GREIF INC, 10-K filed on 12/21/2015
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Oct. 31, 2015
Dec. 16, 2015
Class A Common Stock [Member]
Apr. 30, 2015
Class A Common Stock [Member]
Dec. 16, 2015
Class B Common Stock [Member]
Apr. 30, 2015
Class B Common Stock [Member]
Document Information [Line Items]
 
 
 
 
 
Document Type
10-K 
 
 
 
 
Amendment Flag
false 
 
 
 
 
Document Period End Date
Oct. 31, 2015 
 
 
 
 
Document Fiscal Year Focus
2015 
 
 
 
 
Document Fiscal Period Focus
FY 
 
 
 
 
Trading Symbol
GEF 
 
 
 
 
Entity Registrant Name
GREIF INC 
 
 
 
 
Entity Central Index Key
0000043920 
 
 
 
 
Current Fiscal Year End Date
--10-31 
 
 
 
 
Entity Well-known Seasoned Issuer
Yes 
 
 
 
 
Entity Current Reporting Status
Yes 
 
 
 
 
Entity Voluntary Filers
No 
 
 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
 
 
Entity Common Stock, Shares Outstanding
 
25,693,564 
 
22,119,966 
 
Entity Public Float
 
 
$ 998,275,979 
 
$ 262,993,353 
Consolidated Statements of Income (USD $)
12 Months Ended
Oct. 31, 2015
Oct. 31, 2014
Oct. 31, 2013
Net sales
$ 3,616,700,000 
$ 4,239,100,000 
$ 4,219,900,000 
Costs of products sold
2,946,900,000 
3,428,100,000 
3,387,700,000 
Gross profit
669,800,000 
811,000,000 
832,200,000 
Selling, general and administrative expenses
413,200,000 
496,700,000 
477,300,000 
Restructuring charges
40,000,000 
16,100,000 
4,800,000 
Timberland gains
(24,300,000)
(17,100,000)
(17,300,000)
Non-cash asset impairment charges
45,900,000 
35,500,000 
31,400,000 
Goodwill impairment charges
 
50,300,000 
 
Gain on disposal of properties, plants and equipment, net
(7,000,000)
(8,300,000)
(5,600,000)
(Gain) loss on disposal of businesses, net
9,200,000 
(11,500,000)
 
Operating profit
192,800,000 
249,300,000 
341,600,000 
Interest expense, net
74,800,000 
81,800,000 
83,800,000 
Debt extinguishment charges
 
 
1,300,000 
Other expense, net
3,200,000 
9,500,000 
13,100,000 
Income before income tax expense and equity earnings of unconsolidated affiliates, net
114,800,000 
158,000,000 
243,400,000 
Income tax expense
48,400,000 
115,000,000 
98,800,000 
Equity earnings of unconsolidated affiliates, net of tax
800,000 
1,900,000 
2,900,000 
Net income
67,200,000 
44,900,000 
147,500,000 
Net (income) loss attributable to noncontrolling interests
4,700,000 
46,600,000 
(2,800,000)
Net income attributable to Greif, Inc.
$ 71,900,000 
$ 91,500,000 
$ 144,700,000 
Class A Common Stock [Member]
 
 
 
Basic earnings per share attributable to Greif, Inc.:
 
 
 
EPS Basic
$ 1.23 
$ 1.56 
$ 2.47 
Diluted earnings per share attributed to Greif, Inc.:
 
 
 
EPS Diluted
$ 1.23 
$ 1.56 
$ 2.47 
Class B Common Stock [Member]
 
 
 
Basic earnings per share attributable to Greif, Inc.:
 
 
 
EPS Basic
$ 1.83 
$ 2.33 
$ 3.70 
Diluted earnings per share attributed to Greif, Inc.:
 
 
 
EPS Diluted
$ 1.83 
$ 2.33 
$ 3.70 
Consolidated Statements of Comprehensive Income (USD $)
In Millions, unless otherwise specified
12 Months Ended
Oct. 31, 2015
Oct. 31, 2014
Oct. 31, 2013
Statement of Comprehensive Income [Abstract]
 
 
 
Net income
$ 67.2 
$ 44.9 
$ 147.5 
Other comprehensive income (loss), net of tax:
 
 
 
Foreign currency translation
(130.9)
(86.9)
9.3 
Reclassification of cash flow hedges to earnings, net of tax benefit of $0.1 million, $0.5 million and $0.3 million, respectively
0.1 
0.4 
0.5 
Unrealized gain (loss) on cash flow hedges, net of tax expense of $0.0 million, $0.2 million and $0.2 million, respectively
 
0.1 
(0.2)
Minimum pension liabilities, net of tax expense of $0.5 million, tax benefit of $15.7 million and tax expense of $22.2 million, respectively
9.0 
(34.7)
30.9 
Other comprehensive income (loss), net of tax
(121.8)
(121.1)
40.5 
Comprehensive income (loss)
(54.6)
(76.2)
188.0 
Comprehensive income (loss) attributable to noncontrolling interests
(23.5)
(45.9)
4.2 
Comprehensive income (loss) attributable to Greif, Inc.
$ (31.1)
$ (30.3)
$ 183.8 
Consolidated Statements of Comprehensive Income (Parenthetical) (USD $)
In Millions, unless otherwise specified
12 Months Ended
Oct. 31, 2015
Oct. 31, 2014
Oct. 31, 2013
Statement of Comprehensive Income [Abstract]
 
 
 
Income tax benefit, Reclassification of cash flow hedges to earnings
$ 0.1 
$ 0.5 
$ 0.3 
Income tax expense, Unrealized gain on cash flow hedges
0.2 
0.2 
Income tax benefit (expense), Minimum pension liability
$ (0.5)
$ 15.7 
$ (22.2)
Consolidated Balance Sheets (USD $)
In Millions, unless otherwise specified
Oct. 31, 2015
Oct. 31, 2014
Current assets
 
 
Cash and cash equivalents
$ 106.2 
$ 85.1 
Trade accounts receivable, less allowance of $11.8 in 2015 and $16.8 in 2014
403.7 
501.3 
Inventories
297.0 
381.1 
Deferred tax assets
25.4 
29.0 
Assets held for sale
16.9 
13.0 
Prepaid expenses and other current assets
159.3 
129.9 
Total current assets
1,008.5 
1,139.4 
Long-term assets
 
 
Goodwill
807.1 
880.2 
Other intangible assets, net of amortization
132.7 
166.5 
Deferred tax assets
7.8 
20.9 
Assets held by special purpose entities
50.9 
50.9 
Other long-term assets
91.0 
101.2 
Total long-term assets
1,089.5 
1,219.7 
Properties, plants and equipment
 
 
Timber properties, net of depletion
277.1 
244.8 
Land
106.3 
129.3 
Buildings
410.4 
459.1 
Machinery and equipment
1,457.9 
1,502.4 
Capital projects in progress
78.0 
97.4 
Properties, plants and equipment, gross
2,329.7 
2,433.0 
Accumulated depreciation
(1,112.0)
(1,124.7)
Properties, plants and equipment, net
1,217.7 
1,308.3 
Total assets
3,315.7 
3,667.4 
Current liabilities
 
 
Accounts payable
355.3 
471.1 
Accrued payroll and employee benefits
83.5 
102.4 
Restructuring reserves
21.3 
4.1 
Current portion of long-term debt
30.7 
17.6 
Short-term borrowings
40.7 
48.1 
Deferred tax liabilities
2.4 
17.8 
Liabilities held for sale
1.8 
1.5 
Other current liabilities
111.3 
189.1 
Total current liabilities
647.0 
851.7 
Long-term liabilities
 
 
Long-term debt
1,116.2 
1,087.4 
Deferred tax liabilities
214.9 
219.0 
Pension liabilities
141.1 
136.0 
Postretirement benefit obligations
14.9 
17.3 
Liabilities held by special purpose entities
43.3 
43.3 
Contingent liabilities and environmental reserves
8.2 
24.7 
Other long-term liabilities
70.2 
64.8 
Total long-term liabilities
1,608.8 
1,592.5 
Commitments and Contingencies (Note 14)
   
   
Shareholders' equity
 
 
Common stock, without par value
139.1 
135.5 
Treasury stock, at cost
(130.6)
(130.7)
Retained earnings
1,384.5 
1,411.7 
Accumulated other comprehensive loss, net of tax:
 
 
- foreign currency translation
(256.6)
(144.5)
- interest rate and other derivatives
 
(0.1)
- minimum pension liabilities
(120.8)
(129.8)
Total Greif, Inc. shareholders' equity
1,015.6 
1,142.1 
Noncontrolling interests
44.3 
81.1 
Total shareholders' equity
1,059.9 
1,223.2 
Total liabilities and shareholders' equity
$ 3,315.7 
$ 3,667.4 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Millions, unless otherwise specified
Oct. 31, 2015
Oct. 31, 2014
Statement of Financial Position [Abstract]
 
 
Allowance of trade accounts receivable
$ 11.8 
$ 16.8 
Consolidated Statements of Cash Flows (USD $)
In Millions, unless otherwise specified
12 Months Ended
Oct. 31, 2015
Oct. 31, 2014
Oct. 31, 2013
Cash flows from operating activities:
 
 
 
Net income
$ 67.2 
$ 44.9 
$ 147.5 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation, depletion and amortization
134.6 
155.8 
157.6 
Timberland gains
(24.3)
(17.1)
(17.3)
Non-cash asset impairment charges
45.9 
85.8 
31.4 
Gain on disposals of properties, plants and equipment, net
(7.0)
(8.3)
(5.6)
(Gain)/Loss on disposals of businesses, net
9.2 
(11.5)
 
Unrealized foreign exchange (gain) loss
 
(3.9)
7.1 
Deferred income tax expense
(5.9)
14.1 
2.6 
Gain from Venezuela monetary assets and liabilities remeasurement
(4.9)
 
 
Loss for Venezuela non-monetary assets to net realizable value
9.3 
 
 
Other, net
(2.2)
(2.8)
(2.2)
Increase (decrease) in cash from changes in certain assets and liabilities:
 
 
 
Trade accounts receivable
39.5 
(45.3)
(35.6)
Inventories
38.9 
(28.7)
(2.6)
Deferred purchase price on sold receivables
(5.7)
11.5 
(8.0)
Accounts payable
(56.6)
68.9 
(37.1)
Restructuring reserves
18.8 
1.3 
(5.0)
Pension and postretirement benefit liabilities
(4.0)
(16.9)
(4.1)
Other, net
(46.5)
14.0 
21.6 
Net cash provided by operating activities
206.3 
261.8 
250.3 
Cash flows from investing activities:
 
 
 
Acquisitions of companies, net of cash acquired
(1.6)
(53.5)
 
Issuance of subordinated note receivable
(44.2)
 
 
Purchases of properties, plants and equipment
(135.8)
(137.9)
(136.4)
Purchases of timber properties
(38.4)
(56.8)
(9.0)
Proceeds from the sale of properties, plants, equipment and other assets
49.3 
49.6 
41.5 
Proceeds from the sale of businesses
19.6 
115.3 
 
Proceeds on insurance recoveries
4.6 
 
 
Payments on notes receivable with related party, net
 
14.3 
3.2 
Net cash used in investing activities
(146.5)
(69.0)
(100.7)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of long-term debt
912.3 
1,120.0 
1,253.8 
Payments on long-term debt
(870.1)
(1,186.5)
(1,266.5)
Proceeds from (payments on) short-term borrowings, net
2.6 
8.2 
(30.2)
Proceeds from trade accounts receivable credit facility
123.0 
67.0 
75.6 
Payments on trade accounts receivable credit facility
(85.4)
(97.0)
(45.6)
Dividends paid to Greif, Inc. shareholders
(98.7)
(98.6)
(98.3)
Dividends paid to noncontrolling interests
(4.0)
 
 
Cash paid for deferred purchase price related to acquisitions
 
(1.2)
(46.6)
Proceeds from the sale of membership units of a consolidated subsidiary
 
6.0 
 
Fees paid for amended credit agreement
 
 
(3.4)
Exercise of stock options
0.2 
1.6 
1.3 
Net cash used in financing activities
(20.1)
(180.5)
(159.9)
Effects of exchange rates on cash
(18.6)
(5.3)
(3.1)
Net increase (decrease) in cash and cash equivalents
21.1 
7.0 
(13.4)
Cash and cash equivalents at beginning of year
85.1 
78.1 
91.5 
Cash and cash equivalents at end of year
$ 106.2 
$ 85.1 
$ 78.1 
Consolidated Statements of Changes in Shareholders' Equity (USD $)
In Millions, except Share data in Thousands, unless otherwise specified
Total
Capital Stock [Member]
Treasury Stock [Member]
Retained Earnings [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Greif, Inc. Equity [Member]
Noncontrolling Interests [Member]
Beginning balance, value at Oct. 31, 2012
$ 1,291.9 
$ 123.8 
$ (131.4)
$ 1,372.2 
$ (191.7)
$ 1,172.9 
$ 119.0 
Beginning balance, shares at Oct. 31, 2012
 
47,403 
29,439 
 
 
 
 
Net income
147.5 
 
 
144.7 
 
144.7 
2.8 
Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation
9.3 
 
 
 
7.9 
7.9 
1.4 
Reclassification of cash flow hedges to earnings, net of immaterial income tax expense
0.5 
 
 
 
0.5 
0.5 
 
Unrealized gain on cash flow hedges, net of income tax expense
(0.2)
 
 
 
(0.2)
(0.2)
 
Minimum pension liability adjustment, net of income tax (benefit) expense
30.9 
 
 
 
30.9 
30.9 
 
Comprehensive income (loss)
188.0 
 
 
 
 
183.8 
 
Acquisitions of noncontrolling interests and other
(7.7)
 
 
0.2 
 
0.2 
(7.9)
Dividends paid
(98.3)
 
 
(98.3)
 
(98.3)
 
Stock options exercised
1.5 
1.3 
0.2 
 
 
1.5 
 
Stock options exercised, shares
99 
99 
(99)
 
 
 
 
Restricted stock directors
0.2 
0.2 
 
 
 
0.2 
 
Restricted stock directors, shares
 
(5)
 
 
 
 
Restricted stock executives
0.9 
0.8 
0.1 
 
 
0.9 
 
Restricted stock executives, shares
 
16 
(16)
 
 
 
 
Stock forfeiture
0.2 
0.2 
 
 
 
0.2 
 
Stock forfeiture, shares
Tax benefit of stock options and other
1.0 
1.0 
 
 
 
1.0 
 
Long-term incentive shares issued
2.2 
2.1 
0.1 
 
 
2.2 
 
Long-term incentive shares issued, shares
 
54 
(54)
 
 
 
 
Ending balance, value at Oct. 31, 2013
1,379.9 
129.4 
(131.0)
1,418.8 
(152.6)
1,264.6 
115.3 
Ending balance, shares at Oct. 31, 2013
 
47,577 
29,265 
 
 
 
 
Net income
44.9 
 
 
91.5 
 
91.5 
(46.6)
Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation
(86.9)
 
 
 
(87.6)
(87.6)
0.7 
Reclassification of cash flow hedges to earnings, net of immaterial income tax expense
0.4 
 
 
 
0.4 
0.4 
 
Unrealized gain on cash flow hedges, net of income tax expense
0.1 
 
 
 
0.1 
0.1 
 
Minimum pension liability adjustment, net of income tax (benefit) expense
(34.7)
 
 
 
(34.7)
(34.7)
 
Comprehensive income (loss)
(76.2)
 
 
 
 
(30.3)
 
Acquisitions of noncontrolling interests and other
11.7 
 
 
 
 
 
11.7 
Dividends paid
(98.6)
 
 
(98.6)
 
(98.6)
 
Stock options exercised
1.7 
1.6 
0.1 
 
 
1.7 
 
Stock options exercised, shares
69 
69 
(69)
 
 
 
 
Restricted stock directors
1.2 
1.1 
0.1 
 
 
1.2 
 
Restricted stock directors, shares
 
22 
(22)
 
 
 
 
Tax benefit of stock options and other
0.5 
0.5 
 
 
 
0.5 
 
Long-term incentive shares issued
3.0 
2.9 
0.1 
 
 
3.0 
 
Long-term incentive shares issued, shares
 
56 
(56)
 
