Note 5 - Derivative Financial Instruments

3 Months Ended

Jul. 30, 2022

Notes to Financial Statements

Derivative Instruments and Hedging Activities Disclosure [Text Block]

5. DERIVATIVE FINANCIAL INSTRUMENTS

From time to time, the Company enters into aluminum swap contracts to partially mitigate our exposure to changes in the cost of aluminum cans. Such financial instruments are designated and accounted for as cash flow hedges. Accordingly, gains or losses attributable to the effective portion of the cash flow hedge are reported in accumulated other comprehensive income (loss) (“AOCI”) and reclassified into cost of sales in the period in which the hedged transaction affects earnings. The ineffective portion of the change in fair value of our cash flow hedge was immaterial. The following summarizes the gains (losses) recognized in the Condensed Consolidated Statements of Income and AOCI for the quarters ended July 30, 2022 and July 31, 2021:

	(In thousands)
	2022			2021
Recognized in AOCI:
Gain (loss) before income taxes	$	(15,010	)	$	753
Less income tax (benefit) provision		(3,590	)		180
Net		(11,420	)		573
Reclassified from AOCI to cost of sales:
Gain (loss) before income taxes		(608	)		3,057
Less income tax (benefit) provision		(144	)		731
Net		(464	)		2,326
Net change to AOCI	$	(10,956	)	$	(1,753	)

As of July 30, 2022, the notional amount of our outstanding aluminum swap contracts was $99.6 million and, assuming no change in commodity prices, $4.7 million of unrealized loss before tax will be reclassified from AOCI and recognized in earnings over the next 12 months.

As of July 30, 2022, the fair value of the derivative liability was $5.7 million, which was included in liabilities. At April 30, 2022, the fair value of the derivative asset was $8.8 million, which was included in prepaid and other assets. Such valuation does not entail a significant amount of judgment and the inputs that are significant to the fair value measurement are Level 2 as defined by the fair value hierarchy as they are observable market based inputs or unobservable inputs that are corroborated by market data.