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Derivative Financial Instruments and Hedging Activities | 9 Months Ended
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May 31, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Financial Instruments and Hedging Activities Disclosure | Derivative Financial Instruments and Hedging Activities Our derivative instruments primarily consist of commodity and forward contracts and, to a minor degree, may include foreign currency and interest rate swap contracts. These contracts are economic hedges of price risk, but we do not apply hedge accounting under ASC Topic 815, Derivatives and Hedging, except with respect to certain interest rate swap contracts that are accounted for as fair value hedges and certain future crude oil purchases that are accounted for as cash flow hedges. Derivative instruments are recorded on our Consolidated Balance Sheets at fair value as described in Note 14, Fair Value Measurements. Derivatives Not Designated as Hedging Instruments The following tables present the gross fair values of derivative assets, derivative liabilities and margin deposits (cash collateral) for derivatives not accounted for as hedging instruments, recorded on our Consolidated Balance Sheets along with the related amounts permitted to be offset in accordance with U.S. GAAP. We have elected not to offset derivative assets and liabilities when we have the right of offset under ASC Topic 210-20, Balance Sheet - Offsetting; or when the instruments are subject to master netting arrangements under ASC Topic 815-10-45, Derivatives and Hedging - Overall.
| May 31, 2019
|  |  | Amounts Not Offset on the Consolidated Balance Sheet but Eligible for Offsetting |  |
| Gross Amounts Recognized |  | Cash Collateral |  | Derivative Instruments |  | Net Amounts
| (Dollars in thousands)
Derivative Assets: |  |  |  |  |  |  |
Commodity derivatives | $ | 251,236 |  |  | $ | — |  |  | $ | 25,753 |  |  | $ | 225,483 |
Foreign exchange derivatives | 9,685 |  |  | — |  |  | 4,477 |  |  | 5,208 |
Embedded derivative asset | 20,957 |  |  | — |  |  | — |  |  | 20,957 |
Total | $ | 281,878 |  |  | $ | — |  |  | $ | 30,230 |  |  | $ | 251,648 |
Derivative Liabilities: |  |  |  |  |  |  |
Commodity derivatives | $ | 300,763 |  |  | $ | 4,363 |  |  | $ | 25,753 |  |  | $ | 270,647 |
Foreign exchange derivatives | 7,324 |  |  | — |  |  | 4,477 |  |  | 2,847 |
Total | $ | 308,087 |  |  | $ | 4,363 |  |  | $ | 30,230 |  |  | $ | 273,494 |
| August 31, 2018
|  |  | Amounts Not Offset on the Consolidated Balance Sheet but Eligible for Offsetting |  |
| Gross Amounts Recognized |  | Cash Collateral |  | Derivative Instruments |  | Net Amounts
| (Dollars in thousands)
Derivative Assets: |  |  |  |  |  |  |
Commodity derivatives | $ | 313,033 |  |  | $ | — |  |  | $ | 26,781 |  |  | $ | 286,252 |
Foreign exchange derivatives | 15,401 |  |  | — |  |  | 8,703 |  |  | 6,698 |
Embedded derivative asset | 23,595 |  |  | — |  |  | — |  |  | 23,595 |
Total | $ | 352,029 |  |  | $ | — |  |  | $ | 35,484 |  |  | $ | 316,545 |
Derivative Liabilities: |  |  |  |  |  |  |
Commodity derivatives | $ | 421,054 |  |  | $ | 12,983 |  |  | $ | 26,781 |  |  | $ | 381,290 |
Foreign exchange derivatives | 24,701 |  |  | — |  |  | 8,703 |  |  | 15,998 |
Total | $ | 445,755 |  |  | $ | 12,983 |  |  | $ | 35,484 |  |  | $ | 397,288 |
Derivative assets and liabilities with maturities of 12 months or less are recorded in derivative assets and derivative liabilities, respectively, on our Consolidated Balance Sheets. Derivative assets and liabilities with maturities greater than 12 months are recorded in other assets and other liabilities, respectively, on our Consolidated Balance Sheets. The amount of long-term derivative assets and liabilities, excluding derivatives accounted for as fair value hedges, recorded on our Consolidated Balance Sheet at May 31, 2019, were $22.3 million and $14.7 million, respectively. The amount of long-term derivative assets and liabilities, excluding derivatives accounted for as fair value hedges, recorded on our Consolidated Balance Sheet at August 31, 2018, were $23.1 million and $7.9 million, respectively. The following table sets forth the pretax gains (losses) on derivatives not accounted for as hedging instruments that have been included in our Consolidated Statements of Operations for the three and nine months ended May 31, 2019, and 2018.
