Derivative Financial Instruments | 9 Months Ended |
Jan. 26, 2014 |
Derivative Instruments And Hedging Activities Disclosure [Abstract] | ' |
Derivative Financial Instruments | ' |
Note 7. Derivative Financial Instruments |
The Company uses interest rate swaps, commodity swaps, futures, option and swaption (an option on a swap) contracts as well as forward foreign currency contracts to hedge market risks relating to possible adverse changes in interest rates, commodity, transportation and other input prices and foreign currency exchange rates. The Company continually monitors its positions and the credit ratings of the counterparties involved to mitigate the amount of credit exposure to any one party. |
The Company designates each derivative contract as one of the following: (1) a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”) or (2) a hedging instrument for which the change in fair value is recognized to act as an economic hedge but does not meet the requirements to receive hedge accounting treatment (“economic hedge”). As of January 26, 2014, the Company had both cash flow and economic hedges. |
Interest Rates: The Company’s debt primarily consists of floating rate term loans and fixed rate notes. The Company historically maintained its floating rate revolver for flexibility to fund seasonal working capital needs and for other uses of cash. Following the sale of the Consumer Products Business, the Company no longer expects to have material changes in working capital due to seasonality. Interest expense on the Company’s floating rate debt is typically calculated based on a fixed spread over a reference rate, such as LIBOR (also known as the Eurodollar rate). Therefore, fluctuations in market interest rates will cause interest expense increases or decreases on a given amount of floating rate debt. |
The Company from time to time manages a portion of its interest rate risk related to floating rate debt by entering into interest rate swaps in which the Company receives floating rate payments and makes fixed rate payments. Swaps are recorded as an asset or liability in the Company’s Condensed Consolidated Balance Sheets at fair value. Any gains and losses on economic hedges are recorded as an adjustment to other (income) expense. |
As of January 26, 2014, the following economic hedge swaps were outstanding: |
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Contract date | | Notional amount | | | Fixed LIBOR | | | Effective date | | | Maturity date | | | | | | | | | | | | | |
(in millions) | rate | | | | | | | | | | | | |
April 12, 2011 | | $ | 900 | | | | 3.029 | % | | | September 4, 2012 | | | | September 1, 2015 | | | | | | | | | | | | | |
August 13, 2010 | | $ | 300 | | | | 1.368 | % | | | 1-Feb-11 | | | | 3-Feb-14 | | | | | | | | | | | | | |
Commodities: Certain commodities such as soybean meal, corn, wheat, soybean oil, diesel fuel and natural gas (collectively, “commodity contracts”) are used in the production and transportation of the Company’s products. Generally these commodities are purchased based upon market prices that are established with the vendor as part of the purchase process. The Company uses futures, swaps, swaption or option contracts, as deemed appropriate, to reduce the effect of price fluctuations on anticipated purchases. These contracts may have a term of up to 24 months. The Company accounted for these commodity derivatives as either economic or cash flow hedges. For cash flow hedges, the effective portion of derivative gains and losses is deferred in equity and recognized as part of cost of products sold in the appropriate period and the ineffective portion is recognized as other (income) expense. Changes in the value of economic hedges are recorded directly in earnings. The table below presents the notional amounts of the Company’s commodity contracts as of the dates indicated (in millions): |
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| | January 26, | | | April 28, | | | | | | | | | | | | | | | | | | | | | |
2014 | 2013 | | | | | | | | | | | | | | | | | | | | |
Commodity contracts | | $ | 130.3 | | | $ | 269.4 | | | | | | | | | | | | | | | | | | | | | |
Foreign Currency: From time to time, the Company manages its exposure to fluctuations in foreign currency exchange rates by entering into forward contracts to cover a portion of its projected expenditures paid in local currency. These contracts may have a term of up to 24 months. The Company accounted for these contracts as either cash flow or economic hedges. For cash flow hedges, the effective portion of derivative gains and losses is deferred in equity and recognized as part of cost of products sold in the appropriate period and the ineffective portion is recognized as other (income) expense. Changes in the value of the economic hedges are recorded directly in earnings. As of January 26, 2014, the Company did not have any outstanding foreign currency hedges because the Company did not believe it was in its best interest at the time. The Company may again in the future enter into foreign currency forward contracts. |
Fair Value of Derivative Instruments |
The fair value of derivative instruments recorded in the Condensed Consolidated Balance Sheets as of January 26, 2014 was as follows (in millions): |
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Derivatives in economic | | Asset derivatives | | | Liability derivatives | | | | | | | | | | | | | | | | | |
hedging relationships | | Balance Sheet location | | Fair value | | | Balance Sheet location | | Fair value | | | | | | | | | | | | | | | | | |
Interest rate contracts | | Other non-current assets | | $ | — | | | Other non-current liabilities | | $ | 15.2 | | | | | | | | | | | | | | | | | |
Interest rate contracts | | Prepaid expenses and other current assets | | | — | | | Accounts payable and accrued expenses | | | 25.8 | | | | | | | | | | | | | | | | | |
