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.

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
	December 26, 2014		December 27, 2013
Quoted Prices in Active Markets for Identical Assets (Level 1)	$	—	$	—

Significant Other Observable Inputs (Level 2)	25.6		(3.3		)

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. The fair value of our capital lease obligations is estimated using Level 2 inputs based on quoted prices for those or similar instruments.

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. The fair value of our long-term debt is estimated using Level 2 inputs based on quoted prices for those or similar instruments.

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 26, 2014
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
United Kingdom contract termination on leased facilities	$	3.1	$	—	$	—	$	3.1

Germany Banana Ripening Assets	0.2		—		—		0.2
	$	3.3	$	—	$	—	$	3.3

During 2014, we recognized an additional charge of $1.7 million for a total contract termination obligation of $3.1 million related to lease payments that will continue to be incurred throughout the lease term or upon termination of the lease contract beyond our cease-use date for under-utilized distribution facilities in the United Kingdom in the banana segment. We estimated the fair value of this obligation using an income based approach, whereby our cash flow was 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.

19. Fair Value Measurements (continued)

During 2014, we recognized $0.5 million in asset impairment charges related to certain under-performing banana ripening assets in Germany. We estimated the fair value of these assets of $0.2 million using the market approach. The fair value of these assets are 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 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 during 2013 and due to the failure of the prepared food business to meet our expectations, we recorded $99.6 million of asset impairment charges, of which $75.7 million was related to the impairment of the unit's goodwill and $23.9 million was related to the impairment of the perpetual, royalty-free licenses to use the DEL MONTE^® brand trademarks. This goodwill and trademark was related to the 2004 Prepared Food acquisition 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.

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