GREIF, INC (GEF) FY 2020 MD&A

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The terms “Greif,” the “Company,” “we,” “us” and “our” as used in this discussion refer to Greif, Inc. and its subsidiaries.

COVID-19

The impact of COVID-19 on our future results of operations and financial condition is highly uncertain at this time and outside of our control. The scope, duration and magnitude of the effects of COVID-19 are evolving rapidly and in ways that are difficult or impossible to anticipate.

RESULTS OF OPERATIONS

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements, in accordance with these principles, require us to make estimates and assumptions that affect the reported amount of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of our consolidated financial statements.

Historical revenues and earnings may or may not be representative of future operating results due to various economic and other factors.

The non-GAAP financial measures of EBITDA and Adjusted EBITDA are used throughout the following discussion of our results of operations, both for our consolidated and segment results. For our consolidated results, EBITDA is defined as net income, plus interest expense, net, plus debt extinguishment charges, plus income tax expense, plus depreciation, depletion and amortization, and Adjusted EBITDA is defined as EBITDA plus restructuring charges, plus acquisition and integration related costs, plus non-cash asset impairment charges, plus non-cash pension settlement (income) charges, plus incremental COVID-19 costs, net, less (gain) loss on disposal of properties, plants, equipment and businesses, net. Since we do not calculate net income by business segment, EBITDA and Adjusted EBITDA by business segment are reconciled to operating profit by business segment. In that case, EBITDA is defined as operating profit by business segment less other (income) expense, net, less non-cash pension settlement (income) charges, less equity earnings of unconsolidated affiliates, net of tax, plus depreciation, depletion and amortization expense for that business segment, and Adjusted EBITDA is defined as EBITDA plus restructuring charges, plus acquisition and integration related costs, plus non-cash asset impairment charges, plus non-cash pension settlement (income) charges, plus incremental COVID-19 costs, net, less (gain) loss on disposal of properties, plants, equipment and businesses, net, for that business segment. We use EBITDA and Adjusted EBITDA as financial measures to evaluate our historical and ongoing operations and believe that these non-GAAP financial measures are useful to enable investors to perform meaningful comparisons of our historical and current performance. In addition, we present our U.S. and non-U.S. income before income taxes after eliminating the impact of non-cash asset impairment charges, non-cash pension settlement (income) charges, restructuring charges, acquisition and integration related costs, plus incremental COVID-19 costs, net, and (gains) losses on sales of businesses, net, which are non-GAAP financial measures. We believe that excluding the impact of these adjustments enable investors to perform a meaningful comparison of our current and historical performance that investors find valuable. The foregoing non-GAAP financial measures are intended to supplement and should be read together with our financial results. These non-GAAP financial measures should not be considered an alternative or substitute for, and should not be considered superior to, our reported financial results. Accordingly, users of this financial information should not place undue reliance on the non-GAAP financial measures.

The following table sets forth the net sales, operating profit (loss), EBITDA and Adjusted EBITDA for each of our business segments for 2020, 2019 and 2018:

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The following table sets forth EBITDA and Adjusted EBITDA, reconciled to net income and operating profit, for our consolidated results for 2020, 2019 and 2018:

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The following table sets forth EBITDA and Adjusted EBITDA for each of our business segments, reconciled to the operating profit for each segment, for 2020, 2019 and 2018:

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Year 2020 Compared to Year 2019

Net Sales

Net sales were $4,515.0 million for 2020 compared with $4,595.0 million for 2019. The $80.0 million decrease was primarily due to decreased volumes and sale prices across the segments, the impact to net sales resulting from the Consumer Packaging Group ("CPG") divestiture, and the negative impacts of foreign currency translation, partially offset by a full year contribution from the acquired Caraustar operations.

Gross Profit

Gross profit was $914.7 million for 2020 compared with $959.9 million for 2019. The respective reasons for the improvement or decline in gross profit, as the case may be, for each segment are described below in the "Segment Review." Gross profit margin was 20.3 percent for 2020 compared to 20.9 percent for 2019.

Selling, General and Administrative Expenses

Selling, general and administrative ("SG&A") expenses increased $8.6 million to $516.0 million for 2020 from $507.4 million for 2019. SG&A expenses were 11.4 percent of net sales for 2020 compared with 11.0 percent of net sales for 2019.

Restructuring Charges

Restructuring charges were $38.7 million for 2020 compared with $26.1 million for 2019. The increase in restructuring charges was primarily due to increased strategic restructuring efforts within the Rigid Industrial Packaging & Services segment. See Note 4 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for additional information.

