Fair Value Measurements

6 Months Ended

Jan. 29, 2017

We categorize financial assets and liabilities based on the following fair value hierarchy:


•	Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.


•	Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability through corroboration with observable market data.


•	Level 3: Unobservable inputs, which are valued based on our estimates of assumptions that market participants would use in pricing the asset or liability.

Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. When available, we use unadjusted quoted market prices to measure the fair value and classify such items as Level 1. If quoted market prices are not available, we base fair value upon internally developed models that use current market-based or independently sourced market parameters such as interest rates and currency rates. Included in the fair value of derivative instruments is an adjustment for credit and nonperformance risk.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table presents our financial assets and liabilities that are measured at fair value on a recurring basis as of January 29, 2017, and July 31, 2016, consistent with the fair value hierarchy:



	Fair Value as of January 29, 2017		Fair Value Measurements at January 29, 2017 Using Fair Value Hierarchy						Fair Value as of July 31, 2016		Fair Value Measurements at July 31, 2016 Using Fair Value Hierarchy
	Fair Value as of January 29, 2017		Level 1		Level 2		Level 3		Fair Value as of July 31, 2016		Level 1		Level 2		Level 3
Assets
Foreign exchange forward contracts⁽¹⁾	$	—	$	—	$	—	$	—	$	1	$	—	$	1	$	—
Commodity derivative contracts⁽²⁾	5		4		1		—		3		2		1		—
Deferred compensation derivative contracts⁽³⁾	1		—		1		—		1		—		1		—
Fair value option investments ⁽⁴⁾	46		—		3		43		33		—		8		25
Total assets at fair value	$	52	$	4	$	5	$	43	$	38	$	2	$	11	$	25



	Fair Value as of January 29, 2017		Fair Value Measurements at January 29, 2017 Using Fair Value Hierarchy						Fair Value as of July 31, 2016		Fair Value Measurements at July 31, 2016 Using Fair Value Hierarchy
	Fair Value as of January 29, 2017		Level 1		Level 2		Level 3		Fair Value as of July 31, 2016		Level 1		Level 2		Level 3
Liabilities
Forward starting interest rate swaps⁽⁵⁾	$	15	$	—	$	15	$	—	$	44	$	—	$	44	$	—
Foreign exchange forward contracts⁽¹⁾	3		—		3		—		11		—		11		—
Commodity derivative contracts⁽²⁾	3		3		—		—		4		4		—		—
Deferred compensation derivative contracts⁽³⁾	—		—		—		—		1		—		1		—
Deferred compensation obligation⁽⁶⁾	130		130		—		—		119		119		—		—
Total liabilities at fair value	$	151	$	133	$	18	$	—	$	179	$	123	$	56	$	—

___________________________________


⁽¹⁾	Based on observable market transactions of spot currency rates and forward rates.


⁽²⁾	Based on quoted futures exchanges and on observable prices of futures and options transactions in the marketplace.


⁽³⁾	Based on LIBOR and equity index swap rates.

⁽⁴⁾

Primarily represents investments in equity securities that are not readily marketable and are accounted for under the fair value option. The investments were funded by Acre. See Note 10 for additional information. Fair value is based on analyzing recent transactions and transactions of comparable companies, and the discounted cash flow method. In addition, allocation methods, including the option pricing method, are used in distributing fair value among various equity holders according to rights and preferences. Changes in the fair value of investments were not material through January 29, 2017.


⁽⁵⁾	Based on LIBOR swap rates.


⁽⁶⁾	Based on the fair value of the participants’ investments.

Items Measured at Fair Value on a Nonrecurring Basis

In addition to assets and liabilities that are measured at fair value on a recurring basis, we are also required to measure certain items at fair value on a nonrecurring basis.

In the fourth quarter of 2016, as part of our annual review of intangible assets, we recognized an impairment charge of $106 on goodwill and $35 on a trademark of the Bolthouse Farms carrot and carrot ingredients reporting unit. During the second quarter of 2017, we performed an interim impairment assessment as of December 31, 2016, and recognized an impairment charge of $127 on goodwill and $20 on a trademark of the Bolthouse Farms carrot and carrot ingredients reporting unit.

During the second quarter of 2017, we performed an interim impairment assessment of the Garden Fresh Gourmet reporting unit as of December 31, 2016, and recognized an impairment charge of $64 on goodwill and $1 on a trademark.

Fair value was determined based on unobservable Level 3 inputs. The fair value of goodwill was determined based on discounted cash flow analysis that include significant management assumptions such as revenue growth rates, operating margins, weighted average cost of capital, and future economic and market conditions. The fair value of trademarks was determined based on discounted cash flow analysis that include significant management assumptions such as revenue growth rates, weighted average cost of capital and assumed royalty rates.

The following table presents fair value measurements of intangible assets that were recognized in the second quarter of 2017 and the fourth quarter of 2016, respectively, consistent with the fair value hierarchy:



	January 29, 2017				July 31, 2016
	Impairment Charges		Fair Value		Impairment Charges		Fair Value
Bolthouse Farms Carrot and Carrot Ingredients
Goodwill	$	127	$	75	$	106	$	202
Trademark	$	20	$	48	$	35	$	68



Garden Fresh Gourmet
Goodwill	$	64	$	52
Trademark	$	1	$	37

See also Note 4 for additional information on the impairment charges.

Fair Value of Financial Instruments

The carrying values of cash and cash equivalents, accounts receivable, accounts payable and short-term borrowings, excluding the current portion of long-term debt, approximate fair value.

Cash equivalents of $122 at January 29, 2017, and $74 at July 31, 2016, represent fair value as these highly liquid investments have an original maturity of three months or less. Fair value of cash equivalents is based on Level 2 inputs.

The fair value of long-term debt, including the current portion of long-term debt in Short-term borrowings, was $2,747 at January 29, 2017, and $2,949 at July 31, 2016. The carrying value was $2,692 at January 29, 2017, and $2,755 at July 31, 2016. The fair value of long-term debt is principally estimated using Level 2 inputs based on quoted market prices or pricing models using current market rates.

- 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