| Financial Instruments, Risk Management Activities, and Fair Values |
NOTE 8. FINANCIAL INSTRUMENTS, RISK MANAGEMENT ACTIVITIES, AND FAIR VALUES FINANCIAL INSTRUMENTS The carrying values of cash and cash equivalents, receivables, accounts payable, other current liabilities, and notes payable approximate fair value. Marketable securities are carried at fair value. As of May 25, 2025, and May 26, 2024, a comparison of cost and market values of our marketable debt and equity securities is as follows: Cost Fair Value Gross Unrealized Gains Gross Unrealized Losses Fiscal Year Fiscal Year Fiscal Year Fiscal Year In Millions 2025 2024 2025 2024 2025 2024 2025 2024 $ 2.3 $ 2.3 $ 2.3 $ 2.3 $ - $ - $ - $ - Equity securities 0.3 0.3 4.9 4.6 4.6 4.3 - - Total $ 2.6 $ 2.6 $ 7.2 $ 6.9 $ 4.6 $ 4.3 $ - $ - no net realized gains or losses on the sale of marketable securities in fiscal 2025. Net realized losses on the sale of marketable securities were $ 7.6 million in fiscal 2024. Gains and losses are determined by specific identification. Classification of marketable securities as current or noncurrent is dependent upon our intended holding period and the security’s maturity date. The aggregate unrealized gains and losses on available for sale debt securities, net of tax effects, are classified in AOCI within stockholders’ equity. Scheduled maturities of our marketable securities are as follows: Marketable Securities In Millions Cost Fair Value Under 1 year (current) $ 2.3 $ 2.3 Equity securities 0.3 4.9 Total $ 2.6 $ 7.2 As of May 25, 2025, we had $ 2.3 million of marketable debt securities pledged as collateral for derivative contracts. RISK MANAGEMENT ACTIVITIES As a part of our ongoing operations, we are exposed to market risks such as changes in interest and foreign currency exchange rates and commodity and equity prices. To manage these risks, we may enter into various derivative transactions (e.g., futures, options, and swaps) pursuant to our established policies. COMMODITY PRICE RISK Many commodities we use in the production and distribution of our products are exposed to market price risks. We utilize derivatives to manage price risk for our principal ingredients and energy costs, including grains (oats, wheat, and corn), oils (principally soybean), dairy products, natural gas, and diesel fuel. Our primary objective when entering into these derivative contracts is to achieve certainty with regard to the future price of commodities purchased for use in our supply chain. We manage our exposures through a combination of purchase orders, long-term contracts with suppliers, exchange-traded futures and options, and over-the-counter options and swaps. We offset our exposures based on current and projected market conditions and generally seek to acquire the inputs at as close as possible to or below our planned cost. We use derivatives to manage our exposure to changes in commodity prices. We do not perform the assessments required to achieve hedge accounting for commodity derivative positions. Accordingly, the changes in the values of these derivatives are recorded in cost of sales in our Consolidated Statements of Earnings. Although we do not meet the criteria for cash flow hedge accounting, we believe that these instruments are effective in achieving our objective of providing certainty in the future price of commodities purchased for use in our supply chain. Accordingly, for purposes of measuring segment operating performance these gains and losses are reported in unallocated corporate items outside of segment operating results until such time that the exposure we are managing affects earnings. At that time, we reclassify the gain or loss from unallocated corporate items to segment operating profit, allowing our operating segments to realize the economic effects of the derivative without experiencing any resulting mark-to-market volatility, which remains in unallocated corporate items. Unallocated corporate items for fiscal 2025, 2024, and 2023 included: Fiscal Year In