UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FormFORM 10-Q
[ X ]  
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 28, 2018July 25, 2021
or
[     ]  
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________________________ to ________________________________________
Commission File Number: 1-2402
HORMEL FOODS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
41-0319970
(State or other jurisdiction of incorporation or organization)
41-0319970
(I.R.S. Employer Identification No.)
1 Hormel Place
1 Hormel Place
Austin, Minnesota
(Address of principal executive offices)
55912-3680
(Zip Code)
Austin, MN  55912
(Address of Principal Executive Office, including zip code)

(507) 437-5611437-5611
(Registrant’s telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock$0.01465par valueHRLNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     X  YES                  NO Yes                 No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).          X  YES                  NO  Yes                 No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”  “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  X  
Accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  X  No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
ClassOutstanding at August 29, 2021
Common Stock$.01465par value542,556,859 
Common Stock Non-Voting$.01par value


Table of Contents
TABLE OF CONTENTS
ClassOutstanding at March 4, 2018
Common Stock$.01465 par value      529,534,149
Common Stock Non-Voting$.01 par value                       -0-



Table of Contents

TABLE OF CONTENTS
CONSOLIDATED STATEMENTS OF CASH FLOWS – Consolidated Statements of Cash FlowsThree Months Ended January 28, 2018 and January 29, 2017




2

Table of Contents
PART I – FINANCIAL INFORMATION


Item 1.  Financial StatementsFINANCIAL STATEMENTS


HORMEL FOODS CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(inIn thousands, except share and per share amounts)amounts
    
 January 28,
2018
 October 29,
2017
 (Unaudited)  
ASSETS 
  
CURRENT ASSETS 
  
Cash and cash equivalents$385,775
 $444,122
Accounts receivable569,099
 618,351
Inventories973,221
 921,022
Income taxes receivable176
 22,346
Prepaid expenses15,581
 16,144
Other current assets4,417
 4,538
TOTAL CURRENT ASSETS1,948,269
 2,026,523
    
GOODWILL2,957,463
 2,119,813
    
OTHER INTANGIBLES1,023,322
 1,027,014
    
PENSION ASSETS178,010
 171,990
    
INVESTMENTS IN AND RECEIVABLES FROM AFFILIATES262,147
 242,369
    
OTHER ASSETS196,571
 184,948
    
PROPERTY, PLANT AND EQUIPMENT   
Land51,481
 51,249
Buildings890,026
 866,855
Equipment1,776,526
 1,710,537
Construction in progress174,733
 148,064
Less: Allowance for depreciation(1,599,700) (1,573,454)
Net property, plant and equipment1,293,066
 1,203,251
    
TOTAL ASSETS$7,858,848
 $6,975,908
July 25, 2021October 25, 2020
 (Unaudited) 
Assets  
Current Assets  
Cash and Cash Equivalents$291,363 $1,714,309 
Short-term Marketable Securities18,372 17,338 
Accounts Receivable (Net of Allowance for Doubtful Accounts of
   $3,906 at July 25, 2021, and $4,012 at October 25, 2020)
896,008 702,419 
Inventories1,426,738 1,072,762 
Income Taxes Receivable16,408 41,449 
Prepaid Expenses26,250 18,349 
Other Current Assets13,534 12,438 
Total Current Assets2,688,672 3,579,063 
Goodwill4,907,073 2,612,727 
Other Intangibles1,863,713 1,076,285 
Pension Assets203,093 183,232 
Investments In and Receivables From Affiliates304,417 308,372 
Other Assets298,071 250,382 
Property, Plant and Equipment
Land72,085 62,543 
Buildings1,331,987 1,250,529 
Equipment2,382,940 2,084,930 
Construction in Progress263,632 369,453 
Less: Allowance for Depreciation(1,983,503)(1,869,233)
Net Property, Plant and Equipment2,067,141 1,898,222 
Total Assets$12,332,182 $9,908,282 
 
See Notes to Consolidated Financial StatementsStatements












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Table of Contents

HORMEL FOODS CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(inIn thousands, except share and per share amounts)amounts
    
 January 28,
2018
 October 29,
2017
 (Unaudited)  
LIABILITIES AND SHAREHOLDERS’ INVESTMENT 
  
CURRENT LIABILITIES 
  
Accounts payable$532,847
 $552,714
Short-term debt255,000
 
Accrued expenses72,098
 76,966
Accrued workers compensation29,754
 26,585
Accrued marketing expenses127,684
 101,573
Employee related expenses157,667
 209,562
Taxes payable46,235
 525
Interest and dividends payable102,229
 90,287
TOTAL CURRENT LIABILITIES1,323,514
 1,058,212
    
LONG-TERM DEBT–less current maturities624,726
 250,000
    
PENSION AND POST-RETIREMENT BENEFITS532,652
 530,249
    
OTHER LONG-TERM LIABILITIES107,894
 99,340
    
DEFERRED INCOME TAXES114,688
 98,410
    
SHAREHOLDERS’ INVESTMENT   
Preferred stock, par value $.01 a share–   
authorized 160,000,000 shares; issued–none

 

Common stock, non-voting, par value $.01   
a share–authorized 400,000,000 shares; issued–none

 

Common stock, par value $.01465 a share–7,764
 7,741
authorized 1,600,000,000 shares;   
issued 529,988,220 shares January 28, 2018   
issued 528,423,605 shares October 29, 2017   
Additional paid-in capital19,242
 13,670
Accumulated other comprehensive loss(242,176) (248,075)
Retained earnings5,366,501
 5,162,571
HORMEL FOODS CORPORATION SHAREHOLDERS’ INVESTMENT5,151,331
 4,935,907
NONCONTROLLING INTEREST4,043
 3,790
TOTAL SHAREHOLDERS’ INVESTMENT5,155,374
 4,939,697
    
TOTAL LIABILITIES AND SHAREHOLDERS’ INVESTMENT$7,858,848
 $6,975,908
July 25, 2021October 25, 2020
 (Unaudited) 
Liabilities and Shareholders' Investment  
Current Liabilities  
Accounts Payable$654,162 $644,609 
Accrued Expenses51,108 59,136 
Accrued Workers Compensation29,278 25,070 
Accrued Marketing Expenses133,925 108,502 
Employee Related Expenses216,065 252,845 
Taxes Payable17,453 22,480 
Interest and Dividends Payable140,469 132,632 
Current Maturities of Long-term Debt8,732 258,691 
Total Current Liabilities1,251,191 1,503,965 
Long-term Debt - Less Current Maturities3,316,262 1,044,936 
Pension and Post-retirement Benefits559,958 552,878 
Other Long-term Liabilities174,473 157,399 
Deferred Income Taxes236,566 218,779 
Shareholders' Investment
Preferred Stock, Par Value $0.01 a Share–— — 
Authorized 160,000,000 Shares; Issued–None
Common Stock, Non-voting, Par Value $0.01 a Share–— — 
Authorized 400,000,000 Shares; Issued–None
Common Stock, Par Value $0.01465 a Share–7,948 7,909 
Authorized 1,600,000,000 Shares;
Shares Issued as of July 25, 2021: 542,536,431
Shares Issued as of October 25, 2020: 539,887,092
Additional Paid-in Capital354,162 289,554 
Accumulated Other Comprehensive Loss(317,528)(395,250)
Retained Earnings6,743,701 6,523,335 
Hormel Foods Corporation Shareholders' Investment6,788,284 6,425,548 
Noncontrolling Interest5,448 4,778 
Total Shareholders' Investment6,793,732 6,430,326 
Total Liabilities and Shareholders' Investment$12,332,182 $9,908,282 
 
See Notes to Consolidated Financial StatementsStatements


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Table of Contents
HORMEL FOODS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(inIn thousands, except per share amounts)amounts
(Unaudited)Unaudited
 Three Months Ended
 January 28,
2018
 January 29,
2017
Net sales$2,331,293
 $2,280,227
Cost of products sold1,829,114
 1,727,947
GROSS PROFIT502,179
 552,280
    
Selling, general and administrative219,122
 210,217
Equity in earnings of affiliates23,531
 13,299
    
OPERATING INCOME306,588
 355,362
    
Other income and expense:   
Interest and investment income3,306
 2,449
Interest expense(4,729) (3,026)
    
EARNINGS BEFORE INCOME TAXES305,165
 354,785
    
Provision for income taxes1,954
 119,482
    
NET EARNINGS303,211
 235,303
Less: Net earnings attributable to noncontrolling interest104
 156
NET EARNINGS ATTRIBUTABLE TO HORMEL FOODS CORPORATION$303,107
 $235,147
    
NET EARNINGS PER SHARE:   
BASIC$0.57
 $0.44
DILUTED$0.56
 $0.44
    
WEIGHTED-AVERAGE SHARES OUTSTANDING:   
BASIC529,453
 528,585
DILUTED543,482
 540,064
    
DIVIDENDS DECLARED PER SHARE:$0.1875
 $0.1700
 Thirteen Weeks EndedThirty-Nine Weeks Ended
 July 25, 2021July 26, 2020July 25, 2021July 26, 2020
Net Sales$2,863,670 $2,381,457 $7,931,438 $7,188,357 
Cost of Products Sold2,440,322 1,959,032 6,581,613 5,820,158 
Gross Profit423,348 422,426 1,349,825 1,368,198 
Selling, General and Administrative226,284 181,085 622,630 570,518 
Equity in Earnings of Affiliates10,420 8,235 37,722 25,843 
Operating Income207,484 249,576 764,917 823,523 
Other Income and Expense:
Interest and Investment Income (Expense)8,457 15,513 36,740 25,289 
Interest Expense(11,703)(5,724)(27,718)(12,798)
Earnings Before Income Taxes204,238 259,364 773,940 836,014 
Provision for Income Taxes27,164 56,103 146,549 162,186 
Net Earnings177,074 203,260 627,390 673,828 
Less: Net Earnings (Loss) Attributable to Noncontrolling Interest157 141 290 103 
Net Earnings Attributable to Hormel Foods Corporation$176,917 $203,119 $627,101 $673,726 
Net Earnings Per Share
Basic$0.33 $0.38 $1.16 $1.25 
Diluted$0.32 $0.37 $1.15 $1.23 
Weighted-average Shares Outstanding
Basic541,746 539,108 540,618 537,434 
Diluted548,072 547,149 547,684 546,112 
 

See Notes to Consolidated Financial Statements




5

Table of Contents
HORMEL FOODS CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)In thousands
(Unaudited)Unaudited
    
 Three Months Ended
 January 28,
2018
 January 29,
2017
NET EARNINGS$303,211
 $235,303
Other comprehensive income (loss), net of tax:   
Foreign currency translation4,212
 (8,087)
Pension and other benefits2,486
 3,333
Deferred hedging(650) (1,323)
TOTAL OTHER COMPREHENSIVE INCOME (LOSS)6,048
 (6,077)
COMPREHENSIVE INCOME309,259
 229,226
Less: Comprehensive income attributable to noncontrolling interest253
 (84)
COMPREHENSIVE INCOME ATTRIBUTABLE TO HORMEL FOODS CORPORATION$309,006
 $229,310
 Thirteen Weeks EndedThirty-Nine Weeks Ended
 July 25, 2021July 26, 2020July 25, 2021July 26, 2020
Net Earnings$177,074 $203,260 $627,390 $673,828 
Other Comprehensive Income (Loss), Net of Tax:
Foreign Currency Translation12,626 (836)23,489 (19,105)
Pension and Other Benefits4,199 3,526 12,598 10,619 
Deferred Hedging(8,612)13,376 42,016 (23,830)
Total Other Comprehensive Income (Loss)8,213 16,066 78,103 (32,316)
Comprehensive Income185,287 219,326 705,493 641,513 
Less: Comprehensive Income (Loss) Attributable to Noncontrolling Interest270 181 671 169 
Comprehensive Income Attributable to Hormel Foods Corporation$185,017 $219,145 $704,822 $641,344 
 
See Notes to Consolidated Financial Statements




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Table of Contents
HORMEL FOODS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ INVESTMENT
(inIn thousands, except per share amounts)amounts
(Unaudited)Unaudited
Thirteen Weeks Ended July 26, 2020
Common
Stock
Treasury
Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Non-
controlling
Interest
Total
Shareholders’
Investment
SharesAmountSharesAmount
Balance at April 26, 2020538,949 $7,896 — $— $265,128 $6,336,946 $(447,908)$4,140 $6,166,202 
Net Earnings203,119 141 203,260 
Other Comprehensive Income (Loss)16,026 40 16,066 
Contribution from Noncontrolling Interest— 
Purchases of Common Stock— 
Stock-based Compensation Expense3,724 3,724 
Exercise of Stock Options/Restricted Shares438 7,740 7,746 
Shares Retired— 
Declared Cash Dividends – $0.2325 per Share(125,253)(125,253)
Balance at July 26, 2020539,387 $7,902 — $— $276,592 $6,414,813 $(431,882)$4,322 $6,271,747 
Thirteen Weeks Ended July 25, 2021
Common
Stock
Treasury
Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Non-
controlling
Interest
Total
Shareholders’
Investment
SharesAmountSharesAmount
Balance at April 25, 2021540,411 $7,917 — $— $319,048 $6,699,336 $(325,629)$5,178 $6,705,851 
Net Earnings176,917 157 177,074 
Other Comprehensive Income (Loss)8,100 113 8,213 
Purchases of Common Stock0
Stock-based Compensation Expense4,479 4,479 
Exercise of Stock Options/Restricted Shares2,125 31 30,635 30,666 
Shares Retired— 
Declared Cash Dividends – $0.2450 per Share(132,551)(132,551)
Balance at July 25, 2021542,536 $7,948 — $— $354,162 $6,743,701 $(317,528)$5,448 $6,793,732 

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Table of Contents
              
 Hormel Foods Corporation Shareholders    
 
Common
Stock
 
Treasury
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Non-
controlling
Interest
 
Total
Shareholders’
Investment
Balance at October 30, 2016$7,742
 $
 $
 $4,736,567
 $(296,303) $3,400
 $4,451,406
              
Net earnings      846,735
   368
 847,103
Other comprehensive income        48,228
 22
 48,250
Purchases of common stock  (94,487)         (94,487)
Stock-based compensation expense1
   15,590
       15,591
Exercise of stock options/nonvested shares38
   30,827
       30,865
Shares retired(40) 94,487
 (32,747) (61,700)     
Declared cash dividends – $0.68 per share      (359,031)     (359,031)
Balance at October 29, 2017$7,741
 $
 $13,670
 $5,162,571
 $(248,075) $3,790
 $4,939,697
Net earnings      303,107
   104
 303,211
Other comprehensive income        5,899
 149
 6,048
Purchases of common stock  (25,199)         (25,199)
Stock-based compensation expense

   7,339
       7,339
Exercise of stock options/nonvested shares34
   23,421
       23,455
Shares retired(11) 25,199
 (25,188) 

