Financial Derivatives and Hedging

9 Months Ended

Jul. 31, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

As part of the Company’s overall risk management practices the Company enters into financial derivatives, interest rate swaps designated as cash flow hedges, to hedge the floating interest rate on its debt.

The Company records all derivatives on its consolidated condensed balance sheets at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting, and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. All of the Company's derivatives have satisfied the criteria necessary to apply hedge accounting.

The gain or loss on derivative instruments designated and qualifying for cash flow hedge accounting is deferred in other comprehensive income. The changes in fair value for all trades that are not designated for hedge accounting are recognized in current period earnings. Deferred gains or losses from designated cash flow hedges are reclassified into earnings in the period that the hedged interest expense affects earnings. The effectiveness of cash flow hedges is assessed at inception and quarterly thereafter. The Company does not offset fair value amounts recognized for derivative instruments in its consolidated condensed balance sheet for presentation purposes.

Credit risk related to derivative transactions reflects the risk that a party to the transaction could fail to meet its obligation under the derivative contracts. Therefore, the Company’s exposure to the counterparty’s credit risk is generally limited to the amounts, if any, by which the counterparty’s obligations to the Company exceed the Company’s obligations to the counterparty. The Company’s policy is to enter into contracts only with financial institutions which meet certain minimum credit ratings to help mitigate counterparty credit risk.

As of July 31, 2020, the Company had the following outstanding derivatives designated as hedging instruments:

These contracts have maturities of seven years or less.

The pre-tax impact of loss on derivatives designated for hedge accounting recognized in other comprehensive income (loss) was $23.8 million ($18.1 million, net of tax) as of July 31, 2020. The Company did not have any derivatives designated as hedging instruments for the period ended July 31, 2019.

The following table summarizes the fair values of derivative instruments as of the periods indicated and the line items in the accompanying condensed consolidated balance sheets where the instruments are recorded:



	Derivative Liabilities
(In millions)		July 31, 2020		July 31, 2019
Derivatives designated as cash flow hedges	Balance sheet location
Interest rate swap contracts	Other current liabilities	$	0.7	$	—
Interest rate swap contracts	Other non-current liabilities	23.1		—
		$	23.8	$	—

The following table summarizes the amounts recognized with respect to our derivative instruments within the accompanying condensed consolidated statements of income:



Periods Ended July 31,		Three Months				Nine Months
(In millions)		2020		2019		2020		2019
Derivatives designated as cash flow hedges	Location of Loss Recognized on Derivatives
Interest rate swap contracts	Interest expense	$	1.8	$	—	$	1.6	$	—

The Company expects that $7.0 million recorded as a component of accumulated other comprehensive income (loss) will be realized in the statements of earnings over the next twelve months and the amount will vary depending on prevailing interest rates.

The following table details the changes in accumulated other comprehensive income:



(In millions)	Amount
Beginning balance gain / (loss) as of October 31, 2019	$	—
Amount recognized in other comprehensive income on interest rate swap contracts, gross	(25.4		)
Amount reclassified from other comprehensive income into earnings, gross	1.6
Ending balance gain / (loss) as of July 31, 2020	$	(23.8	)

(In millions, except for number of instruments)

Number of Instruments

Notional Value

Interest Rate Swap Contracts