GREIF, INC, 10-Q filed on 2/28/2020
Quarterly Report
v3.19.3.a.u2
Cover Page - shares
3 Months Ended
Jan. 31, 2020
Feb. 24, 2020
Document Information [Line Items]    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Jan. 31, 2020  
Document Transition Report false  
Entity File Number 001-00566  
Amendment Flag false  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q1  
Entity Central Index Key 0000043920  
Current Fiscal Year End Date --10-31  
Entity Registrant Name GREIF, INC  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 31-4388903  
Entity Address, Address Line One 425 Winter Road  
Entity Address, City or Town Delaware  
Entity Address, State or Province OH  
Entity Address, Postal Zip Code 43015  
City Area Code 740  
Local Phone Number 549-6000  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Class A Common Stock    
Document Information [Line Items]    
Title of 12(b) Security Class A Common Stock  
Trading Symbol GEF  
Security Exchange Name NYSE  
Entity Common Stock, Shares Outstanding   26,260,943
Class B Common Stock    
Document Information [Line Items]    
Title of 12(b) Security Class B Common Stock  
Trading Symbol GEF-B  
Security Exchange Name NYSE  
Entity Common Stock, Shares Outstanding   22,007,725
v3.19.3.a.u2
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) - USD ($)
$ in Millions
3 Months Ended
Jan. 31, 2020
Jan. 31, 2019
Net sales $ 1,112.4 $ 897.0
Cost of products sold 889.8 724.2
Gross profit 222.6 172.8
Selling, general and administrative expenses 135.4 98.1
Restructuring charges 3.3 3.7
Acquisition and integration related costs 5.1 2.6
Non-cash asset impairment charges 0.1 2.1
Gain on disposal of properties, plants and equipment, net (0.5) (0.9)
Operating profit 79.2 67.2
Interest expense, net 30.7 11.7
Non-cash pension settlement income (0.1) 0.0
Other (income) expense, net 1.3 (0.2)
Income before income tax expense and equity earnings of unconsolidated affiliates, net 47.3 55.7
Income tax expense 11.4 20.0
Equity earnings of unconsolidated affiliates, net of tax (0.2) (0.1)
Net income 36.1 35.8
Net income attributable to noncontrolling interests (3.8) (6.1)
Net income attributable to Greif, Inc. $ 32.3 $ 29.7
Class A Common Stock    
Basic earnings per share attributable to Greif, Inc. common shareholders:    
Basic earnings per share attributable to Greif, Inc. common shareholders (usd per share) $ 0.55 $ 0.51
Diluted earnings per share attributable to Greif, Inc. common shareholders:    
Diluted earnings per share attributable to Greif, Inc. common shareholders (usd per share) $ 0.55 $ 0.51
Weighted-average number of common shares outstanding:    
Weighted-average number of common shares outstanding, basic (shares) 26,260,943 25,991,433
Weighted-average number of common shares outstanding, diluted (shares) 26,414,280 25,991,433
Cash dividends declared per common share:    
Cash dividends declared per common share (usd per share) $ 0.44 $ 0.44
Class B Common Stock    
Basic earnings per share attributable to Greif, Inc. common shareholders:    
Basic earnings per share attributable to Greif, Inc. common shareholders (usd per share) 0.81 0.75
Diluted earnings per share attributable to Greif, Inc. common shareholders:    
Diluted earnings per share attributable to Greif, Inc. common shareholders (usd per share) $ 0.81 $ 0.75
Weighted-average number of common shares outstanding:    
Weighted-average number of common shares outstanding, basic (shares) 22,000,000.0 22,000,000.0
Weighted-average number of common shares outstanding, diluted (shares) 22,000,000.0 22,000,000.0
Cash dividends declared per common share:    
Cash dividends declared per common share (usd per share) $ 0.65 $ 0.65
v3.19.3.a.u2
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) - USD ($)
$ in Millions
3 Months Ended
Jan. 31, 2020
Jan. 31, 2019
Statement of Comprehensive Income [Abstract]    
Net income $ 36.1 $ 35.8
Other comprehensive income (loss), net of tax:    
Foreign currency translation (3.1) 5.2
Derivative financial instruments, net of immaterial income tax expense 0.2 (5.7)
Minimum pension liabilities 21.7 (0.8)
Other comprehensive income (loss), net of tax 18.8 (1.3)
Comprehensive income 54.9 34.5
Comprehensive income attributable to noncontrolling interests 1.8 7.1
Comprehensive income attributable to Greif, Inc. $ 53.1 $ 27.4
v3.19.3.a.u2
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) - USD ($)
$ in Millions
Jan. 31, 2020
Oct. 31, 2019
Current assets    
Cash and cash equivalents $ 90.8 $ 77.3
Trade accounts receivable, less allowance of $7.3 in 2020 and $6.8 in 2019 641.7 664.2
Inventories:    
Raw materials 248.7 238.4
Work-in-process 10.5 11.3
Finished goods 111.7 108.5
Assets held for sale 4.6 4.1
Assets held by special purpose entities 50.9 0.0
Prepaid expenses 54.8 44.0
Other current assets 93.9 101.2
Total current assets 1,307.6 1,249.0
Long-term assets    
Goodwill 1,522.1 1,517.8
Other intangible assets, net of amortization 758.9 776.5
Deferred tax assets 14.9 15.9
Assets held by special purpose entities 0.0 50.9
Pension asset 36.4 35.4
Operating lease assets 327.2 0.0
Other long-term assets 89.6 90.9
Total long term assets, excluding properties, plants and equipment 2,749.1 2,487.4
Properties, plants and equipment    
Timber properties, net of depletion 272.7 272.4
Land 177.0 178.0
Buildings 528.2 531.0
Machinery and equipment 1,877.3 1,866.2
Capital projects in progress 174.4 170.4
Properties, plants and equipment, gross 3,029.6 3,018.0
Accumulated depreciation (1,364.8) (1,327.7)
Properties, plants and equipment, net 1,664.8 1,690.3
Total assets 5,721.5 5,426.7
Current liabilities    
Accounts payable 389.8 435.2
Accrued payroll and employee benefits 100.6 142.4
Restructuring reserves 9.8 11.3
Current portion of long-term debt 83.8 83.7
Short-term borrowings 5.3 9.2
Liabilities held by special purpose entities 43.3 0.0
Current portion of operating lease liabilities 60.3 0.0
Other current liabilities 131.3 143.6
Total current liabilities 824.2 825.4
Long-term liabilities    
Long-term debt 2,719.0 2,659.0
Operating lease liabilities 271.4 0.0
Deferred tax liabilities 312.5 313.0
Pension liabilities 142.7 177.6
Postretirement benefit obligations 12.0 12.2
Liabilities held by special purpose entities 0.0 43.3
Contingent liabilities and environmental reserves 18.7 18.7
Mandatorily redeemable noncontrolling interests 8.4 8.4
Long-term income tax payable 27.8 27.8
Other long-term liabilities 144.3 128.9
Total long-term liabilities 3,656.8 3,388.9
Commitments and contingencies (Note 10)
Redeemable noncontrolling interests (Note 15) 17.8 21.3
Equity    
Common stock, without par value 162.7 162.6
Treasury stock, at cost (134.7) (134.8)
Retained earnings 1,548.7 1,539.0
Accumulated other comprehensive income (loss), net of tax:    
Foreign currency translation (299.1) (298.0)
Derivative financial instruments (12.5) (12.7)
Minimum pension liabilities (101.3) (123.0)
Total Greif, Inc. shareholders' equity 1,163.8 1,133.1
Noncontrolling interests 58.9 58.0
Total shareholders' equity 1,222.7 1,191.1
Total liabilities and shareholders' equity $ 5,721.5 $ 5,426.7
v3.19.3.a.u2
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Parenthetical) - USD ($)
$ in Millions
Jan. 31, 2020
Oct. 31, 2019
Statement of Financial Position [Abstract]    
Allowance of trade accounts receivable $ 7.3 $ 6.8
v3.19.3.a.u2
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($)
$ in Millions
3 Months Ended
Jan. 31, 2020
Jan. 31, 2019
Cash flows from operating activities:    
Net income $ 36.1 $ 35.8
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation, depletion and amortization 61.3 31.3
Non-cash asset impairment charges 0.1 2.1
Non-cash pension settlement income (0.1) 0.0
Gain on disposals of properties, plants and equipment, net (0.5) (0.9)
Unrealized foreign exchange (gain) loss 0.5 0.5
Deferred income tax benefit (expense) (7.0) (4.3)
Transition tax (benefit) expense 0.0 2.3
Amortization of operating lease assets 14.9 0.0
Other, net (0.3) 0.0
Increase (decrease) in cash from changes in certain assets and liabilities:    
Trade accounts receivable 21.5 12.6
Inventories (17.0) (35.2)
Deferred purchase price on sold receivables 0.0 (6.9)
Accounts payable (32.2) (22.9)
Restructuring reserves (1.5) (0.9)
Pension and post-retirement benefit liabilities (6.1) (0.7)
Other, net (50.2) (22.4)
Net cash provided by (used in) operating activities 19.5 (9.6)
Cash flows from investing activities:    
Purchases of properties, plants and equipment (37.5) (26.0)
Purchases of and investments in timber properties (1.6) (0.9)
Proceeds from the sale of properties, plants, equipment and other assets 1.5 1.5
Proceeds from the sale of businesses 0.0 0.8
Proceeds from insurance recoveries 0.0 0.2
Net cash used in investing activities (37.6) (24.4)
Cash flows from financing activities:    
Proceeds from issuance of long-term debt 429.0 349.6
Payments on long-term debt (311.4) (267.6)
Payments on current portion of long-term debt (0.1) 0.0
Proceeds (payments) on short-term borrowings, net (3.6) 0.9
Proceeds from trade accounts receivable credit facility 2.5 11.5
Payments on trade accounts receivable credit facility (57.9) (33.4)
Dividends paid to Greif, Inc. shareholders (25.9) (25.7)
Dividends paid to noncontrolling interests (0.8) (0.4)
Purchases of redeemable noncontrolling interest 0.0 (11.9)
Net cash provided by (used in) financing activities 31.8 23.0
Reclassification of cash to assets held for sale 0.0 (0.4)
Effects of exchange rates on cash (0.2) 1.7
Net increase (decrease) in cash and cash equivalents 13.5 (9.7)
Cash and cash equivalents at beginning of period 77.3 94.2
Cash and cash equivalents at end of period $ 90.8 $ 84.5
v3.19.3.a.u2
ACQUISITIONS
3 Months Ended
Jan. 31, 2020
Business Combinations [Abstract]  
ACQUISITIONS ACQUISITIONS
Acquisitions
The Company accounts for acquisitions in accordance with ASC 805, "Business Combinations". The estimated fair values of all assets acquired and liabilities assumed in the acquisitions are provisional and may be revised as a result of additional information obtained during the measurement period of up to one year from the acquisition date.
Caraustar Acquisition