     
Declared cash dividends – $0.1875 per share      (99,177)     (99,177)
Balance at January 28, 2018$7,764
 $
 $19,242
 $5,366,501
 $(242,176) $4,043
 $5,155,374
Thirty-Nine Weeks Ended July 26, 2020
Common
Stock
Treasury
Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Non-
controlling
Interest
Total
Shareholders’
Investment
SharesAmountSharesAmount
Balance at October 27, 2019534,489 $7,830 — $— $184,921 $6,128,207 $(399,500)$4,077 $5,925,535 
Net Earnings673,726 103 673,828 
Other Comprehensive Income (Loss)(32,382)66 (32,316)
Contribution from Noncontrolling Interest7676 
Purchases of Common Stock(302)(12,360)(12,360)
Stock-based Compensation Expense19,188 19,189 
Exercise of Stock Options/Restricted Shares5,200 75 72,632 72,707 
Shares Retired(302)(4)302 12,360 (149)(12,207)— 
Declared Cash Dividends – $0.6975 per Share(374,913)(374,913)
Balance at July 26, 2020539,387 $7,902 — $— $276,592 $6,414,813 $(431,882)$4,322 $6,271,747 
Thirty-Nine Weeks Ended July 25, 2021
Common
Stock
Treasury
Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Non-
controlling
Interest
Total
Shareholders’
Investment
SharesAmountSharesAmount
Balance at October 25, 2020539,887 $7,909 — $— $289,554 $6,523,335 $(395,250)$4,778 $6,430,326 
Net Earnings627,101 290 627,390 
Other Comprehensive Income (Loss)77,722 381 78,103 
Purchases of Common Stock(217)(9,653)(9,653)
Stock-based Compensation Expense3820,313 20,313 
Exercise of Stock Options/Restricted Shares2,828 41 44,416 44,457 
Shares Retired(217)(3)217 9,653 (120)(9,530)— 
Declared Cash Dividends – $0.7350 per Share(397,204)(397,204)
Balance at July 25, 2021542,536 $7,948 — $— $354,162 $6,743,701 $(317,528)$5,448 $6,793,732 

See Notes to Consolidated Financial Statements




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Table of Contents
HORMEL FOODS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)In thousands
(Unaudited)Unaudited
Thirty-Nine Weeks Ended
July 25, 2021July 26, 2020
Operating Activities  
Net Earnings$627,390 $673,828 
Adjustments to Reconcile to Net Cash Provided by Operating Activities:
Depreciation130,636 122,694 
Amortization31,854 27,080 
Equity in Earnings of Affiliates(37,722)(25,843)
Distributions Received from Equity Method Investees33,749 27,499 
Provision for Deferred Income Taxes2,375 (1,890)
Loss (Gain) on Property/Equipment Sales and Plant Facilities1,596 631 
Non-cash Investment Activities(21,802)(10,965)
Stock-based Compensation Expense20,313 19,189 
Changes in Operating Assets and Liabilities, Net of Acquisitions:
Decrease (Increase) in Accounts Receivable(191,783)(66,053)
Decrease (Increase) in Inventories(202,217)87,030 
Decrease (Increase) in Prepaid Expenses and Other Current Assets47,553 (25,279)
Increase (Decrease) in Pension and Post-retirement Benefits3,629 5,003 
Increase (Decrease) in Accounts Payable and Accrued Expenses(30,187)(10,562)
Increase (Decrease) in Net Income Taxes Payable22,403 55,723 
Net Cash Provided by (Used in) Operating Activities437,786 878,086 
Investing Activities
Net (Purchase) Sale of Securities(1,304)(2,642)
Acquisitions of Businesses/Intangibles(3,396,246)(270,789)
Purchases of Property and Equipment(139,361)(226,830)
Proceeds from Sales of Property and Equipment1,910 1,466 
Decrease (Increase) in Investments, Equity in Affiliates, and Other Assets668 (8,424)
Proceeds from Company-owned Life Insurance4,015 1,180 
Net Cash Provided by (Used in) Investing Activities(3,530,320)(506,040)
Financing Activities
Proceeds from Long-term Debt2,276,292 992,381 
Repayments of Long-term Debt and Finance Leases(256,535)(6,221)
Dividends Paid on Common Stock(390,206)(362,003)
Share Repurchase(9,653)(12,360)
Proceeds from Exercise of Stock Options44,007 72,118 
Proceeds from Noncontrolling Interest— 77 
Net Cash Provided by (Used in) Financing Activities1,663,905 683,992 
Effect of Exchange Rate Changes on Cash5,683 428 
Increase (Decrease) in Cash and Cash Equivalents(1,422,946)1,056,466 
Cash and Cash Equivalents at Beginning of Year1,714,309 672,901 
Cash and Cash Equivalents at End of Quarter$291,363 $1,729,368 
 Three Months Ended
 January 28,
2018
 January 29,
2017
OPERATING ACTIVITIES 
  
Net earnings$303,211
 $235,303
Adjustments to reconcile to net cash provided by operating activities:   
Depreciation35,867
 29,247
Amortization of intangibles3,256
 2,072
Equity in earnings of affiliates(23,531) (13,299)
Distribution from equity method investees23
 2,523
Provision for deferred income taxes(68,856) 11,215
Gain on property/equipment sales and plant facilities(1,131) (801)
Non-cash investment activities(10,880) (1,208)
Stock-based compensation expense7,339
 7,240
Changes in operating assets and liabilities, net of acquisitions:   
Decrease in accounts receivable69,629
 36,507
Increase in inventories(21,255) (17,513)
Decrease (increase) in prepaid expenses and other current assets569
 (19,425)
Increase in pension and post-retirement benefits2,132
 3,238
Decrease in accounts payable and accrued expenses(58,077) (178,157)
Increase in net income taxes payable65,881
 98,307
NET CASH PROVIDED BY OPERATING ACTIVITIES304,177
 195,249
    
INVESTING ACTIVITIES   
Proceeds from sale of business
 135,944
Acquisitions of businesses/intangibles(858,102) 
Purchases of property/equipment(53,694) (37,895)
Proceeds from sales of property/equipment751
 3,926
Decrease in investments, equity in affiliates, and other assets2,718
 3,596
   Proceeds from company-owned life insurance3,028
 
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES(905,299) 105,571
    
FINANCING ACTIVITIES   
Proceeds from short-term debt630,000
 
Principal payments on short-term debt(375,000) 
Proceeds from long-term debt375,000
 
Principal payments on long-term debt(274) 
Dividends paid on common stock(89,814) (76,629)
Share repurchase(25,199) (30,588)
Proceeds from exercise of stock options23,455
 7,398
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES538,168
 (99,819)
    
EFFECT OF EXCHANGE RATE CHANGES ON CASH4,607
 (6,323)
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS(58,347) 194,678
Cash and cash equivalents at beginning of year444,122
 415,143
CASH AND CASH EQUIVALENTS AT END OF QUARTER$385,775
 $609,821


See Notes to Consolidated Financial Statements


9

Table of Contents
HORMEL FOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)Unaudited
 
NOTE AGENERAL - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Basis of Presentation
Presentation: The accompanying unaudited consolidated financial statements of Hormel Foods Corporation (the Company) have been prepared in accordance with generally accepted accounting principles for interim financial information, and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the interim period are not necessarily indicative of the results that may be expected for the full year. The balance sheetConsolidated Statement of Financial Position at October 29, 2017,25, 2020, has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the fiscal year ended October 29, 2017.
Investments
25, 2020. The Company maintains a rabbi trustsignificant accounting policies used in preparing these Consolidated Financial Statements are consistent with those described in Note A - Summary of Significant Accounting Policies to fund certain supplemental executive retirement plans and deferred income plans.  Under the plans,Consolidated Financial Statements in the participants can defer certain typesForm 10-K with the exception of compensation and elect to receive a return onnew requirements adopted in the deferred amounts based on the changes in fair valuefirst quarter of various investment options, primarily a variety of mutual funds.fiscal 2021. The Company has corporate-owned life insurance policies on certain participants inconsidered the deferred compensation plans.  The cash surrender valueimpact of the policies is included in other assets on the Consolidated Statements of Financial Position.  The securities held by the trust are classified as trading securities.  Therefore, unrealized gainsCOVID-19 and losses associated with these investments are includeddetermined there have been no material changes in the Company’s earnings.  Securities held by the trust generated gains of $3.4 millionsignificant accounting policies, including estimates and assumptions, as disclosed in its Annual Report on Form 10-K for the quarterfiscal year ended January 28, 2018, compared to gains of $1.5 million for the quarter ended January 29, 2017.October 25, 2020.

Supplemental Cash Flow Information
Non-cash investment activities presented on the Consolidated Statements of Cash Flows primarily consist of unrealized gains or losses on the Company’s rabbi trust.  The noted investments are included in other assets on the Consolidated Statements of Financial Position.  Changes in the value of these investments are included in the Company’s net earnings and are presentedRounding: Certain amounts in the Consolidated Financial Statements of Operations as either interest and investment income (loss) or interest expense, as appropriate.

Guarantees
The Company enters into various agreements guaranteeing specified obligations of affiliated parties.  The Company’s guarantees either terminate in one year or remain in place until such time as the Company revokes the agreement.  The Company currently provides revocable standby letters of credit totaling $4.0 millionassociated notes may not foot due to guarantee obligations that may arise under workers compensation claims of an affiliated party.  This potential obligation is not reflected in the Company’s Consolidated Statements of Financial Position.

Reclassifications
Certain reclassifications of previously reported amountsrounding. All percentages have been made to conform to the current year presentation.  The reclassifications had no impact on net earnings or operating cash flows as previously reported.calculated using unrounded amounts.


Accounting Changes and Recent Accounting PronouncementsPronouncements:

New Accounting Pronouncements adoptedAdopted in current fiscal yearCurrent Fiscal Year


In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330). The updated guidance requires that inventory be measured at the lower of cost and net realizable value. The guidance is limited to inventory measured using the first-in, first-out (“FIFO”) or average cost methods and excludes inventory measured using last-in, first-out (“LIFO”) or retail inventory methods. Net realizable value is defined as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The updated guidance is effective for fiscal years, and interim

periods within those fiscal years, beginning after December 15, 2016, with early adoption permitted. The Company adopted the updated provisions on a prospective basis at the beginning of fiscal 2018. The adoption did not have a material impact on its consolidated financial statements, results of operations or cash flows.
In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting (Topic 718). The update simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The updated guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted in any interim or annual period, with adjustments reflected as of the beginning of the fiscal year. Accordingly, the Company adopted the provisions of this new accounting standard at the beginning of fiscal 2018. This will result in realized excess tax benefits (“windfalls”) and tax deficiencies (“shortfalls”) upon exercise or vesting of stock-based awards being recorded in its Consolidated Statements of Operations instead of additional paid-in capital within its Consolidated Statements of Financial Position. The amendments requiring recognition of excess tax benefits and tax deficiencies in the income statement will be applied prospectively. Excess tax benefits of $11.8 million were recorded as a reduction of income tax expense for the first quarter ended January 28, 2018, thus reducing the effective tax rate by 3.9% for the quarter. The Company will apply the amendments related to the presentation of excess tax benefits on the consolidated statement of cash flows using a retrospective transition method, and as a result, realized windfalls were reclassified from financing activities to operating activities in its Consolidated Statements of Cash Flows. In accordance with ASU 2016-09, the Company has made the accounting policy election to estimate forfeitures and adjust as actual forfeitures occur.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments (Topic 230). The update makes eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. The updated guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted provided all amendments are adopted in the same period. The guidance requires application using a retrospective transition method. The Company early adopted the provisions of the new accounting standard at the beginning of fiscal 2018 and elected to account for distributions received from equity method investees as cash flows from operating activities using the nature of distribution approach accounting policy election. Under the nature of the distribution approach, distributions are classified based on the nature of the activity that generated them. The guidance requires cash proceeds from the settlement of corporate-owned life insurance policies to be classified as investing activities. Accordingly, the Company classified the cash proceeds received from corporate-owned life insurance policies as cash flows from investing activities. The adoption did not have a material impact on its consolidated financial statements.

The following table reconciles the Consolidated Statements of Cash Flows line items impacted by the adoption of these standards at January 29, 2017:
 Reported January 29, 2017 ASU 2016-09 ASU 2016-15 Adjusted January 29, 2017
Operating Activities       
Equity in earnings of affiliates$(10,776) $
 $(2,523) $(13,299)
Distributions received from equity method investees
 
 2,523
 2,523
Excess tax benefit from stock-based compensation(17,630) 17,630
 
 
Net Cash Provided by Operating Activities$177,619
 $17,630
 $
 $195,249
        
Financing Activities       
Excess tax benefit from stock-based compensation$17,630
 $(17,630) $
 $
Net Cash Used in Financing Activities$(82,189) $(17,630) $
 $(99,819)

New Accounting Pronouncements not yet adopted
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This topic converges the guidance within U.S. GAAP and international financial reporting standards and supersedes ASC 605, Revenue Recognition. The new standard requires companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. The new

standard will also result in enhanced disclosures about revenue, provide guidance for transactions which were not previously addressed comprehensively, and improve guidance for multiple-element arrangements. In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,” which defers the effective date of ASU 2014-09 by one year allowing early adoption as of the original effective date of December 15, 2016. In 2016 and 2017, the FASB issued ASU 2016-08, ASU 2016-10, ASU 2016-11, ASU 2016-12, ASU 2016-20, ASU 2017-13, and ASU 2017-14 to clarify, among other things, the implementation guidance related to principal versus agent considerations, identifying performance obligations and accounting for licenses of intellectual property. The new guidance is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period, and early adoption is permitted for annual reporting periods beginning after December 15, 2016. The updated guidance is to be applied either retrospectively or by using a cumulative effect adjustment. The Company will adopt the provisions of this new accounting standard at the beginning of fiscal 2019. The Company has completed a significant portion of its detailed assessments relating to revenue streams and customer arrangements, and is focused on controls to support recognition and disclosure requirements under the new guidance. Based on the assessment to date, the Company does not expect the adoption of the new standard to have a material impact on its results of operations.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The update requires lessees to put most leases on their balance sheets while recognizing expenses on their income statements in a manner similar to current U.S. GAAP. The guidance also eliminates current real estate-specific provisions for all entities. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. In 2018, the FASB issued ASU 2018-01 which permits an entity to elect an optional transition practical expedient to not evaluate land easements existing or expiring before the entity’s adoption of ASC 842 and not previously accounted for as leases under ASC 840. The updated guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The updated guidance is to be applied using modified retrospective method and early adoption is permitted. The Company expects to adopt the provisions of this new accounting standard at the beginning of fiscal 2020, and is in the process of evaluating the impact of adoption on its consolidated financial statements and related disclosures.
In June 2016, the FASBFinancial Accounting Standards Board (FASB) issued ASUAccounting Standards Update (ASU) 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 958)326). The update provides guidance on the measurement of credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The amendment replaces the current incurred loss impairment methodologyapproach with a methodology to reflect expected credit losses and requires consideration of a broader range of reasonable and supportable information to explain credit loss estimates. The updated guidance is to be applied on a modified retrospective approach and is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for all entities for fiscal years beginning after December 15, 2018, and interim periods therein. The Company is currently assessing the timing and impact of adopting the updated provisions.
In October 2016, the FASB issued ASU 2016-16, Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory (Topic 740). The updated guidance requires the recognition of the income tax consequences of an intra-entity asset transfer, other than transfers of inventory, when the transfer occurs. For intra-entity transfers of inventory, the income tax effects will continue to be deferred until the inventory has been sold to a third party. The updated guidance is effective for reporting periods beginning after December 15, 2017, with early adoption permitted only within the first interim period of a fiscal year. The guidance is required to be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company will adoptadopted the provisions of thethis new accounting standard at the beginning of fiscal 2019 and is in2021. The adoption did not have a material impact on the process of evaluating the impact of adoption on itsCompany's consolidated financial statements, and related disclosures.thus no cumulative-effect adjustment to retained earnings was necessary.


