ITEM 1A. RISK FACTORS
Statements contained in this Form 10-K may be “forward-looking” within the meaning of Section 21E of the Exchange Act. Such forward-looking statements are subject to certain risks and uncertainties that could cause our operating results to differ materially from those projected. The following factors, among others, in some cases have affected, and in the future could affect, our actual financial or operational performance, or both.
Risks Related to Market and Economic Factors
Historically, our Business has been Sensitive to Changes in General Economic or Business Conditions.
Our customers generally consist of other manufacturers and suppliers who purchase industrial packaging products and containerboard and uncoated and coated recycled boxboard and related products for their own containment and shipping purposes. Because we supply a cross section of industries, such as chemicals, lubricants, films, paints and pigments, food and beverage, personal care, fragrances, petroleum, industrial coatings, carpeting, agriculture, agrochemical, pharmaceuticals, mineral products, packaging, automotive, construction and building products industries, and have operations in many countries, demand for our products and services has historically corresponded to changes in general economic and business conditions of the industries and countries in which we operate. The overall demand and prices for our products and services could decline as a result of numerous factors outside of our control, including an economic recession, increased labor costs, availability of and increased cost of energy, and disruptions in supply chains to our business, our customers, their end markets and our suppliers, changes in industrial production processes or consumer preference, changes in laws and regulations, inflation, tariffs, changes in published pricing indices, fluctuations in interest rates and currency exchange rates and changes in the fiscal or monetary policies of governments in the regions in which we operate. Accordingly, our financial performance is substantially dependent upon the general economic and business conditions existing in these industries and countries where we do business, and any prolonged or substantial economic downturn or geopolitical uncertainty in the markets in which we operate could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Our Global Operations Subject us to Political Risks, Instability and Currency Exchange that Could Adversely Affect our Results of Operations.
We are a global company with operations in over 35 countries with approximately 36% of our fiscal 2023 sales derived from non-U.S. operations. Management of global operations is extremely complex, and our operations outside the United States are
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subject to additional risks that may not exist, or may not be as significant, with respect to our operations within the United States.
Within our global footprint, we have operations in Russia and Eastern and Western Europe. The length, impact and outcome of the ongoing military conflict in Ukraine is highly unpredictable. The Russian invasion of Ukraine has amplified, and may continue to amplify, certain risks to our operations, including increased foreign exchange volatility, disruptions to financial and credit markets, energy supply (specifically in Europe), supply chain disruptions, customer demand, increased risks of cybersecurity incidents, increased costs to ensure compliance with global and local laws and regulations, economic recessions in certain neighboring European countries or globally due to inflationary and other pressures, and delays in the ability, or even the inability, to access cash or earnings from Russia. In addition, the imposition of new or increased sanctions, tariffs, quotas, exchange or price controls, trade barriers or similar restrictions resulting from the Russian invasion of Ukraine could negatively impact our business and operations.
Although we have been able to distribute some earnings from our Russian operations in compliance with all applicable laws, access to cash and earnings in Russia remains limited. Furthermore, in the event that our operations in Russia cease for any reason, that event would result in an impairment charge, as we would not likely generate a fair market return on those assets. We will continue to monitor the effects of this conflict, including risks that may affect our business, and we will adjust our plans accordingly as the situation progresses. Currently, the results of our operations related to Russia are not material to our business, financial condition, results of operations or cash flows.
As a result of our general global operations, we are subject to certain risks that could disrupt our operations or force us to incur unanticipated costs or exit a specific country. These risks, which can vary substantially by country, may include economic or political instability, geopolitical events (such as the Russian invasion of Ukraine, the Israel-Hamas conflict and increasing tensions between China and Taiwan), corruption, social and ethnic unrest, the regulatory environment (including the risks of operating in developing or emerging markets in which there are significant uncertainties regarding the interpretation and enforceability of legal requirements), hyperinflation and fluctuations in the value of local currency versus the U.S. dollar, repatriating cash from foreign countries to the U.S., downturns or changes in economic conditions (including in relation to commodity inflation), adverse tax consequences or rulings, nationalization or any change in social, political or labor conditions in any of these countries, or regions impacting matters such as sustainability, environmental regulations and trade policies and agreements.
We also have indebtedness, agreements to purchase raw materials and agreements to sell finished products that are denominated in Euros, Turkish Lira, Russian Rubles and other currencies. Our operating performance is affected by fluctuations in currency exchange rates by:
•translations into U.S. dollars for financial reporting purposes of the assets and liabilities of our non-U.S. operations conducted in local currencies; and
•gains or losses from transactions conducted in currencies other than the operation’s functional currency.
The Current and Future Challenging Global Economy and Disruption and Volatility of the Financial and Credit Markets may Adversely Affect our Business.
Current global economic conditions are challenging to our global business operations. Such conditions have had, and may continue to have, a negative impact on our financial results. Future economic downturns, either in the United States, Europe or in other regions in which we do business could negatively affect our business and results of operations. With the volatility in the current global economic climate, inflation and geopolitical events around the world, including the Russian invasion of Ukraine and the Israel-Hamas conflict, it is difficult for us to predict the complete impact of the forgoing matters on our business and results of operations. Due to these current and future economic conditions, our customers may face financial difficulties, disruption in their supply chains and the unavailability of or reduction in commercial credit or increased debt levels that may result in decreased sales by and revenues to our Company. Certain of our customers may cease operations or seek bankruptcy protection, which would reduce our cash flows and adversely impact our results of operations. Our customers that are financially viable and not experiencing economic distress may nevertheless elect to reduce the volume of orders for our products or close facilities in an effort to remain financially stable or as a result of the unavailability of commercial credit which would negatively affect our results of operations. We may experience difficulties in servicing, renewing or repaying our outstanding debt due to continued volatility in the global economy. We may also have difficulty accessing the global credit markets if there is a tightening of commercial credit availability, which would result in decreased ability to fund capital-intensive strategic projects.
Further, we may experience challenges in forecasting revenues and operating results due to these global economic conditions. The difficulty in forecasting revenues and operating results may result in volatility in the market price of our common stock.
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In addition, the lenders under our senior secured credit agreement and other borrowing facilities described in Item 7 of this Form 10-K under Liquidity and Capital Resources - Borrowing Arrangements and the counterparties with whom we maintain interest rate swap agreements, currency forward contracts and derivatives and other hedge agreements may be unable to perform their lending or payment obligations in whole or in part, or may cease operations or seek bankruptcy protection, which would negatively affect our cash flows and our results of operations.
The equipment that we use in our manufacturing operations is expensive and requires continued maintenance. We may require significant capital investment to maintain our equipment. If our existing sources of capital prove insufficient, there can be no assurance that we will be able to obtain capital to finance these expenditures on favorable terms, or at all. Any inability by us to maintain our equipment as needed or any inability to obtain capital for expenditures on equipment maintenance on favorable terms could have an adverse effect on our business, financial position and results of operations.
Risks Related to Industry Conditions
The Continuing Consolidation of our Customer Base and Suppliers may Intensify Pricing Pressure.
Over the last few years, many of our large industrial packaging, containerboard and coated and uncoated recycled boxboard and related products customers have acquired, or been acquired by, companies with similar or complementary product lines. In addition, many of our suppliers of raw materials such as steel, resin and paper, have undergone a similar process of consolidation. This consolidation has increased the concentration of our largest customers, resulting in, in some cases, increased pricing pressures from our customers, and in other cases, a decreasing customer base due to customers becoming more vertically integrated. The consolidation of our largest suppliers has resulted in limited sources of supply and increased cost pressures from our suppliers. Any future consolidation of our customer base or our suppliers could negatively impact our business, financial condition, results of operations and cash flows. Furthermore, if one or more of our major customers reduces, delays or cancels substantial orders, if one or more of our major suppliers is unable to timely produce and deliver our orders, or if we are unable to broaden our customer base and increase specialty product offerings to offset the effects of consolidation, our business, financial condition, results of operations and cash flows may be materially and adversely affected, particularly for the period in which the reduction, delay or cancellation occurs and also possibly for subsequent periods.
We Operate in Highly Competitive Industries.
Each of our operating segments operates in highly competitive industries. The most important competitive factors we face are price, quality, customer service and on-time delivery. To the extent any of our competitors become more successful with respect to any of these key competitive factors, we could lose customers and our sales could decline. Moreover, we anticipate that the lower customer demand patterns that we experienced throughout fiscal year 2023 will continue on an overall basis through 2024, which may cause our competitors to reduce prices to maintain or increase their sales volumes, which could adversely impact our sales volumes and our margins. In addition, due to the tendency of certain customers to diversify their suppliers, we could be unable to increase or maintain sales volumes with particular customers. Certain of our competitors are substantially larger and have significantly greater financial resources.
In addition, some of our products are made from raw materials that are subject to pronounced and at times, rapid price fluctuations, such as steel, which is used in the manufacture of steel drums and containers, old corrugated containers (“OCC”), which impacts our paper products, and oil, which in turn affects the price of resin for plastic drums and containers. Particularly in well-developed markets in Europe and in the United States, any substantial increases in the supply of industrial packaging resulting from capacity increases, the stockpiling of raw materials or other types of opportunistic behavior by our competitors in a period of high raw materials prices, or price wars, could adversely affect our margins and the profitability of our business. With many of our customers, we have implemented raw material price adjustment mechanisms based on industrial index pricing, however these price adjustment mechanisms lag market price changes and our ability to pass through costs to our customers could take months to realize which in turn could adversely impact our product margins. Although price is a significant basis of competition in our industry, we also compete on the basis of product reliability, the ability to deliver products on a global scale and our reputation for quality and customer service. If we fail to maintain our current standards for product quality, the scope of our distribution capabilities or our customer relationships, our reputation and business, financial condition, results of operations and cash flows could be adversely affected.
Negative media reports about us or our businesses, whether accurate or inaccurate, could damage our reputation and relationships with our customers and suppliers, cause customers and suppliers to terminate their relationship with us, or impair our ability to effectively compete, which could adversely affect our business, financial condition, results of operations and cash flows.
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Our Business is Sensitive to Changes in Industry Demands and Customer Preferences.
Industry demand for certain of our industrial packaging and paper products in our United States operations, and industrial packaging products in European and other international markets has varied in recent years, and more recently related to inflationary pressures, causing competitive pricing for those products. In addition, disruptions within our customer’ labor supply could reduce customer demand and negatively impact our business. As demand decreases, we see an increase in competition on price, which could consequentially impact our sales and margins. We see to offset the impacts of these pressures by focusing on quality and customer service.
We compete in industries that are capital intensive, which generally leads to continued production as long as prices are sufficient to cover marginal costs. We are making significant capital investments in line with our long-term business strategy, such as investments in new and improved equipment automation and technology to increase capacity, productivity and safety. As a result, changes in industry demands (including any resulting industry over-capacity) and increased new capacity for production of industrial packaging products by competitors, may cause substantial price competition and, in turn, we may not be able to derive the expected return on investment from our strategic investments which could negatively impact our business, financial condition, results of operations and cash flows. Additionally, customer preferences are constantly changing based on, among other factors, cost, convenience, health, environmental and social concerns, and customers may choose to use different packaging products than the products we manufacture as their business models change, or may choose to use alternative, more sustainable materials for their packaging products, or simply forego the packaging of certain products entirely. For example, in the United States, sales of fibre drums continue to decline on a year over year basis as some customers select other packaging solutions for their products. Any shift away from packaging products we manufacture or changes in customer preferences to more sustainable supply chain solutions may adversely affect our business, financial condition, results of operations and cash flows.