|  |  | For the Three Months Ended May 31, |  | For the Nine Months Ended May 31,
| Location of Gain (Loss) |  | 2019 |  | (As Restated) 2018 |  | 2019 |  | (As Restated) 2018
|  |  | (Dollars in thousands)
Commodity derivatives | Cost of goods sold |  | $ | (23,749 | ) |  | $ | 32,289 |  |  | $ | 41,814 |  |  | $ | (48,756 | )
Foreign exchange derivatives | Cost of goods sold |  | (13,040 | ) |  | (16,549 | ) |  | 14,941 |  |  | (15,600 | )
Foreign exchange derivatives | Marketing, general and administrative |  | (7 | ) |  | (1,109 | ) |  | (1,421 | ) |  | (1,260 | )
Interest rate derivatives | Interest expense |  | — |  |  | (2 | ) |  | — |  |  | (3 | )
Embedded derivative | Other income |  | 399 |  |  | 441 |  |  | 2,362 |  |  | 2,612 |
Total |  | $ | (36,397 | ) |  | $ | 15,070 |  |  | $ | 57,696 |  |  | $ | (63,007 | )
Commodity Contracts As of May 31, 2019, and August 31, 2018, we had outstanding commodity futures and options contracts that were used as economic hedges, as well as fixed-price forward contracts related to physical purchases and sales of commodities. The table below presents the notional volumes for all outstanding commodity and freight contracts accounted for as derivative instruments.
| May 31, 2019 |  | August 31, 2018
| Long |  | Short |  | Long |  | Short
| (Units in thousands)
Grain and oilseed - bushels | 693,978 |  |  | 865,956 |  |  | 715,866 |  |  | 929,873 |
Energy products - barrels | 16,223 |  |  | 5,930 |  |  | 17,011 |  |  | 8,329 |
Processed grain and oilseed - tons | 406 |  |  | 2,208 |  |  | 1,064 |  |  | 2,875 |
Crop nutrients - tons | 19 |  |  | 72 |  |  | 11 |  |  | 76 |
Ocean freight - metric tons | 125 |  |  | 95 |  |  | 227 |  |  | 45 |
Natural gas - MMBtu | — |  |  | — |  |  | 610 |  |  | — |
Foreign Exchange Contracts We are exposed to risk regarding foreign currency fluctuations even though a substantial amount of our international sales are denominated in U.S. dollars. In addition to specific transactional exposure, foreign currency fluctuations can impact the ability of foreign buyers to purchase U.S. agricultural products and the competitiveness of U.S. agricultural products compared to the same products offered by alternative sources of world supply. From time to time, we enter into foreign currency hedge contracts to minimize the impact of currency fluctuations on our transactional exposures. The notional amounts of our foreign exchange derivative contracts were $868.9 million and $988.8 million as of May 31, 2019, and August 31, 2018, respectively. Embedded Derivative Asset Under the terms of our strategic investment in CF Nitrogen, if CF Industries' credit rating is reduced below certain levels by two of three specified credit ratings agencies, we are entitled to receive a non-refundable annual payment of $5.0 million from CF Industries each year until the date that CF Industries' credit rating is upgraded to or above certain levels by two of the three specified credit ratings agencies or February 1, 2026, whichever is earlier. The fair value of the embedded derivative asset recorded on our Consolidated Balance Sheet as of May 31, 2019, was equal to $20.9 million. The current and long-term portions of the embedded derivative asset are included in derivative assets and other assets on our Consolidated Balance Sheets, respectively. See Note 14, Fair Value Measurements, for more information on the valuation of the embedded derivative asset. Derivatives Designated as Cash Flow or Fair Value Hedging Strategies Fair Value Hedges As of May 31, 2019, and August 31, 2018, we had outstanding interest rate swaps with an aggregate notional amount of $495.0 million designated as fair value hedges of portions of our fixed-rate debt that is due between fiscal 2019 and fiscal 2025. Our objective in entering into these transactions is to offset changes in the fair value of the debt associated with the risk of variability in the three-month U.S. dollar LIBOR interest rate ("LIBOR"), in essence converting the fixed-rate debt to variable-rate debt. Under these interest rate swaps, we receive fixed-rate interest payments and make interest payments based on the three-month LIBOR. Offsetting changes in the fair values of both the swap instruments and the hedged debt are recorded contemporaneously each period and only create an impact to earnings to the extent that the hedge is ineffective. The following table presents the fair value of our derivative interest rate swap instruments designated as fair value hedges and the line items on our Consolidated Balance Sheets in which they are recorded.
