of
$23.5 million
of unrecognized net actuarial loss included in accumulated other comprehensive loss.
NOTE 12 — 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 condensed consolidated financial statements.
The Company will 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 our Flexible Products & Services segment. The lawsuits include claims for severance for employment periods prior to the Company’s ownership in the business. As of January 31, 2018 and October 31, 2017, the estimated liability recorded related to these matters were
$4.0 million
and
$5.7 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.
During 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 March 2, 2018, no material citations have been issued or fines assessed with respect to any of these proceedings. Since these proceedings are in their early stages, 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. Since this lawsuit is at an early stage, the Company is unable to predict the outcome of this lawsuit or estimate a range of reasonably possible losses.
Environmental Reserves
As of
January 31, 2018
and
October 31, 2017
, environmental reserves were
$8.3 million
and
$7.1 million
, respectively, and were recorded on an undiscounted basis. These reserves are principally based on environmental studies and cost estimates provided by third parties, but also take into account management estimates. The estimated liabilities are reduced to reflect the anticipated participation of other potentially responsible parties in those instances where it is probable that such parties are legally responsible and financially capable of paying their respective shares of relevant costs. For sites that involve formal actions subject to joint and several liabilities, these actions have formal agreements in place to apportion the liability. As of
January 31, 2018
and
October 31, 2017
, environmental reserves of the Company included
$4.4 million
and
$4.3 million
, respectively, for various European drum facilities acquired from Blagden and Van Leer;
$0.3 million
and
$0.3 million
, respectively, for its various container life cycle management and recycling facilities;
$1.9 million
and
$1.1 million
, respectively, for remediation of sites no longer owned by the Company; and
$1.7 million
and
$1.4 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 13 — 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 Class A EPS
|
=
|
40% * Average Class A Shares Outstanding
|
*
|
Undistributed Net Income
|
+
|
Class A Dividends Per Share
|
40% * Average Class A Shares Outstanding + 60% * Average Class B Shares Outstanding
|
Average Class A Shares Outstanding
|
|
|
|
|
|
|
|
Diluted Class A EPS
|
=
|
40% * Average Class A Shares Outstanding
|
*
|
Undistributed Net Income
|
+
|
Class A Dividends Per Share
|
40% * Average Class A Shares Outstanding + 60% * Average Class B Shares Outstanding
|
Average Diluted Class A Shares Outstanding
|
|
|
|
|
|
|
|
Basic Class B EPS
|
=
|
60% * Average Class B Shares Outstanding
|
*
|
Undistributed Net Income
|
+
|
Class B Dividends Per Share
|
40% * Average Class A Shares Outstanding + 60% * Average Class B Shares Outstanding
|
Average Class B Shares Outstanding
|
|
|
|
*Diluted Class B EPS calculation is identical to Basic Class B calculation
|
The following table provides EPS information for each period:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
January 31,
|
(in millions)
|
2018
|
|
2017
|
Numerator for basic and diluted EPS
|
|
|
|
Net income attributable to Greif, Inc.
|
$
|
56.5
|
|
|
$
|
5.4
|
|
Cash dividends
|
(24.5
|
)
|
|
(24.5
|
)
|
Undistributed net income (loss) attributable to Greif, Inc.
|
$
|
32.0
|
|
|
$
|
(19.1
|
)
|
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 January 31, 2018, the remaining amount of shares that may be repurchased under this authorization was
4,703,487
. During 2017, the Stock Repurchase Committee authorized and the Company executed the repurchase of
2,000
shares of Class B Common Stock. There have been
no
other shares repurchased under this program from November 1, 2016 through
January 31, 2018
.
