DERIVATIVE FINANCIAL INSTRUMENTS

3 Months Ended

Mar. 26, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The Company utilizes various raw materials in its operations, including corn, soybean meal, soybean oil, wheat, natural gas, electricity and diesel fuel, which are all considered commodities. The Company considers these raw materials generally available from a number of different sources and believes it can obtain them to meet its requirements. These commodities are subject to price fluctuations and related price risk due to factors beyond our control, such as economic and political conditions, supply and demand, weather, governmental regulation and other circumstances. Generally, the Company purchases derivative financial instruments, specifically exchange-traded futures and options, in an attempt to mitigate price risk related to its anticipated consumption of commodity inputs for approximately the next twelve months. The Company may purchase longer-term derivative financial instruments on particular commodities if deemed appropriate.

The Company has operations in Mexico, the U.K., France, the Netherlands and the Republic of Ireland. Therefore, it has exposure to translational foreign exchange risk when the financial results of those operations are remeasured in U.S. dollars. The Company has purchased foreign currency forward contracts to manage this foreign exchange risk.

The fair value of derivative assets is included in the line item Prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets while the fair value of derivative liabilities is included in the line item Accrued expenses and other current liabilities on the same statements. The Company’s counterparties require that it post collateral for changes in the net fair value of the derivative contracts. This cash collateral is reported in the line item Restricted cash and restricted cash equivalents on the Condensed Consolidated Balance Sheets.

Undesignated contracts may include contracts not designated as hedges or contracts that do not qualify for hedge accounting. The fair value of each of these derivatives is recognized in the Condensed Consolidated Balance Sheets within Prepaid expenses and other current assets or Accrued expenses and other current liabilities. Changes in fair value of each derivative are recognized immediately in the Condensed Consolidated Statements of Income within Net sales, Cost of sales, Selling, general and administrative expense, or Foreign currency transaction losses depending on the risk the derivative is intended to mitigate. While management believes these instruments help mitigate various market risks, they are not designated and accounted for as hedges as a result of the extensive record keeping requirements.

The Company does not apply hedge accounting treatment to certain derivative financial instruments that it has purchased to mitigate commodity purchase exposures in the U.S. and Mexico or foreign currency transaction exposures on our Mexico operations. Therefore, the Company recognized changes in the fair value of these derivative financial instruments immediately in earnings. Gains or losses related to the commodity derivative financial instruments are included in the line item Cost of sales in the Condensed Consolidated Statements of Income. Gains or losses related to the foreign currency derivative financial instruments are included in the line item Foreign currency transaction losses and Cost of sales in the Condensed Consolidated Statements of Income.

The Company does apply hedge accounting treatment to certain derivative financial instruments related to its U.K. and Europe reportable segment that it has purchased to mitigate foreign currency transaction exposures. Before the settlement date of the financial derivative instruments, the Company recognizes changes in the fair value of the cash flow hedge into accumulated other comprehensive income (“AOCI”). When the derivative financial instruments are settled, the amount in AOCI is then reclassified to earnings. Gains or losses related to these derivative financial instruments are included in the line item Net sales and Cost of sales in the Condensed Consolidated Statements of Income.

Information regarding the Company’s outstanding derivative instruments and cash collateral posted with brokers is included in the following table:


	March 26, 2023			December 25, 2022
	(In thousands)
Fair values:
Commodity derivative assets	$	8,333		$	17,922
Commodity derivative liabilities	(26,437)			(9,042)
Foreign currency derivative assets	5,600			555
Foreign currency derivative liabilities	(405)			(6,170)

Sales contract derivative assets	459			—
Sales contract derivative liabilities	—			(3,705)
Cash collateral posted with brokers(a)	33,879			33,771
Derivatives coverage(b):
Corn	12.1		%	14.4		%
Soybean meal	10.0		%	10.1		%
Period through which stated percent of needs are covered:
Corn	March 2024			December 2023
Soybean meal	July 2024			December 2023

(a)Collateral posted with brokers consists primarily of cash, short-term treasury bills or other cash equivalents.

(b)Derivatives coverage is the percent of anticipated commodity needs covered by outstanding derivative instruments through a specified date.

The following table presents the gains and losses of each derivative instrument held by the Company not designated or qualifying as hedging instruments:


	Three Months Ended
Gains (Losses) by Type of Contract (a)	March 26, 2023		March 27, 2022		Affected Line Item in the Condensed Consolidated Statements of Income
	(In thousands)
Foreign currency derivatives	$	(19,104)	$	(13,300)	Foreign currency transaction losses
Commodity derivatives	(16,534)		31,540		Cost of sales
Sales contract derivative liabilities	4,164		(8,666)		Net sales
Total	$	(31,474)	$	9,574

(a)Amounts represent income (expenses) related to results of operations.

The following tables present the components of the gain or loss on derivatives that qualify as cash flow hedges:


	Gains Recognized in Other Comprehensive Income
	Three Months Ended
	March 26, 2023		March 27, 2022
	(In thousands)
Foreign currency derivatives	$	16	$	523


	Gains (Losses) Reclassified from AOCI into Income
	Three Months Ended March 26, 2023						Three Months Ended March 27, 2022
	Net sales(a)		Cost of sales(b)		Interest expense, net of capitalized interest(b)		Net sales(a)		Cost of sales(b)		Interest expense, net of capitalized interest(b)
	(In thousands)
Total amounts of income and expense line items presented in the Condensed Consolidated Statements of Income in which the effects of cash flow hedges are recorded	$	4,165,628	$	3,992,581	$	42,662	$	4,240,395	$	3,698,415	$	36,296
Impact from cash flow hedging instruments:
Foreign currency derivatives	120		56		—		32		91		—
Interest rates swap derivatives	—		—		—		—		—		98

(a) Amounts represent income (expenses) related to net sales.

(b) Amounts represent expenses (income) related to cost of sales and interest expense.

At March 26, 2023, there were immaterial pre-tax deferred net gains on foreign currency derivatives recorded in AOCI that are expected to be reclassified to the Condensed Consolidated Statements of Income during the next twelve months. This expectation is based on the anticipated settlements on the hedged investments in foreign currencies that will occur over the next twelve months, at which time the Company will recognize the deferred gains to earnings.