Derivative Financial Instruments

3 Months Ended

Jul. 31, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

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 Derivatives: 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, corn, soybean meal, edible oils, and wheat. 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 instrument. Thus, we would expect that over time any gain or loss in the estimated fair value of its derivatives would generally be offset by an increase or decrease in the estimated fair value of the underlying exposures.

Foreign Currency Exchange Derivatives: 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 Derivatives: From time to time, we utilize derivative instruments to manage interest rate risk associated with anticipated debt transactions, as well as to manage changes in the fair value of our long-term debt. At the inception of an interest rate contract, the instrument is evaluated and documented for qualifying hedge accounting treatment. If the contract is designated as a cash flow hedge, the mark-to-market gains or losses on the contract are deferred and included as a component of accumulated other comprehensive income (loss) and generally 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 contract 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 contract are equal to changes in the fair value of the underlying debt and have no net impact on earnings.

Equity Forward Derivative: During the first quarter of 2024, we began entering into equity forward derivative transactions under an agreement with an unrelated third party to facilitate the forward sale of the Post common stock. We do not qualify the forward sale derivative contract for hedge accounting treatment, and as a result, derivative gains and losses associated with the economic hedge are immediately recognized in earnings within other income (expense) – net in the Condensed Statement of Consolidated Income, netting with the change in fair value of the underlying shares. As of July 31, 2023, approximately 1.1 million shares of the available 5.4 million shares of Post common stock were hedged under the contract, resulting in an unrealized gain of $0.6 during the three months ended July 31, 2023. Subsequent to July 31, 2023, all 5.4 million shares of Post common stock were hedged and will settle for $466.3 during the third quarter of 2024. For additional information, see Note 4: Divestitures.

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


	July 31, 2023		April 30, 2023
Commodity contracts	$	412.4	$	448.1
Foreign currency exchange contracts	131.9		98.1
Equity forward contract	91.6		—

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


	July 31, 2023
	Other Current Assets		Other Current Liabilities		Other Noncurrent Assets		Other Noncurrent Liabilities



Derivatives not designated as hedging instruments:
Commodity contracts	$	8.4	$	8.6	$	—	$	—
Foreign currency exchange contracts	0.3		1.6		—		—
Equity forward contract	0.6		—		—		—
Total derivative instruments	$	9.3	$	10.2	$	—	$	—


	April 30, 2023
	Other Current Assets		Other Current Liabilities		Other Noncurrent Assets		Other Noncurrent Liabilities



Derivatives not designated as hedging instruments:
Commodity contracts	$	18.1	$	14.7	$	—	$	—
Foreign currency exchange contracts	1.4		0.1		—		—
Total derivative instruments	$	19.5	$	14.8	$	—	$	—

We have elected to not offset fair value amounts recognized for our exchange-traded 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. Our cash margin accounts represented collateral pledged of $18.1 and $17.0 at July 31, 2023, and April 30, 2023, respectively, and are included in other current assets in the Condensed Consolidated Balance Sheets. The change in the cash margin accounts is included in other – net, investing activities in the Condensed 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. Cash flows associated with the settlement of derivative instruments are classified in the same line item as the

cash flows of the related hedged item, which is within operating activities in the Condensed Statements of Consolidated Cash Flows.

Economic Hedges

The following table presents the net gains and losses recognized in cost of products sold in the Condensed Statements of Consolidated Income on derivatives not designated as hedging instruments.


	Three Months Ended July 31,
		2023		2022
Derivative gains (losses) on commodity contracts		$	7.8	$	(8.9)
Derivative gains (losses) on foreign currency exchange contracts		(2.2)		(0.2)
Total derivative gains (losses) recognized in cost of products sold		$	5.6	$	(9.1)

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 net change in cumulative unallocated derivative gains and losses.


	Three Months Ended July 31,
		2023		2022
Net derivative gains (losses) recognized and classified as unallocated		$	5.6	$	(9.1)
Less: Net derivative gains (losses) reclassified to segment operating profit		(4.8)		24.7
Change in net cumulative unallocated derivative gains and losses		$	10.4	$	(33.8)

The net cumulative unallocated derivative gains were $26.3 and $15.9 at July 31, 2023, and April 30, 2023, respectively.

Cash Flow Hedges

In 2020, we terminated all outstanding interest rate contracts concurrent with the pricing of the Senior Notes due March 15, 2030, and March 15, 2050. The contracts were designated as cash flow hedges and were used to manage our exposure to interest rate volatility associated with the anticipated debt financing. The termination resulted in a pre-tax loss of $239.8, which was deferred and included as a component of accumulated other comprehensive income (loss) and is being amortized as interest expense over the life of the debt.

The following table presents information on the pre-tax gains and losses recognized on all contracts previously designated as cash flow hedges.


	Three Months Ended July 31,
		2023		2022
Gains (losses) recognized in other comprehensive income (loss)		$	—	$	—
Less: Gains (losses) reclassified from accumulated other comprehensive income (loss) to interest expense – net (A)		(3.4)		(3.3)
Change in accumulated other comprehensive income (loss)		$	3.4	$	3.3

(A)Interest expense – net, as presented in the Condensed Statements of Consolidated Income was $32.1 and $39.1 for the three months ended July 31, 2023 and 2022, respectively. The reclassification includes terminated contracts which were designated as cash flow hedges.

Included as a component of accumulated other comprehensive income (loss) at July 31, 2023, and April 30, 2023, were deferred net pre-tax losses of $197.3 and $200.7, respectively, related to the terminated interest rate contracts. The related net tax benefit recognized in accumulated other comprehensive income (loss) at July 31, 2023, and April 30, 2023, was $46.3 and $47.1, respectively. Approximately $13.6 of the net pre-tax loss will be recognized over the next 12 months related to the terminated interest rate contracts.