The Company completed its acquisition of Caraustar Industries, Inc. and its subsidiaries (“Caraustar”) on February 11, 2019 (the “Caraustar Acquisition”). Caraustar is a leader in the production of coated and uncoated recycled paperboard, which is used in a variety of applications that include industrial products (tubes and cores, construction products, protective packaging, and adhesives) and consumer packaging products (folding cartons, set-up boxes, and packaging services). The total purchase price for this acquisition, net of cash acquired, was $1,834.9 million.
The following table summarizes the consideration transferred to acquire Caraustar and the current preliminary valuation of identifiable assets acquired and liabilities assumed at the acquisition date, as well as measurement period adjustments made since the acquisition in 2019 through January 31, 2020:
(in millions)
Amounts Recognized as of the Acquisition Date
Measurement Period Adjustments (1)
Amount Recognized as of Acquisition Date (as Adjusted)
Fair value of consideration transferred
 
 
 
Cash consideration
$
1,834.9

$

$
1,834.9

 
 
 
 
Recognized amounts of identifiable assets acquired and liabilities assumed
 
 
 
Accounts receivable
$
147.0

$

$
147.0

Inventories
103.9

(4.4
)
99.5

Prepaid and other current assets
21.5

(9.3
)
12.2

Intangibles
717.1

8.4

725.5

Other long-term assets
1.3

5.1

6.4

Properties, plants and equipment
521.3

(18.4
)
502.9

Total assets acquired
1,512.1

(18.6
)
1,493.5

 
 
 
 
Accounts payable
(99.5
)

(99.5
)
Accrued payroll and employee benefits
(42.9
)
(6.4
)
(49.3
)
Other current liabilities
(21.8
)
4.5

(17.3
)
Long-term deferred tax liability
(185.7
)
46.9

(138.8
)
Pension and postretirement obligations
(67.1
)

(67.1
)
Other long-term liabilities
(12.7
)
(7.3
)
(20.0
)
Total liabilities assumed
(429.7
)
37.7

(392.0
)
Total identifiable net assets
$
1,082.4

$
19.1

$
1,101.5

Goodwill
$
752.5

$
(19.1
)
$
733.4


(1) The measurement adjustments were primarily due to refinement to third party appraisals and carrying amounts of certain assets and liabilities, as well as adjustments to certain tax accounts based on, among other things, adjustments to deferred tax liabilities. The net impact of the measurement period adjustments resulted in a net $19.1 million decrease to Goodwill. The measurement adjustments recorded did not have an impact on the Company's interim condensed consolidated statements of income for the three months ended January 31, 2020.

The Company recognized goodwill related to this acquisition of $733.4 million. The goodwill recognized in this acquisition is attributable to the acquired assembled workforce, expected synergies, and economies of scale, none of which qualify for recognition as a separate intangible asset. Caraustar is reported within the Paper Packaging & Services segment to which the goodwill was assigned. The goodwill is not expected to be deductible for tax purposes.
The cost approach was used to determine the fair value for buildings, improvements and equipment, and the market approach was used to determine the fair value for land. The cost approach measures the value by estimating the cost to acquire, or construct, comparable assets and adjusts for age and condition. The Company assigned buildings and improvements a useful life ranging from 1 year to 20 years and equipment a useful life ranging from 1 year to 15 years. Acquired property, plant and equipment are being depreciated over its estimated remaining useful lives on a straight-line basis.
The fair value for acquired customer relationship intangibles was determined as of the acquisition date based on estimates and judgments regarding expectations for the future after-tax cash flows arising from the revenue from customer relationships that existed on the acquisition date over their estimated lives, including the probability of expected future contract renewals and revenue, less a contributory assets charge, all of which is discounted to present value. The fair value of the trade name intangible assets were determined utilizing the relief from royalty method which is a form of the income approach. Under this method, a royalty rate based on observed market royalties is applied to projected revenue supporting the trade names and discounted to present value using an appropriate discount rate. 
Acquired intangible assets are being amortized over the estimated useful lives, primarily on a straight-line basis. The following table summarizes the current preliminary purchase price allocation and weighted average remaining useful lives for identifiable intangible assets acquired:

(in millions)
Current Preliminary Purchase Price Allocation
Weighted Average Estimated Useful Life
Customer relationships
$
708.0

15.0
Trademarks
15.0

3.0
Other
2.5

4.6
Total intangible assets
$
725.5

 

The Company has not yet finalized the determination of the fair value of assets acquired and liabilities assumed, including income taxes and contingencies. The Company expects to finalize these amounts within one year of the acquisition date. The current preliminary estimate of fair value and purchase price allocation were based on information available at the time of closing the acquisition, and the Company continues to evaluate the underlying inputs and assumptions that are being used in fair value estimates. Accordingly, these preliminary estimates are subject to adjustments during the measurement period, not to exceed one year, based upon new information obtained about facts and circumstances that existed as of the date of closing the acquisition. 
Tholu Acquisition
The Company completed its acquisition of Tholu B.V. and its wholly owned subsidiary A. Thomassen Transport B.V. (collectively "Tholu") on June 11, 2019 (the "Tholu Acquisition"). Tholu is a Netherlands-based leader in IBC rebottling, reconditioning and distribution. The total purchase price for this acquisition, net of cash acquired was $52.2 million, of which $25.1 million was paid upon closing and the remaining $29.2 million was deferred according to a set payment schedule.
The following table summarizes the consideration transferred to acquire Tholu and the current preliminary valuation of identifiable assets acquired and liabilities assumed at the acquisition date, as well as measurement period adjustments made in 2019 through January 31, 2020:
(in millions)
Amounts Recognized as of the Acquisition Date
Measurement Period Adjustments (2)
Amount Recognized as of Acquisition Date (as Adjusted)
Fair value of consideration transferred
 
 
 
Cash consideration
$
25.1

$

$
25.1

Deferred payments
29.2


29.2

Cash received
(2.1
)
$

(2.1
)
Total consideration
$
52.2

$

$
52.2

 
 
 
 
Recognized amounts of identifiable assets acquired and liabilities assumed
 
 
 
Accounts receivable
$
7.3

$

$
7.3

Inventories
3.0

0.4

3.4

Intangibles
24.1


24.1

Properties, plants and equipment
6.4


6.4

Other assets
1.2


1.2

Total assets acquired
42.0

0.4

42.4

 
 
 
 
Accounts payable
(4.0
)

(4.0
)
Capital lease obligations
(1.7
)

(1.7
)
Long-term deferred tax liability
(5.4
)
(0.4
)
(5.8
)
Other liabilities
(1.0
)

(1.0
)
Total liabilities assumed
(12.1
)
(0.4
)
(12.5
)
Total identifiable net assets
$
29.9

