Greif(GEF_B) - 2019 Q3 - Quarterly Report

Part I. Financial Information Item 1. Condensed Consolidated Financial Statements The company presents its unaudited interim financial statements and accompanying notes for the reporting periods Condensed Consolidated Statements of Income Net sales grew year-over-year, but higher costs led to a decline in net income for the reported periods Condensed Consolidated Statements of Income (Unaudited) | (in millions, except per share) | Three Months Ended July 31, 2019 | Three Months Ended July 31, 2018 | Nine Months Ended July 31, 2019 | Nine Months Ended July 31, 2018 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $1,252.6 | $1,012.1 | $3,362.9 | $2,886.1 | | Gross profit | $279.4 | $217.1 | $700.9 | $584.1 | | Operating profit | $125.6 | $114.0 | $283.4 | $267.2 | | Income before income tax | $92.1 | $96.7 | $180.3 | $213.4 | | Net income attributable to Greif, Inc. | $62.7 | $67.7 | $106.0 | $169.3 | | Diluted EPS (Class A) | $1.06 | $1.15 | $1.80 | $2.88 | Condensed Consolidated Balance Sheets Total assets and liabilities increased significantly due to acquisitions financed by long-term debt Condensed Consolidated Balance Sheet Highlights (Unaudited) | (in millions) | July 31, 2019 | October 31, 2018 | | :--- | :--- | :--- | | Total Current Assets | $1,341.8 | $976.7 | | Goodwill | $1,561.9 | $776.0 | | Other intangible assets, net | $794.3 | $80.6 | | Properties, plants and equipment, net | $1,678.0 | $1,191.9 | | Total Assets | $5,552.4 | $3,194.8 | | Total Current Liabilities | $837.0 | $670.2 | | Long-term debt | $2,786.0 | $884.1 | | Total Liabilities | $4,376.8 | $2,040.6 | | Total Shareholders' Equity | $1,175.6 | $1,154.2 | Condensed Consolidated Statements of Cash Flows Cash from operations increased, while significant acquisition spending was funded by new debt issuance Condensed Consolidated Statements of Cash Flows Highlights (Unaudited) | Nine Months Ended July 31, (in millions) | 2019 | 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $194.1 | $55.8 | | Acquisitions of companies, net of cash acquired | ($1,857.9) | $0.0 | | Purchases of properties, plants and equipment | ($103.8) | ($92.0) | | Net cash used in investing activities | ($1,947.9) | ($85.7) | | Proceeds from issuance of long-term debt | $3,470.7 | $784.6 | | Payments on long-term debt | ($1,577.8) | ($706.2) | | Dividends paid to Greif, Inc. shareholders | ($77.9) | ($74.0) | | Net cash provided (used) by financing activities | $1,735.4 | ($9.0) | | Net decrease in cash and cash equivalents | ($18.4) | ($41.4) | Notes to Condensed Consolidated Financial Statements This section details accounting policies, significant acquisitions, debt structure, and segment performance - The company adopted new accounting standards for Revenue from Contracts with Customers (Topic 606) on November 1, 2018, with no material impact on financial results[22] - On February 11, 2019, the company acquired Caraustar for a total purchase price of $1.83 billion, resulting in $769.4 million of goodwill assigned to the Paper Packaging & Services segment[45][49][52] - On June 11, 2019, the company acquired Tholu for a net purchase price of $52.2 million, resulting in $22.3 million of goodwill assigned to the Rigid Industrial Packaging & Services segment[40][41][42] - To finance the Caraustar acquisition, the company entered into a new $2.475 billion senior secured credit agreement and issued $500.0 million of 6.50% Senior Notes due 2027[101][103][111] Changes in Goodwill by Segment (Nine Months Ended July 31, 2019) | (in millions) | Rigid Industrial Packaging & Services | Paper Packaging & Services | Total | | :--- | :--- | :--- | :--- | | Balance at Oct 31, 2018 | $716.5 | $59.5 | $776.0 | | Goodwill acquired | $22.3 | $769.4 | $791.7 | | Currency translation | ($5.8) | — | ($5.8) | | Balance at July 31, 2019 | $733.0 | $828.9 | $1,561.9 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes financial results, highlighting the impact of the Caraustar acquisition on segment performance and liquidity - The acquisition of Caraustar Industries, Inc. on February 11, 2019, significantly expanded the Paper Packaging & Services segment and is a primary driver of financial results[189] - Management anticipates global macroeconomic conditions to remain soft through 2019 due to weak industrial demand and softness in containerboard demand[211] Consolidated Adjusted EBITDA Reconciliation (Q3 2019 vs Q3 2018) | (in millions) | Three Months Ended July 31, 2019 | Three Months Ended July 31, 2018 | | :--- | :--- | :--- | | Net income | $67.5 | $72.0 | | EBITDA | $188.9 | $142.2 | | Adjusted EBITDA | $203.8 | $146.3 | Consolidated Adjusted EBITDA Reconciliation (YTD 2019 vs YTD 2018) | (in millions) | Nine Months Ended July 31, 2019 | Nine Months Ended July 31, 2018 | | :--- | :--- | :--- | | Net income | $124.4 | $184.0 | | EBITDA | $431.6 | $350.1 | | Adjusted EBITDA | $472.1 | $361.7 | Third Quarter Results The Caraustar acquisition drove higher net sales and Adjusted EBITDA, offsetting volume declines in other segments - The Paper Packaging & Services segment's Adjusted EBITDA increased by $57.9 million, primarily due to a $65.4 million contribution from the acquired Caraustar operations[220] - The Rigid Industrial Packaging & Services segment's net sales decreased by $45.5 million due to lower volumes and currency translation, but Adjusted EBITDA remained flat[214][216] Q3 2019 vs Q3 2018 Segment Performance | (in millions) | Net Sales Q3 2019 | Net Sales Q3 2018 | Adjusted EBITDA Q3 2019 | Adjusted EBITDA Q3 2018 | | :--- | :--- | :--- | :--- | :--- | | Rigid Industrial Packaging & Services | $642.1 | $687.6 | $82.8 | $82.8 | | Paper Packaging & Services | $530.0 | $236.0 | $111.0 | $53.1 | | Flexible Products & Services | $74.5 | $82.6 | $7.2 | $7.8 | | Land Management | $6.0 | $5.9 | $2.8 | $2.6 | | Total | $1,252.6 | $1,012.1 | $203.8 | $146.3 | Year-to-Date Results Year-to-date results show significant growth in sales and Adjusted EBITDA, primarily from the Caraustar acquisition - The Paper Packaging & Services segment's Adjusted EBITDA increased by $109.4 million, primarily due to a $100.3 million contribution from the acquired Caraustar operations[265] - The Rigid Industrial Packaging & Services segment's net sales decreased by $94.1 million due to currency impacts and lower volumes, with Adjusted EBITDA decreasing slightly[260][262] YTD 2019 vs YTD 2018 Segment Performance | (in millions) | Net Sales YTD 2019 | Net Sales YTD 2018 | Adjusted EBITDA YTD 2019 | Adjusted EBITDA YTD 2018 | | :--- | :--- | :--- | :--- | :--- | | Rigid Industrial Packaging & Services | $1,871.6 | $1,965.7 | $200.4 | $202.4 | | Paper Packaging & Services | $1,244.9 | $653.7 | $239.6 | $130.2 | | Flexible Products & Services | $226.6 | $246.7 | $22.8 | $20.3 | | Land Management | $19.8 | $20.0 | $9.3 | $8.8 | | Total | $3,362.9 | $2,886.1 | $472.1 | $361.7 | Liquidity and Capital Resources The company's debt increased substantially to fund the Caraustar acquisition, with sufficient liquidity for operations - The company expects capital expenditures for fiscal 2019 to be approximately $150.0 million to $170.0 million, excluding timberland investments[286] - On February 11, 2019, the company entered into a new senior secured credit agreement providing for an $800.0 million revolving credit facility and $1.675 billion in term loans[290][291] Long-Term Debt Summary | (in millions) | July 31, 2019 | October 31, 2018 | | :--- | :--- | :--- | | 2019 Credit Agreement - Term Loans | $1,633.2 | $— | | Senior Notes due 2027 | $494.1 | $— | | Senior Notes due 2021 | $222.2 | $226.5 | | Accounts receivable credit facilities | $261.3 | $150.0 | | 2019 Credit Agreement - Revolving Credit Facility | $272.4 | $— | | Total Debt (Gross) | $2,883.8 | $907.6 | | Long-term debt, net | $2,786.0 | $884.1 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's market risk profile changed significantly due to new debt instruments used to finance the Caraustar acquisition - Due to the Caraustar Acquisition and related financing, there have been significant changes in the company's financial instruments and market risk profile[326] Debt Maturity Schedule as of July 31, 2019 | (in millions) | 2019 | 2020 | 2021 | 2022 | 2023 | After 2023 | Total | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | 2019 Credit Agreement | $21 | $84 | $131 | $148 | $147 | $1,375 | $1,906 | | Senior Notes due 2021 | $— | $— | $222 | $— | $— | $— | $222 | | Senior Notes due 2027 | $— | $— | $— | $— | $— | $500 | $500 | | Receivables Facilities | $261 | $— | $— | $— | $— | $— | $261 | Item 4. Controls and Procedures Management concluded that disclosure controls were effective, excluding recent acquisitions from the internal control assessment - The company's assessment of internal controls over financial reporting for fiscal year 2019 will exclude the recent acquisitions of Caraustar and Tholu[330] - The principal executive and financial officers concluded that the company's disclosure controls and procedures were effective as of the report date[332][333] Part II. Other Information Item 1A. Risk Factors The company reports no material changes to the risk factors disclosed in its 2018 Annual Report on Form 10-K - There have been no material changes in risk factors from those disclosed in the 2018 Form 10-K[334] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None[335] Item 6. Exhibits This section lists the exhibits filed with the report, including officer certifications and XBRL data - Exhibits filed include CEO and CFO certifications pursuant to Rule 13a-14(a) and 13a-14(b) of the Securities Exchange Act of 1934[337] - The financial statements are provided in Inline XBRL format as Exhibit 101[337]