Raw Material Shortages, Price Fluctuations, Global Supply Chain Disruptions and High Inflation may Adversely Impact our Results of Operations.
The principal raw materials used in the manufacture of our products are steel, resin, pulpwood, recycled pulp from OCC and recycled coated and uncoated boxboard and containerboard and used industrial packaging for reconditioning, which we purchase or otherwise acquire in highly competitive, price sensitive markets. We have long-term supply contracts in place for obtaining a portion of our principal raw materials. These raw materials have historically exhibited price and demand cyclicality. In addition, we manufacture certain component parts for our rigid industrial packaging products and those of some of our competitors. Some of these materials and component parts have been, and in the future may be, in short supply. For example, the availability of these raw materials and component parts and/or our ability to purchase and transport these raw materials and produce and transport these component parts may be unexpectedly disrupted by adverse weather conditions, natural disasters, man-made disasters, geopolitical conflicts, a substantial economic downturn in the industries that provide any of those raw material requirements, or competition for use of raw materials and component parts in other regions or countries. As a result of inflation and continued economic slowdown, we may continue to incur significant raw material prices increases in the future which would likely have an adverse effect on our operating margins. While we have taken steps to minimize the impact of these increased costs by working closely with our suppliers and customers, there can be no assurances that unforeseen future events in the global supply chain, and our ability to pass on inflationary costs on to our customers could have a material adverse effect on our business, financial condition and results of operations.
The disruptions to the global economy starting in 2020 and continuing throughout 2023, which were intensified by the Russian invasion of Ukraine, have impeded global supply chains in some regions in which we operate more than others, resulting in longer lead times.
Energy and Transportation Price Fluctuations and Shortages may Adversely Impact our Manufacturing Operations and Costs.
The cost of producing our products is sensitive to the price of energy, including its impact on transport costs. Energy prices, in particular oil and natural gas, have fluctuated in recent years, and specifically in Europe related to the Russian invasion of Ukraine, which had a corresponding effect on our operation and production costs and may have the same effect on our customers causing volatility in demand for our products and services. We are currently seeking alternative energy resources in Europe that may take years to fully implement and savings to be realized, if any. Potential legislation, regulatory action and international treaties related to climate change, especially those related to the regulation of greenhouse gases, may result in significant increases in energy costs as well as taxes, and other governmental charges. There can be no assurance that we will be able to recoup any past or future increases in the cost of energy and transportation.
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Risks Related to our Operations
We may Encounter Difficulties or Liabilities Arising from Acquisitions or Divestitures.
We have invested a substantial amount of capital in acquisitions, joint ventures and strategic investments and we expect that we will continue to do so in the foreseeable future. We are continually evaluating acquisitions, divestitures and strategic investments that are significant to our business both in the United States and internationally. Acquisitions, joint ventures and strategic investments involve numerous risks, including the failure to identify suitable acquisition candidates, complete acquisitions on acceptable terms and conditions, retain key customers, employees and contracts, the inability to integrate businesses without material disruption, unanticipated costs incurred in connection with integrating businesses, the incurrence of liabilities greater than anticipated or operating results that are less than anticipated, the inability to realize the projected value, and the inability to realize projected synergies. In addition, acquisitions, joint ventures and strategic investments and associated integration activities require time and attention of management and other key personnel. There can be no assurance that any acquisitions, joint ventures and strategic investments will be successfully integrated into our operations, that competition for acquisitions will not intensify or that we will be able to complete such acquisitions, joint ventures and strategic investments on acceptable terms and conditions. The costs of unsuccessful acquisition, joint venture and strategic investment efforts may adversely affect our business, financial condition, results of operations and cash flows.
Additionally, in connection with any acquisitions or divestitures, we may become subject to contingent liabilities or legal claims, including but not limited to third party liability and other tort claims; claims for breach of contract; employment-related claims; environmental, health and safety liabilities; permitting, regulatory or other legal compliance issues; or tax liabilities. If we become subject to any of these liabilities or claims, and they are not adequately covered by insurance or an enforceable indemnity or similar agreement from a creditworthy counterparty, we may be responsible for significant out-of-pocket expenditures. These liabilities, if they materialize, could have an adverse effect on our business, financial condition, results of operations and cash flows.
We may Incur Additional Rationalization Costs and there is no Guarantee that our Efforts to Reduce Costs will be Successful.
We have reorganized portions of our operations from time to time in recent years, particularly following acquisitions or divestments of businesses, and periods of economic downturn due to local, regional or global economic conditions. We will continue to implement continuous improvement initiatives necessary or desirable to improve our business portfolio, address underperforming assets and generate additional cash. These initiatives may include reductions in selling, general and administrative costs throughout our Company and have and will likely continue to result in the rationalization of manufacturing facilities.
The rationalization of our manufacturing facilities may result in temporary constraints upon our ability to manufacture the quantity of products necessary to fill orders and thereby complete sales in a timely manner. In addition, system upgrades at our manufacturing facilities that impact ordering, production scheduling and other related manufacturing processes are complex, and could impact or delay production targets. A prolonged delay in our ability to fill orders on a timely basis could affect customer demand for our products and increase the size of our product inventories, causing future reductions in our manufacturing schedules and adversely affecting our results of operations. Moreover, our continuous development and production of new products will often involve the retooling of existing manufacturing facilities. This retooling may limit our production capacity at certain times in the future, which could adversely affect our business, financial condition, results of operations and cash flow. In addition, the expansion and reconfiguration of existing manufacturing facilities could increase the risk of production delays, as well as require significant investments of capital.
While we expect these initiatives to result in significant profit opportunities and savings throughout our organization, our estimated profits and savings are based on assumptions that may prove to be inaccurate, and as a result, there can be no assurance that we will realize these profits and cost savings or that, if realized, these profits and cost savings will be sustained. Failure to achieve or delays in achieving projected levels of efficiencies and cost savings from such measures, or unanticipated inefficiencies resulting from manufacturing and administrative reorganization actions in progress or contemplated, could adversely affect our business, financial condition, results of operations and cash flows and harm our reputation.
Several Operations are Conducted by Joint Ventures that we Cannot Operate Solely for our Benefit.
Several operations, particularly in developing countries, are conducted through joint ventures. In countries that require us to conduct business through a joint venture with a local joint venture partner, the loss of a joint venture partner or a joint venture partner’s loss of its ability to conduct business in such country may impact our ability to conduct business in that country.
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Sanctions that apply to a partner of a joint venture or to a joint venture’s directors or officers could also impact our ability to conduct business through that joint venture.
In joint ventures, we share ownership with one or more parties who may or may not have the same goals, strategies, priorities or resources as we do. In general, joint ventures are intended to be operated for the benefit of all co-owners, rather than for our exclusive benefit. Operating a business as a joint venture often requires additional organizational formalities as well as time-consuming procedures for sharing information, accounting and making decisions. In certain cases, our joint venture partners must agree in order for the applicable joint venture to take certain actions, including acquisitions, the sale of assets, borrowing money and granting liens on joint venture property. Our inability to take unilateral action that we believe is in our best interest may have an adverse effect on the financial performance of the joint venture and the return on our investment. Finally, we may be required on a legal or practical basis or both, to accept liability for obligations of a joint venture beyond our economic interest, including in cases where our co-owner becomes bankrupt or is otherwise unable to meet its commitments.
Certain of the Agreements that Govern our Joint Ventures Provide our Partners With Put or Call Options.
The agreements that govern certain of our current joint ventures under certain circumstances provide the joint venture partner with the right to sell their participation in the joint venture to us or the right to acquire our participation in the joint venture. Some of the joint venture agreements provide that the joint venture partner can sell its participation for a certain purchase price calculated on the basis of a fixed multiple. Such put and call rights may result in financial risks for us. In addition, such rights could negatively impact our operations if as a result of their exercise we lose access to members of our management teams that are familiar with local markets or distribution and manufacturing channels.
Our Ability to Attract, Develop and Retain Talented and Qualified Employees, Managers and Executives is Critical to our Success.
Our ability to attract, develop and retain talented and qualified employees at all levels within our organization, including production employees, key managers and executives is critical to the success of our business. We need an engaged workforce to serve our customers and meet our business objectives. Competitive pressures and a tightened labor market within and outside our industry, may make it more difficult and expensive to attract, hire and effectively onboard qualified employees. Increased turnover of production employees, the retirement of or unforeseen loss of key officers and employees without appropriate succession planning or the ability to develop or hire replacements could make it difficult to manage our business and meet our business objectives, resulting in a material adverse effect on our business, financial condition, results of operations and cash flows.
Our Business may be Adversely Impacted by Work Stoppages and Other Labor Relations Matters.
We are subject to the risk of work stoppages and other labor relations matters, with approximately 27% of our employees around the world represented by unions. We have experienced work stoppages and strikes in the past, and there may be work stoppages and strikes in the future. Any prolonged work stoppage or strike at any one of our principal manufacturing facilities could have a negative impact on our business, financial condition, results of operations and cash flows. In addition, upon the expiration of existing collective bargaining agreements, we may not reach new agreements without union action and any such new agreements may not be on terms satisfactory to us.
We may be Subject to Losses that Might not be Covered in Whole or in Part by Existing Insurance Reserves or Insurance Coverage and General Insurance Premium and Deductible Increases.
We are self-insured or carry large deductibles for certain types of insurance claims, which includes, but is not limited to, claims made under our employee medical and dental insurance programs and workers’ compensation, auto and general liability claims. We utilize outside actuarial services to establish reserves for estimated costs related to pending claims, administrative fees and claims incurred but not reported. Because establishing reserves is an inherently uncertain process involving estimates, currently established reserves may not be adequate to cover the actual liability for claims made under our employee medical and dental insurance programs and for certain of our workers’ compensation and liability claims. If it is concluded that our estimates are incorrect and our reserves are inadequate for these claims, we will need to increase our reserves, which could adversely affect our financial condition, results of operations and cash flows.
We have comprehensive liability, fire and extended coverage insurance on our facilities and operations, with policy specifications and insured limits customarily carried for similar properties. However, there are certain types of losses, such as losses resulting from wars, acts of terrorism, windstorms, floods, wildfires, earthquakes or other natural disasters, or pollution, that may be uninsurable or subject to restrictive policy conditions or subject to very large deductibles. In these instances, should a loss occur in excess of insured limits, we could lose capital invested in that property, as well as the anticipated future revenues
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derived from the manufacturing activities conducted at that property, while remaining obligated for any financial obligations related to the property. Any such loss would adversely impact our business, financial condition, results of operations and cash flows. We purchase insurance policies covering general liability and product liability with substantial policy limits. However, there can be no assurance that any liability claim would be adequately covered by our applicable insurance policies or would not be excluded from coverage based on the terms and conditions of the policy. This could also apply to any applicable contractual indemnity. We also purchase environmental liability policies where legally required and may elect to purchase coverage in other circumstances in order to transfer all or a portion of environmental liability risk through insurance. However, there can be no assurance that any environmental liability claim would be adequately covered by our applicable insurance policies or would not be excluded from coverage based on the terms and conditions of the policy. We do not purchase crop insurance for our timberland holdings, and a forest fire or other event could damage a material amount of timber.