$

$
29.9

Goodwill
$
22.3

$

$
22.3

(2) The measurement adjustments were primarily due to refinement to third party appraisals and carrying amounts of certain assets and liabilities, as well as adjustments to certain tax accounts based on, among other things, adjustments to deferred tax liabilities. The net impact of the measurement period adjustments resulted in no net impact to Goodwill. The measurement adjustments recorded in 2019 did not have a significant impact on the Company's interim condensed consolidated statements of income for the three months ended January 31, 2020.
The Company recognized goodwill related to this acquisition of $22.3 million. The goodwill recognized in this acquisition is attributable to the acquired assembled workforce, economies of scale, vertical integration and new market penetration. Tholu is reported within the Rigid Industrial Packaging & Services segment to which the goodwill was assigned. The goodwill is not expected to be deductible for tax purposes.
Acquired property, plant and equipment is being depreciated over its estimated remaining useful lives on a straight-line basis.
Acquired intangible assets are being amortized over the estimated useful lives, primarily on a straight-line basis. The following table summarizes the preliminary purchase price allocation and weighted average remaining useful lives for identifiable intangible assets acquired:

(in millions)
Preliminary Fair Value
Weighted Average Estimated Useful Life
Customer relationships
$
21.9

15.0
Trademarks
1.2

9.0
Other
1.0

2.0
Total intangible assets
$
24.1

 

The Company has not yet finalized the determination of the fair value of assets acquired and liabilities assumed, including income taxes and contingencies. The Company expects to finalize these amounts within one year of the acquisition date. The current preliminary estimate of fair value and purchase price allocation were based on information available at the time of closing the acquisition, and the Company continues to evaluate the underlying inputs and assumptions that are being used in fair value estimates.
Accordingly, these preliminary estimates are subject to adjustments during the measurement period, not to exceed one year, based upon new information obtained about facts and circumstances that existed as of the date of closing the acquisition.
v3.19.3.a.u2
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
3 Months Ended
Jan. 31, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The interim condensed consolidated financial statements have been prepared in accordance with the U.S. Securities and Exchange Commission (“SEC”) instructions to Quarterly Reports on Form 10-Q and include all of the information and disclosures required by accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting. The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the amounts reported in the interim condensed consolidated financial statements and accompanying notes. Actual amounts could differ from those estimates.
The fiscal year of Greif, Inc. and its subsidiaries (the “Company”) begins on November 1 and ends on October 31 of the following year. Any references to years or to any quarter of those years, relates to the fiscal year or quarter, as the case may be, ended in that year, unless otherwise stated.
The information filed herein reflects all adjustments that are, in the opinion of management, necessary for a fair presentation of the interim condensed consolidated balance sheets as of January 31, 2020 and October 31, 2019, the interim condensed consolidated statements of income and comprehensive income for the three months ended January 31, 2020 and 2019 and the interim condensed consolidated statements of cash flows for the three months ended January 31, 2020 and 2019 of the Company. The interim condensed consolidated financial statements include the accounts of Greif, Inc., all wholly-owned and consolidated subsidiaries and investments in limited liability companies, partnerships and joint ventures in which it has controlling influence or is the primary beneficiary. Non-majority owned entities include investments in limited liability companies, partnerships and joint ventures in which the Company does not have controlling influence and are accounted for using either the equity or cost method, as appropriate.
The unaudited interim condensed consolidated financial statements included in the Quarterly Report on Form 10-Q (this “Form 10-Q”) should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for its fiscal year ended October 31, 2019 (the “2019 Form 10-K”).
Newly Adopted Accounting Standards
In February 2016 and July 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02 and ASU 2018-11, "Leases (Topic 842)," or Accounting Standards Codification ("ASC") 842, which amends the lease accounting and disclosure requirements in ASC 840, "Leases." The objective of this update is to increase transparency and comparability among organizations recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about lease arrangements. The Company adopted ASU 2018-11 on November 1, 2019, utilizing a modified retrospective approach and did not adjust its comparative period financial information. The Company adopted the practical expedient package which permits the Company to not reassess previous conclusions whether a contract is or contains a lease, lease classification, or treatment of indirect costs for existing contracts as of the adoption date. The Company also adopted the short-term lease recognition exemption and the practical expedient allowing for the combination of lease and non-lease components for all leases except real estate, for which these components are presented separately. The Company has completed the lease collection and evaluation process, implemented a technology tool to assist with the accounting and reporting requirements of the new standard, and designed new processes and controls around leases. On the day of adoption the Company capitalized onto the balance sheet $301.2 million of right-of-use assets and $305.8 million of lease liabilities related to operating leases. The adoption did not have a material impact on the Company's financial position, results of operations, comprehensive income, cash flows, or disclosures, other than as set forth above and in Note 12 to the Interim Condensed Consolidated Financial Statements.
Recently Issued Accounting Standards
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses”. The ASU sets forth a current expected credit loss model which requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. The Company plans to adopt this ASU on November 1, 2020. The Company is in the process of determining the potential impact of adopting this guidance on its financial position, results of operations, comprehensive income, cash flows and disclosures.
In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes", which is intended to simplify various aspects related to accounting for income taxes. This ASU is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years, with early adoption permitted. The effective date for the Company to adopt this ASU is November 1, 2021. The Company is in the process of determining the potential impact of adopting this guidance on its financial position, results of operations, comprehensive income, cash flow and disclosures.
v3.19.3.a.u2
GOODWILL AND OTHER INTANGIBLE ASSETS
3 Months Ended
Jan. 31, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
GOODWILL AND OTHER INTANGIBLE ASSETS GOODWILL AND OTHER INTANGIBLE ASSETS
The following table summarizes the changes in the carrying amount of goodwill by segment for the three months ended January 31, 2020:
(in millions)
Rigid
Industrial
Packaging
& Services
 
Paper
Packaging
& Services
 
Total
Balance at October 31, 2019
$
731.7

 
$
786.1

 
$
1,517.8

Goodwill adjustments

 
6.8

 
6.8

Currency translation
(2.5
)
 

 
(2.5
)
Balance at January 31, 2020
$
729.2

 
$
792.9

 
$
1,522.1


The $6.8 million of goodwill adjustment to the Paper Packaging & Services segment is due to measurement period adjustment of the Caraustar Acquisition. See Note 2 to the interim condensed consolidated financial statements for additional disclosure of goodwill added by these acquisitions.
The following table summarizes the carrying amount of net intangible assets by class as of January 31, 2020 and October 31, 2019:
(in millions)
Gross
Intangible
Assets
 
Accumulated
Amortization
 
Net
Intangible
Assets
January 31, 2020:
 
 
 
 
 
Indefinite lived:
 
 
 
 
 
Trademarks and patents
$
13.1

 
$

 
$
13.1

Definite lived:
 
 
 
 
 
Customer relationships
887.4

 
162.1

 
725.3

Trademarks, patents and trade names
26.9

 
10.6

 
16.3

Non-compete agreements
2.2

 
1.2

 
1.0

Other
21.8

 
18.6

 
3.2

Total
$
951.4

 
$
192.5

 
$
758.9

(in millions)
Gross
Intangible
Assets
 
Accumulated
Amortization
 
Net
Intangible
Assets
October 31, 2019:
 
 
 
 
 
Indefinite lived:
 
 
 
 
 
Trademarks and patents
$
13.1

 
$

 
$
13.1

Definite lived:
 
 
 
 
 
Customer relationships
890.6

 
150.3

 
740.3

Trademarks and patents
27.0

 
9.3

 
17.7

Non-compete agreements
2.3

 
0.7

 
1.6

Other
21.9

 
18.1

 
3.8

Total
$
954.9

 
$
178.4

 
$
776.5


Gross intangibles assets decreased by $3.5 million for the three months ended January 31, 2020. The decrease was attributable to $1.0 million of currency fluctuations and the write-off of $2.5 million of fully-amortized assets.
Amortization expense was $17.5 million and $3.7 million for the three months ended January 31, 2020 and 2019, respectively. Amortization expense for the next five years is expected to be $69.4 million in 2020, $67.0 million in 2021, $59.0 million in 2022, $56.2 million in 2023 and $52.9 million in 2024.
Definite lived intangible assets for the periods presented are subject to amortization and are being amortized using the straight-line method over periods that are contractually, legally determined, or over the period a market participant would benefit from the asset.
v3.19.3.a.u2
RESTRUCTURING CHARGES
3 Months Ended
Jan. 31, 2020
Restructuring and Related Activities [Abstract]  
RESTRUCTURING CHARGES RESTRUCTURING CHARGES
The following is a reconciliation of the beginning and ending restructuring reserve balances for the three months ended January 31, 2020:
(in millions)
Employee
Separation
Costs
 
Other
Costs
 
Total
Balance at October 31, 2019
$
9.5

 
$
1.8

 
$
11.3

Costs incurred and charged to expense
2.7

 
0.6

 
3.3

Costs paid or otherwise settled
(4.2
)
 
(0.6
)
 
