GREIF INC, 10-K filed on 12/23/2013
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Oct. 31, 2013
Dec. 16, 2013
Class A Common Stock [Member]
Apr. 30, 2013
Class A Common Stock [Member]
Dec. 16, 2013
Class B Common Stock [Member]
Apr. 30, 2013
Class B Common Stock [Member]
Document Information [Line Items]
 
 
 
 
 
Document Type
10-K 
 
 
 
 
Amendment Flag
false 
 
 
 
 
Document Period End Date
Oct. 31, 2013 
 
 
 
 
Document Fiscal Year Focus
2013 
 
 
 
 
Document Fiscal Period Focus
FY 
 
 
 
 
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
 
25,456,724 
 
22,119,966 
 
Entity Public Float
 
 
$ 1,181,112,584 
 
$ 283,270,041 
Consolidated Statements of Income (USD $)
In Millions, except Per Share data, unless otherwise specified
12 Months Ended
Oct. 31, 2013
Oct. 31, 2012
Oct. 31, 2011
Net sales
$ 4,353.4 
$ 4,269.5 
$ 4,248.2 
Costs of products sold
3,520.8 
3,489.9 
3,449.9 
Gross profit
832.6 
779.6 
798.3 
Selling, general and administrative expenses
477.3 
468.4 
449.2 
Restructuring charges
8.8 
33.4 
30.5 
Timberland gains
(17.5)
 
 
Asset impairment charges
30.0 
2.6 
4.5 
Gain on disposal of properties, plants and equipment, net
(5.6)
(7.6)
(16.1)
Operating profit
339.6 
282.8 
330.2 
Interest expense, net
83.8 
89.9 
76.0 
Debt extinguishment charges
1.3 
 
 
Other expense, net
10.8 
7.5 
14.1 
Income before income tax expense and equity earnings of unconsolidated affiliates, net
243.7 
185.4 
240.1 
Income tax expense
97.6 
58.8 
67.3 
Equity earnings of unconsolidated affiliates, net of tax
2.9 
1.3 
4.8 
Net income
149.0 
127.9 
177.6 
Net income attributable to noncontrolling interests
(1.7)
(5.5)
(2.9)
Net income attributable to Greif, Inc.
$ 147.3 
$ 122.4 
$ 174.7 
Class A Common Stock [Member]
 
 
 
Basic earnings per share attributable to Greif, Inc.:
 
 
 
EPS Basic
$ 2.52 
$ 2.10 
$ 3.00 
Diluted earnings per share attributed to Greif, Inc.:
 
 
 
EPS Diluted
$ 2.52 
$ 2.10 
$ 2.99 
Class B Common Stock [Member]
 
 
 
Basic earnings per share attributable to Greif, Inc.:
 
 
 
EPS Basic
$ 3.77 
$ 3.14 
$ 4.48 
Diluted earnings per share attributed to Greif, Inc.:
 
 
 
EPS Diluted
$ 3.77 
$ 3.14 
$ 4.48 
Consolidated Statements of Comprehensive Income (USD $)
In Millions, unless otherwise specified
12 Months Ended
Oct. 31, 2013
Oct. 31, 2012
Oct. 31, 2011
Statement Of Income And Comprehensive Income [Abstract]
 
 
 
Net income
$ 149.0 
$ 127.9 
$ 177.6 
Other comprehensive income (loss), net of tax:
 
 
 
Foreign currency translation
7.2 
(46.4)
(12.9)
Reclassification of cash flow hedges to earnings, net of tax
0.5 
1.3 
1.4 
Unrealized gain on cash flow hedges, net of tax
(0.2)
(2.4)
(0.7)
Minimum pension liabilities, net of tax
30.9 
(24.4)
(25.1)
Other comprehensive income (loss), net of tax
38.4 
(71.9)
(37.3)
Comprehensive income
187.4 
56.0 
140.3 
Comprehensive income (loss) attributable to noncontrolling interests
3.1 
(14.0)
17.5 
Comprehensive income attributable to Greif, Inc.
$ 184.3 
$ 70.0 
$ 122.8 
Consolidated Balance Sheets (USD $)
In Millions, unless otherwise specified
Oct. 31, 2013
Oct. 31, 2012
Current assets
 
 
Cash and cash equivalents
$ 78.1 
$ 91.5 
Trade accounts receivable, less allowance of $13.5 in 2013 and $17.1 in 2012
481.9 
453.8 
Inventories
375.3 
373.5 
Deferred tax assets
22.2 
18.9 
Net assets held for sale
1.5 
0.1 
Current portion related party notes and advances receivable
2.8 
2.5 
Prepaid expenses and other current assets
132.2 
114.8 
Total current assets
1,094.0 
1,055.1 
Long-term assets
 
 
Goodwill
1,003.5 
976.1 
Other intangible assets, net of amortization
180.8 
198.6 
Deferred tax assets
28.0 
13.6 
Related party notes receivable
12.6 
15.7 
Assets held by special purpose entities
50.9 
50.9 
Other long-term assets
114.1 
118.3 
Total long-term assets
1,389.9 
1,373.2 
Properties, plants and equipment
 
 
Timber properties, net of depletion
215.2 
217.8 
Land
141.5 
139.3 
Buildings
496.7 
464.1 
Machinery and equipment
1,523.7 
1,472.8 
Capital projects in progress
128.7 
149.3 
Property, plant and equipment, gross
2,505.8 
2,443.3 
Accumulated depreciation
(1,107.5)
(1,018.2)
Properties, plants and equipment, net
1,398.3 
1,425.1 
Total assets
3,882.2 
3,853.4 
Current liabilities
 
 
Accounts payable
431.3 
466.1 
Accrued payroll and employee benefits
103.0 
96.1 
Restructuring reserves
3.0 
8.0 
Current portion of long-term debt
10.0 
25.0 
Short-term borrowings
64.1 
76.1 
Deferred tax liabilities
11.5 
8.1 
Other current liabilities
178.8 
187.9 
Total current liabilities
801.7 
867.3 
Long-term liabilities
 
 
Long-term debt
1,207.2 
1,175.3 
Deferred tax liabilities
238.1 
197.0 
Pension liabilities
82.5 
123.4 
Postretirement benefit obligations
18.5 
19.3 
Liabilities held by special purpose entities
43.3 
43.3 
Other long-term liabilities
92.9 
117.0 
Total long-term liabilities
1,682.5 
1,675.3 
Shareholders' equity
 
 
Common stock, without par value
129.4 
123.8 
Treasury stock, at cost
(131.0)
(131.4)
Retained earnings
1,443.8 
1,394.8 
Accumulated other comprehensive loss:
 
 
-foreign currency translation
(63.3)
(69.1)
-interest rate and other derivatives
(0.6)
(0.9)
-minimum pension liabilities
(95.1)
(126.0)
Total Greif, Inc. shareholders' equity
1,283.2 
1,191.2 
Noncontrolling interests
114.8 
119.6 
Total shareholders' equity
1,398.0 
1,310.8 
Total liabilities and shareholders' equity
$ 3,882.2 
$ 3,853.4 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Millions, unless otherwise specified
Oct. 31, 2013
Oct. 31, 2012
Statement Of Financial Position [Abstract]
 
 
Allowance of trade accounts receivable
$ 13.5 
$ 17.1 
Consolidated Statements of Cash Flows (USD $)
In Millions, unless otherwise specified
12 Months Ended
Oct. 31, 2013
Oct. 31, 2012
Oct. 31, 2011
Cash flows from operating activities:
 
 
 
Net income
$ 149.0 
$ 127.9 
$ 177.6 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation, depletion and amortization
156.9 
154.8 
144.3 
Asset impairments
34.0 
12.9 
9.0 
Unrealized foreign exchange (gain) loss
7.1 
(0.1)
(2.7)
Deferred income taxes
2.0 
20.2 
9.8 
Gain on disposals of properties, plants and equipment, net
(23.1)
(7.6)
(16.1)
Equity earnings of affiliates
(2.9)
(1.3)
(4.8)
Other, net
0.7 
(2.8)
(3.8)
Increase (decrease) in cash from changes in certain assets and liabilities:
 
 
 
Trade accounts receivable
(35.4)
96.7 
(20.6)
Inventories
(3.5)
40.3 
17.4 
Deferred purchase price on sold receivables
(8.0)
(20.9)
7.0 
Accounts payable
(37.1)
3.5 
(7.5)
Restructuring reserves
(5.0)
(11.4)
(0.6)
Pension and postretirement benefit liabilities
7.5 
15.8 
(26.5)
Other, net
8.1 
45.3 
(110.3)
Net cash provided by operating activities
250.3 
473.3 
172.2 
Cash flows from investing activities:
 
 
 
Acquisitions of companies, net of cash acquired
 
 
(344.9)
Purchases of properties, plants and equipment
(136.4)
(166.0)
(162.4)
Purchases of timber properties
(9.0)
(3.7)
(3.4)
Proceeds from the sale of properties, plants, equipment and other assets
41.5 
13.9 
31.0 
Payments on (issuance of) notes receivable with related party, net
3.2 
2.0 
(20.0)
Purchases of land rights
 
 
(0.7)
Net cash used in investing activities
(100.7)
(153.8)
(500.4)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of long-term debt
1,253.8 
2,947.2 
3,859.4 
Payments on long-term debt
(1,266.5)
(3,129.8)
(3,465.8)
Proceeds from (payments on) short-term borrowings, net
(30.2)
(43.3)
74.3 
Proceeds from (payments on) trade accounts receivable credit facility, net
30.0 
(20.0)
(5.0)
Proceeds from joint venture partner
 
4.0 
 
Dividends paid
(98.3)
(97.7)
(97.8)
Acquisitions of treasury stock and other
 
(0.1)
(15.1)
Exercise of stock options
1.3 
1.8 
2.5 
Fees paid for amended credit agreement
(3.4)
 
 
Cash paid for deferred purchase price related to acquisitions
(46.6)
(14.3)
 
Debt issuance costs paid
 
 
(4.4)
Net cash provided by (used in) financing activities
(159.9)
(352.2)
348.1 
Effects of exchange rates on cash
(3.1)
(3.1)
0.4 
Net increase (decrease) in cash and cash equivalents
(13.4)
(35.8)
20.3 
Cash and cash equivalents at beginning of year
91.5 
127.3 
107.0 
Cash and cash equivalents at end of year
$ 78.1 
$ 91.5 
$ 127.3 
Consolidated Statements of Changes in Shareholders' Equity (USD $)
In Millions, except Share data, unless otherwise specified
Total
Capital Stock [Member]
Treasury Stock [Member]
Retained Earnings [Member]
Noncontrolling Interests [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Beginning balance, value at Oct. 31, 2010
$ 1,305.8 
$ 106.0 
$ (117.4)
$ 1,293.2 
$ 115.7 
$ (91.7)
Beginning balance, shares at Oct. 31, 2010
 
47,169,000,000 
29,673,000,000 
 
 
 
Net income
177.6 
 
 
174.7 
2.9 
 
Other comprehensive income (loss):
 
 
 
 
 