Millions 2025 2024 2023 Net loss on mark-to-market valuation of commodity positions $ (37.4) $ (15.4) $ (154.4) Net loss (gain) on commodity positions reclassified from unallocated corporate items to segment operating profit 52.8 40.0 (89.5) Net mark-to-market revaluation of certain grain inventories 0.3 14.5 (48.0) Net mark-to-market valuation of certain commodity positions recognized in unallocated corporate items $ 15.7 $ 39.1 $ (291.9) As of May 25, 2025, the net notional value of commodity derivatives was $ 227.1 134.6 agricultural inputs and $ 92.5 million related to energy inputs. These contracts relate to inputs that generally will be utilized within the next 12 INTEREST RATE RISK We are exposed to interest rate volatility with regard to future issuances of fixed-rate debt, and existing and future issuances of floating-rate debt. Primary exposures include U.S. Treasury rates, SOFR, Euribor, and commercial paper rates in the United States and Europe. We use interest rate swaps, forward-starting interest rate swaps, and treasury locks to hedge our exposure to interest rate changes, to reduce the volatility of our financing costs, and to achieve a desired proportion of fixed-rate versus floating-rate debt, based on current and projected market conditions. Generally under these swaps, we agree with a counterparty to exchange the difference between fixed-rate and floating-rate interest amounts based on an agreed upon notional principal amount. Floating Interest Rate Exposures — Floating-to-fixed interest rate swaps are accounted for as cash flow hedges, as are all hedges of forecasted issuances of debt. Effectiveness is assessed based on either the perfectly effective hypothetical derivative method or changes in the present value of interest payments on the underlying debt. Effective gains and losses deferred to AOCI are reclassified into earnings over the life of the associated debt. Fixed Interest Rate Exposures — Fixed-to-floating interest rate swaps are accounted for as fair value hedges with effectiveness assessed based on changes in the fair value of the underlying debt and derivatives, using incremental borrowing rates currently available on loans with similar terms and maturities. During the fourth quarter of fiscal 2025, we entered into a € 750.0 million notional amount interest rate swap to convert our € 750.0 million fixed-rate notes due April 17, 2032 , to a floating rate. During the second quarter of fiscal 2025, in advance of planned debt financing, we entered into $ 350.0 million of treasury locks. The treasury locks were terminated during the second quarter of fiscal 2025, in conjunction with the Company’s issuance of $ 750.0 January 30, 2035 . Upon termination, a gain of $ 0.1 million was recognized in AOCI and will be amortized through interest expense over the respective term of the debt. During the second quarter of fiscal 2025, we entered into a $ 750.0 million notional amount interest rate swap to convert our $ 750.0 million of fixed-rate notes due January 30, 2030 , to a floating rate. During the second quarter of fiscal 2025, our $ 500.0 million notional amount interest rate swap to convert our $ 500.0 rate notes due November 18, 2025 to a floating rate was called by the counterparty prior to the maturity date. The previously existing swap was designated as a fair value hedge, and concurrent with the swap being called, we ceased recording market value adjustments to the associated hedged debt. During the third quarter of fiscal 2024, in advance of our $ 500.0 million debt issuance, we entered into and settled $ 250.0 treasury locks, resulting in a gain of $ 0.3 As of May 25, 2025, the pre-tax amount of cash-settled interest rate hedge gain or loss remaining in AOCI, which will be reclassified to earnings over the remaining term of the related underlying debt, follows: In Millions Gain (Loss) 3.2 % notes due February 10, 2027 $ 2.9 1.5 % notes due April 27, 2027 (0.6) 4.2 % notes due April 17, 2028 (3.0) 3.907 % notes due April 13, 