 
 
 
Ending balance, value at Oct. 31, 2014
1,223.2 
135.5 
(130.7)
1,411.7 
(274.4)
1,142.1 
81.1 
Ending balance, shares at Oct. 31, 2014
 
47,724 
29,118 
 
 
 
 
Net income
67.2 
 
 
71.9 
 
71.9 
(4.7)
Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation
(130.9)
 
 
 
(112.1)
(112.1)
(18.8)
Reclassification of cash flow hedges to earnings, net of immaterial income tax expense
0.1 
 
 
 
0.1 
0.1 
 
Minimum pension liability adjustment, net of income tax (benefit) expense
9.0 
 
 
 
9.0 
9.0 
 
Comprehensive income (loss)
(54.6)
 
 
 
 
(31.1)
 
Acquisitions of noncontrolling interests and other
(9.7)
 
 
(0.4)
 
(0.4)
(9.3)
Dividends paid
(98.7)
 
 
(98.7)
 
(98.7)
 
Dividends paid to non-controlling interest
(4.0)
 
 
 
 
 
(4.0)
Stock options exercised
0.2 
0.2 
 
 
 
0.2 
 
Stock options exercised, shares
10 
10 
(10)
 
 
 
 
Restricted stock directors
1.3 
1.3 
 
 
 
1.3 
 
Restricted stock directors, shares
 
30 
(30)
 
 
 
 
Tax benefit of stock options and other
0.2 
0.2 
 
 
 
0.2 
 
Long-term incentive shares issued
2.0 
1.9 
0.1 
 
 
2.0 
 
Long-term incentive shares issued, shares
 
50 
(50)
 
 
 
 
Ending balance, value at Oct. 31, 2015
$ 1,059.9 
$ 139.1 
$ (130.6)
$ 1,384.5 
$ (377.4)
$ 1,015.6 
$ 44.3 
Ending balance, shares at Oct. 31, 2015
 
47,814 
29,028 
 
 
 
 
Consolidated Statements of Changes in Shareholders' Equity (Parenthetical) (USD $)
In Millions, except Per Share data, unless otherwise specified
12 Months Ended
Oct. 31, 2015
Oct. 31, 2014
Oct. 31, 2013
Income tax benefit, Reclassification of cash flow hedges to earnings
$ 0.1 
$ 0.5 
$ 0.3 
Income tax expense, Unrealized gain on cash flow hedges
0.2 
0.2 
Income tax (expense) benefit, minimum pension liability adjustment
$ (0.5)
$ 15.7 
$ (22.2)
Class A Common Stock [Member]
 
 
 
Dividend Paid per share
$ 1.68 
$ 1.68 
$ 1.68 
Class B Common Stock [Member]
 
 
 
Dividend Paid per share
$ 2.51 
$ 2.51 
$ 2.51 
Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation and Summary of Significant Accounting Policies

NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Business

Greif, Inc. and its subsidiaries (collectively, “Greif,” “our,” or the “Company”) principally manufacture industrial packaging products, complemented with a variety of value-added services, including blending, packaging, reconditioning, logistics and warehousing, flexible intermediate bulk containers and containerboard and corrugated products, that they sell to customers in many industries throughout the world. The Company has operations in over 50 countries. In addition, the Company owns timber properties in the southeastern United States, which are actively harvested and regenerated.

Due to the variety of its products, the Company has many customers buying different products and, due to the scope of the Company’s sales, no one customer is considered principal in the total operations of the Company.

Because the Company supplies a cross section of industries, such as chemicals, paints and pigments, food and beverage, petroleum, industrial coatings, agricultural, pharmaceutical and mineral products, and must make spot deliveries on a day-to-day basis as its products are required by its customers, the Company does not operate on a backlog to any significant extent and maintains only limited levels of finished goods. Many customers place their orders weekly for delivery during the same week.

The Company’s raw materials are principally steel, resin, containerboard, old corrugated containers for recycling, used industrial packaging for reconditioning and pulpwood.

There were approximately 13,150 employees of the Company as of October 31, 2015.

Principles of Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of Greif, Inc., all wholly-owned and majority-owned subsidiaries, joint ventures controlled by the Company including the joint venture relating to the Flexible Products & Services segment and equity earnings of unconsolidated affiliates. All intercompany transactions and balances have been eliminated in consolidation. Investments in unconsolidated affiliates are accounted for using the equity or cost methods based on the Company’s ownership interest in the unconsolidated affiliate.

The Company’s consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States (“GAAP”). Certain prior year and prior quarter amounts have been reclassified to conform to the current year presentation.

The Company’s fiscal year begins on November 1 and ends on October 31 of the following year. Any references to the year 2015, 2014 or 2013, or to any quarter of those years, relates to the fiscal year ended in that year.

Venezuela Currency

The Company’s results of its Venezuelan businesses have been reported under highly inflationary accounting since 2010 and the functional currency was converted to US Dollars at that time. Currently, there are multiple legal mechanisms and respective exchange rates available in Venezuela to exchange currency: the CENCOEX rate (official rate or “CENCOEX”); the SICAD rate (“SICAD”) and; as of February of 2015, the SIMADI rate (“SIMADI”). The SIMADI exchange mechanism was created by the Venezuelan government to establish a more market driven exchange rate and is intended to be available to individuals and both public and private companies.

The Venezuelan government also announced in February 2015 that the official rate and SICAD exchange mechanisms would be available only to companies importing essential goods (i.e. medicine, food, and raw materials) although it has not officially published rules or regulations that clarify exactly which activities, industries or transactions will be eligible to use these rates. The purpose of these rates was intended to make necessities affordable to Venezuelan citizens. The exchange mechanisms have not been able to meet the demand from the private sector due to the lack of US Dollars in the country resulting in the continued devaluation of the SIMADI rate.

Greif has historically utilized the official rate which is 6.4 Bolivars/US Dollars to measure Bolivar-denominated monetary assets and liabilities and the respective historical rate to measure Bolivar-denominated nonmonetary assets each reporting period. Due to the continued significant devaluation of the Bolivar and the change in the exchange mechanisms announced earlier this year, the Company has reconsidered which rate best reflects the economics of Grief’s business activities and concluded that the Company should utilize the SIMADI rate to remeasure the Venezuelan operations as of July 31, 2015.

As a result of the change to the SIMADI rate, which reflects the recognition of a devaluation of approximately 97 percent as compared to the official exchange rate previously used, the Company recorded other income of $4.9 million related to the remeasurement of our Venezuelan monetary assets and liabilities during the year. In addition, the Company determined that an adjustment of $9.3 million to increase cost of goods sold was needed to reflect the non-monetary inventory assets at net realizable value and, upon review of long-lived assets for impairment, the Company determined that the carrying amount of the long-lived asset was not recoverable in US dollar functional currency and recorded an impairment charge of $15.0 million. The Venezuela operations were translated using the official rate through July 31, 2015 and have been translated using the SIMADI rate from August 1, 2015 forward.

 

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates, judgments, and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The most significant estimates are related to the expected useful lives assigned to properties, plants and equipment, goodwill and other intangible assets, estimates of fair value, environmental liabilities, pension and postretirement benefits including plan assets, income taxes, net assets held for sale, and contingencies. Actual amounts could differ from those estimates.

Cash and Cash Equivalents

The Company considers highly liquid investments with an original maturity of three months or less to be cash equivalents. The carrying value of cash equivalents approximates fair value.

The Company had total cash and cash equivalents held outside of the United States in various foreign jurisdictions of $104.2 million as of October 31, 2015. Under current tax laws and regulations, if cash and cash equivalents held outside the United States are repatriated to the United States in the form of dividends or otherwise, the Company may be subject to additional U.S. income taxes (subject to an adjustment for foreign tax credits) and foreign withholding taxes.

Allowance for Doubtful Accounts

Trade receivables represent amounts owed to the Company through its operating activities and are presented net of allowance for doubtful accounts. The allowance for doubtful accounts totaled $11.8 million and $16.8 million as of October 31, 2015 and 2014, respectively. The Company evaluates the collectability of its accounts receivable based on a combination of factors. In circumstances where the Company is aware of a specific customer’s inability to meet its financial obligations to the Company, the Company records a specific allowance for bad debts against amounts due to reduce the net recognized receivable to the amount the Company reasonably believes will be collected. In addition, the Company recognizes allowances for bad debts based on the length of time receivables are past due with allowance percentages, based on its historical experiences, applied on a graduated scale relative to the age of the receivable amounts. If circumstances such as higher than expected bad debt experience or an unexpected material adverse change in a major customer’s ability to meet its financial obligations to the Company were to occur, the recoverability of amounts due to the Company could change by a material amount. Amounts deemed uncollectible are written-off against an established allowance for doubtful accounts.

Concentration of Credit Risk and Major Customers

The Company maintains cash depository accounts with banks throughout the world and invests in high quality short-term liquid instruments. Such investments are made only in instruments issued by high quality institutions. These investments mature within three months and the Company has not incurred any related losses for the years ended October 31, 2015, 2014, and 2013.

Trade receivables can be potentially exposed to a concentration of credit risk with customers or in particular industries. Such credit risk is considered by management to be limited due to the Company’s many customers, none of which are considered principal in the total operations of the Company, and its geographic scope of operations in a variety of industries throughout the world. The Company does not have an individual customer that exceeds 10 percent of total revenue. In addition, the Company performs ongoing credit evaluations of its customers’ financial conditions and maintains reserves for credit losses. Such losses historically have been within management’s expectations.

Inventory

The Company primarily uses the FIFO method of inventory valuation. Reserves for slow moving and obsolete inventories are provided based on historical experience, inventory aging and product demand. The Company continuously evaluates the adequacy of these reserves and makes adjustments to these reserves as required. The Company also evaluates reserves for losses under firm purchase commitments for goods or inventories.

The Paper Packaging segment trades certain inventories with third parties. These inventory trades are not accounted for as sales, and the Company records an asset or liability for any imbalance resulting from these trades.

Net Assets Held for Sale

Net assets held for sale represent land, buildings and land improvements for locations that have met the criteria of “held for sale” accounting, as specified by Accounting Standards Codification (“ASC”) 360, “Property, Plant, and Equipment.” As of October 31, 2015, there were four asset groups in the Rigid Industrial Packaging Products & Services segment and one asset group in the Flexible Products & Services segment that are recorded as assets and liabilities held for sale. The effect of suspending depreciation on the facilities held for sale is immaterial to the results of operations. The net assets held for sale are being marketed for sale and it is the Company’s intention to complete the sales of these assets within the upcoming year.

 

Goodwill and Indefinite-Lived Intangibles

Goodwill is the excess of the purchase price of an acquired entity over the amounts assigned to tangible and intangible assets and liabilities assumed in the business combination. The Company accounts for purchased goodwill and indefinite-lived intangible assets in accordance with ASC 350, “Intangibles – Goodwill and Other.” Under ASC 350, purchased goodwill and intangible assets with indefinite lives are not amortized, but instead are tested for impairment at least annually. The Company tests for impairment of goodwill and indefinite-lived intangible assets during the fourth quarter of each fiscal year as of August 1, or more frequently if certain indicators are present or changes in circumstances suggest that impairment may exist.

In accordance with ASC 350 the Company has the option to first assess qualitative factors to determine whether it is necessary to perform the two-step test for goodwill impairment. If the Company believes, as a result of its qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. The quantitative test for goodwill impairment is conducted at the reporting unit level using a two-step approach. The first step requires a comparison of the carrying value of the reporting units to the estimated fair value of these units. If the carrying value of a reporting unit exceeds its estimated fair value, the Company performs the second step of the goodwill impairment to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the estimated implied fair value of a reporting unit’s goodwill to its carrying value. The Company allocates the estimated fair value of a reporting unit to all of the assets and liabilities in that reporting unit, including intangible assets, as if the reporting unit had been acquired in a business combination. Any excess of the estimated fair value of a reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. When there is a disposition of a portion of a reporting unit, goodwill is allocated to the gain or loss on that disposition based on the relative fair values of the portion of the reporting unit subject to disposition and the portion of the reporting unit that will be retained.

The Company’s determination of estimated fair value of the reporting units is based on a discounted cash flow analysis utilizing the income 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, including different peer groups or changes in the industry, or adjusting the discount rate, or earnings before interest, taxes, depreciation, depletion and amortization forecasts used could affect the estimated fair value of the reporting units and potentially result in goodwill impairment. Any identified impairment would result in an expense to the Company’s results of operations. Refer to Note 6 for additional information regarding goodwill and other intangible assets.

Other Intangibles

The Company accounts for intangible assets in accordance with ASC 350. Intangible assets are amortized over their useful lives on a straight-line basis. The useful lives for finite lived intangible assets vary depending on the type of asset and the terms of contracts or the valuation performed. The Company tests for impairment of finite lived intangible assets at least annually, or more frequently if certain indicators are present to suggest that impairment may exist. Amortization expense on other intangible assets is recorded on the straight-line method over their useful lives as follows:

 

      Years

Trade names

   10-15

Non-competes

   1-10

Customer relationships

   5-15

Other intangibles

   3-15

Acquisitions

From time to time, the Company acquires businesses and/or assets that augment and complement its operations, in accordance with ASC 805, “Business Combinations.” These acquisitions are accounted for under the purchase method of accounting. The consolidated financial statements include the results of operations from these business combinations from the date of acquisition.

In order to assess performance, the Company classifies costs incurred in connection with acquisitions as acquisition-related costs. These costs consist primarily of transaction costs, integration costs and changes in the fair value of contingent payments (earn-outs) and are recorded within selling, general and administrative costs. Acquisition transaction costs are incurred during the initial evaluation of a potential targeted acquisition and primarily relate to costs to analyze, negotiate and consummate the transaction as well as financial and legal due diligence activities. Post-acquisition integration activities are costs incurred to combine the operations of an acquired enterprise into the Company’s operations.

Internal Use Software

Internal use software is accounted for under ASC 985, “Software.” Internal use software is software that is acquired, internally developed or modified solely to meet the Company’s needs and for which, during the software’s development or modification, a plan does not exist to market the software externally. Costs incurred to develop the software during the application development stage and for upgrades and enhancements that provide additional functionality are capitalized and then amortized over a three to ten year period. Internal use software is capitalized as a component of machinery and equipment on the Consolidated Balance Sheets.

 

Long-Lived Assets

Properties, plants and equipment are stated at cost. Depreciation on properties, plants and equipment is provided on the straight-line method over the estimated useful lives of the assets as follows:

 

      Years

Buildings

   30-45

Machinery and equipment

   3-19

Depreciation expense was $113.4 million, $129.8 million and $131.9 million, in 2015, 2014 and 2013, respectively. Expenditures for repairs and maintenance are charged to expense as incurred. When properties are retired or otherwise disposed of, the cost and accumulated depreciation are eliminated from the asset and related allowance accounts. Gains or losses are credited or charged to income as incurred.

The Company capitalizes interest on long-term fixed asset projects using a rate that approximates the weighted average cost of borrowing. For the years ended October 31, 2015, 2014, and 2013, the Company capitalized interest costs of $1.5 million, $1.4 million, and $1.7 million, respectively.

The Company tests for impairment of properties, plants and equipment at least annually, or more frequently if certain indicators are present to suggest that impairment may exist. Long-lived assets are grouped together at the lowest level, generally at the plant level, for which identifiable cash flows are largely independent of cash flows of other groups of long-lived assets. As events warrant, we evaluate the recoverability of long-lived assets, other than goodwill and indefinite-lived intangible assets, by assessing whether the carrying value can be recovered over their remaining useful lives through the expected future undiscounted operating cash flows of the underlying business. Impairment indicators include, but are not limited to, a significant decrease in the market price of a long-lived asset; a significant adverse change in the manner in which the asset is being used or in its physical condition; a significant adverse change in legal factors or the business climate that could affect the value of a long-lived asset; an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset; current period operating or cash flow losses combined with a history of operating or cash flow losses associated with the use of the asset; or a current expectation that it is more likely than not that a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. Future decisions to change our manufacturing processes, exit certain businesses, reduce excess capacity, temporarily idle facilities and close facilities could result in material impairment charges. Any impairment loss that may be required is determined by comparing the carrying value of the assets to their estimated fair value.