In March 2017,August 2018, the FASB issued ASU 2017-07, Compensation2018-13, Fair Value Measurement - Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit CostDisclosure Framework (Topic 715)820). The updated guidance requires an employerentities to reportdisclose the service cost componentchanges in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements and the range and weighted average of net periodic pension cost and net periodic post-retirement benefit costsignificant unobservable inputs used to develop Level 3 fair value measurements. Amendments in the same line item or items as other compensation costs. The updatedthis guidance also requiresrequire disclosure of transfers into and out of Level 3 of the other componentsfair value hierarchy, purchases and issues of net periodic pension costLevel 3 assets and net periodic post-retirement benefit costliabilities, and clarify that the measurement uncertainty disclosure is as of the reporting date. The guidance removes requirements to be presented indisclose the income statement separately fromamounts and reasons for transfers between Level 1 and Level 2, policy for timing between of transfers between levels, and the service cost component and outside income from operations. Additionally, only the service cost component is eligiblevaluation processes for capitalization, when applicable. ThisLevel 3 fair value measurements. The updated guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early2019. The Company adopted the provisions of this new accounting standard at the beginning of fiscal 2021 and adoption is permitted.did not have a material impact on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans (Topic 715). The updated guidance should be applied retrospectivelyrequires additional disclosures of weighted-average interest crediting rates for cash balance plans and an explanation of the reasons for significant gains and losses related to changes in the benefit obligation. Amendments in the guidance also clarify the requirement to disclose the projected benefit obligation (PBO) and fair value of plan assets for plans with PBOs in excess of plan assets. The same disclosure is needed for the presentationaccumulated benefit obligation (ABO) and fair value of plan assets for plans with ABOs in excess of plan assets. The guidance removes certain previous disclosure requirements no longer considered cost beneficial. The amendments are effective for fiscal years ending after December 15, 2020, with early adoption permitted. The Company adopted the service cost componentprovisions of this new accounting standard at the beginning of fiscal 2021. The adoption did not impact the Company's interim disclosure and other componentsis not anticipated to have a material impact on the annual disclosure.


10

Table of net benefit costContents
New Accounting Pronouncements Not Yet Adopted
In December 2019, the FASB issued ASU 2019-12, Income Taxes - Simplifying the Accounting for Income Taxes (Topic 740). The updated guidance simplifies the accounting for income taxes by removing certain exceptions in the income statementTopic 740 and prospectively, onclarifying and amending existing guidance. The amendments are effective for fiscal years beginning after the effective date, for the capitalization of the service cost component of net benefit cost.December 15, 2020, with early adoption permitted. The Company will adopt the provisions of this new accounting standard at the beginning of fiscal 20192022 and is currently assessing thedoes not expect adoption to have a material impact on its consolidated financial statements.


In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging - Targeted Improvements to Accounting for Hedging Activities (Topic 815). The updated guidance expands an entity’s ability to hedge nonfinancial and financial risk components and reduce complexity in fair value hedges of interest rate risk. The guidance eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The guidance also eases certain documentation and assessment requirements and modifies the accounting for components excluded from the assessment of hedge effectiveness. Entities will apply the amendments to cash flow and net investment hedge relationships that exist on the date of adoption using a modified retrospective approach. The presentation and disclosure requirement apply prospectively. The updated guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those years. Early adoption is permitted in any interim or annual period. The Company is currently assessing the timing and impact of adopting the updated provisions.

In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220). The updated guidance allows entities to reclassify stranded income tax effects resulting from the Tax Cuts and Jobs Act (the “Tax Act”) from accumulated other comprehensive income to retained earnings in their consolidated financial statements. Under the Tax Act, deferred taxes were adjusted to reflect the reduction of the historical corporate income tax rate to the newly enacted corporate income tax rate, which left the tax effects on items within accumulated other comprehensive income stranded at an inappropriate tax rate. The updated guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those years. Early adoption is permitted in any interim period and should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Act is recognized. The Company is in the process of assessing the impact this standard will have on our consolidated financial statements and related disclosures.
Any other recentlyRecently issued accounting standards or pronouncements not disclosed above have been excluded as they either are not relevant to the Company, or they are not expected to have a material effect on its business practices, financial condition, results of operations, or disclosures.Company.




NOTE B - ACQUISITIONS AND DIVESTITURES
 
Acquisitions: On November 27, 2017,June 7, 2021, the Company acquired Columbus Manufacturing, Inc. (Columbus)the Planters®snack nuts business from The Kraft Heinz Company. The acquisition includes the Planters®, an authentic premium deli meatNUT-rition®, Planters®Cheez Balls and salami company, from Chicago-based Arbor Investments for aCorn Nuts®brands. The preliminary purchase price of $857.6 million, subject to customaryis $3.4 billion, pending final purchase accounting and working capital adjustments. The transaction was funded with the Company’s cash on hand along with borrowing $375.0and from the issuance of long-term debt. See Note J - Long-term Debt and Other Borrowing Arrangements for additional details.

Planters®is an iconic snack brand and this acquisition significantly expands the Company's presence, and should broaden the scope for future acquisitions, in the growing snacking space. Operating results for this acquisition have been included in the Company's Consolidated Statements of Operations from the date of acquisition and reflected primarily in the Grocery Products segment. The acquisition contributed $141.3 million under a term loan facilityof net sales since the date of acquisition. As the acquisition has been integrated within the Company's existing operations, post-acquisition net income is not discernible. Acquisition-related costs were $27.5 million and $375.0$30.3 million under a revolving credit facility. for the thirteen and thirty-nine weeks ended July 25, 2021, respectively, which are reflected in the Consolidated Statements of Operations as Selling, General and Administrative. Additional one-time adjustments related the preliminary revaluation of acquired inventory of $12.9 million were recognized in the Consolidated Statements of Operations as Cost of Products Sold for the thirteen and thirty-nine weeks ended July 25, 2021. The combined impact of these one-time acquisition costs and accounting adjustments were $40.4 million and $43.2 million for the thirteen and thirty-nine weeks ended July 25, 2021.

The acquisition was accounted for as a business combination using the acquisition method. The Company has estimated the acquisition date fair values of the assets acquired using independent appraisals. Preliminary allocations of the purchase price to acquired assets, including goodwill and intangibles assets, is presented in processthe table below. The Company expects to finalize purchase allocations as soon as practicable, but no later than one year from the acquisition date.

(in thousands)Preliminary
Purchase Allocation
Inventory$149,224 
Property, Plant and Equipment162,091 
Goodwill2,286,932 
Other Intangibles798,000 
Purchase Price$3,396,246 

Goodwill is calculated as the excess of completing its preliminarythe purchase price over the fair values of the net assets acquired and is expected to be deductible for tax purposes. The goodwill recorded as part of the acquisition primarily reflects the value of the potential to expand the Company's presence in the growing snacking space and serve as a platform for innovation.

The following unaudited pro forma financial information presents the combined results of operations as if the acquisition of the Planters® snack nuts business had occurred on October 27, 2019. These unaudited pro forma results do not necessarily reflect the actual results of operations that would have been achieved had the acquisition occurred on that date, nor are they necessarily indicative of future results of operations.

Thirteen Weeks EndedThirty-Nine Weeks Ended
(in thousands)July 25, 2021July 26, 2020July 25, 2021July 26, 2020
Pro Forma Net Sales$2,981,630 $2,635,561 $8,606,935 $7,983,636 
Pro Forma Net Earnings Attributable to Hormel Foods Corporation215,983 211,135 704,143 664,304 


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The pro forma results include charges for depreciation and amortization of acquired assets and interest expense on debt issued to finance the acquisition, as well as the related income taxes. The pro forma results for the thirty-nine weeks ended July 26, 2020 also include nonrecurring adjustments relating to the recognition of transaction costs incurred and revaluation of inventory acquired, along with the related income tax effects, which in the aggregate reduce pro forma net earnings by $41.1 million. The pro forma results for the thirteen and thirty-nine weeks ended July 25, 2021 include an adjustment to add back the transaction costs incurred and revaluation of inventory acquired in those periods, along with the related income tax effects, since those costs are reflected in the preceding fiscal year on a pro forma basis.

On March 2, 2020, the Company acquired the assets comprising the Sadler's Smokehouse business (Sadler's) for a final purchase price of $270.8 million. Sadler's is an authentic, pit-smoked meats business based in Henderson, Texas. This acquisition strengthens the Company's foodservice position and provides an opportunity to further extend the Sadler's product line into the retail and deli channels.

The transaction was funded with cash on hand and accounted for as a business combination using the acquisition method. The Company completed an allocation of the fair value of Columbus' assets. Allocations between goodwill and identifiable intangiblethe assets acquired are pending completion of autilizing third-party valuation appraisal. Refer to Note D for preliminary amounts assigned to goodwill.appraisals during fiscal 2020.

Columbus specializes in authentic premium deli meat and salami and allows the Company to enhance its scale in the deli by broadening its portfolio of products, customers, and consumers.


Operating results for this acquisition have been included in the Company’sCompany's Consolidated Statements of Operations from the date of acquisition and are reflected in the Refrigerated Foods segment. Pro forma results are not material for inclusion.


On August 22, 2017, the Company acquired Cidade do Sol (Ceratti) for a preliminary purchase price of approximately $103.5 million, subject to customary working capital adjustments. The transaction was funded by the Company with cash on hand. The Company has completed a preliminary allocation of the fair value of Ceratti. Allocations are based on the acquisition method of accounting and in-process third party valuation appraisals.

Ceratti is a growing, branded, value-added meats company in Brazil offering more than 70 products in 15 categories, including authentic meats such as mortadella, sausage, and salami for Brazilian retail and foodservice markets under the popular Ceratti® brand.  The acquisition of Ceratti allows the Company to establish a full in-country presence in the fast-growing Brazilian market with a premium brand.

Operating results for this acquisition have been included in the Company’s Consolidated Statements of Operations from the date of acquisition and are reflected in the International & Other segment.

On August 16, 2017, the Company acquired Fontanini Italian Meats and Sausages (Fontanini), a branded foodservice business, from Capitol Wholesale Meats, Inc. for a preliminary purchase price of $428.4 million, subject to customary working capital

adjustments. The transaction provides a cash flow benefit resulting from the amortization of the tax basis of assets, the net present value of which is approximately $90.0 million. The transaction was funded by the Company with cash on hand and by utilizing short-term financing. The Company has completed a preliminary allocation of the fair value of Fontanini. Allocations are based on the acquisition method of accounting and in-process third party valuation appraisals. Primary assets acquired include goodwill of $223.6 million and intangibles of $110.3 million.

Fontanini specializes in authentic Italian meats and sausages, as well as a variety of other premium meat products, including pizza toppings and meatballs, and allows the Company to expand the foodservice business.

Operating results for this acquisition have been included in the Company’s Consolidated Statements of Operations from the date of acquisition and are reflected in the Refrigerated Foods segment.


NOTE CINVENTORIES
Principal components of inventories are:
(in thousands)January 28,
2018
 October 29,
2017
Finished products$539,058
 $511,789
Raw materials and work-in-process251,475
 237,903
Operating supplies125,551
 114,098
Maintenance materials and parts57,137
 57,232
Total$973,221
 $921,022


NOTE D - GOODWILL AND INTANGIBLE ASSETS
 
Goodwill: The changes in the carrying amounts of goodwill for the first quarterthirteen and thirty-nine weeks ended January 28, 2018, are presentedJuly 25, 2021, are:
(in thousands)Grocery
Products
Refrigerated
Foods
Jennie-O
Turkey Store
International
& Other
Total
Balance at April 25, 2021$632,301 $1,607,005 $176,628 $198,102 $2,614,036 
Goodwill Acquired(1)
1,878,660 353,135 — 55,137 2,286,932 
Foreign Currency Translation— — — 6,105 6,105 
Balance at July 25, 2021$2,510,961 $1,960,140 $176,628 $259,344 $4,907,073 
(in thousands)Grocery
Products
Refrigerated
Foods
Jennie-O
Turkey Store
International
& Other
Total
Balance at October 25, 2020$632,301 $1,607,005 $176,628 $196,793 $2,612,727 
Goodwill Acquired(1)
1,878,660 353,135 — 55,137 2,286,932 
Foreign Currency Translation— — — 7,415 7,415 
Balance at July 25, 2021$2,510,961 $1,960,140 $176,628 $259,344 $4,907,073 

(1) Represents preliminary allocation of goodwill to reportable segments. See additional details regarding the acquisition in the table below. Note B - Acquisitions and Divestitures.
Intangible Assets: The carrying amounts for indefinite-lived intangible assets are:
(in thousands)July 25, 2021October 25, 2020
Brands/Tradenames/Trademarks$1,700,190 $953,190 
Other Intangibles184 184 
Foreign Currency Translation(5,766)(6,923)
Total$1,694,609 $946,452 
The increase to goodwill forin Brands/Tradenames/Trademarks represents the quarter is primarily related toestimated fair value of indefinite-lived assets acquired as part of the acquisition of Columbus. Athe Planters® snack nuts business and is preliminary allocation has been made to tangible assets, however, the allocation from goodwill to identifiable intangible assets is pending receipt of the third-party valuation appraisal report.final purchase accounting adjustments. See Note B - Acquisitions and Divestitures.

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Table of Contents
(in thousands)
Grocery
Products
 
Refrigerated
Foods
 JOTS 
International
& Other
 Total
Balance as of October 29, 2017$882,582
 $795,699
 $203,214
 $238,318
 $2,119,813
Goodwill acquired
 836,979
 
 
 836,979
Purchase adjustments
 510
 
 161
 671
Balance as of January 28, 2018$882,582
 $1,633,188
 $203,214
 $238,479
 $2,957,463

The gross carrying amount and accumulated amortization for definite-lived intangible assets are presentedare:
 July 25, 2021October 25, 2020
(in thousands)
Gross Carrying
Amount
Accumulated
Amortization
Weighted Ave Life
(In Years)
Gross Carrying
Amount
Accumulated
Amortization
Weighted Ave Life
(In Years)
Customer Lists/Relationships$168,239 $(53,409)12.7$117,239 $(45,996)12.2
Other Intangibles60,241 (7,211)13.860,631 (4,298)13.8
Tradenames/Trademarks10,536 (5,125)4.910,536 (3,518)4.9
Foreign Currency Translation— (4,165)— — (4,760)— 
Total$239,016 $(69,910)12.7$188,406 $(58,572)12.3
The increase in Customer Lists/Relationships represents the table below.estimated fair value of definite-lived assets acquired as part of the acquisition of the Planters® snack nuts business and is preliminary pending final purchase accounting adjustments. See Note B - Acquisitions and Divestitures.
 January 28, 2018 October 29, 2017
(in thousands)
Gross Carrying
Amount
 
Accumulated
Amortization
 
Gross Carrying
Amount
 
Accumulated
Amortization
Customer lists/relationships$115,940
 $(29,782) $115,940
 $(25,973)
Formulas and recipes
 
 1,950
 (1,950)
Other intangibles6,964
 (1,556) 3,100
 (2,044)
Total$122,904
 $(31,338) $120,990
 $(29,967)

Amortization expense was $3.3$4.4 million and $2.1$12.3 million for the quartersthirteen and thirty-nine weeks ended January 28, 2018July 25, 2021, respectively, compared to $4.1 million and January 29, 2017, respectively.$10.3 million for the thirteen and thirty-nine weeks ended July 26, 2020.
 