|  | Derivative Assets |  |  |  | Derivative Liabilities
Balance Sheet Location |  | May 31, 2019 |  | August 31, 2018 |  | Balance Sheet Location |  | May 31, 2019 |  | August 31, 2018
|  | (Dollars in thousands) |  |  |  | (Dollars in thousands)
Derivative assets |  | $ | — |  |  | $ | — |  |  | Derivative liabilities |  | $ | 45 |  |  | $ | 771 |
Other assets |  | 4,479 |  |  | — |  |  | Other liabilities |  | 668 |  |  | 8,681 |
Total |  | $ | 4,479 |  |  | $ | — |  |  | Total |  | $ | 713 |  |  | $ | 9,452 |
The following table sets forth the pretax gains (losses) on derivatives accounted for as hedging instruments that have been included in our Consolidated Statements of Operations for the three and nine months ended May 31, 2019, and 2018.
|  |  |  | For the Three Months Ended May 31, |  | For the Nine Months Ended May 31,
Gain (Loss) on Fair Value Hedging Relationships: |  | Location of Gain (Loss) |  | 2019 |  | 2018 |  | 2019 |  | 2018
|  |  |  | (Dollars in thousands)
Interest rate swaps |  | Interest expense |  | $ | (8,122 | ) |  | $ | (231 | ) |  | $ | (15,129 | ) |  | $ | (18,118 | )
Hedged item |  | Interest expense |  | 8,122 |  |  | 231 |  |  | 15,129 |  |  | 18,118 |
Total |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
The following table provides the location and carrying amount of hedged liabilities in our Consolidated Balance Sheets as of May 31, 2019, and August 31, 2018.
|  | May 31, 2019 |  | August 31, 2018
Balance Sheet Location |  | Carrying Amount of Hedged Liabilities |  | Cumulative Amount of Fair Value Hedging Adjustments Included in the Carrying Amount of Hedged Liabilities |  | Carrying Amount of Hedged Liabilities |  | Cumulative Amount of Fair Value Hedging Adjustments Included in the Carrying Amount of Hedged Liabilities
|  | (Dollars in thousands)
Long-term debt |  | $ | 470,419 |  |  | $ | 24,581 |  |  | $ | 485,548 |  |  | $ | 9,452 |
Cash Flow Hedges In the fourth quarter of fiscal 2018, our Energy segment began designating certain of its pay-fixed, receive-variable, cash-settled swaps as cash flow hedges of future crude oil purchases. We also began designating certain pay-variable, receive-fixed, cash-settled swaps as cash flow hedges of future refined product sales. These hedging instruments and the related hedged items are exposed to significant market price risk and potential volatility. As part of our risk management strategy, we look to hedge a portion of our expected future crude oil needs and the resulting refined product output based on prevailing futures prices, management's expectations about future commodity price changes and our risk appetite. As of May 31, 2019, and August 31, 2018, the aggregate notional amount of cash flow hedges was 8.2 million and 1.1 million barrels, respectively. The following table presents the fair value of our commodity derivative instruments designated as cash flow hedges and the line items on our Consolidated Balance Sheets in which they are recorded.
|  | Derivative Assets |  |  |  | Derivative Liabilities
Balance Sheet Location |  | May 31, 2019 |  | August 31, 2018 |  | Balance Sheet Location |  | May 31, 2019 |  | August 31, 2018
|  | (Dollars in thousands) |  |  |  | (Dollars in thousands)
Derivative assets |  | $ | 5,547 |  |  | $ | 812 |  |  | Derivative liabilities |  | $ | 14,692 |  |  | $ | 634 |
The following table presents the pretax gains (losses) recorded in other comprehensive income relating to cash flow hedges for the three and nine months ended May 31, 2019, and 2018:
|  | For the Three Months Ended May 31, |  | For the Nine Months Ended May 31,
|  | 2019 |  | 2018 |  | 2019 |  | 2018
|  | (Dollars in thousands)
Commodity derivatives |  | $ | (21,029 | ) |  | $ | — |  |  | $ | (9,323 | ) |  | $ | — |
The following table presents the pretax gains (losses) relating to cash flow hedges that were reclassified from accumulated other comprehensive loss into our Consolidated Statements of Operations for the three and nine months ended May 31, 2019, and 2018:
|  |  | For the Three Months Ended May 31, |  | For the Nine Months Ended May 31,
| Location of Gain (Loss) |  | 2019 |  | 2018 |  | 2019 |  | 2018
|  |  | (Dollars in thousands)
Commodity derivatives | Cost of goods sold |  | $ | 1,810 |  |  | $ | — |  |  | $ | 9,812 |  |  | $ | — |

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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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