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Derivative Financial Instruments | 4 Months Ended
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Apr. 20, 2013
Derivative Financial Instruments | 7. DERIVATIVE FINANCIAL INSTRUMENTS The company measures the fair value of its derivative portfolio using the fair value as the price that would be received to sell an asset or paid to transfer a liability in the principal market for that asset or liability. These measurements are classified into a hierarchy by the inputs used to perform the fair value calculation as follows: Level 1: Fair value based on unadjusted quoted prices for identical assets or liabilities in active markets Level 2: Modeled fair value with model inputs that are all observable market values Level 3: Modeled fair value with at least one model input that is not an observable market value COMMODITY PRICE RISK The company enters into commodity derivatives, designated as cash-flow hedges of existing or future exposure to changes in commodity prices. The company’s primary raw materials are flour, sweeteners and shortening, along with pulp, paper and petroleum-based packaging products. Natural gas, which is used as oven fuel, is also an important commodity input to production. In addition, we utilize an immaterial amount of weather derivatives that are not classified as cash-flow hedges. As of April 20, 2013, the company’s hedge portfolio contained commodity derivatives with a net fair value of $(6.8) million, which is recorded in the following accounts with fair values measured as indicated (amounts in millions):
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other current |  | $ | — |  |  | $ | 1.0 |  |  | $ | — |  |  | $ | 1.0 |
Other long-term |  |  | — |  |  |  | 0.1 |  |  |  | — |  |  |  | 0.1 |
Total |  |  | — |  |  |  | 1.1 |  |  |  | — |  |  |  | 1.1 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other current |  |  | (7.9 | ) |  |  | — |  |  |  | — |  |  |  | (7.9 | )
Other long-term |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total |  |  | (7.9 | ) |  |  | — |  |  |  | — |  |  |  | (7.9 | )
Net Fair Value |  | $ | (7.9 | ) |  | $ | 1.1 |  |  | $ | — |  |  | $ | (6.8 | )
The positions held in the portfolio are used to hedge economic exposure to changes in various raw material prices and effectively fix the price, or limit increases in prices, for a period of time extending into fiscal 2016. These instruments are designated as cash-flow hedges. The effective portion of changes in fair value for these derivatives is recorded each period in other comprehensive income (loss), and any ineffective portion of the change in fair value is recorded to current period earnings in selling, distribution and administrative expenses. All of the company-held commodity derivatives at April 20, 2013 and December 29, 2012 qualified for hedge accounting, except for certain immaterial weather derivatives. INTEREST RATE RISK The company entered into a treasury rate lock on March 28, 2012 to fix the interest rate for the notes issued on April 3, 2012. The derivative position was closed when the notes were priced on March 29, 2012 with a cash settlement that offset changes in the benchmark treasury rate between the execution of the treasury rate lock and the pricing date. This treasury rate lock was designated as a cash flow hedge and the cash settlement was $3.1 million and is being amortized to interest expense over the term of the notes. The company entered into interest rate swaps with notional amounts of $85.0 million, and $65.0 million, respectively, to fix the interest rate on the $150.0 million term loan secured on August 1, 2008 to fund the acquisitions of ButterKrust Bakery and Holsum Bakery, Inc. The current notional amount for the swaps of this amortizing loan is $33.8 million. The interest rate swap agreements result in the company paying or receiving the difference between the fixed and floating rates at specified intervals calculated based on the notional amount. The interest rate differential to be paid or received will be recorded as interest expense. These swap transactions are designated as cash-flow hedges. Accordingly, the effective portion of changes in the fair value of the swaps is recorded each period in other comprehensive income. Any ineffective portions of changes in fair value are recorded to current period earnings in selling, distribution and administrative expenses. As of April 20, 2013, the fair value of the interest rate swaps was $(0.3) million, which is recorded in the following accounts with fair values measured as indicated (amounts in millions):
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other current |  | $ | — |  |  | $ | (0.3 | ) |  | $ | — |  |  | $ | (0.3 | )
Total |  |  | — |  |  |  | (0.3 | ) |  |  | — |  |  |  | (0.3 | )
Net Fair Value |  | $ | — |  |  | $ | (0.3 | ) |  | $ | — |  |  | $ | (0.3 | )
During the sixteen weeks ended April 20, 2013, interest expense of $0.5 million was recognized due to periodic settlements of the swap agreements. The company has the following derivative instruments located on the consolidated balance sheet, which are utilized for the risk management purposes detailed above (amounts in thousands):
|  | Derivative Assets |  |  | Derivative Liabilities |
|  | April 20, 2013 |  |  | December 29, 2012 |  |  | April 20, 2013 |  |  | December 29, 2012 |
Derivatives designated as hedging instruments |  | Balance Sheet location |  | Fair Value |  |  | Balance Sheet location |  | Fair Value |  |  | Balance Sheet location |  | Fair Value |  |  | Balance Sheet location |  | Fair Value |
Interest rate contracts |  | — |  | $ | — |  |  | — |  | $ | — |  |  | Other current liabilities |  | $ | 331 |  |  | Other current liabilities |  | $ | 867 |
Interest rate contracts |  | — |  |  | — |  |  | — |  |  | — |  |  | Other long term liabilities |  |  | — |  |  | Other long term liabilities |  |  | — |
Commodity contracts |  | Other current assets |  |  | 1,015 |  |  | Other current assets |  |  | — |  |  | Other current liabilities |  |  | 7,886 |  |  | Other current liabilities |  |  | 3.047 |