The Company owns timber properties in the southeastern United States. With respect to the Company’s United States timber properties, which consisted of approximately 242,673 acres as of October 31, 2015, depletion expense on timber properties is computed on the basis of cost and the estimated recoverable timber. Depletion expense was $2.8 million, $3.8 million and $4.3 million in 2015, 2014 and 2013, respectively. The Company’s land costs are maintained by tract. The Company begins recording pre-merchantable timber costs at the time the site is prepared for planting. Costs capitalized during the establishment period include site preparation by aerial spray, costs of seedlings, planting costs, herbaceous weed control, woody release, labor and machinery use, refrigeration rental and trucking for the seedlings. The Company does not capitalize interest costs in the process. Property taxes are expensed as incurred. New road construction costs are capitalized as land improvements and depreciated over 20 years. Road repairs and maintenance costs are expensed as incurred. Costs after establishment of the seedlings, including management costs, pre-commercial thinning costs and fertilization costs, are expensed as incurred. Once the timber becomes merchantable, the cost is transferred from the pre-merchantable timber category to the merchantable timber category in the depletion block.

Merchantable timber costs are maintained by five product classes, pine sawtimber, pine chip-n-saw, pine pulpwood, hardwood sawtimber and hardwood pulpwood, within a depletion block, with each depletion block based upon a geographic district or subdistrict. Currently, the Company has eight depletion blocks. These same depletion blocks are used for pre-merchantable timber costs. Each year, the Company estimates the volume of the Company’s merchantable timber for the five product classes by each depletion block. These estimates are based on the current state in the growth cycle and not on quantities to be available in future years. The Company’s estimates do not include costs to be incurred in the future. The Company then projects these volumes to the end of the year. Upon acquisition of a new timberland tract, the Company records separate amounts for land, merchantable timber and pre-merchantable timber allocated as a percentage of the values being purchased. These acquisition volumes and costs acquired during the year are added to the totals for each product class within the appropriate depletion block(s). The total of the beginning, one-year growth and acquisition volumes are divided by the total undepleted historical cost to arrive at a depletion rate, which is then used for the current year. As timber is sold, the Company multiplies the volumes sold by the depletion rate for the current year to arrive at the depletion cost.

The Company’s Canadian timber properties, which were sold during 2015, were not actively managed, and therefore, no depletion expense is recorded.

 

Contingencies

Various lawsuits, claims and proceedings have been or may be instituted or asserted against the Company, including those pertaining to environmental, product liability, and safety and health matters. While the amounts claimed may be substantial, the ultimate liability cannot currently be determined because of the considerable uncertainties that exist.

All lawsuits, claims and proceedings are considered by the Company in establishing reserves for contingencies in accordance with ASC 450, “Contingencies.” In accordance with the provisions of ASC 450, the Company accrues for a litigation-related liability when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Based on currently available information known to the Company, the Company believes that its reserves for these litigation-related liabilities are reasonable and that the ultimate outcome of any pending matters is not likely to have a material effect on the Company’s financial position or results of operations.

Environmental Cleanup Costs

The Company accounts for environmental cleanup costs in accordance with ASC 410, “Asset Retirement and Environmental Obligations.” The Company expenses environmental expenditures related to existing conditions resulting from past or current operations and from which no current or future benefit is discernible. Expenditures that extend the life of the related property or mitigate or prevent future environmental contamination are capitalized. The Company determines its liability on a site-by-site basis and records a liability at the time when it is probable and can be reasonably estimated. The Company’s estimated liability is 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 the relevant costs.

Self-Insurance

The Company is self-insured for certain of the claims made under its employee medical and dental insurance programs. The Company had recorded liabilities totaling $3.6 million and $2.8 million for estimated costs related to outstanding claims as of October 31, 2015 and 2014, respectively. These costs include an estimate for expected settlements on pending claims, administrative fees and an estimate for claims incurred but not reported. These estimates are based on management’s assessment of outstanding claims, historical analyses and current payment trends. The Company recorded an estimate for the claims incurred but not reported using an estimated lag period based upon historical information. The Company believes the reserves recorded are adequate based upon current facts and circumstances.

The Company has certain deductibles applied to various insurance policies including general liability, product, auto and workers’ compensation. The Company maintains liabilities totaling $12.2 million and $14.7 million for anticipated costs related to general liability, product, vehicle, and workers’ compensation claims as of October 31, 2015 and 2014, respectively. These costs include an estimate for expected settlements on pending claims, defense costs and an estimate for claims incurred but not reported. These estimates are based on the Company’s assessment of its deductibles, outstanding claims, historical analysis, actuarial information and current payment trends.

Income Taxes

Income taxes are accounted for under ASC 740, “Income Taxes.” In accordance with ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as measured by enacted tax rates that are expected to be in effect in the periods when the deferred tax assets and liabilities are expected to be settled or realized. Valuation allowances are established when management believes it is more likely than not that some position of the deferred tax assets will not be realized.

The Company’s effective tax rate is impacted by the amount of income allocated to each taxing jurisdiction, statutory tax rates and tax planning opportunities available to the Company in the various jurisdictions in which the Company operates. Significant judgment is required in determining the Company’s effective tax rate and in evaluating its tax positions.

Tax benefits from uncertain tax positions are recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. The amount recognized is measured as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon settlement. The Company’s effective tax rate includes the impact of reserve provisions and changes to reserves that it considers appropriate as well as related interest and penalties.

A number of years may elapse before a particular matter, for which the Company has established a reserve, is audited and finally resolved. The number of years with open tax audits varies depending on the tax jurisdiction. While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter, the Company believes that its reserves reflect the probable outcome of known tax contingencies. Unfavorable settlement of any particular issue would require use of the Company’s cash. Favorable resolution would be recognized as a reduction to the Company’s effective tax rate in the period of resolution.

 

Other Comprehensive Income

Our other comprehensive income is significantly impacted by foreign currency translation and defined benefit pension and postretirement benefit adjustments. The impact of foreign currency translation is affected by the translation of assets and liabilities of our foreign subsidiaries which are denominated in functional currencies other than the U.S. dollar. The primary assets and liabilities affecting the adjustments are cash and cash equivalents; accounts receivable; inventory; properties, plant and equipment; accounts payable; pension and other postretirement benefit obligations; and certain intercompany loans payable and receivable. The primary currencies in which these assets and liabilities are denominated are the Euro, Brazilian Real, and Chinese Yuan. The impact of defined benefit pension and postretirement benefit adjustments is primarily affected by unrecognized actuarial gains and losses related to our defined benefit and other postretirement benefit plans, as well as the subsequent amortization of gains and losses from accumulated other comprehensive income in periods following the initial recording such items. These actuarial gains and losses are determined using various assumptions, the most significant of which are (i) the weighted average rate used for discounting the liability, (ii) the weighted average expected long-term rate of return on pension plan assets, (iii) the method used to determine market-related value of pension plan assets, (iv) the weighted average rate of future salary increases and (v) the anticipated mortality rate tables.

Restructuring Charges

The Company accounts for all exit or disposal activities in accordance with ASC 420, “Exit or Disposal Cost Obligations.” Under ASC 420, a liability is measured at its fair value and recognized as incurred.

Employee-related costs primarily consist of one-time termination benefits provided to employees who have been involuntarily terminated. A one-time benefit arrangement is an arrangement established by a plan of termination that applies for a specified termination event or for a specified future period. A one-time benefit arrangement exists at the date the plan of termination meets all of the following criteria and has been communicated to employees:

 

  (1) Management, having the authority to approve the action, commits to a plan of termination.

 

  (2) The plan identifies the number of employees to be terminated, their job classifications or functions and their locations, and the expected completion date.

 

  (3) The plan establishes the terms of the benefit arrangement, including the benefits that employees will receive upon termination (including but not limited to cash payments), in sufficient detail to enable employees to determine the type and amount of benefits they will receive if they are involuntarily terminated.

 

  (4) Actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.

Facility exit and other costs consist of equipment relocation costs and project consulting fees. A liability for other costs associated with an exit or disposal activity shall be recognized and measured at its fair value in the period in which the liability is incurred (generally, when goods or services associated with the activity are received). The liability shall not be recognized before it is incurred, even if the costs are incremental to other operating costs and will be incurred as a direct result of a plan.

Pension and Postretirement Benefits

Under ASC 715, “Compensation – Retirement Benefits,” employers recognize the funded status of their defined benefit pension and other postretirement plans on the consolidated balance sheet and record as a component of other comprehensive income, net of tax, the gains or losses and prior service costs or credits that have not been recognized as components of the net periodic benefit cost.

Transfer and Servicing of Assets

An indirect wholly-owned subsidiary of Greif, Inc. agrees to sell trade receivables meeting certain eligibility requirements that it had purchased from other indirect wholly-owned subsidiaries of Greif, Inc., under a non-U.S. factoring agreement. The structure of the transactions provide for a legal true sale, on a revolving basis, of the receivables transferred from the various Greif, Inc. subsidiaries to the respective banks or their affiliates. The banks and their affiliates fund an initial purchase price of a certain percentage of eligible receivables based on a formula with the initial purchase price approximating 75 percent to 90 percent of eligible receivables. The remaining deferred purchase price is settled upon collection of the receivables. At the balance sheet reporting dates, the Company removes from accounts receivable the amount of proceeds received from the initial purchase price since they meet the applicable criteria of ASC 860, “Transfers and Servicing,” and continues to recognize the deferred purchase price in its other current assets. The receivables are sold on a non-recourse basis with the total funds in the servicing collection accounts pledged to the banks between settlement dates.

Stock-Based Compensation Expense

The Company recognizes stock-based compensation expense in accordance with ASC 718, “Compensation – Stock Compensation.” ASC 718 requires the measurement and recognition of compensation expense, based on estimated fair values, for all share-based awards made to employees and directors, including stock options, restricted stock, restricted stock units and participation in the Company’s employee stock purchase plan.

 

ASC 718 requires companies to estimate the fair value of share-based awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense in the Company’s consolidated statements of income over the requisite service periods. No options were granted in 2015, 2014, or 2013. For any options granted in the future, compensation expense will be based on the grant date fair value estimated in accordance with the standard.

Revenue Recognition

The Company recognizes revenue when title passes and risks and rewards of ownership have transferred to customers or services have been rendered, with appropriate provision for returns and allowances. Revenue is recognized in accordance with ASC 605, “Revenue Recognition.”

Timberland disposals, timber, higher and better use (“HBU”) land, surplus and development property revenues are recognized when closings have occurred, required down payments have been received, title and possession have been transferred to the buyer, and all other criteria for sale and profit recognition have been satisfied.

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

Shipping and Handling Fees and Costs

The Company includes shipping and handling fees and costs in cost of products sold.

Other Expense, Net

Other expense, net primarily represents non-United States trade receivables program fees, currency transaction gains and losses and other infrequent non-operating items.

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 period-end, and revenues and expenses are translated at average exchange rates.

The cumulative translation adjustments, which represent the effects of translating assets and liabilities of the Company’s international operations, are presented in the consolidated statements of changes in shareholders’ equity in accumulated other comprehensive income (loss). Transaction gains and losses on foreign currency transactions denominated in a currency other than an entity’s functional currency are credited or charged to income. The amounts included in other expense, net related to transaction losses, net of tax were $3.8 million, $1.2 million and $3.9 million in 2015, 2014 and 2013, respectively.

Derivative Financial Instruments

In accordance with ASC 815, “Derivatives and Hedging,” the Company records all derivatives in the consolidated balance sheet as either assets or liabilities measured at fair value. Dependent on the designation of the derivative instrument, changes in fair value are recorded to earnings or shareholders’ equity through other comprehensive income (loss). The Company may use the following derivatives from time to time.

The Company uses interest rate swap agreements for cash flow hedging purposes. For derivative instruments that hedge the exposure of variability in interest rates, designated as cash flow hedges, the effective portion of the net gain or loss on the derivative instrument is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.

Interest rate swap agreements that hedge against variability in interest rates effectively convert a portion of floating rate debt to a fixed rate basis, thus reducing the impact of interest rate changes on future interest expense. The Company uses the “variable cash flow method” for assessing the effectiveness of these swaps. The effectiveness of these swaps is reviewed at least every quarter. Hedge ineffectiveness has not been material during any of the years presented herein.

The Company enters into currency forward contracts to hedge certain currency transactions and short-term intercompany loan balances with its international businesses. Such contracts limit the Company’s exposure to both favorable and unfavorable currency fluctuations. These contracts are adjusted to reflect market value as of each balance sheet date, with the resulting changes in fair value being recognized in other comprehensive income (loss).

The Company has used derivative instruments to hedge a portion of its natural gas purchases. These derivatives were designated as cash flow hedges. The effective portion of the net gain or loss was reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period during which the hedged transaction affects earnings.

Any derivative contract that is either not designated as a hedge, or is so designated but is ineffective, would be adjusted to market value and recognized in earnings immediately. If a cash flow or fair value hedge ceases to qualify for hedge accounting, the contract would continue to be carried on the balance sheet at fair value until settled and future adjustments to the contract’s fair value would be recognized in earnings immediately. If a forecasted transaction were no longer probable to occur, amounts previously deferred in accumulated other comprehensive income (loss) would be recognized immediately in earnings.

 

Fair Value

The Company uses ASC 820, “Fair Value Measurements and Disclosures” to account for fair value. ASC 820 defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. Additionally, this standard established a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs.

The three levels of inputs used to measure fair values are as follows:

 

    Level 1 – Observable inputs such as unadjusted quoted prices in active markets for identical assets and liabilities.

 

    Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities.

 

    Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities.

The Company presents various fair value disclosures in Notes 10 and 13 to these consolidated financial statements.

Newly Adopted Accounting Standards

In March 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-05 “Foreign Currency Matters: Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or an Investment in a Foreign Entity.” The objective of this update is to resolve the diversity in practice about whether ASC 810-10 or ASC 830-30 applies to the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business (other than a sale of in substance real estate or conveyance of oil and gas rights) within a foreign entity. The Company adopted the new guidance beginning on November 1, 2013. The adoption did not have, and is not expected to have, a significant impact on the Company’s financial position, results of operations, comprehensive income, cash flows and disclosures.

In July 2013, the FASB issued ASU 2013-11 “Income Taxes: Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.” The objective of this update is to eliminate the diversity in practice in the presentation of unrecognized tax benefits when a net operating loss carryforward, a similar tax loss or a tax credit carryforward exists. The amendments in this update seek to attain that objective by requiring an entity to present an unrecognized tax benefit in the financial statements as a reduction to a deferred tax asset for those instances described above, except in certain situations discussed in the update. The Company adopted the new guidance beginning on November 1, 2013, and the adoption of the new guidance did not impact the Company’s financial position, results of operations, comprehensive income or cash flows, other than the related disclosures.

In April 2014, the FASB issued ASU 2014-08 “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” The objective of this update is to prevent disposals of small groups of assets that are recurring in nature to qualify for discontinued operations presentation under Subtopic 205-20. The amendments in this update seek to attain this objective by only allowing disposals representing a strategic shift in operations to be presented as discontinued operations. The Company adopted the new guidance beginning on May, 1 2014, after which new disposals of components are evaluated for discontinued operations treatment using the new guidance. As a result of the adoption of this standard, businesses sold or classified as held for sale subsequent to May 1, 2014 did not qualify as discontinued operations under the new standard.

Recently Issued Accounting Standards

As of October 31, 2015, the FASB has issued ASUs through 2015-16. We have reviewed each recently issued ASU and the adoption of each ASU that is applicable to us, other than as explained below will not have a material impact on our financial position, results of operations, comprehensive income or cash flows, other than the related disclosures.

In April 2015, the FASB issued ASU No. 2015-03, “Interest—Imputation of Interest (Subtopic 835-30)”. The objective of this update is to simplify the presentation of debt issuance costs in the financial statements. Under the ASU, the Company would present such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset; amortization of the costs is reported as interest expense. The effective date will be the first quarter of fiscal year 2016. The Company would apply the new guidance retrospectively to all prior periods (i.e., the balance sheet for each period would be adjusted). The ASU requires the Company to “disclose in the first fiscal year after the entity’s adoption date, and in the interim periods within the first fiscal year, the following: (1) The nature and reason for the change in accounting principle; (2) The transition method; (3) A description of the prior-period information that has been retrospectively adjusted; and (4) The effect of the change on the financial statement line item (that is, the debt issuance costs asset and the debt liability). The Company is expected to adopt this guidance beginning November 1, 2015, and the adoption of the new guidance is not expected to materially impact the Company’s financial position, results of operations, comprehensive income or cash flows, other than the related disclosures.

