Derivative Financial Instruments

3 Months Ended

Apr. 03, 2016

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

9.  Derivative Financial Instruments

The Company is subject to the risk of increased costs arising from adverse changes in certain commodity prices.  In the normal course of business, the Company manages these risks through a variety of strategies, including the use of derivative instruments.  The Company does not use derivative instruments for trading or speculative purposes.  All derivative instruments are recorded at fair value as either assets or liabilities in the Company’s consolidated balance sheets.  These derivative instruments are not designated as hedging instruments under GAAP and are used as “economic hedges” to manage commodity price risk.  Derivative instruments held are marked to market on a monthly basis and recognized in earnings consistent with the expense classification of the underlying hedged item.  Settlements of derivative agreements are included in cash flows from operating activities on the Company’s consolidated statements of cash flows.

The Company uses several different financial institutions for commodity derivative instruments to minimize the concentration of credit risk.  While the Company is exposed to credit loss in the event of nonperformance by these counterparties, the Company does not anticipate nonperformance by these parties.

The following summarizes Q1 2016 and Q1 2015 pre-tax changes in the fair value of the Company’s commodity derivative financial instruments and the classification of such changes in the consolidated statements of operations.

		First Quarter
In Thousands	Classification of Gain (Loss)	2016		2015
Commodity hedges	Cost of sales	$	842	$	213
Commodity hedges	Selling, delivery and administrative expenses		198		430
Total		$	1,040	$	643

The following table summarizes the fair values and classification in the consolidated balance sheets of derivative instruments held by the Company:

	Balance Sheet	Apr. 3,		Jan. 3,		Mar. 29,
In Thousands	Classification	2016		2016		2015
Assets:
Commodity hedges at fair market value	Prepaid expenses and other current assets	$	0	$	0	$	452
Commodity hedges at fair market value	Other assets		70		3		191
Total assets		$	70	$	3	$	643
Liabilities:
Commodity hedges at fair market value	Other accrued liabilities	$	2,470	$	3,442	$	0
Total liabilities		$	2,470	$	3,442	$	0

The Company has master agreements with the counterparties to its derivative financial agreements that provide for net settlement of derivative transactions. Accordingly, the net amounts of derivative assets are recognized in either prepaid expenses and other current assets or other assets in the consolidated balance sheet and the net amounts of derivative liabilities are recognized in other accrued liabilities in the consolidated balance sheet.  The Company had gross derivative assets of $0.1 million and gross derivative liabilities of $2.5 million as of April 3, 2016. The Company had gross derivative assets of $0.2 million and gross derivative liabilities of $3.6 million as of January 3, 2016.  The Company had gross derivative assets of $1.8 million and gross derivative liabilities of $1.2 million as of March 29, 2015.   

The Company’s outstanding commodity derivative agreements as of April 3, 2016 had a notional amount of $45.8 million and a latest maturity date of December 2017.   The Company’s outstanding commodity derivative agreements as of March 29, 2015 had a notional amount of $62.2 million and a latest maturity date of December 2016.

Subsequent to April 3, 2016, the Company entered into additional agreements to hedge certain commodity costs for 2017.  The notional amount of these agreements was $6.6 million.