(4.8
)
Balance at January 31, 2020
$
8.0

 
$
1.8

 
$
9.8


The focus for restructuring activities in 2020 is to optimize and integrate operations in the Paper Packaging & Services segment related to the Caraustar Acquisition and continue to rationalize operations and close underperforming assets in the Rigid Industrial Packaging & Services and the Flexible Products & Services segments. During the three months ended January 31, 2020, the Company recorded restructuring charges of $3.3 million, as compared to $3.7 million of restructuring charges recorded during the three months ended January 31, 2019. The restructuring activity for the three months ended January 31, 2020 consisted of $2.7 million in employee separation costs and $0.6 million in other restructuring costs, primarily consisting of professional fees and other fees associated with restructuring activities.
The following is a reconciliation of the total amounts expected to be incurred from open restructuring plans or plans that are being formulated and have not been announced as of the filing date of this Form 10-Q. Remaining amounts expected to be incurred were $24.0 million as of January 31, 2020:
(in millions)
Total Amounts
Expected to
be Incurred
 
Amounts Incurred During the three months ended January 31, 2020
 
Amounts
Remaining
to be Incurred
Rigid Industrial Packaging & Services
 
 
 
 
 
Employee separation costs
$
15.3

 
$
1.3

 
$
14.0

Other restructuring costs
5.7

 
0.5

 
5.2

 
21.0

 
1.8

 
19.2

Flexible Products & Services
 
 
 
 
 
Employee separation costs
1.4

 
0.5

 
0.9

Other restructuring costs
1.0

 

 
1.0

 
2.4

 
0.5

 
1.9

Paper Packaging & Services
 
 
 
 
 
Employee separation costs
2.0

 
0.9

 
1.1

Other restructuring costs
1.9

 
0.1

 
1.8

 
3.9

 
1.0

 
2.9

 
$
27.3

 
$
3.3

 
$
24.0


v3.19.3.a.u2
CONSOLIDATION OF VARIABLE INTEREST ENTITIES
3 Months Ended
Jan. 31, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
CONSOLIDATION OF VARIABLE INTEREST ENTITIES CONSOLIDATION OF VARIABLE INTEREST ENTITIES
The Company evaluates whether an entity is a variable interest entity (“VIE”) whenever reconsideration events occur and performs reassessments of all VIEs quarterly to determine if the primary beneficiary status is appropriate. The Company consolidates VIEs for which it is the primary beneficiary. If the Company is not the primary beneficiary and an ownership interest is held, the VIE
is accounted for under the equity or cost methods of accounting, as appropriate. When assessing the determination of the primary beneficiary, the Company considers all relevant facts and circumstances, including: the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance; and the obligation to absorb the expected losses and/or the right to receive the expected returns of the VIE.
Significant Nonstrategic Timberland Transactions
In 2005, the Company sold certain timber properties to Plum Creek Timberlands, L.P. (“Plum Creek”) in a series of transactions that included the creation of two separate legal entities that are now consolidated as separate VIEs. One is an indirect subsidiary of Plum Creek (the “Buyer SPE”), and the other is STA Timber LLC, an indirect wholly owned subsidiary of the Company (“STA Timber”).
As of January 31, 2020, and October 31, 2019, consolidated assets of the Buyer SPE consisted of $50.9 million of restricted bank financial instruments which are expected to be held to maturity, scheduled for November 5, 2020. The balance as of January 31, 2020 has been reclassified to current assets and recorded within 'Assets held by special purpose entities' on the interim condensed consolidated balance sheets. For both of the three month ended January 31, 2020 and 2019, Buyer SPE recorded interest income of $0.6 million.
As of January 31, 2020, and October 31, 2019, STA Timber had consolidated liabilities of $43.3 million. The maturity date is August 5, 2020 and STA Timber has the discretion and intent to extend the maturity date to November 5, 2020. The balance as of January 31, 2020 has been reclassified to current assets and recorded within 'Liabilities held by special purpose entities' on the interim condensed consolidated balance sheets. For both of the three month ended January 31, 2020 and 2019, STA Timber recorded interest expense of $0.6 million. The intercompany borrowing arrangement between the two VIEs is eliminated in consolidation. STA Timber is exposed to credit-related losses in the event of nonperformance by an issuer of a deed of guarantee in the transaction.
Flexible Packaging Joint Venture
In 2010, Greif, Inc. and one of its indirect subsidiaries formed a joint venture (referred to herein as the “Flexible Packaging JV” or “FPS VIE”) with Dabbagh Group Holding Company Limited and one of its subsidiaries, originally National Scientific Company Limited and now Gulf Refined Packaging for Industrial Packaging Company LTD ("GRP"). The Flexible Packaging JV owns the operations in the Flexible Products & Services segment. The Flexible Packaging JV has been consolidated into the operations of the Company as of its formation date in 2010.
The Flexible Packaging JV is deemed to be a VIE since the total equity investment at risk is not sufficient to permit the legal entity to finance its activities without additional subordinated financial support. The major factors that led to the conclusion that the Company was the primary beneficiary of this VIE were that (1) the Company has the power to direct the most significant activities due to its ability to direct the operating decisions of the FPS VIE, which power is derived from the significant CEO discretion over the operations of the FPS VIE combined with the Company’s sole and exclusive right to appoint the CEO of the FPS VIE, and (2) the significant variable interest through the Company’s equity interest in the FPS VIE.
All entities contributed to the Flexible Packaging JV were existing businesses acquired by one of the Company's indirect subsidiaries that were reorganized under Greif Flexibles Asset Holding B.V. and Greif Flexibles Trading Holding B.V.
The following table presents the Flexible Packaging JV total net assets:
(in millions)
January 31,
2020
 
October 31,
2019
Cash and cash equivalents
$
20.6

 
$
16.9

Trade accounts receivable, less allowance of $0.8 in 2020 and $0.7 in 2019
45.9

 
51.2

Inventories
43.7

 
46.4

Properties, plants and equipment, net
21.8

 
22.3

Other assets
27.3

 
29.3

Total assets
$
159.3

 
$
166.1

 
 
 
 
Accounts payable
$
23.4

 
$
28.9

Other liabilities
21.0

 
23.6

Total liabilities
$
44.4

 
$
52.5


Net income attributable to the noncontrolling interest in the Flexible Packaging JV for the three months ended January 31, 2020 and 2019 was $1.2 million and $3.3 million, respectively.
Paper Packaging Joint Venture
In 2018, Greif, Inc. and one of its indirect subsidiaries formed a joint venture (referred to herein as the “Paper Packaging JV” or "PPS VIE") with a third party. The Paper Packaging JV has been consolidated into the operations of the Company since its formation date of April 20, 2018.

The Paper Packaging JV is deemed to be a VIE because the equity investors at risk, as a group, lack the characteristics of a controlling financial interest. The structure of the Paper Packaging JV has governing provisions that are the functional equivalent of a limited partnership whereby the Company is the managing member that makes all the decisions related to the activities that most significantly affect the economic performance of the PPS VIE. In addition, the third party does not have any substantive kick-out rights or substantive participating rights in the Paper Packaging JV. The major factors that led to the conclusion that the Paper Packaging JV is a VIE was that all limited partnerships are considered to be VIE's unless the limited partners have substantive kick-out rights or substantive participating rights.

The following table presents the Paper Packaging JV total net assets:
(in millions)
January 31,
2020
Cash and cash equivalents
$
0.7

Trade accounts receivable, less allowance of $0.0 in 2020
0.5

Inventories
7.6

Properties, plants and equipment, net
31.6

Other assets
0.4

Total assets
$
40.8

 
 
Accounts payable
$
1.3

Other liabilities
0.1

Total liabilities
$
1.4


As of October 31, 2019, the Paper Packaging JV’s net assets consist mainly of properties, plants, and equipment, net of $29.4 million as the PPS JV was in the startup phase and had not yet commenced operations.
Net loss attributable to the noncontrolling interest in the Paper Packaging JV for the three months ended January 31, 2020 was $0.2 million. There was no net income (loss) for the three months ended January 31, 2019 as the PPS JV was in the startup phase and had not yet commenced operations.
Non-United States Accounts Receivable VIE
As further described in Note 6 to the Interim Condensed Consolidated Financial Statements, Cooperage Receivables Finance B.V. is a party to the European RFA. Cooperage Receivables Finance B.V. is deemed to be a VIE since this entity is not able to satisfy its liabilities without the financial support from the Company. While this entity is a separate and distinct legal entity from the Company and no ownership interest in this entity is held by the Company, the Company is the primary beneficiary because it has (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and (2) the obligation to absorb losses of the VIE that could potentially be significant to the VIE. As a result, Cooperage Receivables Finance B.V. has been consolidated into the operations of the Company.
v3.19.3.a.u2
LONG-TERM DEBT
3 Months Ended
Jan. 31, 2020
Debt Disclosure [Abstract]  
LONG-TERM DEBT LONG-TERM DEBT
Long-term debt is summarized as follows:
(in millions)
January 31, 2020
 