The following table summarizes the Company’s Class A and Class B common and treasury shares as of the specified dates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Authorized
Shares
|
|
Issued
Shares
|
|
Outstanding
Shares
|
|
Treasury
Shares
|
January 31, 2018
|
|
|
|
|
|
|
|
Class A Common Stock
|
128,000,000
|
|
|
42,281,920
|
|
|
25,916,479
|
|
|
16,365,441
|
|
Class B Common Stock
|
69,120,000
|
|
|
34,560,000
|
|
|
22,007,725
|
|
|
12,552,275
|
|
|
|
|
|
|
|
|
|
October 31, 2017
|
|
|
|
|
|
|
|
Class A Common Stock
|
128,000,000
|
|
|
42,281,920
|
|
|
25,835,281
|
|
|
16,446,639
|
|
Class B Common Stock
|
69,120,000
|
|
|
34,560,000
|
|
|
22,007,725
|
|
|
12,552,275
|
|
The following is a reconciliation of the shares used to calculate basic and diluted earnings per share:
|
|
|
|
|
|
|
|
Three Months Ended
January 31,
|
|
2018
|
|
2017
|
Class A Common Stock:
|
|
|
|
Basic shares
|
25,845,758
|
|
|
25,787,769
|
|
Assumed conversion of restricted shares
|
—
|
|
|
4,672
|
|
Diluted shares
|
25,845,758
|
|
|
25,792,441
|
|
Class B Common Stock:
|
|
|
|
Basic and diluted shares
|
22,007,725
|
|
|
22,009,725
|
|
NOTE 14 — EQUITY EARNINGS OF UNCONSOLIDATED AFFILIATES, NET OF TAX AND NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS
Equity earnings of unconsolidated affiliates, net of tax
Equity earnings of unconsolidated affiliates, net of tax, were immaterial for the
three
months ended
January 31, 2018
and
2017
. There were
no
dividends received from the Company's equity method affiliates for the
three
months ended
January 31, 2018
and
2017
.
Net income attributable to noncontrolling interests
Net income attributable to noncontrolling interests represent the portion of earnings from the operations of the Company’s consolidated subsidiaries attributable to unrelated third party equity owners that were deducted from net income to arrive at net income attributable to the Company. Net income attributable to noncontrolling interests for the three months ended
January 31, 2018
and
2017
was
$3.6 million
and
$2.6 million
, respectively.
NOTE 15 — EQUITY AND COMPREHENSIVE INCOME (LOSS)
The following table summarizes the changes of equity from
October 31, 2017
to
January 31, 2018
(Dollars in millions, shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Stock
|
|
Treasury Stock
|
|
Retained
Earnings
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Greif,
Inc.
Equity
|
|
Non
controlling
interests
|
|
Total
Equity
|
|
Common
Shares
|
|
Amount
|
|
Treasury
Shares
|
|
Amount
|
|
As of October 31, 2017
|
47,843
|
|
|
$
|
144.2
|
|
|
28,999
|
|
|
$
|
(135.6
|
)
|
|
$
|
1,360.5
|
|
|
$
|
(358.2
|
)
|
|
$
|
1,010.9
|
|
|
$
|
36.6
|
|
|
$
|
1,047.5
|
|
Net income
|
|
|
|
|
|
|
|
|
56.5
|
|
|
|
|
56.5
|
|
|
3.6
|
|
|
60.1
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
38.0
|
|
|
38.0
|
|
|
0.4
|
|
|
38.4
|
|
- interest rate derivative, net of income tax expense of $2.1 million
|
|
|
|
|
|
|
|
|
(0.6
|
)
|
|
4.5
|
|
|
3.9
|
|
|
|
|
3.9
|
|
- minimum pension liability adjustment, net of immaterial income tax
|
|
|
|
|
|
|
|
|
|
|
(0.9
|
)
|
|
(0.9
|
)
|
|
|
|
(0.9
|
)
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
97.5
|
|
|
|
|
101.5
|
|
Current period mark to redemption value of redeemable noncontrolling interest
|
|
|
|
|
|
|
|
|
(1.4
|
)
|
|
|
|
(1.4
|
)
|
|
|
|
(1.4
|
)
|
Net income allocated to redeemable noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
(1.1
|
)
|
|
(1.1
|
)
|
Dividends paid to Greif, Inc. shareholders
|
|
|
|
|
|
|
|
|
(24.5
|
)
|
|
|
|
(24.5
|
)
|
|
|
|
(24.5
|
)
|
Dividends paid to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
(0.5
|
)
|
|
(0.5
|
)
|
Long-term incentive shares issued
|
82
|
|
|
4.9
|
|
|
(82
|
)
|
|
0.1
|
|
|
|
|
|
|
5.0
|
|
|
|
|
5.0
|
|
As of January 31, 2018
|
47,925
|
|
|
$
|
149.1
|
|
|
28,917
|
|
|
$
|
(135.5
|
)
|
|
$
|
1,390.5
|
|
|
$
|
(316.6
|
)
|
|
$
|
1,087.5
|
|
|
$
|
39.0
|
|
|
$
|
1,126.5
|
|
The following table summarizes the changes of equity from
October 31, 2016
to
January 31, 2017
(Dollars in millions, shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Stock
|
|
Treasury Stock
|
|
Retained
Earnings
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Greif,
Inc.
