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 and foreign currency exchange rates.

The Company makes limited use of derivative instruments to manage cash flow risks related to natural gas usage, diesel fuel usage, inventory, forecasted sales and foreign currency exchange rates. The Company does not use derivative instruments for trading purposes. 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. Corn options and future contracts are entered into with the intent of managing U.S. forecasted sales of bakery by-products ("BBP") by reducing the impact of changing prices. Foreign currency forward contracts are entered into to mitigate the foreign exchange rate risk for transactions designated in a currency other than the local functional currency. At July 4, 2015, the Company had corn option contracts outstanding that qualified and were designated for hedge accounting as well as heating oil swap contracts, corn option and forward contracts and foreign currency forward contracts 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

In fiscal 2014 and the first six months of fiscal 2015, 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 U.S. forecasted sales of BBP through the second quarter of fiscal 2016. As of July 4, 2015, some of the contracts have settled while the remaining contract positions and activity are disclosed below. From time to time, the Company may enter into corn option contracts in the future.

As of July 4, 2015, the Company had the following outstanding forward contract amounts that were entered into to hedge the future payments of intercompany note transactions, foreign currency transactions in currencies other than the functional currency and forecasted transactions in currencies other than the functional currency. All of these transactions are currently not designated for hedge accounting. (in thousands):



Functional Currency		Contract Currency
Type	Amount	Type	Amount
Brazilian real	15,910	Euro	4,550
Brazilian real	40,100	U.S. dollar	12,750
Euro	264,533	U.S. dollar	300,494
Euro	23,330	Polish zloty	98,000
Euro	4,968	Japanese yen	663,043
Euro	36,981	Chinese renminbi	254,055
Euro	25,326	Australian dollar	37,350
Euro	5,331	British pound	3,848
Polish zloty	24,978	Euro	6,065
British pound	74	Euro	100
British pound	131	U.S. dollar	200
Japanese yen	12,217	U.S. dollar	102

The Company estimates the amount that will be reclassified from accumulated other comprehensive gain at July 4, 2015 into earnings over the next 12 months will be approximately $2.0 million. As of July 4, 2015, no amounts 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 July 4, 2015 and January 3, 2015 (in thousands):



Derivatives Designated	Balance Sheet	Asset Derivatives Fair Value
as Hedges	Location	July 4, 2015		January 3, 2015
Corn options	Other current assets	$	—	$	247

Total asset derivatives designated as hedges		$	—	$	247

Derivatives Not Designated as Hedges
Foreign currency contracts	Other current assets	$	7,783	$	11,559
Heating oil swaps and options	Other current assets	129		353
Corn options and futures	Other current assets	—		69

Total asset derivatives not designated as hedges		$	7,912	$	11,981

Total asset derivatives		$	7,912	$	12,228



Derivatives Designated	Balance Sheet	Liability Derivatives Fair Value
as Hedges	Location	July 4, 2015		January 3, 2015
Corn options	Accrued expenses	$	2,531	$	—

Total liability derivatives designated as hedges		$	2,531	$	—

Derivatives Not Designated as Hedges
Foreign currency contracts	Accrued expenses	$	743	$	2,019
Heating oil swaps and options	Accrued expenses	491		993
Corn options and futures	Accrued expenses	1,116		3

Total liability derivatives not designated as hedges		$	2,350	$	3,015

Total liability derivatives		$	4,881	$	3,015

The effect of the Company’s derivative instruments on the consolidated financial statements as of and for the three months ended July 4, 2015 and June 28, 2014 is as follows (in thousands):



Derivatives Designated as Cash Flow Hedges	Gain or (Loss) Recognized in Other Comprehensive Income ("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)
	2015			2014			2015		2014		2015		2014
Corn options	$	(1,819	)	$	1,046		$	347	$	32	$	672	$	355
Natural gas swaps	—			(17		)	—		—		—		(4		)

Total	$	(1,819	)	$	1,029		$	347	$	32	$	672	$	351


(a)	Amount recognized in accumulated OCI (effective portion) is reported as accumulated other comprehensive income/(loss) of approximately $(1.8) million and approximately $1.0 million recorded net of taxes of approximately $0.7 million and $(0.4) million as of July 4, 2015 and June 28, 2014, respectively.


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


(c)	Gains and (losses) recognized in income on derivatives (ineffective portion) for corn options and natural gas swaps is included in other income/ (expense), 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 six months ended July 4, 2015 and June 28, 2014 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)
	2015			2014			2015		2014		2015		2014
Corn options	$	(1,523	)	$	(273	)	$	581	$	1,324	$	727	$	731
Natural gas swaps	—			155			—		357		—		(5		)

Total	$	(1,523	)	$	(118	)	$	581	$	1,681	$	727	$	726


(a)	Amount recognized in accumulated OCI (effective portion) is reported as accumulated other comprehensive income/(loss) of approximately $(1.5) million and approximately $(0.1) million recorded net of taxes of approximately $0.6 million and less than $0.1 million as of July 4, 2015 and June 28, 2014, respectively.


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


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

The table below summarizes the effect of derivatives not designated as hedges on the Company's consolidated statements of operations for the three and six months ended July 4, 2015 and June 28, 2014 (in thousands):



		Gain or (loss) Recognized in Income on Derivatives Not Designated as Hedges
		Three Months Ended					Six Months Ended
Derivatives not designated as hedging instruments	Location	July 4, 2015			June 28, 2014		July 4, 2015			June 28, 2014

Foreign Exchange	Foreign currency gain/(loss)	$	(2,262	)	$	2,372	$	25,437		$	(11,350	)
Foreign Exchange	Cost of sales and operating expenses	(5		)	15		(1		)	1
Foreign Exchange	Selling, general and administrative expense	(361		)	465		1,456			258
Corn options and futures	Net sales	(81		)	—		(70		)	—
Corn options and futures	Cost of sales and operating expenses	(633		)	94		(378		)	(78		)
Heating Oil swaps and options	Cost of sales and operating expenses	(35		)	8		(130		)	18
Total		$	(3,377	)	$	2,954	$	26,314		$	(11,151	)

At July 4, 2015, the Company had forward purchase agreements in place for purchases of approximately $2.5 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.