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DERIVATIVE FINANCIAL INSTRUMENTS | 12 Months Ended
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May 26, 2024
DERIVATIVE FINANCIAL INSTRUMENTS |
DERIVATIVE FINANCIAL INSTRUMENTS | 17. 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 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, diesel fuel 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 May 26, 2024, we had economically hedged certain portions of our anticipated consumption of commodity inputs using derivative instruments with expiration dates through December 2024. 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 May 26, 2024, we had economically hedged certain portions of our foreign currency risk in anticipated transactions using derivative instruments with expiration dates through February 2025. 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 May 26, 2024 was $28.0 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: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | 2024 |  | 2023 |  | 2022
Net derivative gains (losses) incurred | ​ | $ | 2.9 | ​ | $ | (17.6) | ​ | $ | 37.1
Less: Net derivative gains (losses) allocated to reporting segments | ​ | ​ | (13.2) | ​ | ​ | 19.5 | ​ | ​ | 32.7
Net derivative gains (losses) recognized in general corporate expenses | ​ | $ | 16.1 | ​ | $ | (37.1) | ​ | $ | 4.4
Net derivative gains (losses) allocated to Grocery & Snacks | ​ | $ | (6.1) | ​ | $ | 6.0 | ​ | $ | 17.3
Net derivative gains (losses) allocated to Refrigerated & Frozen | ​ | ​ | (1.2) | ​ | ​ | 9.6 | ​ | ​ | 17.4
Net derivative gains (losses) allocated to International | ​ | ​ | (5.6) | ​ | ​ | 2.5 | ​ | ​ | (3.6)
Net derivative gains (losses) allocated to Foodservice | ​ | ​ | (0.3) | ​ | ​ | 1.4 | ​ | ​ | 1.6
Net derivative gains (losses) included in segment operating profit | ​ | $ | (13.2) | ​ | $ | 19.5 | ​ | $ | 32.7
​ As of May 26, 2024, the cumulative amount of net derivative losses from economic hedges that had been recognized in general corporate expenses and not yet allocated to reporting segments was $5.1 million. This amount reflected net losses of $4.0 million incurred during the fiscal year ended May 26, 2024, as well as net losses of $1.1 million incurred prior to fiscal 2024. Based on our forecasts of the timing of recognition of the underlying hedged items, we expect to reclassify to segment operating results net losses of $5.3 million in fiscal 2025 and net gains of $0.2 million in fiscal 2026 and thereafter. 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. As of May 26, 2024, and May 28, 2023, there were no derivative instruments used to economically hedge our monetary assets or liabilities. All derivative instruments are recognized in our Consolidated Balance Sheets at fair value (refer to Note 19 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 May 26, 2024 and May 28, 2023, amounts representing an obligation to return cash collateral and a right to reclaim cash collateral of $1.2 million and $21.3 million, respectively, were included in prepaid expenses and other current assets in our Consolidated Balance Sheets. Derivative assets and liabilities and amounts representing a right to reclaim cash collateral or obligation to return cash collateral were reflected in our Consolidated Balance Sheets as follows: ​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | May 26, 2024 |  | May 28, 2023
Prepaid expenses and other current assets | ​ | $ | 3.0 | ​ | $ | 10.0
Other accrued liabilities | ​ | ​ | 3.6 | ​ | ​ | 3.6
​ The following table presents our derivative assets and liabilities at May 26, 2024, on a gross basis, prior to the setoff of $1.5 million to total derivative assets and $0.3 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 | ​ | $ | 3.8 | ​ | Other accrued liabilities | ​ | $ | 2.6
Foreign exchange contracts | ​ | Prepaid expenses and other current assets | ​ | ​ | 0.7 | ​ | Other accrued liabilities | ​ | ​ | 1.3
Total derivatives not designated as hedging instruments | ​ | ​ | ​ | $ | 4.5 | ​ | ​ | ​ | $ | 3.9
​ The following table presents our derivative assets and liabilities, at May 28, 2023, on a gross basis, prior to the setoff of $8.3 million to total derivative assets and $13.0 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 | ​ | $ | 1.1 | ​ | Other accrued liabilities | ​ | $ | 14.4
Foreign exchange contracts | ​ | Prepaid expenses and other current assets | ​ | ​ | 0.6 | ​ | Other accrued liabilities | ​ | ​ | 2.2
Total derivatives not designated as hedging instruments | ​ | ​ | ​ | $ | 1.7 | ​ | ​ | ​ | $ | 16.6
​ The location and amount of gains (losses) from derivatives not designated as hedging instruments in our Consolidated Statements of Earnings were as follows: ​
​ | ​ | ​ | ​ | ​ | ​
​ | ​ | For the Fiscal Year Ended May 26, 2024
Derivatives Not Designated as Hedging Instruments |  | Location in Consolidated Statement of Earnings of Gains (Losses) Recognized on Derivatives |  | Amount of Gains (Losses) Recognized on Derivatives in Consolidated Statement of Earnings
Commodity contracts | ​ | Cost of goods sold | ​ | $ | 6.9
Foreign exchange contracts | ​ | Cost of goods sold | ​ | ​ | (4.0)
Total gains from derivative instruments not designated as hedging instruments | ​ | ​ | ​ | $ | 2.9
​
​ | ​ | ​ | ​ | ​ | ​
​ | ​ | For the Fiscal Year Ended May 28, 2023
Derivatives Not Designated as Hedging Instruments |  | Location in Consolidated Statement of Earnings of Gains (Losses) Recognized on Derivatives |  | Amount of Gains (Losses) Recognized on Derivatives in Consolidated Statement of Earnings
Commodity contracts | ​ | Cost of goods sold | ​ | $ | (19.7)
Foreign exchange contracts | ​ | Cost of goods sold | ​ | ​ | 2.1
Total losses from derivative instruments not designated as hedging instruments | ​ | ​ | ​ | $ | (17.6)
​
​ | ​ | ​ | ​ | ​ | ​
​ | ​ | For the Fiscal Year Ended May 29, 2022
Derivatives Not Designated as Hedging Instruments |  | Location in Consolidated Statement of Earnings of Gains (Losses) Recognized on Derivatives |  | Amount of Gains (Losses) Recognized on Derivatives in Consolidated Statement of Earnings
Commodity contracts | ​ | Cost of goods sold | ​ | $ | 33.4
Foreign exchange contracts | ​ | Cost of goods sold | ​ | ​ | 3.7
Total gains from derivative instruments not designated as hedging instruments | ​ | ​ | ​ | $ | 37.1
​ As of May 26, 2024, our open commodity contracts had a notional value (defined as notional quantity times market value per notional quantity unit) of $88.2 million and $11.0 million for purchase and sales contracts, respectively. 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 and cross currency swap contracts as of May 26, 2024 and May 28, 2023 was $101.5 million and $87.3 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 May 26, 2024, 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 contracts, was $0.7 million.

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