Equity
|
|
Non
controlling
interests
|
|
Total
Equity
|
|
Common
Shares
|
|
Amount
|
|
Treasury
Shares
|
|
Amount
|
|
As of October 31, 2016
|
47,792
|
|
|
$
|
141.4
|
|
|
29,050
|
|
|
$
|
(135.6
|
)
|
|
$
|
1,340.0
|
|
|
$
|
(398.4
|
)
|
|
$
|
947.4
|
|
|
$
|
10.5
|
|
|
$
|
957.9
|
|
Net income
|
|
|
|
|
|
|
|
|
5.4
|
|
|
|
|
5.4
|
|
|
2.6
|
|
|
8.0
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
(7.5
|
)
|
|
(7.5
|
)
|
|
(1.7
|
)
|
|
(9.2
|
)
|
- interest rate derivative, net of tax
|
|
|
|
|
|
|
|
|
|
|
4.6
|
|
|
4.6
|
|
|
|
|
4.6
|
|
- minimum pension liability adjustment, net of immaterial income tax
|
|
|
|
|
|
|
|
|
|
|
28.1
|
|
|
28.1
|
|
|
|
|
28.1
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
30.6
|
|
|
|
|
31.5
|
|
Current period mark to redemption value of redeemable noncontrolling interest
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
Net income allocated to redeemable noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
(1.0
|
)
|
|
(1.0
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
0.1
|
|
|
0.1
|
|
Dividends paid to Greif, Inc. shareholders
|
|
|
|
|
|
|
|
|
(24.5
|
)
|
|
|
|
(24.5
|
)
|
|
|
|
(24.5
|
)
|
Dividends paid to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.3
|
)
|
|
(0.3
|
)
|
Long-term incentive shares issued
|
29
|
|
|
1.5
|
|
|
(29
|
)
|
|
—
|
|
|
|
|
|
|
1.5
|
|
|
|
|
1.5
|
|
As of January 31, 2017
|
47,821
|
|
|
$
|
142.9
|
|
|
29,021
|
|
|
$
|
(135.6
|
)
|
|
$
|
1,320.9
|
|
|
$
|
(373.2
|
)
|
|
$
|
955.0
|
|
|
$
|
10.2
|
|
|
$
|
965.2
|
|
The following table provides the rollforward of accumulated other comprehensive income (loss) for the
three
months ended
January 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Foreign
Currency
Translation
|
|
Interest Rate Derivative
|
|
Minimum
Pension
Liability
Adjustment
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
Balance as of October 31, 2017
|
$
|
(249.3
|
)
|
|
$
|
5.1
|
|
|
$
|
(114.0
|
)
|
|
$
|
(358.2
|
)
|
Other Comprehensive Income (Loss)
|
38.0
|
|
|
4.5
|
|
|
(0.9
|
)
|
|
41.6
|
|
Current-period Other Comprehensive Income (Loss)
|
38.0
|
|
|
4.5
|
|
|
(0.9
|
)
|
|
41.6
|
|
Balance as of January 31, 2018
|
$
|
(211.3
|
)
|
|
$
|
9.6
|
|
|
$
|
(114.9
|
)
|
|
$
|
(316.6
|
)
|
The following table provides the rollforward of accumulated other comprehensive income (loss) for the
three
months ended
January 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Foreign Currency
Translation
|
|
Interest Rate Derivative
|
|
Minimum Pension
Liability Adjustment
|
|
Accumulated Other
Comprehensive
Income (Loss)
|
Balance as of October 31, 2016
|
$
|
(270.2
|
)
|
|
$
|
—
|
|
|
$
|
(128.2
|
)
|
|
$
|
(398.4
|
)
|
Other Comprehensive Income (Loss)
|
(7.5
|
)
|
|
4.6
|
|
|
28.1
|
|
|
25.2
|
|
Current-period Other Comprehensive Income (Loss)
|
(7.5
|
)
|
|
4.6
|
|
|
28.1
|
|
|
25.2
|
|
Balance as of January 31, 2017
|
$
|
(277.7
|
)
|
|
$
|
4.6
|
|
|
$
|
(100.1
|
)
|
|
$
|
(373.2
|
)
|
The components of accumulated other comprehensive income (loss) above are presented net of tax, as applicable.
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 Company’s reportable business segments offer different products and services. The accounting policies of the reportable business segments are substantially the same as those described in the “Basis of Presentation and Summary of Significant Accounting Policies” note in the
2017
Form 10-K. The measure of segment profitability that is used by the Company is operating profit.