The costs of insurance coverage continue to increase, along with increases in the level of deductibles, and the availability of some insurance coverages is decreasing due to extensive property damage caused by natural disasters, increased cyber security breaches, large jury verdicts and other business and employment litigation and losses. Any substantial increases in our insurance premiums, deductibles or the availability of insurance policies could adversely affect our business, financial condition, results of operations and cash flows.
Our Business Depends on the Uninterrupted Operations of our Facilities, Systems and Business Functions, Including our Information Technology (“IT”) and Other Business Systems.
Our business is dependent upon our ability to execute, in an efficient and uninterrupted fashion, necessary business functions, such as accessing key business data, financial information, order processing, invoicing and the operation of IT dependent manufacturing equipment. A significant portion of the communication between our employees, customers and suppliers around the world depends on the reliability of our IT systems. A significant interruption or major failure of the Internet, a shut-down of or inability to access one or more of our facilities, a power outage, unavailability or a failure of one or more of our IT, telecommunications or other systems would substantially impair our ability to perform daily functions on a timely basis and could result in a material adverse impact on our operations and adversely affect our sales.
We have established a business continuity plan in an effort to ensure the continuation of core business operations in the event that normal operations could not be performed due to a catastrophic event. While we continue to test and assess our business continuity plan to ensure it meets the needs of our core business operations and addresses multiple business interruption events, there is no assurance that core business operations could be performed upon the occurrence of such an event which may have a material adverse effect on our business, financial condition, results of operations and cash flows.
A Cyber-Attack, Security Breach of Customer, Employee, Supplier or Company Information and Data Privacy Risks and Costs of Compliance with New Regulations may have a Material Adverse Effect on our Business, Financial Condition, Results of Operations and Cash Flows.
In the conduct of our business, we rely extensively on computer systems, including third-party systems, to collect, use, transmit, store and report data on information systems and interact with customers, vendors and employees. Increased global IT security threats and more sophisticated and targeted computer crime and increased ransomware attacks pose a risk to the security of our systems and networks and third-party systems and networks with our data (including employee and customer data), and the confidentiality, availability and integrity of our data. Despite our security measures, our IT systems and infrastructure may be vulnerable to computer viruses, cyber-attacks, security breaches caused by employee error or malfeasance or other disruptions, and heightened focus since the beginning of the Russian invasion of Ukraine. Any such threat could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. A security breach of our computer systems or third-party systems with our data could interrupt or damage our operations or harm our reputation, or both. In addition, we could be subject to legal claims or proceedings, liability under laws that protect the privacy of personal information and regulatory penalties if confidential information relating to customers, suppliers, employees or other parties is misappropriated from our computer system or third-party systems with our data. To date, we have seen no material impact on our business or operations from these threats. However, we cannot ensure that our security efforts will prevent unauthorized access or loss of functionality to our or our third-party providers’ systems.
The regulatory framework for privacy issues continues to evolve worldwide with increased regulatory and enforcement focus on data protection in the U.S. and abroad, and an actual or alleged failure to comply with applicable U.S. or foreign data protection laws, regulations or other data protection standards in the countries in which we do business may expose us to litigation (including in some instances, class action litigation), fines, sanctions or other penalties, which could harm our business reputation, and could have an adverse effect on our financial condition, results of operations and cash flows. The data privacy landscape is continuously expanding and has significantly increased responsibilities for companies collecting, using and processing personal data, as well as significantly increased penalties for noncompliance of security and data breach obligations,
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specifically in the European Union (“EU”) under the General Data Protection Regulation, in China under the Personal Information Protection Law, and in Brazil under the General Personal Data Protection Law, in addition to U.S. privacy laws in numerous states. Many of these regulations are complex and their interpretation, application and enforcement are often uncertain. This regulatory and enforcement environment is increasingly challenging and may present material obligations and risks to our business, including significantly expanded compliance burdens and enforcement risks and could result in substantial costs and a material adverse effect on our business, financial condition, results of operations and cash flows.
Risks Related to Financial Reporting
We Could be Subject to Changes in our Tax Rates, the Adoption of New U.S. or Foreign Tax Legislation or Exposure to Additional Tax Liabilities.
The multinational nature of our business subjects us to taxation in the United States and numerous foreign jurisdictions. Due to economic and political conditions, tax rates in various jurisdictions may be subject to significant change. Our future effective tax rates could be affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, or changes in tax laws or their interpretation.
The Organization for Economic Cooperation and Development has issued proposed guidance which establishes a 15% global minimum tax (“Pillar Two tax”). In December 2022, the EU issued a directive requiring member states to enact a 15% minimum tax into their domestic laws effective for fiscal years beginning on or after December 31, 2023. We will continue to monitor the status of the Pillar Two tax implementation in the jurisdictions in which we operate. Implementation of the Pillar Two tax by jurisdictions in different ways may cause increased complexities as to compliance and increased audit controversy with tax authorities over the application or interpretation of the applicable rules.
Tax laws are complex and subject to varying interpretations. At this time, we believe we are properly reflecting the provision for taxes on income using all current enacted global tax laws in every jurisdiction in which we operate. However, there can be no assurance that our tax positions will not be challenged by relevant tax authorities or that we would be successful in any such challenge.
We have a Significant Amount of Goodwill and Long-lived Assets Which, if Impaired in the Future, Would Adversely Impact our Results of Operations.
At October 31, 2023, the carrying value of our goodwill was $1,693.0 million. We may be required to record future impairments of our long-lived assets as we continue to restructure our business. Decisions to sell or close plants could reduce the estimated useful life of an asset group or indicate that the fair value of the asset group is less than the carrying value. We may also experience declines in particular businesses due to competition or other outside forces indicating our long-lived assets are not recoverable. Any resulting impairments will impact net income in the period in which the triggering event, such as permanent or sustaining reduction in cash flows, occurs and could be significant, which could have an adverse effect on our financial condition and results of operations.
Risks Related to Regulatory and Legal Costs
Changing Climate, Global Climate Change Regulations and Greenhouse Gas Effects may Adversely Affect our Operations and Financial Performance.
There is continuing concern from members of the scientific community and the general public that emissions of greenhouse gases (“GHG”) and other human activities have or will cause significant changes in weather patterns and increase the frequency or severity of extreme weather events, including droughts, wildfires and flooding. These types of extreme weather events have and may continue to adversely impact us, our suppliers, our customers and their ability to purchase our products and our ability to timely receive appropriate raw materials to manufacture and transport our products on a timely basis.
We believe it is likely that the scientific and political attention to issues concerning the extent and causes of climate change will continue, with new and more restrictive legislation regulations and focus on environmental, social and governance (“ESG”) initiatives that could affect our financial condition, results of operations and cash flows. Foreign, federal, state and local regulatory and legislative bodies have enacted or proposed various legislative and regulatory measures relating to increased transparency and standardization of reporting related to factors that may include climate change, regulating GHG emissions, recycling of plastic materials, and energy policies, including waste tax, and other governmental charges and mandates. For instance, it is anticipated that the Securities and Exchange Commission will issue a climate change disclosure rule in 2024, which, if implemented as proposed, would significantly expand climate-related disclosure obligations. The State of California has enacted legislation that will require large U.S. companies doing business in California to make broad-based climate-related
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disclosures starting as early as 2026, and other states are also considering new climate change disclosure requirements. In addition, the European Union Corporate Sustainability Reporting Directive (“CSRD”) became effective in 2023. CSRD applies to both EU and non-EU in-scope entities and would require them to provide expansive disclosures on various sustainability topics. We are assessing our obligations under CSRD and expect that compliance could require substantial effort in the future. We will likely need to be prepared to contend with overlapping, yet distinct, climate-related disclosure requirements in multiple jurisdictions. The compliance with foreign, federal, state and local legislation and regulations concerning climate-related disclosures may result in our Company incurring additional costs and capital expenditures, and the failure to comply with such legislation and regulations could result in fines to our Company and could affect our business, financial condition, results of operations and cash flows. We could also face increased costs related to defending and resolving legal claims and other litigation related to climate change and the alleged impact of our operations on climate change.
We, along with other companies in many business sectors, including our customers, are considering and implementing ESG and sustainability strategies, specifically ways to reduce GHG emissions. As a result, our customers may request that changes be made to our products or facilities, as well as other aspects of our production processes, that increase costs and may require the investment of capital. The failure to comply with these requests could adversely affect our relationships with some customers, which in turn could adversely affect our business, financial condition, results of operations and cash flows.
We may be Unable to Achieve Our Greenhouse Gas Emission Reduction Targets by 2030.
In April 2021, we announced a GHG emission reduction target to reduce our absolute Scope 1 and 2 emissions by 28 percent by 2030 as part of our ESG and sustainability strategy. Achievement of these targets depends on our execution of operational strategies relating to investments in energy efficient equipment and options to utilize other alternative energy sources. Execution of these strategies and achievements of our 2030 target is subject to risk and uncertainties, many of which are out of our control. These risks and uncertainties include, but are not limited to our ability to execute our strategies and achieve our goals within the currently projected costs and expected timeframes; availability, use and success of on and off-site renewable energy; availability and cost of zero-emissions electric equipment and vehicles; outcome of research efforts and future technology developments such as growing our post-consumer resin product offerings and downgauging our current portfolio; availability of purchasing high quality recycled materials; growing our life cycle services network; the increased cost and availability of virtual power purchase agreements; and the long timeline to complete certain sustainability projects. There are no assurances that we will be able to successfully execute our strategies and achieve our 2030 targets. Failure to achieve our targets could damage our reputation, customer and investor relationships or our access to financing. Further, given investors’ increased focus related to environmental, social and governance matters, such a failure could cause stockholders to reduce their ownership holdings, all of which, in turn could adversely affect our business, financial condition, results of operations and cash flows and reduce our stock price.
Legislation/Regulation Related to Environmental and Health and Safety Matters Could Negatively Impact our Operations and Financial Performance.
We must comply with extensive laws, rules and regulations in the United States and in each of the countries where we conduct business regarding environmental matters, such as air, soil and water quality and waste disposal. We must also comply with extensive laws, rules and regulations regarding safety, health and corporate social responsibility matters. There can be no assurance that compliance with existing and new laws, rules and regulations will not require significant expenditures.
In addition, laws, rules and regulations, as well as the interpretation and administration of such laws and regulations by governmental agencies, can change and restrict or prohibit the manner in which we conduct our current operations, require additional permits to engage in some or all of our current operations, or increase the cost of some or all our operations. For example, the U.S. EPA has indicated potential forthcoming changes to the regulatory framework that may impact our reconditioning business requiring a change to our processes and operations going forward. Such changes could adversely affect our business, financial condition, results of operations and cash flows.
We are also subject to transportation safety regulations promulgated by the U.S. Department of Transportation (“DOT”) and agencies in other jurisdictions. Both the DOT regulations and standards issued by the United Nations and adopted by various jurisdictions outside the United States set forth requirements related to the transportation of both hazardous and nonhazardous materials in some of our packaging products and subject our Company to random inspections and testing to ensure compliance. Failure to comply could result in fines to us and could affect our business, financial condition, results of operations and cash flows.