Acquisition and Integration Related Costs

Acquisition and integration related costs were $17.0 million for 2020 compared with $29.7 million for 2019. The decrease was primarily due to fewer expenses incurred in connection with the Caraustar Acquisition and related integration activities.

Impairment Charges

There were no goodwill impairment charges for 2020 and 2019.

Non-cash asset impairment charges were $18.5 million for 2020 compared with $7.8 million for 2019. In 2020, these charges were primarily related to plant closures. See Note 7 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for additional information.

Gain on Disposal of Properties, Plants and Equipment, net

The gain on disposal of properties, plants, and equipment, net was $19.2 million and $13.9 million for 2020 and 2019, respectively.

Loss on Disposal of Businesses, net

The loss on disposal of business, net was $38.8 million for 2020 and $3.7 million for 2019. The current year disposal of business, net was primarily due to goodwill allocated to the divestiture of the CPG business. See Note 2 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for additional information.

Financial Measures

Operating profit was $304.9 million for 2020 compared with $399.1 million for 2019. Net income was $124.3 million for 2020 compared with $194.2 million for 2019. Adjusted EBITDA was $642.6 million for 2020 compared with $658.9 million for 2019. The respective reasons for the improvement or decline in Adjusted EBITDA, as the case may be, for each segment are described below in the "Segment Review."

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Trends

We anticipate demand growth in the industrial manufacturing businesses but continued lingering uncertainty in the global economy to continue in early 2021. Raw material prices for old corrugated containers are expected to increase, while prices for steel, resin and recycled coated and uncoated paperboard are expected to remain relatively stable after the first quarter of 2021. Additionally, we expect higher transportation and insurance costs due to tighter market conditions and higher incentive accruals to impact costs of goods sold and SG&A.

Segment Review

Rigid Industrial Packaging & Services

Key factors influencing profitability in the Rigid Industrial Packaging & Services segment are:

•Selling prices, product mix, customer demand and sales volumes;

•Raw material costs, primarily steel, resin, containerboard and used industrial packaging for reconditioning;

•Energy and transportation costs;

•Benefits from executing the Greif Business System;

•Restructuring charges;

•Acquisition of businesses and facilities;

•Divestiture of businesses and facilities; and

•Impact of foreign currency translation.

Net sales were $2,298.9 million for 2020 compared with $2,490.6 million for 2019. The $191.7 million decrease in net sales was due primarily to decreased volumes and decreased average sale prices driven by contractual price adjustment mechanisms related to raw material price decreases, as well as negative impacts of foreign currency translation.

Gross profit was $465.3 million for 2020 compared with $460.1 million for 2019. The $5.2 million increase in gross profit was primarily due to lower priced raw materials, the timing of contractual pass through arrangements, product mix shifts, and strategic pricing actions. Gross profit margin increased to 20.2 percent in 2020 from 18.5 percent in 2019.

Operating profit was $209.9 million for 2020 compared with $179.6 million for 2019. The $30.3 million increase was primarily attributable to a decrease in the segment's SG&A expenses due to strategic cost management efforts. Adjusted EBITDA was $297.5 million for 2020 compared with $269.9 million for 2019. The $27.6 million increase was primarily due to the same factors that impacted operating profit. Depreciation and amortization expense was $78.9 million and $76.3 million for 2020 and 2019, respectively.

Paper Packaging & Services

Key factors influencing profitability in the Paper Packaging & Services segment are:

•Selling prices, product mix, customer demand and sales volumes;

•Raw material costs, primarily old corrugated containers;

•Energy and transportation costs;

•Benefits from executing the Greif Business System;

•Acquisition of businesses and facilities;

•Restructuring charges; and

•Divestiture of businesses and facilities.

Net sales were $1,916.9 million for 2020 compared with $1,780.0 million for 2019. The $136.9 million increase was primarily due to full year contribution from the acquired Caraustar operations, partially offset by lower published containerboard and boxboard prices, decreased volumes, and the impact to net sales resulting from the CPG divestiture.

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Gross profit was $382.7 million for 2020 compared with $425.4 million for 2019. The decrease in gross profit was primarily due to the same factors that impacted net sales and higher old corrugated container input costs. Gross profit margin decreased 20.0 percent in 2020 from 23.9 percent 2019.

Operating profit was $71.0 million for 2020 compared with $184.3 million for 2019. The decrease in operating profit was primarily due to the factors discussed above in gross profit, the loss on sale of the CPG divestiture and the segment receiving a greater portion of allocated corporate costs. Adjusted EBITDA was $306.4 million for 2020 compared with $348.3 million for 2019. The decrease was due primarily to the same factors that impacted gross profit and the segment receiving a greater portion of allocated corporate costs. Depreciation and amortization expense was $153.5 million and $119.3 million for 2020 and 2019, respectively.

