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Derivative Financial Instruments | 12 Months Ended
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Jan. 03, 2015
Derivative Financial Instruments |
Note 9. | 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 used for production. As of January 3, 2015, the company’s commodity hedge portfolio contained derivatives with a fair value of $(16.3) 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 |  |  | (10.9 | ) |  |  | (2.0 | ) |  |  | — |  |  |  | (12.9 | )
Other long-term |  |  | (2.0 | ) |  |  | (1.4 | ) |  |  | — |  |  |  | (3.4 | )
Net Fair Value |  | $ | (12.9 | ) |  | $ | (3.4 | ) |  | $ | — |  |  | $ | (16.3 | )
As of December 28, 2013, the company’s commodity hedge portfolio contained derivatives with a fair value of $(11.5) 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 |  | $ | — |  |  | $ | 0.2 |  |  | $ | — |  |  | $ | 0.2 |
Total |  |  | — |  |  |  | 0.2 |  |  |  | — |  |  |  | 0.2 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other current |  |  | (10.4 | ) |  |  | (0.2 | ) |  |  | — |  |  |  | (10.6 | )
Other long-term |  |  | (0.7 | ) |  |  | (0.4 | ) |  |  | — |  |  |  | (1.1 | )
Total |  |  | (11.1 | ) |  |  | (0.6 | ) |  |  | — |  |  |  | (11.7 | )
Net Fair Value |  | $ | (11.1 | ) |  | $ | (0.4 | ) |  | $ | — |  |  | $ | (11.5 | )
The positions held in the portfolio are used to hedge economic exposure to changes in various raw materials and production input prices and effectively fixes the price, or limits increases in prices, for a period of time extending into fiscal 2015. These instruments are designated as cash-flow hedges. See Note 2, Summary of Significant Accounting Policies, for the accounting treatment of these hedged transactions. Interest Rate Risk The company entered into a treasury rate lock on March 28, 2012 to fix the interest rate for the ten-year 4.375% Senior Notes issued on April 3, 2012. The derivative position was closed when the debt was 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 debt 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. During 2014, 2013 and 2012, interest expense of $0.3 million, $0.8 million, and $2.8 million, respectively, was recognized due to periodic settlements of the interest rate swaps. Derivative Assets and Liabilities The company had the following derivative instruments recorded on the Consolidated Balance Sheet, all of which are utilized for the risk management purposes detailed above (amounts in thousands):
Derivatives Designated as Hedging Instruments |  | Derivative Assets |  |  | Derivative Liabilities |
| January 3, 2015 |  |  | December 28, 2013 |  |  | January 3, 2015 |  |  | December 28, 2013 |
| Balance Sheet Location |  |  | Fair Value |  |  | Balance Sheet Location |  |  | Fair Value |  |  | Balance Sheet Location |  |  | Fair Value |  |  | Balance Sheet Location |  |  | Fair Value |
Commodity contracts |  |  | Other current assets |  |  |  | $— |  |  |  | Other current assets |  |  | $ | 162 |  |  |  | Other current liabilities |  |  | $ | 12,898 |  |  |  | Other current liabilities |  |  | $ | 10,626 |
Commodity contracts |  |  | Other long term assets |  |  |  | — |  |  |  | Other long term assets |  |  |  | — |  |  |  | Other long term liabilities |  |  |  | 3,355 |  |  |  | Other long term liabilities |  |  |  | 1,094 |
Total |  |  |  |  |  |  | $— |  |  |  |  |  |  | $ | 162 |  |  |  |  |  |  | $ | 16,253 |  |  |  |  |  |  | $ | 11,720 |
Derivative Accumulated Other Comprehensive Income (“AOCI”) transactions The company had the following derivative instruments for deferred gains and (losses) on closed contracts and the effective portion for changes in fair value recorded in AOCI, all of which are utilized for the risk management purposes detailed above (amounts in thousands and net of tax):
Derivatives in Cash Flow Hedging Relationships |  | Amount of Gain or (Loss) Recognized in OCI on Derivatives (Effective Portion)(Net of tax) |
| Fiscal 2014 |  |  | Fiscal 2013 |  |  | Fiscal 2012 |
Interest rate contracts |  | $ | 157 |  |  | $ | (205 | ) |  | $ | (1,221 | )
Commodity contracts |  |  | (3,358 | ) |  |  | (24,252 | ) |  |  | (325 | )