We are subject to laws, rules and regulations relating to certain raw materials used in our business or present in our products. For example, per- and polyfluoroalkyl substances (“PFAS”) are a group of chemicals that have been manufactured and used in consumer and industrial products since the 1940’s. PFAS compounds do not easily degrade and have been shown to accumulate
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over time in the environment. In the U.S., Europe and other countries where we operate, there is heightened governmental and regulatory scrutiny on PFAS usage in packaging products and its role in the contamination of soil, air and water. Governmental inquiries or requirements involving PFAS could lead to us incurring liability for damages or other costs, civil proceedings, including personal injury claims, class actions, the imposition of fines and penalties, or other remedies, as well as restrictions on or added costs for our business operations going forward. These laws, rules and regulations, as well as investigations and resulting claims by individuals and other businesses, could adversely affect our reputation with our customers generally, and could adversely affect our business, financial condition, results of operations and cash flows.
At the EU-level, many laws and regulations are designed to protect human health and the environment. For example, Directive 2004/35/EC concerns obligations to remedy damages to the environment, which could require us to remediate contamination identified at sites we own or use. Other EU regulations and directives limit pollution from industrial activities, reduce emissions to air, water and soil, protect water resources, reduce waste, promote recycling, reuse or reduction of materials used, achieving a circular economy, protect employee health and safety and regulate the registration, evaluation, authorization and restriction of chemicals. The European Commission published its “Fit for 55” package in July 2021; a collection of new legislative proposals and amendments to existing rules aimed at implementing the EU’s target of cutting greenhouse gas emissions by 55% by 2030. In addition to existing green taxes on energy use, a new EU plastic tax has been introduced. Specifically, there is heightened focus and in some cases a requirement by customers and regulators to use Post-Consumer Resin ("PCR") to manufacture more sustainable packaging. If we are unable to effectively source PCR or innovate our current product offerings to meet this demand, this could negatively affect our business and results of operations. In addition, we are closely monitoring the discussions on the proposed EU Packaging and Packaging Waste Regulation, which is currently being discussed by the European Parliament and Council with the intention to become law in 2024 and could potentially impose new requirements in terms of recycled content, recyclability and reuse for our products. Failure to comply with these and other laws, or a change in the applicable legal framework, for example the increased enforcement of environmental regulations in the U.S., Europe, China or other countries or customer requirements, could affect our business, financial condition, results of operations and cash flows, in addition to those of our customers.
Our customers in the food and pharmaceutical industry are subject to increasing laws, rules and regulations relating to safety. As a result, customers may demand that changes be made to our products or facilities, as well as other aspects of our production processes, that may require the investment of capital. The failure to comply with these requests could adversely affect our relationships with some customers and result in negative effects on our business, financial condition, results of operations and cash flows.
Product Liability Claims and Other Legal Proceedings Could Adversely Affect our Operations and Financial Performance.
We produce products and provide services related to other parties’ products, including sensitive products such as food ingredients, pharmaceutical ingredients and hazardous substances. Incidents involving these product types can involve risk of recall, contamination, spillage, leakage, fires, and explosions, which can threaten individual health, impact the environment and cause the breakdown or failure of equipment or processes and the performance of facilities below expected levels of capacity. If any of our customers have such incidents involving our products, they may bring product liability claims against us. While we have built extensive operational processes to ensure that the design and manufacture of our products meet rigorous quality standards, there can be no assurance that we or our customers will not experience operational process failures that could result in potential product, safety, regulatory or environmental claims and associated litigation. We are also subject to a variety of legal proceedings and legal compliance risks in our areas of operation around the globe. Any such claims, whether with or without merit, could be time consuming and expensive to defend and could divert management’s attention and resources. In accordance with customary practice, we maintain insurance against some, but not all, of these potential claims. In the future, we may not be able to maintain insurance at commercially acceptable premium and deductible levels at all. In addition, the levels of insurance we maintain may not be adequate to fully cover any and all losses or liabilities. If any significant judgment or claim is not fully insured or indemnified against, it could have a material adverse impact on our business, financial condition, results of operations and cash flows.
We may Incur Fines or Penalties, Damage to our Reputation or other Adverse Consequences if our Employees, Agents or Business Partners Violate, or are Alleged to have Violated, Anti-bribery, Competition or Other Laws.
We cannot provide assurance that our internal controls will always protect us from reckless or criminal acts committed by our employees, agents or business partners that would violate U.S. and non-U.S. laws, including anti-bribery, competition, trade sanctions and regulation, and other laws. Any such improper actions could subject us to civil or criminal investigations in the U.S. and in other jurisdictions, could lead to substantial civil or criminal monetary and non-monetary penalties against us or our subsidiaries, and could damage our reputation. Even the allegation or appearance of our employees, agents or business partners acting improperly or illegally could damage our reputation and result in significant expenditures in investigating and responding to such actions.
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ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
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ITEM 2. PROPERTIES
The following are our principal operating locations that are either leased or owned as of October 31, 2023. We consider our operating properties to be in satisfactory condition and adequate to meet our present needs. However, we expect to make further additions, improvements and consolidations of our properties to support our business. Our global headquarters is located in Delaware, Ohio, USA. We utilize two main shared service center locations, with one in North America and the other in Europe.
Location Global Industrial Packaging Paper Packaging & Services Total
Argentina 3 — 3
Belgium 2 — 2
Brazil 8 — 8
China 8 — 8
France 3 — 3
Germany 4 — 4
Hungary 1 — 1
Israel 1 — 1
Italy 3 — 3
Mexico 2 — 2
Netherlands 5 — 5
Poland 1 — 1
Portugal 1 — 1
Russia 8 — 8
Saudi Arabia 2 — 2
Singapore 1 — 1
Spain 3 — 3
Sweden 1 — 1
United Kingdom 2 — 2
Classification Global Industrial Packaging Paper Packaging & Services Total
We also own a substantial amount of timber properties. Our timber properties consisted of approximately 175,000 acres in the southeastern United States as of October 31, 2023.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any pending legal proceedings that are material to our business or financial condition.
From time to time, we have been a party to legal proceedings arising at the country, state or local level involving environmental sites to which we have shipped, directly or indirectly, small amounts of toxic waste, such as paint solvents. As of the filing date of this Form 10-K, we have been classified only as a “de minimis” participant in such proceedings. We are not a party to any legal proceedings involving a governmental authority and arising under any federal, state or local provisions that have been enacted or adopted regulating the discharge of materials into the environment or primarily for the purpose of protecting the environment and involving potential monetary sanctions in excess of $300,000, other than described below.
As previously reported under Item 3 of our Annual Report on Form 10-K for the fiscal year ended October 31, 2022, in November 2022, Container Life Cycle Management LLC, our U.S. reconditioning joint venture (“CLCM”), reached agreement
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with the United States Environmental Protection Agency (“U.S. EPA”) and the Wisconsin Department of Natural Resources (“WDNR”) on a proposed consent decree (the “Proposed CLCM Consent Decree”) that would resolve various investigations and proceedings against CLCM with respect to three reconditioning facilities in the Milwaukee, Wisconsin area that are or were owned by CLCM regarding alleged violations of Wisconsin laws related to hazardous waste, air management and industrial storm water. Under the Proposed CLCM Consent Decree, CLCM, without admitting any wrongdoing, agreed to modify certain existing operational practices, install and operate specific environmental controls and pay civil penalties of approximately $1.6 million. On November 30, 2022, the U.S. EPA and the WDNR filed an action in the U.S. District Court, Eastern District of Wisconsin (the “Court”), seeking the Court’s approval of the Proposed CLCM Consent Decree. On July 27, 2023, the Court approved the Proposed CLCM Consent Decree as presented. The civil penalties have been paid by CLCM.
ITEM 4. MINE SAFETY DISCLOSURES
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Shares of our Class A and Class B Common Stock are listed on the New York Stock Exchange under the symbols GEF and GEF.B, respectively.
As of December 12, 2023, there were 312 stockholders of record of the Class A Common Stock and 53 stockholders of record of the Class B Common Stock.
We pay quarterly dividends of varying amounts computed on the basis described in Note 11 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K. The annual dividends paid for the last two years are as follows:
2023 Dividends per Share – Class A $2.02; Class B $3.02
2022 Dividends per Share – Class A $1.88; Class B $2.81
The terms of our current secured credit facilities and United States accounts receivable credit facility limit our ability to make restricted payments, which include dividends and purchases, redemptions and acquisitions of our equity interests. The payment of dividends and other restricted payments are subject to the condition that certain defaults do not exist under the terms of our current secured credit facilities and United States accounts receivable credit facility and, in the event that certain defaults exist, are limited in amount by a formula based, in part, on our consolidated net income. See “Liquidity and Capital Resources – Borrowing Arrangements” in Item 7 of this Form 10-K.
Purchases of Equity Securities by the Issuer
In June 2022, the Stock Repurchase Committee of our Board of Directors authorized a program to repurchase up to $150.0 million of shares of our Class A or Class B Common Stock or any combination thereof. On June 23, 2022, we entered into a $75.0 million accelerated share repurchase agreement (“ASR”) with Bank of America, N.A. for the repurchase of shares of our Class A Common Stock. In addition, at that time we initiated a plan to repurchase an aggregate of $75.0 million of shares of our Class A or Class B Common Stock, or any combination thereof, in open market purchases (“OSR program”).
Under the ASR, on June 24, 2022, we made a payment of $75.0 million and received an initial delivery of approximately 80% of the expected share repurchases, or 1,021,451 shares of Class A Common Stock. On February 28, 2023, we received the remaining 94,259 shares of Class A Common Stock.
We began making repurchases of Class B Common Stock under the OSR program on September 9, 2022 and repurchases of Class A Common Stock under the OSR program on March 16, 2023 in accordance with Rule 10b-18 promulgated under the Securities Exchange Act of 1934. The OSR program was completed on May 26, 2023, with $25.0 million of shares of Class A Common Stock, or 406,343 shares, and $50.0 million of shares of Class B Common Stock, or 676,598 shares, being repurchased under the OSR program.
See Note 11 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for additional information regarding this program and the repurchase of shares of Class A and B Common Stock.
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Performance Graph
The following graph compares the performance of shares of our Class A and B Common Stock to that of the Standard and Poor’s 500 (“S&P 500”) Index and the Dow Jones United States Containers and Packaging Index (“DJUSCP”) assuming $100 invested on October 31, 2018 and reinvestment of dividends for each subsequent year. The graph does not purport to represent our value.
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The terms “Greif,” the “Company,” “we,” “us” and “our” as used in this discussion refer to Greif, Inc. and its subsidiaries.
RESULTS OF OPERATIONS
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). The preparation of these consolidated financial statements, in accordance with these principles, require us to make estimates and assumptions that affect the reported amount of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of our consolidated financial statements.
Historical revenues and earnings may or may not be representative of future operating results due to various economic and other factors. See “Risk Factors” in Item 1A of this Form 10-K.
The non-GAAP financial measures of EBITDA and Adjusted EBITDA are used throughout the following discussion of our results of operations, both for our consolidated and segment results. For our consolidated results, EBITDA is defined as net income, plus interest expense, net, plus debt extinguishment charges, plus income tax expense, plus depreciation, depletion and amortization, and Adjusted EBITDA is defined as EBITDA plus restructuring charges, plus timberland gains, net, plus acquisition and integration related costs, plus non-cash asset impairment charges, plus non-cash pension settlement (income) charges, plus incremental COVID-19 costs, net, plus (gain) loss on disposal of properties, plants, equipment and businesses, net.
