Derivative Financial Instruments

3 Months Ended

Jan. 31, 2020

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. 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 $17,000 of the loss into interest expense during both the three months ended January 31, 2020 and 2019, and will reclassify the remaining $0.5 million loss as of January 31, 2020 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 and recorded a gain in other comprehensive income (loss), net of tax. The Company reclassified $50,000 of the gain into interest expense during both the three months ended January 31, 2020 and 2019 and will reclassify the remaining $0.7 million gain as of January 31, 2020 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 the 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:

	January 31, 2020			October 31, 2019
	Number of Contracts		Notional Value (in millions)	Number of Contracts		Notional Value (in millions)
Stock index futures	1,239	$	112.0	1,370	$	108.3
Total return swaps	2	$	84.0	2	$	84.0
Interest rate swaps	6	$	21.6	6	$	24.4
Credit default swaps	1	$	8.0	1	$	8.0
Foreign exchange contracts	36	$	51.4	26	$	56.4
Commodity futures	416	$	15.7	415	$	15.2
Currency futures	206	$	24.9	231	$	24.0
Interest rate futures	171	$	28.8	151	$	22.3

The derivative contracts outstanding and associated notional values at January 31, 2020 and October 31, 2019 are representative of derivative balances throughout each respective period.

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. 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:

	January 31, 2020				October 31, 2019
(in thousands)		Other Assets		Other Liabilities		Other Assets		Other Liabilities
Stock index futures	$	497	$	1,199	$	615	$	1,841
Total return swaps		-		1,064		396		114
Interest rate swaps		6		337		61		235
Credit default swaps		341		-		360		-
Foreign exchange contracts		589		611		51		615
Commodity futures		1,085		472		319		334
Currency futures		350		33		128		153
Interest rate futures		98		449		144		22
Total	$	2,966	$	4,165	$	2,074	$	3,314

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 January 31, 2020 and October 31, 2019, collateral balances were $12.2 million and $7.5 million, respectively.

The Company recognized the following gains (losses) on derivative financial instruments within gains (losses) and other investment income, net, in the Company’s Consolidated Statements of Income:

	Three Months Ended
	January 31,
(in thousands)		2020		2019
Stock index futures	$	(2,619)	$	(216)
Total return swaps		(1,381)		(2,185)
Interest rate swaps		(161)		-
Credit default swaps		(40)		(83)
Foreign exchange contracts		134		(284)
Commodity futures		425		870
Currency futures		55		36
Interest rate futures		(51)		(511)
Net losses	$	(3,638)	$	(2,373)

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.