 

In February 2015, the FASB issued ASU 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis,” which makes changes to both the variable interest model and voting interest model and eliminates the indefinite deferral of FASB Statement No. 167, included in ASU 2010-10, for certain investment funds. All reporting entities that hold a variable interest in other legal entities will need to re-evaluate their consolidation conclusions as well as disclosure requirements. This ASU is effective for annual periods beginning after December 15, 2015, and early adoption is permitted, including any interim period. 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.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”, which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The update is effective in fiscal year 2019 using one of two retrospective application methods. 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.

In August 2014, the FASB issued ASU 2014-15 “Presentation of Financial Statements-Going Concern: Disclosure of Uncertainties about an Entity’s Ability to Continue as Going Concern”. The objective of this update is to reduce the diversity in the timing and content of footnote disclosures related to going concern. The amendments require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. This update applies to all entities that would be required to disclose information about their potential inability to continue as a going concern when “substantial doubt” about their ability to continue as a going concern exists. The Company will be required to evaluate “relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued.” The Company will have to document its consideration of the ASU, but not because the Company believes there is substantial doubt about its ability to continue as a going concern. The Company is expected to adopt this guidance beginning November 1, 2017, and the adoption of the new guidance is not expected to impact the Company’s financial position, results of operations, comprehensive income or cash flows, other than the related disclosures.

Acquisitions and Divestitures
Acquisitions and Divestitures

NOTE 2 – ACQUISITIONS AND DIVESTITURES

The following table summarizes the Company’s significant acquisition activity in 2015, 2014 and 2013 (Dollars in millions):

 

 

   # of
Acquisitions
     Purchase Price,
net of Cash
     Tangible
Assets, net
     Intangible
Assets
     Goodwill  

Total 2015 Acquisitions

     —         $ —           —           —           —     

Total 2014 Acquisitions

     2       $ 53.5         2.5         22.1         25.9   

Total 2013 Acquisitions

     —         $ —           —           —           —     

Note: Purchase price, net of cash acquired, represents cash paid in the period of each acquisition and does not include assumed debt, subsequent payments for deferred purchase adjustments or earn-out provisions.

During 2015, the Company completed eight divestitures and no material acquisitions. The divestitures were of nonstrategic businesses: six in the Rigid Industrial Packaging & Services segment: and two in the Flexible Products & Services segment. The loss on disposal of businesses was $9.2 million for the year ended October 31, 2015. Proceeds from divestitures were $19.6 million. Additionally, the Company has recorded notes receivable of $2.9 million for the sale of these businesses, ranging from 3 months to five years.

During 2014, the Company completed two acquisitions and nine divestitures. One acquisition was in the Rigid Industrial Packaging & Services segment in November and the other acquisition was in the Paper Packaging & Services segment in November. The rigid industrial packaging acquisition complemented the Company’s existing product lines and provide growth opportunities and economies of scale. The paper packaging acquisition was made in part to obtain technologies, equipment, and customer lists. The gain on sale of businesses, net was $11.5 million for the year ended October 31, 2014. Three of the divestitures were of nonstrategic businesses in the Rigid Industrial Packaging & Services segment. Two of the divestitures in this segment resulted in losses on disposal of $9.1 million and $1.8 million, respectively, which included the write off of allocated goodwill. The third divestiture in this segment resulted in a loss of $11.4 million, which consisted of $5.5 million recorded as a loss on disposal and of $5.9 million of non-cash asset impairment charges due to the recording of an expected loss prior to the period in which the transaction was completed. There were also divestitures of businesses in the Flexible Products & Services and Paper Packaging segments that resulted in gains of $18.3 million and $4.2 million, respectively, which included the write-off of allocated goodwill. Additionally, there were divestitures of four smaller investments in the Rigid Industrial Packaging & Services segment that resulted in an aggregate net gain of $5.4 million. Proceeds from divestitures were $115.3 million.

During 2013, the Company completed no material acquisitions and no material divestitures. The Company made a $46.6 million deferred cash payment during 2013 related to an acquisition completed in 2011.

None of the above-referenced divestitures in 2015 or 2014 qualified as discontinued operations as they do not, individuals or in the aggregate, represent a strategic shift that has had a major impact on the Company’s operations or financial results.

 

The Company has allocated purchase price as of the dates of acquisition based upon its understanding, obtained during due diligence and through other sources, of the fair value of the acquired assets and assumed liabilities. If additional information is obtained about these assets and liabilities within the measurement period (not to exceed one year from the date of acquisition), including through asset appraisals and learning more about the newly acquired business, the Company may refine its estimates of fair value to allocate the purchase price more accurately; however, any such revisions are not expected to be significant.

Sale of Non-United States Accounts Receivable
Sale of Non-United States Accounts Receivable

NOTE 3 – SALE OF NON-UNITED STATES ACCOUNTS RECEIVABLE

On April 27, 2012, Cooperage Receivables Finance B.V. (the “Main SPV”) and Greif Coordination Center BVBA, an indirect wholly owned subsidiary of Greif, Inc. (“Seller”), entered into the Nieuw Amsterdam Receivables Purchase Agreement (the “European RPA”) with affiliates of a major international bank (the “Purchasing Bank Affiliates”). On April 20, 2015, the Main SPV and Seller amended and extended the term of the existing European RPA. Under the European RPA, as amended, the number of entities participating in the agreement have decreased to now include only the following entities: Greif Belgium BVBA, EarthMinded Benelux N.V. (formerly Pack2pack Rumbeke N.V.), Greif Nederland B.V., Greif Italia S.p.A., Greif Plastics Italy Srl (formerly Fustiplast S.p.A.), Greif France S.A.S., Greif Packaging Spain S.A., Greif Germany GmbH, Greif Plastics Germany GmbH (formerly Fustiplast GmbH), and Greif Portugal S.A. Additionally, the terms have been amended to decrease the maximum amount of receivables that may be sold and outstanding under the European RPA at any time to €100 million ($110.5 million as of October 31, 2015) and to allow the Company to manage the expense incurred under the facility by loaning excess cash back to the Purchasing Bank Affiliate in exchange for a subordinated note receivable. As of October 31, 2015, the Company loaned $44.2 million of excess cash back to the Purchasing Bank Affiliate, which is included in prepaid expenses and other current assets.

Under the terms of the European RPA, the Company has agreed to sell trade receivables meeting certain eligibility requirements that the seller had purchased from other of our indirect wholly-owned subsidiaries, under a factoring agreement. The structure of the transactions provide for a legal true sale, on a revolving basis, of the receivables transferred from our various subsidiaries to the respective banks and their affiliates. The purchaser funds an initial purchase price of a certain percentage of eligible receivables based on a formula, with the initial purchase price approximating 75 percent to 90 percent of eligible receivables. The remaining deferred purchase price is settled upon collection of the receivables. At the balance sheet reporting dates, we remove from accounts receivable the amount of proceeds received from the initial purchase price since they meet the applicable criteria of ASC 860, “Transfers and Servicing” and we continue to recognize the deferred purchase price in accounts receivable. The receivables are sold on a non-recourse basis with the total funds in the servicing collection accounts pledged to the banks between settlement dates.

In October 2007, Greif Singapore Pte. Ltd., an indirect wholly-owned subsidiary of Greif, Inc., entered into the Singapore Receivable Purchase Agreement (the “Singapore RPA”) with a major international bank. The maximum amount of aggregate receivables that may be financed under the Singapore RPA is 15.0 million Singapore Dollars ($10.7 million as of October 31, 2015).

In May 2009, Greif Malaysia Sdn Bhd., an indirect wholly-owned subsidiary of Greif, Inc., entered into the Malaysian Receivables Purchase Agreement (the “Malaysian Agreement”) with Malaysian banks. In March 2014, the Malaysian Agreement was discontinued and therefore there were no receivables held by third party financial institutions under this agreement as of October 31, 2015 and 2014.

The table below contains information related to the Company’s accounts receivables programs (Dollars in millions):

 

For the years ended October 31,

   2015      2014      2013  

European RPA

        

Gross accounts receivable sold to third party financial institution

   $ 715.2       $ 1,006.4       $ 1,071.3   

Cash received for accounts receivable sold under the programs

     633.6         888.1         947.0   

Deferred purchase price related to accounts receivable sold

     76.2         118.3         124.3   

Loss associated with the programs

     1.5         2.5         2.5   

Expenses associated with the programs

     —           —           —     

Other

        

Gross accounts receivable sold to third party financial institution

   $ 48.1       $ 56.7       $ 93.4   

Cash received for accounts receivable sold under the programs

   $ 48.1       $ 56.7       $ 93.4   

Deferred purchase price related to accounts receivable sold

   $ —         $ —         $ —     

Loss associated with the programs

   $ 0.1       $ —         $ 0.2   

Expenses associated with the programs

   $ 0.1       $ 0.1       $ 0.3   

Total RPAs and Agreements

        

Gross accounts receivable sold to third party financial institution

   $ 763.3       $ 1,063.1       $ 1,164.7   

Cash received for accounts receivable sold under the program

     681.7         944.8         1,040.4   

Deferred purchase price related to accounts receivable sold

     76.2         118.3         124.3   

Loss associated with the program

     1.6         2.5         2.7   

Expenses associated with the program

     0.1         0.1         0.3   

 

     October 31,
2015
     October 31,
2014
 

European RPA

     

Accounts receivable sold to and held by third party financial institution

   $ 114.8       $ 164.7   

Deferred purchase price asset (liability) related to accounts receivable sold

     (1.5)         (23.7)   

Other

     

Accounts receivable sold to and held by third party financial institution

   $ 4.0       $ 5.0   

Uncollected deferred purchase price related to accounts receivable sold

     —           —     

Total RPAs and Agreements

     

Accounts receivable sold to and held by third party financial institution

   $ 118.8       $ 169.7   

Deferred purchase price asset (liability) related to accounts receivable sold

     (1.5)         (23.7)   

The deferred purchase price related to the accounts receivable sold is reflected as prepaid expenses and other current assets or other current liabilities on the Company’s consolidated balance sheet and was initially recorded at an amount which approximates its fair value due to the short-term nature of these items. The cash received initially and the deferred purchase price relate to the sale or ultimate collection of the underlying receivables and are not subject to significant other risks given their short nature; therefore, the Company reflects all cash flows under the accounts receivable sales programs as operating cash flows on the Company’s consolidated statements of cash flows.

Additionally, the Company performs collections and administrative functions on the receivables sold similar to the procedures it uses for collecting all of its receivables, including receivables that are not sold under the European RPA, the Singapore RPA and the Malaysian Agreement. The servicing liability for these receivables is not material to the consolidated financial statements.

Inventories
Inventories

NOTE 4 – INVENTORIES

The inventories are stated at the lower of cost or market and summarized as follows as of October 31 for each year (Dollars in millions):

 

     2015      2014  

Finished goods

   $ 88.0       $ 100.9   

Raw materials

     190.7         235.9   

Work-in process

     18.3         44.3   
  

 

 

    

 

 

 
   $ 297.0       $ 381.1   
  

 

 

    

 

 

 
Assets and Liabilities Held for Sale and Disposals of Property, Plant and Equipment, Net
Assets and Liabilities Held for Sale and Disposals of Property, Plant and Equipment, Net

NOTE 5 – ASSETS AND LIABILITIES HELD FOR SALE AND DISPOSALS OF PROPERTY, PLANT AND EQUIPMENT, NET

As of October 31, 2015, there were four asset groups in the Rigid Industrial Packaging Products & Services segment and one asset group in the Flexible Products & Services segment classified as assets and liabilities held for sale, and it is the Company’s intention to complete the sales of these assets within the twelve months following the end of the year. During 2015, two asset groups classified as held for sale at October 31, 2014 were sold, two other asset groups previously classified as held for sale were reclassed to held and used. Two asset groups, one within the Flexible Products & Services segment and one within the Paper Packaging Segment, were added and sold subsequently during the year. The assets and liabilities held for sale are being marketed for sale and it is the Company’s intention to complete the sales of these assets within the upcoming year. For additional information regarding the sale of businesses refer to Note 2 to these consolidated financial statements.

For the year ended October 31, 2015, the Company recorded a gain on disposal of properties, plants and equipment, net of $7.0 million. There were sales of HBU and surplus properties which resulted in gains of $2.7 million in the Land Management segment, a disposal of an asset group previously classified as held for sale in the Rigid Industrial Packaging & Services segment that resulted in a gain of $4.4 million, insurance recoveries which resulted in gains of $3.0 million in the Rigid Industrial Packaging & Services segment, a $3.0 million loss in the Flexible Products & Services segment resulting from the fair market value adjustment of an asset previously classified as held for sale and other miscellaneous losses of $0.1 million.

For the year ended October 31, 2014, the Company recorded a gain on disposal of properties, plants and equipment, net of $8.3 million. There were sales of HBU and surplus properties which resulted in gains of $5.4 million in the Land Management segment, a sale of equipment in the Flexible Products & Services segment that resulted in a gain of $1.1 million, a disposal of an asset in the Paper Packaging segment that resulted in a gain of $0.7 million and sales of other miscellaneous equipment which resulted in aggregate gains of $1.1 million.

For the year ended October 31, 2013, the Company recorded a gain on disposal of properties, plants and equipment, net of $5.6 million. There were sales of HBU and surplus properties which resulted in gains of $1.2 million in the Land Management segment, a sale of equipment in the Paper Packaging segment that resulted in a gain of $0.6 million, a disposal of equipment in the Rigid Industrial Packaging & Services segment that resulted in a gain of $2.5 million, a sale of property that was previously classified as held for sale in the Rigid Industrial Packaging & Services segment that resulted in a gain of $0.6 million, a sale of land adjacent to our corporate offices that resulted in a gain of $0.8 million, a sale of equipment that resulted in a loss of $0.9 million and sales of other miscellaneous equipment which resulted in aggregate gains of $0.8 million.

 

For the years ended October 31, 2015, 2014 and 2013, the Company recorded a gain of $24.3 million, $17.1 million and $17.3 million, respectively, relating to the sale of timberland.

Goodwill and Other Intangible Assets
Goodwill and Other Intangible Assets
NOTE 6 – GOODWILL AND OTHER INTANGIBLE ASSETS

The following table summarizes the changes in the carrying amount of goodwill by segment for the year ended October 31, 2015 and 2014 (Dollars in millions):

 

     Rigid Industrial
Packaging & Services
    Paper
Packaging
    Flexible Products
& Services (1)
    Land
Management
     Total  

Balance at October 31, 2013

   $ 860.2      $ 59.9      $ 78.3      $ —         $ 998.4   

Goodwill acquired

     25.9        —          —          —           25.9   

Goodwill allocated to divestitures and businesses held for sale

     (25.5     (0.4     (21.8     —           (47.7

Goodwill adjustments

     (0.8     —          —          —           (0.8

Goodwill impairment charge

     —          —          (50.3     —           (50.3

Currency translation

     (39.1     —          (6.2     —           (45.3
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance at October 31, 2014

   $ 820.7      $ 59.5      $ —        $ —         $ 880.2   

Goodwill acquired

     —          —          —          —           —     

Goodwill allocated to divestitures and businesses held for sale

     (11.6     —          —          —           (11.6

Goodwill adjustments

     —          —          —          —           —     

Goodwill impairment charge

     —          —          —          —           —     

Currency translation

     (61.5     —          —          —           (61.5
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance at October 31, 2015

   $ 747.6      $ 59.5      $ —        $ —         $ 807.1   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

(1) Accumulated goodwill impairment loss was $50.3 million, $50.3 million, and $0.0 million, as of October 31, 2015, 2014 and 2013, respectively.