 
Foreign currency translation
(12.9)
 
 
 
14.6 
(27.5)
Reclassification of cash flow hedges to earnings, net of income tax benefit
1.4 
 
 
 
 
1.4 
Unrealized gain on cash flow hedges, net of income tax expense
(0.7)
 
 
 
 
(0.7)
Minimum pension liability adjustment, net of income tax benefit
(25.1)
 
 
 
 
(25.1)
Comprehensive income
140.3 
 
 
 
 
 
Acquisitions of noncontrolling interests and other
(5.3)
 
 
 
(5.3)
 
Dividends paid
(97.8)
 
 
(97.8)
 
 
Treasury shares acquired
(15.0)
 
(15.0)
 
 
 
Treasury shares acquired, shares
 
(300,000,000)
300,000,000 
 
 
 
Stock options exercised or forfeited
2.5 
2.2 
0.3 
 
 
 
Stock options exercised or forfeited, shares
167,000 
168,000,000 
(168,000,000)
 
 
 
Restricted stock directors
0.7 
0.7 
 
 
 
 
Restricted stock directors, shares
 
11,000,000 
(11,000,000)
 
 
 
Restricted stock executives
0.3 
0.3 
 
 
 
 
Restricted stock executives, shares
 
5,000,000 
(5,000,000)
 
 
 
Tax benefit of stock options and other
2.2 
2.2 
 
 
 
 
Long-term incentive shares issued
2.5 
2.4 
0.1 
 
 
 
Long-term incentive shares issued, shares
 
40,000,000 
(40,000,000)
 
 
 
Ending balance, value at Oct. 31, 2011
1,336.2 
113.8 
(132.0)
1,370.1 
127.9 
(143.6)
Ending balance, shares at Oct. 31, 2011
 
47,093,000,000 
29,749,000,000 
 
 
 
Net income
127.9 
 
 
122.4 
5.5 
 
Other comprehensive income (loss):
 
 
 
 
 
 
Foreign currency translation
(46.4)
 
 
 
(19.5)
(26.9)
Reclassification of cash flow hedges to earnings, net of income tax benefit
1.3 
 
 
 
 
1.3 
Unrealized gain on cash flow hedges, net of income tax expense
(2.4)
 
 
 
 
(2.4)
Minimum pension liability adjustment, net of income tax benefit
(24.4)
 
 
 
 
(24.4)
Comprehensive income
56.0 
 
 
 
 
 
Acquisitions of noncontrolling interests and other
5.7 
 
 
 
5.7 
 
Dividends paid
(97.7)
 
 
(97.7)
 
 
Treasury shares acquired, shares
 
(1,000,000)
1,000,000 
 
 
 
Stock options exercised or forfeited
2.1 
1.8 
0.3 
 
 
 
Stock options exercised or forfeited, shares
158,000 
158,000,000 
(158,000,000)
 
 
 
Restricted stock directors
0.7 
0.7 
 
 
 
 
Restricted stock directors, shares
 
14,000,000 
(14,000,000)
 
 
 
Restricted stock executives
0.2 
0.2 
 
 
 
 
Restricted stock executives, shares
 
5,000,000 
(5,000,000)
 
 
 
Tax benefit of stock options and other
1.4 
1.4 
 
 
 
 
Long-term incentive shares issued
6.2 
5.9 
0.3 
 
 
 
Long-term incentive shares issued, shares
 
134,000,000 
(134,000,000)
 
 
 
Ending balance, value at Oct. 31, 2012
1,310.8 
123.8 
(131.4)
1,394.8 
119.6 
(196.0)
Ending balance, shares at Oct. 31, 2012
 
47,403,000,000 
29,439,000,000 
 
 
 
Net income
149.0 
 
 
147.3 
1.7 
 
Other comprehensive income (loss):
 
 
 
 
 
 
Foreign currency translation
7.2 
 
 
 
1.4 
5.8 
Reclassification of cash flow hedges to earnings, net of income tax benefit
0.5 
 
 
 
 
0.5 
Unrealized gain on cash flow hedges, net of income tax expense
(0.2)
 
 
 
 
(0.2)
Minimum pension liability adjustment, net of income tax benefit
30.9 
 
 
 
 
30.9 
Comprehensive income
187.4 
 
 
 
 
 
Acquisitions of noncontrolling interests and other
(7.9)
 
 
 
(7.9)
 
Dividends paid
(98.3)
 
 
(98.3)
 
 
Stock options exercised or forfeited
1.5 
1.3 
0.2 
 
 
 
Stock options exercised or forfeited, shares
99,000 
99,000,000 
(99,000,000)
 
 
 
Restricted stock executives
1.1 
1.0 
0.1 
 
 
 
Restricted stock executives, shares
 
21,000,000 
(21,000,000)
 
 
 
Stock forfeiture
0.2 
0.2 
 
 
 
 
Tax benefit of stock options and other
1.0 
1.0 
 
 
 
 
Long-term incentive shares issued
2.2 
2.1 
0.1 
 
 
 
Long-term incentive shares issued, shares
 
54,000,000 
(54,000,000)
 
 
 
Ending balance, value at Oct. 31, 2013
$ 1,398.0 
$ 129.4 
$ (131.0)
$ 1,443.8 
$ 114.8 
$ (159.0)
Ending balance, shares at Oct. 31, 2013
 
47,577,000,000 
29,265,000,000 
 
 
 
Consolidated Statements of Changes in Shareholders' Equity (Parenthetical) (USD $)
In Millions, unless otherwise specified
12 Months Ended
Oct. 31, 2013
Oct. 31, 2012
Oct. 31, 2011
Statement Of Stockholders Equity [Abstract]
 
 
 
Income tax benefit, Reclassification of cash flow hedges to earnings
$ 0.3 
$ 0.8 
$ 0.9 
Income tax expense, Unrealized gain on cash flow hedges
0.2 
1.3 
0.1 
Income tax (expense) benefit, minimum pension liability adjustment
$ 22.2 
$ 9.4 
$ 10.6 
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, and also owns timber properties in Canada.

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 are approximately 13,085 employees of the Company as of October 31, 2013.

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 managed 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 2013, 2012 or 2011, or to any quarter of those years, relates to the fiscal year ended in that year.

The Company presents various fair value disclosures in Notes 3, 10 and 13 to these Consolidated Financial Statements.

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 allowance for doubtful accounts, inventory reserves, expected useful lives assigned to properties, plants and equipment, goodwill and other intangible assets, estimates of fair value, restructuring reserves, environmental liabilities, pension and postretirement benefits, income taxes, derivatives, net assets held for sale, self-insurance reserves 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 $54.0 million as of October 31, 2013. 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, we 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 $13.5 million and $17.1 million as of October 31, 2013 and 2012, 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, 2013, 2012, and 2011.

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 Reserves

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.

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, 2013, there were two asset groups held for sale in the Flexible Products & Services segment. 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 Other 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. Intangible assets with finite lives, primarily customer relationships, patents and trademarks, continue to be 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 goodwill and indefinite-lived intangible assets during the fourth quarter of each fiscal year, or more frequently if certain indicators are present or changes in circumstances suggest that impairment may exist. 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.

ASC 350 requires that testing for goodwill impairment be 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.

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 (“EBITDA”) 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. The Company performed its annual impairment test for fiscal years 2013, 2012 and 2011, which resulted in no impairment charges. During 2013, the annual impairment test identified potential impairment indicators in the Flexible Products & Services reporting unit, requiring the Company to perform additional analysis. Based on the results of the additional analysis of the goodwill for the Flexible Products & Services reporting unit, it was concluded that no goodwill impairment was required. Refer to Note 6 for additional information regarding goodwill and other intangible assets.

 

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.

Properties, Plants and Equipment

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 $131.9 million, $131.4 million and $122.7 million, in 2013, 2012 and 2011, 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. As of October 31, 2013, 2012, and 2011, the Company capitalized interest costs of $1.7 million, $2.7 million, and $3.8 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.

The Company owns timber properties in the southeastern United States and in Canada. With respect to the Company’s United States timber properties, which consisted of approximately 252,475 acres as of October 31, 2013, depletion expense on timber properties is computed on the basis of cost and the estimated recoverable timber. Depletion expense was $4.3 million, $2.9 million and $2.7 million in 2013, 2012 and 2011, 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.

 

For 2013, the Company recorded a gain of $17.5 million relating to the sale of timberland.

The Company’s Canadian timber properties, which consisted of approximately 10,300 as of October 31, 2013, are not actively managed at this time, and therefore, no depletion expense is recorded.

Equity Earnings of Unconsolidated Affiliates, net of tax and Noncontrolling Interests including Variable Interest Entities

The Company accounts for equity earnings of unconsolidated affiliates, net of tax and noncontrolling interests under ASC 810, “Consolidation.” ASC 810 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. ASC 810 requires a single method of accounting for changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation, that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated and that the consolidated financial statements clearly identify and distinguish between the parent’s ownership interest and the interest of the noncontrolling owners of a subsidiary. Refer to Note 16 for additional information regarding the Company’s unconsolidated affiliates and noncontrolling interests.

ASC 810 also provides a framework for identifying variable interest entities (“VIE”) and determining when a company should include the assets, liabilities, noncontrolling interests and results of operations of a VIE in its consolidated financial statements. In general, a VIE is a corporation, partnership, limited liability company, trust or any other legal structure used to conduct activities or hold assets that either (1) has an insufficient amount of equity to carry out its principal activities without additional subordinated financial support, (2) has a group of equity owners that are unable to make significant decisions about its activities or (3) has a group of equity owners that do not have the obligation to absorb losses or the right to receive returns generated by its operations. ASC 810 requires a VIE to be consolidated if a party with an ownership, contractual or other financial interest in the VIE (a variable interest holder) is obligated to absorb a majority of the risk of loss from the VIE’s activities, is entitled to receive a majority of the VIE’s residual returns (if no party absorbs a majority of the VIE’s losses), or both. One of the companies acquired in 2011 is considered a VIE. However, because the Company is not the primary beneficiary, the Company will report its ownership interest in this acquired company using the equity method of accounting.

On September 29, 2010, Greif, Inc. and its indirect subsidiary Greif International Holding Supra C.V. (“Greif Supra”), a Netherlands limited partnership, completed a Joint Venture Agreement with Dabbagh Group Holding Company Limited (“Dabbagh”) and National Scientific Company Limited (“NSC”), a subsidiary of Dabbagh, referred to herein as the Flexible Packaging JV. The joint venture owns the operations in the Flexible Products & Services segment, with the exception of the North American multi-wall bag business. Greif Supra and NSC have equal economic interests in the joint venture, notwithstanding the actual ownership interests in the various legal entities. All investments, loans and capital injections are shared 50 percent by Greif and the Dabbagh entities. Greif has deemed this joint venture to be a VIE based on the criteria outlined in ASC 810. Greif exercises management control over this joint venture and is the primary beneficiary due to supply agreements and broader packaging industry customer risks and rewards. Therefore, Greif has fully consolidated the operations of this joint venture as of the formation date of September 29, 2010 and has reported Dabbagh’s share in the profits and losses in this joint venture from this date on the Company’s income statement under net income attributable to noncontrolling interests.

