Derivative Financial Instruments And Hedging

6 Months Ended

Mar. 31, 2012

Derivative Financial Instruments And Hedging [Abstract]

Derivative Financial Instruments And Hedging

NOTE 9—DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING

In the ordinary course of business, the Company is exposed to commodity price risks relating to the acquisition of raw materials and supplies, interest rate risks relating to debt, and foreign currency exchange rate risks relating to its foreign subsidiaries. Authorized individuals within the Company may utilize derivative financial instruments, including (but not limited to) futures contracts, option contracts, forward contracts and swaps, to manage certain of these exposures by hedging when it is practical to do so. The terms of these instruments generally do not exceed eighteen months for commodities, ten years for interest rates, and two years for foreign currency. The Company is not permitted to engage in speculative or leveraged transactions and will not hold or issue financial instruments for trading purposes.

The Post cereals business participated in Ralcorp's hedging program before the Spin-Off (see Note 4). The fair value of the derivative instruments has not been reflected as assets or liabilities of discontinued operations as of September 30, 2011 because Post was not legally a party to the underlying derivative instruments and because there are no significant instruments that were allocable only to Post. As of September 30, 2011, the amount of Ralcorp's net derivative liability that was related to Post was $10.3. The amounts of derivative effects of hedging allocated to Post (and included in earnings from discontinued operations on the statements of operations) was a gain of $.2 and a loss of $2.0 for the three and six months ended March 31, 2012, respectively, and a loss of $.7 and a gain of $.1 for the three and six months ended March 31, 2011, respectively. Amounts related to Post are included in the amounts disclosed in the rest of this note. As of the Spin-Off date, Post no longer participated in the Ralcorp derivative instrument program and no net derivative liability or asset was outstanding.

For the six months ended March 31, 2012, the Company's derivative instruments consisted of commodity contracts (options, futures, and swaps) used as cash flow or economic hedges on purchases of raw materials (ingredients and packaging) and energy (fuel), and foreign currency forward contracts used as cash flow hedges on receipts of foreign currency-denominated accounts receivable. Certain commodity-related derivatives do not meet the criteria for cash flow hedge accounting or simply are not designated as hedging instruments; nonetheless, they are economic hedges used to manage the future cost of raw materials. The following table shows the notional amounts of derivative instruments held.

	Mar. 31,		Dec. 31,		Sept. 30,
	2012		2011		2011
Raw materials (thousands of pounds)		33,080		124,900		1,395,470
Natural gas (thousands of MMBTUs)		1,164		1,990		3,885
Other fuel (thousands of gallons)		4,757		10,627		12,966
Currency (thousands of dollars)		35,250		59,000		83,250

The following table shows the fair value and balance sheet location of the Company's derivative instruments as of March 31, 2012 and September 30, 2011, all of which were designated as hedging instruments under ASC Topic 815 except $12.8 and $34.3, respectively, of commodity contracts in a net liability position.

	Fair Value
	Mar. 31		Sept. 30,
	2012		2011		Balance Sheet Location
Liability Derivatives
Commodity contracts	$	24.7	$	49.0	Other current liabilities
Foreign exchange contracts		—		4.1	Other liabilities
	$	24.7	$	53.1
Asset Derivatives
Commodity contracts	$	1.3	$	.3	Prepaid expenses and other current assets
Foreign exchange contracts		.2		—	Prepaid expenses and other current assets
	$	1.5	$	.3

The following tables illustrate the effects of the Company's derivative instruments on the statements of earnings and other comprehensive income or loss ("OCI") for the three months ended March 31, 2012 and 2011.

Derivatives in ASC Topic 815 Cash Flow	Amount of Gain (Loss) Recognized in OCI [Effective Portion]					Gain (Loss) Reclassified from Accumulated OCI into Earnings [Effective Portion]						Gain (Loss) Recognized in Earnings [Ineffective Portion and Amount Excluded from Effectiveness Testing]
Hedging Relationships	2012			2011		2012			2011			2012		2011		Location in Earnings
Commodity contracts	$	(.5	)	$	8.4	$	(5.6	)	$	8.8		$	.1	$	.1	Cost of goods sold
Foreign exchange contracts		1.1			.7		.3			1.4			—		—	SG&A expenses
Interest rate contracts		—			—		(.3	)		(.4	)		—		—	Interest expense, net
	$	.6		$	9.1	$	(5.6	)	$	9.8		$	.1	$	.1

Derivatives Not Designated as Hedging Instruments	Amount of Gain (Loss) Recognized in Earnings					Location of Gain (Loss)
Under ASC Topic 815	2012			2011		Recognized in Earnings
Commodity contracts	$	(2.6	)	$	6.0	Cost of goods sold

The following tables illustrate the effects of the Company's derivative instruments on the statements of earnings and OCI for the six months ended March 31, 2012 and 2011.

Derivatives in	Amount of Gain (Loss) Recognized in OCI					Gain (Loss) Reclassified from Accumulated OCI into Earnings						Gain (Loss) Recognized in Earnings [Ineffective Portion and Amount Excluded from
ASC Topic 815 Cash Flow	[Effective Portion]					[Effective Portion]						Effectiveness Testing]
Hedging Relationships	2012			2011		2012			2011			2012		2011		Location in Earnings
Commodity contracts	$	(1.3	)	$	27.6	$	(3.9	)	$	9.1		$	.5	$	—	Cost of goods sold
Foreign exchange contracts		3.5			2.5		(.4	)		2.1			—		—	SG&A expenses
Interest rate contracts		—			—		(.7	)		(.8	)		—		—	Interest expense, net
	$	2.2		$	30.1	$	(5.0	)	$	10.4		$	.5	$	—

Derivatives in	Amount of Gain (Loss)
ASC Topic 815 Fair Value	Recognized in Earnings					Location of Gain (Loss)
Hedging Relationships	2012		2011			Recognized in Earnings
Commodity contracts	$	—	$	(.1	)	Cost of goods sold

Derivatives Not Designated	Amount of Gain (Loss)
as Hedging Instruments	Recognized in Earnings					Location of Gain (Loss)
Under ASC Topic 815	2012			2011		Recognized in Earnings
Commodity contracts	$	(8.4	)	$	10.8	Cost of goods sold

Accumulated OCI included a $26.5 net loss on cash flow hedging instruments before taxes ($16.4 after taxes) at March 31, 2012, compared to a $33.7 net loss before taxes ($21.3 after taxes) at September 30, 2011. Approximately $9.5 of net cash flow hedge gains included in accumulated OCI at March 31, 2012 is expected to be reclassified into earnings within the next twelve months. For gains or losses associated with commodity contracts, the reclassification will occur when the products produced with hedged materials are sold. For gains or losses associated with foreign exchange contracts, the reclassification will occur as hedged foreign currency-denominated accounts receivable are received. For gains or losses associated with interest rate swaps, the reclassification occurs on a straight-line basis over the term of the related debt.

Certain of the Company's derivative instruments contain provisions that require the Company to post collateral when the derivatives in liability positions exceed a specified threshold, and others require collateral even when the derivatives are in asset positions. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a liability position on March 31, 2012 and September 30, 2011 was $9.9 and $3.9, respectively, and the related collateral required was $.7 and $8.2 at March 31, 2012 and September 30, 2011, respectively.