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Derivative Financial Instruments | 4 Months Ended
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Apr. 22, 2017
Derivative Instruments And Hedging Activities Disclosure [Abstract] |
Derivative Financial Instruments | 8. 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 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 for production. As of April 22, 2017, the company’s hedge portfolio contained commodity derivatives which are recorded in the following accounts with fair values measured as indicated (amounts in thousands):
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other current |  | $ | 517 |  |  | $ | — |  |  | $ | — |  |  | $ | 517 |
Other long-term |  |  | 24 |  |  |  | — |  |  |  | — |  |  |  | 24 |
Total |  |  | 541 |  |  |  | — |  |  |  | — |  |  |  | 541 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other current |  |  | (6,488 | ) |  |  | — |  |  |  | — |  |  |  | (6,488 | )
Other long-term |  |  | (438 | ) |  |  | — |  |  |  | — |  |  |  | (438 | )
Total |  |  | (6,926 | ) |  |  | — |  |  |  | — |  |  |  | (6,926 | )
Net Fair Value |  | $ | (6,385 | ) |  | $ | — |  |  | $ | — |  |  | $ | (6,385 | )
As of December 31, 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 |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other current |  | $ | 1,576 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,576 |
Other long-term |  |  | 35 |  |  |  | — |  |  |  | — |  |  |  | 35 |
Total |  |  | 1,611 |  |  |  | — |  |  |  | — |  |  |  | 1,611 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other current |  |  | (2,435 | ) |  |  | — |  |  |  | — |  |  |  | (2,435 | )
Total |  |  | (2,435 | ) |  |  | — |  |  |  | — |  |  |  | (2,435 | )
Net Fair Value |  | $ | (824 | ) |  | $ | — |  |  | $ | — |  |  | $ | (824 | )
The positions held in the portfolio are used to hedge economic exposure to changes in various raw material prices and effectively fix, or limit increases in, prices, for a period of time extending primarily into fiscal 2019. These instruments are designated as cash-flow hedges. The effective portion of changes in the fair value for these derivatives is reported in accumulated other comprehensive income (loss), and any ineffective portion of changes in fair value for such derivatives is recorded to current period earnings in selling, distribution and administrative expenses. All of the company-held commodity derivatives at April 22, 2017 and December 31, 2016, respectively, qualified for hedge accounting. Interest Rate Risk The company entered into treasury rate locks on August 5, 2016 and August 8, 2016 to fix the interest rate for the company’s 3.5% senior notes due 2026 (“2026 notes”) issued on September 28, 2016. The derivative positions were closed when the debt was priced on September 23, 2016 with a cash settlement net receipt of $1.0 million that offset changes in the benchmark treasury rate between execution of the treasury rate locks and the debt pricing date. These rate locks were designated as a cash flow hedge. During fiscal 2016, the company recognized $0.1 million of ineffectiveness due to issuing the debt earlier than the settlement date of the treasury locks. The ineffectiveness amount was reported as a selling, distribution, and administrative expense in our Condensed Consolidated Statements of Income. The company entered into a treasury rate lock on March 28, 2012 to fix the interest rate for the company’s 4.375% senior notes due 2022 (“2022 notes”) issued on April 3, 2012. The derivative position was closed when the debt was priced on March 29, 2012 with a cash settlement net receipt of $3.1 million 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. The following table outlines the company’s derivatives which were hedging the risk of changes in forecasted interest payments on forecasted issuance of long-term debt (amounts in thousands, before tax, and an asset is a positive value and a liability is a negative value):
Terminated |  | Description |  | Aggregate Notional Amount |  |  | Fair Value When Terminated |  |  | Fair Value Deferred in AOCI(1) |  |  | Ineffective Portion at Termination |
April/2012 |  | Treasury lock |  | $ | 500,000 |  |  | $ | (3,137 | ) |  | $ | 2,510 |  |  | $ | 627 |
September/2016 |  | Treasury lock |  | $ | 200,000 |  |  | $ | 1,298 |  |  | $ | (1,298 | ) |  | $ | — |
September/2016 |  | Treasury lock |  | $ | 150,000 |  |  | $ | (323 | ) |  | $ | 215 |  |  | $ | 108 |
(1) | The amount reported in AOCI will be reclassified to interest expense as interest payments are made on the related notes
Derivative Assets and Liabilities The company has the following derivative instruments located on the Condensed Consolidated Balance Sheets, which are utilized for the risk management purposes detailed above (amounts in thousands):
|  | Derivative Assets |  |  | Derivative Liabilities |
|  | April 22, 2017 |  |  | December 31, 2016 |  |  | April 22, 2017 |  |  | December 31, 2016 |