The Company has consolidated the assets and liabilities of STA Timber LLC (“STA Timber”) in accordance with ASC 810 which was involved in the transactions described in Note 8. Because STA Timber is a separate and distinct legal entity from Greif, Inc. and its other subsidiaries, the assets of STA Timber are not available to satisfy the liabilities and obligations of these entities and the liabilities of STA Timber are not liabilities or obligations of these entities. The Company has also consolidated the assets and liabilities of the buyer-special purpose entity described in Note 8 (the “Buyer SPE”) involved in that transaction as a result of ASC 810. However, because the Buyer SPE is a separate and distinct legal entity from Greif, Inc. and its other subsidiaries, the assets of the Buyer SPE are not available to satisfy the liabilities and obligations of the Company, and the liabilities of the Buyer SPE are not liabilities or obligations of the Company.

On April 27, 2012, Cooperage Receivables Finance B.V. and Greif Coordination Center BVBA, an indirect wholly owned subsidiary of Greif, Inc., entered into the Nieuw Amsterdam Receivables Purchase Agreement with affiliates of a major international bank. 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. Refer to Note 3 for additional information regarding the sale of non-United States accounts receivable.

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 adverse 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 450. 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 $2.9 million and $2.7 million for estimated costs related to outstanding claims as of October 31, 2013 and 2012, 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 $14.3 million and $16.1 million for anticipated costs related to general liability, product, auto and workers’ compensation as of October 31, 2013 and 2012, 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 where expected future taxable income does not support the realization of the deferred tax assets.

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.

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 accelerated depreciation, equipment relocation costs, 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 Service 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 2013, 2012, or 2011. For any options granted in the future, compensation expense will be based on the grant date fair value estimated in accordance with the standard.

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 will be 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.

Revenue Recognition

The Company recognizes revenue when title passes 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, HBU, 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 disposals 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 year-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 $3.9 million, $0.8 million and $4.7 million in 2013, 2012 and 2011, 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 9, 10 and 13 to these consolidated financial statements.

 

Newly Adopted Accounting Standards

In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-05 “Comprehensive Income: Presentation of comprehensive income.” This amendment to Accounting Standards Codification (“ASC”) 220 “Comprehensive Income” requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. In December 2011, the FASB issued ASU 2011-12 “Comprehensive Income: Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.” This amendment to ASC 220 “Comprehensive Income” deferred the adoption of presentation of reclassification items out of accumulated other comprehensive income. The Company adopted this new guidance beginning November 1, 2012, and the adoption of the new guidance did not impact the Company’s financial position, results of operations or cash flows, other than the related disclosures.

In September 2011, the FASB issued ASU 2011-08 “Intangibles—Goodwill and Other: Testing Goodwill for Impairment”, which provides an entity the option to first assess qualitative factors to determine whether it is necessary to perform the current two-step test for goodwill impairment. If an entity 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. Otherwise, no further testing is required. The revised standard is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The Company has adopted this new guidance, which was implemented when the annual goodwill impairment testing was performed during the fourth quarter of 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 related disclosures.

In July 2012, the FASB issued ASU 2012-02 “Intangibles—Goodwill and Other: Testing Indefinite-Lived Intangible Assets for Impairment” which provides an entity the option to first assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more-likely-than-not that the indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount. The Company has adopted this new guidance, which was implemented when the annual intangible asset impairment testing was performed during the fourth quarter of 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 related disclosures.

Recently Issued Accounting Standards

As of October 31, 2013, the FASB has issued ASU’s through 2013-11. The Company has reviewed each recently issued ASU and the adoption of each ASU that is applicable to the Company is not expected to have a material impact on the Company’s financial position, results of operations, comprehensive income or cash flows, other than the related disclosures.

In December 2011, the FASB issued ASU 2011-11 “Balance Sheet: Disclosures about Offsetting Assets and Liabilities.” The differences in the offsetting requirements in GAAP and International Financial Reporting Standards (“IFRS”) account for a significant difference in the amounts presented in statements of financial position prepared in accordance with GAAP and in the amounts presented in those statements prepared in accordance with IFRS for certain institutions. This difference reduces the comparability of statements of financial position. The FASB and IASB are issuing joint requirements that will enhance current disclosures. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The Company is expected to adopt the new guidance beginning on November 1, 2013, 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.

In January 2013, the FASB issued ASU 2013-01 “Balance Sheet: Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities.” The main objective in developing this update is to address implementation issues about the scope of ASU 2011-11. FASB stakeholders have told the FASB that because the scope in ASU 2011-11 is unclear, diversity in practice may result. Recent feedback from FASB stakeholders is that standard commercial provisions of many contracts would equate to a master netting arrangement. FASB stakeholders questioned whether it was the FASB’s intent to require disclosures for such a broad scope, which would significantly increase the cost of compliance. The objective of this update is to clarify the scope of the offsetting disclosures and address any unintended consequences. The Company is expected to adopt the new guidance beginning on November 1, 2013, 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.

In February 2013, the FASB issued ASU 2013-02 “Comprehensive Income: Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” The objective of this update is to improve the reporting of reclassifications out of accumulated other comprehensive income. The amendments in this update seek to attain that objective by requiring an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. GAAP to be reclassified in its entirety to net income. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is reclassified to a balance sheet account instead of directly to income or expense in the same reporting period. The Company is expected to adopt the new guidance beginning on November 1, 2013, 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.

 

In March 2013, the FASB issued 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 is expected to adopt the new guidance beginning November 1, 2014, and the impact of the adoption of the new guidance will be evaluated when an acquisition or divestiture occurs with respect to the Company’s financial position, results of operations, comprehensive income, cash flows and disclosures.

In July 2013, the FASB issued ASU 2013-10 “Derivatives and Hedging: Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes.” The objective of this update is to permit the Fed Funds Effective Swap Rate (OIS) to be used as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815, in addition to the UST and LIBOR. The amendments also remove the restriction on using different benchmark rates for similar hedges. The Company adopted the new guidance for qualifying new or redesignated hedging relationships entered into on or after July 17, 2013, and the impact of the adoption of the new guidance did not have an impact the Company’s financial position, results of operations, comprehensive income or cash flows, other than the related 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 benefit 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 is expected to adopt the new guidance beginning on November 1, 2014, 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 Other Significant Transactions
Acquisitions and Other Significant Transactions

NOTE 2 – ACQUISITIONS AND OTHER SIGNIFICANT TRANSACTIONS

The following table summarizes the Company’s acquisition activity in 2013, 2012 and 2011 (Dollars in millions).

 

Segment

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

Total 2013 Acquisitions

     —         $ —           —           —           —     

Total 2012 Acquisitions

     —         $ —           —           —           —     

Total 2011 Acquisitions

     8       $  344.9       $ 101.7       $ 77.7       $ 307.2   

 

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 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.

During 2012, the Company completed no material acquisitions and no material divestitures. The Company made a $14.3 million deferred cash payment during 2012 for an acquisition completed in fiscal year 2010.

During 2011, the Company completed eight acquisitions, all in the Rigid Industrial Packaging and Services segment: four European companies acquired in February, May, July and August; two joint ventures entered into in February and August in North America and Asia Pacific, respectively; the acquisition of the remaining outstanding noncontrolling shares from a 2008 acquisition in South America; and the acquisition of additional shares of a company in North America that was a consolidated subsidiary as of October 31, 2011. The Company’s 2011 acquisitions were made in part to obtain technologies, patents, equipment, customer lists and access to markets. During 2011 there were no divestitures.

Pro Forma Information

In accordance with ASU 2010-29, “Disclosure of Supplementary Pro Forma Information for Business Combinations,” the Company has considered the effect of the 2011 acquisitions in the consolidated statements of income for each period presented. The revenue and operating profit of the 2011 acquisitions included in the Company’s consolidated statements of income totaled $432.5 million and $17.0 million, respectively, for the year ended October 31, 2013. The revenue and operating profit of the 2011 acquisitions included in the Company’s consolidated statements of income totaled $427.7 million and $4.0 million, respectively, for the year ended October 31, 2012. The revenue and operating (loss) of the 2011 acquisitions included in the Company’s consolidated statements of income totaled $119.2 million and ($19.6) million, respectively, for the year ended October 31, 2011. None of the 2011 acquisitions were of companies listed on a stock exchange or otherwise publicly traded or required to provide public financial information. Therefore, pro forma results of operations are not presented.

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”). Under the European RPA, the Seller has agreed to sell trade accounts receivables that meet certain eligibility requirements that Seller had purchased from other indirect wholly owned subsidiaries of Greif, Inc. under discounted receivables purchase agreements and related agreements. These other indirect wholly owned subsidiaries of Greif, Inc. include Greif Belgium BVBA, Pack2pack Rumbeke N.V., Pack2pack Zwolle B.V., Greif Nederland B.V., Pack2pack Halsteren B.V., Greif Italia S.p.A., Fustiplast S.p.A., Greif France S.A.S., Pack2pack Lille S.A.S., Greif Packaging Spain S.A., Greif UK Ltd., Greif Germany GmbH, Fustiplast GmbH, Pack2pack Mendig GmbH, Greif Portugal S.A., Greif Sweden Aktiebolag, Greif Packaging Sweden Aktiebolag and Greif Norway A.S. (the “Selling Subsidiaries”). Under the terms of a Performance and Indemnity Agreement, the performance obligations of the Selling Subsidiaries under the transaction documents have been guaranteed by Greif, Inc. The European RPA may be amended from time to time to add additional subsidiaries of Greif, Inc. The maximum amount of receivables that may be sold and outstanding under the European RPA at any time is €145 million ($199.9 million as of October 31, 2013). A significant portion of the proceeds from this trade receivables facility was used to pay the obligations under the previous European trade receivables facilities described below, which were then terminated, and to pay expenses incurred in connection with this transaction. The subsequent proceeds from this facility are available for working capital and general corporate purposes.

Under the terms of a Receivable Purchase Agreement (the “RPA”) between Seller and a major international bank, the Seller had agreed to sell trade receivables meeting certain eligibility requirements that Seller had purchased from other indirect wholly owned subsidiaries of Greif, Inc., including Greif Belgium BVBA, Greif Germany GmbH, Greif Nederland B.V., Greif Packaging Belgium NV, Greif Spain S.A., Greif Sweden AB, Greif Packaging Norway A.S., Greif Packaging France S.A.S., Greif Packaging Spain S.A., Greif Portugal S.A. and Greif UK Ltd., under discounted receivables purchase agreements and from Greif France S.A.S. under a factoring agreement. In addition, Greif Italia S.p.A., also an indirect wholly owned subsidiary of Greif, Inc., had entered into an Italian Receivables Purchase Agreement with the Italian branch of the major international bank (the “Italian RPA”) agreeing to sell trade receivables that meet certain eligibility criteria to such branch. The Italian RPA was similar in structure and terms as the RPA. On April 27, 2012, the RPA and the Italian RPA were terminated.

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 ($12.1 million as of October 31, 2013).