Commodity and other contracts | | Prepaid expenses and other current assets | | | 6.8 | (1) | | Accounts payable and accrued expenses | | | 8.5 | (2) | | | | | | | | | | | | | | | | |
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Total | | | | $ | 6.8 | | | | | $ | 49.5 | | | | | | | | | | | | | | | | | |
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(1) | Includes $2.9 million of commodity contracts (asset derivatives) designated as cash flow hedges. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(2) | Includes $8.2 million of commodity contracts (liability derivatives) designated as cash flow hedges. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The fair value of derivative instruments recorded in the Condensed Consolidated Balance Sheets as of April 28, 2013 was as follows (in millions): |
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Derivatives in economic | | Asset derivatives | | | Liability derivatives | | | | | | | | | | | | | | | | | |
hedging relationships | | Balance Sheet location | | Fair value | | | Balance Sheet location | | Fair value | | | | | | | | | | | | | | | | | |
Interest rate contracts | | Other non-current assets | | $ | — | | | Other non-current liabilities | | $ | 33.5 | | | | | | | | | | | | | | | | | |
Interest rate contracts | | Prepaid expenses and other current assets | | | — | | | Accounts payable and accrued expenses | | | 28.4 | | | | | | | | | | | | | | | | | |
Commodity and other contracts | | Prepaid expenses and other current assets | | | 3.8 | (1) | | Accounts payable and accrued expenses | | | 10.6 | (2) | | | | | | | | | | | | | | | | |
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Total | | | | $ | 3.8 | | | | | $ | 72.5 | | | | | | | | | | | | | | | | | |
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(1) | Includes $0.3 million of commodity contracts (asset derivatives) designated as cash flow hedges. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
-2 | Represents commodity contracts (liability derivatives) designated as cash flow hedges. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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The effect of the Company’s economic hedges on other (income) expense in the Condensed Consolidated Statements of Operations for the periods indicated below was as follows (in millions): |
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| | Three Months Ended | | | Nine Months Ended | | | | | | | | | | | | | |
| | January 26, | | | January 27, | | | January 26, | | | January 27, | | | | | | | | | | | | | |
2014 | 2013 | 2014 | 2013 | | | | | | | | | | | | |
Interest rate contracts | | $ | 0.5 | | | $ | — | | | $ | 0.7 | | | $ | 9.2 | | | | | | | | | | | | | |
Commodity and other contracts | | | (1.7 | ) | | | 8.2 | | | | (10.0 | ) | | | (28.1 | ) | | | | | | | | | | | | |
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Included in other (income) expense | | $ | (1.2 | ) | | $ | 8.2 | | | $ | (9.3 | ) | | $ | (18.9 | ) | | | | | | | | | | | | |
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The effect of the Company’s cash flow hedges in the Condensed Consolidated Statements of Operations for the three and nine months ended January 26, 2014 was as follows (in millions): |
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| | (Gain) loss | | | | | (Gain) loss reclassified | | | Location of (gain) loss | | (Gain) loss recognized in | |
recognized in AOCI | from AOCI into income | recognized in income | income (ineffective portion |
| | (ineffective portion and | and amount excluded from |
| | amount excluded from | effectiveness testing) |
Derivatives in cash flow | | Three Months | | | Nine Months | | | | | Three Months | | | Nine Months | | | effectiveness testing) | | Three Months | | | Nine Months | |
hedging relationships | Ended | Ended | Ended | Ended | | Ended | Ended |
| | January 26, | | | January 26, | | | Location of (gain) loss | | January 26, | | | January 26, | | | | | January 26, | | | January 26, | |
| 2014 | 2014 | reclassified in AOCI | 2014 | 2014 | | 2014 | 2014 |
Commodity contracts | | $ | (2.6 | ) | | | (4.3 | ) | | Cost of products sold | | $ | 4.7 | | | | 7 | | | Other (income) expense | | $ | 0.5 | | | | (1.1 | ) |
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Total | | $ | (2.6 | ) | | | (4.3 | ) | | | | $ | 4.7 | | | | 7 | | | | | $ | 0.5 | | | | (1.1 | ) |
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The effect of the Company’s cash flow hedges in the Condensed Consolidated Statements of Operations for the three and nine months ended January 27, 2013 was as follows (in millions): |
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| | (Gain) loss recognized | | | | | (Gain) loss reclassified | | | Location of (gain) loss | | (Gain) loss recognized in | |
in AOCI | from AOCI into income | recognized in income | income (ineffective portion |
| | (ineffective portion and | and amount excluded from |
| | amount excluded from | effectiveness testing) |
Derivatives in cash flow | | Three Months | | | Nine Months | | | | | Three Months | | | Nine Months | | | effectiveness testing) | | Three Months | | | Nine Months | |
hedging relationships | Ended | Ended | Ended | Ended | | Ended | Ended |
| | January 27, | | | January 27, | | | Location of (gain) loss | | January 27, | | | January 27, | | | | | January 27, | | | January 27, | |
| 2013 | 2013 | reclassified in AOCI | 2013 | 2013 | | 2013 | 2013 |
Commodity contracts | | $ | 2 | | | | 3.3 | | | Cost of products sold | | $ | — | | | | — | | | Other (income) expense | | $ | 0.3 | | | | 0.4 | |
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Total | | $ | 2 | | | | 3.3 | | | | | $ | — | | | | — | | | | | $ | 0.3 | | | | 0.4 | |
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At January 26, 2014, $3.7 million is expected to be reclassified from AOCI to cost of products sold within the next 12 months. |