The following segment information is presented for the periods indicated:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
January 31,
|
(in millions)
|
2018
|
|
2017
|
Net sales:
|
|
|
|
Rigid Industrial Packaging & Services
|
$
|
615.4
|
|
|
$
|
561.5
|
|
Paper Packaging & Services
|
203.8
|
|
|
182.9
|
|
Flexible Products & Services
|
80.0
|
|
|
69.7
|
|
Land Management
|
6.5
|
|
|
6.8
|
|
Total net sales
|
$
|
905.7
|
|
|
$
|
820.9
|
|
|
|
|
|
Operating profit:
|
|
|
|
Rigid Industrial Packaging & Services
|
$
|
31.2
|
|
|
$
|
42.8
|
|
Paper Packaging & Services
|
27.9
|
|
|
20.0
|
|
Flexible Products & Services
|
3.2
|
|
|
0.6
|
|
Land Management
|
3.2
|
|
|
2.2
|
|
Total operating profit
|
$
|
65.5
|
|
|
$
|
65.6
|
|
|
|
|
|
Depreciation, depletion and amortization expense:
|
|
|
|
Rigid Industrial Packaging & Services
|
$
|
20.6
|
|
|
$
|
19.4
|
|
Paper Packaging & Services
|
8.3
|
|
|
8.3
|
|
Flexible Products & Services
|
1.8
|
|
|
1.9
|
|
Land Management
|
1.0
|
|
|
1.1
|
|
Total depreciation, depletion and amortization expense
|
$
|
31.7
|
|
|
$
|
30.7
|
|
The following table presents net sales to external customers by geographic area:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
January 31,
|
(in millions)
|
2018
|
|
2017
|
Net sales:
|
|
|
|
United States
|
$
|
432.7
|
|
|
$
|
408.0
|
|
Europe, Middle East and Africa
|
331.3
|
|
|
285.9
|
|
Asia Pacific and other Americas
|
141.7
|
|
|
127.0
|
|
Total net sales
|
$
|
905.7
|
|
|
$
|
820.9
|
|
The following table presents total assets by segment and total properties, plants and equipment, net by geographic area:
|
|
|
|
|
|
|
|
|
(in millions)
|
January 31,
2018
|
|
October 31,
2017
|
Assets:
|
|
|
|
Rigid Industrial Packaging & Services
|
$
|
2,099.9
|
|
|
$
|
1,976.7
|
|
Paper Packaging & Services
|
461.6
|
|
|
459.8
|
|
Flexible Products & Services
|
172.1
|
|
|
163.2
|
|
Land Management
|
347.7
|
|
|
345.4
|
|
Total segments
|
3,081.3
|
|
|
2,945.1
|
|
Corporate and other
|
246.8
|
|
|
287.2
|
|
Total assets
|
$
|
3,328.1
|
|
|
$
|
3,232.3
|
|
|
|
|
|
Properties, plants and equipment, net:
|
|
|
|
United States
|
$
|
728.2
|
|
|
$
|
730.1
|
|
Europe, Middle East and Africa
|
337.6
|
|
|
322.0
|
|
Asia Pacific and other Americas
|
137.4
|
|
|
136.3
|
|
Total properties, plants and equipment, net
|
$
|
1,203.2
|
|
|
$
|
1,188.4
|
|
NOTE 17 — 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 following table summarizes the change in mandatorily redeemable noncontrolling interest for the
three
months ended
January 31, 2018
:
|
|
|
|
|
(in millions)
|
Mandatorily
Redeemable
Noncontrolling
Interest
|
Balance as of October 31, 2017
|
$
|
9.2
|
|
Current period mark to redemption value
|
(0.3
|
)
|
Balance as of January 31, 2018
|
$
|
8.9
|
|
Redeemable Noncontrolling Interests
Redeemable noncontrolling interests related to
one
joint venture 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.
Redeemable noncontrolling interests are reflected in the condensed consolidated balance sheets at redemption value. The following table summarizes the change in redeemable noncontrolling interest for the
three
months ended
January 31, 2018
:
|
|
|
|
|
(in millions)
|
Redeemable
Noncontrolling
Interest
|
Balance as of October 31, 2017
|
$
|
31.5
|
|
Current period mark to redemption value
|
1.4
|
|
Redeemable noncontrolling interest share of income and other
|
1.1
|
|
Dividends to redeemable noncontrolling interest and other
|
(0.5
|
)
|
Balance as of January 31, 2018
|
$
|
33.5
|
|