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 |
Commodity contracts |  | Other current assets |  | $ | 517 |  |  | Other current assets |  | $ | 1,576 |  |  | Other current liabilities |  | $ | 6,488 |  |  | Other current liabilities |  | $ | 2,435 |
Commodity contracts |  | Other long term assets |  |  | 24 |  |  | Other long term assets |  |  | 35 |  |  | Other long-term liabilities |  |  | 438 |  |  | Other long-term liabilities |  |  | — |
Total |  |  |  | $ | 541 |  |  |  |  | $ | 1,611 |  |  |  |  | $ | 6,926 |  |  |  |  | $ | 2,435 |
Derivative 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) |  |  |  |  | Amount of (Gain) or Loss |
|  | Recognized in OCI on Derivative |  |  |  |  | Reclassified from AOCI |
|  | (Effective Portion) |  |  | Location of (Gain) or Loss |  | into Income (Effective Portion) |
Derivatives in Cash Flow |  | For the Sixteen Weeks Ended |  |  | Reclassified from AOCI |  | For the Sixteen Weeks Ended |
Hedge Relationships(1) |  | April 22, 2017 |  |  | April 23, 2016 |  |  | into Income (Effective Portion)(2) |  | April 22, 2017 |  |  | April 23, 2016 |
Interest rate contracts |  | $ | — |  |  | $ | — |  |  | Interest expense (income) |  | $ | 27 |  |  | $ | 47 |
Commodity contracts |  |  | (3,518 | ) |  |  | 2,588 |  |  | Production costs(3) |  |  | 447 |  |  |  | 1,096 |
Total |  | $ | (3,518 | ) |  | $ | 2,588 |  |  |  |  | $ | 474 |  |  | $ | 1,143 |
1. | Amounts in parentheses indicate debits to determine net income.
2. | Amounts in parentheses, if any, indicate credits to determine net income.
3. | Included in materials, supplies, labor and other production costs (exclusive of depreciation and amortization shown separately).
There was no hedging ineffectiveness, and no amounts were excluded from the ineffectiveness testing, during the sixteen weeks ended April 22, 2017 and April 23, 2016, respectively, related to the company’s commodity risk hedges. The balance in AOCI related to commodity price risk and interest rate risk derivative transactions that closed or will expire over the following years are as follows (amounts in thousands and net of tax)(amounts in parenthesis indicate a debit balance) at April 22, 2017:
|  | Commodity price risk derivatives |  |  | Interest rate risk derivatives |  |  | Totals |
Closed contracts |  | $ | (42 | ) |  | $ | (136 | ) |  | $ | (178 | )
Expiring in 2017 |  |  | (3,309 | ) |  |  | — |  |  |  | (3,309 | )
Expiring in 2018 |  |  | (661 | ) |  |  | — |  |  |  | (661 | )
Expiring in 2019 |  |  | 43 |  |  |  | — |  |  |  | 43 |
Total |  | $ | (3,969 | ) |  | $ | (136 | ) |  | $ | (4,105 | )
Derivative Transactions Notional Amounts As of April 22, 2017, the company had the following outstanding financial contracts that were entered to hedge commodity risk (amounts in thousands):
|  | Notional amount |
Wheat contracts |  | $ | 89,365 |
Soybean oil contracts |  |  | 11,553 |
Natural gas contracts |  |  | 12,791 |
Total |  | $ | 113,709 |
The company’s derivative instruments contain no credit-risk related contingent features at April 22, 2017. As of April 22, 2017 and December 31, 2016, the company had $11.2 million and $3.0 million, respectively, in other current assets representing collateral 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 45 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6441202&loc=d3e80720-113993 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=64837297&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 2 -URI http://asc.fasb.org/extlink&oid=64837297&loc=d3e41620-113959 Reference 4: 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=64837297&loc=SL5624163-113959 Reference 5: 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=64837297&loc=SL5579240-113959 Reference 6: 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=64837297&loc=SL5624177-113959 Reference 7: 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 8: 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=64837297&loc=d3e41641-113959 Reference 9: 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=64837297&loc=SL5579245-113959 Reference 10: 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=64837297&loc=SL5624258-113959 Reference 11: 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 12: 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=64837297&loc=SL5708775-113959 Reference 13: 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=64837297&loc=SL5708773-113959 Reference 14: 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=64837297&loc=SL5618551-113959 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=64837297&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 4E -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5624181-113959 Reference 17: 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 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=64837297&loc=d3e41638-113959 Reference 19: 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 + Details
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