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DERIVATIVE FINANCIAL INSTRUMENTS | 9 Months Ended
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Feb. 28, 2021
Derivative Instruments And Hedging Activities Disclosure [Abstract] |
DERIVATIVE FINANCIAL INSTRUMENTS | 6. DERIVATIVE FINANCIAL INSTRUMENTS Our operations are exposed to market risks from adverse changes in commodity prices affecting the cost of raw materials and energy, foreign currency exchange rates, and interest rates. In the normal course of business, these risks are managed through a variety of strategies, including the use of derivatives. Commodity and commodity index futures and option contracts are used from time to time to economically hedge commodity input prices on items such as natural gas, vegetable oils, proteins, packaging materials, dairy, grains, and electricity. Generally, we economically hedge a portion of our anticipated consumption of commodity inputs for periods of up to 36 months. We may enter into longer-term economic hedges on particular commodities, if deemed appropriate. As of February 28, 2021, we had economically hedged certain portions of our anticipated consumption of commodity inputs using derivative instruments with expiration dates through October 2022. In order to reduce exposures related to changes in foreign currency exchange rates, we enter into forward exchange, option, or swap contracts from time to time for transactions denominated in a currency other than the applicable functional currency. This includes, but is not limited to, hedging against foreign currency risk in purchasing inventory and capital equipment, sales of finished goods, and future settlement of foreign-denominated assets and liabilities. As of February 28, 2021, we had economically hedged certain portions of our foreign currency risk in anticipated transactions using derivative instruments with expiration dates through November 2021. From time to time, we may use derivative instruments, including interest rate swaps, to reduce risk related to changes in interest rates. This includes, but is not limited to, hedging against increasing interest rates prior to the issuance of long-term debt and hedging the fair value of our senior long-term debt. 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. 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 February 28, 2021 was $39.0 million. The portion written off in fiscal 2021 in connection with the second quarter early extinguishment of debt totaled $0.5 million (see Note 4). 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. Economic Hedges of Fair Values — Foreign Currency Exchange Rate Risk We may use options and cross currency swaps to economically hedge the fair value of certain monetary assets and liabilities (including intercompany balances) denominated in a currency other than the functional currency. These derivatives are marked-to-market with gains and losses immediately recognized in SG&A expenses. These substantially offset the foreign currency transaction gains or losses recognized as values of the monetary assets or liabilities being economically hedged change. All derivative instruments are recognized on our balance sheets at fair value (refer to Note 14 for additional information related to fair value measurements). The fair value of derivative assets is recognized within prepaid expenses and other current assets, while the fair value of derivative liabilities is recognized within other accrued liabilities. In accordance with U.S. GAAP, we offset certain derivative asset and liability balances, as well as certain amounts representing rights to reclaim cash collateral and obligations to return cash collateral, where master netting agreements provide for legal right of setoff. At February 28, 2021 and May 31, 2020, $0.1 million, representing an obligation to return cash collateral, and $1.1 million, representing a right to reclaim cash collateral, respectively, were included in prepaid expenses and other current assets in our Condensed Consolidated Balance Sheets. Derivative assets and liabilities and amounts representing a right to reclaim cash collateral or an obligation to return cash collateral were reflected in our Condensed Consolidated Balance Sheets as follows:
|  | February 28, 2021 |  |  | May 31, 2020 |
Prepaid expenses and other current assets |  | $ | 8.8 |  |  | $ | 8.0 |
Other accrued liabilities |  |  | 3.5 |  |  |  | 0.4 |
The following table presents our derivative assets and liabilities, at February 28, 2021, on a gross basis, prior to the setoff of $1.6 million to total derivative assets and $1.5 million to total derivative liabilities where legal right of setoff existed:
|  | Derivative Assets |  |  | Derivative Liabilities |
|  | Balance Sheet Location |  | Fair Value |  |  | Balance Sheet Location |  | Fair Value |
Commodity contracts |  | Prepaid expenses and other current assets |  | $ | 10.4 |  |  | Other accrued liabilities |  | $ | 1.5 |
Foreign exchange contracts |  | Prepaid expenses and other current assets |  |  | — |  |  | Other accrued liabilities |  |  | 3.5 |
Total derivatives not designated as hedging instruments |  | $ | 10.4 |  |  |  |  | $ | 5.0 |
The following table presents our derivative assets and liabilities at May 31, 2020, on a gross basis, prior to the setoff of $0.4 million to total derivative assets and $1.5 million to total derivative liabilities where legal right of setoff existed:
|  | Derivative Assets |  |  | Derivative Liabilities |
|  | Balance Sheet Location |  | Fair Value |  |  | Balance Sheet Location |  | Fair Value |
Commodity contracts |  | Prepaid expenses and other current assets |  | $ | 3.3 |  |  | Other accrued liabilities |  | $ | 1.9 |
Foreign exchange contracts |  | Prepaid expenses and other current assets |  |  | 5.1 |  |  | Other accrued liabilities |  |  | — |
Total derivatives not designated as hedging instruments |  | $ | 8.4 |  |  |  |  | $ | 1.9 |
The location and amount of gains (losses) 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 |  | February 28, 2021 |  |  | February 23, 2020 |
Commodity contracts |  | Cost of goods sold |  | $ | 8.2 |  |  | $ | (3.5 | )
Foreign exchange contracts |  | Cost of goods sold |  |  | (2.9 | ) |  |  | (2.2 | )
Total gains (losses) from derivative instruments not designated as hedging instruments |  | $ | 5.3 |  |  | $ | (5.7 | )
|  | Location in Condensed Consolidated |  | Gains (Losses) Recognized on Derivatives in Condensed Consolidated Statements of Earnings for the Thirty-nine Weeks Ended |
Derivatives Not Designated as Hedging Instruments |  | Statements of Earnings of Gains (Losses) Recognized on Derivatives |  | February 28, 2021 |  |  | February 23, 2020 |
Commodity contracts |  | Cost of goods sold |  | $ | 11.8 |  |  | $ | (8.0 | )
Foreign exchange contracts |  | Cost of goods sold |  |  | (10.4 | ) |  |  | (4.5 | )
Total gains (losses) from derivative instruments not designated as hedging instruments |  | $ | 1.4 |  |  | $ | (12.5 | )
As of February 28, 2021, our open commodity contracts had a notional value (defined as notional quantity times market value per notional quantity unit) of $55.0 million and $45.2 million for purchase and sales contracts, respectively. As of May 31, 2020, our open commodity contracts had a notional value of $102.0 million and $3.4 million for purchase and sales contracts, respectively. The notional amount of our foreign currency forward contracts as of February 28, 2021 and May 31, 2020 was $104.4 million and $107.6 million, respectively. We enter into certain commodity, interest rate, and foreign exchange derivatives with a diversified group of counterparties. We continually monitor our positions and the credit ratings of the counterparties involved and limit the amount of credit exposure to any one party. These transactions may expose us to potential losses due to the risk of nonperformance by these counterparties. We have not incurred a material loss due to nonperformance in any period presented and do not expect to incur any such material loss. We also enter into futures and options transactions through various regulated exchanges. At February 28, 2021, the maximum amount of loss due to the credit risk of the counterparties, had the counterparties failed to perform according to the terms of the contract, was $3.2 million.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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