Estimated annual amortization expense for the five fiscal years after October 29, 2017,25, 2020, is as follows:
(in thousands)
2021$17,948 
202219,680 
202318,775 
202416,691 
202515,075 



(in millions) 
2018$10.6
201910.5
202010.5
202110.5
202210.2
The carrying amounts for indefinite-lived intangible assets are presented in the table below.
(in thousands)January 28,
2018
 October 29,
2017
Brands/tradenames/trademarks$931,573
 $935,807
Other intangibles184
 184
Total$931,757
 $935,991

NOTE EPENSION AND OTHER POST-RETIREMENT BENEFITS
Net periodic benefit cost for pension and other post-retirement benefit plans consists of the following:
 Pension Benefits Post-retirement Benefits
 Three Months Ended Three Months Ended
(in thousands)January 28,
2018
 January 29,
2017
 January 28,
2018
 January 29,
2017
Service cost$7,903
 $7,564
 $320
 $275
Interest cost14,049
 13,566
 2,832
 2,871
Expected return on plan assets(24,770) (22,734) 
 
Amortization of prior service cost(617) (750) (710) (1,068)
Recognized actuarial loss4,539
 6,541
 44
 628
Net periodic cost$1,104
 $4,187
 $2,486
 $2,706

NOTE FDERIVATIVES AND HEDGING
The Company uses hedging programs to manage price risk associated with commodity purchases.  These programs utilize futures contracts to manage the Company’s exposure to price fluctuations in the commodities markets.  The Company has determined its designated hedging programs to be highly effective in offsetting the changes in fair value or cash flows generated by the items hedged.


Cash Flow Hedges:  The Company utilizes corn and lean hog futures to offset price fluctuations in the Company’s future direct grain and hog purchases.  The financial instruments are designated and accounted for as cash flow hedges, and the Company measures the effectiveness of the hedges at least quarterly.  Effective gains or losses related to these cash flow hedges are reported in accumulated other comprehensive loss (AOCL) and reclassified 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 ineffectiveness are recognized in the current period cost of products sold.  The Company typically does not hedge its grain exposure beyond the next two upcoming fiscal years and its hog exposure beyond the next fiscal year.  As of January 28, 2018, and October 29, 2017, the Company had the following outstanding commodity futures contracts that were entered into to hedge forecasted purchases:
Volume
CommodityJanuary 28, 2018October 29, 2017
Corn11.3 million bushels11.5 million bushels
Lean hogs0.2 million cwt0.3 million cwt
As of January 28, 2018, the Company has included in AOCL, hedging gains of $0.8 million (before tax) relating to its positions, compared to gains of $1.8 million (before tax) as of October 29, 2017.  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 fixed 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 Statements of Financial Position as a current asset and liability, 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 January 28, 2018, and October 29, 2017, the Company had the following outstanding commodity futures contracts designated as fair value hedges:
Volume
CommodityJanuary 28, 2018October 29, 2017
Corn2.6 million bushels4.1 million bushels
Lean hogs0.3 million cwt0.4 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 fluctuations in commodity markets.  The Company has not applied hedge accounting to these positions.
As of January 28, 2018, and October 29, 2017, the Company had the following outstanding futures and options contracts related to these programs:
Volume
CommodityJanuary 28, 2018October 29, 2017
Corn0.2 million bushels


Fair Values:  The fair values of the Company’s derivative instruments (in thousands) as of January 28, 2018, and October 29, 2017, were as follows:
   
Fair Value (1)
 
Location on Consolidated
Statements of Financial
Position
 January 28,
2018
 October 29,
2017
Asset Derivatives:     
Derivatives Designated as Hedges:   
  
Commodity contractsOther current assets $(390) $326
      
Derivatives Not Designated as Hedges:     
Commodity contractsOther current assets 12
 
      
Total Asset Derivatives  $(378) $326
(1)  Amounts represent the gross fair value of derivative assets and liabilities.  The Company nets the derivative assets and liabilities for each of its hedging programs, including cash collateral, when a master netting arrangement exists between the Company and the counterparty to the derivative contract.  The amount or timing of cash collateral balances may impact the classification of the derivative in the Consolidated Statements of Financial Position.  See Note K “Fair Value Measurements” for a discussion of these net amounts as reported in the Consolidated Statements of Financial Position.
Derivative Gains and Losses:  Gains or losses (before tax, in thousands) related to the Company’s derivative instruments for the first quarter ended January 28, 2018, and January 29, 2017, were as follows:
  
Gain/(Loss)
Recognized in AOCL
(Effective Portion) (1)
 
Location on
Consolidated
Statements
of Operations
 
Gain/(Loss)
Reclassified from
AOCL into Earnings
(Effective Portion) (1)
 
Gain/(Loss)
Recognized in
Earnings (Ineffective
Portion) (2) (4)
  Three Months Ended  Three Months Ended Three Months Ended
Cash Flow Hedges: January 28, 2018 January 29, 2017  January 28, 2018 January 29, 2017 January 28, 2018 January 29, 2017
Commodity contracts $(387) $(646) Cost of products sold $608
 $1,469
 $(90) $
    
Location on
Consolidated
Statements
of Operations
 
Gain/(Loss)
Recognized in
Earnings (Effective
Portion) (3)
 
Gain/(Loss)
Recognized in
Earnings (Ineffective
Portion) (2) (5)
     Three Months Ended Three Months Ended
Fair Value Hedges:      January 28, 2018 January 29, 2017 January 28, 2018 January 29, 2017
Commodity contracts     Cost of products sold $557
 $(54) $(249) $
    
Location on
Consolidated
Statements
of Operations
 
Gain/(Loss)
Recognized
in Earnings
  
     Three Months Ended  
Derivatives Not
Designated as Hedges:
      January 28, 2018 January 29, 2017    
Commodity contracts     Cost of products sold $12
 $(228)    
(1)Amounts represent gains or losses in AOCL before tax.  See Note H “Accumulated Other Comprehensive Loss” for the after-tax impact of these gains or losses on net earnings.
(2)There were no gains or losses excluded from the assessment of hedge effectiveness during the quarter.
(3)Amounts represent losses on commodity contracts designated as fair value hedges that were closed during the quarter, which were offset by a corresponding gain on the underlying hedged purchase commitment.  Additional gains or losses related to changes in the fair value of open commodity contracts, along with the offsetting gain or loss on the hedged purchase commitment, are also marked-to-market through earnings with no impact on a net basis.
(4)There were no gains or losses resulting from the discontinuance of cash flow hedges during the quarter.
(5)There were no gains or losses recognized as a result of a hedged firm commitment no longer qualifying as a fair value hedge duringthe quarter.

NOTE GD - INVESTMENTS IN AND RECEIVABLES FROM AFFILIATES
 
The Company accounts for its majority-owned operations under the consolidation method. Investments in which the Company owns a minority interest, and for which there are no other indicators of control, are accounted for under the equity or cost method. These investments, along with any related receivables from affiliates, are included in the Consolidated Statements of Financial Position as investments inInvestments In and receivables from affiliates.Receivables From Affiliates.
 
Investments inIn and receivables from affiliates consists of the following:Receivables From Affiliates consist of:
 
(in thousands)
Segment% OwnedJuly 25, 2021October 25, 2020
MegaMex Foods, LLCGrocery Products50%$209,613 $220,907 
Other Joint VenturesInternational & OtherVarious (20-40%)94,805 87,466 
Total$304,417 $308,372 
 
(in thousands)
Segment % Owned January 28,
2018
 October 29,
2017
MegaMex Foods, LLCGrocery Products 50% $192,570
 $177,657
Foreign Joint VenturesInternational & Other Various (26-40%) 69,577
 64,712
Total    $262,147
 $242,369


Equity in earningsEarnings of affiliatesAffiliates consists of the following:of:
  Three Months Ended  Thirteen Weeks EndedThirty-Nine Weeks Ended
(in thousands)
 
Segment
 January 28,
2018
 January 29,
2017
(in thousands)
 
Segment
July 25, 2021July 26, 2020July 25, 2021July 26, 2020
MegaMex Foods, LLCGrocery Products $19,588
 $9,071
MegaMex Foods, LLCGrocery Products$7,529 $5,799 $29,625 $22,939 
Foreign Joint VenturesInternational & Other 3,943
 4,228
Other Joint VenturesOther Joint VenturesInternational & Other2,891 2,435 8,097 2,904 
Total $23,531
 $13,299
Total$10,420 $8,235 $37,722 $25,843 
 
DividendsFor the thirteen and thirty-nine weeks ended July 25, 2021, $11.2 million and $33.7 million of dividends were received from affiliates, for the first quarter ended January 28, 2018, were $0.023 million compared to $2.5$7.5 million and $27.5 million of dividends received for the first quarterthirteen and thirty-nine weeks ended January 29, 2017.July 26, 2020.

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The Company recognized a basis difference of $21.3 million associated with the formation of MegaMex Foods, LLC, of which $14.2$11.2 million is remaining as of January 28, 2018.July 25, 2021. This difference is being amortized through equityEquity in Earnings of Affiliates.


NOTE E - INVENTORIES
Principal components of inventories are:
(in thousands)July 25, 2021October 25, 2020
Finished Products$766,817 $546,070 
Raw Materials and Work-in-Process414,039 318,975 
Operating Supplies161,239 136,547 
Maintenance Materials and Parts84,642 71,170 
Total$1,426,738 $1,072,762 


NOTE F - DERIVATIVES AND HEDGING
The Company uses hedging programs to manage price risk associated with commodity purchases and interest rates. These programs utilize futures and options contracts to manage the Company’s exposure to price fluctuations in the markets. The Company has determined its designated hedging programs to be highly effective in offsetting the changes in fair value or cash flows generated by the items hedged. Effectiveness testing is performed on a quarterly basis to ascertain a high level of effectiveness for cash flow and fair value hedging programs.

Cash Flow Commodity Hedges:  The Company designates corn and lean hog futures and options used to offset price fluctuations in the Company’s future direct grain and hog purchases as cash flow hedges. Effective gains or losses related to these cash flow hedges are reported in Accumulated Other Comprehensive Loss (AOCL) and reclassified into earnings, through Cost of Products Sold, in the period or periods in which the hedged transactions affect earnings. The Company typically does not hedge its grain exposure beyond the next two upcoming fiscal years and its hog exposure beyond the next fiscal year. Due to extreme market volatility, the Company took strategic hedges to cover a significant portion of its expected grain purchases through fiscal 2022.

Fair Value Commodity Hedges: The Company designates the futures it uses to minimize the price risk assumed when fixed forward priced contracts are offered to the Company’s commodity suppliers as fair value hedges. 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. 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 recorded on the Consolidated Statements of Financial Position as a Current Asset and Liability, 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.

Cash Flow Interest Rate Hedges: In the second quarter of fiscal 2021, the Company designated 2 separate interest rate locks as cash flow hedges to manage interest rate risk associated with the anticipated debt transactions required to fund the acquisition of the Planters® snack nuts business. The total notional amount of the Company's locks was $1,250 million. In the third quarter of fiscal 2021, the associated unsecured senior notes were issued with a tenor of seven and thirty years and both locks were lifted (See Note J - Long-term Debt and Other Borrowing Arrangements). Mark-to-market gains and losses on these instruments were deferred as a component of AOCL until lifted. The resulting gain in AOCL is reclassified to Interest Expense in the period when the hedged transactions affect earnings.

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 fluctuations in commodity markets. The Company has not applied hedge accounting to these positions. Activity related to derivatives not designated as hedges is immaterial to the consolidated financial statements.

Volume: The Company's outstanding commodity futures and options contracts related to its hedging programs include:
Volume
Commodity ContractsJuly 25, 2021October 25, 2020
Corn43.5 million bushels26.0 million bushels
Lean Hogs115.9 million pounds153.7 million pounds


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Fair Value of Derivatives:  The fair values of the Company’s derivative instruments are:
  Gross Fair Value
(in thousands)
Location on Consolidated Statements
of Financial Position
July 25, 2021October 25, 2020
Derivatives Designated as Hedges:
Commodity Contracts(1)
Other Current Assets$24,824 $(1,330)
(1) Amounts represent the gross fair value of commodity derivative assets and liabilities. The Company nets the commodity derivative assets and liabilities for each of its hedging programs, including cash collateral, when a master netting arrangement exists between the Company and the counterparty to the commodity derivative contract. The amount or timing of cash collateral balances may impact the classification of the commodity derivative in the Consolidated Statements of Financial Position. The gross asset position as of July 25, 2021 is offset by the obligation to return net cash collateral of $17.1 million contained within the master netting arrangement. The gross liability position as of October 25, 2020 is offset by the right to reclaim net cash collateral of $12.3 million. See Note I - Fair Value Measurements for a discussion of these net amounts as reported in the Consolidated Statements of Financial Position.
Fair Value Hedge - Assets (Liabilities): The carrying amounts of the Company's fair value hedge assets (liabilities) are:
Location on Consolidated Statements
    of Financial Position
Carrying Amount of the Hedged
Assets/(Liabilities)
(in thousands)July 25, 2021October 25, 2020
Accounts Payable(1)
$5,400 $4,269 
(1)  Amounts represent the carrying amount of fair value hedged assets and liabilities which are offset by other assets included in master netting arrangements described above.

Accumulated Other Comprehensive Loss Impact: As of July 25, 2021, the Company included in Accumulated Other Comprehensive Loss hedging gains (before tax) of $43.4 million on commodity contracts and $14.7 million related to interest rate settled positions. The Company expects to recognize the majority of the gains on commodity contracts over the next twelve months. Gains on interest rate contracts offset the hedged interest payments over the tenor of the debt instruments.

The effect of Accumulated Other Comprehensive Loss for gains or losses (before tax) related to the Company's derivative instruments is as follows:
 
Gain/(Loss)
Recognized
 in AOCL (1)
Location on
Consolidated
Statements
of Operations
Gain/(Loss)
Reclassified from
AOCL into Earnings (1)
 Thirteen Weeks EndedThirteen Weeks Ended
(in thousands)July 25, 2021July 26, 2020July 25, 2021July 26, 2020
Cash Flow Hedges:
Commodity Contracts$5,467 $(943)Cost of Products Sold$14,261 $(18,645)
Excluded Component (2)
1,261 — — — 
Interest Rate Contracts(3,675)— Interest Expense152 — 
 
Gain/(Loss)
Recognized
 in AOCL (1)
Location on
Consolidated
Statements
of Operations
Gain/(Loss)
Reclassified from
AOCL into Earnings (1)
 Thirty-Nine Weeks EndedThirty-Nine Weeks Ended
(in thousands)July 25, 2021July 26, 2020July 25, 2021July 26, 2020
Cash Flow Hedges:
Commodity Contracts$58,129 $(57,514)Cost of Products Sold$18,723 $(25,997)
Excluded Component (2)
1,261 — — — 
Interest Rate Contracts14,864 — Interest Expense152 — 

(1) See Note H - Accumulated Other Comprehensive Loss for the after-tax impact of these gains or losses on Net Earnings.
(2) Represents the time value amount of corn options excluded from the assessment of effectiveness for which the difference between changes in fair value and periodic amortization is recorded in AOCL.