Since we do not calculate net income by reportable segment, EBITDA and Adjusted EBITDA by reportable segment are reconciled to operating profit by reportable segment. In that case, EBITDA is defined as operating profit by reportable segment less other (income) expense, net, less non-cash pension settlement (income) charges, less equity earnings of unconsolidated affiliates, net of tax, plus depreciation, depletion and amortization expense for that reportable segment, and Adjusted EBITDA is defined as EBITDA plus restructuring charges, plus timberland gains, net, plus acquisition and integration related costs, plus non-cash asset impairment charges, plus non-cash pension settlement (income) charges, plus incremental COVID-19 costs, net, plus (gain) loss on disposal of properties, plants, equipment and businesses, net, for that reportable segment.
We use EBITDA and Adjusted EBITDA as financial measures to evaluate our historical and ongoing operations and believe that these non-GAAP financial measures are useful to enable investors to perform meaningful comparisons of our historical and current performance. The foregoing non-GAAP financial measures are intended to supplement and should be read together with our financial results. These non-GAAP financial measures should not be considered an alternative or substitute for, and should not be considered superior to, our reported financial results. Accordingly, users of this financial information should not place undue reliance on the non-GAAP financial measures.
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The following table sets forth the net sales, operating profit, EBITDA and Adjusted EBITDA for each of our reportable segments for 2023, 2022 and 2021:
Net sales:
Operating profit:
EBITDA:
Adjusted EBITDA:
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The following table sets forth EBITDA and Adjusted EBITDA, reconciled to net income and operating profit, for our consolidated results for 2023, 2022 and 2021:
Plus: debt extinguishment charges — 25.4 —
Plus: depreciation, depletion and amortization expense 230.6 216.6 234.4
Plus: debt extinguishment charges — 25.4 —
Plus: other expense, net 11.0 8.9 4.8
Plus: non-cash pension settlement charges 3.5 — 9.1
Plus: equity earnings of unconsolidated affiliates, net of tax (2.2) (5.4) (4.2)
Less: other expense, net 11.0 8.9 4.8
Less: non-cash pension settlement charges 3.5 — 9.1
Less: equity earnings of unconsolidated affiliates, net of tax (2.2) (5.4) (4.2)
Plus: depreciation, depletion and amortization expense 230.6 216.6 234.4
Plus: timberland gains, net — — (95.7)
Plus: acquisition and integration related costs 19.0 8.7 9.1
Plus: non-cash asset impairment charges 20.3 71.0 8.9
Plus: non-cash pension settlement charges 3.5 — 9.1
Plus: incremental COVID-19 costs, net — — 3.3
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The following table sets forth EBITDA and Adjusted EBITDA for each of our reportable segments, reconciled to the operating profit for each reportable segment, for 2023, 2022 and 2021:
Global Industrial Packaging
Less: other expense, net 12.6 9.5 4.5
Less: non-cash pension settlement charges 3.5 — 0.3
Less: equity earnings of unconsolidated affiliates, net of tax (2.2) (5.4) (4.2)
Plus: depreciation and amortization expense 95.3 73.9 83.1
Plus: restructuring charges 4.2 9.1 17.1
Plus: acquisition and integration related costs 12.2 0.4 —
Plus: non-cash asset impairment charges 1.9 69.4 2.7
Plus: non-cash pension settlement charges 3.5 — 0.3
Plus: incremental COVID-19 costs, net — — 1.8
Paper Packaging & Services
Less: other (income) expense, net (1.6) (0.6) 0.3
Less: non-cash pension settlement charges — — 8.8
Plus: depreciation and amortization expense 133.1 139.9 148.0
Plus: restructuring charges 14.5 3.9 5.9
Plus: acquisition and integration related costs 6.8 8.3 9.1
Plus: non-cash asset impairment charges 18.4 1.6 5.0
Plus: non-cash pension settlement charges — — 8.8
Plus: incremental COVID-19 costs, net — — 1.5
Land Management
Plus: depreciation and depletion expense 2.2 2.8 3.3
Plus: restructuring charges — — 0.1
Plus: timberland gains, net — — (95.7)
Plus: non-cash asset impairment charges — — 1.2
Adjusted EBITDA $ 8.9 $ 8.8 $ 8.9
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Year 2023 Compared to Year 2022
Net Sales
Net sales were $5,218.6 million for 2023 compared with $6,349.5 million for 2022. The $1,130.9 million decrease was primarily due to lower average selling prices and lower volumes across the Global Industrial Packaging segment and the Paper Packaging & Services segment and the $148.8 million impact to net sales resulting from the sale of our approximately 50% equity interest in the Flexible Products & Services business in the second quarter of 2022 (the “FPS Divestiture”). See the “Segment Review” below for additional information on net sales by reportable segment.
Gross Profit
Gross profit was $1,146.1 million for 2023 compared with $1,285.4 million for 2022. The $139.3 million decrease was primarily due to the same factors that impacted net sales, partially offset by lower raw material, transportation and manufacturing costs. See the “Segment Review” below for additional information on gross profit by reportable segment. Gross profit margin was 22.0 percent for 2023 compared to 20.2 percent for 2022.
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses were $549.1 million for 2023 compared with $581.0 million for 2022. The $31.9 million decrease was primarily due to incentive compensation expense reduction. SG&A expenses were 10.5 percent of net sales for 2023 compared with 9.2 percent of net sales for 2022.
Financial Measures
Operating profit was $605.5 million for 2023 compared with $621.2 million for 2022. Net income was $379.1 million for 2023 compared with $394.0 million for 2022. Adjusted EBITDA was $818.8 million for 2023 compared with $917.5 million for 2022. The reasons for changes in operating profit and Adjusted EBITDA for each reportable segment are described below in the “Segment Review.”
Trends
We anticipate that the lower customer demand patterns that we experienced throughout the 2023 fiscal year will continue into the 2024 fiscal year. Although we have seen some increase in demand for our containerboard products in the U.S. the past two months, we do not see that as an overall inflection point.
We expect the prices for steel, old corrugated containers, resin and other direct materials, as well as prices for transportation, labor and utilities, to remain relatively stable through the year.
We continue to actively monitor the impact and consequences of the Russian invasion of Ukraine. As of October 31, 2023, our operations in Russia account for approximately 4 percent of our net sales, approximately 9 percent of our operating profit and approximately 2 percent of our total assets.
The foregoing discussion of 2024 trends in our businesses does not consider the impact of our proposed acquisition of Ipackchem. See Item 1(g) of this Form 10-K, Recent Events - Proposed Acquisition of Ipackchem, for information concerning this proposed acquisition.
Segment Review
Global Industrial Packaging
Key factors influencing profitability in the Global Industrial Packaging reportable segment are:
•Selling prices, product mix, customer demand and sales volumes;
•Raw material costs, primarily steel, resin, containerboard and used industrial packaging for reconditioning;
•Energy and transportation costs;
•Benefits from executing the Greif Business System;
•Restructuring charges;
•Acquisition of businesses and facilities;
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•Divestiture of businesses and facilities; and
•Impact of foreign currency translation.
Net sales were $2,936.8 million for 2023 compared with $3,652.4 million for 2022. The $715.6 million decrease in net sales was primarily due to lower volumes, lower average selling prices as a result of contractual price adjustment mechanisms, the $148.8 million impact to net sales resulting from the FPS Divestiture and negative foreign currency translation impacts.
Gross profit was $634.4 million for 2023 compared with $692.6 million for 2022. The $58.2 million decrease in gross profit was primarily due to the same factors that impacted net sales, largely offset by lower raw material, transportation and manufacturing costs. Gross profit margin increased to 21.6 percent in 2023 from 19.0 percent in 2022.
Operating profit was $334.3 million for 2023 compared with $313.7 million for 2022. The $20.6 million increase was primarily due to the $62.4 million non-cash impairment charge during the first quarter of 2022 related to the FPS Divestiture, a $9.8 million gain recognized on our previously held minority ownership interest in Centurion and lower SG&A expenses, partially offset by the same factors that impacted gross profit. Adjusted EBITDA was $423.7 million for 2023 compared with $458.2 million for 2022. The $34.5 million decrease was primarily due to the same factors that impacted gross profit, partially offset by lower SG&A expenses.
Paper Packaging & Services
Key factors influencing profitability in the Paper Packaging & Services reportable segment are:
•Selling prices, product mix, customer demand and sales volumes;
•Raw material costs, primarily old corrugated containers;
•Energy and transportation costs;
•Benefits from executing the Greif Business System;
•Restructuring charges;
•Acquisition of businesses and facilities; and
•Divestiture of businesses and facilities.
Net sales were $2,260.5 million for 2023 compared with $2,675.1 million for 2022. The $414.6 million decrease was primarily due to lower volumes and lower average selling prices due to lower published containerboard prices.
Gross profit was $502.5 million for 2023 compared with $584.5 million for 2022. The $82.0 million decrease in gross profit was primarily due to the same factors that impacted net sales, partially offset by lower old corrugated container and other raw material input costs, as well as lower transportation and labor costs. Gross profit margin increased to 22.2 percent in 2023 from 21.8 percent in 2022.
Operating profit was $264.1 million for 2023 compared with $298.5 million for 2022. The $34.4 million decrease in operating profit was primarily due to the same factors that impacted gross profit, partially offset by the $54.3 million gain from the divestiture of Tama Paperboard, LLC in the Paper Packaging & Services segment (the “Tama Divestiture”) during the first quarter of 2023 and lower SG&A expenses. Adjusted EBITDA was $386.2 million for 2023 compared with $450.5 million for 2022. The $64.3 million decrease was primarily due to the same factors that impacted gross profit, partially offset by lower SG&A expenses.
Land Management
As of October 31, 2023, our Land Management reportable segment consisted of approximately 175,000 acres of timber properties in the southeastern United States. Key factors influencing profitability in the Land Management reportable segment are:
•Planned level of timber sales;
•Selling prices and customer demand;
•Gains on timberland sales; and
•Gains on the disposal of development, surplus and HBU properties (“special use property”).
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Net sales were $21.3 million for 2023 compared with $22.0 million for 2022.
Gross profit was $9.2 million for 2023 compared with $8.3 million for 2022.
Operating profit was $7.1 million for 2023 compared with $9.0 million for 2022. Adjusted EBITDA was $8.9 million for 2023 compared with $8.8 million for 2022.
In order to maximize the value of our timber properties, we continue to review our current portfolio and explore the development of certain of these properties. This process has led us to characterize our property as follows:
•Surplus property, meaning land that cannot be efficiently or effectively managed by us, whether due to parcel size, lack of productivity, location, access limitations or for other reasons;
•HBU property, meaning land that in its current state has a higher market value for uses other than growing and selling timber;
•Development property, meaning HBU land that, with additional investment, may have a significantly higher market value than its HBU market value; and
•Core timberland, meaning land that is best suited for growing and selling timber.
We report the sale of core timberland property in timberland gains, the sale of HBU and surplus property in gain on disposal of properties, plants and equipment, net and the sale of timber and development property under net sales and cost of products sold in our interim condensed consolidated statements of income. All HBU and development property, together with surplus property, is used to productively grow and sell timber until the property is sold.