Flexible Products & Services

Key factors influencing profitability in the Flexible Products & Services segment are:

•Selling prices, product mix, customer demand and sales volumes;

•Raw material costs, primarily resin;

•Energy and transportation costs;

•Benefits from executing the Greif Business System;

•Restructuring charges;

•Divestiture of businesses and facilities; and

•Impact of foreign currency translation.

Net sales were $272.9 million for 2020 compared with $297.5 million for 2019. The $24.6 million decreased was primarily due to continued lower volumes and lower average sale prices primarily as a result of raw material price decreases and corresponding contractual price adjustment mechanisms.

Gross profit was $57.5 million for 2020 compared with $64.2 million for 2019. The decrease was primarily attributable to the same factors that impacted net sales. Gross profit margin decreased to 21.1 percent in 2020 from 21.6 percent in 2019.

Operating profit was $15.5 million for 2020 compared with $25.3 million for 2019. The decrease in operating profit was primarily due to the same factors that impacted gross profit, partially offset by a reduction in segment SG&A expenses. Adjusted EBITDA was $26.8 million for 2020 compared with $28.6 million for 2019. The decrease was due to lower gross profit. Depreciation and amortization expense was $5.6 million for 2020 compared with $6.2 million for 2019.

Land Management

As of October 31, 2020, our Land Management segment consisted of approximately 244,000 acres of timber properties in the southeastern United States. Key factors influencing profitability in the Land Management segment are:

•Planned level of timber sales;

•Selling prices and customer demand;

•Gains on timberland sales; and

•Gains on the disposal of development, surplus and HBU properties (“special use property”).

In order to maximize the value of our timber properties, we continue to review our current portfolio and explore the development of certain of these properties. This process has led us to characterize our property as follows:

•Surplus property, meaning land that cannot be efficiently or effectively managed by us, whether due to parcel size, lack of productivity, location, access limitations or for other reasons;

•HBU property, meaning land that in its current state has a higher market value for uses other than growing and selling timber;

•Development property, meaning HBU land that, with additional investment, may have a significantly higher market value than its HBU market value; and

•Core Timberland, meaning land that is best suited for growing and selling timber.

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We report the sale of timberland property in "timberland gains," the sale of HBU and surplus property in “gain on disposal of properties, plants and equipment, net” and the sale of timber and development property under “net sales” and “cost of products sold" in our consolidated statements of income. All HBU and development property, together with surplus property, is used to productively grow and sell timber until the property is sold.

Whether timberland has a higher value for uses other than growing and selling timber is a determination based upon several variables, such as proximity to population centers, anticipated population growth in the area, the topography of the land, aesthetic considerations, including access to lakes or rivers, the condition of the surrounding land, availability of utilities, markets for timber and economic considerations both nationally and locally. Given these considerations, the characterization of land is not a static process, but requires an ongoing review and re-characterization as circumstances change.

As of October 31, 2020, we estimated that there were 18,800 acres in the United States of special use property, which we expect will be available for sale in the next four to six years.

Net sales decreased to $26.3 million for 2020 compared with $26.9 million for 2019.

Operating profit decreased to $8.5 million for 2020 from $9.9 million for 2019.

Adjusted EBITDA was $11.9 million and $12.1 million for 2020 and 2019, respectively. Depreciation, depletion and amortization expense was $4.5 million and $4.3 million for 2020 and 2019, respectively.

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U.S. and Non-U.S. Income before Income Tax Expense

See the following tables for details of the U.S. and non-U.S. income before income taxes and U.S. and non-U.S. income before income taxes after eliminating the impact of non-cash asset impairment charges, non-cash pension settlement income, restructuring charges, acquisition and integration related costs, debt extinguishment charges, and losses on sales of businesses (collectively, "Adjustments").

Income Tax Expense

We had operations in over 40 countries during 2020. Operations outside the United States are subject to additional risks that may not exist, or be as significant, within the United States. Because of our global operations in numerous countries we are required to address different and complex tax systems and issues which are constantly changing.

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Preparation of our financial statements requires the use of estimates and assumptions that affect the reported amounts of our assets and liabilities; and revenues and expenses as of the balance sheet date. The numerous tax jurisdictions in which we operate, along with the variety and complexity of the various tax laws, creates a level of uncertainty, and requires judgment when addressing the impact of complex tax issues. Our effective tax rate and the amount of tax expense are dependent upon various factors, including the following: the tax laws of the jurisdictions in which income is earned; the ability to realize deferred tax assets; negotiation and dispute resolution with taxing authorities in the U.S. and international jurisdictions; and changes in tax laws.