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Table of Contents

Consolidated Statements of Operations Impact: The effect on the Consolidated Statements of Operations for gains or losses (before tax) related to the Company's derivative instruments is as follows:
Consolidated Statements of Operations Impact
Thirteen Weeks EndedThirty-Nine Weeks Ended
(in thousands)July 25, 2021July 26, 2020July 25, 2021July 26, 2020
 Net Earnings Attributable to Hormel Foods Corporation$176,917 $203,119 $627,101 $673,726 
Cash Flow Hedges - Commodity Contracts
   Gain (Loss) Reclassified from AOCL14,261 (18,645)18,723 (25,997)
Amortization of Excluded Component from Options(1,543)— (1,543)— 
Fair Value Hedges - Commodity Contracts
   Gain (Loss) on Commodity Futures (1)
(11,739)4,341 (26,010)13,487 
Total Gain (Loss) on Commodity Contracts (2)
$979 $(14,304)$(8,830)$(12,510)
Cash Flow Hedges - Interest Rate Locks
Amortization of Gain on Interest Rate Locks152 — 152 — 
Total Gain on Interest Rate Locks (3)
$152 $ $152 $ 
Total Gain (Loss) Recognized in Earnings$1,131 $(14,304)$(8,678)$(12,510)

(1)Amounts represent gains or losses on commodity contracts designated as fair value hedges that were closed during the thirteen and thirty-nine weeks ended July 25, 2021, and July 26, 2020, which were offset by a corresponding gain or loss on the underlying hedged purchase commitment. Additional gains or losses related to changes in the fair value of open commodity contracts, along with the offsetting gain or loss on the hedged purchase commitment, are also marked-to-market through earnings with no impact on a net basis.
(2)    Total Gain (Loss) on Commodity Contracts is recognized in earnings through Cost of affiliates.Products Sold.

(3)    Total Gain (Loss) on Interest Rate Locks is recognized in earnings through Interest Expense.



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NOTE G - PENSION AND OTHER POST-RETIREMENT BENEFITS
 
Net periodic benefit cost for pension and other post-retirement benefit plans consists of:
 Pension Benefits
 Thirteen Weeks EndedThirty-Nine Weeks Ended
(in thousands)July 25, 2021July 26, 2020July 25, 2021July 26, 2020
Service Cost$9,107 $8,896 $27,321 $26,688 
Interest Cost12,362 13,411 37,086 40,232 
Expected Return on Plan Assets(25,189)(25,321)(75,567)(75,963)
Amortization of Prior Service Cost(367)(542)(1,101)(1,626)
Recognized Actuarial Loss5,578 5,595 16,735 16,787 
Net Periodic Cost$1,491 $2,039 $4,474 $6,118 
 Post-retirement Benefits
 Thirteen Weeks EndedThirty-Nine Weeks Ended
(in thousands)July 25, 2021July 26, 2020July 25, 2021July 26, 2020
Service Cost$131 $192 $392 $579 
Interest Cost1,948 2,322 5,844 7,111 
Amortization of Prior Service Cost(164)(662)(492)(1,988)
Recognized Actuarial Loss495 261 1,486 784 
Net Periodic Cost$2,410 $2,113 $7,230 $6,486 

Non-service cost components of net pension and postretirement benefit cost are presented within Interest and Investment Income on the Consolidated Statements of Operations.



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Table of Contents
NOTE H - ACCUMULATED OTHER COMPREHENSIVE LOSS
 
Components of accumulated other comprehensive loss are as follows:Accumulated Other Comprehensive Loss are:
(in thousands)Foreign
Currency
Translation
Pension &
Other
Benefits
Derivatives & HedgingAccumulated
Other
Comprehensive
Loss
Balance at April 25, 2021$(53,565)$(324,780)$52,717 $(325,629)
Unrecognized Gains (Losses)
Gross12,513 — 3,054 15,567 
Tax Effect— — (738)(738)
Reclassification into Net Earnings
Gross— 5,542 (1)(14,413)(2)(8,871)
Tax Effect— (1,343)3,485 2,142 
Net of Tax Amount12,513 4,199 (8,612)8,100 
Balance at July 25, 2021$(41,053)$(320,580)$44,105 $(317,528)
Balance at October 25, 2020$(64,161)$(333,178)$2,089 $(395,250)
Unrecognized Gains (Losses)
Gross23,108 — 74,254 97,362 
Tax Effect— — (17,928)(17,928)
Reclassification into Net Earnings
Gross— 16,628 (1)(18,875)(2)(2,247)
Tax Effect— (4,030)4,565 535 
Net of Tax Amount23,108 12,598 42,016 77,722 
Balance at July 25, 2021$(41,053)$(320,580)$44,105 $(317,528)
(in thousands)
Foreign
Currency
Translation
 
Pension &
Other
Benefits
 
Deferred
Gain (Loss) -
Hedging
 
Accumulated
Other
Comprehensive
Loss
Balance at October 29, 2017$(6,846) $(242,475)  $1,246
  $(248,075)
Unrecognized gains (losses)         
Gross4,063
 
  (387)  3,676
Tax effect
 
  92
  92
Reclassification into net earnings         
Gross
 3,256
(1) (608)(2) 2,648
Tax effect
 (770)  253
  (517)
Net of tax amount4,063
 2,486
  (650)  5,899
Balance at January 28, 2018$(2,783) $(239,989)  $596
  $(242,176)

(1)    IncludedIncluded in the computation of net periodic cost (seecost. See Note E “PensionG - Pension and Other Post-Retirement Benefits”Benefits for additional details).details.
(2)Included in costCost of products soldProducts Sold and Interest Expense in the Consolidated Statements of Operations. See Note F - Derivatives and Hedging for additional details.






NOTE IINCOME TAXES - FAIR VALUE MEASUREMENTS
 
The Company's tax provision is determined using an estimated annual effective tax rate and adjusted for discrete taxable events that may occur during the quarter. We recognize the effects of tax legislation in the period in which the law is enacted. The deferred tax assets and liabilities are remeasured using enacted tax rates expected to apply to taxable income in the years we estimate the related temporary differences to reverse.

On December 22, 2017, the United States enacted comprehensive tax legislation into law, H.R. 1, commonly referred to as the Tax Act. Except for certain provisions, the Tax Act is effective for tax years beginning on or after January 1, 2018. As a fiscal year U.S. taxpayer, the majority of the provisions will not apply for the Company until fiscal 2019, such as eliminating the domestic manufacturing deduction, creating new taxes on certain foreign sourced income, and introducing new limitations on certain business deductions. For fiscal 2018, and effective in the first quarter, the most significant impacts include lowering of the U.S. federal corporate income tax rate, remeasuring certain net deferred tax liabilities, and requiring the transition tax on the deemed repatriation of certain foreign earnings. The phase-in of the lower federal corporate income tax rate resulted in a blended rate of 23.4 percent for fiscal 2018, as compared to the previous 35 percent, and is based on the applicable tax rates before and after passage of the Tax Act and the number of days in the fiscal year. The tax rate will be reduced to 21 percent in subsequent fiscal years.

The lower effective tax rate in the first quarter of fiscal 2018 is largely due to the passage of the Tax Act, lowering the Company's long-term effective tax rate.  In the first quarter, the Company recorded a one-time provisional non-cash tax benefit of $68.0 million for deferred tax liability revaluation and a provisional $5.2 million charge for deemed repatriation of the Company's previously undistributed foreign earnings. At this point, no additional income taxes have been provided for any undistributed foreign earnings not subject to the transition tax and additional outside basis difference inherent in these entities, as these amounts continue to be indefinitely reinvested in foreign operations. Determining the amount of unrecognized deferred tax liability related to any remaining undistributed foreign earnings not subject to the transition tax and additional outside basis difference in these entities (i.e., basis difference in excess of that subject to the one-time transition tax) is not practical at this time. The one-time tax events and reduction in the federal statutory tax rate were the main drivers of the Company's first quarter effective tax rate of 0.6 percent, versus 33.7 percent last year. The Company expects a full-year effective tax rate between 17.5 percent and 20.5 percent for fiscal 2018.

The staff of the U.S. Securities and Exchange Commission has recognized the complexity of reflecting the impacts of the Tax Act and issued guidance in Staff Accounting Bulletin No. 118, which clarifies accounting for income taxes under ASC 740 if information is not yet available or complete and provides a measurement period for up to one year in which to complete the required analysis and accounting. Based on current interpretation of the Tax Act, the Company made reasonable estimates to record provisional adjustments during the first quarter of fiscal 2018, as described below. As the Company accumulates and processes data to finalize the underlying calculations, and expects regulators to issue further guidance, estimates may change during fiscal 2018. The Company will continue to refine such amounts within the measurement period allowed, which will be completed no later than the first quarter of fiscal 2019.

The amount of unrecognized tax benefits, including interest and penalties, is recorded in other long-term liabilities.  If recognized as of January 28, 2018, and January 29, 2017, $34.2 million and $20.6 million, respectively, would impact the Company’s effective tax rate.  The Company includes accrued interest and penalties related to uncertain tax positions in income tax expense, with $0.2 million and $0.1 million of interest and penalties included in expense in the first quarter of fiscal 2018 and 2017, respectively. The amount of accrued interest and penalties at January 28, 2018, and January 29, 2017, associated with unrecognized tax benefits was $7.3 million and $2.7 million, respectively.

The Company is regularly audited by federal and state taxing authorities.  The United States Internal Revenue Service (I.R.S.) concluded its examination of fiscal 2016 in the first quarter of fiscal 2018.  The Company has elected to participate in the Compliance Assurance Process (CAP) for fiscal years 2017 and 2018.  The objective of CAP is to contemporaneously work with the I.R.S. to achieve federal tax compliance and resolve all or most of the issues prior to filing of the tax return.  The Company may elect to continue participating in CAP for future tax years; the Company may withdraw from the program at any time.

The Company is in various stages of audit by several state taxing authorities on a variety of fiscal years, as far back as 2011.  While it is reasonably possible that one or more of these audits may be completed within the next 12 months and that the related unrecognized tax benefits may change, based on the status of the examinations it is not possible to reasonably estimate the effect of any amount of such change to previously recorded uncertain tax positions.

NOTE JSTOCK-BASED COMPENSATION
The Company issues stock options and nonvested shares as part of its stock incentive plans for employees and non-employee directors.  The Company’s policy is to grant options with the exercise price equal to the market price of the common stock on the date of grant.  Options typically vest over four years and expire ten years after the date of the grant.  The Company recognizes stock-based compensation expense ratably over the shorter of the requisite service period or vesting period.  The fair value of stock-based compensation granted to retirement-eligible individuals is expensed at the time of grant.
A reconciliation of the number of options outstanding and exercisable (in thousands) as of January 28, 2018, and changes during the quarter then ended, is as follows:
 Shares 
Weighted-
Average
Exercise Price
 
Weighted-
Average
Remaining
Contractual
Term (Years)
 
Aggregate
Intrinsic Value
Outstanding at October 29, 201730,685
 $18.08
    
Granted1,968
 37.10
    
Exercised2,301
 10.20
    
Forfeited3
 33.31
    
Expired1
 37.76
    
Outstanding at January 28, 201830,348
 $19.91
 5.0 $460,530
Exercisable at January 28, 201824,284
 $16.34
 4.1 $448,268
The weighted-average grant date fair value of stock options granted and the total intrinsic value of options exercised (in thousands) during the first quarter of fiscal years 2018 and 2017, are as follows. 
 Three Months Ended 
 January 28,
2018
 January 29,
2017
 
Weighted-average grant date fair value$6.93
 $6.33
 
Intrinsic value of exercised options$56,302
 $51,942
 
The fair value of each option award is calculated on the date of grant using the Black-Scholes valuation model utilizing the following weighted-average assumptions:
 Three Months Ended 
 January 28,
2018
 January 29,
2017
 
Risk-free interest rate2.3% 2.4% 
Dividend yield2.0% 2.0% 
Stock price volatility19.0% 19.0% 
Expected option life8 years
 8 years
 
As part of the annual valuation process, the Company reassesses the appropriateness of the inputs used in the valuation models.  The Company establishes the risk-free interest rate using stripped U.S. Treasury yields as of the grant date where the remaining term is approximately the expected life of the option.  The dividend yield is set based on the dividend rate approved by the Company’s Board of Directors and the stock price on the grant date.  The expected volatility assumption is set based primarily on historical volatility.  As a reasonableness test, implied volatility from exchange traded options is also examined to validate the volatility range obtained from the historical analysis.  The expected life assumption is set based on an analysis of past exercise behavior by option holders.  In performing the valuations for option grants, the Company has not stratified option holders as exercise behavior has historically been consistent across all executive employee and non-employee director groups.

Nonvested shares vest on the earlier of the day before the Company’s next annual meeting date or one year from grant date.  Subsequent to the end of the quarter, restricted shares were awarded with a restricted period expiring the date of the Company’s next annual stockholders meeting.
A reconciliation of the nonvested shares (in thousands) as of January 28, 2018, and changes during the quarter then ended, is as follows:
 Shares 
Weighted-
Average Grant-
Date Fair Value
Nonvested at October 29, 201758
 $35.62
Granted
 
Vested3
 35.62
Forfeited1
 35.62
Nonvested at January 28, 201854
 $35.62
The weighted-average grant date fair value of nonvested shares granted, the total fair value (in thousands) of nonvested shares granted, and the fair value (in thousands) of shares that have vested during the first quarter of fiscal years 2018 and 2017, are as follows:
 Three Months Ended
 January 28,
2018
 January 29,
2017
Weighted-average grant date fair value$35.62
 $41.01
Fair value of nonvested shares granted
 1,920
Fair value of shares vested133
 1,920
During the first quarter ended January 28, 2018, stock-based compensation expense was $7.3 million compared to $7.2 million for the first quarter ended January 29, 2017.
At January 28, 2018, there was $17.7 million of total unrecognized compensation expense from stock-based compensation arrangements granted under the plans.  This compensation is expected to be recognized over a weighted-average period of approximately 2.6 years.  During the first quarter ended January 28, 2018, cash received from stock option exercises was $23.5 million compared to $7.4 million for the first quarter ended January 29, 2017. 

Shares issued for option exercises and nonvested shares may be either authorized but unissued shares, or shares of treasury stock acquired in the open market or otherwise.

NOTE KFAIR VALUE MEASUREMENTS
Pursuant to the provisions of ASC 820, Fair Value Measurements and Disclosures (ASC 820), the Company measures certain assets and liabilities at fair value or discloses the fair value of certain assets and liabilities recorded at cost in the consolidated financial statements. Fair value is calculated as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). ASC 820 establishes a fair value hierarchy which requires assets and liabilities measured at fair value to be categorized into one of three levels based on the inputs used in the valuation. AssetsThe Company classifies assets and liabilities are classified in their entirety based on the lowest level of input significant to the fair value measurement. The three levels are defined as follows:
 
Level 1:  Observable inputs based on quoted prices (unadjusted) in active markets for identical assets or liabilities.
 
Level 2: Observable inputs, other than those included in Level 1, based on quoted prices for similar assets and liabilities in active markets, or quoted prices for identical assets and liabilities in inactive markets.
 
Level 3:  Unobservable inputs that reflect an entity’s own assumptions about what inputs a market participant would use in pricing the asset or liability based on the best information available in the circumstances.
 


