Derivative Financial Instruments

12 Months Ended

Apr. 30, 2017

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

 NOTE 10  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 the price volatility and reduce the variability of future cash flows related to anticipated inventory purchases of key raw materials, notably green coffee, edible oils, corn, wheat, and soybean meal. 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 commodity 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 changes in the fair value of our debt. Interest rate swaps mitigate the risk associated with the underlying hedged item. At the inception of the contract, the instrument is evaluated and documented for hedge accounting treatment. If the contract is designated as a cash flow hedge, the mark-to-market gains or losses on the swap are deferred and included as a component of accumulated other comprehensive loss to the extent effective, 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 swap 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 derivative are equal to changes in the fair value of the underlying debt and have no impact on earnings.

In 2015, we terminated the interest rate swap on the 3.50 percent 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 deferred and is being recognized over the remaining life of the underlying debt as a reduction of interest expense. To date, we recognized $17.2, of which $7.6, $7.4, and $2.2 was recognized in 2017, 2016, and 2015, respectively. The remaining gain will be recognized as follows: $7.8 in 2018, $8.0 in 2019, $8.1 in 2020, $8.4 in 2021, and $4.0 in 2022. For additional information, see Note 8: Debt and Financing Arrangements.

The following tables set forth the gross fair value amounts of derivative instruments recognized in the Consolidated Balance Sheets.

		April 30, 2017
	Other Current Assets			Other Current Liabilities			Other Noncurrent Assets			Other Noncurrent Liabilities
Derivatives not designated as hedging instruments:
Commodity contracts		$	5.2		$	21.2		$	—		$	—
Foreign currency exchange contracts		3.2			0.1			—			—
Total derivative instruments		$	8.4		$	21.3		$	—		$	—
		April 30, 2016
	Other Current Assets			Other Current Liabilities			Other Noncurrent Assets			Other Noncurrent Liabilities
Derivatives not designated as hedging instruments:
Commodity contracts		$	20.3		$	14.1		$	2.0		$	1.2
Foreign currency exchange contracts		0.2			8.9			0.3			0.4
Total derivative instruments		$	20.5		$	23.0		$	2.3		$	1.6

We have elected to not offset fair value amounts recognized for our exchange-traded commodity 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 April 30, 2017 and 2016, we maintained cash margin account balances of $41.8 and $3.4, respectively, included in other current assets in the Consolidated Balance Sheets. The change in the cash margin account balances is included in other – net, investing activities in the 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 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.

During both 2017 and 2016, we recognized $0.6 in pre-tax losses related to the termination of prior interest rate swaps. Included as a component of accumulated other comprehensive loss at April 30, 2017 and 2016, were deferred pre-tax losses of $7.0 and $7.6, respectively, related to the termination of these interest rate swaps. The related tax benefit recognized in accumulated other comprehensive loss was $2.6 and $2.7 at April 30, 2017 and 2016, respectively. Approximately $0.6 of the pre-tax loss will be recognized over the next

12 months.

The following table presents the net gains and losses recognized in cost of products sold on derivatives not designated as

hedging instruments.

	Year Ended April 30,
	2017			2016
Losses on commodity contracts	$	(45.2	)	$	(31.6	)
Gains on foreign currency exchange contracts	9.8			2.0
Total losses recognized in costs of products sold	$	(35.4	)	$	(29.6	)

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.

	Year Ended April 30,
	2017			2016			2015
Net losses on mark-to-market valuation of unallocated derivative positions	$	(35.4	)	$	(29.6	)	$	(39.7	)
Net losses on derivative positions reclassified to segment operating profit	8.2			41.6			15.2
Unallocated derivative (losses) gains	$	(27.2	)	$	12.0		$	(24.5	)

The net cumulative unallocated derivative losses at April 30, 2017 and 2016, were $35.6 and $8.4, respectively.

The following table presents the gross contract notional value of outstanding derivative contracts.

	Year Ended April 30,
	2017		2016
Commodity contracts	$	704.9	$	545.7
Foreign currency exchange contracts	195.4		212.5