Derivatives

The Company’s operations are exposed to market risks relating to commodity prices that affect the Company’s cost of raw materials, finished product prices and energy costs and the risk of changes in interest rates.

The Company makes limited use of derivative instruments to manage cash flow risks related to interest expense, natural gas usage, diesel fuel usage and inventory. The Company does not use derivative instruments for trading purposes. Interest rate swaps are entered into with the intent of managing overall borrowing costs by reducing the potential impact of increases in interest rates on floating-rate long-term debt. Natural gas swaps and options are entered into with the intent of managing the overall cost of natural gas usage by reducing the potential impact of seasonal weather demands on natural gas that increases natural gas prices. Heating oil swaps and options are entered into with the intent of managing the overall cost of diesel fuel usage by reducing the potential impact of seasonal weather demands on diesel fuel that increases diesel fuel prices. Inventory swaps and options are entered into with the intent of managing seasonally high concentrations of MBM, PM, BFT, PG, YG and BBP inventories by reducing the potential impact of changing prices. Corn options are entered into with the intent of managing forecasted sales of BBP by reducing the impact of changing prices. At September 29, 2012, the Company had corn option contracts outstanding that qualified and were designated for hedge accounting as well as heating oil swaps and heating oil and corn options that did not qualify and were not designated for hedge accounting.

Entities are required to report all derivative instruments in the statement of financial position at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, if so, on the reason for holding the instrument. If certain conditions are met, entities may elect to designate a derivative instrument as a hedge of exposures to changes in fair value, cash flows or foreign currencies. If the hedged exposure is a cash flow exposure, the effective portion of the gain or loss on the derivative instrument is reported initially as a component of other comprehensive income (outside of earnings) and is subsequently reclassified into earnings when the forecasted transaction affects earnings. Any amounts excluded from the assessment of hedge effectiveness as well as the ineffective portion of the gain or loss are reported in earnings immediately. If the derivative instrument is not designated as a hedge, the gain or loss is recognized in earnings in the period of change.

Cash Flow Hedges

On May 19, 2006, the Company entered into two interest rate swap agreements that were considered cash flow hedges according to FASB authoritative guidance. In December 2010, as a result of the Merger and entry into a new Credit Agreement, the term loan that specifically related to these interest swap transactions was repaid. As such, the Company discontinued the interest rate swaps and paid approximately $2.0 million representing the fair value of these two interest swap transactions at the discontinuance date with the effective portion recorded in accumulated other comprehensive loss to be reclassified to income over the remaining original term of the interest swaps which ended April 7, 2012.

In fiscal 2011 and the first six month of fiscal 2012, the Company entered into natural gas swap contracts that are considered cash flow hedges. Under the terms of the natural gas swap contracts the Company fixed the expected purchase cost of a portion of its plants expected natural gas usage into the third quarter of fiscal 2012. As of September 29, 2012, all of the contracts have expired and settled according to the contracts.

In the third quarter of fiscal 2012, the Company entered into corn option contracts that are considered cash flow hedges. Under the terms of the corn option contracts the Company hedged a portion of its forecasted sales of BBP into the fourth quarter of fiscal 2013. As of September 29, 2012, the contracts positions and activity are disclosed below.

The Company estimates that no amounts will be reclassified from accumulated other comprehensive loss at September 29, 2012 into earnings over the next 12 months. As of September 29, 2012, approximately $0.3 million of losses have been reclassified into earnings as a result of the discontinuance of cash flow hedges.