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Table of Contents
The Company’s financial assets and liabilities are measuredcarried at fair value on a recurring basis as of January 28, 2018,July 25, 2021, and October 29, 2017,25, 2020, and their level within the fair value hierarchy, are presented in the tables below.are:
 Fair Value Measurements at July 25, 2021
(in thousands)Total Fair Value
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Assets at Fair Value    
Cash and Cash Equivalents (1)
$291,363 $286,153 $5,210 $— 
Short-term Marketable Securities (2)
18,372 6,722 11,650 — 
Other Trading Securities (3)
200,339 — 200,339 — 
Commodity Derivatives (4)
11,821 7,023 4,798 — 
Total Assets at Fair Value$521,895 $299,898 $221,997 $— 
Liabilities at Fair Value
Deferred Compensation (3)
$69,365 $— $69,365 $— 
Total Liabilities at Fair Value$69,365 $— $69,365 $— 
 Fair Value Measurements at January 28, 2018
(in thousands)Total Fair Value 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets at Fair Value 
  
  
  
Cash and cash equivalents (1)
$385,775
 $385,775
 $
 $
Other trading securities (2)
139,752
 
 139,752
 
Commodity derivatives (3)
2,303
 2,303
 
 
Total Assets at Fair Value$527,830
 $388,078
 $139,752
 $
Liabilities at Fair Value       
Deferred compensation (2)
$64,665
 $
 $64,665
 $
Total Liabilities at Fair Value$64,665
 $
 $64,665
 $

Fair Value Measurements at October 29, 2017 Fair Value Measurements at October 25, 2020
(in thousands)
Total Fair Value

 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
(in thousands)
Total Fair
Value
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Assets at Fair Value 
  
  
  
Assets at Fair Value    
Cash and cash equivalents (1)
$444,122
 $444,122
 $
 $
Other trading securities (2)
128,530
 
 128,530
 
Commodity derivatives (3)
2,821
 2,821
 
 
Cash and Cash Equivalents (1)
Cash and Cash Equivalents (1)
$1,714,309 $1,713,098 $1,211 $— 
Short-term Marketable Securities (2)
Short-term Marketable Securities (2)
17,338 5,728 11,610 — 
Other Trading Securities (3)
Other Trading Securities (3)
173,114 — 173,114 — 
Commodity Derivatives (4)
Commodity Derivatives (4)
10,950 10,950 — — 
Total Assets at Fair Value$575,473
 $446,943
 $128,530
 $
Total Assets at Fair Value$1,915,711 $1,729,776 $185,935 $— 
Liabilities at Fair Value       Liabilities at Fair Value
Deferred compensation (2)
$62,341
 $
 $62,341
 $
Deferred Compensation (3)
Deferred Compensation (3)
$65,154 $— $65,154 $— 
Total Liabilities at Fair Value$62,341
 $
 $62,341
 $
Total Liabilities at Fair Value$65,154 $— $65,154 $— 
 
The following methods and assumptions were used to estimate the fair value of the financial assets and liabilities above:
(1)The Company’s cash equivalents consist primarily of bank deposits, money market funds rated AAA, or other highly liquid investment accounts.
(1)    The Company’s cash equivalents considered Level 1 consist primarily of bank deposits, money market funds rated AAA, or other highly liquid investment accounts, and have a maturity date of three months or less. Cash equivalents considered Level 2 are funds holding agency bonds or securities recognized at amortized cost.
(2)    The Company holds securities as part of a portfolio maintained to generate investment income and to provide cash for operations of the Company, if necessary. The portfolio is managed by a third party who is responsible for daily trading activities, and all assets within the portfolio are highly liquid. The cash, U.S. government securities, and money market funds rated AAA held by the portfolio are classified as Level 1. The current investment portfolio also includes corporate bonds and other asset backed securities for which there is an active, quoted market. Market prices are obtained from a variety of industry providers, large financial institutions, and other third-party sources to calculate a representative daily market value, and therefore, these securities are classified as Level 2.
(3)    The Company maintains a rabbi trust to fund certain supplemental executive retirement plans and deferred compensation plans. The funds held in the rabbi trust relate to the supplemental executive retirement plans and have been invested primarily in fixed income funds managed by a third party. The declared rate on these funds is set based on a formula using the yield of the general account investment portfolio supporting the fund, adjusted for expenses and other charges. The rate is guaranteed for one year at issue and may be reset annually on the policy anniversary, subject to a guaranteed minimum rate. As the value is based on adjusted market rates and the fixed rate is only reset on an annual basis, these funds are classified as Level 2.
Under the deferred compensation plans, participants can defer certain types of compensation and elect to receive a return on the deferred amounts based on the changes in fair value of various investment options. These funds are managed by a

19

third-party insurance policy, the values of which represent their cash surrender value based on the fair value of the underlying investments in the account and include equity securities, money market accounts, bond funds or other portfolios for which there is an active quoted market. Therefore, these policies are classified as Level 2. The Company also offers a fixed rate investment option to participants. The rate earned on these investments is adjusted annually based on a specified percentage of the I.R.S. applicable federal rates. These balances are also classified as Level 2. The funds held in the rabbi trust are included in Other Assets on the Consolidated Statements of Financial Position. The related deferred compensation liabilities are included in Other Long-term Liabilities on the Consolidated Statements of Financial Position with investment options generally mirroring those funds held by the rabbi trust. Therefore, the investments are classified as Level 2. Securities held by the trust are classified as trading securities. Unrealized gains and losses associated with these investments are included in the Company's earnings. During the thirteen and thirty-nine weeks ended July 25, 2021, securities held by the trust generated gains of $1.5 million and $18.6 million, respectively, compared to losses of $9.3 million and $2.6 million for the thirteen and thirty-nine weeks ended July 26, 2020, respectively.
(4)    The Company’s commodity derivatives represent futures contracts and options used in its hedging or other programs to offset price fluctuations associated with purchases of corn and hogs, and to minimize the price risk assumed when forward priced contracts are offered to the Company’s commodity suppliers. The Company’s futures contracts for corn are traded on the Chicago Board of Trade, while futures contracts for lean hogs are traded on the Chicago Mercantile Exchange. These are active markets with quoted prices available, and these contracts are classified as Level 1. Over-the-counter (OTC) derivative instruments are valued using discounted cash flow models, observable and non-observable market inputs, and other mathematical pricing models. The Company’s corn futures option contracts are OTC instruments classified as Level 2 whose value is calculated using the Black-Scholes pricing model, corn future prices quoted from the Chicago Board of Trade, and other adjustments to inputs that are observable in active markets. All derivatives are reviewed for potential credit risk and risk of nonperformance. The net balance for each program is included in Other Current Assets or Accounts Payable, as appropriate, in the Consolidated Statements of Financial Position. As of July 25, 2021, the Company has recognized the obligation to return net cash collateral of $17.1 million from various counterparties (including $29.4 million of realized gains offset by cash owed of $46.5 million). As these investments have a maturity date of three months or less, the carrying value approximates fair value.
(2)A majority of the funds held in the rabbi trust relate to the supplemental executive retirement plans and have been invested in fixed income funds managed by a third party.  The declared rate on these funds is set based on a formula using the yield of the general account investment portfolio supporting the fund, adjusted for expenses and other charges.  The rate is guaranteed for one year at issue, and may be reset annually on the policy anniversary, subject to a guaranteed minimum rate.  As the value is based on adjusted market rates, and the fixed rate is only reset on an annual basis, these funds are classified as Level 2.  The funds held in the rabbi trust are included in other assets on the Consolidated Statements of Financial Position.  The remaining funds held are also managed by a third-party insurance policy, the values of which represent their cash surrender value based on the fair value of the underlying investments in the account and include equity securities, money market accounts, bond funds, or other portfolios for which there is an active quoted market.  Therefore these policies are also classified as Level 2.  The related deferred compensation liabilities are included in other long-term liabilities on the Consolidated Statements of Financial Position with investment options generally mirroring those funds held by the rabbi trust.  Therefore these investment balances are classified as Level 2.  The Company also offers a fixed rate investment option to participants.  The rate earned on these investments is adjusted annually based on a specified percentage of the I.R.S. Applicable Federal Rates.  These balances are classified as Level 2.
(3)The Company’s commodity derivatives represent futures contracts used in its hedging or other programs to offset price fluctuations associated with purchases of corn and hogs, and to minimize the price risk assumed when forward priced contracts are offered to the Company’s commodity suppliers.  The Company’s futures contracts for corn and soybean meal are traded on the Chicago Board of Trade, while futures contracts for lean hogs are traded on the Chicago Mercantile Exchange.  These are active markets with quoted prices available, and these contracts are classified as Level 1.  All derivatives are reviewed for potential credit risk and risk of nonperformance.  The Company nets the derivative assets and liabilities for each of its hedging programs, including cash collateral, when a master netting arrangement exists between the Company and the counterparty to the derivative contract.  The net balance for each program is included in other current assets or accounts payable, as appropriate, in the Consolidated Statements of Financial Position.  As of January 28, 2018, the Company has recognized the right to reclaim net cash collateral of $2.7 million from various counterparties (including $15.3 million of realized gains offset by cash owed of $12.6 million on closed positions).  As

of October 29, 2017,25, 2020, the Company had recognized the right to reclaim net cash collateral of $2.5$12.3 million from various counterparties (including $11.0cash of $25.5 million less $13.2 million of realized gains offset by cash owed of $8.5 million on closed positions)loss).


The Company’s financial assets and liabilities include accounts receivable, accounts payable, and other liabilities, for which carrying value approximates fair value. The Company does not carry its long-term debt at fair value in its Consolidated Statements of Financial Position. Based on borrowing rates available to the Company for long-term financing with similar terms and average maturities, theThe fair value of long-term debt, utilizing discounted cash flows (Level 2), was $638.5$3,367.0 million as of January 28, 2018,July 25, 2021, and $266.5$1,238.8 million as of October 29, 2017.25, 2020.

In accordance with the provisions of ASC 820, the Company measures certain nonfinancial assets and liabilities at fair value, which are recognized or disclosed on a nonrecurring basis (e.g. goodwill, intangible assets, and property, plant and equipment). During the first quartersthirty-nine weeks ended January 28, 2018,July 25, 2021, and January 29, 2017,July 26, 2020, there were no material remeasurements of assets or liabilities at fair value on a nonrecurring basis subsequent to their initial recognition.




20

Table of Contents
NOTE J - LONG-TERM DEBT AND OTHER BORROWING ARRANGEMENTS
Long-term Debt consists of: 
(in thousands) July 25, 2021October 25, 2020
Senior Unsecured Notes, with Interest at 3.050%, Interest Due
   Semi-annually through June 2051 Maturity Date
$600,000 $— 
Senior Unsecured Notes, with Interest at 1.800%, Interest Due
   Semi-annually through June 2030 Maturity Date
1,000,000 1,000,000 
Senior Unsecured Notes, with Interest at 1.700%, Interest Due
   Semi-annually through June 2028 Maturity Date
750,000 — 
Senior Unsecured Notes, with Interest at 0.650%, Interest Due
   Semi-annually through June 2024 Maturity Date
950,000 — 
Senior Unsecured Notes, with Interest at 4.125%, Interest Due
   Semi-annually through April 2021 Maturity Date
— 250,000 
Unamortized Discount on Senior Notes(8,668)(2,630)
Unamortized Debt Issuance Costs(24,329)(7,979)
Finance Lease Liabilities55,071 61,030 
Other Financing Arrangements2,920 3,206 
Total$3,324,994 $1,303,627 
Less: Current Maturities of Long-term Debt8,732 258,691 
Long-term Debt - Less Current Maturities$3,316,262 $1,044,936 

Senior Unsecured Notes: The Company repaid its $250.0 million senior unsecured notes upon maturity in April 2021.

On June 11, 2020, the Company issued senior notes in an aggregate principal amount of $1.0 billion, due June 11, 2030. The notes bear interest at a fixed rate of 1.800% per annum, with interest paid semi-annually in arrears on June 11 and December 11 of each year, commencing December 11, 2020. The notes may be redeemed in whole or in part at any time at the applicable redemption price set forth in the prospectus supplement. If a change of control triggering event occurs, the Company must offer to purchase the notes at a purchase price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, to the date of purchase.

On June 3, 2021, the Company issued $950.0 million aggregate principal amount of its 0.650% notes due 2024 (the "2024 Notes"), $750.0 million aggregate principal amount of its 1.700% notes due 2028 (the "2028 Notes") and $600.0 million aggregate principal amount of its 3.050% notes due 2051 (the "2051 Notes"). Interest will accrue per annum at the stated rates with interest on the notes being paid semi-annually in arrears on June 3 and December 3 of each year, commencing December 3, 2021. Interest rate risk was hedged utilizing interest rate locks on the 2028 Notes and 2051 Notes. The Company lifted the hedges in conjunction with the issuance of these notes. See Note F - Derivatives and Hedging for additional details. The 2024 Notes may be redeemed in whole or in part one year after their issuance without penalty for early partial payments or full redemption. The 2028 Notes and 2051 Notes may be redeemed in whole or in part at any time at the applicable redemption price. If a change of control triggering event occurs, the Company must offer to purchase the notes at a purchase price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, to the date of purchase.

Unsecured Revolving Credit Facility: On May 6, 2021, the Company entered into an unsecured revolving credit agreement with Wells Fargo Bank, National Association as administrative agent, swingline lender and issuing lender, U.S. Bank National Association, JPMorgan Chase Bank, N.A. and BofA Securities, Inc. as syndication agents and the lenders party thereto. In connection with entering the revolving credit agreement, the Company terminated its existing credit facility that was entered into on June 24, 2015. The revolving credit agreement provides for an unsecured revolving credit facility with an aggregate principal commitment amount at any time outstanding of up to $750.0 million with an uncommitted increase option of an additional $375.0 million upon the satisfaction of certain conditions. Extensions of credit under the facility may be made in the form of revolving loans, swingline loans and letters of credit. The lending commitments under the agreement are scheduled to expire on May 6, 2026, at which time the Company will be required to pay in full all obligations then outstanding. As of July 25, 2021, and October 25, 2020, the Company had no outstanding draws from these facilities.

Debt Covenants: The Company is required by certain covenants in its debt agreements to maintain specified levels of financial ratios and financial position. As of July 25, 2021, the Company was in compliance with all of these covenants.



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Table of Contents
NOTE K - INCOME TAXES
 
The Company's tax provision is determined using an estimated annual effective tax rate and adjusted for discrete taxable events that may occur during the quarter. The effects of tax legislation are recognized in the period in which the law is enacted. The deferred tax assets and liabilities are remeasured using enacted tax rates expected to apply to taxable income in the years the related temporary differences are anticipated to reverse.

The Company's effective tax rate for the thirteen and thirty-nine weeks ended July 25, 2021, was 13.3 percent and 18.9 percent compared to 21.6 percent and 19.4 percent for the corresponding periods a year ago. The decrease in the effective tax rate for the thirteen weeks ended July 25, 2021 was primarily driven by an increased volume of stock option exercises and a one-time foreign tax benefit.

The amount of unrecognized tax benefits, including interest and penalties, is recorded in Other Long-term Liabilities. If recognized as of July 25, 2021, and July 26, 2020, $24.5 million and $24.7 million, respectively, would impact the Company’s effective tax rate. The Company includes accrued interest and penalties related to uncertain tax positions in income tax expense. Interest and penalties included in income tax expense was immaterial for the thirteen and thirty-nine weeks ended July 25, 2021, and July 26, 2020. The amount of accrued interest and penalties at July 25, 2021, and July 26, 2020, associated with unrecognized tax benefits was $7.5 million and $6.2 million, respectively.

