Derivative Financial Instruments and Hedging Activities

12 Months Ended

May 31, 2024

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments and Hedging Activities

Note P – Derivative Financial Instruments and Hedging Activities

The Company utilizes derivative financial instruments to primarily manage exposure to certain risks related to our ongoing operations. The primary risk managed through the use of derivative financial instruments is commodity price risk. While certain of the Company’s derivative financial instruments are designated as hedging instruments, the Company also enters 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.

Commodity Price Risk Management – The Company is exposed to changes in the price of certain commodities, including steel, zinc and other raw materials, and the Company’s utility requirements. The 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, the Company enters into derivative financial instruments to manage the associated price risk.

The Company is exposed to counterparty credit risk on all of its derivative financial instruments. Accordingly, the Company has established and maintained strict counterparty credit guidelines. The Company has credit support agreements in place with certain counterparties to limit the Company’s 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. The Company does 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 Measurements” for additional information regarding the accounting treatment for the Company’s derivative financial instruments, as well as how fair value is determined.

The following table summarizes the fair value of the derivative financial instruments and the respective lines in which they were recorded in our consolidated balance sheet at May 31, 2024:


	Asset Derivatives			Liability Derivatives
	Balance			Balance
	Sheet	Fair		Sheet	Fair
(In millions)	Location	Value		Location	Value
Derivatives designated as hedging instruments:
Commodity contracts	Receivables	$	0.2	Accounts payable	$	1.9
	Other assets		-	Other liabilities		-
Total		$	0.2		$	1.9

Derivatives not designated as hedging instruments:
Commodity contracts	Receivables	$	3.4	Accounts payable	$	2.5
	Other assets		-	Other liabilities		-
Total		$	3.4		$	2.5

Total derivative financial instruments		$	3.6		$	4.4

GAAP permits an entity to present derivative financial instruments assets and liabilities on a net basis on the balance sheet, provided a right of offset exists and/or when they are subject to a master netting arrangement. The Company’s policy is to record derivative financial instruments on a net basis where the Company has an executed master netting arrangement with counterparties as well as where the right of offset exists. 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 and/or where the right of offset exists. Had these amounts been recognized on a gross basis, the impact would have been a $2.6 million increase in receivables with a corresponding increase in accounts payable.

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


	Asset Derivatives			Liability Derivatives
	Balance			Balance
	Sheet	Fair		Sheet	Fair
(In millions)	Location	Value		Location	Value
Derivatives designated as hedging instruments:
Commodity contracts	Receivables	$	-	Accounts payable	$	2.7
	Other assets		0.1	Other liabilities		0.1
Total		$	0.1		$	2.8

Derivatives not designated as hedging instruments:
Commodity contracts	Receivables	$	2.2	Accounts payable	$	7.0
	Other assets		-	Other liabilities		-
Total		$	2.2		$	7.0

Total derivative financial instruments		$	2.3		$	9.8

The amounts in the table above reflect the fair value of the derivative financial instruments on a net basis, where allowable under master netting arrangements and/or where the right of offset exists. Had these amounts been recognized on a gross basis, the impact would have been a $7.3 million increase in receivables with a corresponding increase in accounts payable.

Cash Flow Hedges

We enter into derivative financial instruments to hedge exposure to changes in cash flows attributable to interest rate and commodity price fluctuations associated with certain forecasted transactions. These derivative financial instruments are designated and qualify as cash flow hedges. Accordingly, the effective portion of the gain or loss on each of these derivative financial instruments is reported as a component of OCI and reclassified into earnings in the same line associated with the forecasted transaction and in the same period during which the

hedged transaction affects earnings. The ineffective portion of the gain or loss on the derivative financial instrument is recognized in earnings immediately.

The following table summarizes our cash flow hedges outstanding at May 31, 2024:

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

The following table summarizes the gain (loss) recognized in OCI and the gain (loss) reclassified from AOCI into earnings for derivative financial instruments designated as cash flow hedges during fiscal 2024 and fiscal 2023:


				Location of Gain (Loss)	Gain (Loss) Reclassified
	Gain (Loss)			Reclassified from AOCI	from AOCI into
(In millions)	Recognized in OCI			into Net Earnings	Net Earnings
For the fiscal year ended May 31, 2024:
Commodity contracts		1.6		Cost of goods sold		8.3
Totals	$	1.6			$	8.3

For the fiscal year ended May 31, 2023:
Commodity contracts		(10.1	)	Cost of goods sold		(14.6	)
Totals	$	(10.1	)		$	(14.6	)

The estimated net amount of the losses recognized in AOCI at May 31, 2024, expected to be reclassified into net earnings within the succeeding twelve months is $2.6 million (net of tax of $0.8 million). This amount was computed using the fair value of the cash flow hedges at May 31, 2024, and will change before actual reclassification from other comprehensive income to net earnings during fiscal 2025.

Economic (Non-designated) Hedges

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 earnings.

The following table summarizes our economic (non-designated) derivative financial instruments outstanding at May 31, 2024:

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

The following table summarizes the loss recognized in earnings for economic (non-designated) derivative financial instruments during fiscal 2024 and fiscal 2023:


		Loss
		Recognized in Earnings
		Fiscal Year Ended
	Location of Loss	May 31,
(In millions)	Recognized in Earnings	2024			2023
Commodity contracts	Cost of goods sold	$	(0.4	)	$	(11.7	)
Total		$	(0.4	)	$	(11.7	)

(In millions)

Maturity Date

Commodity contracts

June 2024 – September 2025