The provision for income taxes is computed using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized currently based on the anticipated future tax consequences of changes in the temporary differences between the book and tax bases of assets and liabilities. This method includes an estimate of the future realization of tax benefits associated with tax losses. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those assets are expected to be realized or settled.

Income tax expense for 2020 was $63.3 million on $186.1 million of pretax income and for 2019 was $70.7 million on $262.0 million of pretax income. For 2020, the mix of income and losses among various jurisdictions resulted in a net tax decrease of $17.0 million on $75.9 million less of pretax income, which was offset by additional tax expense of $7.5 million related to non-deductible goodwill allocated to the CPG divestiture. Various other items resulted in a net tax increase of $2.1 million.

Included in the net tax decrease of $17.0 million noted in the previous paragraph was a $28.4 million net decrease in valuation allowances. This decrease was primarily due to the ability to utilize foreign tax credits for which a valuation allowance had previously been provided. The release of the valuation allowance related to foreign tax credits resulted in the reduction of the valuation allowance and a tax benefit of $21.5 million. Other decreases in the valuation allowances related to foreign jurisdictions resulted in an additional decrease of $6.9 million. The valuation allowance activity resulted in an overall decrease in the valuation allowance account from 2019 to 2020 of $34.7 million. Offsetting these amounts was tax expense of $31.0 million as a result of a one-time elimination related to an intra-company sale. This one-time activity was the primary driver that resulted in an overall net increase in permanent items for 2019 to 2020 of $28.3 million

We analyze potential income tax liabilities related to uncertain tax positions in the United States and international jurisdictions. The analysis of potential income tax liabilities results in estimates of income tax liabilities recognized for uncertain tax positions following the guidance of ASC 740, “Income Taxes.” The estimation of potential tax liabilities related to uncertain tax positions involves significant judgment in evaluating the impact of uncertainties in the application of ASC 740 and complex tax laws. We periodically analyze both potential income tax liabilities and existing liabilities for uncertain tax positions resulting in both new reserves and adjustments to existing reserves in light of changing facts and circumstances. This includes the release of existing liabilities for uncertain tax positions based on the expiration of statutes of limitation. During 2020, lapses in the statute of limitations, which were partially offset by the recognition of new uncertain tax position liabilities recorded during the current year, resulted in an overall net decrease in our uncertain tax position liability.

The ultimate resolution of potential income tax liabilities may result in a payment that is materially different from our current estimates. If our estimates recognized under ASC 740 prove to be different than what is ultimately resolved, such resolution could have a material impact on our financial condition and results of operations. While predicting the final outcome or the timing of the resolution of any particular tax matter is subject to various risks and uncertainties, we believe that our tax accounts related to uncertain tax positions are appropriately stated.

See Note 9 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for further information.

Net Income Attributable to Noncontrolling Interests

Net income attributable to noncontrolling interests represents the portion of earnings from the operations of our non-wholly owned, consolidated subsidiaries that belongs to the noncontrolling interests in those subsidiaries. Net income attributable to noncontrolling interests was $15.5 million and $23.2 million for 2020 and 2019, respectively. The decrease in net income attributable to noncontrolling interests was due primarily to decreased earnings of the joint venture ("Flexible Packaging JV") formed in 2010, with Dabbagh Group Holdings Company Limited and one of its subsidiaries, originally National Scientific Company Limited and now Gulf Refined Packaging for Industrial Packaging Company LTD.

Year 2019 Compared to Year 2018

Results of year 2019 compared to year 2018 are included in our Annual Report on Form 10-K for the year ended October 31, 2019, File No. 001-00566 (see Item 7 therein).

OTHER COMPREHENSIVE INCOME CHANGES

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Other comprehensive loss, net of tax for 2020 and 2019 was $6.7 million and $55.9 million, respectively. The components of those other comprehensive income changes were as follows:

Foreign Currency Translation

In accordance with ASC 830, “Foreign Currency Matters,” the assets and liabilities denominated in a foreign currency are translated into United States Dollars at the rate of exchange existing at the end of the current period, and revenues and expenses are translated at average exchange rates over the month in which they are incurred. The cumulative translation adjustments, which represent the effects of translating assets, liabilities and operations of our international subsidiaries, are presented in the consolidated statements of changes in equity in accumulated other comprehensive loss. Other comprehensive loss resulting from foreign currency translation for 2020 and 2019 was $9.8 million and $4.5 million, respectively.

