v3.25.2
Derivative Financial Instruments
 6 Months Ended
Jul. 12, 2025
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments

10. DERIVATIVE FINANCIAL INSTRUMENTS

The company measures the fair value of its derivative portfolio by using the price that would be received to sell an asset or paid to transfer a liability in the principal market for that asset or liability. These measurements are classified into a hierarchy by the inputs used to perform the fair value calculation as follows:

Level 1: Fair value based on unadjusted quoted prices for identical assets or liabilities at the measurement date

Level 2: Modeled fair value with model inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly

Level 3: Modeled fair value with unobservable model inputs that are used to estimate the fair value of the asset or liability

Commodity Risk

The company enters into commodity derivatives designated as cash-flow hedges of existing or future exposure to changes in commodity prices. The company’s primary raw materials are flour, sweeteners and shortening, along with pulp, paper and petroleum-based packaging products. Natural gas, which is used as oven fuel, and diesel fuel are also important commodity inputs.

As of July 12, 2025, the company’s hedge portfolio contained commodity derivatives, which are recorded in the following accounts with fair values measured as indicated (amounts in thousands):

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Other current

 

$

1,455

 

 

$

—

 

 

$

—

 

 

$

1,455

 

Other long-term

 

 

11

 

 

 

—

 

 

 

—

 

 

 

11

 

Total

 

 

1,466

 

 

 

—

 

 

 

—

 

 

 

1,466

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Other current

 

 

(1,368

)

 

 

—

 

 

 

—

 

 

 

(1,368

)

Other long-term

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

 

(1,368

)

 

 

—

 

 

 

—

 

 

 

(1,368

)

Net Fair Value

 

$

98

 

 

$

—

 

 

$

—

 

 

$

98

 

 

As of December 28, 2024, the company’s hedge portfolio contained commodity derivatives, which are recorded in the following accounts with fair values measured as indicated (amounts in thousands):

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Other current

 

$

723

 

 

$

—

 

 

$

—

 

 

$

723

 

Other long-term

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

 

723

 

 

 

—

 

 

 

—

 

 

 

723

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Other current

 

 

(1,290

)

 

 

—

 

 

 

—

 

 

 

(1,290

)

Other long-term

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

 

(1,290

)

 

 

—

 

 

 

—

 

 

 

(1,290

)

Net Fair Value

 

$

(567

)

 

$

—

 

 

$

—

 

 

$

(567

)

 

The positions held in the portfolio are used to hedge economic exposure to changes in various raw material prices and effectively fix, or limit increases in, prices for a period extending into Fiscal 2026. These instruments are designated as cash-flow hedges. The change in the fair value for these derivatives is reported in AOCI. All the company-held commodity derivatives at July 12, 2025 and December 28, 2024, respectively, qualified for hedge accounting.

Interest Rate Risk

The company entered into interest derivatives designated as cash flow hedges of existing or future exposure to changes in interest rates. The company's risk management objective and strategy with respect to interest rate swaps was to protect the company against adverse fluctuations in interest rates by reducing its exposure to variability in cash flows relating to interest payments on the forecasted issuance of long-term debt. This swap was designated as a cash flow hedge.

For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in AOCI and subsequently reclassified into interest expense in the same period during which the hedged transaction affects earnings. Amounts reported in AOCI related to derivatives is being reclassified to interest expense as interest payments are made on the company’s fixed-rate bonds.

The company's hedge portfolio did not contain any interest derivatives as of July 12, 2025.

As of December 28, 2024, the company’s hedge portfolio contained interest derivatives, which are recorded in the following accounts with fair values measured as indicated (amounts in thousands):

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Other current

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

Other long-term

 

 

7,686

 

 

 

—

 

 

 

—

 

 

 

7,686

 

Total

 

 

7,686

 

 

 

—

 

 

 

—

 

 

 

7,686

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Other current

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Other long-term

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Net Fair Value

 

$

7,686

 

 

$

—

 

 

$

—

 

 

$

7,686

 

During the first quarter of Fiscal 2025, the company closed interest rate swaps previously entered into to protect the company against adverse fluctuations in interest rates with a cash settlement net receipt of $4.2 million. These swaps were designated as a cash flow hedge and the deferred amount reported in AOCI is being reclassified to interest expense as interest payments are made on the notes through maturity date.

The company previously entered into treasury rate locks at the time we executed the 2031 notes and 2026 notes. These rate locks were designated as a cash flow hedge and the fair value at termination was deferred in AOCI. The deferred amount reported in AOCI is being reclassified to interest expense as interest payments are made on the related notes through the maturity date.

