Fair Value Measurements

9 Months Ended

Feb. 28, 2015

8. Fair Value Measurements

The Company is required to categorize both financial and nonfinancial assets and liabilities based on the following fair value hierarchy. The fair value of an asset is the price at which the asset could be sold in an orderly transaction between unrelated, knowledgeable, and willing parties able to engage in the transaction. A liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor in a transaction between such parties, not the amount that would be paid to settle the liability with the creditor.

Level 1 - Quoted prices in active markets for identical assets or liabilities

Level 2 - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly

Level 3 - Unobservable inputs for the asset or liability that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

The disclosure of fair value of certain financial assets and liabilities that are recorded at cost are as follows:

Cash and cash equivalents: The carrying amount approximates fair value due to the short maturity of these instruments.

Long-term debt: The carrying value of the Company’s long-term debt is at its stated value. We have not elected to carry our long-term debt at fair value. Fair values for debt are based on quoted market prices or published forward interest rate curves. Estimated fair values are management’s estimates; however, when there is no readily available market data, the estimated fair values may not represent the amounts that could be realized in a current transaction, and the fair values could change significantly. The fair value and carrying value of the Company’s borrowings under its credit facilities and long-term debt were as follows (in thousands):



	February 28, 2015				May 31, 2014
	Carrying Value		Fair Value		Carrying Value		Fair Value
5.4 – 6.4% Notes payable	$	46,529	$	47,173	$	52,676	$	53,387
Series A Senior Secured Notes at 5.45%		6,838		6,835		8,417		8,396
	$	53,367	$	54,008	$	61,093	$	61,783

Assets and Liabilities Measured at Fair Value on a Recurring Basis

In accordance with the fair value hierarchy described above, the following table shows the fair value of financial assets and liabilities measured at fair value on a recurring basis as of February 28, 2015 and May 31, 2014:



	February 28, 2015
	Quoted Prices
	in Active		Significant
	Markets for		Other		Significant
	Identical		Observable		Unobservable
	Instruments		Inputs		Inputs		Total
	(Level 1)		(Level 2)		(Level 3)		Balance
Investment securities available-for-sale
State municipal bonds	$	-	$	78,602	$	-	$	78,602
US government obligations		-		4,459		-		4,459
Corporate bonds		-		119,886		-		119,886
Commercial paper		-		6,992		-		6,992
Foreign government obligations		-		1,048		-		1,048
Government agency bonds		-		4,637		-		4,637
Asset backed securities		-		9,180		-		9,180
Mutual funds*		1,736		-		-		1,736
Total available-for-sale securities at fair value		1,736		224,804		-		226,540
Commodity contracts		-		1,242		-		1,242
Total assets measured at fair value	$	1,736	$	226,046	$	-	$	227,782

Contingent consideration		-		-		1,024		1,024
Total liabilities measured at fair value	$	-	$	-	$	1,024	$	1,024

*The mutual funds are classified as long term and are a part of “other investments” in the Condensed Consolidated Balance Sheet.



	May 31, 2014
	Quoted Prices
	in Active		Significant
	Markets for		Other		Significant
	Identical		Observable		Unobservable
	Instruments		Inputs		Inputs		Total
	(Level 1)		(Level 2)		(Level 3)		Balance
Investment securities available-for-sale
State municipal bonds	$	-	$	75,847	$	-	$	75,847
US government obligations		-		4,061		-		4,061
Corporate bonds		-		102,685		-		102,685
Commercial paper		-		3,930				3,930
Certificates of deposit		-		351		-		351
Foreign government obligations		-		1,066				1,066
Government agency bonds		-		4,798		-		4,798
Variable rate demand notes		-		2,000		-		2,000
Mutual funds*		1,451		-		-		1,451
Total available-for-sale securities at fair value		1,451		194,738		-		196,189
Commodity contracts		-		1,255				1,255
Total assets measured at fair value	$	1,451	$	195,993	$	-	$	197,444

Contingent consideration	$	-	$	-	$	2,985	$	2,985
Total liabilities measured at fair value	$	-	$	-	$	2,985	$	2,985

*The mutual funds are classified as long term and are a part of “other investments” in the Condensed Consolidated Balance Sheet.

Our investment securities – available-for-sale classified as level 2 consist of certificates of deposit, United States government obligations, foreign government agency bonds, taxable municipal bonds, tax exempt municipal bonds, zero coupon municipal bonds, corporate bonds, commercial paper, asset backed or securitized corporate obligations, and variable rate demand notes. We classify these securities as current, because amounts invested are available for current operations. Observable inputs for these securities are yields, credit risks, default rates, and volatility.

Our commodity contracts consist of call options, the cost of which is paid for by certain customers, to protect against increases in the price of corn and soybean meal. Observable inputs are current and forward commodity market prices on active exchanges.

The Company applies fair value accounting guidance to measure non-financial assets and liabilities associated with business acquisitions. These assets and liabilities are measured at fair value for the initial purchase price allocation and are subject to recurring revaluations. The fair value of non-financial assets acquired is determined internally. Our internal valuation methodology for non-financial assets takes into account the remaining estimated life of the assets acquired and what management believes is the market value for those assets based on their highest and best use. Liabilities for contingent consideration (earn-outs) take into account commodity prices based on published forward commodity price curves, projected future egg prices as of the date of the estimate, and projected future cash flows expected to be received as a result of a business acquisition (Refer to Note 2 in the Annual Report on Form 10-K). Given the unobservable nature of these inputs, they are deemed to be Level 3 fair value measurements. During the thirty-nine weeks ended February 28, 2015 we recognized $239,000 in expense resulting from the increase in fair value of the contingent consideration. This expense was recognized in earnings as an increase of selling, general, and administrative expenses. Changes in the fair value of contingent consideration obligations were as follows (in thousands):



		Thirty-nine weeks ended February 28, 2015
Balance at May 31, 2014	$	2,985
(Gains)/Losses recognized in earnings		239
Actual payments made		(2,200)
Balance at February 28, 2015	$	1,024

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References+ Details