We utilize derivative financial instruments to primarily manage exposure to certain risks related to our ongoing operations. The primary risks managed through the use of derivative financial instruments include interest rate risk, foreign currency exchange rate risk and commodity price risk. While certain of our derivative financial instruments are designated as hedging instruments, we also enter into derivative financial instruments that are designed to hedge a risk, but are not designated as hedging instruments and, therefore, do not qualify for hedge accounting. These derivative financial instruments are adjusted to current fair value through earnings at the end of each period.

Interest Rate Risk Management – We are exposed to the impact of interest rate changes. Our objective is to manage the impact of interest rate changes on cash flows and the market value of our borrowings. We utilize a mix of debt maturities along with both fixed-rate and variable-rate debt to manage changes in interest rates. In addition, we enter into interest rate swaps and treasury locks to further manage our exposure to interest rate variations related to our borrowings and to lower our overall borrowing costs.

Foreign Currency Exchange Rate Risk Management – We conduct business in several major international currencies and are, therefore, subject to risks associated with changing foreign currency exchange rates. We enter into various contracts that change in value as foreign currency exchange rates change to manage this exposure. Such contracts limit exposure to both favorable and unfavorable currency exchange rate fluctuations. The translation of foreign currencies into U.S. dollars also subjects us to exposure related to fluctuating currency exchange rates; however, derivative financial instruments are not used to manage this risk.

Commodity Price Risk Management – We are exposed to changes in the price of certain commodities, including steel, natural gas, copper, zinc and other raw materials, and our utility requirements. Our objective is to reduce earnings and cash flow volatility associated with forecasted purchases and sales of these commodities to allow management to focus its attention on business operations. Accordingly, we enter into derivative financial instruments to manage the associated price risk.

We are exposed to counterparty credit risk on all of our derivative financial instruments. Accordingly, we have established and maintain strict counterparty credit guidelines. We have credit support agreements in place with certain counterparties to limit our credit exposure. These agreements require either party to post cash collateral if its cumulative market position exceeds a predefined liability threshold. Amounts posted to the margin accounts accrue interest at market rates and are required to be refunded in the period in which the cumulative market position falls below the required threshold. We do not have significant exposure to any one counterparty, and management believes the overall risk of loss is remote and, in any event, would not be material.

Refer to “Note Q – Fair Value” for additional information regarding the accounting treatment for our derivative financial instruments, as well as how fair value is determined.

The following table summarizes the fair value of our derivative financial instruments and the respective lines in which they were recorded in the consolidated balance sheet at August 31, 2023:


	Asset Derivatives			Liability Derivatives
	Balance			Balance
	Sheet	Fair		Sheet	Fair
(In thousands)	Location	Value		Location	Value
Derivatives designated as hedging instruments:
Commodity contracts	Receivables	$	80	Accounts payable	$	9,490
	Other assets		176	Other liabilities		-
			256			9,490

Foreign currency exchange contracts	Receivables		-	Accounts payable		63
			-			63

Subtotals		$	256		$	9,553

Derivatives not designated as hedging instruments:
Commodity contracts	Receivables	$	976	Accounts payable	$	3,320
	Other assets		-	Other liabilities		20
Subtotals			976			3,340

Total derivative financial instruments		$	1,232		$	12,893

The amounts in the table above reflect the fair value of our derivative financial instruments on a net basis where allowable under master netting arrangements. Had these amounts been recognized on a gross basis, the impact would have been a $3,791 increase in receivables with a corresponding increase in accounts payable.

The following table summarizes the fair value of our derivative financial instruments and the respective lines in which they were recorded in the consolidated balance sheet at May 31, 2023:


	Asset Derivatives			Liability Derivatives
	Balance			Balance
	Sheet	Fair		Sheet	Fair
(In thousands)	Location	Value		Location	Value
Derivatives designated as hedging instruments:
Commodity contracts	Receivables	$	20	Accounts payable	$	6,749
	Other assets		51	Other liabilities		379
			71			7,128

Foreign currency exchange contracts	Receivables		-	Accounts payable		33
			-			33

Subtotals		$	71		$	7,161

Derivatives not designated as hedging instruments:
Commodity contracts	Receivables	$	2,539	Accounts payable	$	8,604
	Other assets		-	Other liabilities		35
Subtotals			2,539			8,639

Total derivative financial instruments		$	2,610		$	15,800

The amounts in the table above reflect the fair value of our derivative financial instruments on a net basis where allowable under master netting arrangements. Had these amounts been recognized on a gross basis, the impact would have been a $7,576 increase in receivables with a corresponding increase in accounts payable.

We enter into derivative financial instruments to hedge our exposure to changes in cash flows attributable to commodity price fluctuations associated with certain forecasted transactions. These derivative financial instruments are designated and qualify as cash flow hedges. The earnings effects of these derivative financial instruments are presented in the same statement of earnings line items as the earnings effects of the hedged items. For derivative financial instruments designated as cash flow hedges, we assess hedge effectiveness both at the onset of the hedge and at regular intervals throughout the life of the derivative financial instruments.

The following table summarizes our cash flow hedges outstanding at August 31, 2023:


	Notional
(In thousands)	Amount		Maturity Date
Commodity contracts	$	63,431	September 2023 - December 2024
Foreign currency exchange contracts	$	2,494	September 2023 - November 2023

The following table summarizes the gain (loss) recognized in OCI and the gain (loss) reclassified from AOCI into net earnings for derivative financial instruments designated as cash flow hedges for the periods presented:


(In thousands)	Gain (Loss) Recognized in OCI			Location of Gain (Loss) Reclassified from AOCI into Net Earnings	Gain (Loss) Reclassified from AOCI into Net Earnings
For the three months ended August 31, 2023:
Commodity contracts	$	(2,061	)	Cost of goods sold	$	7,330
Interest rate contracts		-		Loss on extinguishment of debt		(641	)
Interest rate contracts		-		Interest expense, net		31
Foreign currency exchange contracts		23		Net sales/Cost of goods sold		53
Total	$	(2,038	)		$	6,773

For the three months ended August 31, 2022:
Commodity contracts	$	(14,045	)	Cost of goods sold	$	2,869
Interest rate contracts		-		Interest expense		(7	)
Foreign currency exchange contracts		(162	)	Miscellaneous income, net		28
Total	$	(14,207	)		$	2,890

The estimated net amount of the losses recognized in AOCI at August 31, 2023 expected to be reclassified into net earnings within the succeeding twelve months is $7,750 (net of tax of $2,182). This amount was computed using the fair value of the cash flow hedges at August 31, 2023, and will change before actual reclassification from OCI to net earnings during the fiscal years ending May 31, 2024 and May 31, 2025.

We enter into foreign currency exchange contracts to manage our foreign currency exchange rate exposure related to inter-company and financing transactions that do not meet the requirements for hedge accounting treatment. We also enter into certain commodity contracts that do not qualify for hedge accounting treatment. Accordingly, these derivative financial instruments are adjusted to current market value at the end of each period through gain (loss) recognized in earnings.

The following table summarizes our economic (non-designated) derivative financial instruments outstanding at August 31, 2023:

The following table summarizes the gain (loss) recognized in earnings for economic (non-designated) derivative financial instruments for the periods presented:


		Loss Recognized
		In Earnings for the
	Location of Loss	Three Months Ended August 31,
(In thousands)	Recognized in Earnings	2023			2022
Commodity contracts	Cost of goods sold	$	(1,019	)	$	(1,577	)

(In thousands)

Maturity Date(s)

Commodity contracts

September 2023 - December 2024