The Company reviews goodwill by reporting unit and indefinite-lived intangible assets for impairment as required by ASC 350, “Intangibles – Goodwill and Other”, either annually in the fourth quarter as of August 1, or whenever events and circumstances indicate impairment may have occurred. 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. The components are aggregated into reporting units for purposes of goodwill impairment testing to the extent they share similar qualitative and quantitative characteristics. The Company has five operating segments: Rigid Industrial Packaging & Services – Americas; Rigid Industrial Packaging & Services Europe, Middle East, Africa, and Asia Pacific; Paper Packaging; Flexible Products & Services; and Land Management. These five operating segments are aggregated into four reportable business segments by combining the Rigid Industrial Packaging & Services – Americas and Rigid Industrial Packaging & Services Europe, Middle East, Africa, and Asia Pacific operating segments. The Company’s reporting units are the same as the operating segments.

During the fourth quarter of 2014, triggering events occurred in the Flexible Products & Services reporting unit that significantly lowered the forecasted cash flow projections used by the Company during its annual impairment test. The triggering events identified were as follows:

 

    During the fourth quarter of 2014, Flexible Products & Services changed the labor mix of employees at one of its facilities in Turkey, resulting in higher expected long-term overall labor costs.

 

    There were also certain Flexible Products & Services businesses and facilities identified during the fourth quarter of 2014 as planned divestitures and shutdowns. These planned divestitures and shutdowns were primarily distribution locations and so reduced overall sales and topline revenue for Flexible Products & Services without reducing fixed production costs, resulting in projected decreases in gross margins and operating profit margins for the business as a whole.

 

    Finally, there was a significant devaluation of the Euro that negatively impacted expected results for Flexible Products & Services, as a significant portion of its forecasted sales are to customers in the Euro zone. The devaluation is projected to have a long-term effect on the results of the Flexible Products & Services reporting unit.

Due to these events, the Company performed a goodwill impairment test as of October 31, 2014 for the Flexible Products & Services reporting unit. Based on the analysis performed as of October 31, 2014, the carrying amount of the Flexible Products & Services reporting unit exceeded the fair value of the Flexible Products & Services reporting unit and the goodwill of the Flexible Products & Services reporting unit as of October 31, 2014 was fully impaired and written off as of October 31, 2014.

 

The fair value was determined primarily using the income approach by discounting estimated future cash flows. Those cash flow projections were prepared based upon the evaluation of the historical performance and future growth expectations for the Flexible Products & Services segment. Revenue was based on 2015 projections with a long-term growth rate applied to future periods. The most critical assumptions within the cash flow projections are revenue growth rates and forecasted gross margin percentages. The second step of the goodwill impairment test compared the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. The implied fair value of goodwill was calculated as the difference between the fair value of the reporting unit as a whole and the fair values of the other non-goodwill assets and liabilities making up the reporting unit. Significant assumptions used in the calculation of the implied fair value include those used in the valuation of fixed assets and intangibles. Fixed assets were valued using the indirect cost approach. The customer retention model used to value the customer list intangible asset was the multi-period excess earnings method.

The following table summarizes the carrying amount of net intangible assets by class as of October 31, 2015 and October 31, 2014 (Dollars in millions):

 

     Gross
Intangible
Assets
     Accumulated
Amortization
     Net Intangible
Assets
 

October 31, 2015:

        

Indefinite lived:

        

Trademarks and patents

   $ 13.1       $ —         $ 13.1   

Definite lived:

        

Trademarks and patents

   $ 12.4       $ 4.2       $ 8.2   

Non-compete agreements

     4.9         4.5         0.4   

Customer relationships

     180.7         81.7         99.0   

Other

     24.2         12.2         12.0   
  

 

 

    

 

 

    

 

 

 

Total

   $ 235.3       $ 102.6       $ 132.7   
  

 

 

    

 

 

    

 

 

 

October 31, 2014:

        

Indefinite lived:

        

Trademarks and patents

   $ 13.8       $ —         $ 13.8   

Definite lived:

        

Trademarks and patents

   $ 15.3       $ 4.7       $ 10.6   

Non-compete agreements

     6.0         5.1         0.9   

Customer relationships

     203.3         78.8         124.5   

Other

     27.8         11.1         16.7   
  

 

 

    

 

 

    

 

 

 

Total

   $ 266.2       $ 99.7       $ 166.5   
  

 

 

    

 

 

    

 

 

 

Gross intangible assets decreased by $30.9 million for the year ended October 31, 2015. The decrease was attributable to $5.2 million of gross intangibles from divestitures, $4.0 million transferred to held for sale, $20.1 million of currency fluctuations and the write-off of $1.6 million of fully-amortized assets. Amortization expense was $18.4 million, $22.0 million and $21.2 million for the years ended 2015, 2014 and 2013, respectively. Amortization expense for the next five years is expected to be $17.6 million in 2016, $16.9 million in 2017, $16.5 million in 2018, $16.4 million in 2019 and $15.9 million in 2020.

All intangible assets for the periods presented are subject to amortization and are being amortized using the straight-line method over periods that are contractually or legally determined or through purchase price accounting, except for $13.1 million related to the Tri-Sure trademark and trade names related to Blagden Express, Closed-loop and Box Board, all of which have indefinite lives.

Restructuring Charges
Restructuring Charges

NOTE 7 – RESTRUCTURING CHARGES

The following is a reconciliation of the beginning and ended restructuring reserve balances for the years ended October 31, 2015 and 2014 (Dollars in millions):

 

     Employee
Separation
Costs
     Other costs      Total  

Balance at October 31, 2013

   $ 1.8       $ 1.2       $ 3.0   

Costs incurred and charged to expense

     12.0         4.1         16.1   

Costs paid or otherwise settled

     (10.9      (4.1      (15.0
  

 

 

    

 

 

    

 

 

 

Balance at October 31, 2014

   $ 2.9       $ 1.2       $ 4.1   
  

 

 

    

 

 

    

 

 

 

Costs incurred and charged to expense

     27.8         12.2         40.0   

Costs paid or otherwise settled

     (16.0      (6.8      (22.8
  

 

 

    

 

 

    

 

 

 

Balance at October 31, 2015

   $ 14.7       $ 6.6       $ 21.3   
  

 

 

    

 

 

    

 

 

 

The focus for restructuring activities in 2015 was to continue to rationalize operations and close underperforming assets throughout all segments. During the year ended October 31, 2015, the Company recorded restructuring charges of $40.0 million, which compares to $16.1 million of restructuring charges recorded during the year ended October 31, 2014. The restructuring activity for the year ended October 31, 2015 consisted of $27.8 million in employee separation costs and $12.2 million in other restructuring costs, primarily consisting of professional fees incurred for services specifically associated with employee separation and relocation. There were eight plants closed in 2015, and a total of 1,020 employees severed throughout 2015 as part of the Company’s restructuring efforts.

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-K. Remaining amounts expected to be incurred were $14.7 million as of October 31, 2015. (Dollars in millions):

 

     Total Amounts
Expected to be
Incurred
     Amounts
Incurred During
the year ended

October 31, 2015
     Amounts
Remaining to be
Incurred
 

Rigid Industrial Packaging & Services:

        

Employee separation costs

   $ 27.4       $ 21.7         5.7   

Other restructuring costs

     12.1         7.8         4.3   
  

 

 

    

 

 

    

 

 

 
     39.5         29.5         10.0   

Flexible Products & Services:

        

Employee separation costs

     6.1         4.8         1.3   

Other restructuring costs

     6.7         3.3         3.4   
  

 

 

    

 

 

    

 

 

 
     12.8         8.1         4.7   

Paper Packaging

        

Employee separation costs

     1.2         1.2         —     

Other restructuring costs

     1.1         1.1         —     
  

 

 

    

 

 

    

 

 

 
     2.3         2.3         —     

Land Management

        

Employee separation costs

     0.1         0.1         —     

Other restructuring costs

     —           —           —     
  

 

 

    

 

 

    

 

 

 
     0.1         0.1         —     
   $ 54.7       $ 40.0       $ 14.7   
  

 

 

    

 

 

    

 

 

 

The focus for restructuring activities in 2014 was to rationalize operations and close underperforming assets in both the Flexible Products & Services and the Rigid Industrial Packaging & Services segments. During 2014, the Company recorded restructuring charges of $16.1 million, consisting of $12.0 million in employee separation costs and $4.1 million in other restructuring costs, primarily consisting of lease termination costs, professional fees and other miscellaneous exit costs. There were eight plants closed in 2014, and a total of 850 employees severed throughout 2014 as part of the Company’s restructuring efforts.

The focus for restructuring activities in 2013 was on the rationalization of operations and contingency actions in Rigid Industrial Packaging & Services. During 2013, the Company recorded restructuring charges of $4.8 million, consisting of $2.8 million in employee separation costs and $2.0 million in other restructuring costs, primarily consisting of lease termination costs, professional fees and other miscellaneous exit costs. There were no plants closed in 2013, but there was a total of 278 employees severed throughout 2013 as part of the Company’s restructuring efforts.

Consolidation of Variable Interest Entities
Consolidation of Variable Interest Entities

NOTE 8 – 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 VIE’s quarterly to determine if the primary beneficiary status is appropriate. The Company consolidates VIE’s 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

On March 28, 2005, Soterra LLC (a wholly owned subsidiary) entered into two real estate purchase and sale agreements with Plum Creek Timberlands, L.P. (“Plum Creek”) to sell approximately 56,000 acres of timberland and related assets located primarily in Florida for an aggregate sales price of approximately $90 million, subject to closing adjustments. In connection with the closing of one of these agreements, Soterra LLC sold approximately 35,000 acres of timberland and associated assets in Florida, Georgia and Alabama for $51.0 million, resulting in a pretax gain of $42.1 million, on May 23, 2005. The purchase price was paid in the form of cash and a $50.9 million purchase note payable (the “Purchase Note”) by an indirect subsidiary of Plum Creek (the “Buyer SPE”). Soterra LLC contributed the Purchase Note to STA Timber LLC (“STA Timber”), one of the Company’s indirect wholly owned subsidiaries. The Purchase Note is secured by a Deed of Guarantee issued by Bank of America, N.A., London Branch, in an amount not to exceed $52.3 million (the “Deed of Guarantee”), as a guarantee of the due and punctual payment of principal and interest on the Purchase Note.

The Company completed the second and final phase of these transactions in the first and second quarter of 2006, respectively, with the sale of 15,300 acres and another approximately 5,700 acres.

On May 31, 2005, STA Timber issued in a private placement its 5.20% Senior Secured Notes due August 5, 2020 (the “Monetization Notes”) in the principal amount of $43.3 million. In connection with the sale of the Monetization Notes, STA Timber entered into note purchase agreements with the purchasers of the Monetization Notes (the “Note Purchase Agreements”) and related documentation. The Monetization Notes are secured by a pledge of the Purchase Note and the Deed of Guarantee. The Monetization Notes may be accelerated in the event of a default in payment or a breach of the other obligations set forth therein or in the Note Purchase Agreements or related documents, subject in certain cases to any applicable cure periods, or upon the occurrence of certain insolvency or bankruptcy related events. The Monetization Notes are subject to a mechanism that may cause them, subject to certain conditions, to be extended to November 5, 2020. The proceeds from the sale of the Monetization Notes were primarily used for the repayment of indebtedness. Greif, Inc. and its other subsidiaries have not extended any form of guaranty of the principal or interest on the Monetization Notes. Accordingly, Greif, Inc. and its other subsidiaries will not become directly or contingently liable for the payment of the Monetization Notes at any time.

The Buyer SPE is deemed to be a VIE since the assets of the Buyer SPE are not available to satisfy the liabilities of the Buyer SPE. The Buyer SPE is a separate and distinct legal entity from the Company and no ownership interest in the Buyer SPE is held by the Company, but 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 or the right to receive benefits from the VIE that could potentially be significant to the VIE. As a result, Buyer SPE has been consolidated into the operations of the Company.

As of October 31, 2015 and 2014, assets of the Buyer SPE consisted of $50.9 million of restricted bank financial instruments which are expected to be held to maturity. For each of the years ended October 31, 2015, 2014 and 2013, the Buyer SPE recorded interest income of $2.4 million.

As of October 31, 2015 and 2014, STA Timber had long-term debt of $43.3 million. For each of the years ended October 31, 2015, 2014 and 2013, STA Timber recorded interest expense of $2.2 million. STA Timber is exposed to credit-related losses in the event of nonperformance by the issuer of the Deed of Guarantee.

Flexible Packaging Joint Venture

On September 29, 2010, Greif, Inc. and its indirect subsidiary Greif International Holding Supra C.V. (“Greif Supra,”) formed a joint venture (referred to herein as the “Flexible Packaging JV”) with Dabbagh Group Holding Company Limited and its subsidiary NSC. The Flexible Packaging JV owns the operations in the Flexible Products & Services segment, with the exception of the North American multiwall packaging business, which was sold in August 2014. The Flexible Packaging JV has been consolidated into the operations of the Company as of its formation date of September 29, 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 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 or the right to receive benefits from the VIE that could potentially be significant to the VIE.

The economic and business purpose underlying the Flexible Packaging JV is to establish a global industrial flexible products enterprise through a series of targeted acquisitions and major investments in plant, machinery and equipment. All entities contributed to the Flexible Packaging JV were existing businesses acquired by Greif Supra and that were reorganized under Greif Flexibles Asset Holding B.V. and Greif Flexibles Trading Holding B.V. (“Asset Co.” and “Trading Co.”), respectively. The Flexibles Packaging J.V. also includes Global Textile Company LLC (“Global Textile”), which owned and operated a fabric hub in the Kingdom of Saudi Arabia that commenced operations in the fourth quarter of 2012 and ceased operations in the fourth quarter of 2014. The Company has 51 percent ownership in Trading Co. and 49 percent ownership in Asset Co. and Global Textile. However, Greif Supra and NSC have equal economic interests in the Flexible Packaging JV, notwithstanding the actual ownership interests in the various legal entities.

All investments, loans and capital contributions are to be shared equally by Greif Supra and NSC and each partner has committed to contribute capital of up to $150 million and obtain third party financing for up to $150 million as required.

 

The following table presents the Flexible Packaging JV total net assets (Dollars in millions):

 

As of October 31,

   2015      2014  

Cash and cash equivalents

   $ 14.5       $ 6.6   

Trade accounts receivable, less allowance of $3.2 in 2015 and $4.3 in 2014

     47.5         60.1   

Inventories

     44.7         70.0   

Properties, plants and equipment, net

     43.1         57.0   

Other assets

     36.8         45.8   

Accounts payable

     27.9         43.7   

Other liabilities

     50.6         47.7   

During 2014, there was a conversion of short-term loans payable and accrued interest to equity. This transaction involved loans payable to another Greif entity and those payable to NSC. As of October 31, 2013, Asset Co. had outstanding advances to NSC for $0.6 million which were being used to fund certain costs incurred in the Kingdom of Saudi Arabia in respect of the fabric hub. These advances were recorded within the current portion related party notes and advances receivable on the Company’s consolidated balance sheet. As of October 31, 2013, Asset Co. and Trading Co. held short term loans payable to NSC for $12.7 million, recorded within short-term borrowings on the Company’s consolidated balance sheet. These loans were interest bearing and were used to fund certain operational requirements. The fabric hub ceased operations during the fourth quarter of 2014.

Net loss attributable to the noncontrolling interest in the Flexible Packaging JV for the years ended October 31, 2015, 2014 and 2013 were $14.2 million, $57.0 million and $9.1 million, respectively.

Non-United States Accounts Receivable VIE

As further described in Note 3, Cooperage Receivables Finance B.V. is a party to the European RPA. 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.

Long-Term Debt
Long-Term Debt

NOTE 9 – LONG-TERM DEBT

Long-term debt is summarized as follows (Dollars in millions):

 

     October 31, 2015      October 31, 2014  

Amended Credit Agreement

   $ 217.4       $ 169.2   

Senior Notes due 2017

     300.7         301.2   

Senior Notes due 2019

     246.0         245.2   

Senior Notes due 2021

     219.4         252.5   

Amended Receivables Facility

     147.6         110.0   

Other long-term debt

     15.8         26.9   
  

 

 

    

 

 

 
     1,146.9         1,105.0   

Less current portion

     (30.7      (17.6
  

 

 

    

 

 

 

Long-term debt

   $ 1,116.2       $ 1,087.4   
  

 

 

    

 

 

 

Credit Agreement

On December 19, 2012, the Company and two of its international subsidiaries amended and restated the Company’s existing $1.0 billion senior secured credit agreement with a syndicate of financial institutions (the “Amended Credit Agreement”). The total available borrowing under this facility was $706.3 million as of October 31, 2015, which has been reduced by $14.4 million for outstanding letters of credit, all of which is available without violating covenants.

