Derivative Instruments and Hedging Activities

3 Months Ended

Aug. 28, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities

We enter into derivative instruments for risk management purposes only, including derivatives designated as hedging instruments as provided by FASB ASC Topic 815, Derivatives and Hedging, and those utilized as economic hedges. We use financial derivatives to manage interest rate and compensation risks inherent in our business operations. Cash flows related to derivatives are included in operating activities.

By using these instruments, we expose ourselves, from time to time, to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes us, which creates credit risk for us. We minimize this credit risk by entering into transactions with high quality counterparties. Market risk is the adverse effect on the value of a financial instrument that results from a change in

interest rates, commodity prices, or the market price of our common stock. We minimize this market risk by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken.

We designate commodity contracts and equity forward contracts as cash flow hedging instruments. Our interest rate swap agreements are designated as fair value hedges of the related debt. Further, we entered into equity forward contracts to hedge the risk of changes in future cash flows associated with recognized, employee-directed investments in Darden stock within the non-qualified deferred compensation plan. We did not elect hedge accounting with the expectation that changes in the fair value of the equity forward contracts would offset changes in the fair value of Darden stock investments in the non-qualified deferred compensation plan.

The notional and fair values of our derivative contracts are as follows:


					Fair Values
(in millions, except per share data)	Number of Shares Outstanding	Weighted-Average Per Share Forward Rates	Notional Values		Derivative Assets (1)				Derivative Liabilities (1)
	August 28, 2022				August 28, 2022		May 29, 2022		August 28, 2022		May 29, 2022
Equity forwards:
Designated	0.4	$125.13	$	44.4	$	—	$	—	$	2.6	$	0.1
Not designated	0.4	125.28	52.8		—		—		3.0		0.2
Total equity forwards (2)					$	—	$	—	$	5.6	$	0.3
Commodity contracts:
Designated	N/A	N/A	$	9.1	$	3.1	$	0.6	$	—	$	—
Not designated	N/A	N/A	—		—		—		—		—
Total commodity contracts (3)					$	3.1	$	0.6	$	—	$	—
Interest rate related
Designated	N/A	N/A	$	300.0	$	—	$	—	$	34.2	$	28.0
Not designated	N/A	N/A			—		—		—		—
Total interest rate related					$	—	$	—	$	34.2	$	28.0
Total derivative contracts					$	3.1	$	0.6	$	39.8	$	28.3

(1)Derivative assets and liabilities are included in receivables, net and other current liabilities, as applicable, on our consolidated balance sheets.

(2)Designated and undesignated equity forwards extend through July 2026 and April 2027, respectively.

(3)Commodity contracts extend through May 2023.

The effects of derivative instruments accounted for as cash flow hedging instruments in the consolidated statements of earnings are as follows:


	Amount of Gain (Loss) Recognized in AOCI				Amount of Gain (Loss) Reclassified from AOCI to Earnings
	Three Months Ended				Three Months Ended
(in millions)	August 28, 2022		August 29, 2021		August 28, 2022		August 29, 2021
Equity (1)	$	(0.5)	$	2.7	$	(0.8)	$	0.8
Commodity (2)	2.6		(0.1)		0.1		—

Total	$	2.1	$	2.6	$	(0.7)	$	0.8

(1)Location of the gain (loss) reclassified from AOCI to earnings is general and administrative expenses.

(2)Location of the gain (loss) reclassified from AOCI to earnings is food and beverage costs and restaurant expenses.

The effects of derivative instruments in fair value hedging relationships in the consolidated statement of earnings are as follows:


	Amount of Gain (Loss) Recognized in Earnings on Derivatives				Amount of Gain (Loss) Recognized in Earnings on Related Hedged Item
	Three Months Ended				Three Months Ended
(in millions)	August 28, 2022		August 29, 2021		August 28, 2022		August 29, 2021
Interest rate (1)(2)	$	(6.3)	$	6.7	$	6.3	$	(6.7)

(1) Location of the gain (loss) recognized in earnings on derivatives and related hedged item is interest, net.

(2) Hedged item in fair value hedge relationship is debt.

The effects of derivatives not designated as hedging instruments in the consolidated statements of earnings are as follows:


		Amount of Gain (Loss) Recognized in Earnings
(in millions)	Three Months Ended
Location of Gain (Loss) Recognized in Earnings on Derivatives		August 28, 2022			August 29, 2021
Food and beverage costs and restaurant expenses			$	—		$	0.1
General and administrative expenses			(1.1)			5.1
Total			$	(1.1)		$	5.2

Based on the fair value of our derivative instruments designated as cash flow hedges as of August 28, 2022, we expect to reclassify $3.3 million of net gains on derivative instruments from accumulated other comprehensive income (loss) to earnings during the next 12 months based on the maturity of our contracts. However, the amounts ultimately realized in earnings will be dependent on the fair value of the contracts on the settlement dates.