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Derivative Financial Instruments | 9 Months Ended
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Jan. 31, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Financial Instruments | We are exposed to market risks, such as changes in commodity prices, foreign currency exchange rates, and interest rates. To manage the volatility related to these exposures, we enter into various derivative transactions. We have policies in place that define acceptable instrument types we may enter into and establish controls to limit our market risk exposure. Commodity Price Management: We enter into commodity derivatives to manage price volatility and reduce the variability of future cash flows related to anticipated inventory purchases of key raw materials, notably green coffee, corn, edible oils, soybean meal, and wheat. We also enter into commodity derivatives to manage price risk for energy input costs, including diesel fuel and natural gas. Our derivative instruments generally have maturities of less than one year. We do not qualify commodity derivatives for hedge accounting treatment, and as a result, the derivative gains and losses are immediately recognized in earnings. Although we do not perform the assessments required to achieve hedge accounting for derivative positions, we believe all of our commodity derivatives are economic hedges of our risk exposure. The commodities hedged have a high inverse correlation to price changes of the derivative instrument. Thus, we would expect that over time any gain or loss in the estimated fair value of the derivatives would generally be offset by an increase or decrease in the estimated fair value of the underlying exposures. Foreign Currency Exchange Rate Hedging: We utilize foreign currency derivatives to manage the effect of foreign currency exchange fluctuations on future cash payments primarily related to purchases of certain raw materials and finished goods. The contracts generally have maturities of less than one year. We do not qualify instruments used to manage foreign currency exchange exposures for hedge accounting treatment. Interest Rate Hedging: We utilize derivative instruments to manage interest rate risk associated with anticipated debt transactions, as well as to manage changes in the fair value of our long-term debt. At the inception of an interest rate contract, the instrument is evaluated and documented for qualifying hedge accounting treatment. If the contract is designated as a cash flow hedge, the mark-to-market gains or losses on the contract are deferred and included as a component of accumulated other comprehensive income (loss) and reclassified to interest expense in the period during which the hedged transaction affects earnings. If the contract is designated as a fair value hedge, the contract is recognized at fair value on the balance sheet, and changes in the fair value are recognized in interest expense. Generally, changes in the fair value of the contract are equal to changes in the fair value of the underlying debt and have no net impact on earnings. We entered into interest rate contracts in November 2018 and June 2018, with notional values of $300.0 and $500.0, respectively, to manage our exposure to interest rate volatility associated with anticipated debt financing in 2020. These interest rate contracts are designated as cash flow hedges, and as a result, unrealized losses of $168.9 were deferred in accumulated other comprehensive income (loss) at January 31, 2020. In 2015, we terminated the interest rate swap on the Senior Notes due October 15, 2021, which was designated as a fair value hedge and used to hedge against the changes in the fair value of the debt. As a result of the early termination, we received $58.1 in cash, which included $4.6 of accrued and prepaid interest. The gain on termination was recorded as an increase in the long-term debt balance and is being recognized over the remaining life of the underlying debt as a reduction to interest expense. To date, we have recognized $39.2 of the gain, of which $2.1 and $6.2 was recognized during the three and nine months ended January 31, 2020, respectively. The remaining gain will be recognized as follows: $1.9 through the remainder of 2020, $8.4 in 2021, and $4.0 in 2022. The following tables set forth the gross fair value amounts of derivative instruments recognized in the Condensed Consolidated Balance Sheets.
| January 31, 2020 |  |  |  |  |  |
| Other Current Assets |  | Other Current Liabilities |  | Other Noncurrent Assets |  | Other Noncurrent Liabilities
Derivatives designated as hedging instruments: |  |  |  |  |  |  |
Interest rate contracts | $ | — |  |  | $ | 168.9 |  |  | $ | — |  |  | $ | — |
Total derivatives designated as hedging instruments | $ | — |  |  | $ | 168.9 |  |  | $ | — |  |  | $ | — |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |
Commodity contracts | $ | 8.6 |  |  | $ | 16.4 |  |  | $ | — |  |  | $ | — |
Foreign currency exchange contracts | 0.4 |  |  | 0.1 |  |  | — |  |  | — |
Total derivatives not designated as hedging instruments | $ | 9.0 |  |  | $ | 16.5 |  |  | $ | — |  |  | $ | — |
Total derivative instruments | $ | 9.0 |  |  | $ | 185.4 |  |  | $ | — |  |  | $ | — |
| April 30, 2019 |  |  |  |  |  |
| Other Current Assets |  | Other Current Liabilities |  | Other Noncurrent Assets |  | Other Noncurrent Liabilities