In May 2009, Greif Malaysia Sdn Bhd., an indirect wholly-owned subsidiary of Greif, Inc., entered into the Malaysian Receivables Purchase Agreement (the “Malaysian Agreements”) with Malaysian banks. The maximum amount of the aggregate receivables that may be financed under the Malaysian Agreements is 15.0 million Malaysian Ringgits ($4.8 million as of October 31, 2013).

These transactions are structured to provide for true legal sales, on a revolving basis, of the receivables transferred from the various Greif, Inc. subsidiaries to the respective banks and affiliates. Under the European RPA, the Singapore RPA and the Malaysian Agreements, the banks and 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; although under the European RPA, the Seller provides a subordinated loan to the Main SPV, which is used to fund the remaining purchase price owed to the Selling Subsidiaries. The repayment of the subordinated loan to the Seller is paid from the collections of the receivables. As of the balance sheet reporting dates, the Company removes from accounts receivable the amount of cash 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 within other current assets on the Company’s consolidated balance sheet as of the time the receivables are initially sold; accordingly the difference between the carrying amount and the fair value of the assets sold are included as a loss on sale in the consolidated statements of operations within other expense, net. 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.

 

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

 

For the years ended October 31,

   2013      2012      2011  

European RPA

        

Gross accounts receivable sold to third party financial institution

   $ 1,071.3       $ 702.7       $ —     

Cash received for accounts receivable sold under the programs

     947.0         619.1         —     

Deferred purchase price related to accounts receivable sold

     124.3         83.6         —     

Loss associated with the programs

     2.5         1.9         —     

Expenses associated with the programs

     —           1.9         —     

RPA and Italian RPA

        

Gross accounts receivable sold to third party financial institution

   $ —         $ 189.4       $ 958.6   

Cash received for accounts receivable sold under the programs

     —           167.7         848.4   

Deferred purchase price related to accounts receivable sold

     —           21.7         110.2   

Loss associated with the programs

     —           1.6         4.4   

Expenses associated with the programs

     —           —           —     

Singapore RPA

        

Gross accounts receivable sold to third party financial institution

   $ 70.5       $ 73.8       $ 70.5   

Cash received for accounts receivable sold under the program

     70.5         73.8         70.5   

Deferred purchase price related to accounts receivable sold

     —           —           —     

Loss associated with the program

     —           —           —     

Expenses associated with the program

     0.2         0.2         0.2   

Malaysian Agreements

        

Gross accounts receivable sold to third party financial institution

   $ 22.9       $ 24.2       $ 19.0   

Cash received for accounts receivable sold under the program

     22.9         24.2         19.0   

Deferred purchase price related to accounts receivable sold

     —           —           —     

Loss associated with the program

     0.2         0.1         0.2   

Expenses associated with the program

     0.1         0.1         —     

Total RPAs and Agreements

        

Gross accounts receivable sold to third party financial institution

   $ 1,164.7       $ 990.1       $ 1,048.1   

Cash received for accounts receivable sold under the program

     1,040.4         884.8         937.9   

Deferred purchase price related to accounts receivable sold

     124.3         105.3         110.2   

Loss associated with the program

     2.7         3.6         4.6   

Expenses associated with the program

     0.3         2.2         0.2   

 

     October 31,      October 31,  
     2013      2012  

European RPA

     

Accounts receivable sold to and held by third party financial institution

   $ 179.0       $ 185.6   

Uncollected deferred purchase price related to accounts receivable sold

     11.5         3.5   

RPA and Italian RPA

     

Accounts receivable sold to and held by third party financial institution

   $ —         $ —     

Uncollected deferred purchase price related to accounts receivable sold

     —           —     

Singapore RPA

     

Accounts receivable sold to and held by third party financial institution

   $ 4.4       $ 3.9   

Uncollected deferred purchase price related to accounts receivable sold

     —           —     

Malaysian Agreements

     

Accounts receivable sold to and held by third party financial institution

   $ 4.5       $ 2.9   

Uncollected deferred purchase price related to accounts receivable sold

     —           —     

Total RPAs and Agreements

     

Accounts receivable sold to and held by third party financial institution

   $ 187.9       $ 192.4   

Uncollected deferred purchase price related to accounts receivable sold

   $ 11.5       $ 3.5   

The deferred purchase price related to the accounts receivable sold is reflected as prepaid and other current assets 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 Agreements. 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):

 

     2013      2012  

Finished goods

   $ 98.5       $ 96.9   

Raw materials

     240.4         240.2   

Work-in process

     36.4         36.4   
  

 

 

    

 

 

 
   $ 375.3       $ 373.5   
  

 

 

    

 

 

 

Net Assets Held for Sale
Net Assets Held for Sale

NOTE 5 – NET ASSETS HELD FOR SALE

As of October 31, 2013, there were two asset groups in the Flexible Products & Services segment with assets held for sale. As of October 31, 2012, there was one asset group in the Rigid Industrial Packaging & Services segment and one location in the Flexible Products & Services segment with assets held for sale. During 2013, one asset group was added in the Rigid Industrial Packaging Products & Services segment and subsequently sold in the same period. Additionally, two asset groups were added in the Flexible Products & Services segment. One asset group in the Rigid Industrial Packaging and Services segment and one asset group in the Flexible Products & Services segment were placed back in service for purposes of GAAP and depreciation was resumed. As a result of placing these locations back in service in 2013, the 2012 consolidated balance sheet has been reclassified for such locations to conform to the current year presentation. The reclassification of these asset groups to properties, plants and equipment within the consolidated balance sheets was done in accordance with ASC 360, but these assets are still being marketed for sale. 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.

For the year ended October 31, 2013, the Company recorded a gain on disposal of PP&E, 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 year ended October 31, 2012, the Company recorded a gain on disposal of PP&E, net of $7.6 million. There were sales of HBU and surplus properties which resulted in gains of $5.5 million in the Land Management segment, a sale of equipment in the Rigid Industrial Packaging & Services segment which resulted in a gain of $0.6 million, a sale of miscellaneous equipment in the Paper Packaging segment which resulted in a gain of $0.5 million and sales of other miscellaneous equipment which resulted in aggregate gains of $1.0 million.

For the year ended October 31, 2011, the Company recorded a gain on disposal of PP&E, net of $16.1 million. There were sales in the Rigid Industrial Packaging & Services segment which resulted in a $3.2 million gain, sales in the Paper Packaging segment which resulted in a $0.9 million gain, sales in the Land Management segment of HBU and surplus properties which resulted in a $11.4 million gain and sales of other miscellaneous equipment which resulted in a $0.6 million gain.

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, 2013 and 2012 (Dollars in millions):

 

     Rigid Industrial
Packaging & Services
    Flexible Products
& Services
    Paper
Packaging
     Land
Management
    Total  

Balance at October 31, 2011

   $ 864.6      $ 78.1      $ 59.7       $ 0.2      $ 1,002.6   

Goodwill acquired

     —          —          —           —          —     

Goodwill adjustments

     14.9        0.2        —           —          15.1   

Currency translation

     (34.9     (6.7     —           —          (41.6
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Balance at October 31, 2012

   $ 844.6      $ 71.6      $ 59.7       $ 0.2      $ 976.1   

Goodwill acquired

     —          —          —           —          —     

Goodwill adjustments

     1.5        —          0.2         (0.2     1.5   

Currency translation

     21.2        4.7        —           —          25.9   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Balance at October 31, 2013

   $ 867.3      $ 76.3      $ 59.9       $ —        $ 1,003.5   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

The goodwill adjustments during 2013 increased goodwill by a net amount of $27.4 million and are primarily related to the impact of foreign currency translation.

 

The goodwill adjustments during 2012 decreased goodwill by a net amount of $26.5 million related to the impact of foreign currency translation, partially offset by the finalization of purchase price allocation of prior year acquisitions. Goodwill from prior year acquisitions had been adjusted to properly reflect deferred tax assets and liabilities and tax reserves in our Rigid Industrial Packaging & Services segment.

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 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 if discrete financial information is prepared and regularly reviewed by segment management.

As of October 31, 2013, the Company recognized an impairment charge of $0.4 million related to intangible assets in our Rigid Industrial Packaging & Services segment. The Company concluded that no impairment indicators existed as of October 31, 2012. As of October 31, 2011, the Company recognized an impairment charge of $3.0 million related to the discontinued usage of certain trade names in our Flexible Products and Services segment.

The following table summarizes the carrying amount of net intangible assets by class as of October 31, 2013 and October 31, 2012 (Dollars in millions):

 

     Gross
Intangible
Assets
     Accumulated
Amortization
     Net
Intangible
Assets
 

October 31, 2012:

        

Trademarks and patents

   $ 32.5       $ 3.6       $ 28.9   

Non-compete agreements

     14.4         11.1         3.3   

Customer relationships

     201.1         53.6         147.5   

Other

     23.8         4.9         18.9   
  

 

 

    

 

 

    

 

 

 

Total

   $ 271.8       $ 73.2       $ 198.6   
  

 

 

    

 

 

    

 

 

 

October 31, 2013:

        

Trademarks and patents

   $ 31.1       $ 4.3       $ 26.8   

Non-compete agreements

     14.6         12.6         2.0   

Customer relationships

     205.6         69.4         136.2   

Other

     23.5         7.7         15.8   
  

 

 

    

 

 

    

 

 

 

Total

   $ 274.8       $ 94.0       $ 180.8   
  

 

 

    

 

 

    

 

 

 

Gross intangible assets increased by $3.0 million for the year ended October 31, 2013. The increase in gross intangible assets was attributable to $8.1 million of currency fluctuations, partially offset by the impairment of certain intangible assets, and the write-off of certain fully-amortized assets. Amortization expense was $20.5 million, $20.3 million and $18.6 million for 2013, 2012 and 2011, respectively. Amortization expense for the next five years is expected to be $19.6 million in 2014, $18.9 million in 2015, $18.3 million in 2016, $17.5 million in 2017 and $17.1 million in 2018.

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 $23.5 million related to the Tri-Sure trademark and trade names related to Blagden Express, Closed-loop, Box Board and Fustiplast, 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, 2013, 2012 and 2011 (Dollars in millions):

 

     Cash Charges     Non-cash Charges         
     Employee
Separation
Costs
    Other costs     Asset
Impairments
    Inventory
Write-down
     Total  

Balance at October 31, 2011

   $ 11.8      $ 7.6      $ 0.2      $ —         $ 19.6   

Costs incurred and charged to expense

     13.4        9.8        10.2        —           33.4   

Costs paid or otherwise settled

     (19.0     (15.6     (10.4     —           (45.0
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance at October 31, 2012

   $ 6.2      $ 1.8      $ —        $ —         $ 8.0   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Costs incurred and charged to expense

     2.8        2.0        4.0        —           8.8   

Costs paid or otherwise settled

     (7.2     (2.6     (4.0     —           (13.8
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance at October 31, 2013

   $ 1.8      $ 1.2      $ —        $ —         $ 3.0   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

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 $8.8 million, consisting of $2.8 million in employee separation costs, $4.0 million in asset impairments and $2.0 million in other restructuring costs, primarily consisting of lease termination costs and professional fees. 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.

