Note 7 - Derivative Financial Instruments

6 Months Ended

Nov. 26, 2023

Notes to Financial Statements

Derivative Instruments and Hedging Activities Disclosure [Text Block]

7. DERIVATIVE FINANCIAL INSTRUMENTS

See our Consolidated Financial Statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended May 28, 2023, for additional information on our derivative activities.

Derivatives Designated as Cash Flow Hedges

During the first quarter of fiscal 2019, we entered into deal-contingent forward starting interest rate swap contracts to hedge a portion of the interest rate risk related to our issuance of long-term debt to help finance the acquisition of Pinnacle Foods Inc. We settled these contracts during the second quarter of fiscal 2019 and deferred a $47.5 million gain in accumulated other comprehensive income that is being amortized as a reduction of interest expense over the lives of the related debt instruments. The unamortized amount at November 26, 2023, was $29.7 million.

Economic Hedges of Forecasted Cash Flows

Many of our derivatives do not qualify for, and we do not currently designate certain commodity or foreign currency derivatives to achieve, hedge accounting treatment. We reflect realized and unrealized gains and losses from derivatives used to economically hedge anticipated commodity consumption and to mitigate foreign currency cash flow risk in earnings immediately within general corporate expense (within cost of goods sold). The gains and losses are reclassified to segment operating results in the period in which the underlying item being economically hedged is recognized in cost of goods sold. In the event that management determines a particular derivative entered into as an economic hedge of a forecasted commodity purchase has ceased to function as an economic hedge, we cease recognizing further gains and losses on such derivatives in corporate expense and begin recognizing such gains and losses within segment operating results immediately.

The following table presents the net derivative gains (losses) from economic hedges of forecasted commodity consumption and the foreign currency risk of certain forecasted transactions, under this methodology:

	Thirteen Weeks Ended						Twenty-Six Weeks Ended
	November 26, 2023			November 27, 2022			November 26, 2023			November 27, 2022
Gross derivative gains (losses) incurred	$	(10.0	)	$	5.2		$	9.5		$	14.7
Less: Net derivative gains (losses) allocated to reporting segments		1.2			7.6			(6.9	)		16.6
Net derivative gains (losses) recognized in general corporate expenses	$	(11.2	)	$	(2.4	)	$	16.4		$	(1.9	)
Net derivative gains (losses) allocated to Grocery & Snacks	$	0.7		$	2.5		$	(3.2	)	$	7.5
Net derivative gains (losses) allocated to Refrigerated & Frozen		2.1			4.3			(0.2	)		7.6
Net derivative gains (losses) allocated to International		(2.0	)		0.6			(3.6	)		0.7
Net derivative gains allocated to Foodservice		0.4			0.2			0.1			0.8
Net derivative gains (losses) included in segment operating profit	$	1.2		$	7.6		$	(6.9	)	$	16.6

The fair values of our derivative positions were not material as of  November 26, 2023 and were Level 1 or Level 2 assets or liabilities in the fair value hierarchy (see Note 15 for further information). We have not significantly changed our valuation techniques from prior periods.

The location and amount of gains from derivatives not designated as hedging instruments in our Condensed Consolidated Statements of Earnings were as follows:

	Location in Condensed Consolidated	Gains (Losses) Recognized on Derivatives in Condensed Consolidated Statements of Earnings for the Thirteen Weeks Ended
Derivatives Not Designated as Hedging Instruments	Statements of Earnings of Gains (Losses) Recognized on Derivatives	November 26, 2023			November 27, 2022
Commodity contracts	Cost of goods sold	$	(10.9	)	$	3.7
Foreign exchange contracts	Cost of goods sold		0.9			1.6
Total gains from derivative instruments not designated as hedging instruments		$	(10.0	)	$	5.3

	Location in Condensed Consolidated	Gains (Losses) Recognized on Derivatives in Condensed Consolidated Statements of Earnings for the Twenty-Six Weeks Ended
Derivatives Not Designated as Hedging Instruments	Statements of Earnings of Gains (Losses) Recognized on Derivatives	November 26, 2023			November 27, 2022
Commodity contracts	Cost of goods sold	$	11.6		$	10.0
Foreign exchange contracts	Cost of goods sold		(2.1	)		4.8
Total gains from derivative instruments not designated as hedging instruments		$	9.5		$	14.8

As of November 26, 2023, our open commodity contracts had a notional value (defined as notional quantity times market value per notional quantity unit) of $83.6 million for purchase contracts. As of May 28, 2023, our open commodity contracts had a notional value of $134.6 million for purchase contracts. The notional amount of our foreign currency forward contracts as of November 26, 2023 and May 28, 2023 was $86.9 million and $87.3 million, respectively.