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 also 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

reason to believe that any counterparties will fail to fulfill their obligations.

This interest rate swap agreement is considered a cash flow hedge to hedge against the variability of interest rates on outstanding debt. The net unrealized gain (loss) relating to interest rate swaps was recorded in current and long term assets or liabilities with an offset to other comprehensive income (loss) for the effective portion of the hedge, net of tax. At

July 31, 2017,

these cash flow hedges were deemed

100%

effective. The portion of the net unrealized gain in current assets is the amount expected to be reclassified to income within the next

twelve

months.

The following information pertains to the Company's outstanding interest rate swap at

July 31, 2017.

The pay rate is fixed and the receive rate is

one

month LIBOR. The interest rate swap matures

May 18, 2018.

Instrument	Notional Amount	Pay Rate	Receive Rate
Interest rate swap	$4,266,668	1.25%	1.22%

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

July 31, 2017

and

2016.

	Before-Tax			Tax Benefit (Expense)			Net-of-Tax
Three Months Ended July 31, 2016
Loss on interest rate swap	$	(9,519	)	$	3,807		$	(5,712	)
Reclassification adjustment for loss in income		10,673			(4,269	)		6,404
Net unrealized gain	$	1,154		$	(462	)	$	692
Three Months Ended July 31, 2017
Gain on interest rate swap	$	185		$	(74	)	$	111
Reclassification adjustment for loss in income		1,469			(588	)		881
Net unrealized gain	$	1,654		$	(662	)	$	992

The reclassification adjustments of

$1,469

and

$10,673

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

July 31, 2017

and

2016,

respectively. These amounts were reclassified from accumulated other comprehensive income (loss) and recorded in the consolidated statements of operations as interest expense.

other material amounts were reclassified during the quarters ended

July 31, 2017

and

2016.

The table below details the adjustments to other comprehensive income (loss), on a before tax and net-of tax basis, for the

nine

months ended

July 31, 2017

and

2016.

	Before-Tax			Tax Benefit (Expense)			Net-of-Tax
Nine Months Ended July 31, 2016
Loss on interest rate swap	$	(64,461	)	$	25,784		$	(38,677	)
Reclassification adjustment for loss in income		23,588			(9,435	)		14,153
Net unrealized loss	$	(40,873	)	$	16,349		$	(24,524	)
Nine Months Ended July 31, 2017
Gain on interest rate swap	$	21,839		$	(8,736	)	$	13,103
Reclassification adjustment for loss in income		12,669			(5,067	)		7,602
Net unrealized gain	$	34,508		$	(13,803	)	$	20,705

The reclassification adjustments of

$12,669

and

$23,588

represent interest the Company paid in excess of the amount that would have been paid without the interest rate swap agreement during the

nine

months ended

July 31, 2017

and

2016,

respectively. These amounts were reclassified from accumulated other comprehensive income (loss) and recorded in the consolidated statements of operations as interest expense.

other material amounts were reclassified during the

nine

months ended

July 31, 2017

and

2016.