Derivatives

12 Months Ended

Jan. 01, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

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.

At January 1, 2022, the Company had foreign currency option and forward contracts, soybean meal forward contracts and corn option contracts outstanding that qualified and were designated for hedge accounting as well as corn forward contracts and foreign currency forward contracts that did not qualify and were not designated for hedge accounting.

Cash Flow Hedges

In fiscal 2021, fiscal 2020 and fiscal 2019, the Company entered into foreign exchange option and forward contracts that are considered cash flow hedges. Under the terms of the foreign exchange contracts, the Company hedged a portion of its forecasted collagen sales in currencies other than the functional currency through the fourth quarter of fiscal 2023. At January 1, 2022 and January 2, 2021, the aggregate fair value of these foreign exchange contracts was approximately $0.6 million and $11.6 million, respectively. The amounts are included in other current assets, other noncurrent assets and accrued expenses on the balance sheet, with an offset recorded in accumulated other comprehensive loss.

In fiscal 2021, fiscal 2020 and fiscal 2019, 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 forecasted sales of BBP into the fourth quarter of fiscal 2022. At January 1, 2022 and January 2, 2021, the aggregate fair value of the corn contracts was $2.8 million and $6.8 million, respectively. The amounts are included in accrued expenses on the balance sheet.

In fiscal 2021 and fiscal 2020, the Company entered into soybean meal forward contracts to hedge a portion of its forecasted poultry meal sales into the first quarter of fiscal 2022. At January 1, 2022 and January 2, 2021, the aggregate fair value of the soybean meal contracts was $0.1 million and $0.4 million, respectively. The amounts are included in other current assets on the balance sheet.

At January 1, 2022, 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 (in thousands):


Functional Currency		Contract Currency
Type	Amount	Type	Amount
Brazilian real	66,425	Euro	11,548
Brazilian real	3,057,673	U.S. Dollar	730,000
Euro	38,814	U.S. Dollar	44,343
Euro	24,442	Polish zloty	113,000
Euro	5,231	Japanese yen	675,210
Euro	15,724	Chinese renminbi	114,134
Euro	15,269	Australian dollar	24,436
Euro	3,045	British pound	2,600
Euro	34	Canadian dollar	50
Polish zloty	27,898	Euro	6,000
Polish zloty	1,216	U.S. dollar	295
British pound	233	Euro	273
British pound	200	U.S. dollar	264
Japanese yen	354,206	U.S. dollar	3,127
U.S. dollar	476	Japanese yen	54,000
U.S. dollar	282,173	Euro	250,000
Australian dollar	1,508	Euro	953

The above foreign currency contracts had an aggregate fair value of approximately $1.9 million and are included in other current assets, noncurrent assets and accrued expenses at January 1, 2022.

The Company estimates the amount that will be reclassified from accumulated other comprehensive loss at January 1, 2022 into earnings over the next 12 months will be approximately $8.5 million. As of January 1, 2022, 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 year ended January 1, 2022, January 2, 2021 and December 28, 2019 (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 1, 2022		January 2, 2021		December 28, 2019
Foreign exchange	Foreign currency loss/(gain)	$	21,698	$	(3,840)	$	1,565
Foreign exchange	Net sales	1,178		(778)		903
Foreign exchange	Cost of sales and operating expenses	(844)		(664)		(452)
Foreign exchange	Selling, general and administrative expense	3,405		4,976		1,649
Corn options and futures	Net sales	(3,564)		(1,091)		670
Corn options and futures	Cost of sales and operating expenses	5,669		(50)		(1,636)

Natural gas and heating oil swaps and options	Cost of sales and operating expenses	—		—		(506)
Heating oil swaps and options	Net sales	—		(38)		—


Total		$	27,542	$	(1,485)	$	2,193

At January 1, 2022, the Company had forward purchase agreements in place for purchases of approximately $135.1 million of natural gas and diesel fuel. The Company intends to take physical delivery of the commodities under the forward purchase agreements and accordingly, these contracts are not subject to the requirements of fair value accounting because they qualify as normal purchases.