5. ON-BALANCE SHEET DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

3 Months Ended

Jan. 31, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

5. On-Balance Sheet Derivative Instruments and Hedging Activities

Derivative Financial Instruments

The Company has stand-alone derivative financial instruments in the form of interest rate swap agreements, which derive their value from underlying interest rates. These transactions involve both credit and market risk.  The notional amount is an amount on which calculations, payments, and the value of the derivative are based.  The notional amount does not represent direct credit exposure.  Direct credit exposure is limited to the net difference between the calculated amount to be received and paid, if any. Such difference, which represents the fair value of the derivative instrument, is reflected on the Company's consolidated balance sheet as an unrealized gain or loss on derivatives.

The Company is exposed to credit-related losses in the event of nonperformance by the counterparties to these agreements.  The Company controls the credit risk of its financial contracts through credit approvals, limits and monitoring procedures, and currently has no reason to believe that any counterparties will fail to fulfill their obligations.

These interest rate swap agreements are considered cash flow hedges to hedge against the variability of interest rates on outstanding debt.  The net unrealized loss relating to interest rate swaps was recorded in current and long term liabilities with an offset to other comprehensive income for the effective portion of the hedge. At January 31, 2016, these cash flow hedges were deemed 100% effective.  The portion of the net unrealized loss in current liabilities is the amount expected to be reclassified to income within the next twelve months.

For more details regarding the Company's derivative hedging polices refer to Note 2, Significant Accounting Policies, in the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended October 31, 2015.

The following information pertains to the Company's outstanding interest rate swaps at January 31, 2016.  The pay rate is fixed and the receive rate is one month LIBOR.

Instrument	Notional Amount	Receive Rate	Pay Rate
Interest rate swap	$5,333,335	1.25%	0.4295%
Interest rate swap	$4,911,000	0.68%	0.4295%

The table below details the adjustments to other comprehensive income (loss), on a before tax and net-of tax basis, for the fiscal quarters ended January 31, 2016 and 2015.

	Before-Tax			Tax (Benefit) Expense			Net-of-Tax
Three Months Ended January 31, 2015
Loss on interest rate swap	$	(3,295	)	$	1,318		$	(1,977	)
Reclassification adjustment for loss in income		8,119			(3,248	)		4,871
Net unrealized gain	$	4,824		$	(1,930	)	$	2,894
Three Months Ended January 31, 2016
Loss on interest rate swap	$	(51,043	)	$	20,417		$	(30,626	)
Reclassification adjustment for loss in income		4,833			(1,933	)		2,900
Net unrealized loss	$	(46,210	)	$	18,484		$	(27,726	)

The reclassification adjustments of $4,833 and $8,119 represent interest the Company paid in excess of the amount that would have been paid without the interest rate swap agreement during the quarters ended January 31, 2016 and 2015, respectively. These amounts were reclassified from accumulated other comprehensive loss and recorded in consolidated statements of operations as interest expense.