2029 (3.4) 2.25 % notes due October 14, 2031 12.6 4.95 % notes due March 29, 2033 (1.1) 5.25 % notes due January 30, 2035 0.1 4.55 % notes due April 17, 2038 (7.0) 5.4 % notes due June 15, 2040 (8.4) 4.15 % notes due February 15, 2043 7.0 4.7 % notes due April 17, 2048 (10.9) Net pre-tax hedge loss in AOCI $ (11.8) The following table summarizes the notional amounts and weighted-average interest rates of our interest rate derivatives. Average floating rates are based on rates as of the end of the reporting period. In Millions, Except Average Rate Data May 25, 2025 May 26, 2024 Pay-floating swaps - notional amount $ 2,283.9 $ 1,150.8 3.1 % 2.5 % Average pay rate 4.0 % 4.9 % As of May 25, 2025, the net notional amount and maturity dates of our floating-rate swap contracts outstanding are as follows: In Millions Notional Amount Fiscal 2026 $ 681.7 Fiscal 2030 750.0 Fiscal 2032 852.2 Total $ 2,283.9 FOREIGN EXCHANGE RISK Foreign currency fluctuations affect our net investments in foreign subsidiaries and foreign currency cash flows related to third party purchases, intercompany loans, product shipments, and foreign-denominated debt. We are also exposed to the translation of foreign currency earnings to the U.S. dollar. Our principal exposures are to the Australian dollar, Brazilian real, British pound sterling, Canadian dollar, Chinese renminbi, euro, Japanese yen, Mexican peso, and Swiss franc. We primarily use foreign currency forward contracts to selectively hedge our foreign currency cash flow exposures. We also generally swap our foreign-denominated commercial paper borrowings and nonfunctional currency intercompany loans back to U.S. dollars or the functional currency of the entity with foreign exchange exposure. The gains or losses on these derivatives offset the foreign currency revaluation gains or losses recorded in earnings on the associated borrowings. We generally do not hedge more than 18 months in advance. As of May 25, 2025, the net notional value of foreign exchange derivatives was $ 831.3 We also have net investments in foreign subsidiaries that are denominated in euros. We hedged a portion of these net investments by issuing euro-denominated commercial paper and foreign exchange forward contracts. As of May 25, 2025, we hedged a portion of these net investments with € 4,742.8 million of euro denominated bonds. As of May 25, 2025, we had deferred net foreign currency transaction losses of $ 123.5 million in AOCI associated with net investment hedging activity. EQUITY INSTRUMENTS Equity price movements affect our compensation expense as certain investments made by our employees in our deferred compensation plan are revalued. We use equity swaps to manage this risk. As of May 25, 2025, the net notional amount and maturity dates of our equity swap contracts outstanding are as follows: In Millions Notional Amount Fiscal 2026 $ 194.5 Fiscal 2027 8.2 Total $ 202.7 FAIR VALUE MEASUREMENTS AND FINANCIAL STATEMENT PRESENTATION The fair values of our assets, liabilities, and derivative positions recorded at fair value and their respective levels in the fair value hierarchy as of May 25, 2025, and May 26, 2024, were as follows: May 25, 2025 May 25, 2025 Fair Values of Liabilities In Millions Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Derivatives designated as hedging instruments: Interest rate contracts (a) (b) $ - $ 5.0 $ - $ 5.0 $ - $ (11.4) $ - $ (11.4) Foreign exchange contracts (a) (c) - 4.1 - 4.1 - (13.5) - (13.5) Total - 9.1 - 9.1 - (24.9) - (24.9) Derivatives not designated as hedging Foreign exchange contracts (a) (c) - 0.2 - 0.2 - (1.3) - (1.3) Commodity contracts (a) (d) 0.6 0.9 - 1.5 (0.2) (7.4) - (7.6) Grain contracts (a) (d) - 2.2 - 2.2 - (4.0) - (4.0) Total 0.6 3.3 - 3.9 (0.2) (12.7) - (12.9) Other assets and liabilities reported at fair value: Marketable investments (a) (e) 4.9 2.3 - 7.2 - - - - Long-lived assets (f) - 2.0 - 2.0 - - - - Total 4.9 4.3 - 9.2 - - - - Total assets, liabilities, and derivative positions $ 5.5 $ 16.7 $ - $ 22.2 $ (0.2) $ (37.6) $ - $ (37.8) (a) These contracts and investments are recorded as prepaid expenses and other current assets, other assets, other current liabilities or other liabilities, as appropriate, based on whether in a gain or loss position. Certain marketable investments are recorded as cash (b) Based on EURIBOR, SOFR, and swap rates. As of May 25, 2025, the carrying amount of hedged debt designated as the hedged item in a fair value hedge was $ 2,280.6 675.6 1,605.0 million was classified on the Consolidated Balance Sheets within current portion of long-term debt and long-term debt, respectively. As of May 25, 2025, the cumulative amount of fair value hedging basis adjustments was $ 3.2 (c) Based on observable market transactions of spot currency rates and forward currency prices. (d) Based on prices of futures exchanges and recently reported transactions in the marketplace. (e) Based on prices of common stock, mutual fund net asset values, and bond matrix pricing. (f) We recorded immaterial non-cash impairment charges in fiscal 2025 to write down certain long-lived assets to their fair value. Fair value was based on recently reported transactions for similar assets in the marketplace. These assets were associated with previously announced restructuring actions described in Note 4. May 26, 2024 May 26, 2024 Fair Values of Liabilities In Millions Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Derivatives designated as hedging instruments: Interest rate contracts (a) (b) $ - $ - $ - $ - $ - $ (39.8) $ - $ (39.8) Foreign exchange contracts (a) (c) - 5.7 - 5.7 - (5.1) - (5.1) Total - 5.7 - 5.7 - (44.9) - (44.9) Derivatives not designated as hedging Foreign exchange contracts (a) (c) - - - - - (5.2) - (5.2) Commodity contracts (a) (d) 2.1 1.1 - 3.2 - (12.1) - (12.1) Grain contracts (a) (d) - 7.9 - 7.9 - (6.5) - (6.5) Total 2.1 9.0 - 11.1 - (23.8) - (23.8) Other assets and liabilities reported at fair value: Marketable investments (a) (e) 4.6 2.3 - 6.9 - - - - Indefinite-lived intangible assets (f) - - 25.0 25.0 - - - - Total 4.6 2.3 25.0 31.9 - - - - Total assets, liabilities, and derivative positions $ 6.7 $ 17.0 $ 25.0 $ 48.7 $ - $ (68.7) $ - $ (68.7) (a) These contracts and investments are recorded as prepaid expenses and other current assets, other assets, other current liabilities or other liabilities, as appropriate, based on whether in a gain or loss position. Certain marketable investments are recorded as cash (b) Based on EURIBOR, SOFR, and swap rates. As of May 26, 2024, the carrying amount of hedged debt designated as the hedged item in a fair value hedge was $ 1,116.6 million and was classified on the Consolidated Balance Sheets within long-term debt. As of May 26, 2024, the cumulative amount of fair value hedging basis adjustments was $ 34.2 (c) Based on observable market transactions of spot currency rates and forward currency prices. (d) Based on prices of futures exchanges and recently reported transactions in the marketplace. (e) Based on prices of common stock, mutual fund net asset values, and bond matrix pricing. We did not significantly change our valuation techniques from prior periods. The fair value of our long-term debt is estimated using Level 2 inputs based on quoted prices for those instruments. Where quoted prices are not available, fair value is estimated using discounted cash flows and market-based expectations for interest rates, credit risk and the contractual terms of the debt instruments. As of May 25, 2025, the fair value and carrying amount of our long-term debt, including the current portion, were $ 13,579.5 14,201.6 million, respectively. As of May 26, 2024, the carrying amount and fair value of our long-term debt, including the current portion, were $ 12,148.7 12,918.3 Information related to our cash flow hedges, fair value hedges, and other derivatives not designated as hedging instruments for the fiscal years ended May 25, 2025, and May 26, 2024, follows: Interest Rate Contracts Foreign Exchange