Total |  | $ | (3,201 | ) |  | $ | (24,457 | ) |  | $ | (1,546 | )
Derivatives in Cash Flow Hedging Relationships |  | Amount of (Gain) or Loss Reclassified from Accumulated OCI into Income (Effective Portion)(Net of tax) |  |  | Location of (Gain) or Loss Reclassified from AOCI into Income (Effective Portion)
| Fiscal 2014 |  |  | Fiscal 2013 |  |  | Fiscal 2012 |  |
Interest rate contracts |  | $ | — |  |  | $ | 502 |  |  | $ | 1,732 |  |  | Interest expense (income)
Commodity contracts |  |  | — |  |  |  | — |  |  |  | — |  |  | Selling, distribution and
Commodity contracts |  |  | 3,209 |  |  |  | 16,639 |  |  |  | 10,622 |  |  | administrative expenses Production costs(1)
Total |  | $ | 3,209 |  |  | $ | 17,141 |  |  | $ | 12,354 |  |  |
1. | Included in Materials, supplies, labor and other production costs (exclusive of depreciation and amortization shown separately).
The balance in accumulated other comprehensive loss (income) related to commodity price risk and interest rate risk derivative transactions that are closed or will expire over the next three years are as follows (amounts in millions and net of tax) at January 3, 2015:
|  | Commodity Price Risk Derivatives |  |  | Interest Rate Risk Derivatives |  |  | Totals |
Closed contracts |  | $ | 0.3 |  |  | $ | 1.1 |  |  | $ | 1.4 |
Expiring in 2015 |  |  | 8.5 |  |  |  | — |  |  |  | 8.5 |
Expiring in 2016 and beyond |  |  | 1.5 |  |  |  | — |  |  |  | 1.5 |
Total |  | $ | 10.3 |  |  | $ | 1.1 |  |  | $ | 11.4 |
See Note 2, Summary of Significant Accounting Policies, for the accounting treatment of other comprehensive income for these hedged transactions. Derivative transactions notional amounts As of January 3, 2015, the company had entered into the following financial contracts to hedge commodity and interest rate risks:
Derivatives in Cash Flow Hedging Relationships |  | Notional amount |
|  | (Millions) |
Wheat contracts |  | $ | 96.3 |
Soybean oil contracts |  |  | 32.1 |
Natural gas contracts |  |  | 14.6 |
Total |  | $ | 143.0 |
The company’s derivative instruments contained no credit-risk-related contingent features at January 3, 2015. As of January 3, 2015, the company had $16.1 million recorded in other current assets, and on December 28, 2013, the company had $16.9 million recorded in other current assets representing collateral from or with counterparties for hedged positions.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=35736893&loc=d3e80748-113994 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4A -URI http://asc.fasb.org/extlink&oid=35706170&loc=SL5618551-113959 Reference 3: 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=35706170&loc=SL5708775-113959 Reference 4: 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 5: 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=35706170&loc=SL5624181-113959 Reference 6: 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 7: 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=35706170&loc=SL5624258-113959 Reference 8: 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=35706170&loc=SL5624163-113959 Reference 9: 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=26873400&loc=d3e23780-122690 Reference 10: 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=35706170&loc=SL5708773-113959 Reference 11: 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=35736893&loc=d3e80784-113994 Reference 12: 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=35706170&loc=SL5624177-113959 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=35706170&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 1A -URI http://asc.fasb.org/extlink&oid=35706170&loc=SL5579245-113959 Reference 15: 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=35706170&loc=SL5580258-113959 Reference 16: 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=35706170&loc=SL5579240-113959 Reference 17: 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=35706170&loc=d3e41641-113959 Reference 18: 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=35706170&loc=d3e41638-113959 Reference 19: 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=35706170&loc=SL5624171-113959 + Details
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