FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

3 Months Ended

Jan. 31, 2024

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, 2024 and October 31, 2023:


	January 31, 2024
	Assets								Liabilities
(in millions)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Interest rate derivatives	$	—	$	49.4	$	—	$	49.4	$	—	$	(13.2)	$	—	$	(13.2)
Foreign exchange hedges	—		3.3		—		3.3		—		(0.9)		—		(0.9)
Insurance annuity	—		—		19.3		19.3		—		—		—		—
Cross currency swap	—		17.4		—		17.4		—		(7.0)		—		(7.0)

	October 31, 2023
	Assets								Liabilities
(in millions)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Interest rate derivatives	$	—	$	78.4	$	—	$	78.4	$	—	$	—	$	—	$	—
Foreign exchange hedges	—		0.1		—		0.1		—		(0.1)		—		(0.1)
Insurance annuity	—		—		18.8		18.8		—		—		—		—
Cross currency swap	—		18.9		—		18.9		—		—		—		—

The carrying amounts of cash and cash equivalents, trade accounts receivable, accounts payable, current liabilities and short-term borrowings as of January 31, 2024 and October 31, 2023 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 January 31, 2024, the Company has various interest rate swaps with a total notional amount of $1,600.0 million, maturing between March 11, 2024 and July 16, 2029. The Company will receive variable rate interest payments based upon one-month U.S. dollar SOFR, and in return the Company will be obligated to pay interest at a weighted average fixed interest rate of 2.9%. This effectively converted the borrowing rate on an amount of debt equal to the notional amount of the interest rate swaps 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 is 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 affects earnings. See Note 12 to the interim condensed consolidated financial statements for additional disclosures of the aggregate 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 SOFR and interest paid based upon a designated fixed rate over the life of the swap agreements.

Gains reclassified to earnings under these contracts were $9.7 million and $4.7 million for the three months ended January 31, 2024, and 2023, respectively. A derivative gain of $25.2 million, based upon interest rates at January 31, 2024, 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,

2024, and October 31, 2023, the Company had outstanding foreign currency forward contracts in the notional amount of $465.5 million and $66.0 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.

For the three months ended January 31, 2024, and 2023, the Company recorded realized gains of $0.0 million and $0.1 million under fair value contracts in other expense, net.

For the three months ended January 31, 2024, and 2023, the Company recorded unrealized net gains (losses) of $2.4 million and $(2.8) million in other expense, net.

Cross Currency Swap

The Company has operations and investments in various international locations and is subject to risks associated with changing foreign exchange rates. As of January 31, 2024, the Company has various cross currency interest rate swaps that synthetically swap $532.5 million of U.S. fixed rate debt to Euro denominated fixed rate debt. The Company receives a weighted average rate of 1.36% on these swaps. These agreements are designated as either net investment hedges or cash flow hedges for accounting purposes and will mature between March 2, 2024 and November 3, 2028.

The gain or loss on these net investment hedge derivative instruments is included in the foreign currency translation component of other comprehensive income until the net investment is sold, diluted, or liquidated. See Note 12 to the interim condensed consolidated financial statements for additional disclosures of the aggregate gain or loss included within other comprehensive income. The gain or loss on the cash flow hedge derivative instruments is included in the unrealized foreign exchange component of other expense, offset by the underlying gain or loss on the underlying cash flows that are being hedged. 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 consolidated statements of 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.

For the three months ended January 31, 2024 and 2023, gains recorded in interest expense, net under the cross currency swap agreements were $1.9 million and $1.4 million.

Other Financial Instruments

The fair values of the Company’s 2022 Credit Agreement, the 2023 Credit Agreement, the U.S. RFA, and the European RFA 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.”