Derivative Financial Instruments

The change in derivative financial instruments, net of tax for 2020 and 2019 was a loss of $12.0 million and a loss of $26.1 million, respectively. The other comprehensive loss in 2020 resulting from the change in derivative financial instruments, net, was primarily due to decreases in market interest rates on the swaps.

Minimum Pension Liability, net

The change in minimum pension liability, net of tax for 2020 and 2019 was an income of $15.1 million and loss of $25.3 million, respectively. The other comprehensive income in 2020 resulting from the change in minimum pension liability, net was primarily due to higher actual returns compared to assumptions on plan assets and amortization of prior net plan losses.

BALANCE SHEET CHANGES

Working Capital Changes

The $27.6 million decrease in accounts receivable to $636.6 million as of October 31, 2020 from $664.2 million as of October 31, 2019 was primarily due to the CPG divestiture and decrease in net sales.

The $64.6 million decrease in inventories to $293.6 million as of October 31, 2020 from $358.2 million as of October 31, 2019 was primarily due to the CPG divestiture and strong demand at the end of the year.

The $15.5 million increase in accounts payable to $450.7 million as of October 31, 2020 from $435.2 million as of October 31, 2019 was primarily due to the timing of payments, offset by the CPG divestiture.

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity are operating cash flows and borrowings under our senior secured credit facilities, proceeds from the senior notes we have issued, and proceeds from our trade accounts receivable credit facilities. We use these sources to fund our working capital needs, capital expenditures, cash dividends, common stock repurchases and acquisitions. We anticipate continuing to fund these items in a like manner. We currently expect that operating cash flows, borrowings under our senior secured credit facilities, and proceeds from our trade accounts receivable credit facilities will be sufficient to fund our anticipated working capital, capital expenditures, cash dividends, stock purchases, debt repayment, potential acquisitions of businesses and other liquidity needs for at least 12 months.

Capital Expenditures

During 2020 and 2019, we invested $131.4 million (excluding $5.4 million for purchases of and investments in timber properties) and $156.9 million (excluding $5.4 million for purchases of and investments in timber properties), respectively, in capital expenditures.

United States Trade Accounts Receivable Credit Facility

On September 24, 2020, we amended our existing receivables facility in the United States (the "U.S. Receivables Facility") to decrease the available financing amount from $275.0 million to $250.0 million. The U.S. Receivables Facility matures on September 24, 2021. As of October 31, 2020, $232.8 million, net of deferred financing costs of $0.2 million, was outstanding under the U.S. Receivable Facility, which was reported in long-term debt in the consolidated balance sheets because we intend to refinance the obligation on a long-term basis and have the intent and ability to consummate a long-term refinancing by exercising the renewal option in the agreement or entering into a new financing arrangement.

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We may terminate the U.S. Receivables Facility at any time upon five days prior written notice. The U.S. Receivables Facility is secured by certain of our United States trade accounts receivables and bears interest at a variable rate based on the London Interbank Offered Rate (“LIBOR”) or an applicable base rate, plus a margin, or a commercial paper rate plus a margin. Interest is payable on a monthly basis and the principal balance is payable upon termination of the U.S. Receivables Facility. The U.S. Receivables Facility also contains certain covenants and events of default, which are substantially the same as the covenants under the 2019 Credit Agreement. See "Borrowing Arrangements - 2019 Credit Agreement" below for a description of these covenants. As of October 31, 2020, we were in compliance with these covenants. Proceeds of the U.S. Receivables Facility are available for working capital and general corporate purposes.

See Note 6 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for additional information regarding the U.S. Receivables Facility.

International Trade Accounts Receivable Credit Facilities

On April 17, 2020, Cooperage Receivables Finance B.V. and Greif Coordination Center BVBA, an indirect wholly owned subsidiary of Greif, Inc., amended and restated the Nieuw Amsterdam Receivables Financing Agreement (the "European RFA"). The European RFA provides an accounts receivable financing facility of up to €100.0 million ($117.5 million as of October 31, 2020) secured by certain European accounts receivable. The $77.2 million outstanding on the European RFA as of October 31, 2020 is reported as 'Long-term debt' on the interim condensed consolidated balance sheets because we intend to refinance these obligations on a long-term basis and have the intent and ability to consummate a long-term refinancing by exercising the renewal option in the respective agreement or entering into new financing arrangements.

See Note 6 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for additional information regarding the European RFA.