The Company is regularly audited by federal and state taxing authorities. The United States Internal Revenue Service (I.R.S.) concluded its examination of fiscal 2018 in the fourth quarter of fiscal 2020, and fiscal 2019 in the second quarter of fiscal 2021. The Company has elected to participate in the Compliance Assurance Process (CAP) for fiscal years through 2022. The objective of CAP is to contemporaneously work with the I.R.S. to achieve federal tax compliance and resolve all or most of the issues prior to filing of the tax return. The Company may elect to continue participating in CAP for future tax years; the Company may withdraw from the program at any time.

The Company is in various stages of audit by several state taxing authorities on a variety of fiscal years, dating back to 2015. While it is reasonably possible that one or more of these audits may be completed within the next 12 months and the related unrecognized tax benefits may change, based on the status of the examinations it is not possible to reasonably estimate the effect of any amount of such change to previously recorded uncertain tax positions.


NOTE L - EARNINGS PER SHARE DATA
 
The reported net earnings attributable to the Company were used when computing basic and diluted earnings per share. The following table sets forth the shares used as the denominator for those computations:
 Thirteen Weeks EndedThirty-Nine Weeks Ended
(in thousands)July 25, 2021July 26, 2020July 25, 2021July 26, 2020
Basic Weighted-Average Shares Outstanding541,746 539,108 540,618 537,434 
Dilutive Potential Common Shares6,326 8,041 7,066 8,678 
Diluted Weighted-Average Shares Outstanding548,072 547,149 547,684 546,112 
Antidilutive Potential Common Shares2,350 1,626 2,305 2,178 


 Three Months Ended 
(in thousands)January 28,
2018
 January 29,
2017
 
Basic weighted-average shares outstanding529,453
 528,585
 
Dilutive potential common shares14,029
 11,479
 
Diluted weighted-average shares outstanding543,482
 540,064
 
For the first quarters ended January 28, 2018, and January 29, 2017, a total of 5.4 million and 3.4 million weighted-average stock options, respectively, were not included in the computation of dilutive potential common shares since their inclusion would have had an antidilutive effect on earnings per share.

NOTE MM- SEGMENT REPORTING
 
The Company develops, processes, and distributes a wide array of food products in a variety of markets. The Company reports its results in the following four4 segments: Grocery Products, Refrigerated Foods, Jennie-O Turkey Store, and International & Other. As a result of a business realignment at the beginning of fiscal 2018, the former Specialty Foods segment results are now reported as part of the Grocery Products segment. Periods presented herein have been recast to reflect this change.
 
The Grocery Products segment consists primarily of the processing, marketing, and sale of shelf-stable food products sold predominantly in the retail market, along with the sale of nutritional and private label shelf-stable products to retail, foodservice, and industrial customers. This segment also includes the results from the Company’s MegaMex Foods, LLC joint venture.
 
The Refrigerated Foods segment consists primarily of the processing, marketing, and sale of branded and unbranded pork, beef, chicken, and turkey productspoultry products for retail, foodservice, deli, and fresh productcommercial customers.
 

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Table of Contents
The Jennie-O Turkey Store segment consists primarily of the processing, marketing, and sale of branded and unbranded turkey products for retail, foodservice, and fresh productcommercial customers.
 
The International & Other segment includes Hormel Foods International which manufactures, markets, and sells Company products internationally. This segment also includes the results from the Company’s international joint ventures.ventures and royalty arrangements.
 
Intersegment sales are recorded at prices that approximate cost and are eliminated in the Consolidated Statements of Operations. The Company does not allocate deferred compensation, investment income, interest expense, andor interest income to its segments when measuring performance. The Company also retains various other income and unallocated expenses at corporate.the corporate level. One-time acquisition-related costs and accounting adjustments associated with the purchase of the Planters® snack nuts business were also retained at the corporate level. Equity in earningsEarnings of affiliatesAffiliates is included in segment operating profit; however, earnings attributable to the Company’s noncontrolling interests are excluded. These items are included below as net interestNet Unallocated Expense and investment expense (income), general corporate expense, and noncontrolling interestNoncontrolling Interest when reconciling to earnings before income taxes.Earnings Before Income Taxes.
 
Sales and operating profitssegment profit for each of the Company’s reportable segments and reconciliation to earnings before income taxesEarnings Before Income Taxes are set forth below. The Company is an integrated enterprise, characterized by substantial intersegment cooperation, cost allocations, and sharing of assets. Therefore, the Company does not represent that these segments, if operated independently, would report the operating profit and other financial information shown below.
 


23

Table of Contents
 Thirteen Weeks EndedThirty-Nine Weeks Ended
(in thousands)July 25, 2021July 26, 2020July 25, 2021July 26, 2020
Sales to Unaffiliated Customers  
Grocery Products$698,584 $580,798 $1,904,415 $1,804,674 
Refrigerated Foods1,624,641 1,363,092 4,445,099 3,962,219 
Jennie-O Turkey Store350,897 286,805 1,035,397 959,988 
International & Other189,548 150,762 546,528 461,475 
Total$2,863,670 $2,381,457 $7,931,438 $7,188,357 
Intersegment Sales
Grocery Products$— $— $— $13 
Refrigerated Foods7,636 5,092 19,527 16,143 
Jennie-O Turkey Store30,581 25,361 89,715 82,082 
International & Other— — — 0
Total38,217 30,454 109,242 98,237 
Intersegment Elimination(38,217)(30,454)(109,242)(98,237)
Total$— $— $— $— 
Net Sales
Grocery Products$698,584 $580,798 $1,904,415 $1,804,687 
Refrigerated Foods1,632,277 1,368,185 4,464,626 3,978,362 
Jennie-O Turkey Store381,478 312,166 1,125,112 1,042,070 
International & Other189,548 150,762 546,528 461,475 
Intersegment Elimination(38,217)(30,454)(109,242)(98,237)
Total$2,863,670 $2,381,457 $7,931,438 $7,188,357 
Segment Profit
Grocery Products$80,791 $80,169 $270,963 $276,367 
Refrigerated Foods153,216 152,822 467,740 451,596 
Jennie-O Turkey Store5,874 7,069 45,514 72,968 
International & Other27,915 23,620 84,600 66,735 
Total Segment Profit267,796 263,679 868,817 867,666 
Net Unallocated Expense63,715 4,457 95,166 31,754 
Noncontrolling Interest157 141 290 103 
Earnings Before Income Taxes$204,238 $259,364 $773,940 $836,014 

Revenue has been disaggregated into the categories below to show how sales channels affect the nature, amount, timing, and uncertainty of revenue and cash flows. The amount of total revenues contributed by sales channel are:
 Thirteen Weeks EndedThirty-Nine Weeks Ended
(in thousands)July 25, 2021July 26, 2020July 25, 2021July 26, 2020
U.S. Retail$1,520,365 $1,390,075 $4,365,081 $4,072,156 
U.S. Foodservice851,897 588,130 2,162,481 1,864,050 
U.S. Deli266,506 238,076 777,308 721,748 
International224,902 165,177 626,568 530,402 
Total$2,863,670 $2,381,457 $7,931,438 $7,188,357 

The improvement demonstrated in U.S. Foodservice in the thirteen and thirty-nine weeks ended July 25, 2021, was driven by recovery of the foodservice industry following restrictions imposed by the COVID-19 pandemic in fiscal 2020.


24

Table of Contents
 Three Months Ended 
(in thousands)January 28,
2018
 January 29,
2017
 
Sales to Unaffiliated Customers 
  
 
Grocery Products$613,870
 $610,374
 
Refrigerated Foods1,176,456
 1,123,039
 
Jennie-O Turkey Store390,648
 420,989
 
International & Other150,319
 125,825
 
Total$2,331,293
 $2,280,227
 
     
Intersegment Sales    
Grocery Products$4
 $5
 
Refrigerated Foods2,164
 2,139
 
Jennie-O Turkey Store24,689
 28,256
 
International & Other
 
 
Total26,857
 30,400
 
Intersegment elimination(26,857) (30,400) 
Total$
 $
 
     
Net Sales    
Grocery Products$613,874
 $610,379
 
Refrigerated Foods1,178,620
 1,125,178
 
Jennie-O Turkey Store415,337
 449,245
 
International & Other150,319
 125,825
 
Intersegment elimination(26,857) (30,400) 
Total$2,331,293
 $2,280,227
 
     
Segment Operating Profit    
Grocery Products$99,977
 $92,376
 
Refrigerated Foods142,949
 173,808
 
Jennie-O Turkey Store49,874
 68,180
 
International & Other24,655
 25,463
 
Total segment operating profit317,455
 359,827
 
Net interest and investment expense (income)1,423
 577
 
General corporate expense10,971
 4,621
 
Less: Noncontrolling interest104
 156
 
Earnings Before Income Taxes$305,165
 $354,785
 
The Company’s products primarily consist of meat and other food products. The amount of total revenues contributed by classes of similar products are: 

 Thirteen Weeks EndedThirty-Nine Weeks Ended
(in thousands)July 25, 2021July 26, 2020July 25, 2021July 26, 2020
Perishable$1,610,378 $1,365,741 $4,440,347 $4,016,266 
Shelf-stable670,446 511,732 1,761,883 1,581,789 
Poultry500,121 426,345 1,468,957 1,368,386 
Miscellaneous82,726 77,640 260,251 221,915 
Total$2,863,670 $2,381,457 $7,931,438 $7,188,357 

Perishable includes fresh meats, frozen items, refrigerated meal solutions, sausages, hams, guacamole, and bacon (excluding Jennie-O Turkey Store products). Shelf-stable includes canned luncheon meats, nut butters, chilies, shelf-stable microwaveable meals, hash, stews, salsas, tortilla chips, snack nuts, and other items that do not require refrigeration. The Poultry category is composed primarily of Jennie-O Turkey Store products. The Miscellaneous category primarily consists of nutritional food products and supplements, dessert and drink mixes, and industrial gelatin products.

The asset values below reflect the preliminary purchase allocations associated with the acquisition of the Planters® snack nuts business.

(in thousands)July 25, 2021October 25, 2020
Assets
Grocery Products$4,590,540 $1,713,883 
Refrigerated Foods4,758,687 4,188,250 
Jennie-O Turkey Store1,087,773 1,111,318 
International & Other797,181 721,729 
Corporate1,098,001 2,173,101 
Total$12,332,182 $9,908,282 
Additions to Property, Plant, & Equipment
Grocery Products$12,468 $34,409 
Refrigerated Foods93,020 249,441 
Jennie-O Turkey Store10,723 42,042 
International & Other6,776 3,737 
Corporate16,375 37,872 
Total$139,361 $367,501 



25

Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
CRITICAL ACCOUNTING POLICIES
There have been no material changes in the Company’s Critical Accounting Policies, as disclosed in its Annual Report on Form 10-K for the fiscal year ended October 29, 2017.

RESULTS OF OPERATIONS
 
Overview
 
The Company is a multinationalglobal manufacturer and marketer of consumer-brandedbranded food and meat products. It operates in four reportable segments as described in Note M - Segment Reporting in the Notes to Consolidated Financial Statements in this Quarterly Report on Form 10-Q.
 
The Company reported net earnings per diluted share of $0.56$0.32 for the firstthird quarter of fiscal 2018,2021, down 14% compared to $0.44 per diluted share in the first quarter of fiscal 2017.last year. Significant factors impacting the quarter were:
 
The Company delivered record net earnings asNet sales for the impactthird quarter were the highest in the Company's history, with growth from every segment and all four channels. Net sales benefited from the inclusion of tax reform andthe Planters® snack nuts business.
Segment profit for the quarter increased 2 percent, due primarily from the contribution of the Planters® snack nuts business, strong Grocery Products earnings growth more than offset higher hog costs, continued challenges at Jennie-O Turkey Store (JOTS), and higher-than-expected freight costs.
from the Company's foodservice business in Refrigerated Foods, segment profit declinedand growth from the International & Other segment. All four business segments absorbed higher input costs due to higher hog costs, one-time transaction costsinflation on raw materials, freight, labor, and supplies.
Earnings before income taxes for the Columbusquarter decreased 21 percent compared to the prior year. One-time acquisition costs and accounting adjustments related to the divestitureacquisition of the Farmer JohnPlanters® snack nuts business and increased freight expenses.were approximately $40 million for the quarter.
JOTS segment profit decreased as a result of lower profits from whole bird and commodity sales and increased freight expenses. Lower selling, general, and administrative expenses offset a portion of the earnings decline.
Grocery Products segment profit increased due to strong earnings growth from the Company's MegaMex Foods, LLC (MegaMex) joint venture; lower selling, general and administrative expenses; and improved earnings from the Skippy® and Justin's® nut butter brands.
International & Other segment profit decreasedincreased, driven by higher sales and improved branded and fresh pork export margins.
Grocery Products segment profit increased due to strong results from the MegaMex joint venture and the contribution from the Planters® snack nuts business. These benefits were offset by higher input costs, and higher manufacturing and logistics costs.
Refrigerated Foods segment profit was flat, as higher earnings from the foodservice business, numerous pricing actions, and increased commodity profits fully offset significantly higher raw material costs and increased freight expenses.
Jennie-O Turkey Store segment profit was lower due to the impact of goodssignificantly higher feed costs and an increase in freight expenses.
The Company acquired the Planters®snack nuts business for exports were partially offset by$3.4 billion in cash during the inclusionquarter. The acquisition included the Planters®, NUT-rition®, Planters®Cheez Balls and Corn Nuts® brands. The transaction closed on June 7, 2021.

Response to COVID-19

The Company is committed to making investments necessary to keep its team members safe. In the third quarter of fiscal 2021, the Company absorbed approximately $2 million ($21 million for the first nine months of fiscal 2021) in direct incremental supply chain costs primarily related to enhanced safety measures in its production facilities. The Company estimates most of the Ceratti businessincremental supply chain costs are temporary and improving profitability in China due to lower raw material costs.will eventually decline as the pandemic subsides.

Consolidated Results
 
Volume, Net Sales, Earnings, and Diluted Earnings per Share
 Thirteen Weeks EndedThirty-Nine Weeks Ended
(in thousands, except per share amounts)July 25, 2021July 26, 2020
%
Change
July 25, 2021July 26, 2020
%
Change
Volume (lbs.)1,180,634 1,165,214 1.3 3,553,288 3,585,273 (0.9)
Organic Volume (1)
1,143,725 1,165,214 (1.8)3,510,214 3,585,273 (2.1)
Net Sales$2,863,670 $2,381,457 20.2 $7,931,438 $7,188,357 10.3 
Organic Net Sales (1)
2,722,330 2,381,457 14.3 7,755,075 7,188,357 7.9 
Earnings Before Income Taxes204,238 259,364 (21.3)773,940 836,014 (7.4)
Net Earnings Attributable to Hormel Foods Corporation176,917 203,119 (12.9)627,101 673,726 (6.9)
Diluted Earnings per Share0.32 0.37 (13.5)1.15 1.23 (6.5)
Adjusted Diluted Earnings Per Share (1)
0.39 0.37 5.4 1.21 1.23 (1.6)

26

Table of Contents
 Three Months 
(in thousands, except per share amounts)January 28, 2018 January 29, 2017 
%
Change
 
Net earnings$303,107
 $235,147
 28.9 
Diluted earnings per share0.56
 0.44
 27.3 
Net Sales
 Three Months Ended
(in thousands)January 28, 2018 January 29, 2017 
%
Change
Volume (lbs.)1,190,592
 1,244,909
 (4.4)
Organic volume(1) 
1,146,099
 1,164,455
 (1.6)
Net sales$2,331,293
 $2,280,227
 2.2
Organic net sales(1) 
2,198,421
 2,179,996
 0.8
(1)The non-GAAP adjusted financial measurements of organic net sales, and organic volume and adjusted diluted earnings per share are presented to provide investors with additional information to facilitate the comparison of past and present operations. Organic net sales and organic volume are defined as net sales and volume, excluding the impact of acquisitions and divestitures. Organic net sales and organic volume exclude the impacts of the acquisition of the Planters® snack nuts business (June 2021) in the Grocery Products, Refrigerated Foods and International & Other segments and the Sadler's Smokehouse acquisition (March 2020) in the Refrigerated Foods segment. Adjusted diluted earnings per share excludes the impact of the acquisition-related expenses and accounting adjustments related to the acquisition of the Planters® snack nuts business. The companytax impact was calculated using the effective tax rate for the quarter the expenses and accounting adjustments were incurred.

