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. Soybean meal options are entered into with the intent of managing the impact of changing prices for poultry meal sales. 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 June 30, 2018, the Company had corn option contracts and soybean meal option contracts outstanding that qualified and were designated for hedge accounting as well as corn option and forward contracts, 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 the first six months of fiscal 2018, the Company entered into soybean meal option contracts that are considered cash flow hedges. Under the terms of the soybean meal option contracts, the Company hedged a portion of its forecasted poultry meal sales into the fourth quarter of fiscal 2018. As of June 30, 2018, some of the contracts have been settled while the remaining contract positions and activity are not significant to the Company. At June 30, 2018 and December 30, 2017, the aggregate fair value of these soybean meal option contracts was approximately $0.7 million and zero, respectively. The June 30, 2018 amounts are included in other current assets on the balance sheet, with an offset recorded in accumulated other comprehensive income for the effective portion.

In fiscal 2017 and the first six months of fiscal 2018, the Company entered into corn option contracts on the Chicago Board of Trade that are designated as cash flow hedges. Under the terms of the corn option contracts, the Company hedged a portion of its U.S. forecasted sales of BBP into the fourth quarter of fiscal 2018. As of June 30, 2018, some of the contracts have been settled while the remaining contract positions and activity are not significant to the Company. At June 30, 2018 and December 30, 2017, the aggregate fair value of these corn option contracts was approximately $1.4 million and $3.4 million, respectively. These amounts are included in other current assets on the balance sheet, with an offset recorded in accumulated other comprehensive income for the effective portion. From time to time, the Company may enter into corn option contracts in the future.

As of June 30, 2018, 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	32,387	Euro	7,490
Brazilian real	80,599	U.S. dollar	22,460
Euro	90,399	U.S. dollar	107,009
Euro	14,184	Polish zloty	61,280
Euro	7,153	Japanese yen	926,570
Euro	85,702	Chinese renminbi	650,727
Euro	12,592	Australian dollar	19,350
Euro	4,827	British pound	4,262
Polish zloty	24,712	Euro	5,685
British pound	88	Euro	100
British pound	139	U.S. dollar	105
Japanese yen	254,613	U.S. dollar	2,322

The Company estimates the amount that will be reclassified from accumulated other comprehensive gain at June 30, 2018 into earnings over the next 12 months will be approximately $0.7 million. As of June 30, 2018, no amounts have been reclassified into earnings as a result of the discontinuance of cash flow hedges.

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 June 30, 2018 and July 1, 2017 (in thousands):



		Loss or (Gain) Recognized in Income on Derivatives Not Designated as Hedges
		Three Months Ended						Six Months Ended
Derivatives not designated as hedging instruments	Location	June 30, 2018			July 1, 2017			June 30, 2018			July 1, 2017

Foreign Exchange	Foreign currency loss/(gain)	$	(3,481	)	$	6,130		$	(1,827	)	$	9,276
Foreign Exchange	Selling, general and administrative expense	2,506			492			2,995			(989		)
Corn options and futures	Net sales	763			(18		)	454			(40		)
Corn options and futures	Cost of sales and operating expenses	(818		)	46			(306		)	316
Soybean Meal	Net sales	—			(9		)	—			(281		)
Soybean Oil	Net sales	—			—			—			45
Total		$	(1,030	)	$	6,641		$	1,316		$	8,327

At June 30, 2018, the Company had forward purchase agreements in place for purchases of approximately $14.2 million of natural gas and diesel fuel. These forward purchase agreements have no net settlement provisions and the Company intends to take physical delivery 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.