Derivative Financial Instruments

3 Months Ended

Mar. 29, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

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 condensed 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 in the condensed 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 condensed consolidated statements of operations:

		First Quarter
(in thousands)	Classification of Gain (Loss)	2020		2019
Commodity hedges	Cost of sales	$	(1,536)	$	3,905
Commodity hedges	Selling, delivery and administrative expenses	(2,329)		2,715
Total gain (loss)		$	(3,865)	$	6,620

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

(in thousands)	Balance Sheet Classification	March 29, 2020		December 29, 2019
Assets:
Commodity hedges at fair market value	Prepaid expenses and other current assets	$	240	$	1,007
Total assets		$	240	$	1,007
Liabilities:
Commodity hedges at fair market value	Other accrued liabilities	$	4,272	$	1,174
Total liabilities		$	4,272	$	1,174

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 condensed consolidated balance sheets and the net amounts of derivative liabilities are recognized in other accrued liabilities or other liabilities in the condensed consolidated balance sheets.

The following table summarizes the Company’s gross derivative assets and gross derivative liabilities in the condensed consolidated balance sheets:

(in thousands)	March 29, 2020		December 29, 2019
Gross derivative assets	$	284	$	3,298
Gross derivative liabilities	4,316		3,465

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

(in thousands)	March 29, 2020		December 29, 2019
Notional amount of outstanding commodity derivative agreements	$	146,498	$	171,699
Latest maturity date of outstanding commodity derivative agreements	December 2020		December 2020