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 date of this From 10-K. Remaining amounts expected to be incurred were $6.6 million and $12.3 million as of October 31, 2013 and 2012, respectively. The decrease was due to the realization of expenses from plans formulated in prior periods offset by the formation of new plans during the period. (Dollars in millions):

 

     Amounts
expected to be
incurred
     Amounts
Incurred
in 2013
     Amounts
remaining
to be
incurred
 

Rigid Industrial Packaging & Services:

        

Employee separation costs

   $ 5.1       $ 2.8       $ 2.3   

Asset impairments

     3.9         3.9         —     

Other restructuring costs

     4.8         1.5         3.3   
  

 

 

    

 

 

    

 

 

 
     13.8         8.2         5.6   

Flexible Products & Services:

        

Employee separation costs

     0.8         —           0.8   

Asset impairments

     0.1         0.1         —     

Other restructuring costs

     0.7         0.5         0.2   
  

 

 

    

 

 

    

 

 

 
     1.6         0.6         1.0   
  

 

 

    

 

 

    

 

 

 
   $ 15.4       $ 8.8       $ 6.6   
  

 

 

    

 

 

    

 

 

 

The focus for restructuring activities in 2012 was on the consolidation of operations in the Flexible Products & Services segment as part of the ongoing implementation of the Greif Business System and rationalization of operations and contingency actions in Rigid Industrial Packaging & Services. During 2012, the Company recorded restructuring charges of $33.4 million, consisting of $13.4 million in employee separation costs, $10.2 million in asset impairments and $9.8 million in other restructuring costs, primarily consisting of lease termination costs and professional fees. Four plants in the Rigid Industrial Packaging & Services segment were closed. There were a total of 513 employees severed throughout 2012 as part of the Company’s restructuring efforts.

The focus for restructuring activities in 2011 was on integration of recent acquisitions in the Rigid Industrial Packaging & Services and Flexible Products & Services segments as well as the implementation of certain cost-cutting measures. During 2011, the Company recorded restructuring charges of $30.5 million, consisting of $13.3 million in employee separation costs, $4.5 million in asset impairments and $12.7 million in other restructuring costs, primarily consisting of lease termination costs, professional fees, relocation costs and other costs. Two plants in the Rigid Industrial Packaging & Services segment were closed. There were a total of 257 employees severed throughout 2011 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 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. One of the companies acquired in 2011 is considered a VIE. However, because the Company is not the primary beneficiary, the Company will report its ownership interest in this acquired company using the equity method of accounting.

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 phase of these transactions in the first quarter of 2006. In this phase, the Company sold 15,300 acres of timberland holdings in Florida for $29.3 million in cash, resulting in a pre-tax gain of $27.4 million. The final phase of this transaction, approximately 5,700 acres sold for $9.7 million in the second quarter of 2006 which resulted in a pre-tax gain of $9.0 million.

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, 2013 and 2012, assets of the Buyer SPE consisted of $50.9 million of restricted bank financial instruments. For each of the years ended October 31, 2013, 2012 and 2011, the Buyer SPE recorded interest income of $2.4 million.

As of October 31, 2013 and 2012, STA Timber had long-term debt of $43.3 million. For each of the years ended October 31, 2013, 2012 and 2011, 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 multi-wall bag business. 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 owns and operates a fabric hub in the Kingdom of Saudi Arabia that commenced operations in the fourth quarter of 2012. The Company has 51 percent ownership in Trading Co. and 49 percent ownership in Asset Co. and General 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):

 

October 31, 2012

   Asset Co.     Global Textile      Trading Co.      Flexible Packaging JV  

Total assets

   $ 152.1      $ 47.6       $ 174.3       $ 374.0   

Total liabilities

     175.8        0.8         80.1         256.7   
  

 

 

   

 

 

    

 

 

    

 

 

 

Net assets

   $ (23.7   $ 46.8       $ 94.2       $ 117.3   
  

 

 

   

 

 

    

 

 

    

 

 

 

October 31, 2013

   Asset Co.     Global Textile      Trading Co.      Flexible Packaging JV  

Total assets

   $ 155.5      $ 44.9       $ 163.6       $ 364.0   

Total liabilities

     209.8        1.2         57.3         268.3   
  

 

 

   

 

 

    

 

 

    

 

 

 

Net assets

   $ (54.3   $ 43.7       $ 106.3       $ 95.7   
  

 

 

   

 

 

    

 

 

    

 

 

 

As of October 31, 2013 and 2012, Asset Co. had outstanding advances to NSC for $0.6 million which are being used to fund certain costs incurred in Saudi Arabia in respect of the fabric hub. These advances are recorded within the current portion related party notes and advances receivable on the Company’s consolidated balance sheet since they are expected to be repaid within the next twelve months. As of October 31, 2013 and 2012, Asset Co. and Trading Co. held short term loans payable to NSC for $12.7 million and $8.1 million, respectively, recorded within short-term borrowings on the Company’s consolidated balance sheet. These loans are interest bearing and are used to fund certain operational requirements.

Net loss attributable to the noncontrolling interest in the Flexible Packaging JV for the years ended October 31, 2013, 2012 and 2011 were $8.0 million, $4.4 million and $3.5 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, 2013     October 31, 2012  

Amended Credit Agreement

   $ 222.9      $ —     

2010 Credit Agreement

     —          255.0   

Senior Notes due 2017

     301.8        302.3   

Senior Notes due 2019

     244.4        243.6   

Senior Notes due 2021

     272.9        256.0   

Amended Receivables Facility

     140.0        —     

Prior Receivables Facility

     —          110.0   

Other long-term debt

     35.2        33.4   
  

 

 

   

 

 

 
     1,217.2        1,200.3   

Less current portion

     (10.0     (25.0
  

 

 

   

 

 

 

Long-term debt

   $ 1,207.2      $ 1,175.3   
  

 

 

   

 

 

 

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 Amended Credit Agreement provides the Company with an $800 million revolving multicurrency credit facility and a $200 million term loan, both expiring in December 2017, with an option to add $250 million to the facilities with the agreement of the lenders. The $200 million term loan is scheduled to amortize by the payment of principal in the amount of $2.5 million each quarter-end for the first eight quarters, beginning January 2013, the payment of $5.0 million each quarter-end for the next twelve quarters and the payment of the remaining balance on the maturity date. The revolving credit facility under the Amended Credit Agreement is available to fund ongoing working capital and capital expenditure needs, for general corporate purposes and to finance acquisitions. Interest is based on a Eurodollar rate or a base rate that resets periodically plus an agreed upon margin amount. The total available borrowing under this facility was $753.8 million as of October 31, 2013, which has been reduced by $13.3 million for outstanding letters of credit.

 

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”). As of October 31, 2013, the Company was in compliance with these covenants.

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 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.

During the twelve months ended October 31, 2013 the Company recorded debt extinguishment charges of $1.3 million resulting from the write off of unamortized deferred financing costs associated with the 2010 Credit Agreement, as defined below. The Company recorded no debt extinguishment charges for the twelve months ended October 31, 2012 and 2011. Financing costs associated with the Amended Credit Agreement totaling $3.4 million have been capitalized and included in other long term assets.

On October 29, 2010, the Company obtained a $1.0 billion senior secured credit facility pursuant to an Amended and Restated Credit Agreement with a syndicate of financial institutions (the “2010 Credit Agreement”). The 2010 Credit Agreement provided for a $750 million revolving multicurrency credit facility and a $250 million term loan, both expiring October 29, 2015, with an option to add $250 million to the facilities with the agreement of the lenders. The $250 million term loan was scheduled to amortize by $3.1 million each quarter-end for the first eight quarters, $6.3 million each quarter-end for the next eleven quarters and the remaining balance due on the maturity date. The 2010 Credit Agreement was replaced by the Amended Credit Agreement.

The Amended Credit Agreement is available to fund ongoing working capital and capital expenditure needs, for general corporate purposes and to finance acquisitions. Interest under the Amended Credit Agreement is based on a Eurodollar rate or a base rate that resets periodically plus a calculated margin amount. As of October 31, 2013, $222.9 million was outstanding under the Amended Credit Agreement. The current portion of the Amended Credit Agreement was $10.0 million and the long-term portion was $212.9 million. The weighted average interest rate on the Amended Credit Agreement was 1.86% for the year ended October 31, 2013. The actual interest rate on the Amended Credit Agreement was 1.87% as of October 31, 2013.

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. Proceeds from the issuance of these Senior Notes were principally used to fund the purchase of previously outstanding 8.875% Senior Subordinated Notes in a tender offer and for general corporate purposes.

The Indenture pursuant to which these Senior Notes were issued contains certain covenants. As of October 31, 2013, the Company was in compliance with these covenants.

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. Proceeds from the issuance of Senior Notes were principally used for general corporate purposes, including the repayment of amounts outstanding under the Company’s then existing revolving multicurrency credit facility, without any permanent reduction of the commitments thereunder.

The Indenture pursuant to which these Senior Notes were issued contains certain covenants. As of October 31, 2013, the Company was in compliance with these covenants.

 

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. A portion of the proceeds from the issuance of these Senior Notes was used to repay non-U.S. borrowings under the 2010 Credit Agreement, without any permanent reduction of the commitments thereunder, and the remaining proceeds are available for general corporate purposes, including the financing of acquisitions.

The Indenture pursuant to which these Senior Notes were issued contains certain covenants. As of October 31, 2013, the Company was in compliance with these covenants.

United States Trade Accounts Receivable Credit Facility

On September 30, 2013, the Company amended and restated its existing receivables financing facility to establish a $170.0 million United States Trade Accounts Receivable Credit Facility (the “Amended Receivables Facility”) with a financial institution. The Amended Receivables Facility matures in September 2016. In addition, the Company can terminate the Amended Receivables Facility at any time upon five days prior written notice. The Amended Receivables Facility is secured by certain of the Company’s trade accounts receivables in the United States and bears interest at a variable rate based on the London InterBank Offered Rate (“LIBOR”) or an applicable base rate, plus a margin, or a commercial paper rate plus a margin. Interest is payable on a monthly basis and the principal balance is payable upon termination of the Amended Receivables Facility. The Amended Receivables Facility also contains certain covenants and events of default, including a requirement that the Company maintain a certain interest coverage ratio. The interest coverage ratio generally requires that at the end of any fiscal quarter the Company will not permit the Interest Coverage Ratio Covenant to be less than 3.00 to 1 during the applicable trailing twelve-month period. Proceeds of the Amended Receivables Facility are available for working capital and general corporate purposes. As of October 31, 2013, the Company was in compliance with this covenant.

