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Derivative Financial Instruments | 9 Months Ended
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Oct. 09, 2021
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, and diesel fuel are also important commodity inputs. As of October 9, 2021, 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 |  | $ | 6,428 |  |  | $ | — |  |  | $ | — |  |  | $ | 6,428 |
Other long-term |  |  | 1,111 |  |  |  | — |  |  |  | — |  |  |  | 1,111 |
Total |  |  | 7,539 |  |  |  | — |  |  |  | — |  |  |  | 7,539 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other current |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Other long-term |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Net Fair Value |  | $ | 7,539 |  |  | $ | — |  |  | $ | — |  |  | $ | 7,539 |
As of January 2, 2021, 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 |  | $ | 16,684 |  |  | $ | — |  |  | $ | — |  |  | $ | 16,684 |
Other long-term |  |  | 731 |  |  |  | — |  |  |  | — |  |  |  | 731 |
Total |  |  | 17,415 |  |  |  | — |  |  |  | — |  |  |  | 17,415 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other current |  |  | (5 | ) |  |  | — |  |  |  | — |  |  |  | (5 | )
Other long-term |  |  | (83 | ) |  |  | — |  |  |  | — |  |  |  | (83 | )
Total |  |  | (88 | ) |  |  | — |  |  |  | — |  |  |  | (88 | )
Net Fair Value |  | $ | 17,327 |  |  | $ | — |  |  | $ | — |  |  | $ | 17,327 |
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 extending into Fiscal 2022. These instruments are designated as cash-flow hedges. The change in the fair value for these derivatives is reported in AOCI. All the company-held commodity derivatives at October 9, 2021 and January 2, 2021, respectively, qualified for hedge accounting. Interest Rate Risk During the first quarter of Fiscal 2021, the company entered into treasury locks to fix the interest rate for the 2031 notes issued on March 9, 2021. The derivative positions were closed when the debt was priced on March 2, 2021 with a cash settlement net receipt of $3.9 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 and the deferred amount reported in AOCI is being reclassified to interest expense as interest payments are made on the notes through the maturity date. The company previously entered into treasury rate locks at the time we executed the 2026 notes. These rate locks were designated as a cash flow hedge and the fair value at termination was deferred in AOCI. The deferred amount reported in AOCI is being reclassified to interest expense as interest payments are made on the related notes through the maturity date. 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 |
|  | October 9, 2021 |  |  | January 2, 2021 |  |  | October 9, 2021 |  |  | January 2, 2021 |
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 |  | $ | 6,428 |  |  | Other current assets |  | $ | 16,684 |  |  | Other accrued liabilities |  | $ | — |  |  | Other accrued liabilities |  | $ | 5 |
Commodity contracts |  | Other assets |  |  | 1,111 |  |  | Other assets |  |  | 731 |  |  | Other long-term liabilities |  |  | — |  |  | Other long-term liabilities |  |  | 83 |
Total |  |  |  | $ | 7,539 |  |  |  |  | $ | 17,415 |  |  |  |  | $ | — |  |  |  |  | $ | 88 |
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 AOCI on Derivatives |  |  |  |  | Reclassified from AOCI |
|  | (Effective Portion) |  |  | Location of Gain or (Loss) |  | into Income (Effective Portion) |
Derivatives in Cash Flow |  | For the Twelve Weeks Ended |  |  | Reclassified from AOCI |  | For the Twelve Weeks Ended |
Hedge Relationships(1) |  | October 9, 2021 |  |  | October 3, 2020 |  |  | into Income (Effective Portion)(2) |  | October 9, 2021 |  |  | October 3, 2020 |
Interest rate contracts |  | $ | — |  |  | $ | — |  |  | Interest expense |  | $ | 86 |  |  | $ | (25 | )
Commodity contracts |  |  | (3,618 | ) |  |  | 9,409 |  |  | Production costs(3) |  |  | 340 |  |  |  | (652 | )
Total |  | $ | (3,618 | ) |  | $ | 9,409 |  |  |  |  | $ | 426 |  |  | $ | (677 | )
|  | Amount of Gain or (Loss) |  |  |  |  | Amount of Gain or (Loss) |
|  | Recognized in AOCI on Derivatives |  |  |  |  | Reclassified from AOCI |
|  | (Effective Portion) |  |  | Location of Gain or (Loss) |  | into Income (Effective Portion) |
Derivatives in Cash Flow |  | For the Forty Weeks Ended |  |  | Reclassified from AOCI |  | For the Forty Weeks Ended |
Hedge Relationships(1) |  | October 9, 2021 |  |  | October 3, 2020 |  |  | into Income (Effective Portion)(2) |  | October 9, 2021 |  |  | October 3, 2020 |
Interest rate contracts |  | $ | 2,927 |  |  | $ | — |  |  | Interest expense |  | $ | 8 |  |  | $ | (83 | )
Commodity contracts |  |  | (6,142 | ) |  |  | 2,202 |  |  | Production costs(3) |  |  | 792 |  |  |  | (1,669 | )
Total |  | $ | (3,215 | ) |  | $ | 2,202 |  |  |  |  | $ | 800 |  |  | $ | (1,752 | )
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 twelve and forty weeks ended October 9, 2021 and October 3, 2020, respectively, related to the company’s commodity risk hedges. At October 9, 2021, 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):
|  | Commodity Price Risk Derivatives |  |  | Interest Rate Risk Derivatives |  |  | Totals |
Closed contracts |  | $ | 252 |  |  | $ | 3,150 |  |  | $ | 3,402 |
Expiring in 2021 |  |  | 619 |  |  |  | — |  |  |  | 619 |
Expiring in 2022 |  |  | 5,036 |  |  |  | — |  |  |  | 5,036 |
Total |  | $ | 5,907 |  |  | $ | 3,150 |  |  | $ | 9,057 |
Derivative Transactions Notional Amounts As of October 9, 2021, the company had the following outstanding financial contracts that were entered to hedge commodity risk (amounts in thousands):
|  | Notional Amount |
Wheat contracts |  | $ | 3,287 |
Soybean oil contracts |  |  | 4,060 |
Natural gas contracts |  |  | 4,839 |
Corn contracts |  |  | 2,057 |
Total |  | $ | 14,243 |
The company’s derivative instruments contain no credit-risk related contingent features at October 9, 2021. As of October 9, 2021 and January 2, 2021, the company had $1.2 million in other current assets representing collateral for hedged positions. At October 9, 2021 and January 2, 2021, the company had $7.5 million and $14.0 million, respectively, recorded in other accrued liabilities representing collateral from 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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 5 -Subparagraph (f) -URI http://asc.fasb.org/extlink&oid=123477628&loc=d3e90205-114008 + Details
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