October 31, 2019
2019 Credit Agreement - Term Loans
$
1,591.3

 
$
1,612.2

Senior Notes due 2027
494.5

 
494.3

Senior Notes due 2021
219.7

 
221.7

Accounts receivable credit facilities
295.4

 
351.6

2019 Credit Agreement - Revolving Credit Facility
214.6

 
76.1

Other debt
0.4

 
0.4

 
2,815.9

 
2,756.3

Less: current portion
83.8

 
83.7

Less: deferred financing costs
13.1

 
13.6

Long-term debt, net
$
2,719.0

 
$
2,659.0


2019 Credit Agreement
On February 11, 2019, the Company and certain of its subsidiaries entered into an amended and restated senior secured credit agreement (the “2019 Credit Agreement”) with a syndicate of financial institutions. The Company's obligations under the 2019 Credit Agreement are guaranteed by certain of its U.S. subsidiaries and certain of its non-U.S. subsidiaries.
The 2019 Credit Agreement provides for (a) an $800.0 million secured revolving credit facility, consisting of a $600.0 million multicurrency facility and a $200.0 million U.S. dollar facility, maturing on February 11, 2024, (b) a $1,275.0 million secured term loan A-1 facility with quarterly principal installments commencing on April 30, 2019 and continuing through maturity on January 31, 2024, and (c) a $400.0 million secured term loan A-2 facility with quarterly principal installments commencing on April 30, 2019 and continuing through maturity on January 31, 2026. In addition, the Company has an option to add an aggregate of $700.0 million to the secured revolving credit facility under the 2019 Credit Agreement with the agreement of the lenders. The revolving credit facility is available to fund ongoing working capital and capital expenditure needs, for general corporate purposes, and to finance acquisitions.
The 2019 Credit Agreement contains certain covenants, which include financial covenants that require the Company to maintain a certain leverage ratio and an interest coverage ratio. The leverage ratio generally requires that, at the end of any quarter, the Company will not permit the ratio of (a) its total consolidated indebtedness, to (b) its consolidated net income plus depreciation, depletion and amortization, interest expense (including capitalized interest), income taxes, and minus certain extraordinary gains and non-recurring gains (or plus certain extraordinary losses and non-recurring losses) and plus or minus certain other items for the preceding twelve months (as used in this paragraph only, “EBITDA”) to be greater than 4.75 to 1.00 and stepping down annually by 0.25 increments beginning on July 31, 2020 to 4.00 on July 31, 2023. The interest coverage ratio generally requires that, at the end of any fiscal quarter, the Company will not permit the ratio of (a) its consolidated EBITDA, to (b) its consolidated interest expense to the extent paid or payable, to be less than 3.00 to 1.00, during the applicable preceding twelve month period. As of January 31, 2020, we were in compliance with the covenants and other agreements in the 2019 Credit Agreement.
As of January 31, 2020, $1,805.9 million was outstanding under the 2019 Credit Agreement. The current portion of such outstanding amount was $83.8 million, and the long-term portion was $1,722.1 million. The weighted average interest rate for borrowings under the 2019 Credit Agreement was 3.51% for the three months ended January 31, 2020. The actual interest rate for borrowings under the 2019 Credit Agreement was 3.36% as of January 31, 2020. The deferred financing costs associated with the term loan portion of the 2019 Credit Agreement totaled $10.3 million as of January 31, 2020 and are recorded as a direct deduction from the balance sheet line Long-Term Debt. The deferred financing costs associated with the revolver portion of the 2019 Credit Agreement totaled $7.5 million as of January 31, 2020 and are recorded within Other Long-Term Assets.
Senior Notes due 2027
On February 11, 2019, the Company issued $500.0 million of 6.50% Senior Notes due March 1, 2027 (the "Senior Notes due 2027"). Interest on the Senior Notes due 2027 is payable semi-annually commencing on September 1, 2019. The Company's obligations under the Senior Notes due 2027 are guaranteed by its U.S. subsidiaries that guarantee the 2019 Credit Agreement. The deferred financing cost associated with the Senior Notes due 2027 totaled $2.6 million as of January 31, 2020 and are recorded as a direct deduction from the balance sheet line Long-Term Debt.
Senior Notes due 2021
On July 15, 2011, Greif, Inc.’s wholly-owned subsidiary, Greif Nevada Holdings, Inc., S.C.S. issued €200.0 million of 7.375% Senior Notes due July 15, 2021 (the "Senior Notes due 2021"). The Senior Notes due 2021 are guaranteed on a senior basis by Greif, Inc. Interest on the Senior Notes due 2021 is payable semi-annually.
United States Trade Accounts Receivable Credit Facility
On September 24, 2019, the Company amended and restated the existing receivable financing facility (the "U.S. Receivables Facility") maturing on September 24, 2020. Greif Receivables Funding LLC, Greif Packaging LLC, for itself and as servicer, and certain other U.S. subsidiaries of the Company entered into a Third Amended and Restated Transfer and Administration Agreement, dated as of September 24, 2019 (the "Third Amended TAA"), with Bank of America, N.A., as the agent, managing agent, administrator and committed investor, and various investor groups, managing agents, and administrators, from time to time parties thereto. The Third Amended TAA provides a $275.0 million U.S. Receivables Facility. The $215.8 million outstanding balance under the U.S. Receivables Facility as of January 31, 2020 is reported in 'Long-term debt' on the interim condensed consolidated balance sheets because the Company intends to refinance this obligation on a long-term basis and has the intent and ability to consummate a long-term refinancing.
The financing costs associated with the U.S. Receivables Facility are $0.2 million as of January 31, 2020, and are recorded as a direct deduction from 'Long-term debt' on the interim condensed consolidated balance sheets.
International Trade Accounts Receivable Credit Facilities
On June 17, 2019, Cooperage Receivables Finance B.V. and Greif Coordination Center BVBA, an indirect wholly owned subsidiary of Greif, Inc., entered into the Nieuw Amsterdam Receivables Financing Agreement (the "European RFA") with affiliates of a major international bank. The European RFA provides an accounts receivable financing facility of up to €100.0 million ($110.1 million as of January 31, 2020) secured by certain European accounts receivable. The $79.6 million outstanding on the European RFA as of January 31, 2020 is reported as 'Long-term debt' on the interim condensed consolidated balance sheets because the Company intends to refinance these obligations on a long-term basis and has the intent and ability to consummate a long-term refinancing by exercising the renewal option in the respective agreement or entering into new financing arrangements.
The Company performs collection and administrative functions on the receivables related to the European RFA similar to the procedures it uses for collecting all of its receivables. The servicing liability for these receivables is not material to the interim condensed consolidated financial statements.
v3.19.3.a.u2
FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
3 Months Ended
Jan. 31, 2020
Fair Value Disclosures [Abstract]  
FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
Recurring Fair Value Measurements
The following table presents the fair value for those assets and (liabilities) measured on a recurring basis as of January 31, 2020 and October 31, 2019:
 
January 31, 2020
 
 
 
Fair Value Measurement
 
 
(in millions)
Level 1
 
Level 2
 
Level 3
 
Total
 
Balance Sheet Location
Interest rate derivatives
$

 
$
0.7

 
$

 
$
0.7

 
Other current assets
Interest rate derivatives

 
(25.1
)
 

 
(25.1
)
 
Other current liabilities and other long-term liabilities
Foreign exchange hedges

 
1.4

 

 
1.4

 
Other current assets
Foreign exchange hedges

 
(0.7
)
 

 
(0.7
)
 
Other current liabilities
Insurance annuity

 

 
19.9

 
19.9

 
Other long-term assets
Cross currency swap

 
11.5

 

 
11.5

 
Other current assets and other long-term assets
Total
$

 
$
(12.2
)
 
$
19.9

 
$
7.7

 
 
 
October 31, 2019
 
 
 
Fair Value Measurement
 
 
(in millions)
Level 1
 
Level 2
 
Level 3
 
Total
 
Balance Sheet Location
Interest rate derivatives
$

 
$
1.3

 
$

 
$
1.3

 
Other long-term assets and other current assets
Interest rate derivatives

 
(25.0
)
 

 
(25.0
)
 
Other long-term liabilities and other current liabilities
Foreign exchange hedges

 
0.9

 

 
0.9

 
Other current assets
Foreign exchange hedges

 
(0.2
)
 

 
(0.2
)
 
Other current liabilities
Insurance annuity

 

 
20.0

 
20.0

 
Other long-term assets
Cross currency swap

 
10.6

 

 
10.6

 
Other current assets and other long-term assets
Total
$

 
$
(12.4
)
 
$
20.0

 
$
7.6

 
 