The Amended Credit Agreement contains 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 fiscal quarter the Company will not permit the ratio of (a) the Company’s total consolidated indebtedness, to (b) the Company’s 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 (“adjusted EBITDA”) to be greater than 4.00 to 1. The interest coverage ratio generally requires that at the end of any fiscal quarter the Company will not permit the ratio of (a) the Company’s consolidated adjusted EBITDA to (b) the Company’s consolidated interest expense to the extent paid or payable, to be less than 3.00 to 1, during the preceding twelve month period (the “Interest Coverage Ratio Covenant”).

 

The terms of the Amended Credit Agreement limit the Company’s ability to make “restricted payments,” which include dividends and purchases, redemptions and acquisitions of the Company’s equity interests. The payment of dividends and other restricted payments are subject to the condition that certain defaults not exist under the terms of the Amended Credit Agreement and, in the event that certain defaults exist, are limited in amount by a formula based, in part, on the Company’s consolidated net income. The repayment of amounts borrowed under the Amended Credit Agreement are secured by a security interest in the personal property of Greif, Inc. and certain of the Company’s United States subsidiaries, including equipment and inventory and certain intangible assets, as well as a pledge of the capital stock of substantially all of the Company’s United States subsidiaries. The repayment of amounts borrowed under the Amended Credit Agreement is also secured, in part, by capital stock of the non-U.S. subsidiaries that are parties to the Amended Credit Agreement. However, in the event that the Company receives and maintains an investment grade rating from either Moody’s Investors Service, Inc. or Standard & Poor’s Corporation, the Company may request the release of such collateral. The payment of outstanding principal under the Amended Credit Agreement and accrued interest thereon may be accelerated and become immediately due and payable upon the Company’s default in its payment or other performance obligations or its failure to comply with the financial and other covenants in the Amended Credit Agreement, subject to applicable notice requirements and cure periods as provided in the Amended Credit Agreement.

The Company recorded $1.3 million of debt extinguishment charges for the year ended October 31, 2013. Financing costs associated with the Amended Credit Agreement totaling $3.4 million were capitalized and included in other long term assets. The Company recorded no debt extinguishment charges for the year ended October 31, 2015 and 2014.

As of October 31, 2015, $217.4 million was outstanding under the Amended Credit Agreement. The current portion of the Amended Credit Agreement was $17.3 million and the long-term portion was $200.1 million. The weighted average interest rate on the Amended Credit Agreement was 1.63% for the year ended October 31, 2015. The actual interest rate on the Amended Credit Agreement was 1.74% as of October 31, 2015.

Senior Notes due 2017

On February 9, 2007, the Company issued $300.0 million of 6.75% Senior Notes due February 1, 2017. Interest on these Senior Notes is payable semi-annually.

Senior Notes due 2019

On July 28, 2009, the Company issued $250.0 million of 7.75% Senior Notes due August 1, 2019. Interest on these Senior Notes is payable semi-annually.

Senior Notes due 2021

On July 15, 2011, Greif, Inc.’s wholly-owned subsidiary, Greif Nevada Holdings, Inc., S.C.S. (formerly Greif Luxembourg Finance S.C.A.), issued €200.0 million of 7.375% Senior Notes due July 15, 2021. These Senior Notes are fully and unconditionally guaranteed on a senior basis by Greif, Inc. Interest on these Senior Notes is payable semi-annually.

United States Trade Accounts Receivable Credit Facility

On September 30, 2013, the Company amended and restated the Prior Receivables Facility to establish a $170.0 million United States Trade Accounts Receivable Credit Facility (the “Amended Receivables Facility”) with a financial institution. On December 1, 2015, the Amended Receivables Facility was amended to reduce the amount of available proceeds from $170 million to $150 million.

Other

In addition to the amounts borrowed under the Amended Credit Agreement and proceeds from the Senior Notes and the Amended Receivables Facility, as of October 31, 2015, the Company had outstanding other debt of $15.9 million in long-term debt and $40.7 million in short-term borrowings, compared to other debt of $26.9 million in long-term debt and $48.1 million in short-term borrowings, as of October 31, 2014. There are no financial covenants associated with this other debt.

Annual maturities, including the current portion of long-term debt under the Company’s various financing arrangements, are $30.7 million in 2016, $467.0 million in 2017, $182.9 million in 2018, $246.0 million in 2019, and $220.3 million thereafter. Cash paid for interest expense was $77.5 million, $86.4 million and $86.5 million in 2015, 2014 and 2013, respectively.

As of October 31, 2015 and 2014, the Company had deferred financing fees and debt issuance costs of $7.2 million and $10.3 million, respectively, which are included in other long-term assets.

Financial Instruments and Fair Value Measurements
Financial Instruments and Fair Value Measurements

NOTE 10 – FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

Recurring Fair Value Measurements

The following table presents the fair value of those assets and (liabilities) measured on a recurring basis as of October 31, 2015 and 2014 (Dollars in millions):

 

     October 31, 2015      Balance sheet
Location
     Level 1      Level 2      Level 3      Total     

Foreign exchange hedges

   $ —         $ 0.3       $ —         $ 0.3       Prepaid expenses and other current assets

Foreign exchange hedges

     —           (0.2         (0.2    Other current liabilities

Insurance Annuity**

     —           —           20.1         20.1       Other long-term assets
  

 

 

    

 

 

    

 

 

    

 

 

    

Total*

   $ —         $ 0.1       $ 20.1       $ 20.2      
  

 

 

    

 

 

    

 

 

    

 

 

    
     October 31, 2014       
        Balance sheet
Location
     Level 1      Level 2      Level 3      Total     

Interest rate derivatives

   $ —         $ (0.2    $ —         $ (0.2    Other long-term liabilities

Foreign exchange hedges

     —           0.6         —           0.6       Prepaid expenses and other current assets

Foreign exchange hedges

     —           (0.2      —           (0.2    Other current liabilities

Insurance Annuity**

     —           —           22.6         22.6       Other long-term assets
  

 

 

    

 

 

    

 

 

    

 

 

    

Total*

   $ —         $ 0.2       $ 22.6       $ 22.8      
  

 

 

    

 

 

    

 

 

    

 

 

    

 

* The carrying amounts of cash and cash equivalents, trade accounts receivable, notes receivable, accounts payable, current liabilities and short-term borrowings as of October 31, 2015 and 2014 approximate their fair values because of the short-term nature of these items and are not included in this table.
** The change in the fair value of the insurance annuity is primarily due to changes in foreign currency exchange rates.

Interest Rate Derivatives

As of October 31, 2015, the Company had no interest rate derivatives.

Through December 2014, the Company had two interest rate derivatives (floating to fixed swap agreements designated as cash flow hedges) with a total notional amount of $150 million. Under these swap agreements, the Company received interest based upon a variable interest rate from the counterparties and paid interest based upon a fixed interest rate. The assumptions that were used in measuring fair value of the interest rate derivatives were considered level 2 inputs, which were based on interest from the counterparties based upon LIBOR and interest paid based upon a designated fixed rate over the life of the swap agreements. These derivative instruments were designated and qualified as cash flow hedges. Accordingly, the effective portion of the gain or loss on these derivative instruments was reported as a component of other comprehensive income and reclassified into earnings in the same line item associated with the forecasted transaction and in the same period during which the hedged transaction affected earnings. The ineffective portion of the gain or loss on the derivative instrument was recognized in earnings immediately.

Losses reclassified to earnings under these contracts were $0.2 million, $0.9 million, and $0.8 million for the twelve months ended October 31, 2015, 2014 and 2013, respectively. These losses were recorded within the consolidated statements of income as interest expense, net.

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 October 31, 2015, the Company had outstanding foreign currency forward contracts in the notional amount of $129.9 million ($122.4 million as of October 31, 2014). Adjustments to fair value are recognized in earnings, offsetting the impact of the hedged item. The assumptions used in measuring fair value of foreign exchange hedges are considered level 2 inputs, which were based on observable market pricing for similar instruments, principally foreign exchange futures contracts. Losses recorded under fair value contracts were $6.0 million and $6.2 million for the years ended October 31, 2015 and 2014, respectively. Gains recorded under fair value contracts were an immaterial amount for the years ended October 31, 2013.

Other Financial Instruments

The fair values of the Company’s Amended Credit Agreement and the Amended Receivables Facility 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 for the Company’s Senior Notes and Assets held by special purpose entities (Dollars in millions):

 

     October 31, 2015      October 31, 2014  

Senior Notes due 2017 Estimated fair value

   $ 314.8       $ 325.5   

Senior Notes due 2019 Estimated fair value

     280.6         287.5   

Senior Notes due 2021 Estimated fair value

     258.7         297.7   

Assets held by special purpose entities Estimated fair value

     54.4         54.5   

Pension Plan Assets

On an annual basis we compare the asset holdings of our pension plan to targets established by the Company. The pension plan assets are categorized as equity securities, debt securities, fixed income securities, insurance annuities, or other assets, which are considered level 1, level 2 and level 3 fair value measurements. The typical asset holdings include:

 

  Common Stock: Valued based on quoted prices and are primarily exchange-traded.
  Mutual funds: Valued at the Net Asset Value “NAV” available daily in an observable market.
  Common collective trusts: Unit value calculated based on the observable NAV of the underlying investment.
  Pooled separate accounts: Unit value calculated based on the observable NAV of the underlying investment.
  Government and corporate debt securities: Valued based on readily available inputs such as yield or price of bonds of comparable quality, coupon, maturity and type.
  Insurance annuity: Value is derived based on the value of the corresponding liability.

Non-Recurring Fair Value Measurements

Long-Lived Assets

During the year ended October 31, 2015, the Company wrote down long-lived assets with a carrying value of $60.7 million to a fair value of $14.8 million, resulting in recognized asset impairment charges of $45.9 million. These charges include $15.0 million of impairment charges related to Venezuelan properties, plants, and equipment, net, $11.4 million of impairment charges related to assets recognized at fair value in the Company’s reconditioning business, $1.5 million of IT software assets that were identified as obsolete, $0.5 million other-than-temporary impairment of equity method investment within the Flexible Products & Services segment, $10.9 million of impairment charges related to plant closures within the Rigid Industrial Packaging & Services and Flexible Products & Services segments, and $6.6 million of various machinery and equipment determined to be obsolete.

During the year ended October 31, 2014, the Company wrote down long-lived assets with a carrying value of $58.0 million to a fair value of $22.5 million, resulting in recognized asset impairment charges of properties, plants and equipment of $35.5 million, consisting of: $11.5 million for assets in the Rigid Industrial Packaging & Services segment related to the third quarter 2014 impairment of assets to be sold for a loss in the fourth quarter of 2014, underutilized and damaged equipment, and unutilized facilities in Europe; and $24.0 million for assets in Flexible Products & Services segment related to underutilized equipment and the shutdown of the fabric hub in the Kingdom of Saudi Arabia. The impairment charges in the Flexible Products & Services segment included $15.7 million related to assets valued on the basis of their highest and best use.

During the year ended October 31, 2013, the Company wrote down long-lived assets with a carrying value of $84.2 million to a fair value of $52.8 million, resulting in recognized asset impairment charges of properties, plants, and equipment of $31.4 million, consisting of: $1.6 million for assets in the Paper Packaging segment primarily for assets under contract to be sold; $18.8 million for assets in the Rigid Industrial Packaging & Services segment related to loss making facilities, underutilized and damaged equipment, and unutilized facilities in Europe; and $11.0 million for assets in Flexible Products & Services segment related to underutilized equipment which was valued on the basis of their highest and best use.

 

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. 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 for the twelve months ended October 31, 2015.

 

     Quantitative Information about Level 3 Fair Value Measurements
     Fair Value of
Impairment
    Valuation
Technique
   Unobservable
Input
   Range
of Input Values
     (in millions)           

October 31, 2015

          

Impairment of Long-lived assets-Land &  Building

   $ 28.1      Broker Quote /

Indicative Bids

   Indicative Bids    N/A

Impairment of Long-lived assets-Machinery &  Equipment

   $ 17.8      Sales Value    Sales Value    N/A

Assets and Liabilities Held for Sale

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. During 2015, two asset groups classified as held for sale at October 31, 2014 were reclassed to held and used, resulting in a $3.0 million impairment to net realizable value. The Company has not recorded additional impairment related to assets which were previously classified as held for sale during the year ended October 31, 2013.

Goodwill and Indefinite-Lived Intangibles

On an annual basis or when events or circumstances indicate impairment may have occurred, the Company performs impairment tests for goodwill and intangibles as defined under ASC 350, “Intangibles-Goodwill and Other.” As of October 31, 2014, the Company concluded that the carrying amount of the Flexible Products & Services reporting unit exceeded the fair value of the Flexible Products & Services reporting unit and the goodwill of $50.3 million on the Flexible Products & Services reporting unit as of October 31, 2014 was fully impaired. See Note 6 for additional information. The Company concluded that no impairment existed as of October 31, 2015 and 2013.

Stock-Based Compensation
Stock-Based Compensation

NOTE 11 – STOCK-BASED COMPENSATION

Stock-based compensation is accounted for in accordance with ASC 718, “Compensation – Stock Compensation,” which requires companies to estimate the fair value of share-based awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense in the Company’s consolidated statements of income over the requisite service periods. The Company uses the straight-line single option method of expensing stock options to recognize compensation expense in its consolidated statements of income for all share-based awards. Because share-based compensation expense is based on awards that are ultimately expected to vest, share-based compensation expense is reduced to account for estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. No stock options were granted in 2015, 2014 or 2013. For any options granted in the future, compensation expense will be based on the grant date fair value estimated in accordance with the provisions of ASC 718.

In 2001, the Company adopted the 2001 Management Equity Incentive and Compensation Plan (the “2001 Plan”). The provisions of the 2001 Plan allow the awarding of incentive and nonqualified stock options and restricted and performance shares of Class A Common Stock to key employees. The maximum number of shares that may be issued each year is determined by a formula that takes into consideration the total number of shares outstanding and is also subject to certain limits. In addition, the maximum number of incentive stock options that will be issued under the 2001 Plan during its term is 5,000,000 shares.

Under the terms of the 2001 Plan, stock options may be granted at exercise prices equal to the market value of the common stock on the date options are granted and become fully vested two years after date of grant. Options expire 10 years after date of grant.

In 2005, the Company adopted the 2005 Outside Directors Equity Award Plan (the “2005 Directors Plan”), which provides for the granting of stock options, restricted stock or stock appreciation rights to directors who are not employees of the Company. Prior to 2005, the Directors Stock Option Plan (the “Directors Plan”) provided for the granting of stock options to directors who are not employees of the Company. The aggregate number of the Company’s Class A Common Stock options, and in the case of the 2005 Directors Plan, restricted stock, that may be granted may not exceed 200,000 shares under each of these plans. Under the terms of both plans, options are granted at exercise prices equal to the market value of the common stock on the date options are granted and become exercisable immediately. Options expire 10 years after date of grant.

 

Stock option activity for the years ended October 31 was as follows (Shares in thousands):

 

     2015      2014      2013  
     Shares      Weighted
Average
Exercise
price
     Shares      Weighted
Average
Exercise
price
     Shares      Weighted
Average
Exercise
price
 

Beginning balance

     10       $ 27.36         79       $ 25.30         181       $ 19.45   

Granted

     —           —           —           —           —           —     

Forfeited

     —           —           —           —           3         19.35   

Exercised

     10         27.36         69         25.01         99         14.79   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

     —         $ —           10       $ 27.36         79       $ 25.30   

All outstanding options were exercisable as of October 31, 2015, 2014 and 2013, respectively.

The Company’s Long Term Incentive Plan is intended to focus management on the key measures that drive superior performance over the longer-term. The Long Term Incentive Plan is based on three-year performance periods that commence at the start of every fiscal year. For each three-year performance period, the performance goals are based on targeted levels of earnings before interest, taxes, depreciation, depletion and amortization as determined by the Special Subcommittee of the Company’s Compensation Committee of the Board of Directors (the “Special Subcommittee”). Participants are paid 50% in cash and 50% in restricted shares of the Company’s Class A and/or Class B Common Stock, as determined by the Special Subcommittee.

