FAIR VALUE MEASUREMENTS | 3 Months Ended |
Jan. 25, 2015 |
FAIR VALUE MEASUREMENTS | |
FAIR VALUE MEASUREMENTS | NOTE JFAIR VALUE MEASUREMENTS |
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Pursuant to the provisions of ASC 820, Fair Value Measurements and Disclosures (ASC 820), the Company measures certain assets and liabilities at fair value or discloses the fair value of certain assets and liabilities recorded at cost in the consolidated financial statements. Fair value is calculated as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). ASC 820 establishes a fair value hierarchy which requires assets and liabilities measured at fair value to be categorized into one of three levels based on the inputs used in the valuation. Assets and liabilities are classified in their entirety based on the lowest level of input significant to the fair value measurement. The three levels are defined as follows: |
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Level 1: Observable inputs based on quoted prices (unadjusted) in active markets for identical assets or liabilities. |
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Level 2:Observable inputs, other than those included in Level 1, based on quoted prices for similar assets and liabilities in active markets, or quoted prices for identical assets and liabilities in inactive markets. |
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Level 3: Unobservable inputs that reflect an entity’s own assumptions about what inputs a market participant would use in pricing the asset or liability based on the best information available in the circumstances. |
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The Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of January 25, 2015, and October 26, 2014, and their level within the fair value hierarchy, are presented in the tables below. |
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| | Fair Value Measurements at January 25, 2015 |
(in thousands) | | Fair Value at | | Quoted Prices | | Significant | | Significant |
January 25, | in Active | Other | Unobservable |
2015 | Markets for | Observable | Inputs |
| Identical Assets | Inputs | (Level 3) |
| (Level 1) | (Level 2) | |
Assets at Fair Value: | | | | | | | | |
Cash and cash equivalents (1) | | $ | 527,097 | | $ | 527,097 | | $ | - | | $ | - |
Other trading securities (2) | | 118,709 | | 40,000 | | 78,709 | | - |
Commodity derivatives (3) | | 5,146 | | 5,146 | | - | | - |
Total Assets at Fair Value | | $ | 650,952 | | $ | 572,243 | | $ | 78709 | | $ | - |
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Liabilities at Fair Value: | | | | | | | | |
Deferred compensation (2) | | $ | 54,682 | | $ | 24,083 | | $ | 30,599 | | $ | - |
Total Liabilities at Fair Value | | $ | 54,682 | | $ | 24,083 | | $ | 30,599 | | $ | - |
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| | Fair Value Measurements at October 26, 2014 |
(in thousands) | | Fair Value at | | Quoted Prices | | Significant | | Significant |
October 26, | in Active | Other | Unobservable |
2014 | Markets for | Observable | Inputs |
| Identical Assets | Inputs | (Level 3) |
| (Level 1) | (Level 2) | |
Assets at Fair Value: | | | | | | | | |
Cash and cash equivalents (1) | | $ | 334,174 | | $ | 334,174 | | $ | - | | $ | - |
Other trading securities (2) | | 117,249 | | 39,120 | | 78,129 | | - |
Commodity derivatives (3) | | 3,461 | | 3,461 | | - | | - |
Total Assets at Fair Value | | $ | 454,884 | | $ | 376,755 | | $ | 78,129 | | $ | - |
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Liabilities at Fair Value: | | | | | | | | |
Deferred compensation (2) | | $ | 54,809 | | $ | 23,642 | | $ | 31,167 | | $ | - |
Total Liabilities at Fair Value | | $ | 54,809 | | $ | 23,642 | | $ | 31,167 | | $ | - |
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The following methods and assumptions were used to estimate the fair value of the financial assets and liabilities above: |
| -1 | | The Company’s cash equivalents consist primarily of bank deposits, money market funds rated AAA, or other highly liquid investment accounts. As these investments have a maturity date of three months or less, the carrying value approximates fair value. | | | | | | | | | |
| -2 | | The Company holds trading securities as part of a rabbi trust to fund certain supplemental executive retirement plans and deferred income plans. The rabbi trust is included in other assets on the Consolidated Statements of Financial Position and is valued based on the underlying fair value of each fund held by the trust. A majority of the funds held related to the supplemental executive retirement plans have been invested in fixed income funds managed by a third party. The declared rate on these funds is set based on a formula using the yield of the general account investment portfolio that supports the fund, adjusted for expenses and other charges. The rate is guaranteed for one year at issue, and may be reset annually on the policy anniversary, subject to a guaranteed minimum rate. As the value is based on adjusted market rates, and the fixed rate is only reset on an annual basis, these funds are classified as Level 2. The remaining funds held are also managed by a third party, and include equity securities, money market accounts, bond funds, or other portfolios for which there is an active quoted market. | | | | | | | | | |
Therefore these securities are classified as Level 1. The related deferred compensation liabilities are included in other long-term liabilities on the Consolidated Statements of Financial Position and are valued based on the underlying investment selections held in each participant’s account. Investment options generally mirror those funds held by the rabbi trust, for which there is an active quoted market. Therefore these investment balances are classified as Level 1. The Company also offers a fixed rate investment option to participants. The rate earned on these investments is adjusted annually based on a specified percentage of the United States Internal Revenue Service ( I.R.S.) Applicable Federal Rates in effect and therefore these balances are classified as Level 2. |
| -3 | | The Company’s commodity derivatives represent futures contracts used in its hedging or other programs to offset price fluctuations associated with purchases of corn, and to minimize the price risk assumed when forward priced contracts are offered to the Company’s commodity suppliers. The Company’s futures contracts for corn are traded on the Chicago Board of Trade, while futures contracts for lean hogs are traded on the Chicago Mercantile Exchange. These are active markets with quoted prices available and therefore these contracts are classified as Level 1. All derivatives are reviewed for potential credit risk and risk of nonperformance. The Company nets the derivative assets and liabilities for each of its hedging programs, including cash collateral, when a master netting arrangement exists between the Company and the counterparty to the derivative contract. The net balance for each program is included in other current assets or accounts payable, as appropriate, in the Consolidated Statements of Financial Position. As of January 25, 2015, the Company has recognized the right to reclaim net cash collateral of $2.7 million from various counterparties (including $23.8 million of cash less $21.1 million of realized losses on closed positions). As of October 26, 2014, the Company had recognized the right to reclaim net cash collateral of $11.5 million from various counterparties (including $55.6 million of cash less $44.1 million of realized losses on closed positions). | | | | | | | | | |
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The Company’s financial assets and liabilities also include accounts receivable, accounts payable, and other liabilities, for which carrying value approximates fair value. The Company does not carry its long-term debt at fair value in its Consolidated Statements of Financial Position. Based on borrowing rates available to the Company for long-term financing with similar terms and average maturities, the fair value of long-term debt, utilizing discounted cash flows (Level 2), was $283.3 million as of January 25, 2015, and $273.8 million as of October 26, 2014. |
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In accordance with the provisions of ASC 820, the Company also measures certain nonfinancial assets and liabilities at fair value that are recognized or disclosed on a nonrecurring basis (e.g. goodwill, intangible assets, and property, plant and equipment). During the first quarter ended January 25, 2015, and January 26, 2014, there were no remeasurements of assets or liabilities at fair value on a nonrecurring basis subsequent to their initial recognition. |
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