The following table presents the fair value of the Company’s derivative instruments under FASB authoritative guidance as of September 29, 2012 and December 31, 2011 (in thousands):



Derivatives Designated	Balance Sheet	Asset Derivatives Fair Value
as Hedges	Location	September 29, 2012		December 31, 2011
Corn options	Other current assets	$	13	$	—

Total asset derivatives designated as hedges		$	13	$	—

Derivatives not Designated as Hedges
Heating oil swaps and options	Other current assets	$	369	$	6

Total asset derivatives not designated as hedges		$	369	$	6

Total asset derivatives		$	382	$	6



Derivatives Designated	Balance Sheet	Liability Derivatives Fair Value
as Hedges	Location	September 29, 2012		December 31, 2011
Corn options	Accrued expenses	$	7	$	—
Natural gas swaps	Accrued expenses	—		669

Total liability derivatives designated as hedges		$	7	$	669

Derivatives not Designated as Hedges
Natural gas swaps	Accrued expenses	$	—	$	143
Heating oil swaps and options	Accrued expenses	—		24
Corn options	Accrued expenses	683		—

Total liability derivatives not designated as hedges		$	683	$	167

Total liability derivatives		$	690	$	836

The effect of the Company’s derivative instruments on the consolidated financial statements as of and for the three months ended September 29, 2012 and October 1, 2011 is as follows (in thousands):



Derivatives Designated as Cash Flow Hedges	Gain or (Loss) Recognized in OCI on Derivatives (Effective Portion) (a)						Gain or (Loss) Reclassified From Accumulated OCI into Income (Effective Portion) (b)						Gain or (Loss) Recognized in Income on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing) (c)
	2012			2011			2012			2011			2012		2011
Interest rate swaps	$	—		$	—		$	—		$	(285	)	$	—	$	—
Corn options	—			—			—			—			1		—
Natural gas swaps	(123		)	(278		)	(259		)	(103		)	5		(1		)

Total	$	(123	)	$	(278	)	$	(259	)	$	(388	)	$	6	$	(1	)


(a)	Amount recognized in accumulated OCI (effective portion) is reported as accumulated other comprehensive income/(loss) of approximately $0.1 million and approximately $0.3 million recorded net of taxes of approximately less than $0.1 million and $0.1 million as of September 29, 2012 and October 1, 2011, respectively.


(b)	Gains and (losses) reclassified from accumulated OCI into income (effective portion) for interest rate swaps and natural gas swaps is included in interest expense and cost of sales, respectively, in the Company’s consolidated statements of operations.


(c)	Gains and (losses) recognized in income on derivatives (ineffective portion) for interest rate swaps, corn options and natural gas swaps is included in other, net in the Company’s consolidated statements of operations.

The effect of the Company’s derivative instruments on the consolidated financial statements as of and for the nine months ended September 29, 2012 and October 1, 2011 is as follows (in thousands):



Derivatives Designated as Cash Flow Hedges	Gain or (Loss) Recognized in OCI on Derivatives (Effective Portion) (a)						Gain or (Loss) Reclassified From Accumulated OCI into Income (Effective Portion) (b)						Gain or (Loss) Recognized in Income on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing) (c)
	2012			2011			2012			2011			2012		2011
Interest rate swaps	$	—		$	—		$	(260	)	$	(907	)	$	—	$	—
Corn options	—			—			—			—			1		—
Natural gas swaps	(606		)	(509		)	(1,267		)	(148		)	8		(2		)

Total	$	(606	)	$	(509	)	$	(1,527	)	$	(1,055	)	$	9	$	(2	)


(a)	Amount recognized in accumulated OCI (effective portion) is reported as accumulated other comprehensive income/(loss) of approximately $0.6 million and approximately $0.5 million recorded net of taxes of approximately $0.2 million and approximately $0.2 million as of September 29, 2012 and October 1, 2011, respectively.


(b)	Gains and (losses) reclassified from accumulated OCI into income (effective portion) for interest rate swaps and natural gas swaps is included in interest expense and cost of sales, respectively, in the Company’s consolidated statements of operations.


(c)	Gains and (losses) recognized in income on derivatives (ineffective portion) for interest rate swaps, corn options and natural gas swaps is included in other, net in the Company’s consolidated statements of operations.

At September 29, 2012, the Company had forward purchase agreements in place for purchases of approximately $4.4 million of natural gas and diesel fuel. These forward purchase agreements have no net settlement provisions and the Company intends to take physical delivery of the underlying product. Accordingly, the forward purchase agreements are not subject to the requirements of fair value accounting because they qualify and the Company has elected to account for these as normal purchases as defined in the FASB authoritative guidance.