19. Fair Value Measurements

Fair Value of Derivative Instruments

We mitigate the risk of fluctuations in currency exchange rates on our results of operations and financial condition by entering into foreign currency cash flow hedges. We use an income approach to value our outstanding foreign currency and bunker fuel cash flow hedges, which consists of a discounted cash flow model that takes into account the present value of future cash flows under the terms of the contracts using current market information as of the measurement date such as foreign currency and bunker fuel spot and forward rates. Additionally, we built an element of default risk based on observable inputs into the fair value calculation. Due to the fact that inputs to fair value these derivative instruments can be observed, these derivatives are classified as Level 2.

Equity Securities

During the year ended December 27, 2013, proceeds on the sale of available for sale equity securities were $7.8 million. We recognized a realized gain of $2.3 million in other (income) expense, net, related to these securities. There were no remaining balances as of December 27, 2013. The fair value of these equity securities was $8.3 million as of December 28, 2012. During the fourth quarter of 2012, we received proceeds on the sale of these equity securities of $8.5 million and recognized a realized gain of $3.0 million in other (income) expense, net on our Consolidated Statements of Income. These equity securities are classified as available-for-sale and are stated at fair value with the unrealized gains and losses reported in other comprehensive income. Amounts reclassified out of accumulated other comprehensive income into earnings were determined by specific identification. We recorded an unrealized gain of $(2.7) million for the year ended December 28, 2012 in other comprehensive income. These equity securities are publicly traded within an active market. These available-for-sale investments, which are included in prepaid expenses and other current assets on our Consolidated Balance Sheets, are valued using quoted active market prices for identical assets and are classified as Level 1.

19. Fair Value Measurements (continued)

The following table provides a summary of the fair values of our derivative financial instruments measured on a recurring basis under “Fair Value Measurements and Disclosures” (U.S. dollars in millions):



	Fair Value Measurements
	Foreign currency hedges (liability) assets						Bunker fuel hedges (liability)					Equity securities
	December 27, 2013			December 28, 2012			December 27, 2013		December 28, 2012			December 27, 2013		December 28, 2012
Quoted Prices in Active Markets for Identical Assets (Level 1)	$	—		$	—		$	—	$	—		$	—	$	8.3

Significant Other Observable Inputs (Level 2)	(3.3		)	(13.8		)	—		(0.1		)	—		—

Significant Unobservable Inputs (Level 3)	—			—			—		—			—		—

Refer to Note 14, “Retirement and Other Employee Benefits” for further fair value disclosures related to pension assets.

19. Fair Value Measurements (continued)

In estimating our fair value disclosures for financial instruments, we use the following methods and assumptions:

Cash and cash equivalents: The carrying amount of these items approximates fair value due to their liquid nature.

Trade accounts receivable and other accounts receivable, net: The carrying value reported in the Consolidated Balance Sheets for these items is net of allowances for doubtful accounts, which includes a degree of counterparty non-performance risk.

Accounts payable and other current liabilities: The carrying value reported in the Consolidated Balance Sheets for these items approximates their fair value, which is the likely amount for which the liability with short settlement periods would be transferred to a market participant with a similar credit standing as ours.

Capital lease obligations: The carrying value of our capital lease obligations reported in the Consolidated Balance Sheets approximates their fair value based on current interest rates, which contain an element of default risk. Refer to Note 11, “Long-Term Debt and Capital Lease Obligations”.

Long-term debt: The carrying value of our long-term debt reported in the Consolidated Balance Sheets approximates their fair value since they bear interest at variable rates or fixed rates which contain an element of default risk. Refer to Note 11, “Long-Term Debt and Capital Lease Obligations”.

Fair Value of Non-Financial Assets

The following is a tabular presentation of the non-recurring fair value measurement along with the level within the fair value hierarchy in which the fair value measurement in its entirety falls (U.S. dollars in millions):



	Fair Value Measurements for the year ended December 27, 2013
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impairment of trademarks acquired in the 2004 prepared food acquisition	$	44.8	$	—	$	—	$	44.8

Brazil decision to discontinue banana operations	7.8		—		—		7.8

Germany under-utilized distribution center	0.6		—		—		0.6
	$	53.2	$	—	$	—	$	53.2

As a result of our annual impairment test performed during the first day of the fourth quarter and due to the failure of the prepared food business to meet our expectations, which includes under-performance of the prepared food business in Europe and a recent cyclical downturn in industrial products, we recorded $99.6 million of asset impairment charges, of which $75.7 million and $23.9 million related to the impairment of the Prepared Food Reporting Unit's goodwill and the perpetual, royalty-free licenses to use the DEL MONTE^® brand trademarks, respectively, related to our 2004 acquisition of Prepared Foods in Europe, Africa, the Middle East and the countries formerly part of the Soviet Union. The fair value of the prepared food unit’s remaining trademarks of $44.8 million, includes $3.2 million related to the U.K. Beverage trademarks and $41.6 million related to the Remaining Del Monte Trademarks.

19. Fair Value Measurements (continued)

We utilized a discounted cash flow model, or the income approach, under the royalty savings method to determine the fair value of the U.K. Beverage and Remaining Del Monte trademarks. The royalty savings method assumes that if we did not own the intangible asset, we would be willing to pay a royalty for its use. We convert the anticipated economic benefits that we assume will be realized from a given asset into value. Under this approach,value is measured as the present worth of anticipated future net cash flows generated by an asset. We corroborate other inputs used in the royalty savings method with market participant assumptions such as the royalty rates and discount rates utilized, however due to the mix of unobservable inputs utilized, the fair value of the trademarks are classified as Level 3 of the fair value hierarchy.

During 2013, we recognized $11.4 million in asset impairment and other charges a result of our decision to discontinue exporting bananas from Brazil and close six farms. The asset impairment consisted of a write-down of $1.0 million related to land that will be utilized for the production of other products with a carrying value of $8.8 million. The land was written down to a value of $7.8 million. We estimated the fair value of these assets using the market approach. The fair valuation of the assets and contract termination obligation of $7.8 million are classified as Level 3 of the fair value hierarchy due to the mix of unobservable inputs utilized.

During 2013, we recognized $2.6 million in asset impairment charges and other charges, net related to an under-performing distribution center in Germany in the banana segment. Included in asset impairment and other charges, net, is a contract termination obligation of $0.6 million related to lease payments that will continue to be incurred throughout the lease term beyond our cease-use date. We estimated the fair value of this obligation using an income based approach, whereby our cash flows were adjusted for a market premium risk. The fair value of the contract termination obligation is classified as Level 3 of the fair value hierarchy due to the mix of unobservable inputs utilized.



	Fair Value Measurements for the year ended December 28, 2012
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
United Kingdom under-utilized distribution center	$	4.4	$	—	$	4.4	$	—
	$	4.4	$	—	$	4.4	$	—

During 2012, we recognized $1.8 million in impairment charges related to an under-performing banana ripening facility in the United Kingdom. The carrying value of the assets were $6.2 million and was written down to $4.4 million. These assets related predominantly to building and machinery and equipment included in property, plant and equipment, net on our Consolidated Balance Sheets. We estimated the fair value of the underlying assets by using the market approach. We used observable inputs based on market participant information, as such, we classify the fair value of these banana ripening assets within Level 2.

Refer to Note 3, “Asset Impairment and Other Charges, Net” for further discussion related to asset impairment charges.