The carrying amounts of cash and cash equivalents, trade accounts receivable, accounts payable, current liabilities and short-term borrowings as of January 31, 2020 and October 31, 2019 approximate their fair values because of the short-term nature of these items and are not included in this table.
Interest Rate Derivatives
The Company has various borrowing facilities which charge interest based on the one month U.S. dollar LIBOR rate plus an interest spread.
In 2019, the Company entered into six interest rate swaps with a total notional amount of $1,300.0 million that amortize to $200.0 million over a five year term. The outstanding notional amount as of January 31, 2020 is $1,000.0 million. The Company receives variable rate interest payments based upon one month U.S. dollar LIBOR, and in return the Company is obligated to pay interest at a weighted-average interest rate of 2.49% plus a spread. This effectively converted the borrowing rate on an amount of debt equal to the outstanding notional amount of the interest rate swap from a variable rate to a fixed rate.
In 2017, the Company entered into an interest rate swap with a notional amount of $300.0 million. The Company receives variable rate interest payments based upon one month U.S. dollar LIBOR, and in return the Company is obligated to pay interest at a fixed rate of 1.19% plus an interest spread.
These derivatives are designated as cash flow hedges for accounting purposes. Accordingly, the gain or loss on these derivative instruments are reported as a component of other comprehensive income and reclassified into earnings in the same line item associated with the forecasted transactions and in the same period during which the hedged transactions affect earnings. See Note 13 to the Interim Condensed Consolidated Financial Statements for additional information. The assumptions used in measuring fair value of these interest rate derivatives are considered level 2 inputs, which are based upon observable market rates, including LIBOR and interest paid based upon a designated fixed rate over the life of the swap agreements.
Gain (loss) reclassified to earnings under these contracts were $(1.5) million and $0.9 million for the three months ended January 31, 2020, and 2019, respectively. A derivative loss of $8.1 million, based upon interest rates at January 31, 2020, is expected to be reclassified from accumulated other comprehensive income (loss) to earnings in the next twelve months.
Foreign Exchange Hedges
The Company conducts business in various international currencies and is subject to risks associated with changing foreign exchange rates. The Company’s objective is to reduce volatility associated with foreign exchange rate changes. Accordingly, the Company enters into various contracts that change in value as foreign exchange rates change to protect the value of certain existing foreign currency assets and liabilities, commitments and anticipated foreign currency cash flows. As of January 31, 2020, and October 31, 2019, the Company had outstanding foreign currency forward contracts in the notional amount of $173.4 million and $275.0 million, respectively. Adjustments to fair value are recognized in earnings, offsetting the impact of the hedged profits. The assumptions used in measuring fair value of foreign exchange hedges are considered level 2 inputs, which are based on observable market pricing for similar instruments, principally foreign exchange futures contracts.
Realized gains (losses) recorded in other expense, net under fair value contracts were $(0.8) million and $0.8 million for the three months ended January 31, 2020, and 2019, respectively. The Company recognized in other expense, net an unrealized net gain of $0.7 million and $3.0 million during the three months ended January 31, 2020 and 2019, respectively.
Cross Currency Swap
The Company has operations and investments in various international locations and is subject to risks associated with changing foreign exchange rates. On March 6, 2018, the Company entered into a cross currency interest rate swap agreement that synthetically swaps $100.0 million of fixed rate debt to Euro denominated fixed rate debt at a rate of 2.35%. The agreement is designated as a net investment hedge for accounting purposes and will mature on March 6, 2023. Accordingly, the gain or loss on this derivative instrument is included in the foreign currency translation component of other comprehensive income until the net investment is sold, diluted or liquidated. Interest payments received for the cross currency swap are excluded from the net investment hedge effectiveness assessment and are recorded in interest expense, net on the interim condensed consolidated statements of income. For the three months ended January 31, 2020 and 2019, gains recorded in interest expense, net under the cross currency swap agreement were $0.6 million and $0.6 million. See Note 13 to the Interim Condensed Consolidated Financial Statements for additional information. The assumptions used in measuring fair value of the cross currency swap are considered level 2 inputs, which are based upon the Euro to United States Dollar exchange rate market.
Other Financial Instruments
The fair values of the Company’s 2019 Credit Agreement, U.S. Receivables Facility and European RFA (collectively, "Accounts Receivable Credit Facilities") do not materially differ from carrying value as the Company’s cost of borrowing is variable and approximates current borrowing rates. The fair values of the Company’s long-term obligations are estimated based on either the quoted market prices for the same or similar issues or the current interest rates offered for the debt of the same remaining maturities, which are considered level 2 inputs in accordance with ASC Topic 820, "Fair Value Measurements and Disclosures."
The following table presents the estimated fair values of the Company’s Senior Notes and Assets held by special purpose entities:
(in millions)
January 31,
2020
 
October 31,
2019
Senior Notes due 2021 estimated fair value
$
242.1

 
$
248.1

Senior Notes due 2027 estimated fair value
541.3

 
537.9

Assets held by special purpose entities estimated fair value
51.7

 
51.9


Non-Recurring Fair Value Measurements
The Company recognized asset impairment charges of $0.1 million and $2.1 million during the three months ended January 31, 2020 and 2019, respectively.
The following table presents quantitative information about the significant unobservable inputs used to determine the fair value of the impairment of long-lived assets held and used and net assets held for sale for the three months ended January 31, 2020 and 2019:
 
Quantitative Information about Level 3
Fair Value Measurements
(in millions)
Fair Value of
Impairment
 
Valuation
Technique
 
Unobservable
Input
 
Range of
Input
Values
January 31, 2020
 
 
 
 
 
 
 
Impairment of Long Lived Assets
$
0.1

 
Sales Value
 
Sales Value
 
N/A
Total
$
0.1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
January 31, 2019
 
 
 
 
 
 
 
Impairment of Net Assets Held for Sale
$
2.1

 
Indicative Bids
 
Indicative Bids
 
N/A
Total
$
2.1

 
 
 
 
 
 

Long-Lived Assets
As necessary, based on triggering events, the Company measures long-lived assets at fair value on a non-recurring basis. The Company recorded $0.1 million impairment charges related to properties, plants and equipment, net and no impairment charges during the three months ended January 31, 2020 and 2019, respectively.
The assumptions used in measuring fair value of long-lived assets are considered level 3 inputs, which include bids received from third parties, recent purchase offers, market comparable information and discounted cash flows based on assumptions that market participants would use.

Assets and Liabilities Held for Sale
During the three months ended January 31, 2020, the company recorded no impairment charges related to assets and liabilities held for sale. During the three months ended January 31, 2019, one asset group was reclassified to assets and liabilities held for sale, resulting in recognized asset impairment charges of $2.1 million.
The assumptions used in measuring fair value of assets and liabilities held for sale are considered level 3 inputs, which include recent purchase offers, market comparables and/or data obtained from commercial real estate brokers.
v3.19.3.a.u2
INCOME TAXES
3 Months Ended
Jan. 31, 2020
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
The Company completed the Caraustar Acquisition on February 11, 2019 and has recorded a net deferred tax liability of $138.8 million, which is primarily related to intangible assets that cannot be amortized for tax purposes. See Note 2 to the interim condensed consolidated financial statements for additional information.
Income tax expense for the quarter and year to date was computed in accordance with ASC 740-270 "Income Taxes - Interim Reporting." Under this method, losses from jurisdictions for which a valuation allowance has been provided have not been included in the amount to which the ASC 740-270 rate was applied. Income tax expense of the Company fluctuates primarily due to changes in losses and income from jurisdictions for which a valuation allowance has been provided, the timing of recognition of the related tax expense under ASC 740-270, and the impact of discrete items in the respective quarter.
For the three months ended January 31, 2020, income tax expense was $11.4 million compared to $20.0 million for the three months ended January 31, 2019. The decrease in income tax expense for the three months ended January 31, 2020 was primarily attributable to changes in the expected mix of earnings among tax jurisdictions, the favorable impacts of the reduction of interest addbacks, additional domestic tax credits extended to the current fiscal year, and discrete items.
v3.19.3.a.u2
POST RETIREMENT BENEFIT PLANS
3 Months Ended
Jan. 31, 2020
Postemployment Benefits [Abstract]  
POST RETIREMENT BENEFIT PLANS POST RETIREMENT BENEFIT PLANS
During the three months ended January 31, 2020, lump sum payments totaling $44.3 million were made to United States defined benefit plan participants who agreed to such payments, representing the current fair value of the participant’s respective pension benefit. The payments were made from plan assets resulting in a decrease in the fair value of both the plan assets and the projected benefit obligation of $44.3 million and non-cash pension settlement income of $0.1 million of unrecognized net actuarial gain included in accumulated other comprehensive income. Additionally, two United States defined benefit plans were combined.

As a result of the two events described above, two United States defined benefit plans were remeasured as of December 31, 2019, resulting in a $19.0 million decline in projected benefit obligations a $9.3 million decline in the fair value of plan assets. These reductions were due to an increase in discount rates to 3.38 percent, from the Company's year-end disclosures.

