Derivative Instruments

6 Months Ended

Jul. 03, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Commodity Price Risk

The Company uses forward contracts to protect against the effects of commodity price fluctuations in the cost of ingredients of its products, of which flour, sugar and shortening are the most significant, and the cost of gasoline used by its delivery vehicles. Management has not designated these forward contracts as hedges. As of both July 3, 2022 and January 2, 2022, the total notional amount of commodity derivatives was 1.9 million gallons of gasoline. They were scheduled to mature between July 4, 2022 and December 1, 2023 and January 3, 2022 and March 31, 2023, respectively. As of July 3, 2022 and January 2, 2022, the Company recorded an asset of $2.2 million and $1.5 million, respectively, related to the fair market values of its commodity derivatives. The settlement of commodity derivative contracts is reported in the Condensed Consolidated Statements of Cash Flows as a cash flow from operating activities.

Interest Rate Risk

The Company uses interest rate swaps to manage its exposure to interest rate volatility from its debt arrangements. Management has designated the swap agreements as cash flow hedges and recognized the changes in the fair value of these swaps in other comprehensive income. As of July 3, 2022 and January 2, 2022, the Company has recorded assets of $8.1 million and liabilities of $14.7 million, respectively, related to the fair market values of its interest rate derivatives. The cash flows associated with the interest rate swaps are reflected in operating activities in the Condensed Consolidated Statements of Cash Flows, which is consistent with the classification as operating activities of the interest payments on the term loan.

Foreign Currency Exchange Rate Risk

The Company is exposed to foreign currency risk primarily from its investments in consolidated subsidiaries that operate in Canada, the U.K., Ireland, Australia, New Zealand, Mexico and Japan. In order to mitigate the impact of foreign exchange fluctuations on commercial and financial transactions with these subsidiaries, the Company enters into foreign exchange forward contracts. Management has not designated these forward contracts as hedges. As of July 3, 2022 and January 2, 2022, the total notional amount of foreign exchange derivatives was $54.1 million and $51.8 million, respectively. They were scheduled to mature in July 2022 and between January 2022 and February 2022, respectively. The Company recorded a liability of $0.3 million and $0.1 million as of July 3, 2022 and January 2, 2022, respectively, related to the fair market values of its foreign exchange derivatives.

Quantitative Summary of Derivative Positions and Their Effect on Results of Operations

The following tables present the fair values of derivative instruments included in the Condensed Consolidated Balance Sheets as of July 3, 2022 and January 2, 2022, for derivatives not designated as hedging instruments and derivatives designated as hedging instruments, respectively. The Company only has cash flow hedges that are designated as hedging instruments.


	Derivatives Fair Value
Derivatives Not Designated as Hedging Instruments	July 3, 2022		January 2, 2022		Balance Sheet Location

Commodity derivatives	$	2,159	$	1,486	Prepaid expense and other current assets
Total Assets	$	2,159	$	1,486
Foreign currency derivatives	$	334	$	80	Accrued liabilities
Total Liabilities	$	334	$	80


	Derivatives Fair Value
Derivatives Designated as Hedging Instruments	July 3, 2022		January 2, 2022		Balance Sheet Location
Interest rate derivatives (current)	$	5,358	$	—	Prepaid expense and other current assets
Interest rate derivatives (noncurrent)	2,783		—		Other assets
Total Assets	$	8,141	$	—
Interest rate derivatives (current)	$	—	$	8,535	Accrued liabilities
Interest rate derivatives (noncurrent)	—		6,132		Other long-term obligations and deferred credits
Total Liabilities	$	—	$	14,667

The effect of derivative instruments on the Condensed Consolidated Statements of Operations for the quarter and two quarters ended July 3, 2022 and July 4, 2021 is as follows:


	Derivative Gain/(Loss) Recognized in Income for the Quarter Ended				Derivative Gain/(Loss) Recognized in Income for the Two Quarters Ended
Derivatives Designated as Hedging Instruments	July 3, 2022		July 4, 2021		July 3, 2022		July 4, 2021		Location of Derivative Gain/(Loss) Recognized in Income
Loss on interest rate derivatives	$	(1,861)	$	(2,561)	$	(4,371)	$	(5,091)	Interest expense, net
	$	(1,861)	$	(2,561)	$	(4,371)	$	(5,091)


	Derivative Gain/(Loss) Recognized in Income for the Quarter Ended				Derivative Gain/(Loss) Recognized in Income for the Two Quarters Ended
Derivatives Not Designated as Hedging Instruments	July 3, 2022		July 4, 2021		July 3, 2022		July 4, 2021		Location of Derivative Gain/(Loss) Recognized in Income
Gain/(loss) on foreign currency derivatives	$	108	$	235	$	(255)	$	(375)	Other non-operating expense/(income), net
(Loss)/gain on commodity derivatives	(188)		477		672		1,470		Other non-operating expense/(income), net
	$	(80)	$	712	$	417	$	1,095