Fair Value Measurements

9 Months Ended

Mar. 01, 2014

9. 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. Except for the “Notes payable-Texas Egg Products, LLC,” fair values for debt are based on quoted market prices or published forward interest rate curves. We believe cost approximates fair value for the “Notes payable-Texas Egg Products, LLC.” 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. There is no readily available market data for the “Note Payable-Texas Egg Products, LLC.” The fair value and carrying value of the Company’s borrowings under its credit facilities and long-term debt were as follows (in thousands):



	March 1, 2014				June 1, 2013
	Carrying Value		Fair Value		Carrying Value		Fair Value
5.45 – 6.4% Notes payable	$	54,559	$	55,518	$	54,240	$	56,237
Series A Senior Secured Notes at 5.45%		8,944		8,944		10,523		10,636
Other		198		203		-		-
Notes payable-Texas Egg Products, LLC (payable to non-affiliate equity members)		260		260		257		257
	$	63,961	$	64,925	$	65,020	$	67,130

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 that are required to be measured at fair value on a recurring basis as of March 1, 2014 and June 1, 2013:



	March 1, 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	$	-	$	69,488	$	-	$	69,488
US government obligations		-		4,060		-		4,060
Corporate bonds		-		82,358		-		82,358
Commercial paper		-		9,697		-		9,697
Certificates of deposit		-		1,838		-		1,838
Government agency bonds		-		5,820		-		5,820
Variable rate demand notes		-		2,000		-		2,000
Mutual Funds*		1,406		-		-		1,406
Total available-for-sale securities at fair value		1,406		175,261		-		176,667
Commodity Contracts		-		910		-		910
Total assets measured at fair value	$	1,406	$	176,171	$	-	$	177,577

Contingent consideration		-		-		868		868
Total liabilities measured at fair value	$	-	$	-	$	868	$	868

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



	June 1, 2013
	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	$	-	$	61,195	$	-	$	61,195
US government obligations		-		12,377		-		12,377
Corporate bonds		-		64,383		-		64,383
Certificates of deposit		-		12,285		-		12,285
Government agency bonds		-		7,664		-		7,664
Mutual Funds*		1,026		-		-		1,026
Total assets measured at fair value	$	1,026	$	157,904	$	-	$	158,930

Contingent consideration	$	-	$	-	$	1,250	$	1,250
Total liabilities measured at fair value	$	-	$	-	$	1,250	$	1,250

*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 as of March 1, 2014 consist of certificates of deposit, United States government obligations, Canadian government agency bonds, taxable municipal bonds, tax exempt municipal bonds, zero coupon municipal bonds, corporate bonds, commercial paper and variable rate demand notes. We classified 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.

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 March 1, 2014 we recognized $2.2 million 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 March 1, 2014
Balance at June 1, 2013	$	1,250
Liabilities recognized at acquisition date		-
(Gains)/Losses recognized in earnings		2,243
Actual payments made		(2,625)
Balance at March 1, 2014	$	868

- 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.

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