Under the Company’s Long-Term Incentive Plan, the Company will grant in January 2016 42,497 shares of restricted stock with a weighted average grant date fair value of $34.05 for 2015. The Company granted 49,702 shares of restricted stock with a weighted average grant date fair value of $45.71 under the Company’s Long-Term Incentive Plan for 2014. The total stock expense recorded under the plan was $1.4 million, $2.3 million and $2.9 million for the periods ended October 31, 2015, 2014 and 2013, respectively. All restricted stock awards under the Long Term Incentive Plan are fully vested at the date of award.

Under the Company’s 2005 Directors Plan, the Company granted 25,560 shares of restricted stock with a weighted average grant date fair value of $44.01 in 2015. The Company granted 22,059 shares of restricted stock with a weighted average grant date fair value of $50.99 under the Company’s 2005 Directors Plan in 2014. The total expense recorded under the plan was $1.1 million, $1.1 million, and $0.8 million for the periods ended October 31, 2015, 2014, and 2013, respectively. All restricted stock awards under the 2005 Directors Plan are fully vested at the date of award.

During 2014, the Company awarded an officer, as part of the terms of his initial employment arrangement, 15,000 shares of Class A Common Stock under the 2001 Plan. These shares were issued subject to vesting and post-vesting restrictions on the sale or transfer until May 12, 2019. These shares fully vest in equal installments of 5,000 on May 12, 2015, 2016 and 2017. Share-based compensation expense was $0.3 million and $0.2 million for the periods ended October 31, 2015 and 2014, respectively.

The total stock compensation expenses recorded under the plans were $2.8 million, $3.6 million and $3.7 million for the periods ended October 31, 2015, 2014 and 2013 respectively.

Income Taxes
Income Taxes

NOTE 12 – INCOME TAXES

The Company files income tax returns in the U.S. federal jurisdiction, various U.S. state and local jurisdictions, and various non-U.S. jurisdictions.

The provision for income taxes consists of the following (Dollars in millions):

 

For the years ended October 31,    2015      2014      2013  

Current

        

Federal

   $ 18.3       $ 53.1       $ 54.3   

State and local

     4.0         9.8         8.8   

Non-U.S.

     29.6         38.0         33.1   
  

 

 

    

 

 

    

 

 

 
     51.9         100.9         96.2   

Deferred

        

Federal

     2.4         2.7         (6.3

State and local

     0.2         (1.6      (0.3

Non-U.S.

     (6.1      13.0         9.2   
  

 

 

    

 

 

    

 

 

 
     (3.5      14.1         2.6   
  

 

 

    

 

 

    

 

 

 
   $ 48.4       $ 115.0       $ 98.8   
  

 

 

    

 

 

    

 

 

 

 

The non-U.S. income (loss) before income tax expense was $25.8 million, $(17.0) million and $80.3 million in 2015, 2014, and 2013, respectively. The 2014 non-U.S. pretax loss is primarily the result of the impairment of non-deductible goodwill. The U.S. income before income tax was $89.0 million, $175.0 million and $163.1 million in 2015, 2014, and 2013, respectively.

The following is a reconciliation of the provision for income taxes based on the federal statutory rate to the Company’s effective income tax rate:

 

For the years ended October 31,

   2015     2014     2013  

United States federal tax rate

     35.00     35.00     35.00

Non-U.S. tax rates

     (4.30 %)      2.90     2.20

State and local taxes, net of federal tax benefit

     2.80     4.20     2.50

U.S. domestic production activity deduction

     (0.90 %)      (3.10 %)      (2.00 %) 

Unrecognized tax benefits

     2.50     7.20     0.40

Net impact of released and new valuation allowances

     3.00     12.70     0.50

Withholding tax

     2.70     2.90     2.90

Foreign partnerships

     (5.80 %)      (5.30 %)      (3.60 %) 

Foreign income inclusion

     0.40     —          1.70

Venezuela balance sheet remeasurement

     5.90     —          —     

Nondeductible goodwill

     2.50     15.60     —     

Other items

     (1.60 %)      0.70     1.00
  

 

 

   

 

 

   

 

 

 
     42.20     72.80     40.60
  

 

 

   

 

 

   

 

 

 

Withholding tax is assessed and accrued for interest, royalties, and dividends on a quarterly basis for transactions primarily between non-U.S. entities.

As discussed in Note 1 herein, with respect to its operations in Venezuela, the Company changed from the official exchange rate to the SIMADI rate requiring remeasurement of the Venezuelan balance sheet during 2015. The net $19.4 million charge to the income statement had no tax benefit. This balance sheet remeasurement contributed 5.90 percent to our effective tax rate.

During 2014, the Company disposed of certain operations, including the divestiture of a nonstrategic business in the Rigid Industrial Packaging & Services segment in third quarter and the multiwall packaging business in the fourth quarter, which resulted in gains and losses recognized, including an amount related to goodwill of $13.6 million and $21.8 million, respectively, which did not have a tax basis. Moreover, the Flexible Products & Services reporting unit recognized the impairment of goodwill of $50.3 million that did not have any tax basis. For 2014, the combination of these items contributed 15.6 percent to our effective tax rate.

 

The components of the Company’s deferred tax assets and liabilities as of October 31 for the years indicated were as follows (Dollars in millions):

 

     2015      2014  

Deferred Tax Assets

     

Net operating loss and other carryforwards

   $ 80.8       $ 108.5   

Pension liabilities

     53.6         48.2   

Insurance operations

     3.5         4.1   

Incentive liabilities

     5.4         12.9   

Environmental reserves

     0.4         5.4   

Inventories

     6.5         5.7   

State income taxes

     7.4         9.2   

Postretirement benefit obligations

     3.5         4.1   

Other

     11.3         7.6   

Interest accrued

     1.6         2.3   

Allowance for doubtful accounts

     3.4         4.6   

Restructuring reserves

     6.0         1.4   

Deferred compensation

     2.9         2.7   

Foreign tax credits

     2.3         2.3   

Vacation accruals

     1.5         1.8   

Workers compensation accruals

     3.5         4.6   
  

 

 

    

 

 

 

Total Deferred Tax Assets

     193.6         225.4   

Valuation allowance

     (89.5      (108.5
  

 

 

    

 

 

 

Net Deferred Tax Assets

     104.1         116.9   
  

 

 

    

 

 

 

Deferred Tax Liabilities

     

Properties, plants and equipment

     84.7         109.0   

Goodwill and other intangible assets

     80.1         79.9   

Foreign Income Inclusion

     1.1         1.1   

Foreign exchange gains

     6.1         7.4   

Timberland transactions

     116.2         106.4   
  

 

 

    

 

 

 

Total Deferred Tax Liabilities

     288.2         303.8   
  

 

 

    

 

 

 

Net Deferred Tax Liability

   $ (184.1    $ (186.9
  

 

 

    

 

 

 

As of October 31, 2015, the Company had tax benefits from non-U.S. net operating loss and other carryforwards of approximately $79.8 million and approximately $1.0 million of U.S. federal and state net operating loss carryforwards. The Company has recorded valuation allowances of $87.2 million and $106.2 million as of October 31, 2015 and 2014, respectively, against the tax benefits from non-U.S. net deferred tax assets. The Company has also recorded valuation allowances of $2.3 million and $2.3 million as of October 31, 2015 and 2014, respectively, against tax benefits from U.S. net deferred tax assets. The Company’s $19.0 million decrease in valuation allowances during 2015 consists of the following: $17.9 million of currency translations; and $3.4 million net incremental increases in new valuation allowances resulting in a 3.0% rate impact disclosed separately in the rate reconciliation above; and $4.5 million of incremental net decreases against current year net operating losses and other net deferred tax assets resulting in a (3.9%) rate impact included within the non-U.S. tax rates line of the rate reconciliation above.

As of October 31, 2015, the Company has not recognized U.S. deferred income taxes on a cumulative total of $552 million of undistributed earnings from certain non-U.S. subsidiaries. The Company’s intention is to reinvest these earnings indefinitely outside of the U.S., or to repatriate the earnings only when it is tax-efficient to do so. Therefore, no U.S. tax provision has been accrued related to the repatriation of these earnings. It is not practicable to estimate the amount of any additional taxes which may be payable on the undistributed earnings given the various alternatives the Company could employ should the Company decide to repatriate these earnings in the future.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

 

     2015      2014      2013  

Balance at November 1

   $ 34.3       $ 30.5       $ 55.9   

Increases in tax positions for prior years

     8.5         5.7         4.5   

Decreases in tax positions for prior years

     (2.2      (8.2      (11.0

Increases in tax positions for current years

     6.2         10.3         8.8   

Settlements with taxing authorities

     (5.7      (0.6      (30.3

Lapse in statute of limitations

     (6.2      (0.8      —     

Currency translation

     (5.3      (2.6      2.6   
  

 

 

    

 

 

    

 

 

 

Balance at October 31

   $ 29.6       $ 34.3       $ 30.5   
  

 

 

    

 

 

    

 

 

 

The 2015 net decrease is primarily related to a net decrease in the lapse in statute of limitations and settlements with taxing authorities in various jurisdictions. The change in balance includes the impact of deferred items that do not impact the tax expense.

 

The Company files income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions and various foreign jurisdictions. With a few exceptions, the Company is subject to audit by various taxing authorities for 2010 through the current fiscal year. The Company has completed its U.S. federal tax audit for the tax years through 2012.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense net of tax, as applicable. As of October 31, 2015 and October 31, 2014, the Company had $5.4 million and $4.6 million, respectively, accrued for the payment of interest and penalties.

The October 31, 2015, 2014, 2013 balances include $28.5 million, $28.0 million and $23.0 million, respectively, of unrecognized tax benefits that, if recognized, would have an impact on the effective tax rate. The remaining unrecognized tax benefits relate to tax positions for which ultimate deductibility is highly certain, but for which there is uncertainty as to the timing of such deductibility. Recognition of these tax benefits would not affect our effective tax rate.

The Company has estimated the reasonably possible expected net change in unrecognized tax benefits through October 31, 2016 under ASC 740. The Company’s estimate is based on lapses of the applicable statutes of limitations, settlements and payments of uncertain tax positions. The estimated net decrease in unrecognized tax benefits for the next 12 months ranges from $0 to $4.5 million. Actual results may differ materially from this estimate.

The Company paid income taxes of $73.5 million, $78.7 million and $74.0 million in 2015, 2014, and 2013, respectively.

Post Retirement Benefit Plans
Post Retirement Benefit Plans

NOTE 13 – POST RETIREMENT BENEFIT PLANS

Defined Benefit Pension Plans

The Company has certain non-contributory defined benefit pension plans for salaried and hourly employees in the United States, Canada, Germany, the Netherlands, South Africa and the United Kingdom. The Company uses a measurement date of October 31 for fair value purposes for its pension plans. The salaried employees plans’ benefits are based primarily on years of service and earnings. The hourly employees plans’ benefits are based primarily upon years of service. Certain benefit provisions are subject to collective bargaining. The Company contributes an amount that is not less than the minimum funding and not more than the maximum tax-deductible amount to these plans. Salaried employees in the United States who commence service on or after November 1, 2007 and various dates in the preceding five years for the non-U.S. plans are not eligible to participate in the defined benefit pension plans, but are eligible to participate in a defined contribution retirement program. The category “Other International” represents the noncontributory defined benefit pension plans in Canada and South Africa.

Pension plan contributions by the Company totaled $11.4 million during 2015, which consisted of $8.2 million of employer contributions and $3.2 million of benefits paid directly by the Company. Pension plan contributions, including benefits paid directly by the Company totaled $16.9 million and $15.8 million during 2014 and 2013, respectively. Contributions, including benefits paid directly by the Company, during 2016 are expected to be approximately $15.7 million.

The following table presents the number of participants in the defined benefit plans:

 

October 31, 2015    Consolidated      USA      Germany      United Kingdom      Netherlands      Other
International
 

Active participants

     1,869         1,509         105         133         74         48   

Vested former employees

     2,083         1,525         57         399         81         21   

Retirees and beneficiaries

     4,050         2,480         255         718         540         57   
                    Other   
October 31, 2014    Consolidated      USA      Germany      United Kingdom      Netherlands      International  

Active participants

     2,131         1,772         112         133         66         48   

Vested former employees

     2,149         1,431         60         399         238         21   

Retirees and beneficiaries

     4,131         2,372         256         718         728         57   

Other plan participants

     30         —           —           —           30         —     

 

The actuarial assumptions are used to measure the year-end benefit obligations as of October 31, 2015 and the pension costs for the subsequent year were as follows:

 

For the year ended October 31, 2015

   Consolidated     United States     Germany     United Kingdom     Netherlands     Other
International
 

Discount rate

     3.71     4.37     2.10     3.45     1.98     4.82

Expected return on plan assets

     5.47     6.25     N/A        6.00     2.06     5.99

Rate of compensation increase

     3.01     3.00     2.75     3.50     2.25     N/A   

For the year ended October 31, 2014

            

Discount rate

     3.69     4.22     2.45     3.72     2.20     4.83

Expected return on plan assets

     5.73     6.25     N/A        6.25     3.25     6.09

Rate of compensation increase

     2.93     3.00     2.75     3.25     2.25     2.41

For the year ended October 31, 2013

            

Discount rate

     4.30     4.75     3.40     4.25     3.25     5.28

Expected return on plan assets

     5.70     6.00     N/A        6.50     3.25     5.82

Rate of compensation increase

     2.99     3.00     2.75     3.50     2.25     2.35

The discount rate is determined by developing a hypothetical portfolio of individual high-quality corporate bonds available at the measurement date, the coupon and principal payments of which would be sufficient to satisfy the plans’ expected future benefit payments as defined for the projected benefit obligation. The discount rate by country is equivalent to the average yield on that hypothetical portfolio of bonds and is a reflection of current market settlement rates on such high quality bonds, government treasuries, and annuity purchase rates. To determine the expected long-term rate of return on pension plan assets, the Company considers current and expected asset allocations, as well as historical and expected returns on various categories of plan assets. In developing future return expectations for the defined benefit pension plans’ assets; the Company formulates views on the future economic environment, both in the U.S. and globally. The Company evaluates general market trends and historical relationships among a number of key variables that impact asset class returns, such as expected earnings growth, inflation, valuations, yields and spreads, using both internal and external sources. The Company takes into account expected volatility by asset class and diversification across classes to determine expected overall portfolio results given current and expected allocations. The Company uses published mortality tables for determining the expected lives of plan participants and believe that the tables selected are most-closely associated with the expected lives of plan participants as the tables are based on the country in which the participant is employed. During 2015, the Company moved to a new published mortality table in the United States, resulting in an increase of approximately $20.0 million in the projected benefit obligation.

Based on our analysis of future expectations of asset performance, past return results, and our current and expected asset allocations, we have assumed a 5.5% long-term expected return on those assets for cost recognition in 2015. For the defined benefit pension plans, we apply our expected rate of return to a market-related value of assets, which stabilizes variability in the amounts to which we apply that expected return.

We amortize experience gains and losses as well as the effects of changes in actuarial assumptions and plan provisions over a period no longer than the average future service of employees.

