Derivative Financial Instruments

12 Months Ended

Oct. 31, 2019

Derivative Financial Instruments [Abstract]

Derivative Financial Instruments

5.Derivative Financial Instruments

Derivative financial instruments designated as cash flow hedges

In fiscal 2017, the Company entered into a Treasury lock transaction in connection with the offering of its 2027 Senior Notes (see Note 10). The Company concurrently designated the Treasury lock as a cash flow hedge to mitigate its exposure to variability in the forecasted semi-annual interest payments and recorded a loss of $0.4 million, in other comprehensive income (loss), net of tax. The Company reclassified approximately $68,000 of the loss into interest expense during each of the years ended October 31, 2019 and 2018, and will reclassify the remaining $0.5 million loss as of October 31, 2019 to earnings over the remaining term of the debt. During the next twelve months, the Company expects to reclassify approximately $68,000 of the unamortized loss.

In fiscal 2013, the Company entered into a forward-starting interest rate swap in connection with the offering of its 2023 Senior Notes (see Note 10) and recorded a gain in other comprehensive income (loss), net of tax. The Company reclassified $0.2 million of the gain into interest expense during the years ended October 31, 2019, 2018 and 2017 and will reclassify the remaining $0.7 million gain as of October 31, 2019 to earnings over the remaining term of the debt. During the next twelve months, the Company expects to reclassify approximately $0.2 million of the unamortized gain.

Other derivative financial instruments not designated for hedge accounting

The Company utilizes derivative financial instruments to hedge market and currency risks associated with its investments in certain consolidated seed investments that are not designated as hedging instruments for accounting purposes.

Excluding derivative financial instruments held by consolidated sponsored funds, the Company was party to the following derivative financial instruments at October 31, 2019 and 2018:

	2019			2018
	Number of Contracts	Notional Value (in millions)		Number of Contracts	Notional Value (in millions)
Stock index futures contracts	1,370	$	108.3	1,007	$	91.5
Total return swap contracts	2		84.0	3		106.5
Interest rate swap contracts	6		24.4	-		-
Credit default swap contracts	1		8.0	1		5.0
Foreign exchange contracts	26		56.4	28		23.0
Commodity futures contracts	415		15.2	253		11.6
Currency futures contracts	231		24.0	165		16.9
Interest rate futures contracts	151		22.3	282		48.0

The derivative contracts outstanding and associated notional values at October 31, 2019 and 2018 are representative of derivative balances throughout each respective year. The weighted-average remaining contract term for derivative contracts outstanding at October 31, 2019 and 2018 was 6.3 months and 1.7 months, respectively.

The Company has not elected to offset fair value amounts related to derivative financial instruments executed with the same counterparty under master netting arrangements; as a result, the Company records all derivative financial instruments as either other assets or other liabilities, gross, on its Consolidated Balance Sheets and measures them at fair value (see Note 1). The following table presents the fair value of derivative financial instruments not designated for hedge accounting and how they are reflected on the Company’s Consolidated Balance Sheets as of October 31, 2019 and 2018:

		2019				2018
(in thousands)		Other Assets		Other Liabilities		Other Assets		Other Liabilities
Stock index futures contracts	$	615	$	1,841	$	5,055	$	372
Total return swap contracts		396		114		-		3,297
Interest rate swap contracts		61		235		-		-
Credit default swap contracts		360		-		-		10
Foreign exchange contracts		51		615		329		202
Commodity futures contracts		319		334		770		216
Currency futures contracts		128		153		14		332
Interest rate futures contracts		144		22		179		17
Total	$	2,074	$	3,314	$	6,347	$	4,446

The Company maintains collateral with certain counterparties to satisfy margin requirements for derivative positions. The collateral is classified as restricted cash and is included as a component of other assets on the Company’s Consolidated Balance Sheets. At October 31, 2019 and 2018, collateral balances were $7.5 million and $13.1 million, respectively.

The Company recognized the following gains (losses) on derivative financial instruments during the years ended October 31, 2019, 2018 and 2017 within gains (losses) and other investment income, net, on the Company’s Consolidated Statements of Income:

(in thousands)		2019		2018		2017
Stock index futures contracts	$	(6,701)	$	4,267	$	(23,905)
Total return swap contracts		(5,535)		(2,708)		(3,569)
Interest rate swap contracts		(248)		-		91
Credit default swap contracts		(251)		178		-
Foreign exchange contracts		(1,749)		(51)		(595)
Commodity futures contracts		531		(1,044)		(574)
Currency futures contracts		442		(24)		-
Interest rate futures contracts		(2,402)		366		(421)
Net gains (losses)	$	(15,913)	$	984	$	(28,973)

In addition to the derivative contracts described above, certain consolidated sponsored funds may utilize derivative financial instruments within their portfolios in pursuit of their stated investment objectives.