Contracts Equity Contracts Commodity Contracts Total Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year In Millions 2025 2024 2025 2024 2025 2024 2025 2024 2025 2024 Derivatives in Cash Flow Hedging Amount of gain (loss) recognized in other comprehensive income (OCI) $ 0.1 $ - $ (8.1) $ (4.3) $ - $ - $ - $ - $ (8.0) $ (4.3) Amount of net (loss) gain reclassified from AOCI into earnings (a) (0.2) 0.9 2.5 3.2 - - - - 2.3 4.1 Amount of net gain recognized in - 0.3 - - - - - - - 0.3 Derivatives in Fair Value Hedging Amount of net gain (loss) recognized 3.0 (0.2) - - - - - - 3.0 (0.2) Derivatives Not Designated as Amount of net (loss) gain recognized $ - $ - $ (16.0) $ (8.5) $ 6.3 $ 21.6 $ (22.0) $ 15.1 $ (31.7) $ 28.2 (a) (Loss) gain reclassified from AOCI into earnings is reported in interest, net for interest rate swaps and in cost of sales and SG&A expenses for foreign exchange contracts. For the fiscal year ended May 25, 2025, the amount of gain reclassified from AOCI into 12.7 million and the amount of loss reclassified from AOCI into SG&A was $ 10.2 million. For the fiscal year ended May 26, 2024, the amount of gain reclassified from AOCI into cost of sales was $ 7.0 million and the amount of loss reclassified from AOCI into SG&A was $ 3.8 (b) Gain (loss) recognized in earnings is reported in interest, net for interest rate contracts. (c) (Loss) gain recognized in earnings is reported in SG&A and after-tax earnings from joint ventures for foreign exchange contracts, SG&A for equity contracts, and cost of sales for commodity contracts. The following tables reconcile the net fair values of assets and liabilities subject to offsetting arrangements that are recorded in our Consolidated Balance Sheets to the net fair values that could be reported in our Consolidated Balance Sheets: May 25, 2025 Assets Liabilities Gross Amounts Not Offset in the Balance Sheet (d) Gross Amounts Not Offset in the Balance Sheet (d) In Millions Gross Amounts of Recognized Assets Gross Liabilities Offset in the Balance Sheet Net Amounts Financial Instruments Cash Collateral Received Net Amount (b) Gross Amounts of Recognized Liabilities Gross Assets Offset in the Balance Sheet Net Amounts of Liabilities (a) Financial Instruments Cash Collateral Pledged Net Amount (c) Commodity contracts $ 1.5 $ - $ 1.5 $ (1.0) $ - $ 0.5 $ (7.6) $ - $ (7.6) $ 1.0 $ - $ (6.6) Interest rate contracts 4.6 - 4.6 (2.2) - 2.4 (18.3) - (18.3) 2.2 - (16.1) Foreign exchange contracts 4.3 - 4.3 (3.8) - 0.5 (14.8) - (14.8) 3.8 - (11.0) Equity contracts 3.8 - 3.8 (1.0) - 2.8 (1.0) - (1.0) 1.0 - - Total $ 14.2 $ - $ 14.2 $ (8.0) $ - $ 6.2 $ (41.7) $ - $ (41.7) $ 8.0 $ - $ (33.7) (a) Net fair value as recorded in our Consolidated Balance Sheets. (b) Fair value of assets that could be reported net in our Consolidated Balance Sheets. (c) Fair value of liabilities that could be reported net in our Consolidated Balance Sheets. (d) Fair value of assets and liabilities reported on a gross basis in our Consolidated Balance Sheets. May 26, 2024 Assets Liabilities Gross Amounts Not Offset in the Balance Sheet (e) Gross Amounts Not Offset in the Balance Sheet (e) In Millions Gross Amounts of Recognized Assets Gross Liabilities Offset in the Balance Sheet (a) Net Amounts of Financial Instruments Cash Collateral Received Net Amount (c) Gross Amounts of Recognized Liabilities Gross Assets Offset in the Balance Sheet (a) Net Amounts of Liabilities (b) Financial Instruments Cash Collateral Pledged Net Amount (d) Commodity contracts $ 3.2 $ - $ 3.2 $ (3.2) $ - $ - $ (12.1) $ - $ (12.1) $ 3.2 $ 3.5 $ (5.4) Interest rate contracts - - - - - - (49.4) - (49.4) - 26.3 (23.1) Foreign exchange contracts 5.7 - 5.7 (3.9) - 1.8 (10.3) - (10.3) 3.9 - (6.4) Equity contracts 4.4 - 4.4 - - 4.4 (0.2) - (0.2) - - (0.2) Total $ 13.3 $ - $ 13.3 $ (7.1) $ - $ 6.2 $ (72.0) $ - $ (72.0) $ 7.1 $ 29.8 $ (35.1) (a) Includes related collateral offset in our Consolidated Balance Sheets. (b) Net fair value as recorded in our Consolidated Balance Sheets. (c) Fair