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Derivative Financial Instruments | 12 Months Ended
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Jan. 02, 2016
Derivative Instruments And Hedging Activities Disclosure [Abstract] |
Derivative Financial Instruments |
Note 9. | Derivative Financial Instruments
The company measures the fair value of its derivative portfolio by using 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 at the measurement date Level 2: Modeled fair value with model inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly Level 3: Modeled fair value with unobservable model inputs that are used to estimate the fair value of the asset or liability 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 2, 2016, the company’s commodity hedge portfolio contained derivatives which are recorded in the following accounts with fair values measured as indicated (amounts in thousands):
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other current |  | $ | 11,926 |  |  | $ | 2,941 |  |  | $ | — |  |  | $ | 14,867 |
Other long-term |  |  | 20 |  |  |  | — |  |  |  | — |  |  |  | 20 |
Total |  |  | 11,946 |  |  |  | 2,941 |  |  |  | — |  |  |  | 14,887 |
Net Fair Value |  | $ | 11,946 |  |  | $ | 2,941 |  |  | $ | — |  |  | $ | 14,887 |
As of January 3, 2015, the company’s commodity hedge portfolio contained derivatives which are recorded in the following accounts with fair values measured as indicated (amounts in thousands):
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other current |  | $ | 10,873 |  |  | $ | 2,025 |  |  | $ | — |  |  | $ | 12,898 |
Other long-term |  |  | 2,057 |  |  |  | 1,298 |  |  |  | — |  |  |  | 3,355 |
Net Fair Value |  | $ | 12,930 |  |  | $ | 3,323 |  |  | $ | — |  |  | $ | 16,253 |
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 2017. 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 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, of which $0.6 million was recognized after debt issuance and $2.5 million ($1.5 million, net of tax) is being amortized to interest expense over the term of the notes. 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):
|  | Derivative Liabilities |
|  | January 2, 2016 |  |  | January 3, 2015 |
Derivatives Designated as Hedging Instruments |  | Balance Sheet Location |  | Fair Value |  |  | Balance Sheet Location |  | Fair Value |
Commodity contracts |  | Other current liabilities |  | $ | 14,867 |  |  | Other current liabilities |  | $ | 12,898 |
Commodity contracts |  | Other long-term liabilities |  |  | 20 |  |  | Other long-term liabilities |  |  | 3,355 |
Total |  |  |  | $ | 14,887 |  |  |  |  | $ | 16,253 |
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 (no amounts were excluded from the effectiveness test), all of which are utilized for the risk management purposes detailed above (amounts in thousands and net of tax):
|  | Amount of Gain or (Loss) Recognized in OCI on Derivatives (Effective Portion)(Net of tax) |
Derivatives in Cash Flow Hedging Relationships |  | Fiscal 2015 |  |  | Fiscal 2014 |  |  | Fiscal 2013 |
Interest rate contracts |  | $ | — |  |  | $ | — |  |  | $ | (205 | )
Commodity contracts |  |  | (4,195 | ) |  |  | (3,358 | ) |  |  | (24,252 | )
Total |  | $ | (4,195 | ) |  | $ | (3,358 | ) |  | $ | (24,457 | )
|  | 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
Derivatives in Cash Flow Hedging Relationships |  | Fiscal 2015 |  |  | Fiscal 2014 |  |  | Fiscal 2013 |  |  | (Effective Portion)
Interest rate contracts |  | $ | 154 |  |  | $ | 157 |  |  | $ | 502 |  |  | Interest expense (income)
Commodity contracts |  |  | 5,259 |  |  |  | 3,209 |  |  |  | 16,639 |  |  | Production costs (1)
Total |  | $ | 5,413 |  |  | $ | 3,366 |  |  | $ | 17,141 |  |  |
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 thousands and net of tax) at January 2, 2016:
|  | Commodity Price Risk Derivatives |  |  | Interest Rate Risk Derivatives |  |  | Totals |
Closed contracts |  | $ | 69 |  |  | $ | 965 |  |  | $ | 1,034 |
Expiring in 2016 |  |  | 9,143 |  |  |  | — |  |  |  | 9,143 |
Expiring in 2017 and beyond |  |  | 13 |  |  |  | — |  |  |  | 13 |
Total |  | $ | 9,225 |  |  | $ | 965 |  |  | $ | 10,190 |
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 2, 2016, the company had entered into the following financial contracts to hedge commodity and interest rate risks:
Derivatives in Cash Flow Hedging Relationships |  | Notional amount |
|  | (Thousands) |
Wheat contracts |  | $ | 175,898 |
Soybean oil contracts |  |  | 20,729 |
Natural gas contracts |  |  | 9,421 |
Total |  | $ | 206,048 |
The company’s derivative instruments contained no credit-risk-related contingent features at January 2, 2016. As of January 2, 2016, the company had $20.7 million recorded in other current assets, and on January 3, 2015, the company had $16.1 million recorded in other current assets representing collateral from or with counterparties for hedged positions.

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