 

Benefit Obligations

The components of net periodic pension cost include the following (Dollars in millions):

 

For the year ended October 31, 2015

   Consolidated     United States     Germany      United Kingdom     Netherlands     Other
International
 

Service cost

   $ 15.5      $ 11.3      $ 0.5       $ 1.8      $ 1.4      $ 0.5   

Interest cost

     27.6        17.3        0.9         6.5        2.4        0.5   

Expected return on plan assets

     (32.8     (18.7     —           (11.4     (1.9     (0.8

Amortization of prior service cost

     0.1        0.1        —           —          —          —     

Recognized net actuarial loss

     14.2        10.0        0.9         2.2        0.8        0.3   

Special Events

             

Curtailment

     0.5        0.3        —           —          —          0.2   

Settlement

     0.1        —          —           —          —          0.1   

Special/contractual terminatio benefits

     0.1        —          —           —          —          0.1   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net periodic pension (benefit) cost

   $ 25.3      $ 20.3      $ 2.3       $ (0.9   $ 2.7      $ 0.9   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

For the year ended October 31, 2014

   Consolidated     United States     Germany      United Kingdom     Netherlands     Other
International
 

Service cost

   $ 15.7      $ 10.4      $ 0.6       $ 2.5      $ 1.6      $ 0.6   

Interest cost

     29.6        16.6        1.3         7.5        3.6        0.6   

Expected return on plan assets

     (33.9     (17.4     —           (12.6     (3.1     (0.8

Amortization of prior service cost

     0.2        0.2        —           —          —          —     

Recognized net actuarial loss

     10.4        6.8        0.7         1.9        0.8        0.2   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net periodic pension (benefit) cost

   $ 22.0      $ 16.6      $ 2.6       $ (0.7   $ 2.9      $ 0.6   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

For the year ended October 31, 2013

   Consolidated     United States     Germany      United Kingdom     Netherlands     Other
International
 

Service cost

   $ 16.7      $ 11.5      $ 0.6       $ 2.9      $ 1.2      $ 0.5   

Interest cost

     27.6        15.9        1.2         6.5        3.3        0.7   

Expected return on plan assets

     (32.1     (16.4     —           (11.7     (3.2     (0.8

Amortization of prior service cost

     0.6        0.5        —           —          —          0.1   

Recognized net actuarial loss

     16.4        13.6        0.6         1.3        0.6        0.3   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net periodic pension (benefit) cost

   $ 29.2      $ 25.1      $ 2.4       $ (1.0   $ 1.9      $ 0.8   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Benefit obligations are described in the following tables. Accumulated and projected benefit obligations (ABO and PBO) represent the obligations of a pension plan for past service as of the measurement date. ABO is the present value of benefits earned to date with benefits computed based on current compensation levels. PBO is ABO increased to reflect expected future compensation.

The following table sets forth the plans’ change in projected benefit obligation (Dollars in millions):

 

For the year ended October 31, 2015    Consolidated     USA     Germany     United Kingdom     Netherlands     Other
International
 

Change in benefit obligation:

            

Benefit obligation at beginning of year

   $ 786.9      $ 419.6      $ 41.9      $ 186.9      $ 123.6      $ 14.9   

Service cost

     15.5        11.3        0.5        1.8        1.4        0.5   

Interest cost

     27.6        17.3        0.9        6.5        2.4        0.5   

Plan participant contributions

     0.2        —          —          —          0.2        —     

Expenses paid from assets

     (2.7     (2.1     —          (0.7     0.2        (0.1

Plan Amendments

     (3.3     (2.3     —          —          (1.0     —     

Actuarial (gain) loss

     15.7        9.1        2.2        9.0        (4.6     —     

Foreign currency effect

     (33.7     —          (5.6     (9.7     (16.2     (2.2

Benefits paid

     (33.0     (18.4     (1.2     (7.3     (5.2     (0.9

Curtailments

     (7.2     (2.1     —          (2.5     —          (2.6

Other

     (0.2     (0.3     —          —          —          0.1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Benefit obligation at end of year

   $ 765.8      $ 432.1      $ 38.7      $ 184.0      $ 100.8      $ 10.2   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
For the year ended October 31, 2014                                     

Change in benefit obligation:

            

Benefit obligation at beginning of year

   $ 703.8      $ 358.7      $ 39.0      $ 174.9      $ 116.9      $ 14.3   

Service cost

     15.7        10.4        0.6        2.5        1.6        0.6   

Interest cost

     29.6        16.6        1.3        7.5        3.6        0.6   

Plan participant contributions

     0.3        —          —          —          0.3        —     

Expenses paid from assets

     (2.5     (1.2     —          (1.1     —          (0.2

Plan amendments

     (0.5     0.4        —          —          (0.9     —     

Actuarial loss

     92.8        51.4        5.7        15.9        18.1        1.7   

Foreign currency effect

     (14.6     —          (3.3     (0.4     (9.9     (1.0

Benefits paid

     (37.7     (16.7     (1.4     (12.4     (6.1     (1.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Benefit obligation at end of year

   $ 786.9      $ 419.6      $ 41.9      $ 186.9      $ 123.6      $ 14.9   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

The following tables set forth the PBO, ABO, plan assets and instances where the ABO exceeds the plan assets for the respective years (Dollars in millions):

 

Actuarial value of benefit obligations                                          
     Consolidated      USA      Germany      United
Kingdom
     Netherlands      Other
International
 

October 31, 2015

                 

Projected benefit obligation

   $ 765.8       $ 432.1       $ 38.7       $ 184.0       $ 100.8       $ 10.2   

Accumulated benefit obligation

     739.9         409.8         35.9         184.0         100.0         10.2   

Plan assets

     624.7         311.1         —           208.4         92.7         12.5   

October 31, 2014

                 

Projected benefit obligation

   $ 786.9       $ 419.6       $ 41.9       $ 186.9       $ 123.6       $ 14.9   

Accumulated benefit obligation

     752.5         393.2         38.9         184.9         122.0         13.5   

Plan assets

     650.8         325.6         —           202.7         107.8         14.7   
Plans with ABO in excess of Plan assets                                          

October 31, 2015

                 

Accumulated benefit obligation

   $ 546.5       $ 409.8       $ 35.9       $ —         $ 100.0       $ 0.8   

Plan assets

     404.4         311.1         —           —           92.7         0.6   

October 31, 2014

                 

Accumulated benefit obligation

   $ 567.6       $ 393.2       $ 38.9       $ —         $ 122.0       $ 13.5   

Plan assets

   $ 445.2         325.6         —           —           107.9         11.7   

Future benefit payments, which reflect expected future service, as appropriate, during the next five years, and in the aggregate for the five years thereafter, are as follows (Dollars in millions):

 

Year

   Expected
benefit

payments
 

2016

   $ 41.6   

2017

   $ 41.5   

2018

   $ 42.5   

2019

   $ 44.2   

2020

   $ 44.7   

2021-2025

   $ 237.1   

Plan assets

The plans’ assets consist of domestic and foreign equity securities, government and corporate bonds, cash, insurance annuity mutual funds and not more than the allowable number of shares of the Company’s common stock, which was 247,504 Class A shares and 160,710 Class B shares at October 31, 2015 and 2014.

The investment policy reflects the long-term nature of the plans’ funding obligations. The assets are invested to provide the opportunity for both income and growth of principal. This objective is pursued as a long-term goal designed to provide required benefits for participants without undue risk. It is expected that this objective can be achieved through a well-diversified asset portfolio. All equity investments are made within the guidelines of quality, marketability and diversification mandated by the Employee Retirement Income Security Act and/or other relevant statutes. Investment managers are directed to maintain equity portfolios at a risk level approximately equivalent to that of the specific benchmark established for that portfolio.

 

The Company’s weighted average asset allocations at the measurement date and the target asset allocations by category are as follows:

 

Asset Category

   2015
Target
    2015
Actual
    2014
Target
    2014
Actual
 

Equity securities

     23     28     24     28

Debt securities

     51     40     49     39

Other

     26     32     27     33
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

     100     100     100     100
  

 

 

   

 

 

   

 

 

   

 

 

 

The fair value of the pension plans’ investments is presented below. The inputs and valuation techniques used to measure the fair value of the assets are consistently applied and described in Note 10.

 

For the year ended October 31, 2015    Consolidated     USA     Germany      United Kingdom     Netherlands     Other
International
 

Change in plan assets:

             

Fair value of plan assets at beginning of year

   $ 650.8      $ 325.6      $ —         $ 202.7      $ 107.8      $ 14.7   

Actual return on plan assets

     25.4        (0.9     —           21.8        3.9        0.6   

Expenses paid

     (2.7     (2.1     —           (0.7     0.2        (0.1

Plan participant contributions

     0.2        —          —           —          0.2        —     

Foreign currency impact

     (27.3     —          —           (10.6     (14.2     (2.5

Employer contributions

     8.2        5.0        —           2.5        —          0.7   

Benefits paid

     (29.9     (16.5     —           (7.3     (5.2     (0.9
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Fair value of plan assets at end of year

   $ 624.7      $ 311.1      $ —         $ 208.4      $ 92.7      $ 12.5   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 
For the year ended October 31, 2014                                      

Change in plan assets:

             

Fair value of plan assets at beginning of year

   $ 621.2      $ 301.8      $ —         $ 198.9      $ 106.5      $ 14.0   

Actual return on plan assets

     62.6        29.8        —           15.7        15.8        1.3   

Expenses paid

     (2.5     (1.2     —           (1.1     —          (0.2

Plan participant contributions

     0.3        —          —           —          0.3        —     

Foreign currency impact

     (10.0     —          —           (0.3     (8.7     (1.0

Employer contributions

     15.5        11.9        —           1.9        —          1.7   

Benefits paid

     (36.3     (16.7     —           (12.4     (6.1     (1.1
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Fair value of plan assets at end of year

   $ 650.8      $ 325.6      $ —         $ 202.7      $ 107.8      $ 14.7   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

The following table presents the fair value measurements for the pension assets:

 

As of October 31, 2015 (Dollars in millions)                            
Asset Category    Fair Value Measurement  
     Level 1      Level 2      Level 3      Total  

Mutual funds

   $ 124.4       $ 161.2       $ —         $ 285.6   

Common stock

     26.7         —           —           26.7   

Cash

     20.0         —           —           20.0   

Money market fund

     0.6         —           —           0.6   

Common collective trusts

     —           128.3         —           128.3   

Corporate bonds

     —           19.7         —           19.7   

Government bonds

     —           10.0         —           10.0   

Insurance Annuity

     —           —           130.2         130.2   

Other assets

     —           3.6         —           3.6   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 171.7       $ 322.8       $ 130.2       $ 624.7   
  

 

 

    

 

 

    

 

 

    

 

 

 
As of October 31, 2014 (Dollars in millions)                            
Asset Category    Fair Value Measurement  
     Level 1      Level 2      Level 3      Total  

Mutual funds

   $ 143.0       $ 160.4       $ —         $ 303.4   

Common stock

     31.0         —           —           31.0   

Cash

     13.7         —           —           13.7   

Money market fund

     0.2         —           —           0.2   

Common collective trusts

     —           132.5         —           132.5   

Government Bonds

     —           15.6         —           15.6   

Corporate bonds

     —           3.1         —           3.1   

Other assets

     —           0.2         —           0.2   

Insurance Annuity

     —           —           151.1         151.1   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 187.9       $ 311.8       $ 151.1       $ 650.8   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

The following table presents a reconciliation of the beginning and ending balances of the fair value measurements using significant unobservable inputs (Level 3). There have been no transfers in or out of level 3:

 

     Pension Plan  
(Dollars in millions)    2015      2014  

Balance at beginning of year

   $ 151.1       $ 96.6   

Actual return on plan assets held at reporting date:

     

Assets still held at reporting date

     7.1         15.9   

Plan participant contributions

     —           0.3   

Net purchases (settlements)

     —           47.0   

Transfers

     (3.4      —     

Currency impact

     (24.6      (8.7
  

 

 

    

 

 

 

Balance at end of year

   $ 130.2       $ 151.1   
  

 

 

    

 

 

 

Financial statement presentation including other comprehensive income:

 

As of October 31, 2015   Consolidated     USA     Germany     United Kingdom     Netherlands     Other
International
 

Unrecognized net actuarial loss

  $ 192.1      $ 126.6      $ 15.9      $ 32.9      $ 14.9      $ 1.8   

Unrecognized prior service cost

    (3.4     (1.8     —          —          (1.6     —     

Unrecognized initial net obligation

    —          —          —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated other comprehensive loss (Pre-tax)

  $ 188.7      $ 124.8      $ 15.9      $ 32.9      $ 13.3      $ 1.8   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Amounts recognized in the Consolidated Balance Sheets consist of:

           

Prepaid benefit cost

  $ 26.7      $ —        $ —        $ 24.4      $ —        $ 2.3   

Accrued benefit liability

    (167.8     (121.0     (38.6     —          (8.2     —     

Accumulated other comprehensive loss

    188.6        124.8        15.9        32.9        13.2        1.8   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net amount recognized

  $ 47.5      $ 3.8      $ (22.7   $ 57.3      $ 5.0      $ 4.1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
As of October 31, 2014   Consolidated     USA     Germany     United Kingdom     Netherlands     Other
International
 

Unrecognized net actuarial loss

  $ 198.5      $ 110.1      $ 16.8      $ 41.1      $ 25.4      $ 5.1   

Unrecognized prior service cost

    —          0.9        —          —          (0.9     —     

Unrecognized initial net obligation

    0.3        —          —          —          —          0.3   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated other comprehensive loss (Pre-tax)

  $ 198.8      $ 111.0      $ 16.8      $ 41.1      $ 24.5      $ 5.4   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Amounts recognized in the Consolidated Balance Sheets consist of:

           

Prepaid benefit cost

  $ 18.6      $ —        $ —        $ 15.8      $ —        $ 2.8   

Accrued benefit liability

    (154.6     (94.0     (41.8     —          (15.7     (3.1

Accumulated other comprehensive loss

    198.8        111.0        16.8        41.1        24.5        5.4   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net amount recognized

  $ 62.8      $ 17.0      $ (25.0   $ 56.9      $ 8.8      $ 5.1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     October 31, 2015      October 31, 2014  

Accumulated other comprehensive loss at beginning of year

   $ 198.8       $ 149.6   

Increase or (decrease) in accumulated other comprehensive (income) or loss

     

Net transition obligation amortized during fiscal year

     (0.1      (0.1

Net prior service costs amortized during fiscal year

     (0.1      (0.2

Net loss amortized during fiscal year

     (14.2      (10.4

Prior service cost recognized during fiscal year due to curtailment

     (0.3      —     

Transition obligation recognized during fiscal year due to curtailment

     (0.2      —     

Loss recognized during fiscal year due to settlement

     (0.1      —     

Prior service credit occurring during fiscal year

     (3.2      (0.5

Liability loss occurring during fiscal year

     8.4         92.8   

Asset loss (gain) occurring during fiscal year

     7.5         (28.6
  

 

 

    

 

 

 

Increase (decrease) in accumulated other comprehensive loss

   $ (2.3    $ 53.0   

Foreign currency impact

     (7.9      (3.8
  

 

 

    

 

 

 

Accumulated other comprehensive (income) or loss at current fiscal year end

   $ 188.6       $ 198.8   
  

 

 

    

 

 

 

In 2016, the Company expects to record an amortization loss of $11.6 million of prior service costs from shareholders’ equity into pension costs.

 

Defined contribution plans

The Company has several voluntary 401(k) savings plans that cover eligible employees. For certain plans, the Company matches a percentage of each employee’s contribution up to a maximum percentage of base salary. Company contributions to the 401(k) plans were $7.8 million in 2015, $7.3 million in 2014 and $6.5 million in 2013.

Supplemental Employee Retirement Plan

The Company has a supplemental employee retirement plan which is an unfunded plan providing supplementary retirement benefits primarily to certain executives and longer-service employees.

Postretirement Health Care and Life Insurance Benefits

The Company has certain postretirement health and life insurance benefit plans in the United States and South Africa. The Company uses a measurement date of October 31 for its postretirement benefit plans.

The following table presents the number of participants in the post-retirement health and life insurance benefit plan:

 

October 31, 2015    Consolidated      USA      South Africa  

Active participants

     25         12         13   

Vested former employees

     0         0         0   

Retirees and beneficiaries

     757         667         90   

Other plan participants

     0         0      
October 31, 2014    Consolidated      USA      South Africa  

Active participants

     25         12         13   

Vested former employees

     0         0         0   

Retirees and beneficiaries

     779         683         96   

Other plan participants

     0         0         0   

The discount rate actuarial assumptions at October 31 are used to measure the year-end benefit obligations and the pension costs for the subsequent year were as follows:

 

     Consolidated     United States     South Africa  

For the year ended October 31, 2015

     4.65     3.88     9.20

For the year ended October 31, 2014

     4.45     3.70     8.20

The components of net periodic cost for the postretirement benefits include the following (Dollars in millions):

 

For the years ended October 31,

   2015      2014      2013  

Service cost

   $ —         $ —         $ —     

Interest cost

     0.7         0.8         0.8   

Amortization of prior service cost

     (1.5