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 translation 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 does not expect to reclassify any amount into earnings from accumulated other comprehensive income 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:

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

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

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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 value for those assets and (liabilities) measured on a recurring basis as of April 30, 2015 (Dollars in millions):


	April 30, 2015
	Fair Value Measurement										Balance sheet Location
	Level 1		Level 2			Level 3		Total			Balance sheet Location
Interest rate derivatives	$	—	$	—		$	—	$	—		Other long-term liabilities
Foreign exchange hedges		—		0.1			—		0.1		Prepaid expenses and other current assets
Foreign exchange hedges		—		(1.0	)		—		(1.0	)	Other current liabilities
Insurance annuity		—		—			19.3		19.3		Other long-term assets

Total*	$	—	$	(0.9	)	$	19.3	$	18.4


	October 31, 2014
	Fair Value Measurement										Balance sheet Location
	Level 1		Level 2			Level 3		Total			Balance sheet Location
Interest rate derivatives	$	—	$	(0.2	)	$	—	$	(0.2	)	Other long-term liabilities
Foreign exchange hedges		—		0.6			—		0.6		Prepaid expenses and other current assets
Foreign exchange hedges		—		(0.2	)		—		(0.2	)	Other current liabilities
Insurance annuity		—		—			22.6		22.6		Other long-term assets

Total*	$	—	$	0.2		$	22.6	$	22.8

*	The carrying amounts of cash and cash equivalents, trade accounts receivable, accounts payable, current liabilities and short-term borrowings as of April 30, 2015 approximate their fair values because of the short-term nature of these items and are not included in this table.

Interest Rate Derivatives

As of April 30, 2015, the Company has no interest rate derivatives.

The Company had interest rate swap agreements with various maturities through December 2014. These interest rate swap agreements were used to manage the Company’s fixed and floating rate debt mix, specifically the Amended Credit Agreement. The assumptions that were used in measuring fair value of the interest rate derivatives were considered level 2 inputs, which were based on interest from the counterparties based upon LIBOR and interest paid based upon a designated fixed rate over the life of the swap agreements. These derivative instruments were designated and qualified as cash flow hedges. Accordingly, the effective portion of the gain or loss on these derivative instruments was reported as a component of other comprehensive income and reclassified into earnings in the same line item associated with the forecasted transaction and in the same period during which the hedged transaction affected earnings. The ineffective portion of the gain or loss on the derivative instrument was recognized in earnings immediately.

Through December 2014, the Company had two interest rate derivatives (floating to fixed swap agreements designated as cash flow hedges) with a total notional amount of $150 million. Under these swap agreements, the Company received interest based upon a variable interest rate from the counterparties and paid interest based upon a fixed interest rate. Losses reclassified to earnings under these contracts were $0.2 million for the three months ended April 30, 2014; and were $0.2 million and $0.4 million for the six months ended April 30, 2015 and 2014, respectively. These losses were recorded within the condensed consolidated statements of income as interest expense, net. The fair value of these contracts was $0.2 million recorded in accumulated other comprehensive income as of October 31, 2014.

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 April 30, 2015, the Company had outstanding foreign currency forward contracts in the notional amount of $92.9 million ($122.4 million as of October 31, 2014). At April 30, 2015, 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) losses recorded under fair value contracts were $1.2 million and ($2.0) million for the three months ended April 30, 2015 and 2014, respectively; and were $6.8 million and $0.2 million for the six months ended April 30, 2015 and 2014, respectively.

Other financial instruments

The fair values of the Company’s Amended Credit Agreement and the Amended Receivables Facility do not materially differ from carrying value as the Company’s cost of borrowing is variable and approximates current borrowing rates. The fair values of the Company’s long-term obligations are estimated based on either the quoted market prices for the same or similar issues or the current interest rates offered for the debt of the same remaining maturities, which are considered level 2 inputs in accordance with ASC Topic 820, Fair Value Measurements and Disclosures.

The following table presents the estimated fair values for the Company’s Senior Notes and the Assets held by special purpose entities (Dollars in millions):


	April 30, 2015		October 31, 2014
Senior Notes due 2017
Estimated fair value	$	320.5	$	325.5

Senior Notes due 2019
Estimated fair value		282.9		287.5

Senior Notes due 2021
Estimated fair value		258.0		297.7

Assets held by special purpose entities
Estimated fair value		54.8		54.5

Non-Recurring Fair Value Measurements

Long-Lived Assets

The Company recognized asset impairment charges of $4.5 million during the three months ended April 30, 2015 and an immaterial amount for the three months ended April 30, 2014. As a result of the Company measuring long-lived assets at fair value on a non-recurring basis, during the three months ended April 30, 2015 these impairment charges included $4.2 million of impairment charges related to plant closures within the Rigid Industrial Packaging & Services segment. The Company recognized asset impairment charges of $4.7 million and $0.2 million during the six months ended April 30, 2015 and 2014, respectively. These charges included $4.2 million of impairment charges related to plant closures within the Rigid Industrial Packaging & Services segment.

The assumptions used in measuring fair value of long-lived assets are considered level 3 inputs, which include bids received from third parties, recent purchase offers, market comparable information and discounted cash flows based on assumptions that market participants would use. The following table presents quantitative information about the significant unobservable inputs used to determine the fair value of the impairment of long-lived assets held and used for the six months ended April 30, 2015. Impairment of long-lived assets held and used for the six months ended April 30, 2014 is immaterial.


	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value of Impairment		Valuation Technique	Unobservable Input	Range of Input Values
	(in millions)
April 30, 2015
Impairment of Long-lived assets	$	2.7	Broker Quote / Indicative Bids	Indicative Bids	N/A

Impairment of Long-lived assets	$	1.5	Sales Value	Sales Value	N/A

Assets and Liabilities Held for Sale

The assumptions used in measuring fair value of assets and liabilities held for sale are considered level 3 inputs, which include recent purchase offers, market comparables and/or data obtained from commercial real estate brokers. During the six month period ended April 30, 2015, the Company recorded no additional impairment related to assets which were previously classified as assets and liabilities held for sale. During the six month period ended April 30, 2014, the Company recorded no impairment related to assets which were previously classified as assets and liabilities held for sale.

Goodwill and Long Lived Intangible Assets

On an annual basis or whenever events or circumstances indicate impairment may have occurred, the Company performs impairment tests for goodwill and long lived intangible assets as defined under ASC 350, “Intangibles-Goodwill and Other.” The Company recorded a goodwill impairment charge of $0.5 million based on the estimated fair value of a business classified as held for sale as of April 30, 2015.