Hormel Foods 2015 Annual Report Download - page 55

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A reconciliation of the beginning and ending balance of the
investments measured at fair value using signifi cant unob-
servable inputs (Level 3) is as follows:
(in thousands) 2015 2014
Beginning Balance $ 58,723 $ 45,783
Purchases, issuances, and
settlements (net) (3,574) 3,050
Unrealized gains 7,741 4,260
Realized gains 7,623 4,479
Interest and dividend income 1,262 1,151
Ending Balance $ 71,775 $ 58,723
The Company has commitments totaling $85.0 million for
the private equity investments within the pension plans. The
unfunded private equity commitment balance for each invest-
ment category as of October 25, 2015, and October 26, 2014 is
as follows:
(in thousands) 2015 2014
Domestic equity $ 9,264 $ 17,659
International equity 9,514 12,640
Unfunded commitment balance $ 18,778 $ 30,299
Funding for future private equity capital calls will come from
existing pension plan asset investments and not from addi-
tional cash contributions into the Company’s pension plans.
NOTE H
Derivatives and Hedging
The Company uses hedging programs to manage price risk
associated with commodity purchases. These programs
utilize futures contracts, options, and swaps to manage the
Company’s exposure to price fl uctuations in the commodities
markets. The Company has determined that its programs
which are designated as hedges are highly effective in offset-
ting the changes in fair value or cash fl ows generated by the
items hedged.
Cash Flow Hedges: The Company currently utilizes corn
futures to offset price fl uctuations in the Company’s future
direct grain purchases, and has historically entered into
various swaps to hedge the purchases of grain at certain
plant locations. The fi nancial instruments are designated
and accounted for as cash fl ow hedges, and the Company
measures the effectiveness of the hedges at least quarterly.
Effective gains or losses related to these cash fl ow hedges are
reported in accumulated other comprehensive loss (AOCL)
and reclassifi ed into earnings, through cost of products sold,
in the period or periods in which the hedged transactions
affect earnings. Any gains or losses related to hedge ineffec-
tiveness are recognized in the current period cost of products
sold. The Company typically does not hedge its grain exposure
beyond the next two upcoming fi scal years. As of October 25,
2015, and October 26, 2014, the Company had the following
outstanding commodity futures contracts that were entered
into to hedge forecasted purchases:
Volume
Commodity October 25, 2015 October 26, 2014
Corn 20.1 million bushels 18.3 million bushels
As of October 25, 2015, the Company has included in AOCL
hedging gains of $1.0 million (before tax) relating to its
positions, compared to losses of $14.8 million (before tax) as
of October 26, 2014. The Company expects to recognize the
majority of these gains over the next 12 months.
Fair Value Hedges: The Company utilizes futures to minimize
the price risk assumed when fi xed forward priced contracts
are offered to the Company’s commodity suppliers. The intent
of the program is to make the forward priced commodities
cost nearly the same as cash market purchases at the date of
delivery. The futures contracts are designated and accounted
for as fair value hedges, and the Company measures the
effectiveness of the hedges at least quarterly. Changes in the
fair value of the futures contracts, along with the gain or loss
on the hedged purchase commitment, are marked-to-market
through earnings and are recorded on the Consolidated
Statement of Financial Position as a current asset and liabil-
ity, respectively. Effective gains or losses related to these fair
value hedges are recognized through cost of products sold in
the period or periods in which the hedged transactions affect
earnings. Any gains or losses related to hedge ineffectiveness
are recognized in the current period cost of products sold. As
of October 25, 2015, and October 26, 2014, the Company had
the following outstanding commodity futures contracts desig-
nated as fair value hedges:
Volume
Commodity
October 25, 2015 October 26, 2014
Corn 5.3 million bushels 8.0 million bushels
Lean hogs 0.4 million cwt 0.7 million cwt
Other Derivatives: The Company holds certain futures and
options contract positions as part of a merchandising program
and to manage the Company’s exposure to fl uctuations in
commodity markets. The Company has not applied hedge
accounting to these positions.
As of October 25, 2015, and October 26, 2014, the Company
had the following outstanding futures and options contracts
related to these programs:
Volume
Commodity October 25, 2015 October 26, 2014
Corn 2.6 million bushels 2.9 million bushels
Soybean meal 11,500 tons –