Derivative Financial Instruments

12 Months Ended

Oct. 31, 2018

Derivative Financial Instruments [Abstract]

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 11). 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, net of tax, in other comprehensive income (loss). The Company reclassified approximately $68,000 and $37,000 of the loss into interest expense for the years ended October 31, 2018 and 2017, respectively, and will reclassify the remaining $0.6 million loss as of October 31, 2018 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 11) and recorded a gain in other comprehensive income (loss), net of tax. The Company reclassified $0.2 million of the gain into interest expense for the years ended October 31, 2018, 2017 and 2016 and will reclassify the remaining $0.9 million gain as of October 31, 2018 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, 2018 and 2017:

	2018			2017
	Number of Contracts	Notional Value (in millions)		Number of Contracts	Notional Value (in millions)
Stock index futures contracts	1,007	$	91.5	1,470	$	118.1
Total return swap contracts	3		106.5	2		50.2
Credit default swap contracts	1		5.0	-		-
Foreign exchange contracts	28		23.0	31		28.1
Commodity futures contracts	253		11.6	213		10.2
Currency futures contracts	165		16.9	131		14.5
Interest rate futures contracts	282		48.0	134		25.6

The derivative contracts outstanding and notional values they represent at October 31, 2018 and 2017 are representative of derivative balances throughout each respective year. The weighted-average remaining contract term for derivative contracts outstanding at October 31, 2018 and 2017 was 1.7 months and 2.2 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, 2018 and 2017:

		2018				2017
(in thousands)		Other Assets		Other Liabilities		Other Assets		Other Liabilities
Stock index futures contracts	$	5,055	$	372	$	330	$	3,021
Total return swap contracts		-		3,297		-		570
Credit default swap contracts		-		10		-		-
Foreign exchange contracts		329		202		650		60
Commodity futures contracts		770		216		63		120
Currency futures contracts		14		332		327		178
Interest rate futures contracts		179		17		48		226
Total	$	6,347	$	4,446	$	1,418	$	4,175

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 our Consolidated Balance Sheets. At October 31, 2018 and 2017, collateral balances were $13.1 million and $8.5 million, respectively.

The Company recognized the following gains (losses) on derivative financial instruments for the years ended October 31, 2018, 2017 and 2016 within gains (losses) and other investment income, net, on the Company’s Consolidated Statements of Income:

(in thousands)		2018		2017		2016
Stock index futures contracts	$	4,267	$	(23,905)	$	(2,931)
Total return swap contracts		(2,708)		(3,569)		(2,935)
Credit default swap contracts		178		-		-
Foreign exchange contracts		(51)		(595)		(590)
Commodity futures contracts		(1,044)		(574)		-
Currency futures contracts		(24)		-		-
Interest rate futures contracts		366		(421)		-
Interest rate swap contracts		-		91		-
Net gains (losses)	$	984	$	(28,973)	$	(6,456)

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