DERIVATIVE FINANCIAL INSTRUMENTS

12 Months Ended

May 28, 2017

DERIVATIVE FINANCIAL INSTRUMENTS

DERIVATIVE FINANCIAL INSTRUMENTS

12.   DERIVATIVE FINANCIAL INSTRUMENTS

We use derivatives and other financial instruments to hedge exposures to commodity and currency risks. We do not hold or issue derivatives and other financial instruments for trading purposes. Prior to the Separation, Conagra exited all derivative instruments related to our businesses. The effect of exiting the positions was not significant to our financial results.

Certain raw materials used in our production processes are subject to price volatility caused by weather, supply conditions, political and economic variables and other unpredictable factors. To manage the volatility in earnings due to price fluctuations, we may utilize swap contracts, option contracts, or forward purchase contracts.

Derivative instruments are reported in the Combined and Consolidated Balance Sheets at their fair values, unless the derivative instruments qualify for the normal purchase normal sale exception (“NPNS”) under GAAP and such exception has been elected. If the NPNS exception is elected, the fair values of such contracts are not recognized.

We do not designate commodity derivatives to achieve hedge accounting treatment. The change in the fair value of the instruments used to reduce commodity price volatility is immediately recognized in earnings in cost of sales. In accordance with GAAP, we offset our derivative asset and liability balances where master netting arrangements with various counterparties provide for legal right of setoff. Our contracts are subject to enforceable master netting arrangements that provide rights of offset with each counterparty when amounts are payable on the same date in the same currency or in the case of certain specified defaults. As a result, we offset the fair value of recognized derivative assets and derivative liabilities in our Combined and Consolidated Balance Sheets. No collateral was received or pledged in connection with these agreements.

The following table presents our derivatives at May 28, 2017 and May 29, 2016 (dollars in millions):

	May 28, 2017
					Net Amounts
	Gross Amounts		Gross Amounts Offset		Presented in the
Derivative subject to master netting arrangements	Recognized		in the Balance Sheet		Balance Sheet
Liabilities:
Commodity contracts	$	3.8	$	1.4	$	2.4
Accrued liabilities	$	3.8	$	1.4	$	2.4

	May 29, 2016
					Net Amounts
	Gross Amounts		Gross Amounts Offset		Presented in the
Derivative subject to master netting arrangements	Recognized		in the Balance Sheet		Balance Sheet
Assets:
Commodity contracts	$	1.5	$	0.1	$	1.4
Foreign exchange contracts		0.6		—		0.6
Prepaid expenses and other current assets	$	2.1	$	0.1	$	2.0
Liabilities:
Commodity contracts	$	0.2	$	0.1	$	0.1
Accrued liabilities	$	0.2	$	0.1	$	0.1

The location and amount of gains (losses) from derivatives in our Combined and Consolidated Statements of Earnings were as follows (dollars in millions):

		Amount of Gain (Loss)
		Recognized on Derivatives in
	Location in Consolidated	Combined Statement of Earnings
Derivatives Not Designated as Hedging	Statement of Earnings of Gain	For the Fiscal Years Ended May
Instruments	(Loss) Recognized on Derivatives	2017		2016		2015
Commodity contracts	Cost of sales	$	(2.0)	$	(5.4)	$	(11.4)
Foreign exchange contracts	Selling, general and administrative expenses		(0.1)		0.8		1.1
Total loss from derivative instruments not designed as hedging instruments		$	(2.1)	$	(4.6)	$	(10.3)

As of May 28, 2017, our open commodity contracts had a gross notional value (defined as notional quantity times market value per notional quantity unit) of $56.0 million and $88.6 million for purchase and sales contracts, respectively. As of May 29, 2016, our open commodity contracts had a gross notional value of $32.8 million and $13.6 million for purchase and sales contracts, respectively.