Derivative Financial Instruments

3 Months Ended

Apr. 02, 2017

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

10.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 certain 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 would be exposed to credit loss in the event of nonperformance by these counterparties, the Company does not anticipate nonperformance by these parties.

The following table summarizes 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)	2017			2016
Commodity hedges	Cost of sales	$	698		$	842
Commodity hedges	Selling, delivery and administrative expenses		(371	)		198
Total gain (loss)		$	327		$	1,040

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

(in thousands)	Balance Sheet Classification	April 2, 2017		January 1, 2017
Assets:
Commodity hedges at fair market value	Prepaid expenses and other current assets	$	1,616	$	1,289
Total assets		$	1,616	$	1,289

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 Company’s consolidated balance sheets and the net amounts of derivative liabilities are recognized in other accrued liabilities or other liabilities in the consolidated balance sheets. The following table summarizes the Company’s gross derivative assets and gross derivative liabilities in the consolidated balance sheets:

(in thousands)	April 2, 2017		January 1, 2017
Gross derivative assets	$	1,621	$	1,297
Gross derivative liabilities		5		8

The following table summarizes the Company’s outstanding commodity derivative agreements:

(in thousands)	April 2, 2017		January 1, 2017
Notional amount of outstanding commodity derivative agreements	$	11,731	$	13,146
Latest maturity date of outstanding commodity derivative agreements	December 2017		December 2017

Subsequent to the end of the first quarter of 2017, the Company entered into additional agreements to hedge certain commodity costs for 2017. The notional amount of these agreements was $38.1 million.