Borrowing Arrangements

Long-term debt is summarized as follows:

2019 Credit Agreement

On February 11, 2019, we and certain of our subsidiaries entered into an amended and restated senior secured credit agreement (the “2019 Credit Agreement”) with a syndicate of financial institutions. Our obligations under the 2019 Credit Agreement are guaranteed by certain of our U.S. and 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 A-1 loan 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 A-2 loan with quarterly principal installments commencing on April 30, 2019 and continuing through maturity on January 31, 2026. In addition, we have 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. As of October 31, 2020, we had $538.1 million of available borrowing capacity under the $800.0 million secured revolving credit facility provided by the 2019 Credit Agreement. The available borrowing capacity is determined by the lesser of the available capacity or the amount that could be borrowed without causing the Company's leverage ratio to exceed 4.50 to 1.00.

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On November 13, 2020, we and certain of our U.S. subsidiaries entered into an incremental term loan agreement (the "Incremental Term A-3 Loan Agreement") with a syndicate of farm credit institutions. The Incremental Term A-3 Loan Agreement constitutes an amendment to the 2019 Credit Agreement. The Incremental Term A-3 Loan Agreement provides for a loan commitment in the aggregate principal amount of $225.0 million that must be funded in a single draw on a business day occurring on or before July 15, 2021 (the "Incremental Term A-3 Loan"). The Incremental Term A-3 Loan matures on July 15, 2026, with quarterly installments of principal payable on the last day of each of our fiscal quarters commencing with the first such date to occur after the funding date. The Incremental Term A-3 has, for all material purpose, the identical terms and provisions as the term A-1 and the term A-2 loans under the 2019 Credit Agreement, discussed above. Our obligations with respect to the Incremental Term A-3 Loan will constitute obligations under the 2019 Credit Agreement and will be secured and guaranteed with the other obligations as provided under the 2019 Credit Facility on a pari passu basis. We intend to draw upon Incremental Term A-3 Loan prior to July 15, 2021, and use the loan proceeds to pay all of the outstanding principal of and interest on the Senior Notes due 2021, discussed below.

The 2019 Credit Agreement contains certain covenants, which include financial covenants that require us to maintain a certain leverage ratio and an interest coverage ratio. The leverage ratio generally requires that, at the end of any quarter, we will not permit the ratio of (a) our total consolidated indebtedness, to (b) our consolidated net income plus depreciation, depletion and amortization, interest expense (including capitalized interest), income taxes, and minus certain extraordinary gains and non-recurring gains (or plus certain extraordinary losses and non-recurring losses) and plus or minus certain other items for the preceding twelve months (as used in this paragraph only, “EBITDA”) to be greater than 4.75 to 1.00 and stepping down annually by 0.25 increments beginning on July 31, 2020 to 4.00 on July 31, 2023. The current leverage ratio covenant requirement was 4.50 as of October 31, 2020. The interest coverage ratio generally requires that, at the end of any quarter, we will not permit the ratio of (a) our consolidated EBITDA, to (b) our consolidated interest expense to the extent paid or payable, to be less than 3.00 to 1.00, during the applicable preceding twelve month period. As of October 31, 2020, we were in compliance with the covenants and other agreements in the 2019 Credit Agreement.

See Note 6 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for additional disclosures regarding the 2019 Credit Agreement.

Senior Notes

On February 11, 2019, we 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. Our obligations under the Senior Notes due 2027 are guaranteed by our U.S. subsidiaries that guarantee the 2019 Credit Agreement, as described above. The Senior Notes due 2027 are governed by an Indenture that contains various covenants. Certain of these covenants will be suspended if the Senior Notes due 2027 achieve investment grade ratings from both Moody’s Investors Service, Inc. and Standard & Poor’s Global Ratings and no default or event of default has occurred and is continuing. As of October 31, 2020, we were in compliance with these covenants.

Our Luxembourg subsidiary has issued €200.0 million of 7.375% Senior Notes due July 15, 2021 (the "Senior Notes due 2021"). Interest on the Senior Notes due 2021 is payable semi-annually. The Senior Notes due 2021 are guaranteed on a senior basis by Greif, Inc. The Senior Notes due 2021 are governed by an Indenture that contains various covenants. As of October 31, 2020, we were in compliance with these covenants. As discussed above, we intend to draw upon the Incremental Term A-3 Loan prior to July 15, 2021, and use the loan proceeds to pay all of the outstanding principal of and interest on the Senior Notes due 2021.

See Note 6 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for additional disclosures regarding the Senior Notes discussed above.

Financial Instruments

Interest Rate Derivatives

We have various borrowing facilities which charge interest based on the one-month U.S. dollar LIBOR rate plus a spread. Refer to Note 1 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for discussion of ASU 2020-04 "Reference Rate Reform" for the our considerations of the impact of reference rate reform on contracts utilizing LIBOR rates.