Until September 30, 2013, the Company had a U.S. trade accounts receivable credit facility with a financial institution (the “Prior Receivables Facility”). The Prior Receivables Facility was amended on September 19, 2011, which decreased the amount available to the borrowers from $135.0 million to $130.0 million and extended the termination date of the commitment to September 19, 2014. The Prior Receivables Facility was secured by certain of the Company’s trade accounts receivable in the United States and bore interest at a variable rate based on the applicable base rate or other agreed-upon rate plus a margin amount. In addition, the Prior Receivables Facility was terminable at any time upon five days prior written notice. A significant portion of the initial proceeds from the Prior Receivables Facility was used to pay the obligations under the previous trade accounts receivable credit facility, which was terminated. The remaining proceeds were used to pay certain fees, costs and expenses incurred in connection with the Prior Receivables Facility and for working capital and general corporate purposes. As of October 31, 2012, there was $110.0 million outstanding under the Prior Receivables Facility. The agreement for the Prior Receivables Facility receivables financing facility contained financial covenants that required the Company to maintain the same leverage ratio and fixed charge coverage ratio as set forth in the 2010 Credit Agreement. On December 19, 2012, this leverage ratio was amended to be identical to the ratio in the Amended Credit Agreement, and the fixed charge coverage ratio was deleted and the interest coverage ratio set forth in the Amended Credit Agreement was included. On September 30, 2013, the Prior Receivables Facility was terminated and replaced with the Amended Receivables Facility.

Greif Receivables Funding LLC (“GRF”), an indirect subsidiary of the Company, has participated in the purchase and transfer of receivables in connection with these credit facilities and is included in the Company’s consolidated financial statements. However, because GRF is a separate and distinct legal entity from the Company and its other subsidiaries, the assets of GRF are not available to satisfy the liabilities and obligations of the Company and its other subsidiaries, and the liabilities of GRF are not the liabilities or obligations of the Company and its other subsidiaries. This entity purchases and services the Company’s trade accounts receivable that were subject to the Prior Receivables Facility and that are subject to the Amended Receivables Facility.

Other

In addition to the amounts borrowed under the Credit Agreement and proceeds from the Senior Notes and the Amended Receivables Facility, as of October 31, 2013, the Company had outstanding other debt of $99.3 million, comprised of $35.2 million in long-term debt and $64.1 million in short-term borrowings, compared to other debt outstanding of $109.4 million, comprised of $33.4 million in long-term debt and $76.1 million in short-term borrowings, as of October 31, 2012.

As of October 31, 2013, the current portion of the Company’s long-term debt was $10.0 million. Annual maturities, including the current portion of long-term debt under the Company’s various financing arrangements, were $10.0 million in 2014, $55.2 million in 2015, $160.0 million in 2016, $321.8 million in 2017, $152.9 million in 2018 and $517.3 million thereafter. Cash paid for interest expense was $86.5 million, $86.6 million and $67.7 million in 2013, 2012 and 2011, respectively.

As of October 31, 2013 and 2012, the Company had deferred financing fees and debt issuance costs of $13.4 million and $14.8 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

Financial Instruments

The Company uses derivatives from time to time to mitigate partially the effect of exposure to interest rate movements, exposure to currency fluctuations, and energy cost fluctuations. Under ASC 815, “Derivatives and Hedging,” all derivatives are to be recognized as assets or liabilities on the balance sheet and measured at fair value. Changes in the fair value of derivatives are recognized in either net income or in other comprehensive income, depending on the designated purpose of the derivative.

While the Company may be exposed to credit losses in the event of nonperformance by the counterparties to its derivative financial instrument contracts, its counterparties are established banks and financial institutions with high credit ratings. The Company has no reason to believe that such counterparties will not be able to fully satisfy their obligations under these contracts.

During the next twelve months, the Company expects to reclassify into earnings a net loss from accumulated other comprehensive income of approximately $0.5 million after tax at the time the underlying hedge transactions are realized.

ASC 820, “Fair Value Measurements and Disclosures” defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements for financial and non-financial assets and liabilities. Additionally, this guidance 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.

Recurring Fair Value Measurements

The following table presents the fair values adjustments for those assets and (liabilities) measured on a recurring basis as of October 31, 2013 and 2012 (Dollars in millions):

 

     October 31, 2013     October 31, 2012     Balance sheet
     Level 1      Level 2     Level 3      Total     Level 1      Level 2     Level 3      Total    

Location

Interest rate derivatives

   $ —         $ (0.9   $ —         $ (0.9   $ —         $ (1.4   $ —         $ (1.4   Other long-term liabilities

Foreign exchange hedges

     —           0.3        —           0.3        —           0.8        —           0.8      Other current assets

Foreign exchange hedges

     —           (1.0     —           (1.0     —           (0.3     —           (0.3   Other current liabilities
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

Total*

   $ —         $ (1.6   $ —         $ (1.6   $ —         $ (0.9   $ —         $ (0.9  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

* The carrying amounts of cash and cash equivalents, trade accounts receivable, accounts payable, current liabilities and short-term borrowings as of October 31, 2013 and 2012 approximate their fair values because of the short-term nature of these items and are not included in this table.

Interest Rate Derivatives

The Company has interest rate swap agreements with various maturities through 2014. These interest rate swap agreements are used to manage the Company’s fixed and floating rate debt mix, specifically the Amended Credit Agreement. The assumptions used in measuring fair value of these interest rate derivatives are considered level 2 inputs, which were based on monthly interest from the counterparties based upon the LIBOR and interest to be based upon a designated fixed rate over the life of the swap agreements. These derivative instruments are designated and qualify as cash flow hedges. Accordingly, the effective portion of the gain or loss on these derivative instruments is 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 affects earnings. The ineffective portion of the gain or loss on the derivative instrument is recognized in earnings immediately.

The Company has two interest rate derivatives, both of which were entered into during the first quarter of 2012 (floating to fixed swap agreements designated as cash flow hedges) with a total notional amount of $150 million. Under these swap agreements, the Company receives interest based upon a variable interest rate from the counterparties (weighted average of 0.17% as of October 31, 2013 and 0.21% as of October 31, 2012) and pays interest based upon a fixed interest rate (weighted average of 0.75% as of October 31, 2013 and 0.75% as of October 31, 2012). Losses reclassified to earnings under these contracts (both those that existed as of October 31, 2011 and those entered into in the first quarter 2012) were $0.8 million, $0.9 million and $1.9 million for the twelve months ended October 31, 2013, 2012 and 2011, respectively. These losses were recorded within the consolidated statement of operations as interest expense, net. The change in fair value of these contracts resulted in losses of $0.9 million and $1.4 million recorded in accumulated other comprehensive income as of October 31, 2013, 2012 and 2011, respectively.

 

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, 2013, the Company had outstanding foreign currency forward contracts in the notional amount of $137.6 million ($233.2 million as of October 31, 2012). At October 31, 2013, these derivative instruments were designated and qualified as fair value hedges. Adjustments to fair value for fair value hedges 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. Gains recorded under fair value contracts were immaterial for the twelve months ended October 31, 2013. Losses recorded under fair value contracts were, $1.6 million and $0.7 million for the twelve months ended October 31, 2012 and 2011.

During 2012 and 2011, some derivative instruments were designated and qualified as cash flow hedges. Accordingly, the effective portion of the gain or loss on these derivative instruments was previously 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. Gains reclassified to earnings for hedging contracts qualifying as cash flow hedges were immaterial for the twelve months ended October 31, 2012. Gains reclassified to earnings for hedging contracts qualifying as cash flow hedges were $0.1 million for the twelve months October 31, 2011. These gains were recorded within the consolidated statement of operations as other (income) expense, net. The change in fair value of these contracts resulted in an immaterial gain recorded in accumulated other comprehensive income as of October 31, 2012. The ineffective portion of the gain or loss on the derivative instrument was previously recognized in earnings immediately.

Energy Hedges

The Company is exposed to changes in the price of certain commodities. The Company’s objective is to reduce volatility associated with forecasted purchases of these commodities to allow management of the Company to focus its attention on business operations. Accordingly, the Company may enter into derivative contracts to manage the price risk associated with certain of these forecasted purchases.

From time to time, the Company has entered into certain cash flow hedges to mitigate its exposure to cost fluctuations in natural gas prices. Under these hedge agreements, the Company agreed to purchase natural gas at a fixed price. There were no energy hedges in effect as of October 31, 2013 or October 31, 2012. Such derivative instruments were previously designated and qualified as cash flow hedges. Accordingly, the effective portion of the gain or loss on such a derivative instrument was previously 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 such a derivative instrument was previously recognized in earnings immediately. The assumptions used in measuring fair value of energy hedges are considered level 2 inputs, which were based on observable market pricing for similar instruments, principally commodity futures contracts. Losses reclassified to earnings under such prior contracts were $1.2 million and $0.4 million for the twelve months ended October 31, 2012 and 2011, respectively. Losses on such contracts were recorded within the consolidated statement of operations as cost of products sold. The change in fair value of these contracts had no impact on accumulated other comprehensive income as of October 31, 2012.

Other Financial Instruments

The estimated fair value of the Company’s 2017 Senior Notes are $334.5 million and $330.8 million compared to the carrying amount of $301.8 million and $302.3 million as of October 31, 2013 and 2012, respectively. The estimated fair value of the Company’s 2019 Senior Notes are $289.9 million and $286.9 million compared to the carrying amounts of $244.4 million and $243.6 million as of October 31, 2013 and 2012, respectively. The estimated fair value of the Company’s 2021 Senior Notes are $317.9 million and $283.4 million compared to the carrying amounts of $272.4 million and $256.1 million as of October 31, 2013 and 2012, respectively. The assumptions used in measuring fair value of Senior Notes are considered level 2 inputs, which were based on observable market pricing for similar 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.

Non-Recurring Fair Value Measurements

Long-Lived Assets

The Company may close manufacturing facilities during the next few years as part of restructuring plans to rationalize costs and realize benefits of synergies. The assumptions used in measuring fair value of long-lived assets are considered level 2 inputs, which include bids received from third parties, recent purchase offers, market comparables and future cash flows. The Company recorded restructuring-related expenses for the year ended October 31, 2013, 2012, and 2011 of $4.0 million, $10.2 million, and $4.5 million, respectively.

 

During the year ended October 31, 2013, the Company recognized asset impairment charges of $30.0 million, consisting of $1.6 million, for assets in the Paper Packaging segment primarily for assets under contract to be sold, $16.8 million, for assets in Rigid Industrial Packaging and Services segment related to loss making facilities, underutilized and damaged equipment, and unutilized facilities in Europe, and $11.6 million, for assets in Flexible Products and Services segment related to underutilized equipment. The Company recorded asset impairment charges for the year ended October 31, 2012 and 2011 of $2.6 million and $4.5 million, respectively.

Net Assets Held for Sale

The assumptions used in measuring fair value of net assets held for sale are considered level 2 inputs, which include recent purchase offers, market comparables and/or data obtained from commercial real estate brokers. During the year ended October 31, 2013, the Company recorded $4.6 million of additional impairment related to assets which were previously classified as net assets held for sale.

Goodwill and Long Lived Intangible Assets

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, 2011, the Company recognized an impairment charge of $3.0 million related to the discontinued usage of certain trade names in our Flexible Products & Services segment. The Company concluded that no further impairment existed as of October 31, 2013 and 2012.