Commodity contracts |  | Other long term assets |  |  | 64 |  |  | Other long term assets |  |  | 9 |  |  | Other long term liabilities |  |  | 39 |  |  | Other long term liabilities |  |  | 146 |
Total |  |  |  | $ | 1,079 |  |  |  |  | $ | 9 |  |  |  |  | $ | 8,256 |  |  |  |  | $ | 4,060 |
The following tables show the effect of the company’s derivative instruments designated as cash-flow hedges in other comprehensive income (loss) (“OCI”) and the condensed consolidated income statement (amounts in thousands and net of tax):
Derivatives designated as hedging instruments |  | Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion)(Net of tax) |  |  | Location of Gain or (Loss) Reclassified from AOCI into Income (Effective Portion) |  | Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)(Net of tax) |
| For the sixteen weeks ended |  |  |  | For the sixteen weeks ended |
| April 20, 2013 |  |  | April 21, 2012 |  |  |  | April 20, 2013 |  |  | April 21, 2012 |
Interest rate contracts |  | $ | (296 | ) |  | $ | (1,548 | ) |  | Interest expense |  | $ | (334 | ) |  | $ | (590 | )
Commodity contracts |  |  | (8,325 | ) |  |  | (5,461 | ) |  | Production costs(1) |  |  | (673 | ) |  |  | (9,446 | )
Total |  | $ | (8,621 | ) |  | $ | (7,009 | ) |  |  |  | $ | (1,007 | ) |  | $ | (10,036 | )
(1) | Included in Materials, supplies, labor and other production costs (exclusive of depreciation and amortization shown separately).
Derivatives in Cash Flow Hedge Relationships |  | Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing) |  | Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing) For the sixteen weeks ended |
|  | April 20, 2013 |  |  | April 21, 2012 |
Interest rate contracts |  | Selling, marketing and administrative expenses |  | $ | — |  |  | $ | (627 | )
Commodity contracts |  | Selling, marketing and administrative expenses |  |  | — |  |  |  | — |
Total |  |  |  | $ | — |  |  | $ | (627 | )
The balance in accumulated other comprehensive income (loss) related to commodity price risk and interest rate risk derivative transactions that are closed or will expire in the next four years are as follows (amounts in millions and net of tax) at April 20, 2013:
|  | Commodity price risk derivatives |  |  | Interest rate risk derivatives |  |  | Totals |
Closed contracts |  | $ | 5.9 |  |  | $ | 1.3 |  |  | $ | 7.2 |
Expiring in 2013 |  |  | 4.2 |  |  |  | 0.2 |  |  |  | 4.4 |
Expiring in 2014 |  |  | — |  |  |  | — |  |  |  | — |
Expiring in 2015 |  |  | — |  |  |  | — |  |  |  | — |
Expiring in 2016 |  |  | 0.1 |  |  |  | — |  |  |  | 0.1 |
Total |  | $ | 10.2 |  |  | $ | 1.5 |  |  | $ | 11.7 |
As of April 20, 2013, the company had the following outstanding financial contracts that were entered to hedge commodity and interest rate risk:
Derivatives in Cash Flow Hedge Relationships |  | Notional amount (millions) |
Interest rate contracts |  | $ | 33.8 |
Wheat contracts |  |  | 133.8 |
Soybean oil contracts |  |  | 23.2 |
Natural gas contracts |  |  | 18.7 |
Total |  | $ | 209.5 |
The company’s derivative instruments contain no credit-risk-related contingent features at April 20, 2013. As of April 20, 2013 and December 29, 2012, the company had $17.8 million and $9.0 million, respectively, in other current assets representing collateral for hedged positions.

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- Definition The entire disclosure for the entity's entire derivative instruments and hedging activities. Describes an entity's risk management strategies, derivatives in hedging activities and non-hedging derivative instruments, the assets, obligations, liabilities, revenues and expenses arising therefrom, and the amounts of and methodologies and assumptions used in determining the amounts of such items. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=7668309&loc=d3e80784-113994 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4C -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624171-113959 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4E -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624181-113959 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4K -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5708775-113959 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1A -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5579245-113959 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(n)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41641-113959 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5579240-113959 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 45 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6441202&loc=d3e80720-113993 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41638-113959 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41635-113959 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 133 -Paragraph 44 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41620-113959 Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4D -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624177-113959 Reference 15: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 25 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6886632&loc=d3e76258-113986 Reference 16: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4H -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624258-113959 Reference 17: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4J -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5708773-113959 Reference 18: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1B -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5580258-113959 Reference 19: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4B -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624163-113959 Reference 20: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 133 -Paragraph 45 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. 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