The components of net periodic pension cost include the following:
 
Three Months Ended
January 31,
(in millions)
2020
 
2019
Service cost
$
3.2

 
$
2.5

Interest cost
6.6

 
5.2

Expected return on plan assets
(10.3
)
 
(6.2
)
Amortization of prior service cost
3.5

 
1.8

Net periodic pension cost
$
3.0

 
$
3.3


Contributions, including benefits paid directly by the Company, to the pension plans were $9.0 million and $3.7 million, in the three months ended January 31, 2020 and 2019, respectively.
The components of net periodic post-retirement benefit include the following:
 
Three Months Ended
January 31,
(in millions)
2020
 
2019
Interest cost
$
0.1

 
$
0.1

Amortization of prior service benefit
(0.1
)
 
(0.4
)
Net periodic post-retirement benefit
$

 
$
(0.3
)

The components of net periodic pension cost and net periodic post-retirement benefit, other than the service cost components, are included in the line item "Other expense (income), net" in the interim condensed consolidated statements of income.
v3.19.3.a.u2
CONTINGENT LIABILITIES AND ENVIRONMENTAL RESERVES
3 Months Ended
Jan. 31, 2020
Environmental Remediation Obligations [Abstract]  
CONTINGENT LIABILITIES AND ENVIRONMENTAL RESERVES CONTINGENT LIABILITIES AND ENVIRONMENTAL RESERVES
Litigation-related Liabilities
The Company may become involved from time-to-time in litigation and regulatory matters incidental to its business, including governmental investigations, enforcement actions, personal injury claims, product liability, employment health and safety matters, commercial disputes, intellectual property matters, disputes regarding environmental clean-up costs, litigation in connection with acquisitions and divestitures, and other matters arising out of the normal conduct of its business. The Company intends to vigorously defend itself in such litigation. The Company does not believe that the outcome of any pending litigation will have a material adverse effect on its interim condensed consolidated financial statements.
The Company may accrue for contingencies related to litigation and regulatory matters if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Because litigation is inherently unpredictable and unfavorable resolutions can occur, assessing contingencies is highly subjective and requires judgments about future events. The Company regularly reviews contingencies to determine whether its accruals are adequate. The amount of ultimate loss may differ from these estimates.
The Company is currently involved in legal proceedings outside of the United States related to various wrongful termination lawsuits filed by former employees and benefit claims filed by some existing employees of the Company's Flexible Products & Services segment. The lawsuits include claims for severance for employment periods prior to the Company’s ownership in the
business. As of January 31, 2020, and October 31, 2019, the estimated liability recorded related to these matters were $0.6 million and $0.6 million, respectively. The estimated liability has been determined based on the number of active cases and the settlements and rulings on previous cases. It is reasonably possible the estimated liability could increase if additional cases are filed or adverse rulings are made.
Since 2017, three reconditioning facilities in the Milwaukee, Wisconsin area that are owned by Container Life Cycle Management LLC ("CLCM"), the Company’s U.S. reconditioning joint venture company, have been subject to investigations conducted by federal, state and local governmental agencies concerning, among other matters, potential violations of environmental laws and regulations. As a result of these investigations, the United States Environmental Protection Agency (“U.S. EPA”) and the Wisconsin Department of Natural Resources (“WDNR”) have issued notices of violations to the Company and CLCM regarding violations of certain federal and state environmental laws and regulations. The remedies being sought in these proceedings include compliance with the applicable environmental laws and regulations as being interpreted by the U.S. EPA and WDNR and monetary sanctions. The Company has cooperated with the governmental agencies in these investigations and proceedings. As of February 28, 2020, no material citations have been issued or material fines assessed with respect to any violation of environmental laws and regulations. Since these proceedings are in their investigative stage, the Company is unable to predict the outcome of these proceedings or estimate a range of reasonable possible monetary sanctions or costs associated with any remedial actions that may be required or requested by the U.S. EPA or WDNR.
In addition, on November 8, 2017, the Company, CLCM and other parties were named as defendants in a punitive class action lawsuit filed in Wisconsin state court concerning one of CLCM’s Milwaukee reconditioning facilities. The plaintiffs are alleging that odors from this facility have invaded their property and are interfering with the use and enjoyment of their property and causing damage to the value of their property. Plaintiffs are seeking compensatory and punitive damages, along with their legal fees. The Company and CLCM are vigorously defending themselves in this lawsuit. The Company is unable to predict the outcome of this lawsuit or estimate a range of reasonably possible losses.
Environmental Reserves
As a result of the Caraustar Acquisition, the Company acquired The Newark Group, Inc., a subsidiary of Caraustar (“Newark”), and became subject to Newark’s Lower Passaic River environmental and litigation liability. By letters dated February 14, 2006 and June 2, 2006, the United States Environment Protection Agency (“EPA”) notified Newark of its potential liability under Section 107(a) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (“CERCLA”) relating to the Diamond Alkali Superfund Site, which includes a 17-mile stretch of the Lower Passaic River that EPA has denominated the Lower Passaic River Study Area (“LPRSA”). Newark is one of at least 70 potentially responsible parties identified in this case. The EPA alleges that hazardous substances were released from Newark’s now-closed Newark, New Jersey recycled paperboard mill into the Lower Passaic River. The EPA informed Newark that it may be potentially liable for response costs that the government may incur relating to the study of the LPRSA and for unspecified natural resource damages.
In April 2014, EPA issued a Focused Feasibility Study that proposed alternatives for the remediation of the lower 8 miles of the Lower Passaic River. On March 3, 2016, EPA issued its Record of Decision for the lower 8 miles of the Lower Passaic River, which presented a bank-to-bank dredging remedy selected by the agency for the lower 8 miles and which EPA estimates will cost approximately $1,380.0 million to implement. Newark is participating in an allocation process to determine its allocable share.
On June 30, 2018, Occidental Chemical Corporation (“OCC”) filed litigation in the U.S. District Court for the District of New Jersey styled Occidental Chemical Corp. v. 21st Century Fox America, Inc., et al., Civil Action No. 2:18-CV-11273 (D.N.J.), that names Newark and approximately 119 other parties as defendants. OCC’s Complaint alleges claims under CERCLA against all defendants for cost recovery, contribution, and declaratory judgment for costs OCC allegedly has incurred and will incur at the Diamond Alkali Superfund Site. The litigation is in its early stages, and the Company intends to vigorously defend itself in this litigation.
The Company has completed its initial assessment of these matters as part of its purchase price allocation. As of January 31, 2020, the Company has accrued $11.2 million for the Diamond Alkali Superfund Site. It is possible that, once the Company finalizes its purchase price allocation, it could record an adjustment to this environmental reserve related to the acquisition. Further, it is possible that there could be resolution of uncertainties in the future that would require the Company to record charges, which could be material to future earnings.
As of January 31, 2020, and October 31, 2019, the Company's environmental reserves were $18.7 million and $18.7 million, respectively. These reserves are principally based on environmental studies and cost estimates provided by third parties, but also take into account management estimates. The estimated liabilities are reduced to reflect the anticipated participation of other potentially responsible parties in those instances where it is probable that such parties are legally responsible and financially
capable of paying their respective shares of relevant costs. For sites that involve formal actions subject to joint and several liabilities, these actions have formal agreements in place to apportion the liability.
Aside from the Diamond Alkali Superfund Site, other environmental reserves of the Company as of January 31, 2020 and October 31, 2019 included $3.3 million and $3.3 million, respectively, for various European drum facilities acquired from Blagden and Van Leer; $0.1 million and $0.1 million, respectively, for its various container life cycle management and recycling facilities acquired in 2011 and 2010; $0.4 million and $0.3 million, respectively, for remediation of sites no longer owned by the Company; $2.0 million and $2.0 million, respectively, for landfill closure obligations in the Company's Paper Packaging & Services segment; and $1.7 million and $1.8 million, respectively, for various other facilities around the world.
The Company’s exposure to adverse developments with respect to any individual site is not expected to be material. Although environmental remediation could have a material effect on results of operations if a series of adverse developments occur in a particular quarter or year, the Company believes that the chance of a series of adverse developments occurring in the same quarter or year is remote. Future information and developments will require the Company to continually reassess the expected impact of these environmental matters.
v3.19.3.a.u2
EARNINGS PER SHARE
3 Months Ended
Jan. 31, 2020
Earnings Per Share [Abstract]  
EARNINGS PER SHARE EARNINGS PER SHARE
The Company has two classes of common stock and, as such, applies the “two-class method” of computing earnings per share (“EPS”) as prescribed in ASC 260, “Earnings Per Share.” In accordance with this guidance, earnings are allocated in the same fashion as dividends would be distributed. Under the Company’s articles of incorporation, any distribution of dividends in any year must be made in proportion of one cent a share for Class A Common Stock to one and one-half cents a share for Class B Common Stock, which results in a 40% to 60% split to Class A and B shareholders, respectively. In accordance with this, earnings are allocated first to Class A and Class B Common Stock to the extent that dividends are actually paid and the remainder is allocated assuming all of the earnings for the period have been distributed in the form of dividends.
The Company calculates EPS as follows:
Basic Class A EPS
=
40% * Average Class A Shares Outstanding
*
Undistributed Net Income
+
Class A Dividends Per Share
40% * Average Class A Shares Outstanding + 60% * Average Class B Shares Outstanding
Average Class A Shares Outstanding
 