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 either 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:

 

    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
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 operations 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 operations 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 2013, 2012 or 2011. 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.

Prior to 2001, the Company had adopted a Non-statutory Stock Option Plan (the “2000 Plan”) that provides the discretionary granting of non-statutory options to key employees, and an Incentive Stock Option Plan (the “Option Plan”) that provides the discretionary granting of incentive stock options to key employees and non-statutory options for non-employees. The aggregate number of the Company’s Class A Common Stock options that may be granted under the 2000 Plan and Option Plan may not exceed 400,000 shares and 2,000,000 shares, respectively.

Under the terms of the 2001 Plan, the 2000 Plan and the Option 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):

 

     2013      2012      2011  
     Shares      Weighted
Average
Exercise
price
     Shares      Weighted
Average
Exercise
price
     Shares      Weighted
Average
Exercise
price
 

Beginning balance

     181       $ 19.45         342       $ 16.61         510       $ 16.14   

Granted

     —           —           —           —           —           —     

Forfeited

     3         19.35         3         13.10         1         12.72   

Exercised

     99         14.79         158         13.45         167         15.17   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

     79       $ 25.30         181       $ 19.45         342       $ 16.61   

As of October 31, 2013, outstanding stock options had exercise prices and contractual lives as follows (Shares in thousands):

 

Range of Exercise Prices

   Number
Outstanding
     Weighted-
Average
Remaining
Contractual
Life
 

$15 – $25

     67         1.1   

$25 – $35

     12         1.3   

All outstanding options were exercisable as of October 31, 2013, 2012 and 2011, respectively.

Under the Company’s Long-Term Incentive Plan, the Company will grant 55,874 shares of restricted stock with a weighted average grant date fair value of $51.97 for 2013. The Company granted 53,533 shares of restricted stock with a weighted average grant date fair value of $41.44 under the Company’s Long-Term Incentive Plan for 2012. The total stock expense recorded under the plan was $2.9 million, $2.2 million and $2.5 million for the periods ended October 31, 2013, 2012 and 2011, respectively. All restricted stock awards under the Long Term Investment Plan are fully vested at the date of award.

Under the Company’s 2005 Directors Plan, the Company granted 15,831 shares of restricted stock with a weighted average grant date fair value of $51.16 in 2013. The Company granted 14,152 shares of restricted stock with a weighted average grant date fair value of $50.87 under the Company’s 2005 Directors Plan in 2012. The total expense recorded under the plan was $0.8 million, $0.7 million, and $0.7 million for the periods ended October 31, 2013, 2012, and 2011, respectively. All restricted stock awards under the 2005 Directors Plan are fully vested at the date of award.

The total stock compensation expenses recorded under the plans were $3.7 million, $3.6 million and $4.2 million for the periods ended October 31, 2013, 2012 and 2011 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,    2013     2012      2011  

Current

       

Federal

   $ 54.2      $ 19.7       $ 25.6   

State and local

     8.8        5.4         4.4   

Non-U.S.

     32.6        13.5         27.5   
  

 

 

   

 

 

    

 

 

 
     95.6        38.6         57.5   

Deferred

       

Federal

     (6.3     10.3         11.0   

State and local

     (0.2     2.7         5.0   

Non-U.S.

     8.5        7.2         (6.2
  

 

 

   

 

 

    

 

 

 
     2.0        20.2         9.8   
  

 

 

   

 

 

    

 

 

 
   $ 97.6      $ 58.8       $ 67.3   
  

 

 

   

 

 

    

 

 

 

 

Non-U.S. income before income tax expense was $80.3 million, $74.8 million and $129.0 million in 2013, 2012, and 2011, 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,

   2013     2012     2011  

United States federal tax rate

     35.00     35.00     35.00

Non-U.S. tax rates

     2.20     -1.10     -10.00

State and local taxes, net of federal tax benefit

     2.50     2.30     1.90

United States tax credits

     -2.10     -0.70     -0.80

Unrecognized tax benefits

     -0.20     -5.50     12.60

Change in judgment regarding valuation allowance

     0.50     1.50     -14.50

Withholding tax

     2.90     2.60     1.90

Foreign partnerships

     -3.60     -4.30     -1.00

Foreign Income Inclusion

     1.70     1.60     0.10

Other items

     1.10     0.30     2.80
  

 

 

   

 

 

   

 

 

 
     40.00     31.70     28.00
  

 

 

   

 

 

   

 

 

 

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):

 

     2013     2012  

Deferred Tax Assets

    

Net operating loss carryforwards

   $ 102.4      $ 90.7   

Minimum pension liabilities

     41.5        61.6   

Insurance operations

     6.4        9.1   

Incentives

     5.5        4.1   

Environmental reserves

     7.3        7.4   

Inventories

     6.1        2.7   

State income tax

     9.6        9.2   

Postretirement

     5.6        7.4   

Other

     5.6        6.3   

Derivatives instruments

     0.4        0.5   

Interest

     5.2        5.3   

Allowance for doubtful accounts

     3.0        4.5   

Restructuring reserves

     0.4        1.1   

Deferred compensation

     2.8        2.5   

Foreign tax credits

     2.5        1.8   

Vacation accruals

     1.5        1.4   

Stock options

     1.0        1.4   

Severance

     0.2        0.2   

Workers compensation accruals

     3.9        2.5   
  

 

 

   

 

 

 

Total Deferred Tax Assets

     210.9        219.7   

Valuation allowance

     (78.6     (57.0
  

 

 

   

 

 

 

Net Deferred Tax Assets

     132.3        162.7   
  

 

 

   

 

 

 

Deferred Tax Liabilities

    

Properties, plants and equipment

     114.8        121.9   

Goodwill and other intangible assets

     97.5        93.4   

Foreign Income Inclusion

     0.8        —     

Foreign exchange

     7.6        7.8   

Timberland transactions

     102.1        95.7   

Pension

     8.9        16.5   
  

 

 

   

 

 

 

Total Deferred Tax Liabilities

     331.7        335.3   
  

 

 

   

 

 

 

Net Deferred Tax Liability

   $ (199.4   $ (172.6
  

 

 

   

 

 

 

As of October 31, 2013, the Company had tax benefits from non-U.S. net operating loss carryforwards of approximately $102.2 million and approximately $0.2 million of state net operating loss carryfowards. The Company has recorded valuation allowances of $76.1 million and $55.3 million as of October 31, 2013 and 2012, respectively against the tax benefits from non-U.S. net deferred tax assets.

 

As of October 31, 2013, the Company had undistributed earnings from certain non-U.S. subsidiaries that are intended to be permanently reinvested in non-U.S. operations. Because these earnings are considered permanently reinvested, no U.S. tax provision has been accrued related to the repatriation of these earnings. It is not practicable to determine the additional tax, if any, which would result from the remittance of these amounts.

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

 

     2013     2012     2011  

Balance at November 1

   $ 43.6      $ 73.9      $ 35.4   

Increases in tax positions for prior years

     1.3        7.3        44.0   

Decreases in tax positions for prior years

     (2.5     (2.1     (1.6

Increases in tax positions for current years

     1.3        3.9        —     

Settlements with taxing authorities

     (30.3     (32.5     (4.5

Lapse in statute of limitations

     —          (0.3     —     

Currency translation

     2.6        (6.6     0.6   
  

 

 

   

 

 

   

 

 

 

Balance at October 31

   $ 16.0      $ 43.6      $ 73.9   
  

 

 

   

 

 

   

 

 

 

The 2013 decrease is primarily related to settlements of foreign tax controversies and the closing of the respective open tax years.

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 2009 through the current fiscal year. The company has completed its U.S. federal tax audit for the tax years through 2010.

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, 2013 and October 31, 2012, the Company had $1.2 million and $1.2 million, respectively, accrued for the payment of interest and penalties.

The Company has estimated the reasonably possible expected net change in unrecognized tax benefits through October 31, 2013 under ASC 740, “Income Taxes”. 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 $16.0 million. Actual results may differ materially from this estimate.

The Company paid income taxes of $74.0 million, $56.9 million and $64.9 million in 2013, 2012, and 2011, 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 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 plans’ benefits are based primarily on years of service and earnings. The hourly 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 in various dates in the preceding five years for the non-U.S. plans will not be eligible to participate in the defined benefit pension plans, but will 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 $14.4 million during 2013, which consisted of $13.0 million of employer contributions and $1.4 million of benefits paid directly by the Company. Pension contributions by the Company totaled $18.0 million and $32.6 million during 2012 and 2011, respectively. Contributions during 2014 are expected to be approximately $13.2 million.

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

 

                                        Other  
October 31, 2013    Consolidated      USA      Germany      United Kingdom      Netherlands      International  

Active participants

     2,244         1,880         122         133         48         61   

Vested former employees

     2,184         1,452         64         399         249         20   

Retirees and beneficiaries

     4,147         2,320         250         718         804         55   

Other plan participants

     35         0         0         0         35         0   
October 31, 2012    Consolidated      USA      Germany      United Kingdom      Netherlands      Other Intl  

Active participants

     2,402         2,004         127         158         48         65   

Vested former employees

     3,660         2,913         63         418         249         17   

Retirees and beneficiaries

     4,043         2,210         248         726         804         55   

Other plan participants

     35         0         0         0         35         0   

 

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

 

                                   Other  

For the year ended October 31, 2013

   Consolidated     United States     Germany     United Kingdom     Netherlands     International  

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

For the year ended October 31, 2012

            

Discount rate

     3.92     4.00     3.50     4.25     3.25     4.89

Expected return on plan assets

     6.46     6.75     N/A        6.75     5.00     6.55

Rate of compensation increase

     2.99     3.00     2.75     3.50     2.25     2.29

For the year ended October 31, 2011

            

Discount rate

     4.94     4.90     5.25     5.00     5.00     5.55

Expected return on plan assets

     7.20     8.25     N/A        7.50     4.25     6.60

Rate of compensation increase

     3.13     3.00     2.75     4.00     2.25     2.70

To determine the expected long-term rate of return on pension plan assets, we consider current and expected asset allocations, as well as historical and expected returns on various categories of plan assets. In developing future return expectations for our defined benefit pension plans’ assets, we formulate views on the future economic environment, both in the U.S. and globally. We evaluate 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. We also take into account expected volatility by asset class and diversification across classes to determine expected overall portfolio results given current and expected allocations.

