FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

9 Months Ended

Jul. 31, 2019

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 July 31, 2019 and October 31, 2018:



	July 31, 2019
	Fair Value Measurement
(in millions)	Level 1		Level 2			Level 3		Total			Balance Sheet Location
Interest rate derivatives	$	—	$	3.9		$	—	$	3.9		Other current assets and other long-term assets
Interest rate derivatives	—		(19.4		)	—		(19.4		)	Other current liabilities and other long-term liabilities
Foreign exchange hedges	—		1.9			—		1.9			Other current assets
Foreign exchange hedges	—		(0.4		)	—		(0.4		)	Other current liabilities
Insurance annuity	—		—			20.0		20.0			Other long-term assets
Cross currency swap	—		9.7			—		9.7			Other current assets and other long-term assets
Total	$	—	$	(4.3	)	$	20.0	$	15.7



	October 31, 2018
	Fair Value Measurement
(in millions)	Level 1		Level 2			Level 3		Total			Balance Sheet Location
Interest rate derivatives	$	—	$	16.5		$	—	$	16.5		Other current assets and other long-term assets
Foreign exchange hedges	—		2.6			—		2.6			Other current assets
Foreign exchange hedges	—		(0.7		)	—		(0.7		)	Other current liabilities
Insurance annuity	—		—			20.4		20.4			Other long-term assets
Cross currency swap	—		5.2			—		5.2			Other current assets and other long-term assets
Total	$	—	$	23.6		$	20.4	$	44.0

The carrying amounts of cash and cash equivalents, trade accounts receivable, accounts payable, current liabilities and short-term borrowings as of July 31, 2019 and October 31, 2018 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 an interest spread. In 2019, the Company entered into six interest rate swaps. These six interest rate swaps have a total notional amount of $1,300.0 million. The Company will receive 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 $1,300.0 million of debt 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. As of February 1, 2017, the Company began to receive variable rate interest payments based upon one month U.S. dollar LIBOR, and in return the Company was obligated to pay interest at a fixed rate of 1.19% plus an interest spread. This effectively converted the borrowing rate on $300.0 million of debt 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 15 to the interim condensed consolidated financial statements for additional disclosures of the gain or loss included within other comprehensive income. 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.

Gains reclassified to earnings under these contracts were $0.7 million and $2.5 million for the three and nine months ended July 31, 2019, respectively. Gains reclassified to earnings under these contracts were $0.6 million and $1.1 million for the three and nine months ended July 31, 2018, respectively. A derivative loss of $3.6 million, based upon interest rates at July 31, 2019, is expected to be reclassified from accumulated other comprehensive income 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 July 31, 2019, the Company had outstanding foreign currency forward contracts in the notional amount of $121.4 million ($194.4 million as of October 31, 2018). 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 $2.8 million and $(2.4) million for the three months ended July 31, 2019, and 2018, respectively. Realized gains (losses) recorded in other expense, net under fair value were $3.3 million and $(4.5) million for the nine months ended July 31, 2019 and 2018, respectively. The Company recognized in other expense, net an unrealized net gain (loss) of $(0.3) million and $0.6 million during the three months ended July 31, 2019 and 2018, respectively. The Company recognized in other expense, net an unrealized net gain (loss) of $1.5 million and $(0.5) million during the nine months ended July 31, 2019 and 2018, 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 and nine months ended July 31, 2019, gains recorded in interest expense, net under the cross currency swap agreement were $0.6 million and $1.8 million. For the three and nine months ended July 31, 2018, gains recorded in interest expense, net under the cross currency swap agreement were $0.6 million and $1.0 million, respectively. See Note 15 to the interim condensed consolidated financial statements for additional disclosure of the gain or loss included within other comprehensive income. 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, 2017 Credit Agreement, and the 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 of the Company’s Senior Notes and assets held by special purpose entities:



(in millions)	July 31, 2019		October 31, 2018
Senior Notes due 2019 estimated fair value	$	—	$	257.4
Senior Notes due 2021 estimated fair value	253.6		263.4
Senior Notes due 2027 estimated fair value	523.6		—
Assets held by special purpose entities estimated fair value	51.9		51.6

Non-Recurring Fair Value Measurements

The Company recognized asset impairment charges of $2.1 million during the nine months ended July 31, 2019 and $4.1 million for the nine months ended July 31, 2018.

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 and net assets held for sale for the nine months ended July 31, 2019 and 2018:



	Quantitative Information about Level 3 Fair Value Measurements
(in millions)	Fair Value of Impairment		Valuation Technique	Unobservable Input	Range of Input Values
July 31, 2019
Impairment of Net Assets Held for Sale	$	2.1	Indicative Bids	Indicative Bids	N/A
Total	$	2.1

July 31, 2018
Impairment of Net Assets Held for Sale	$	0.4	Discounted Cash Flows	Discounted Cash Flows	N/A
Impairment of Long Lived Assets	$	3.7	Discounted Cash Flows	Discounted Cash Flows	N/A
Total	$	4.1

Long-Lived Assets

As necessary, based on triggering events, the Company measures long-lived assets at fair value on a non-recurring basis. The Company recorded no impairment charges related to properties, plants and equipment or intangibles, net during the nine months ended July 31, 2019 and $2.7 million related to properties, plants and equipment, net and $1.4 million related to intangible assets, net during the nine months ended July 31, 2018.

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.

Reclassification of Assets and Liabilities Held for Sale

During the nine month period ended July 31, 2019, one asset group was reclassified to assets and liabilities held for sale, resulting in a $2.1 million impairment to net realizable value.

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.