In 2020, we entered into four forward starting interest rate swaps with a total notional amount of $200.0 million effective July 15, 2021. We receive variable rate interest payments based upon one-month U.S. dollar LIBOR, and in return we are obligated to pay interest at a weighted-average interest rate of 0.90% plus a spread.

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In 2019, we 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 was $600.0 million as of October 31, 2020. We receive variable rate interest payments based upon one-month U.S. dollar LIBOR, and in return we are obligated to pay interest at a weighted-average interest rate of 2.49%.

In 2017, we entered into an interest rate swap with a notional amount of $300.0 million and received variable rate interest payments based upon one-month U.S. dollar LIBOR, and in return we are obligated to pay interest at a fixed rate of 1.19% plus a 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 transaction affects earnings.

See Note 7 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for additional disclosures regarding our interest rate derivatives.

Foreign Exchange Hedges

We conduct business in international currencies and are subject to risks associated with changing foreign exchange rates. Our objective is to reduce volatility associated with foreign exchange rate changes to allow management to focus its attention on business operations. Accordingly, we enter into various contracts that change in value as foreign exchange rates change to protect the value of certain existing foreign currency assets and liabilities, commitments and anticipated foreign currency cash flows.

As of October 31, 2020, and 2019, we had outstanding foreign currency forward contracts in the notional amount of $268.6 million and $275.0 million, respectively.

See Note 7 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for additional disclosures regarding our foreign exchange hedges.

Cross Currency Swap

We have operations and investments in various international locations and are subject to risks associated with changing foreign exchange rates. On March 6, 2018, we 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 from the cross currency swap are excluded from the net investment hedge effectiveness assessment and are recorded in interest expense, net on the consolidated statements of income.

See Note 7 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for additional disclosures regarding our cross currency swap.

Contractual Obligations

As of October 31, 2020, we had the following contractual obligations:

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Environmental reserves are estimates based on current remediation plans; actual liabilities could significantly differ from the reserve estimates.

We have no near-term post-retirement benefit plan funding obligations. Because the amount of such obligations in future years is not reasonably estimable, they have been excluded from the contractual obligations table. We intend to make post-retirement benefit plan contributions of $30.0 million during 2021, which consists of $24.7 million of employer contributions and $5.3 million of benefits paid directly by the employer. These contributions are not contractually obligated, and therefore are not included in the table above.

Our unrecognized tax benefits under ASC 740, “Income Taxes” have been excluded from the contractual obligations table because of the inherent uncertainty and the inability to reasonably estimate the timing of cash outflows.

Stock Repurchase Program and Other Share Acquisitions

Our Board of Directors has authorized the repurchase of Class A Common Stock or Class B Common Stock or any combination of the foregoing. As of October 31, 2020, the remaining number of shares that could be repurchased under this authorization was 4,703,487 shares. See Note 12 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for additional information regarding this program and the repurchase of shares of Class A and Class B Common Stock.

Effects of Inflation

We generally identify hyper-inflationary markets as those markets whose cumulative inflation rate over a three-year period exceeds 100%. During the third quarter of 2018, Argentina was deemed as a hyper-inflationary market and our Argentine operations changed functional currency from Argentine Pesos to U.S. Dollars for GAAP reporting purposes. As a result, non-U.S. Dollar denominated monetary assets and liabilities of our Argentine operations are subject to re-measurement and recorded in Other Expense, Net, within the Consolidated Statements of Income. During 2020, foreign currency losses, net recorded in Other expense, net, related to our Argentine operations were $2.8 million. Inflation did not have a material impact on our operations during 2020.

Critical Accounting Policies

A summary of our significant accounting policies is included in Note 1 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K. We believe that the consistent application of these policies enables us to provide readers of the consolidated financial statements with useful and reliable information about our results of operations and financial condition. The following are the accounting policies that we believe are most important to the portrayal of our results of operations and financial condition and require our most difficult, subjective or complex judgments.

Other items that could have a significant impact on the financial statements include the risks and uncertainties listed in Part I, Item 1A – Risk Factors. Actual results could differ materially using different estimates and assumptions, or if conditions are significantly different in the future.