 
 
 
 
 
 
Diluted Class A EPS
=
40% * Average Class A Shares Outstanding
*
Undistributed Net Income
+
Class A Dividends Per Share
40% * Average Class A Shares Outstanding + 60% * Average Class B Shares Outstanding
Average Diluted Class A Shares Outstanding
 
 
 
 
 
 
 
Basic Class B EPS
=
60% * Average Class B Shares Outstanding
*
Undistributed Net Income
+
Class B Dividends Per Share
40% * Average Class A Shares Outstanding + 60% * Average Class B Shares Outstanding
Average Class B Shares Outstanding
 
*Diluted Class B EPS calculation is identical to Basic Class B calculation
The following table provides EPS information for each period, respectively:
 
Three Months Ended
January 31,
(in millions)
2020
 
2019
Numerator for basic and diluted EPS
 
 
 
Net income attributable to Greif, Inc.
$
32.3

 
$
29.7

Cash dividends
(25.9
)
 
(25.7
)
Undistributed net income attributable to Greif, Inc.
$
6.4

 
$
4.0


The Class A Common Stock has no voting rights unless four quarterly cumulative dividends upon the Class A Common Stock are in arrears. The Class B Common Stock has full voting rights. There is no cumulative voting for the election of directors.
Common Stock Repurchases
The Board of Directors has authorized the Company to repurchase shares of the Company's Class A Common Stock or Class B Common Stock or any combination of the foregoing. As of January 31, 2020, and 2019 the remaining amount of shares that may be repurchased under this authorization was 4,703,487 and 4,703,487, respectively. There were no shares repurchased under this program from November 1, 2018 through January 31, 2020.
The following table summarizes the Company’s Class A and Class B common and treasury shares as of the specified dates:
 
Authorized
Shares
 
Issued
Shares
 
Outstanding
Shares
 
Treasury
Shares
January 31, 2020
 
 
 
 
 
 
 
Class A Common Stock
128,000,000

 
42,281,920

 
26,260,943

 
16,020,977

Class B Common Stock
69,120,000

 
34,560,000

 
22,007,725

 
12,552,275

 
 
 
 
 
 
 
 
October 31, 2019
 
 
 
 
 
 
 
Class A Common Stock
128,000,000

 
42,281,920

 
26,257,943

 
16,023,977

Class B Common Stock
69,120,000

 
34,560,000

 
22,007,725

 
12,552,275


The following is a reconciliation of the shares used to calculate basic and diluted earnings per share:
 
Three Months Ended
January 31,
 
2020
 
2019
Class A Common Stock:
 
 
 
Basic shares
26,260,943

 
25,991,433

Assumed conversion of restricted shares
153,337

 

Diluted shares
26,414,280

 
25,991,433

Class B Common Stock:
 
 
 
Basic and diluted shares
22,007,725

 
22,007,725


v3.19.3.a.u2
LEASES LEASES
3 Months Ended
Jan. 31, 2020
Leases [Abstract]  
LEASES LEASES
The Company leases certain buildings, warehouses, land, transportation equipment, operating equipment, and office equipment with remaining lease terms from less than one year up to 20 years. The Company reviews all options to extend, terminate, or purchase a right of use asset at the time of lease inception and accounts for options deemed reasonably certain.
The Company combines lease and non-lease components for all leases except real estate, for which these components are presented separately. Leases with an initial term of twelve months or less are not capitalized and are recognized on a straight-line basis over the lease term. The implicit rate is not readily determinable for substantially all of the Company's leases, therefore the initial present value of lease payments is calculated utilizing an estimated incremental borrowing rate determined at the portfolio level based on market and Company specific information.
Certain of the Company’s leases include variable costs. As the right of use asset recorded on the balance sheet was determined based upon factors considered at the commencement date, changes in these variable expenses are not capitalized and are expensed as incurred throughout the lease term.
As of January 31, 2020, the Company has not entered into any significant leases which have not yet commenced.
The following table presents the balance sheet classification of the Company’s lease assets and liabilities as of January 31, 2020:
(in millions)
Balance Sheet Classification
January 31, 2020
Lease Assets
 
 
Operating lease assets
Operating lease assets
$
327.2

Finance lease assets
Other long-term assets
5.2

Total lease assets
 
$
332.4

 
 
 

Lease Liabilities
 
 
Current operating lease liabilities
Current portion of operating lease liabilities
$
60.3

Current finance lease liabilities
Other current liabilities
1.8

Total current lease liabilities
 
62.1

 
 
 
Non-current operating lease liabilities
Operating lease liabilities
271.4

Non-current finance lease liabilities
Other long-term liabilities
3.4

Total non-current lease liabilities
 
274.8

Total lease liabilities
 
$
336.9


The following table presents the lease expense components for the three months ended January 31, 2020:
(in millions)
Three Months Ended
January 31, 2020
Operating lease cost
$
17.2

Finance lease cost
0.2

Variable lease cost*
6.2

Total lease cost
$
23.6

* Amount includes short-term lease costs. The Company continues to account for short-lease leases, which are immaterial for individual reporting
Future maturity for the Company's lease liabilities, during the next five years, and in the aggregate for the years thereafter, are as follows:
(in millions)
Operating Leases
Finance Leases
Total expected payments
2020
$
66.9

$
1.4

$
68.3

2021
60.2

1.4

61.6

2022
51.7

1.1

52.8

2023
43.0

0.8

43.8

2024
33.9

0.5

34.4

Thereafter
133.7

0.3

134.0

Total lease payments
$
389.4

$
5.5

$
394.9

Less: Interest
(57.7
)
(0.3
)
(58.0
)
Lease liabilities
$
331.7

$
5.2

$
336.9



The following table presents the weighted-average lease term and discount rate as of January 31, 2020:
Weighted-average remaining lease term (years):
 
Operating leases
10.4

Finance leases
4.2

Weighted-average discount rate:
 
Operating leases
3.39
%
Finance leases
3.45
%
The following table presents other required lease related information for the three months ended January 31, 2020:
(in millions)
January 31, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used for operating leases
$
17.1

Financing cash flows used for finance leases
0.4

Leased assets obtained in exchange for new operating lease liabilities
28.7

Leased assets obtained in exchange for new finance lease liabilities


In compliance with ASC 842, the Company must provide the prior year disclosures required under the previous lease guidance for comparative periods presented herein.

The table below contains information related to the Company’s rent expense as disclosed within the 10-K for the period ended October 31, 2019:
 
Year Ended October 31,
(in millions)
2019
 
2018
 
2017
Rent Expense
$
86.2

 
$
47.1

 
$
41.0


The following table provides the Company’s minimum rent commitments under operating leases in the next five years and the remaining years thereafter as disclosed within the 10-K for the period ended October 31, 2019:
(in millions)
Operating
Leases
Capital Leases
Year(s):
 
 
2020
$
64.8

$
1.8

2021
57.0

1.6

2022
48.7

1.3

2023
40.1

1.0

2024
31.6

0.6

Thereafter
117.5

0.3

Total
$
359.7

$
6.6


Minimum rent commitments under capital leases in 2020 and thereafter are attributable to addition of capital leases through the Caraustar Acquisition.
LEASES
NOTE 12 — LEASES
The Company leases certain buildings, warehouses, land, transportation equipment, operating equipment, and office equipment with remaining lease terms from less than one year up to 20 years. The Company reviews all options to extend, terminate, or purchase a right of use asset at the time of lease inception and accounts for options deemed reasonably certain.
The Company combines lease and non-lease components for all leases except real estate, for which these components are presented separately. Leases with an initial term of twelve months or less are not capitalized and are recognized on a straight-line basis over the lease term. The implicit rate is not readily determinable for substantially all of the Company's leases, therefore the initial present value of lease payments is calculated utilizing an estimated incremental borrowing rate determined at the portfolio level based on market and Company specific information.
Certain of the Company’s leases include variable costs. As the right of use asset recorded on the balance sheet was determined based upon factors considered at the commencement date, changes in these variable expenses are not capitalized and are expensed as incurred throughout the lease term.
As of January 31, 2020, the Company has not entered into any significant leases which have not yet commenced.
The following table presents the balance sheet classification of the Company’s lease assets and liabilities as of January 31, 2020:
(in millions)
Balance Sheet Classification
January 31, 2020
Lease Assets
 
 
Operating lease assets
Operating lease assets
$
327.2

Finance lease assets
Other long-term assets
5.2

Total lease assets
 
$
332.4

 
 
 

Lease Liabilities
 
 
Current operating lease liabilities
Current portion of operating lease liabilities
$
60.3

Current finance lease liabilities
Other current liabilities
1.8

Total current lease liabilities
 
62.1

 
 
 
Non-current operating lease liabilities
Operating lease liabilities
271.4

Non-current finance lease liabilities
Other long-term liabilities