Based on our analysis of future expectations of asset performance, past return results, and our current and expected asset allocations, we have assumed a 5.7% long-term expected return on those assets for cost recognition in 2013. 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):

 

                                    Other  

For the year ended October 31, 2013

   Consolidated     United States     Germany      United Kingdom     Netherlands     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 cost

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

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 
                                    Other  

For the year ended October 31, 2012

   Consolidated     United States     Germany      United Kingdom     Netherlands     International  

Service cost

   $ 13.4      $ 10.0      $ 0.4       $ 2.1      $ 0.5      $ 0.4   

Interest cost

     29.6        16.6        1.4         7.0        3.9        0.7   

Expected return on plan assets

     (33.9     (17.6     —           (11.8     (3.6     (0.9

Amortization of prior service cost

     1.5        1.5        —           —          —          —     

Recognized net actuarial loss

     11.4        9.9        0.1         0.6        0.4        0.4   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net periodic pension cost

   $ 22.0      $ 20.4      $ 1.9       $ (2.1   $ 1.2      $ 0.6   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 
                                    Other  

For the year ended October 31, 2011

   Consolidated     United States     Germany      United Kingdom     Netherlands     International  

Service cost

   $ 12.7      $ 9.0      $ 0.5       $ 2.1      $ 0.7      $ 0.4   

Interest cost

     29.6        16.6        1.4         7.1        3.9        0.6   

Expected return on plan assets

     (36.8     (19.7     —           (12.7     (3.7     (0.7

Amortization of prior service cost

     1.9        1.9        —           —          —          —     

Recognized net actuarial loss

     8.4        7.1        0.1         0.4        0.4        0.4   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net periodic pension cost

   $ 15.8      $ 14.9      $ 2.0       $ (3.1   $ 1.3      $ 0.7   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

 

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):

 

                                   Other  
     Consolidated     USA     Germany     United Kingdom     Netherlands     International  

For the year ended October 31, 2013

            

Change in benefit obligation:

            

Benefit obligation at beginning of year

   $ 722.4      $ 404.7      $ 35.3      $ 161.9      $ 103.4      $ 17.1   

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   

Plan participant contributions

     0.3        —          —          —          0.3        —     

Expenses paid from assets

     (2.2     (1.9     —          —          —          (0.3

Plan Amendments

     0.4        0.4        —          —          —          —     

Actuarial (gain) loss

     (23.8     (40.6     0.9        9.7        7.7        (1.5

Foreign currency effect

     9.4        —          2.4        0.8        7.0        (0.8

Benefits paid

     (47.0     (31.3     (1.4     (6.9     (6.0     (1.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Benefit obligation at end of year

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

For the year ended October 31, 2012

            

Change in benefit obligation:

            

Benefit obligation at beginning of year

   $ 616.2      $ 345.5      $ 27.9      $ 142.1      $ 85.3      $ 15.4   

Service cost

     13.4        10.0        0.4        2.1        0.5        0.4   

Interest cost

     29.6        16.6        1.4        7.0        3.9        0.7   

Plan participant contributions

     0.3        —          —          0.1        0.2        —     

Expenses paid from assets

     (1.1     (1.1     —          —          —          —     

Multi-plan combination

     1.7        —          —          1.7        —          —     

Actuarial loss

     91.9        47.3        8.4        11.4        24.0        0.8   

Foreign currency effect

     (1.7     —          (1.5     3.9        (4.5     0.4   

Benefits paid

     (27.9     (13.6     (1.3     (6.4     (6.0     (0.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Benefit obligation at end of year

   $ 722.4      $ 404.7      $ 35.3      $ 161.9      $ 103.4      $ 17.1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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):

 

                                        Other  
     Consolidated      USA      Germany      United Kingdom      Netherlands      International  

Actuarial value of benefit obligations

                 

October 31, 2013

                 

Projected benefit obligation

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

Accumulated benefit obligation

     674.4         339.1         35.9         171.3         115.2         12.9   

Plan assets

     621.2         301.8         —           198.9         106.5         14.0   

October 31, 2012

                 

Projected benefit obligation

   $ 722.4       $ 404.7       $ 35.3       $ 161.9       $ 103.4       $ 17.1   

Accumulated benefit obligation

     687.8         382.0         32.5         156.6         102.0         14.7   

Plan assets

     599.1         298.4         —           187.4         99.3         14.0   

Plans with ABO in excess of Plan assets

                 

October 31, 2013

                 

Accumulated benefit obligation

   $ 503.0       $ 339.1       $ 35.9       $ —         $ 115.2       $ 12.8   

Plan assets

     419.2         301.8         —           —           106.5         10.9   

October 31, 2012

                 

Accumulated benefit obligation

   $ 531.2       $ 382.0       $ 32.5       $ —         $ 102.0       $ 14.7   

Plan assets

     408.3         298.4         —           —           99.3         10.6   

 

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
 

2014

   $ 32.7   

2015

   $ 33.2   

2016

   $ 33.9   

2017

   $ 35.2   

2018

   $ 37.0   

2019-2023

   $ 205.0   

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, 2013 and 2012.

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:

 

     2013     2013     2012     2012  

Asset Category

   Target     Actual     Target     Actual  

Equity securities

     23     31     34     34

Debt securities

     49     46     45     45

Other

     28     23     21     21
  

 

 

   

 

 

   

 

 

   

 

 

 

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 1.

 

                                    Other  
     Consolidated     USA     Germany      United Kingdom     Netherlands     International  

For the year ended October 31, 2013

             

Change in plan assets:

             

Fair value of plan assets at beginning of year

   $ 599.1      $ 298.4      $ —         $ 187.4      $ 99.3      $ 14.0   

Actual return on plan assets

     48.9        25.1        —           15.9        6.5        1.4   

Expenses paid

     (2.1     (1.8     —           —          —          (0.3

Plan participant contributions

     0.3        —          —           —          0.3        —     

Multi-plan combination

     —          —          —           —          —          —     

Foreign currency impact

     6.4        —          —           0.8        6.5        (0.9

Employer contributions

     14.4        11.4        —           1.7        —          1.3   

Benefits paid

     (45.8     (31.3     —           (6.9     (6.1     (1.5
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Fair value of plan assets at end of year

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

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

For the year ended October 31, 2012

             

Change in plan assets:

             

Fair value of plan assets at beginning of year

   $ 540.3      $ 263.0      $ —         $ 176.7      $ 87.9      $ 12.7   

Actual return on plan assets

     66.2        35.3        —           8.6        21.9        0.4   

Expenses paid

     (1.1     (1.1     —           —          —          —     

Plan participant contributions

     0.3        —          —           0.1        0.2        —     

Multi-plan combination

     1.7        —          —           1.7        —          —     

Foreign currency effects

     (0.2     —          —           4.5        (4.7     —     

Employer contributions

     18.0        14.3        —           2.2        —          1.5   

Benefits paid

     (26.1     (13.1     —           (6.4     (6.0     (0.6
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Fair value of plan assets at end of year

   $ 599.1      $ 298.4      $ —         $ 187.4      $ 99.3      $ 14.0   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

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

As of October 31, 2013 (Dollars in millions)

 

Asset Category    Fair Value Measurement  
     Level 1      Level 2      Level 3      Total  

Equity securities

   $ 146.3       $ 46.1       $ —         $ 192.4   

Fixed income

     155.1         112.6         —           267.7   

Debt securities

     —           19.3         —           19.3   

Insurance annuity

     —           —           106.5         106.5   

Other

     2.9         32.4         —           35.3   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 304.3       $ 210.4       $ 106.5       $ 621.2   
  

 

 

    

 

 

    

 

 

    

 

 

 

As of October 31, 2012 (Dollars in millions)

 

Asset Category    Fair Value Measurement  
     Level 1      Level 2      Level 3      Total  

Equity securities

   $ 7.7       $ 216.3       $ —         $ 224.0   

Fixed income

     89.0         99.3         —           188.3   

Debt securities

     —           56.8         —           56.8   

Insurance annuity

     —           —           99.3         99.3   

Other

     15.1         15.6         —           30.7   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 111.8       $ 388.0       $ 99.3       $ 599.1   
  

 

 

    

 

 

    

 

 

    

 

 

 

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:

 

     Non-U.S. Pension Plan  
(Dollars in millions)    2013     2012  

Balance at beginning of year

   $ 99.3      $ 87.9   

Actual return on plan assets held at reporting date:

    

Assets still held at reporting date

     6.5        21.9   

Plan participant contributions

     0.3        0.2   

Settlements

     (6.1     (6.0

Currency impact

     6.5        (4.7
  

 

 

   

 

 

 

Balance at end of year

   $ 106.5      $ 99.3   
  

 

 

   

 

 

 

 

Financial statement presentation including other comprehensive income:

 

                                   Other  
As of October 31, 2013    Consolidated     USA     Germany     United Kingdom     Netherlands     International  

Unrecognized net actuarial loss

   $ 148.5      $ 77.8      $ 13.1      $ 30.4      $ 22.8      $ 4.4   

Unrecognized prior service cost

     0.8        0.8        —          —          —          —     

Unrecognized initial net obligation

     0.3        —          —          —          —          0.3   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated other comprehensive loss

   $ 149.6      $ 78.6      $ 13.1      $ 30.4      $ 22.8      $ 4.7   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Amounts recognized in the Consolidated Balance Sheets consist of:

            

Prepaid benefit cost

   $ 29.6      $ —        $ —        $ 26.6      $ —        $ 3.0   

Accrued benefit liability

     (112.1     (56.9     (39.0     (2.5     (10.4     (3.3

Accumulated other comprehensive loss

     149.6        78.6        13.1        30.4        22.8        4.7   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net amount recognized

   $ 67.1      $ 21.7      $ (25.9   $ 54.5      $ 12.4      $ 4.4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

                                    Other  
As of October 31, 2012    Consolidated     USA     Germany     United Kingdom      Netherlands     International  

Unrecognized net actuarial loss

   $ 203.5      $ 140.9      $ 12.0      $ 26.0       $ 17.6      $ 7.0   

Unrecognized prior service cost

     0.9        0.9        —          —           —          —     

Unrecognized initial net obligation

     0.4        —          —          —           —          0.4   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Accumulated other comprehensive loss

   $ 204.8      $ 141.8      $ 12.0      $ 26.0       $ 17.6      $ 7.4   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Amounts recognized in the Consolidated Balance Sheets consist of:

             

Prepaid benefit cost

   $ 28.8      $ —        $ —        $ 25.6       $ —        $ 3.2   

Accrued benefit liability

     (152.1     (106.3     (35.3     —           (4.1     (6.4

Accumulated other comprehensive loss

     204.8        141.8        12.0        26.0         17.6        7.4   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net amount recognized

   $ 81.5      $ 35.5      $ (23.3   $ 51.6       $ 13.5      $ 4.2   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

     October 31, 2013     October 31, 2012  

Accumulated other comprehensive loss at beginning of year

   $ 204.8      $ 158.6   

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

     (0.5     (1.5

Net loss amortzied during fiscal year

     (16.4     (11.3

Prior service (cost) or credit recognized during fiscal year due to curtailment

     —          (2.3

Prior service costs occuring during fiscal year

     0.4        —     

Liability (gain) loss occuring during fiscal year

     (23.9     92.0   

Asset (gain) occuring during fiscal year

     (16.9     (30.7
  

 

 

   

 

 

 

Increase (decrease) in accumulated other comprehensive loss

   $ (57.4   $ 46.1   

Foreign currency impact

     2.2        0.1   
  

 

 

   

 

 

 

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

   $ 149.6      $ 204.8   
  

 

 

   

 

 

 

In 2014, the Company expects to record an amortization loss of $10.4 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 $6.5 million in 2013, $3.9 million in 2012 and $3.6 million in 2011.

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 plans:

 

October 31, 2013