Goodwill and Indefinite-Lived Intangibles Impairment Testing. We account for goodwill in accordance with ASC 350, “Intangibles – Goodwill and Other.” Under ASC 350, purchased goodwill is not amortized, but instead is tested for impairment either annually on August 1 or when events and circumstances indicate an impairment may have occurred. Our goodwill impairment assessment is performed by reporting unit. A reporting unit is the operating segment, or a business one level below that operating segment (the component level) if discrete financial information is prepared and regularly reviewed by segment management. However, components are aggregated as a single reporting unit if they have similar economic characteristics. In conducting the annual impairment tests, the estimated fair value of each of our reporting units is compared to its carrying amount including goodwill. If the estimated fair value exceeds the carrying amount, then no impairment exists. If the carrying amount exceeds the estimated fair value we record an impairment of goodwill equal to the amount by which the carrying value exceeds the fair value of the reporting unit, not to exceed the recorded amount of goodwill.

The Rigid Industrial Packaging & Services reportable segment consists of five operating segments: Rigid Industrial Packaging & Services – North America; Rigid Industrial Packaging & Services – Latin America; Rigid Industrial Packaging & Services – Europe, Middle East and Africa; Rigid Industrial Packaging & Services – Asia Pacific; and Rigid Industrial Packaging & Services – Tri-Sure. Each of these operating segments also qualify as a component that has discrete financial information available that is reviewed by segment management on a regular basis. As such, these components also represent our reporting units for purposes of goodwill impairment testing.

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The Paper Packaging & Services reportable segment is also an operating segment. This operating segment consists of multiple components that have discrete financial information available that is reviewed by segment management on a regular basis. We have evaluated those components and concluded that they are economically similar and should be aggregated into single reporting unit. For the purpose of aggregating our components, we review the long-term performance of gross profit margin and operating profit margin. Additionally, we review qualitative factors such as common customers, similar products, similar manufacturing processes, sharing of resources, level of integration, and interdependency of processes across components. We place greater weight on the qualitative factors outlined in ASC 280 “Segment Reporting” and consider the guidance in ASC 350 in determining whether two or more components of an operating segment are economically similar and can be aggregated into a single reporting unit. However, our assessment of the aggregation includes both qualitative and quantitative factors and is based on the facts and circumstances specific to the components.

The estimated fair value of the reporting units utilized in the impairment test is based on a discounted cash flow analysis or income approach and market multiple approach. Under this method, the principal valuation focus is on the reporting unit’s cash-generating capabilities. The discount rates used for impairment testing are based on a market participant’s weighted average cost of capital. The use of alternative estimates, peer groups or changes in the industry, or adjusting the discount rate, earnings before interest, taxes, depreciation, depletion and amortization multiples or price earnings ratios used could affect the estimated fair value of the assets and potentially result in impairment. Any identified impairment would result in an adjustment to our results of operations.

In performing the test, we first evaluate qualitative factors, such as macroeconomic conditions and our overall financial performance to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. We then evaluate how significant each of the identified factors could be to the fair value or carrying amount of a reporting unit and weigh those factors in totality in forming a conclusion of whether or not it is more likely than not that the fair value of a reporting unit is less than its carrying amount (the Step 0 Test). If necessary, the next step in the goodwill impairment test involves comparing the fair value of each of the reporting units to the carrying value of those reporting units. If the carrying value of a reporting unit exceeds the fair value of the reporting unit, an impairment loss would be recognized (not to exceed the carrying amount of goodwill). We did not utilize any Step 0 tests in 2020.

For our Rigid Industrial Packaging & Services - North America; Rigid Industrial Packaging & Services - Europe, Middle East and Africa; Rigid Industrial Packaging & Services - Asia Pacific; Rigid Industrial Packaging & Services - Tri-Sure; and Paper Packaging & Services reporting unit, we proceeded directly to the quantitative impairment testing. The fair value of each reporting unit was substantially in excess of its respective carrying value, with a minimum cushion of 27% for the Paper Packaging & Services reporting unit, so no impairment was deemed to exist. Discount rates, revenue growth rates and other cash flow projections are the assumptions that are most sensitive and susceptible to change as they require significant management judgment. In addition, certain future events and circumstances, including deterioration of market conditions, higher cost of capital, a decline in actual and expected consumption and demand, could result in changes to those assumptions and judgments. A revision of those assumptions could cause the fair value of the reporting unit to fall below its respective carrying value. As for all of our reporting units, if in future years, the reporting unit's actual results are not consistent with our estimates and assumptions used to calculate fair value, we may be required to recognize material impairments to goodwill.

The following table summarizes the carrying amount of goodwill by reporting unit for the year ended October 31, 2020 and 2019:

We test for impairment of indefinite-lived intangible assets during the fourth quarter of each year as of August 1, or more frequently if certain indicators are present or changes in circumstances suggest that impairment may exist.

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Recent Accounting Standards

See Note 1 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for a detailed description of recently issued and newly adopted accounting standards.