Derivative Financial Instruments and Fair Value Measurements

3 Months Ended

Mar. 30, 2019

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 March 30, 2019 and December 29, 2018:

			March 30, 2019
			Fair value
			asset (liability)			Level 1			Level 2			Level 3
			$			$			$			$
Commodity futures contracts⁽¹⁾
	Unrealized short-term derivative liability		(237	)		(237	)		-			-
Forward foreign currency contracts⁽²⁾
	Not designated as hedging instruments		716			-			716			-
Contingent consideration⁽³⁾			(4,286	)		-			-			(4,286	)

			December 29, 2018
			Fair value
			asset (liability	)		Level 1			Level 2			Level 3
		$			$			$			$
Commodity futures and forward contracts⁽¹⁾
	Unrealized short-term derivative asset		620			-			620			-
	Unrealized long-term derivative asset		7			-			7			-
	Unrealized short-term derivative liability		(581	)		(94	)		(487	)		-
	Unrealized long-term derivative liability		(17	)		-			(17	)		-
Forward foreign currency contracts⁽²⁾
	Not designated as hedging instruments		583			-			583			-
Contingent consideration⁽³⁾			(4,286	)		-			-			(4,286	)
Inventories carried at market⁽⁴⁾			3,239			-			3,239			-

(1)Commodity futures and forward contracts

As at March 30, 2019, outstanding contracts comprise exchange-traded commodity futures for cocoa and coffee. As at December 29, 2018, outstanding contracts also included exchange-traded commodity futures and forward commodity purchase and sale contracts associated with the Company's sold soy and corn business. Exchange-traded futures are fair valued based on unadjusted quotes for identical assets priced in active markets and are classified as level 1. Fair value for forward commodity purchase and sale contracts was estimated based on exchange-quoted prices adjusted for differences in local markets and were classified as level 2.

Exchange-traded commodity futures for cocoa and coffee are used as part of the Company's risk management strategy and represent economic hedges to limit risk related to fluctuations in the price of these commodities. These contracts are not designated as hedges for accounting purposes. Gains and losses on changes in fair value of these contracts are included in cost of goods sold on the consolidated statement of operations. For the quarter ended March 30, 2019, the Company recognized a loss of $0.1 million (March 31, 2018 - loss of $1.1 million) related to changes in the fair value of these contracts. In addition, for the quarter ended March 31, 2018, the Company recognized a loss of $0.4 million related to changes in the fair value of soy and corn futures and forward contracts. On the consolidated balance sheets, unrealized gains on short-term and long-term contracts are included in other current assets and other assets, respectively, and unrealized losses on short-term and long-term contracts are included in other current liabilities and long-term liabilities, respectively.

As at March 30, 2019, the Company had net open futures contracts to sell 8,210 metric tons ("MT") of cocoa (December 29, 2018 - 6,730 MT sold) and to purchase 204 MT (December 29, 2018 - 85 MT purchased) 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 March 30, 2019, the Company had open forward foreign exchange contracts to sell euros to buy U.S. dollars with a notional value of €8.2 million ($10.0 million), and to sell British pounds to buy euros with a notional value of £1.8 million (€2.0 million). In addition, as at March 30, 2019, the Company had open forward foreign exchange contracts to sell U.S. dollars to buy Mexican pesos with a notional value of $12.7 million (M$246.1 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 March 30, 2019, the Company recognized a gain of $0.6 million (March 31, 2018 - gain of $0.4 million) related to changes in the fair value of these contracts. Unrealized gains and losses on these contracts are included in accounts receivable and accounts payable, respectively, on the consolidated balance sheets.

As at March 31, 2018, the Company had designated open forward exchange contracts to sell U.S. dollars to buy Mexican pesos as hedging instruments. As a result, effective portion of the gains and losses on changes in the fair value of those contracts was included in other comprehensive earnings and reclassified to cost of goods sold in the same period the hedged transaction affected earnings. For the quarter ended March 31, 2018, the Company recognized a net unrealized gain in other comprehensive earnings of $0.8 million related to changes in the fair value of open contracts, and the Company reclassified $0.2 million of realized losses on closed contracts from other comprehensive earnings to cost of goods sold.

(3) Contingent consideration

The fair value measurement of contingent consideration arising from business acquisitions is determined using unobservable (level 3) inputs. These inputs include: (i) the estimated amount and timing of the projected cash flows on which the contingency is based; and (ii) the risk-adjusted discount rate used to calculate the present value of those cash flows. The table below presents a reconciliation of the remaining contingent consideration obligation under an earn-out arrangement with the former unitholders of Citrusource, LLC ("Citrusource"), which was acquired by the Company in March 2015. This remaining obligation is included in the current portion of long-term liabilities on the consolidated balance sheets as at March 30, 2019 and December 29, 2018.

		Quarter ended
		March 30, 2019		March 31, 2018
		$		$
Balance, beginning of period		(4,286	)	(11,320	)
	Fair value adjustments⁽¹⁾	-		2,416
Balance, end of period		(4,286	)	(8,904	)

(1)For the quarter ended March 31, 2018, included an adjustment of $2.5 million to reduce the final contingent consideration obligation payable in 2019 based on the results of Citrusource in fiscal 2018. The parties are in the process of determining the final payment amount under the terms of the Unit Purchase Agreement.

(4) Inventories carried at market

As at December 29, 2018, inventories carried at market represented inventories of commodity soy and corn associated with the Company's sold soy and corn business. The fair value of these inventories was determined using quoted market prices from the Chicago Board of Trade, as adjusted for differences in local markets, and broker or dealer quotes, and classified as level 2. Gains and losses on these inventories were included in cost of goods sold on the consolidated statements of operations. Inventories carried at market were included in inventories on the consolidated balance sheet as at December 29, 2018.