Greif, Inc. — FY2015 Form 10-K
Business context and reporting period. Greif manufactures industrial packaging, paper and corrugated products, flexible intermediate bulk containers, and related services, and manages timberland. This annual report covers the fiscal year ended October 31, 2015; references to “2015” mean the fiscal year, not calendar year. Greif operates in more than 50 countries across four reportable segments.
Financial performance and position
| Metric | FY2015 | FY2014 |
|---|---|---|
| Net sales | $3,616.7 million | $4,239.1 million |
| Gross profit / margin | $669.8 million / 18.5% | $811.0 million / 19.1% |
| Operating profit | $192.8 million | $249.3 million |
| Net income | $67.2 million | $44.9 million |
| Net income attributable to Greif | $71.9 million | $91.5 million |
| EBITDA (non-GAAP) | $324.2 million | $395.6 million |
| Operating cash flow | $206.3 million | $261.8 million |
| Capital expenditures, excluding timberland | $141.3 million | $137.9 million |
| Cash and cash equivalents at year-end | $106.2 million | $85.1 million |
| Total debt, including current portion | $1,146.9 million | $1,105.0 million |
| Total assets | $3,315.7 million | $3,667.4 million |
FY2015 basic and diluted EPS were $1.23 for Class A and $1.83 for Class B, down from $1.56 and $2.33, respectively. Annual dividends remained $1.68 per Class A share and $2.51 per Class B share.
Changes versus FY2014
- Sales fell 14.7%, primarily from foreign-currency translation (8.7 percentage points), lower volume (3.9 points, largely reflecting divestitures), and lower prices/product mix (2.1 points, mainly steel-cost pass-through).
- Operating profit decreased $56.5 million and EBITDA decreased $71.4 million. Lower gross profit, restructuring costs, asset impairments, and reduced divestiture gains outweighed lower SG&A and the absence of the prior-year goodwill impairment.
- SG&A fell 16.8% to $413.2 million, reflecting divestitures, currency effects, and cost reductions. Restructuring charges rose to $40.0 million from $16.1 million.
- Rigid Industrial Packaging sales declined to $2,586.4 million and operating profit to $86.4 million. Paper Packaging sales and operating profit were $676.1 million and $109.3 million, respectively, both lower than FY2014.
- Flexible Products sales declined to $322.6 million; its operating loss narrowed to $36.6 million from $78.6 million, helped by lower impairment charges and SG&A savings. Land Management operating profit was $33.7 million, including $24.3 million of timberland-sale gains.
- Operating cash flow declined $55.5 million. Investing cash outflow increased to $146.5 million, including a $44.2 million subordinated note receivable and $38.4 million of timberland purchases. Financing cash outflow was $20.1 million.
Liquidity, debt, and material items
- Greif reported $1,146.9 million of total debt and $106.2 million of cash at year-end. The senior secured credit facility had $706.3 million of borrowing availability after letters of credit; Greif reported compliance with its financial covenants.
- Debt maturities include $467.0 million in FY2017, a significant refinancing obligation. The company also had $147.6 million outstanding under its U.S. receivables facility, which matures in September 2016.
- Management expected operating cash flows and available borrowing and receivables facilities to cover anticipated needs for at least 12 months. FY2016 capital expenditures, excluding potential timberland purchases, were projected at approximately $110 million.
- Greif recorded $45.9 million of non-cash asset impairment charges in FY2015 and $40.0 million in restructuring charges. Management estimated approximately $45.7 million of annual run-rate savings from FY2015 restructuring activity; programs were expected to continue through early 2018.
- Greif changed its Venezuelan balance-sheet remeasurement to the SIMADI exchange rate in 2015, recognizing a $19.4 million non-deductible charge to net income, a $9.3 million inventory adjustment, and $15.0 million of property and equipment impairment. The company said its remaining net investment in Venezuela was approximately $0.5 million.
- Environmental reserves were $8.2 million at year-end, down from $24.7 million, primarily following the divestiture of the subsidiary owning the Chicago blending facility. Greif said no pending legal proceeding was material and that environmental remediation costs were adequately reserved based on current information.
Outlook, risks, and controls
Management expected FY2016 results to benefit from continued transformation initiatives, despite a sluggish global industrial economy and further U.S. dollar strength. The filing does not provide a numerical FY2016 earnings or revenue forecast. Key risks include economic and industry cyclicality, currency and political exposure, raw-material and energy price volatility, pricing pressure, restructuring execution, customer and supplier concentration, joint-venture performance, pension funding, and environmental, legal, cybersecurity, and regulatory matters.
The company disclosed material weaknesses in internal controls over international income-tax accounting and information-technology controls, including access, change management, and key reports. Management concluded controls over financial reporting and disclosure controls were not effective as of October 31, 2015; Deloitte issued an adverse opinion on internal control over financial reporting. Deloitte nevertheless issued an unqualified opinion on the consolidated financial statements.
Important facts for investors to verify
- Whether the transformation program delivers its estimated savings and improves segment profitability, particularly in rigid and flexible packaging.
- Greif’s ability to manage the FY2017 debt maturity, refinance debt, and maintain covenant compliance and access to liquidity.
- Progress in remediating tax-accounting and IT-control material weaknesses, and whether subsequent filings report effective controls.
- Exposure to further currency movements, especially the dollar’s effect on reported sales and the continuing economic and regulatory situation in Venezuela.
- Whether cash generation supports planned capital spending, dividends, pension contributions, and restructuring costs; the filing cites aggregate U.S. and non-U.S. pension underfunding of $156.0 million and expected FY2016 contributions of approximately $17.2 million.