FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

3 Months Ended

Jan. 31, 2021

FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

Recurring Fair Value Measurements

The following table presents the fair value for those assets and (liabilities) measured on a recurring basis as of January 31, 2021 and October 31, 2020:


	January 31, 2021
	Fair Value Measurement
(in millions)	Level 1		Level 2		Level 3		Total		Balance Sheet Location
Interest rate derivatives	$	—	$	1.4	$	—	$	1.4	Other current assets
Interest rate derivatives	—		(32.6)		—		(32.6)		Other current liabilities and other long-term liabilities
Foreign exchange hedges	—		1.5		—		1.5		Other current assets
Foreign exchange hedges	—		(2.1)		—		(2.1)		Other current liabilities
Insurance annuity	—		—		22.0		22.0		Other long-term assets
Cross currency swap	—		4.6		—		4.6		Other current assets and other long-term assets

Total	$	—	$	(27.2)	$	22.0	$	(5.2)


	October 31, 2020
	Fair Value Measurement
(in millions)	Level 1		Level 2		Level 3		Total		Balance Sheet Location

Interest rate derivatives	$	—	$	(37.9)	$	—	$	(37.9)	Other long-term liabilities and other current liabilities
Foreign exchange hedges	—		1.5		—		1.5		Other current assets
Foreign exchange hedges	—		(1.6)		—		(1.6)		Other current liabilities
Insurance annuity	—		—		21.4		21.4		Other long-term assets
Cross currency swap	—		8.9		—		8.9		Other current assets and other long-term assets

Total	$	—	$	(29.1)	$	21.4	$	(7.7)

The carrying amounts of cash and cash equivalents, trade accounts receivable, accounts payable, current liabilities and short-term borrowings as of January 31, 2021 and October 31, 2020 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 various borrowing facilities which charge interest based on the one-month U.S. dollar LIBOR rate plus a spread.

In 2020, the Company entered into four forward starting interest rate swaps with a total notional amount of $200.0 million effective July 15, 2021, maturing on July 15, 2029. The Company receives variable rate interest payments based upon one-month U.S. dollar LIBOR, and in return the Company is obligated to pay interest at a weighted-average interest rate of 0.90% plus a spread. This effectively converted the borrowing rate on an amount of debt equal to the outstanding notional amount of the interest rate swap from a variable rate to a fixed rate.

In 2019, the Company entered into six interest rate swaps with a total notional amount of $1,300.0 million that amortize to $200.0 million over a five-year term, maturing on March 11, 2024. The outstanding notional amount as of January 31, 2021 is $600.0 million. The Company receives variable rate interest payments based upon one-month U.S. dollar LIBOR, and in return the Company is obligated to pay interest at a weighted-average interest rate of 2.49% plus a spread. This effectively converted the borrowing rate on an amount of debt equal to the outstanding notional amount of the interest rate swap from a variable rate to a fixed rate.

In 2017, the Company entered into an interest rate swap with a notional amount of $300.0 million, maturing on February 1, 2022. The Company receives variable rate interest payments based upon one-month U.S. dollar LIBOR, and in return the Company is obligated to pay interest at a fixed rate of 1.19% plus a spread. This effectively converted the borrowing rate on an amount of debt equal to the outstanding notional amount of the interest rate swap from a variable rate to a fixed rate.

These derivatives are designated as cash flow hedges for accounting purposes. Accordingly, the gain or loss on these derivative instruments are reported as a component of other comprehensive income and reclassified into earnings in the same line item associated with the forecasted transactions and in the same period during which the hedged transactions affect earnings. See Note 11 to the Interim Condensed Consolidated Financial Statements for additional information. The assumptions used in measuring fair value of these interest rate derivatives are considered level 2 inputs, which are based upon observable market rates, including LIBOR and interest paid based upon a designated fixed rate over the life of the swap agreements.

Losses reclassified to earnings under these contracts were $4.4 million and $1.5 million for the three months ended January 31, 2021, and 2020, respectively. A derivative loss of $17.8 million, based upon interest rates at January 31, 2021, is expected to be reclassified from accumulated other comprehensive income (loss) to earnings in the next twelve months.

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 January 31, 2021, and October 31, 2020, the Company had outstanding foreign currency forward contracts in the notional amount of $294.9 million and $268.6 million, respectively. Adjustments to fair value are recognized in earnings, offsetting the impact of the

hedged profits. The assumptions used in measuring fair value of foreign exchange hedges are considered level 2 inputs, which are based on observable market pricing for similar instruments, principally foreign exchange futures contracts.

Realized gains (losses) recorded in other expense, net under fair value contracts were $2.0 million and $(0.8) million for the three months ended January 31, 2021, and 2020, respectively. The Company recognized in other expense, net an unrealized net gain (loss) of $(0.6) million and $0.7 million during the three months ended January 31, 2021 and 2020, respectively.

Cross Currency Swap

The Company has operations and investments in various international locations and is subject to risks associated with changing foreign exchange rates. On March 6, 2018, the Company entered into a cross currency interest rate swap agreement that synthetically swaps $100.0 million of fixed rate debt to Euro denominated fixed rate debt at a rate of 2.35%. The agreement is designated as a net investment hedge for accounting purposes and will mature on March 6, 2023. Accordingly, the gain or loss on this derivative instrument is included in the foreign currency translation component of other comprehensive income until the net investment is sold, diluted or liquidated. Interest payments received for the cross currency swap are excluded from the net investment hedge effectiveness assessment and are recorded in interest expense, net on the interim condensed consolidated statements of income. For the three months ended January 31, 2021 and 2020, gains recorded in interest expense, net under the cross currency swap agreement were $0.6 million and $0.6 million, respectively. See Note 11 to the Interim Condensed Consolidated Financial Statements for additional information. The assumptions used in measuring fair value of the cross currency swap are considered level 2 inputs, which are based upon the Euro to United States Dollar exchange rate market.

Other Financial Instruments

The fair values of the Company’s 2019 Credit Agreement and the U.S. Receivables Facility and European RFA (the latter two facilities, collectively, "Accounts Receivable Credit Facilities") 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 of the Company’s Senior Notes and Assets held by special purpose entities:


(in millions)	January 31, 2021		October 31, 2020
Senior Notes due 2021 estimated fair value	$	249.8	$	242.0
Senior Notes due 2027 estimated fair value	533.8		524.4
Assets held by special purpose entities estimated fair value	—		50.9