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 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 forecasted sales of 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 December 31, 2016, the Company had corn options outstanding that qualified and were designated for hedge accounting as well as corn options 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 2015 and fiscal 2016, 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 it's forecasted sales of BBP into the fourth quarter of fiscal 2017. As of December 31, 2016, all fiscal 2015 contracts and some of the fiscal 2016 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 December 31, 2016, 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	28,304	Euro	7,270
Brazilian real	66,273	U.S. Dollar	18,900
Euro	150,394	U.S. Dollar	166,377
Euro	10,444	Polish zloty	47,000
Euro	4,295	Japanese yen	505,320
Euro	34,337	Chinese renminbi	254,639
Euro	11,563	Australian dollar	16,700
Euro	1,405	British pound	1,200
Polish zloty	19,111	Euro	4,312
Japanese yen	14,423	U.S. dollar	135

The Company estimates the amount that will be reclassified from accumulated other comprehensive gain at December 31, 2016 into earnings over the next 12 months will be approximately $4.0 million. As of December 31, 2016, 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 as of December 31, 2016 and January 2, 2016 (in thousands):



Derivatives Designated	Balance Sheet	Asset Derivatives Fair Value
as Hedges	Location	December 31, 2016		January 2, 2016
Corn options	Other current assets	$	4,235	$	3,215

Total derivatives designated as hedges		$	4,235	$	3,215

Derivatives not Designated as Hedges
Foreign currency contracts	Other current assets	$	8,939	$	644
Corn options and futures	Other current assets	151		599

Total derivatives not designated as hedges		$	9,090	$	1,243

Total asset derivatives		$	13,325	$	4,458



	Balance Sheet	Liability Derivatives Fair Value
	Location	December 31, 2016		January 2, 2016

Derivatives not Designated as Hedges
Foreign currency contracts	Accrued Expenses	$	608	$	4,435
Corn options and futures	Accrued Expenses	122		2

Total derivatives not designated as hedges		$	730	$	4,437

Total liability derivatives		$	730	$	4,437

The effect of the Company's derivative instruments on the consolidated financial statements for the fiscal years ended December 31, 2016 and January 2, 2016 are 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)
	2016		2015		2016		2015		2016		2015

Corn options	$	4,889	$	4,405	$	3,868	$	1,517	$	331	$	68

Total	$	4,889	$	4,405	$	3,868	$	1,517	$	331	$	68


(a)	Amount recognized in accumulated OCI (effective portion) is reported as accumulated other comprehensive gain of approximately $4.9 million and approximately $4.4 million recorded net of taxes of approximately $1.9 million and approximately $1.7 million for the year ended December 31, 2016 and January 2, 2016, 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 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 year ended December 31, 2016, January 2, 2016 and January 3, 2015 (in thousands):



		Loss or (Gain) Recognized in Income on Derivatives Not Designated as Hedges
		For The Year Ended
Derivatives not designated as hedging instruments	Location	December 31, 2016			January 2, 2016			January 3, 2015
Foreign exchange	Foreign currency loss/(gain)	$	(1,542	)	$	(27,321	)	$	(21,162	)
Foreign exchange	Selling, general and administrative expense	(8,543		)	7,508			4,652
Corn options and futures	Net sales	472			(2		)	—
Corn options and futures	Cost of sales and operating expenses	(1,411		)	(2,067		)	(71		)
Natural gas and heating oil swaps and options	Cost of sales and operating expenses	—			132			982
Heating oil swaps and options	Net sales	455			—			—
Soybean meal	Net sales	7			—			—
Total		$	(10,562	)	$	(21,750	)	$	(15,599	)

At December 31, 2016, the Company had forward purchase agreements in place for purchases of approximately $9.8 million of natural gas and diesel fuel. These forward purchase agreements have no net settlement provisions and the Company intends to take physical delivery. Accordingly, the forward purchase agreements are not subject to the requirements of fair value accounting because they qualify as normal purchases as defined.