Derivatives designated as hedging instruments: |  |  |  |  |  |  |
Interest rate contracts | $ | — |  |  | $ | 49.1 |  |  | $ | — |  |  | $ | — |
Total derivatives designated as hedging instruments | $ | — |  |  | $ | 49.1 |  |  | $ | — |  |  | $ | — |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |
Commodity contracts | $ | 4.8 |  |  | $ | 25.8 |  |  | $ | — |  |  | $ | — |
Foreign currency exchange contracts | 1.4 |  |  | 0.2 |  |  | — |  |  | — |
Total derivatives not designated as hedging instruments | $ | 6.2 |  |  | $ | 26.0 |  |  | $ | — |  |  | $ | — |
Total derivative instruments | $ | 6.2 |  |  | $ | 75.1 |  |  | $ | — |  |  | $ | — |
We have elected to not offset fair value amounts recognized for our exchange-traded derivative instruments and our cash margin accounts executed with the same counterparty that are generally subject to enforceable netting agreements. We are required to maintain cash margin accounts in connection with funding the settlement of our open positions. At January 31, 2020, and April 30, 2019, we maintained cash margin account balances of $25.7 and $40.7, respectively, included in other current assets in the Condensed Consolidated Balance Sheets. The change in the cash margin account balances is included in other – net, investing activities in the Condensed Statements of Consolidated Cash Flows. In the event of default and immediate net settlement of all of our open positions with individual counterparties, all of our exchange-traded derivative liabilities would be fully offset by either our derivative asset positions or margin accounts based on the net asset or liability position with our individual counterparties. Interest expense – net, as presented in the Condensed Statements of Consolidated Income, was $45.1 and $51.6 for the three months ended January 31, 2020 and 2019, respectively, and was $143.6 and $158.8 for the nine months ended January 31, 2020 and 2019, respectively. The following table presents information on the pre-tax gains and losses recognized on interest rate contracts designated as cash flow hedges.
| Three Months Ended January 31, |  |  |  | Nine Months Ended January 31, |  |
| 2020 |  | 2019 |  | 2020 |  | 2019
Gains (losses) recognized in other comprehensive income (loss) | $ | (22.7) |  |  | $ | (48.1) |  |  | $ | (119.8) |  |  | $ | (37.6) |
Less: Gains (losses) reclassified from accumulated other comprehensive income (loss) to interest expense | (0.1) |  |  | (0.1) |  |  | (0.3) |  |  | (0.3) |
Change in accumulated other comprehensive income (loss) | $ | (22.6) |  |  | $ | (48.0) |  |  | $ | (119.5) |  |  | $ | (37.3) |
Included as a component of accumulated other comprehensive income (loss) at January 31, 2020, and April 30, 2019, were deferred net pre-tax losses of $172.0 and $52.5, respectively, related to the active and terminated interest rate contracts. The related net tax benefit recognized in accumulated other comprehensive income (loss) at January 31, 2020, and April 30, 2019, was $39.6 and $12.1, respectively. Approximately $8.9 of the net pre-tax loss will be recognized over the next 12 months related to the active and terminated interest rate contracts. The following table presents the net gains and losses recognized in cost of products sold on derivatives not designated as hedging instruments.
| Three Months Ended January 31, |  |  |  | Nine Months Ended January 31, |  |
| 2020 |  | 2019 |  | 2020 |  | 2019
Gains (losses) on commodity contracts | $ | (7.3) |  |  | $ | (25.8) |  |  | $ | (4.8) |  |  | $ | (55.9) |
Gains (losses) on foreign currency exchange contracts | 0.3 |  |  | 0.2 |  |  | (0.8) |  |  | 1.7 |
Total gains (losses) recognized in cost of products sold | $ | (7.0) |  |  | $ | (25.6) |  |  | $ | (5.6) |  |  | $ | (54.2) |
Commodity and foreign currency exchange derivative gains and losses are reported in unallocated derivative gains and losses outside of segment operating results until the related inventory is sold. At that time, we reclassify the hedge gains and losses from unallocated derivative gains and losses to segment profit, allowing our segments to realize the economic effect of the hedge without experiencing any mark-to-market volatility. The following table presents the activity in unallocated derivative gains and losses.
| Three Months Ended January 31, |  |  |  | Nine Months Ended January 31, |  |
| 2020 |  | 2019 |  | 2020 |  | 2019
Net gains (losses) on mark-to-market valuation of unallocated derivative positions | $ | (7.0) |  |  | $ | (25.6) |  |  | $ | (5.6) |  |  | $ | (54.2) |
Less: Net gains (losses) on derivative positions reclassified to segment operating profit | (14.7) |  |  | (22.7) |  |  | (43.2) |  |  | (29.2) |
Unallocated derivative gains (losses) | $ | 7.7 |  |  | $ | (2.9) |  |  | $ | 37.6 |  |  | $ | (25.0) |
The net cumulative unallocated derivative losses were $14.9 and $52.5 at January 31, 2020, and April 30, 2019, respectively. The following table presents the gross notional value of outstanding derivative contracts.
| January 31, 2020 |  | April 30, 2019
Commodity contracts | $ | 808.9 |  |  | $ | 544.8 |
Foreign currency exchange contracts | 88.1 |  |  | 144.9 |
Interest rate contracts | 800.0 |  |  | 800.0 |

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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