Whether timberland has a higher value for uses other than growing and selling timber is a determination based upon several variables, such as proximity to population centers, anticipated population growth in the area, the topography of the land, aesthetic considerations, including access to lakes or rivers, the condition of the surrounding land, availability of utilities, markets for timber and economic considerations both nationally and locally. Given these considerations, the characterization of land is not a static process, but requires an ongoing review and re-characterization as circumstances change.
As of October 31, 2023, we estimated that there were 18,800 acres in the United States of special use property, which we expect will be available for sale in the next four to six years.
Income Tax Expense
Income tax expense for 2023 was $117.8 million on $494.7 million of pretax income and for 2022 was $137.1 million on $525.7 million of pretax income. The $19.3 million decrease in income tax expense for 2023 was primarily attributable to a decrease in pre-tax earnings in 2023, as well as an increase in tax benefit of $5.4 million related to a net decrease in valuation allowances, including releases of valuation allowances. These reductions to income tax expense were offset by a decrease in tax benefit of uncertain tax position of $6.9 million, primarily driven by lapses in the statute of limitations. Additionally, in 2022 we recognized a net book loss of $58.6 million related to the FPS Divestiture and disposal of other businesses for which limited tax benefits were available.
See Note 8 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for further information.
Year 2022 Compared to Year 2021
Results of our fiscal year 2022 compared to our fiscal year 2021 are included in our Annual Report on Form 10-K for the year ended October 31, 2022, File No. 001-00566 (see Item 7 therein).
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity are operating cash flows and borrowings under our senior secured credit facilities and proceeds from our trade accounts receivable credit facilities. We use these sources to fund our working capital needs, capital expenditures, cash dividends, debt repayment and acquisitions. We anticipate continuing to fund these items in a like manner. We currently expect that operating cash flows, borrowings under our senior secured credit facilities and proceeds from our trade accounts receivable credit facilities will be sufficient to fund our anticipated working capital, capital expenditures, cash dividends, debt repayment, potential acquisitions of businesses and other liquidity needs for at least 12 months.
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Cash Flow
Net cash provided by operating activities $ 649.5 $ 657.5
Net cash used in investing activities (670.2) (28.2)
Net cash provided by (used in) financing activities 69.7 (531.0)
Effects of exchange rates on cash (15.2) (75.8)
Net increase in cash and cash equivalents 33.8 22.5
Cash and cash equivalents at beginning of year 147.1 124.6
Cash and cash equivalents at end of year $ 180.9 $ 147.1
Operating Activities
The $89.7 million decrease in accounts receivable to $659.4 million as of October 31, 2023 from $749.1 million as of October 31, 2022 was primarily due to decreases in net sales.
The $64.7 million decrease in inventories to $338.6 million as of October 31, 2023 from $403.3 million as of October 31, 2022 was primarily due to decreases in raw material prices and decreased purchases, in line with decreased demand.
The $63.5 million decrease in accounts payable to $497.8 million as of October 31, 2023 from $561.3 million as of October 31, 2022 was primarily due to decreased raw material prices and purchases.
Investing Activities
During 2023 and 2022, we invested $213.6 million and $176.3 million, respectively, of cash in capital expenditures. These investments exclude $6.0 million and $6.7 million of cash purchases and investments in timber properties during 2023 and 2022, respectively.
During 2023, we paid $542.4 million for purchases of businesses, net of cash acquired, primarily for the acquisition of Lee Container Corporate, Inc. (“Lee Container”) on December 15, 2022 (the “Lee Container Acquisition”), the acquisition from approximately 10% to 80% of our ownership interest in Centurion Container LLC (“Centurion”) on March 31, 2023 (the “Centurion Acquisition”), the acquisition of a 51% ownership interest in ColePak, LLC (“ColePak”) on August 23, 2023 (the “ColePak Acquisition”), and the acquisition of Reliance Products, Ltd. (“Reliance”) on October 1, 2023 (the “Reliance Acquisition”).
During 2023, we received $105.3 million of cash from sale of businesses, primarily from the Tama Divestiture. During 2022, we received $139.2 million of cash from sale of businesses, primarily from the FPS Divestiture.
Financing Activities
We paid cash dividends to stockholders of Greif, Inc. in the amount of $116.5 million and $111.3 million for the years ended October 31, 2023 and 2022, respectively. We paid dividends to non-controlling interests in the amount of $14.2 million and $17.2 million for the years ended October 31, 2023 and 2022, respectively.
During 2023, we borrowed $257.0 million of long-term debt, net of proceeds. During 2022, we paid down $189.4 million of long-term debt, net of proceeds and we paid $20.8 million of debt extinguishment charges and debt issuance costs related to our debt refinancing.
During 2023, we paid $63.9 million for the Stock Repurchase Program, as further defined below in Other Liquidity Considerations. During 2022, we paid $86.1 million for the Stock Repurchase Program.
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Financial Obligations
Borrowing Arrangements
Long-term debt is summarized as follows:
2023 Credit Agreement - Term Loans 296.3 —
Accounts receivable credit facilities 351.0 311.4
2022 Credit Agreement - Revolving Credit Facility 77.3 41.9
Other debt — 0.4
Less deferred financing costs 8.7 8.3
2022 Credit Agreement
We and certain of our subsidiaries are parties to a senior secured credit agreement (the “2022 Credit Agreement”) with a syndicate of financial institutions.
The 2022 Credit Agreement provides for (a) an $800.0 million secured revolving credit facility, consisting of a $725.0 million multicurrency facility and a $75.0 million U.S. dollar facility, maturing on March 1, 2027, (b) a $1,100.0 million secured term loan A-1 facility with quarterly principal installments commencing on July 31, 2022 and continuing through January 31, 2027, with any outstanding principal balance of such term loan A-1 facility being due and payable on maturity on March 1, 2027 and (c) a $515.0 million secured term loan A-2 facility with quarterly principal installments commencing on July 31, 2022 and continuing through January 31, 2027, with any outstanding principal balance of such term loan A-2 being due and payable on maturity on March 1, 2027.
Interest is based on Secured Overnight Financing Rate (“SOFR”) plus a credit spread adjustment or a base rate that resets periodically plus, in each case, a calculated margin amount that is based on our leverage ratio. Subject to the terms of the 2022 Credit Agreement, we have an option to add borrowings to the 2022 Credit Agreement with the agreement of the lenders. As of October 31, 2023, we had $722.7 million of available borrowing capacity under the $800.0 million secured revolving credit facility.
The repayment of all borrowings under the 2022 Credit Agreement is secured by a security interest in our personal property and the personal property of certain of our U.S. subsidiaries, including equipment and inventory and certain intangible assets, as well as a pledge of the capital stock of substantially all of our U.S. subsidiaries, and is secured, in part, by the capital stock of the non-U.S. borrowers. However, in the event that we receive and maintain an investment grade rating from either Moody’s Investors Services, Inc. or Standard & Poor’s Financial Services LLC, we may request the release of such collateral.
The 2022 Credit Agreement contains certain covenants, which include financial covenants that require us to maintain a certain leverage ratio and an interest coverage ratio. The leverage ratio generally requires that at the end of any fiscal quarter we will not permit the ratio of (a) our total consolidated indebtedness (less the aggregate amount of our unrestricted cash and cash equivalents), to (b) our consolidated net income plus depreciation, depletion and amortization, interest expense (including capitalized interest), income taxes, and minus certain extraordinary gains and non-recurring gains (or plus certain extraordinary losses and non-recurring losses) and plus or minus certain other items for the preceding twelve months (as used in this paragraph only “EBITDA”) to be greater than 4.00 to 1.00; provided that such leverage ratio is subject to (i) a covenant step-up (as defined in the 2022 Credit Agreement) increase adjustment of 0.50 upon the consummation of, and the following three fiscal quarters after, certain specified acquisitions, and (ii) a collateral release decrease adjustment of 0.25x during any collateral release period (as defined in the 2022 Credit Agreement). The interest coverage ratio generally requires that at the end of any fiscal quarter we will not permit the ratio of (a) our consolidated EBITDA, to (b) our consolidated interest expense to the extent paid or payable, to be less than 3.00 to 1.00, during the applicable preceding twelve month period. As of October 31, 2023, we were in compliance with the covenants and other agreements in the 2022 Credit Agreement.
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2023 Credit Agreement
On May 17, 2023, we and Greif Packaging LLC, a direct wholly owned subsidiary of Greif, Inc. entered into a $300.0 million senior secured credit agreement (the “2023 Credit Agreement”) with CoBank, ACB (“CoBank”), who acted as lender and is acting as administrative agent of the 2023 Credit Agreement. The 2023 Credit Agreement is permitted incremental equivalent debt under the terms of the 2022 Credit Agreement. The 2023 Credit Agreement provides for a $300.0 million secured term loan facility with quarterly principal installments commencing on July 31, 2023 and continuing through January 31, 2028, with any outstanding principal balance of such term loan being due and payable on maturity on May 17, 2028. We used the borrowing under the 2023 Credit Agreement to repay and refinance a portion of the outstanding borrowings under the 2022 Credit Agreement. Interest accruing under the 2023 Credit Agreement is based on SOFR plus a credit spread adjustment or a base rate that resets periodically plus, in each case, a calculated margin amount that is based on our leverage ratio.
The repayment of all borrowings under the 2023 Credit Agreement is secured by a security interest in certain of our personal property and certain of the personal property of certain of our U.S. subsidiaries, including equipment and inventory and certain intangible assets, as well as a pledge of the capital stock of substantially all of our U.S. subsidiaries. However, in the event that we receive and maintain an investment grade rating from either Moody’s Investors Services, Inc. or Standard & Poor’s Financial Services LLC, we may request the release of such collateral. Our obligations under the 2023 Credit Agreement are secured on a pari passu basis with the obligations arising under the 2022 Credit Agreement.
The 2023 Credit Agreement contains covenants, including financial covenants, substantially the same as the covenants in 2022 Credit Agreement, as described above, and a “most favored lender” provision related to the 2022 Credit Agreement. As of October 31, 2023, we were in compliance with the covenants and other agreements in the 2023 Credit Agreement.
United States Trade Accounts Receivable Credit Facility
We have a $300.0 million U.S. Receivables Financing Facility Agreement (the “U.S. RFA”) that matures on May 17, 2024. As of October 31, 2023, there was a $270.9 million outstanding balance under the U.S. RFA that is reported as long-term debt in the consolidated balance sheets because we intend to refinance these obligations on a long-term basis and have the intent and ability to consummate a long-term refinancing by renewing the existing agreement or entering into new financing arrangements. The U.S. RFA also contains events of default and covenants that are substantially the same as the covenants under the 2022 Credit Agreement. As of October 31, 2023, we were in compliance with these covenants. Proceeds of the U.S. RFA are available for working capital and general corporate purposes.
International Trade Accounts Receivable Credit Facilities
We have a €100.0 million ($105.7 million as of October 31, 2023) European Receivables Financing Agreement (the “European RFA”) that matures on April 24, 2024. As of October 31, 2023, there was a $80.1 million outstanding balance on the European RFA that is reported as long-term debt in the consolidated balance sheets because we intend to refinance these obligations on a long-term basis and have the intent and ability to consummate a long-term refinancing by renewing the existing agreement or entering into new financing arrangements. As of October 31, 2023, we were in compliance with the covenants that relate to the European RFA. Proceeds of the European RFA are available for working capital and general corporate purposes.