value of assets that could be reported net in our Consolidated Balance Sheets. (d) Fair value of liabilities that could be reported net in our Consolidated Balance Sheets. (e) Fair value of assets and liabilities reported on a gross basis in our Consolidated Balance Sheets. AMOUNTS RECORDED IN ACCUMULATED OTHER COMPREHENSIVE LOSS As of May 25, 2025, the after-tax amounts of unrealized losses in AOCI related to hedge derivatives follows: In Millions Unrealized loss from interest rate cash flow hedges $ (7.1) Unrealized loss from foreign currency cash flow hedges (0.3) After-tax loss in AOCI related to hedge derivatives $ (7.4) The net amount of pre-tax gains and losses in AOCI as of May 25, 2025, that we expect to be reclassified into net earnings within the next 12 months is a $ 2.1 CREDIT-RISK-RELATED CONTINGENT FEATURES Certain of our derivative instruments contain provisions that require us to maintain an investment grade credit rating on our debt from each of the major credit rating agencies. If our debt were to fall below investment grade, the counterparties to the derivative instruments could request full collateralization on derivative instruments in net liability positions. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a liability position on May 25, 2025, was $ 24.8 We have posted no collateral under these contracts. If the credit-risk-related contingent features underlying these agreements had been triggered on May 25, 2025, we would have been required to post $ 24.8 million of collateral to counterparties. CONCENTRATIONS OF CREDIT AND COUNTERPARTY CREDIT RISK During fiscal 2025, customer concentration was as follows: Percent of total Consolidated North America Retail North America Foodservice International North America Pet Walmart (a): Net sales 22 % 31 % 10 % 2 % 18 % Accounts receivable 24 % 8 % 8 % 15 % Five largest customers: Net sales 55 % 54 % 27 % 66 % (a) Includes Walmart Inc. and its affiliates. No customer other than Walmart accounted for 10 percent or more of our consolidated net sales. We enter into interest rate, foreign exchange, and certain commodity and equity derivatives, primarily with a diversified group of highly rated counterparties. We continually monitor our positions and the credit ratings of the counterparties involved and, by policy, 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; however, we have not incurred a material loss. We also enter into commodity futures transactions through various regulated exchanges. The amount of loss due to the credit risk of the counterparties, should the counterparties fail to perform according to the terms of the 6.3 no collateral held against these contracts. Under the terms of our swap agreements, some of our transactions require collateral or other security to support financial instruments subject to threshold levels of exposure and counterparty credit risk. Collateral assets are either cash or U.S. Treasury instruments and are held in a trust account that we may access if the counterparty defaults. We offer certain suppliers access to third-party services that allow them to view our scheduled payments online. The third-party services also allow suppliers to finance advances on our scheduled payments at the sole discretion of the supplier and the third party. We have no economic interest in these financing arrangements and no direct relationship with the suppliers, the third parties, or any financial institutions concerning these services, including not providing any form of guarantee and not pledging assets as security to the third parties or financial institutions. All of our accounts payable remain as obligations to our suppliers as stated in our supplier The roll forward of our obligations, included in accounts payable , payable to suppliers who utilize these third-party services is as follows: In Millions Total Balance as of May 26, 2024 $ 1,404.4 Additions, including foreign currency translation 4,116.8 Payments (4,093.7) Balance as of May 25, 2025 $ 1,427.5 |