Fair Value of Financial Instruments

12 Months Ended

Oct. 31, 2018

FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair Value Hierarchy of Our Financial Instruments

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis



		As of October 31,
(in millions)	Fair Value Hierarchy	2018		2017
Cash and cash equivalents⁽¹⁾	1	$	39.1	$	62.8
Insurance deposits⁽²⁾	1	0.6		11.2
Assets held in funded deferred compensation plan⁽³⁾	1	2.7		4.6
Credit facility⁽⁴⁾	2	949.0		1,191.2
Interest rate swaps⁽⁵⁾	2	1.3		2.9
Investments in auction rate securities⁽⁶⁾	3	5.0		8.0
Contingent consideration liability⁽⁷⁾	3	—		0.9

⁽¹⁾Cash and cash equivalents are stated at nominal value, which equals fair value.

⁽²⁾ Represents restricted deposits that are used to collateralize our insurance obligations and are stated at nominal value, which equals fair value. These insurance deposits are included in “Other noncurrent assets” on the accompanying consolidated balance sheets. See Note 11, “Insurance,” for further information.

⁽³⁾ Represents investments held in a Rabbi trust associated with one of our deferred compensation plans, which we include in “Other noncurrent assets” on the accompanying consolidated balance sheets. The fair value of the assets held in the funded deferred compensation plan is based on quoted market prices. See Note 13, “Employee Benefit Plans,” for further information.

⁽⁴⁾Represents gross outstanding borrowings under our syndicated line of credit and term loan. Due to variable interest rates, the carrying value of outstanding borrowings under our line of credit and term loan approximates the fair value. See Note 12, “Credit Facility,” for further information.

⁽⁵⁾Represents interest rate swap derivatives designated as cash flow hedges. The fair values of the interest rate swaps are estimated based on the present value of the difference between expected cash flows calculated at the contracted interest rates and the expected cash flows at current market interest rates using observable benchmarks for LIBOR forward rates at the end of the period. During April 2018, we elected to terminate our interest rate swaps and recognized a gain in AOCI. We subsequently entered into new forward starting interest rate swaps. See Note 12, “Credit Facility,” for further information. Our interest rate swaps are included in “Other noncurrent assets” on the accompanying consolidated balance sheets.

⁽⁶⁾The fair value of investments in auction rate securities is based on discounted cash flow valuation models, primarily utilizing unobservable inputs, including assumptions about the underlying collateral, credit risks associated with the issuer, credit enhancements associated with financial insurance guarantees, and the possibility of the security being re-financed by the issuer or having a successful auction. These amounts are included in “Other investments” on the accompanying consolidated balance sheets. See Note 8, “Auction Rate Securities,” for further information.

⁽⁷⁾ Certain of our acquisitions involve the payment of contingent consideration. The fair value of these liabilities is based on the expected achievement of certain pre-established revenue goals. In connection with the MSI acquisition during 2017, we recorded one new contingent consideration liability. Based on the metrics of the underlying pre-established revenue goals, this contingent consideration liability was reduced to a nominal value at October 31, 2018. This contingent consideration liability is included on the accompanying consolidated balance sheets in “Other noncurrent liabilities” at October 31, 2017.

During 2018 and 2017, we had no transfers of assets or liabilities between any of the above hierarchy levels.

Non-Financial Assets Measured at Fair Value on a Non-Recurring Basis

In addition to assets and liabilities that are measured at fair value on a recurring basis, we are also required to measure certain items at fair value on a non-recurring basis.

During 2018, we recorded impairment charges on goodwill and customer relationships in connection with our annual assessment of goodwill. During 2016, we recorded impairment charges on both long-lived assets and goodwill associated with the classification of the former Government Services business as held for sale. The impairment charges were recovered in 2017. See Note 10, “Goodwill and Other Intangible Assets,” for further information.

Fair value of these items was determined based on unobservable Level 3 inputs. The fair value of customer relationships was determined based on discounted cash flows associated with the customer relationships that include significant management assumptions, including expected proceeds. The fair value of goodwill was determined based on discounted cash flow analyses that include significant management assumptions, such as revenue growth rates, operating margins, weighted average cost of capital, and future economic and market conditions.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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