Derivative Financial Instruments and Fair Value Measurements

9 Months Ended

Sep. 26, 2020

Derivative Assets (Liabilities), at Fair Value, Net, by Balance Sheet Classification [Abstract]

Derivative Financial Instruments and Fair Value Measurements [Text Block]

5. Derivative Financial Instruments and Fair Value Measurements

The following table presents for each of the fair value hierarchies, the assets and liabilities that are measured at fair value on a recurring basis as of September 26, 2020 and December 28, 2019:

	September 26, 2020
	Fair value
	asset (liability)		Level 1		Level 2		Level 3
	$		$		$		$
Commodity futures contracts⁽¹⁾
Unrealized short-term derivative liability	(495	)	(495	)	—		—
Forward foreign currency contracts⁽²⁾
Not designated as hedging instruments	(670	)	—		(670	)	—

	December 28, 2019
	Fair value
	asset (liability)		Level 1		Level 2		Level 3
	$		$		$		$
Commodity futures contracts⁽¹⁾
Unrealized short-term derivative asset	284		284		—		—
Forward foreign currency contracts⁽²⁾
Not designated as hedging instruments	(73	)	—		(73	)	—

(1) Commodity futures contracts

As part of its risk management strategy, the Company enters into exchange-traded commodity futures to limit the risk related to fluctuations in the price for certain commodities. These contracts are not designated as hedges for accounting purposes. Exchange-traded futures are fair valued based on unadjusted quotes for identical assets priced in active markets and are classified as level 1. Gains and losses on changes in the fair value of these contracts are included in cost of goods sold on the consolidated statement of operations. For the quarter ended September 26, 2020, the Company recognized an unrealized loss of $0.6 million (September 28, 2019 - unrealized loss of $0.9 million), and for the three quarters ended September 26, 2020, the Company recognized an unrealized loss of $0.8 million (September 28, 2019 - unrealized loss of $0.6 million), related to changes in the fair value of these contracts. On the consolidated balance sheets, unrealized gains and losses on these contracts are included in other current assets and other current liabilities, respectively.

As at September 26, 2020, the Company had net open futures contracts to sell 5,810 metric tons ("MT") of cocoa (December 28, 2019 - to sell 3,210 MT of cocoa), and no open contracts to buy or sell coffee (December 28, 2019 - to sell 306 MT of coffee).

(2) Foreign forward currency contracts

As part of its risk management strategy, the Company enters into forward foreign exchange contracts to reduce its exposure to fluctuations in foreign currency exchange rates. For any open forward foreign exchange contracts at period end, the contract rate is compared to the forward rate, and a gain or loss is recorded. These contracts are included in level 2 of the fair value hierarchy, as the inputs used in making the fair value determination are derived from and are corroborated by observable market data. These contracts typically represent economic hedges that are not designated as hedging instruments; however, certain of these contracts may be designated as cash flow hedges for accounting purposes.

As at September 26, 2020, the Company had open forward foreign exchange contracts to sell euros to buy U.S. dollars with a notional value of €22.3 million ($25.4 million), to sell British pounds to buy euros with a notional value of £0.2 million (€0.2 million), and to sell Swiss francs to buy U.S. dollars with a notional value of CHF 3.0 million ($3.1 million). As these contracts were not designated as hedging instruments, gains and losses on changes in the fair value of the derivative instruments are included in foreign exchange loss or gain on the consolidated statement of operations. For the quarter ended September 26, 2020, the Company recognized an unrealized loss of $0.6 million (September 28, 2019 - unrealized gain of $0.1 million), and for the three quarters ended September 26, 2020, the Company recognized an unrealized loss of $0.6 million (September 28, 2019 - unrealized loss of $0.3 million), related to changes in the fair value of these open contracts. Unrealized gains and losses on these contracts are included in accounts receivable and accounts payable, respectively, on the consolidated balance sheets.

In April 2020, the Company entered into a combination of foreign currency put and call option contracts (a zero-cost collar) to hedge its exposure to fluctuations in the Mexican peso related to purchases of fruit inventory from Mexico. The aggregate notional amount of these contracts was $21.5 million at inception, which reduces to zero through December 2020, with contracts in the notional amount of $5.8 million remaining open as at September 26, 2020. This collar has a ceiling rate of 25.23 Mexican pesos to the U.S. dollar and a floor rate of 23.50 Mexican pesos to the U.S. dollar. In September 2020, the Company entered into additional put and call option contracts with an aggregate notional amount of $11.8 million at inception, which reduces to zero between January 2021 and July 2021. This collar has a ceiling rate of 24.00 Mexican pesos to the U.S. dollar and a floor rate of 21.14 Mexican pesos to the U.S. dollar. If the spot rate is between the ceiling and floor rates on the date of maturity of each of the contracts, then the Company does not recognize any gain or loss under these contracts. If the spot rate goes below the floor rate of the collar, the Company will recognize a foreign exchange gain, and if the spot rate goes above the ceiling rate of the collar, the Company will recognize a foreign exchange loss. For the quarter and three quarters ended September 26, 2020, the Company did not recognize any amount of unrealized gain or loss on the open contracts.