Derivative Assets and Liabilities

The company has the following derivative instruments located on the Condensed Consolidated Balance Sheets, which are utilized for the risk management purposes detailed above (amounts in thousands):

 

 

 

Derivative Assets

 

 

Derivative Liabilities

 

 

 

July 12, 2025

 

 

December 28, 2024

 

 

July 12, 2025

 

 

December 28, 2024

 

Derivatives Designated as
Hedging Instruments

 

Balance
Sheet
Location

 

Fair Value

 

 

Balance
Sheet
Location

 

Fair Value

 

 

Balance
Sheet
Location

 

Fair Value

 

 

Balance
Sheet
Location

 

Fair Value

 

Commodity contracts

 

Other
current
assets

 

$

1,455

 

 

Other
current
assets

 

$

723

 

 

Other
accrued
liabilities

 

$

1,368

 

 

Other
accrued
liabilities

 

$

1,290

 

Commodity and interest
   contracts

 

Other
assets

 

 

11

 

 

Other
assets

 

 

7,686

 

 

Other
long-term
liabilities

 

 

—

 

 

Other
long-term
liabilities

 

 

—

 

Total

 

 

 

$

1,466

 

 

 

 

$

8,409

 

 

 

 

$

1,368

 

 

 

 

$

1,290

 

 

 

Derivative AOCI transactions

The company had the following derivative instruments for deferred gains and (losses) on closed contracts and the effective portion for changes in fair value recorded in AOCI (no amounts were excluded from the effectiveness test), all of which are utilized for the risk management purposes detailed above (amounts in thousands and net of tax):

 

 

 

Amount of (Loss) or Gain

 

 

 

 

Amount of Gain or (Loss)

 

 

 

Recognized in AOCI on Derivatives

 

 

 

 

Reclassified from AOCI

 

 

 

(Effective Portion)

 

 

Location of Gain or (Loss)

 

into Income (Effective Portion)

 

Derivatives in Cash Flow

 

For the Twelve Weeks Ended

 

 

Reclassified from AOCI

 

For the Twelve Weeks Ended

 

Hedge Relationships(1)

 

July 12, 2025

 

 

July 13, 2024

 

 

into Income (Effective Portion)(2)

 

July 12, 2025

 

 

July 13, 2024

 

Interest rate contracts

 

$

—

 

 

$

(22

)

 

Interest expense

 

$

158

 

 

$

86

 

Commodity contracts

 

 

(683

)

 

 

466

 

 

Production costs(3)

 

 

43

 

 

 

(107

)

Total

 

$

(683

)

 

$

444

 

 

 

 

$

201

 

 

$

(21

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount of (Loss) or Gain

 

 

 

 

Amount of Gain or (Loss)

 

 

 

Recognized in AOCI on Derivatives

 

 

 

 

Reclassified from AOCI

 

 

 

(Effective Portion)

 

 

Location of Gain or (Loss)

 

into Income (Effective Portion)

 

Derivatives in Cash Flow

 

For the Twenty-Eight Weeks Ended

 

 

Reclassified from AOCI

 

For the Twenty-Eight Weeks Ended

 

Hedge Relationships(1)

 

July 12, 2025

 

 

July 13, 2024

 

 

into Income (Effective Portion)(2)

 

July 12, 2025

 

 

July 13, 2024

 

Interest rate contracts

 

$

3,160

 

 

$

(22

)

 

Interest expense

 

$

328

 

 

$

201

 

Commodity contracts

 

 

(4,929

)

 

 

(100

)

 

Production costs(3)

 

 

363

 

 

 

(772

)

Total

 

$

(1,769

)

 

$

(122

)

 

 

 

$

690

 

 

$

(571

)
1.
Amounts in parentheses indicate debits to determine net income.
2.
Amounts in parentheses, if any, indicate credits to determine net income.
3.
Included in materials, supplies, labor and other production costs (exclusive of depreciation and amortization shown separately).

There was no hedging ineffectiveness, and no amounts were excluded from the ineffectiveness testing, during the twelve and twenty-eight weeks ended July 12, 2025 and July 13, 2024, related to the company’s commodity risk hedges.

At July 12, 2025, the balance in AOCI related to commodity price risk and interest rate risk derivative transactions that closed or will expire over the following years are as follows (amounts in thousands and net of tax) (amounts in parenthesis indicate a debit balance):

 

 

 

Commodity
Price Risk
Derivatives

 

 

Interest
Rate Risk
Derivatives

 

 

Totals

 

Closed contracts

 

$

(218

)

 

$

4,774

 

 

$

4,556

 

Expiring in 2025

 

 

98

 

 

 

—

 

 

 

98

 

Expiring in 2026

 

 

(26

)

 

 

—

 

 

 

(26

)

Total

 

$

(146

)

 

$

4,774

 

 

$

4,628

 

 

Derivative Transactions Notional Amounts

As of July 12, 2025, the company had the following outstanding financial contracts that were entered to hedge commodity risk (amounts in thousands):

 

 

 

Notional
Amount

 

Wheat contracts

 

$

5,332

 

Soybean oil contracts

 

 

4,324

 

Natural gas contracts

 

 

1,720

 

Corn contracts

 

 

1,284

 

Total

 

$

12,660

 

 

The company’s derivative instruments contain no credit-risk related contingent features at July 12, 2025. As of July 12, 2025 and December 28, 2024, the company had $3.5 million and $4.0 million, respectively, in other current assets representing collateral for hedged positions. As of July 12, 2025 and December 28, 2024, the company had $2.8 million and $2.1 million, respectively, recorded in other accrued liabilities representing collateral due to counterparties for hedged positions.