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 January 2, 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.

In November 2013, the Company entered into foreign currency exchange forward contracts that did not qualify for hedge accounting to mitigate the foreign exchange rate risk of the expected acquisition price of the VION Acquisition. Under the terms of the exchange contracts, the Company exchanged U.S. dollars for €1.0 billion at a fixed weighted average price of approximately1.346 with a maturity date of early January 2014. The foreign currency contract was not designated for hedge accounting. In the fourth quarter of fiscal 2013 the Company recorded an unrealized gain of $27.5 million and upon settlement of the exchange contracts recorded a loss in the first quarter of fiscal 2014 of $12.6 million.

Cash Flow Hedges

In fiscal 2014 and 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 it's forecasted sales of BBP into the second quarter of fiscal 2016. As of January 2, 2016, all fiscal 2014 contracts and some of the fiscal 2015 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 January 2, 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	35,305	Euro	8,400
Brazilian real	67,670	U.S. Dollar	17,250
Euro	251,908	U.S. Dollar	271,964
Euro	8,834	Polish zloty	38,000
Euro	5,356	Japanese yen	709,859
Euro	34,707	Chinese renminbi	247,938
Euro	9,616	Australian dollar	13,950
Polish zloty	16,380	Euro	3,820
British pound	72	Euro	100
Japanese yen	53,039	U.S. dollar	438

The Company estimates the amount that will be reclassified from accumulated other comprehensive gain at January 2, 2016 into earnings over the next 12 months will be approximately $3.0 million. As of January 2, 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 January 2, 2016 and January 3, 2015 (in thousands):



Derivatives Designated	Balance Sheet	Asset Derivatives Fair Value
as Hedges	Location	January 2, 2016		January 3, 2015
Corn options	Other current assets	$	3,215	$	247

Total derivatives designated as hedges		$	3,215	$	247

Derivatives not Designated as Hedges
Foreign currency contracts	Other current assets	$	644	$	11,559
Corn options and futures	Other current assets	599		69
Heating oil swaps	Other current assets	—		353

Total derivatives not designated as hedges		$	1,243	$	11,981

Total asset derivatives		$	4,458	$	12,228



Derivatives Designated	Balance Sheet	Liability Derivatives Fair Value
as Hedges	Location	January 2, 2016		January 3, 2015

Derivatives not Designated as Hedges
Foreign currency contracts	Accrued Expenses	$	4,435	$	2,019
Corn options and futures	Accrued Expenses	2		3
Heating oil swaps	Accrued Expenses	—		993

Total derivatives not designated as hedges		$	4,437	$	3,015

Total liability derivatives		$	4,437	$	3,015

The effect of the Company's derivative instruments on the consolidated financial statements for the fiscal years ended January 2, 2016 and January 3, 2015 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)
	2015		2014		2015		2014		2015		2014

Corn options	$	4,405	$	1,812	$	1,517	$	3,868	$	68	$	92
Natural gas swaps	—		11		—		196		—		(1		)

Total	$	4,405	$	1,823	$	1,517	$	4,064	$	68	$	91


(a)	Amount recognized in accumulated OCI (effective portion) is reported as accumulated other comprehensive gain of approximately $4.4 million and approximately $1.8 million recorded net of taxes of approximately $1.7 million and approximately $0.7 million for the year ended January 2, 2016 and January 3, 2015, 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 January 2, 2016, January 3, 2015 and December 28, 2013 (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	January 2, 2016			January 3, 2015			December 28, 2013
Foreign Exchange	Foreign currency loss/(gain)	$	(27,321	)	$	(21,162	)	$	(27,517	)
Foreign Exchange	Selling, general and administrative expense	7,508			4,652			—
Corn options and futures	Net sales	(2		)	—			—
Corn options and futures	Cost of sales and operating expenses	(2,067		)	(71		)	(678		)
Natural gas swaps and options	Cost of sales and operating expenses	—			—			41
Natural gas and heating oil swaps and options	Cost of sales and operating expenses	132			982			(63		)
Total		$	(21,750	)	$	(15,599	)	$	(28,217	)

At January 2, 2016, the Company had forward purchase agreements in place for purchases of approximately $15.2 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.