See Note 5 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for additional information regarding our financial obligations.
Financial Instruments
Interest Rate Derivatives
As of October 31, 2023, we have various interest rate swaps with a total notional amount of $1,300.0 million, amortizing down over the term, in which we receive variable interest rate payments based on SOFR and in return are obligated to pay interest at a weighted average fixed interest rate of 2.62%. These derivatives are designated as cash flow hedges for accounting purposes and will mature between March 11, 2024 and July 16, 2029.
We are actively monitoring the interest rate market and may execute new interest rate swaps as appropriate. Subsequent to October 31, 2023, we entered into additional interest rate swaps with a total notional amount of $250.0 million maturing November 3, 2028, in which we receive variable rate interest payments based on SOFR and in return are obligated to pay interest at a weighted average fixed interest rate of 4.20%.
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Accordingly, the gain or loss on these derivative instruments are reported as a component of other comprehensive income and reclassified into earnings in the same line item associated with the forecasted transactions and in the same period during which the hedged transaction affects earnings.
Foreign Exchange Hedges
We conduct business in international currencies and are subject to risks associated with changing foreign exchange rates. Our objective is to reduce volatility associated with foreign exchange rate changes to allow management to focus its attention on business operations. Accordingly, we enter into various contracts that change in value as foreign exchange rates change to protect the value of certain existing foreign currency assets and liabilities, commitments and anticipated foreign currency cash flows.
As of October 31, 2023 and 2022, we had outstanding foreign currency forward contracts in the notional amount of $66.0 million and $132.1 million, respectively.
We are actively monitoring the foreign exchange hedges market and may execute new foreign currency forward contracts as appropriate. Subsequent to October 31, 2023, we entered into additional foreign currency forward contract in the notional amount of $268.0 million maturing February 29, 2024.
Cross Currency Swaps
We have operations and investments in various international locations and are subject to risks associated with changing foreign exchange rates. We have cross currency interest rate swaps that synthetically swap $319.3 million of fixed rate debt to Euro denominated fixed rate debt. We receive a weighted average rate of 1.39%. These agreements are designated as either net investment hedges or cash flow hedges for accounting purposes and will mature between March 2, 2024 and October 5, 2026.
We are actively monitoring the cross currency interest rate swap market and may execute new cross currency interest rate swaps as appropriate. Subsequent to October 31, 2023, we entered into additional cross currency interest rate swaps that synthetically swap $213.2 million of fixed rate debt to Euro denominated fixed rate debt maturing November 3, 2028. We receive a weighted average rate of 1.31% on these swaps.
Accordingly, the gain or loss on the net investment hedge derivative instruments is included in the foreign currency translation component of other comprehensive income until the net investment is sold, diluted or liquidated. The gain or loss on the cash flow hedge derivative instruments is included in the unrealized foreign exchange component of other expense, offset by the underlying gain or loss on the underlying cash flows that are being hedged. Interest payments received from the cross currency swap are excluded from the net investment hedge effectiveness assessment and are recorded in interest expense, net on the consolidated statements of income.
See Note 6 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for additional disclosures regarding our financial instruments.
Other Liquidity Considerations
Post-Retirement Benefit Plans
We have no near-term post-retirement benefit plan funding obligations. We intend to make a post-retirement benefit plan contribution of $21.9 million during 2024, which we anticipate will consist of $16.2 million of employer contributions and $5.7 million of benefits paid directly by the employer. See Note 9 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for additional information regarding our post-retirement benefit plans.
Contingent Liabilities and Environmental Reserves
Environmental reserves are estimates based on current remediation plans, and actual liabilities could significantly differ from the reserve estimates. See Note 10 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for additional information regarding our contingent liabilities and environmental reserves.
Stock Repurchase Program
In June 2022, the Stock Repurchase Committee of our Board of Directors authorized a program to repurchase up to $150.0 million of shares of our Class A or Class B Common Stock or any combination thereof. On June 23, 2022, we entered into a $75.0 million accelerated share repurchase agreement (“ASR”) with Bank of America, N.A. for the repurchase of shares
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of our Class A Common Stock. In addition, at that time we initiated a plan to repurchase an aggregate of $75.0 million of shares of our Class A or Class B Common Stock, or any combination thereof, in open market purchases (“OSR program”) (collectively, the “Stock Repurchase Program”).
Under the ASR, on June 24, 2022, we made a payment of $75.0 million and received an initial delivery of approximately 80% of the expected share repurchases, or 1,021,451 shares of Class A Common Stock. On February 28, 2023, we received the remaining 94,259 shares of Class A Common Stock.
We began making repurchases of Class B Common Stock under the OSR program on September 9, 2022 and repurchases of Class A Common Stock under the OSR program on March 16, 2023 in accordance with Rule 10b-18 promulgated under the Securities Exchange Act of 1934. The OSR program was completed on May 26, 2023, with $25.0 million of shares of Class A Common Stock, or 406,343 shares, and $50.0 million of shares of Class B Common Stock, or 676,598 shares, being repurchased under the OSR program.
See Note 11 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for additional information regarding this program and the repurchase of shares of Class A and B Common Stock.
Critical Accounting Policies
A summary of our significant accounting policies is included in Note 1 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K. We believe that the consistent application of these policies enables us to provide readers of the consolidated financial statements with useful and reliable information about our results of operations and financial condition. The following are the accounting policies that we believe are most important to the portrayal of our results of operations and financial condition and require our most difficult, subjective or complex judgments.
Other items that could have a significant impact on the financial statements include the risks and uncertainties listed in Part I, Item 1A – Risk Factors. Actual results could differ materially using different estimates and assumptions, or if conditions are significantly different in the future.
Business Combinations
Under the acquisition method of accounting, we allocate the fair value of purchase consideration transferred to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values on the date of the acquisition. The fair values assigned, defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants, are based on estimates and assumptions determined by management. The excess purchase consideration over the aggregate fair value of tangible and intangible assets, net of liabilities assumed, is recorded as goodwill. When determining the fair value of assets acquired and liabilities assumed, we make significant estimates and assumptions, especially with respect to intangible assets. Our estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, not to exceed one year from the date of acquisition, we may record adjustments to the assets acquired and liabilities assumed, with a corresponding offset to goodwill if new information is obtained related to facts and circumstances that existed as of the acquisition date. After the measurement period, any subsequent adjustments are reflected in the consolidated statements of operations. Acquisition costs, such as legal and consulting fees, are expensed as incurred. See Note 2 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for additional information regarding our acquisitions.
Valuation of Goodwill
We account for goodwill in accordance with ASC 350, “Intangibles – Goodwill and Other.” Under ASC 350, goodwill is not amortized, but instead is tested for impairment either annually on August 1 or when events and circumstances indicate an impairment may have occurred. Our goodwill impairment assessment is performed by reporting unit. A reporting unit is the operating segment, or a business one level below that operating segment (the component level) if discrete financial information is prepared and regularly reviewed by segment management. However, components are aggregated as a single reporting unit if they have similar economic characteristics. In conducting the annual impairment tests, the estimated fair value of each of our reporting units is compared to its carrying amount including goodwill. If the estimated fair value exceeds the carrying amount, then no impairment exists. If the carrying amount exceeds the estimated fair value, we record an impairment of goodwill equal to the amount by which the carrying value exceeds the fair value of the reporting unit, not to exceed the recorded amount of goodwill.
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The Global Industrial Packaging reportable segment consists of four operating segments: Global Industrial Packaging – North America; Global Industrial Packaging – Latin America; Global Industrial Packaging – Europe, Middle East and Africa; Global Industrial Packaging – Asia Pacific. Each of these operating segments also qualify as a component that has discrete financial information available that is reviewed by segment management on a regular basis. As such, these components also represent our reporting units for purposes of goodwill impairment testing.
The Paper Packaging & Services reportable segment is also an operating segment. This operating segment consists of multiple components that have discrete financial information available that is reviewed by segment management on a regular basis. We have evaluated those components and concluded that they are economically similar and should be aggregated into single reporting unit. For the purpose of aggregating our components, we review the long-term performance of gross profit margin and operating profit margin. Additionally, we review qualitative factors such as common customers, similar products, similar manufacturing processes, sharing of resources, level of integration and interdependency of processes across components. We place greater weight on the qualitative factors outlined in ASC 280 “Segment Reporting” and consider the guidance in ASC 350 in determining whether two or more components of an operating segment are economically similar and can be aggregated into a single reporting unit.
The estimated fair value of the reporting units utilized in the impairment test is based on a discounted cash flow analysis or income approach and market multiple approach. Under this method, the principal valuation focus is on the reporting unit’s cash-generating capabilities. The discount rates used for impairment testing are based on a market participant’s weighted average cost of capital. The use of alternative estimates, peer groups or changes in the industry, or adjusting the discount rate, earnings before interest, taxes, depreciation, depletion and amortization, multiples or price earnings ratios used could affect the estimated fair value of the assets and potentially result in impairment. Any identified impairment would result in an adjustment to our results of operations.
In performing the test, we first evaluate qualitative factors, such as macroeconomic conditions and our overall financial performance to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. We then evaluate how significant each of the identified factors could be to the fair value or carrying amount of a reporting unit and weigh those factors in totality in forming a conclusion of whether or not it is more likely than not that the fair value of a reporting unit is less than its carrying amount (the Step 0 Test). If necessary, the next step in the goodwill impairment test involves comparing the fair value of each of the reporting units to the carrying value of those reporting units. If the carrying value of a reporting unit exceeds the fair value of the reporting unit, an impairment loss would be recognized (not to exceed the carrying amount of goodwill). We did not utilize any Step 0 tests in 2023.
For all reporting units with goodwill balances, we proceeded directly to the quantitative impairment testing and the fair value exceeded carrying value by at least 31%, so no impairment was deemed to exist. Net sales, gross profit margin and operating expense forecasts, as well as the selection of discount rates, are the assumptions that are most sensitive and susceptible to change as they require significant management judgment. In addition, certain future events and circumstances, including deterioration of market conditions, higher cost of capital, a decline in actual and expected consumption and demand, could result in changes to those assumptions and judgments. A revision of those assumptions could cause the fair value of the reporting unit to fall below its respective carrying value. If in future years, our reporting units’ actual results are not consistent with our estimates and assumptions used to calculate fair value, we may be required to recognize material impairments to goodwill.
The following table summarizes the carrying amount of goodwill by reporting unit for the year ended October 31, 2023 and 2022:
Goodwill Balance
Global Industrial Packaging
Europe, Middle East and Africa 330.0 315.4
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Recent Accounting Standards
See Note 1 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for a detailed description of recently issued and newly adopted accounting standards.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
We are subject to interest rate risk related to our financial instruments that include borrowings under the 2022 Credit Agreement, the 2023 Credit Agreement and proceeds from U.S. RFA and the European RFA and cross currency and interest rate swap agreements. We do not enter into financial instruments for trading or speculative purposes. The interest rate swap agreements have been entered into to manage our exposure to variability in interest rates.
We have various interest rate swaps with a total notional amount of $1,300.0 million, maturing between March 11, 2024 and July 16, 2029. We receive variable interest rate payments based upon one-month U.S. dollar SOFR, and in return are obligated to pay interest at a weighted average fixed interest rate of 2.62%, plus a spread.
