Other Financial Instruments and Fair Value Measurements

12 Months Ended

Apr. 30, 2020

Other Financial Instruments and Fair Value Measurements

Note 11: Other Financial Instruments and Fair Value Measurements

Financial instruments, other than derivatives, that potentially subject us to significant concentrations of credit risk consist principally of cash investments, short-term borrowings, and trade receivables. The carrying value of these financial instruments approximates fair value. Our remaining financial instruments, with the exception of long-term debt, are recognized at estimated fair value in the Consolidated Balance Sheets.

The following table provides information on the carrying amounts and fair values of our financial instruments.


	April 30, 2020						April 30, 2019
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Marketable securities and other investments	$	38.6	$	38.6	$	40.9	$	40.9
Derivative financial instruments – net	(16.2)		(16.2)		(68.9)		(68.9)
Total long-term debt	(5,373.3)		(5,740.6)		(5,484.8)		(5,504.0)

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Valuation techniques are based on observable and unobservable inputs.

Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions.

The following tables summarize the fair values and the levels within the fair value hierarchy in which the fair value measurements fall for our financial instruments.


	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value at April 30, 2020
Marketable securities and other investments: ^(A)
Equity mutual funds	$	8.7	$	—	$	—	$	8.7
Municipal obligations	—		24.2		—		24.2
Money market funds	5.7		—		—		5.7
Derivative financial instruments: ^(B)
Commodity contracts – net	(18.3)		(0.2)		—		(18.5)
Foreign currency exchange contracts – net	0.2		2.1		—		2.3
Total long-term debt ^(C)	(5,032.0)		(708.6)		—		(5,740.6)
Total financial instruments measured at fair value	$	(5,035.7)	$	(682.5)	$	—	$	(5,718.2)


	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value at April 30, 2019
Marketable securities and other investments: ^(A)
Equity mutual funds	$	8.7	$	—	$	—	$	8.7
Municipal obligations	—		31.7		—		31.7
Money market funds	0.5		—		—		0.5
Derivative financial instruments: ^(B)
Commodity contracts – net	(20.7)		(0.3)		—		(21.0)
Foreign currency exchange contracts – net	(0.1)		1.3		—		1.2
Interest rate contracts	—		(49.1)		—		(49.1)
Total long-term debt ^(C)	(4,646.6)		(857.4)		—		(5,504.0)
Total financial instruments measured at fair value	$	(4,658.2)	$	(873.8)	$	—	$	(5,532.0)

(A)Marketable securities and other investments consist of funds maintained for the payment of benefits associated with nonqualified retirement plans. The funds include equity securities listed in active markets, municipal obligations valued by a third-party using valuation techniques that utilize inputs that are derived principally from or corroborated by observable market data, and money market funds with maturities of three months or less. Based on the short-term nature of these money market funds, carrying value approximates fair value. As of April 30, 2020, our municipal obligations are scheduled to mature as follows: $1.0 in 2021, $1.5 in 2022, $3.5 in 2024, and the remaining $18.2 in 2025 and beyond. We do not have any municipal obligations scheduled to mature in 2023. For additional information, see Marketable Securities and Other Investments in Note 1: Accounting Policies.

(B)Level 1 commodity and foreign currency exchange derivatives are valued using quoted market prices for identical instruments in active markets. Level 2 commodity and foreign currency exchange derivatives are valued using quoted prices for similar assets or liabilities in active markets. The Level 2 interest rate contracts were valued using standard valuation techniques, the income approach, and observable Level 2 market expectations at the measurement date to convert future amounts to a single discounted present value. Level 2 inputs for the valuation of the interest rate contracts are limited to prices that are observable for the asset or liability. For additional information, see Note 10: Derivative Financial Instruments.

(C)Long-term debt is composed of public Senior Notes classified as Level 1 and the Term Loan classified as Level 2. The public Senior Notes are traded in an active secondary market and valued using quoted prices. The fair value of the Term Loan is based on the net present value of each interest and principal payment calculated utilizing an interest rate derived from an estimated yield curve obtained from independent pricing sources for similar types of term loan borrowing arrangements. For additional information, see Note 8: Debt and Financing Arrangements.

We recognized impairment charges of $52.4 during 2020, related to the Natural Balance brand in the U.S. Retail Pet Foods segment. During 2019, we recognized impairment charges of $205.1, of which $97.9 and $107.2 related to the goodwill of the Natural Foods reporting unit within the U.S. Retail Consumer Foods segment and certain indefinite-lived trademarks in the U.S. Retail Pet Foods segment, respectively. These adjustments were included as noncash charges in our Statements of Consolidated Income. We utilized Level 3 inputs based on management’s best estimates and assumptions to estimate the fair value of the reporting unit and indefinite-lived trademarks. For additional information, see Goodwill and Other Intangible Assets in Note 1: Accounting Policies and Note 7: Goodwill and Other Intangible Assets.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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