Gains (losses) reclassified to earnings under these interest rate swaps were recorded in the amount of $28.5 million, $(8.4) million and $(18.1) million for the years ended October 31, 2023, 2022 and 2021, respectively.
We have various cross currency interest rate swaps that synthetically swap $319.3 million of fixed rate debt to Euro denominated fixed rate debt. We receive a weighted average rate of 1.39%. These agreements are designated as either net investment hedges or cash flow hedges for accounting purposes and will mature between March 2, 2024 and October 5, 2026.
The gain or loss on the net investment hedge derivative instruments is included in the foreign currency translation component of other comprehensive income until the net investment is sold, diluted, or liquidated. The gain or loss on the cash flow hedge derivative instruments is included in the unrealized foreign exchange component of other expense, offset by the underlying gain or loss on the underlying cash flows that are being hedged. Interest payments received from the cross currency swap are excluded from the net investment hedge effectiveness assessment and are recorded in interest expense, net on the consolidated statements of income.
Gains on the cross currency swap agreement was recorded in interest expense for the amount of $5.1 million, $5.8 million and $2.2 million for the years ended October 31, 2023, 2022 and 2021, respectively.
Currency Risk
As a result of our international operations, our operating results are subject to fluctuations in currency exchange rates. The geographic presence of our operations mitigates this exposure to some degree. Additionally, our transaction exposure is somewhat limited because we produce and sell a majority of our products in local currency within most countries in which we operate.
As of October 31, 2023 and 2022 we had outstanding foreign currency forward contracts in the notional amount of $66.0 million and $132.1 million, respectively. The purpose of these contracts is to hedge our exposure to foreign currency transactions and short-term intercompany loan balances in our international businesses. These contracts resulted in realized gains (losses) recorded in other expense, net of $1.2 million, $(6.2) million and $0.4 million for the years ended October 31, 2023, 2022 and 2021, respectively.
A sensitivity analysis (with respect only to these instruments) to changes in the foreign currencies hedged indicates that if the U.S. dollar strengthened by 10 percent, the fair value of these instruments would increase by $0.5 million to a net asset of $0.5 million. Conversely, if the U.S. dollar weakened by 10 percent, the fair value of these instruments would decrease by $0.4 million to a net liability of $0.4 million.
Commodity Price Risk
We purchase commodities such as steel, resin, containerboard, pulpwood and energy. We do not currently engage in material hedging of these commodities.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
GREIF, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
Year Ended October 31, (in millions, except per share amounts) 2023 2022 2021
Selling, general and administrative expenses 549.1 581.0 565.9
Acquisition and integration related costs 19.0 8.7 9.1
Timberland gains, net — — (95.7)
Non-cash asset impairment charges 20.3 71.0 8.9
Gain on disposal of properties, plants and equipment, net (2.5) (8.1) (3.7)
(Gain) Loss on disposal of businesses, net (64.0) (1.4) 0.2
Non-cash pension settlement charges 3.5 — 9.1
Debt extinguishment charges — 25.4 —
Equity earnings of unconsolidated affiliates, net of tax (2.2) (5.4) (4.2)
Net income attributable to noncontrolling interests (19.9) (17.3) (22.5)
Net income attributable to Greif, Inc. $ 359.2 $ 376.7 $ 390.7
Basic earnings per share attributable to Greif, Inc. common shareholders:
Diluted earnings per share attributed to Greif, Inc. common shareholders:
See accompanying Notes to Consolidated Financial Statements.
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GREIF, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Other comprehensive income (loss), net of tax:
Foreign currency translation* (1.1) (27.9) (1.6)
Derivative financial instruments (1.1) 76.4 21.1
Minimum pension liabilities (11.9) (1.1) 50.4
Other comprehensive (loss) income, net of tax (14.1) 47.4 69.9
Comprehensive income attributable to noncontrolling interests 20.0 10.5 21.4
Comprehensive income attributable to Greif, Inc. $ 345.0 $ 430.9 $ 461.7
*Year ended October 31, 2022 amount includes $113.1 million release of foreign currency translation from business divestment.
See accompanying Notes to Consolidated Financial Statements.
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GREIF, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
ASSETS
Current assets
Cash and cash equivalents $ 180.9 $ 147.1
Trade accounts receivable, net of allowance 659.4 749.1
Inventories:
Assets held for sale 5.0 1.3
Long-term assets
Other intangible assets, net of amortization 792.2 576.2
Finance lease assets 30.5 1.2
Properties, plants and equipment
Timber properties, net of depletion 229.6 226.8
See accompanying Notes to Consolidated Financial Statements.
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GREIF, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accrued payroll and employee benefits 137.7 174.4
Restructuring reserves 16.8 12.3
Current portion of long-term debt 88.3 71.1
Short-term borrowings 5.4 5.7
Current portion of operating lease liabilities 53.8 48.9
Current portion of finance lease liabilities 3.4 0.9
Long-term liabilities
Finance lease liabilities 27.9 0.2
Post-retirement benefit obligations 6.2 7.2
Contingent liabilities and environmental reserves 17.3 19.0
Long-term income tax payable 21.2 25.6
Other long-term liabilities 93.8 109.6
Commitments and Contingencies (Note 10)
Redeemable Noncontrolling Interests (Note 15) 125.3 15.8
Equity
Common stock, without par value 208.4 173.5
Accumulated other comprehensive income (loss), net of tax:
Foreign currency translation (317.7) (316.5)
Derivative financial instruments 71.7 72.8
Minimum pension liabilities (70.5) (58.6)
Total Greif, Inc. shareholders’ equity 1,947.9 1,761.3
Noncontrolling interests 38.4 33.0
Total liabilities and shareholders’ equity $ 5,960.8 $ 5,469.9
See accompanying Notes to Consolidated Financial Statements.
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GREIF, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Timberland gains, net — — (95.7)
Non-cash asset impairment charges 20.3 71.0 8.9
Non-cash pension settlement charges 3.5 — 9.1
Gain on disposals of properties, plants and equipment, net (2.5) (8.1) (3.7)
(Gain) loss on disposals of businesses, net (64.0) (1.4) 0.2
Unrealized foreign exchange loss (gain) 12.7 (1.6) 1.0
Deferred income tax (benefit) expense (28.7) 13.4 (47.2)
Debt extinguishment charges — 22.6 —
Restructuring reserves 4.4 (6.6) (1.4)
Pension and post-retirement benefit liabilities (26.9) (24.7) (11.5)
Cash flows from investing activities:
Acquisitions of companies, net of cash acquired (542.4) — —
Purchases of properties, plants and equipment (213.6) (176.3) (140.7)
Purchases of and investments in timber properties (6.0) (6.7) (6.6)
Proceeds from the sale of businesses 105.3 139.2 2.7
Proceeds on timberlands — — 145.1
Payments for deferred purchase price of acquisitions (22.1) (4.7) (3.7)
Collections on receivables held in special purpose entities — — 50.9
Payments for issuance of loans receivable — — (15.0)
Other — — (2.1)
Net cash (used in) provided by investing activities (670.2) (28.2) 46.8
Cash flows from financing activities:
(Payments on) proceeds from short-term borrowings, net (0.7) (36.3) 21.1
Proceeds from trade accounts receivable credit facility 180.2 301.9 106.0
Payments on trade accounts receivable credit facility (145.8) (365.3) (23.1)
Payments for liabilities held in special purpose entities — — (43.3)
Dividends paid to Greif, Inc. shareholders (116.5) (111.3) (105.8)
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Dividends paid to noncontrolling interests (14.2) (17.2) (7.8)
Payments for debt extinguishment and issuance costs — (20.8) —
Payments for share repurchases (63.9) (71.1) —
Forward contract for accelerated share repurchases — (15.0) —
Tax withholding payments for stock-based awards (13.7) — —
Other, net (5.4) — —
Net cash provided by (used in) financing activities 69.7 (531.0) (422.9)
Reclassification of cash to assets held for sale — — 0.5
Effects of exchange rates on cash (15.2) (75.8) (1.7)
Net increase in cash and cash equivalents 33.8 22.5 18.7
Cash and cash equivalents at beginning of year 147.1 124.6 105.9
Cash and cash equivalents at end of year $ 180.9 $ 147.1 $ 124.6
Supplemental information:
Non-cash transactions:
Capital expenditures included in accounts payable $ 29.1 $ 24.4 $ 38.7
Schedule of interest and income taxes paid:
Cash payments for interest expense $ 112.9 $ 70.3 $ 104.5
See accompanying Notes to Consolidated Financial Statements.
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GREIF, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Shares Amount Shares Amount
Other comprehensive income (loss):
Foreign currency translation (0.5) (0.5) (1.1) (1.6)
Derivative financial instruments, net of $7.0 million tax expense 21.1 21.1 21.1
Net income allocated to redeemable noncontrolling interests (2.4) (2.4)
Dividends paid to noncontrolling interests and other (6.2) (6.2)
Dividends earned on RSU shares (0.6) (0.6) (0.6)
Shared based compensation — 3.9 — — 3.9 3.9
Restricted stock, executive 3 0.1 (3) — 0.1 0.1
Other comprehensive income (loss):
Divestment of noncontrolling interest — (23.3) (23.3)
Net income allocated to redeemable noncontrolling interests (0.1) (0.1)
Dividends paid to noncontrolling interests and other (15.4) (15.4)
Dividends earned on RSU shares (1.3) (1.3) (1.3)
Shared based compensation — 4.9 — — 4.9 4.9
Restricted stock, executive 3 0.1 (3) — 0.1 0.1
Other comprehensive income (loss):
Foreign currency translation (1.2) (1.2) 0.1 (1.1)
Net income allocated to redeemable noncontrolling interests (2.7) (2.7)
Dividends paid to noncontrolling interests and other (11.9) (11.9)
Dividends earned on RSU shares (0.1) (0.1) (0.1)
Colleague stock purchase plan — 0.3 — — 0.3 0.3
Share based compensation — 4.2 — — 4.2 4.2
See accompanying Notes to Consolidated Financial Statements.
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GREIF, INC. AND SUBSIDIARY COMPANIES
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, jerrycans and other small plastics, closure systems for industrial packaging products, transit protection products, water bottles and remanufactured and reconditioned industrial containers, and services, such as container life cycle management, filling, logistics, warehousing and other packaging services. The Company produces and sells containerboard, corrugated sheets, corrugated containers and other corrugated products to customers in North America in industries such as packaging, automotive, food and building products. The Company also produces and sells coated recycled paperboard and uncoated recycled paperboard, some of which are used to produce and sell industrial products (tubes and cores, construction products and protective packaging). The Company produces and sells bulk and specialty partitions made from both containerboard and uncoated recycled paperboard. In addition, the Company also purchases and sells recycled fiber and produces and sells adhesives used in the Company’s paperboard products. The Company owns timber properties in the southeastern United States which are actively harvested and regenerated. The Company has operations in over 35 countries.
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, agriculture, pharmaceuticals, minerals, 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 12,000 full time employees of the Company as of October 31, 2023.
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 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 years or to any quarter of those years, relates to the fiscal year or quarter, as the case may be, ended in that year, unless otherwise stated.
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. Though actual amounts could significantly or materially differ from estimates, the most significant estimates are related to:
•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;
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•Income taxes;
•Net assets held for sale; and
•Contingencies.
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.