The Company believes these non-GAAP financial measurements provide useful information to investors because they are the measurements used to evaluate performance on a comparable year-over-year basis. Non-GAAP measurements are not intended to be a substitute for U.S. GAAP measurements in analyzing financial performance. These non-GAAP measurements are not in accordance with generally accepted accounting principles and may be different from non-GAAP measures used by other companies.


Organic net sales and organic volume are defined as net sales and volume excluding the impact of acquisitions and divestitures. Organic net sales and organic volume exclude the impacts of the acquisition of Columbus Craft Meats (November 2017), the acquisition of Fontanini Italian Meats and Sausages (August 2017), and the divestiture of Farmer John (January 2017) in Refrigerated Foods and the acquisition of Ceratti (August 2017) in International. The tables below show the calculations to reconcile from the non-GAAP adjustedGAAP measures to the GAAP measuresnon-GAAP adjusted measures.


27

Table of Contents


RECONCILIATION OF NON-GAAP MEASURES
In thousands, except per share amounts
ADJUSTED DILUTED EARNINGS PER SHARE (NON-GAAP)
Thirteen Weeks Ended
July 25, 2021July 26, 2020
Reported
GAAP
Acquisition Costs and AdjustmentsNon-GAAPReported
GAAP
Non-GAAP
% Change
Net Sales$2,863,670 $— $2,863,670 $2,381,457 20.2 
Cost of Products Sold2,440,322 (12,900)2,427,422 1,959,032 23.9 
Gross Profit423,348 12,900 436,248 422,426 3.3 
Selling, General and Administrative226,284 (27,462)198,822 181,085 9.8 
Equity in Earnings of Affiliates10,420 — 10,420 8,235 26.5 
Operating Income207,484 40,362 247,846 249,576 (0.7)
Interest and Investment Income (Expense)8,457 — 8,457 15,513 (45.5)
Interest Expense(11,703)— (11,703)(5,724)104.5 
Earnings Before Income Taxes204,238 40,362 244,600 259,364 (5.7)
Provision for Income Taxes27,164 5,368 32,532 56,103 (42.0)
Net Earnings177,074 34,994 212,068 203,260 4.3 
Less: Net Earnings Attributable to Noncontrolling Interest157 — 157 141 11.3 
Net Earnings Attributable to Hormel Foods Corporation$176,917 $34,994 $211,911 $203,119 4.3 
Diluted Net Earnings Per Share$0.32 $0.06 $0.39 $0.37 5.4 
Thirty-Nine Weeks Ended
July 25, 2021July 26, 2020
Reported
GAAP
Acquisition Costs and AdjustmentsNon-GAAPReported
GAAP
Non-GAAP
% Change
Net Sales$7,931,438 $— $7,931,438 $7,188,357 10.3 
Cost of Products Sold6,581,613 (12,900)6,568,713 5,820,158 12.9 
Gross Profit1,349,825 12,900 1,362,725 1,368,198 (0.4)
Selling, General and Administrative622,630 (30,303)592,327 570,518 3.8 
Equity in Earnings of Affiliates37,722 — 37,722 25,843 46.0 
Operating Income764,917 43,203 808,120 823,523 (1.9)
Interest and Investment Income (Expense)36,740 — 36,740 25,289 45.3 
Interest Expense(27,718)— (27,718)(12,798)116.6 
Earnings Before Income Taxes773,940 43,203 817,143 836,014 (2.3)
Provision for Income Taxes146,549 5,975 152,524 162,186 (6.0)
Net Earnings627,390 37,228 664,618 673,828 (1.4)
Less: Net Earnings Attributable to Noncontrolling Interest290 — 290 103 181.6 
Net Earnings Attributable to Hormel Foods Corporation$627,101 $37,228 $664,329 $673,726 (1.4)
Diluted Net Earnings Per Share$1.15 $0.06 $1.21 $1.23 (1.6)

28

Table of Contents
ORGANIC VOLUME AND NET SALES (NON-GAAP)
Thirteen Weeks Ended
July 25, 2021July 26, 2020
(in thousands)Reported
GAAP
AcquisitionsOrganic
(Non-GAAP)
Reported
GAAP
Organic
% Change
Volume (lbs.)
Grocery Products319,216 (30,124)289,092 307,198 (5.9)
Refrigerated Foods591,143 (5,784)585,359 605,546 (3.3)
Jennie-O Turkey Store187,220 — 187,220 171,313 9.3 
International & Other83,055 (1,001)82,054 81,156 1.1 
   Total Volume1,180,634 (36,909)1,143,725 1,165,214 (1.8)
Net Sales
Grocery Products$698,584 $(117,681)$580,903 $580,798 — 
Refrigerated Foods1,624,641 (21,002)1,603,639 1,363,092 17.6 
Jennie-O Turkey Store350,897 — 350,897 286,805 22.3 
International & Other189,548 (2,657)186,891 150,762 24.0 
   Total Net Sales$2,863,670 $(141,340)$2,722,330 $2,381,457 14.3 
Thirty-Nine Weeks Ended
July 25, 2021July 26, 2020
(in thousands)Reported
GAAP
AcquisitionsOrganic
(Non-GAAP)
Reported
GAAP
Organic
% Change
Volume (lbs.)
Grocery Products937,345 (30,124)907,221 963,819 (5.9)
Refrigerated Foods1,779,729 (11,950)1,767,779 1,787,698 (1.1)
Jennie-O Turkey Store583,413 — 583,413 577,990 0.9 
International & Other252,801 (1,001)251,800 255,766 (1.6)
Total Volume3,553,288 (43,075)3,510,214 3,585,273 (2.1)
Net Sales
Grocery Products$1,904,415 $(117,681)$1,786,734 $1,804,674 (1.0)
Refrigerated Foods4,445,099 (56,026)4,389,073 3,962,219 10.8 
Jennie-O Turkey Store1,035,397 — 1,035,397 959,988 7.9 
International & Other546,528 (2,657)543,871 461,475 17.9 
Total Net Sales$7,931,438 $(176,364)$7,755,075 $7,188,357 7.9 

Net Sales

The Company delivered record quarterly net sales, with growth from all four segments and across all four channels. Strong results from the Company's foodservice businesses in Refrigerated Foods and Jennie-O Turkey Store, the firstinclusion of the Planters® snack nuts business, and increased commodity sales in Jennie-O Turkey Store were the primary drivers of record sales for the quarter. All segments benefited from higher net pricing during the quarter of fiscal 2018 and fiscal 2017.due to strategic actions taken to offset inflationary pressures.


1st Quarter              
Volume (lbs.) FY 2018 FY 2017  
(in thousands) 
Reported
(GAAP)
 Acquisitions 
Organic
(Non-GAAP)
 
Reported
(GAAP)
 Divestitures 
Organic
(Non-GAAP)
 
Organic
% Change
Grocery Products 334,217
 

 334,217
 338,792
 

 338,792
 (1.4)
Refrigerated Foods 562,495
 (31,660) 530,835
 614,425
 (80,454) 533,971
 (0.6)
Jennie-O Turkey Store 208,431
 

 208,431
 216,643
 

 216,643
 (3.8)
International & Other 85,449
 (12,833) 72,616
 75,049
 

 75,049
 (3.2)
Total Volume 1,190,592
 (44,493) 1,146,099
 1,244,909
 (80,454) 1,164,455
 (1.6)
               
               
Net Sales FY 2018 FY 2017  
(in thousands) 
Reported
(GAAP)
 Acquisitions 
Organic
(Non-GAAP)
 
Reported
(GAAP)
 Divestitures 
Organic
(Non-GAAP)
 
Organic
% Change
Grocery Products $613,870
 

 $613,870
 $610,374
 

 $610,374
 0.6
Refrigerated Foods 1,176,456
 $(111,017) 1,065,439
 1,123,039
 $(100,231) 1,022,808
 4.2
Jennie-O Turkey Store 390,648
 

 390,648
 420,989
 

 420,989
 (7.2)
International & Other 150,319
 (21,855) 128,464
 125,825
 

 125,825
 2.1
Total Net Sales $2,331,293
 $(132,872) $2,198,421
 $2,280,227
 $(100,231) $2,179,996
 0.8

The increase inCompany delivered record net sales for the first quarternine months of fiscal 2018 was2021. The increases are due primarily related to strong growth from the retail, deli and foodservice businesses within Refrigerated Foods, the inclusion of the Columbus, Fontanini,Planters® snack nuts business, continued strength within International & Other, and Ceratti acquisitions. Organichigher commodity sales growth was led by retail salesin Jennie-O Turkey Store.


29

Table of Hormel®Black Label® bacon, Wholly Guacamole® dips and Muscle Milk® protein beverages. Foodservice sales of Hormel®Bacon 1TM fully cooked bacon, Hormel® pizza toppings, and Hormel®Fire BraisedTM meats also delivered gains. Partially offsetting these gains were sales declines from the divestiture of Farmer John, whole bird sales at JOTS, and the contract manufacturing business in Grocery Products.Contents

Cost of Products Sold
 Thirteen Weeks EndedThirty-Nine Weeks Ended
(in thousands)July 25, 2021July 26, 2020
%
Change
July 25, 2021July 26, 2020
%
Change
Cost of Products Sold$2,440,322 $1,959,032 24.6 $6,581,613 $5,820,158 13.1 
 Three Months Ended 
(in thousands)January 28, 2018 January 29, 2017 
%
Change
 
Cost of products sold$1,829,114
 $1,727,947
 5.9 

Cost of products sold was up for the third quarter and first quarternine months of fiscal 2018 compared2021 increased due to inflationary pressures stemming from raw materials, packaging, freight, labor and many other inputs. The inclusion of the Planters® snack nuts business during the third quarter also was a driver of higher costs.

Direct incremental supply chain costs related to the prior year asCOVID-19 pandemic for the Company facedthird quarter and first nine months of fiscal 2021 were approximately $2 million and $21 million, respectively. This compares to approximately $40 million and $60 million of higher inputoperational costs for hogs, pork bellies,related to the COVID-19 pandemic incurred in the third quarter and beef and pork trim. Freight expenses negatively impacted the first quarter, especially in the Refrigerated Foods and JOTS segments. nine months of fiscal 2020.

The Company is workingexpects to find sustainable, mutually beneficial solutions with its customers to mitigate the impactoperate in a high cost environment for the remainder of the year.

Gross Profit
 Three Months Ended
(in thousands)January 28, 2018 January 29, 2017 
%
Change
Gross profit$502,179
 $552,280
 (9.1)
Percentage of net sales21.5% 24.2%  
 Thirteen Weeks EndedThirty-Nine Weeks Ended
(in thousands)July 25, 2021July 26, 2020
%
Change
July 25, 2021July 26, 2020
%
Change
Gross Profit$423,348 $422,426 0.2 $1,349,825 $1,368,198 (1.3)
Percentage of Net Sales14.8 %17.7 % 17.0 %19.0 % 
 
Gross profit as a percentage of net sales for the third quarter and first nine months of 2021 declined, driven primarily by broad-based inflationary pressures and a lag in mitigating pricing actions. Gross profit as a percentage of net sales declined for all four business segments during the third quarter and first nine months of fiscal 2021.
Looking ahead to the Company's segments declined in the firstfourth quarter of fiscal 20182021, the Company expects gross profit as a percentage of net sales to improve sequentially compared to the prior year. Input costs were higherthird quarter as additional pricing actions go into effect. An acceleration in Grocery Products, Refrigerated Foods, and International & Other and freight costs were up across all segments. Turkey markets were lower for JOTS. Pricing actions taken in prior quarters offset ainput cost inflation poses the largest risk to this assumption.

portion of the profitability declines. Looking ahead, higher hog costs, depressed turkey commodity markets, and higher freight expense will continue to be near-term challenges to profitability. Incremental sales and profits from the Columbus, Fontanini, and Ceratti acquisitions will offset part of the declines.


Selling, General and Administrative (SG&A)
Three Months Ended Thirteen Weeks EndedThirty-Nine Weeks Ended
(in thousands)January 28, 2018 January 29, 2017 
%
Change
(in thousands)July 25, 2021July 26, 2020
%
Change
July 25, 2021July 26, 2020
%
Change
SG&A$219,122
 $210,217
 4.2SG&A$226,284 $181,085 25.0 $622,630 $570,518 9.1 
Percentage of net sales9.4% 9.2%  
Percentage of Net SalesPercentage of Net Sales7.9 %7.6 % 7.9 %7.9 % 
 
For the third quarter and first quarternine months of fiscal 2018,2021, SG&A expenses increased due to one-time acquisition-related costs associated withrelated to the acquisition of ColumbusPlanters® snack nuts business and higher employee-related expenses. Marketing and advertising expenses were down

Advertising spend in the firstthird quarter but are expectedwas $31 million, compared to be up over 20 percent$24 million last year. Advertising investments for the first nine months of fiscal 2021 were up 1 percent compared to last year. The Company plans to continue to invest in its leading brands.

Equity in Earnings of Affiliates
Three Months Ended Thirteen Weeks EndedThirty-Nine Weeks Ended
(in thousands)January 28, 2018 January 29, 2017 
%
Change
(in thousands)July 25, 2021July 26, 2020
%
Change
July 25, 2021July 26, 2020
%
Change
Equity in earnings of affiliates$23,531
 $13,299
 76.9
Equity in Earnings of AffiliatesEquity in Earnings of Affiliates$10,420 $8,235 26.5 $37,722 $25,843 45.9 
 
ResultsEquity in earnings of affiliates for the third quarter and first quarternine months increased significantly due to continued strength at MegaMex and from the Company's joint venture in the Philippines.


30

Table of fiscal 2018 were positively impacted by strong MegaMex results and tax reform.Contents

Effective Tax Rate
 Thirteen Weeks EndedThirty-Nine Weeks Ended
 July 25, 2021July 26, 2020July 25, 2021July 26, 2020
Effective Tax Rate13.3 %21.6 %18.9 %19.4 %
 Three Months Ended
 January 28, 2018 January 29, 2017
Effective tax rate0.6% 33.7%


The effective tax rate for the first quarter of fiscal 2018 reflects impacts of the Tax Cuts and Jobs Act signed into law on December 22, 2017. These impacts include a non-cash tax benefit for deferred tax liability revaluation of $68 million and a $5 million charge for deemed repatriation of the Company’s previously undistributed foreign earnings. These one-time tax events and the reduction in the federal statutory tax rate were the key drivers to the Company’s lower effective tax rate in the firstcurrent quarter was driven by a higher volume of fiscal 2018.stock option exercises and a one-time foreign tax benefit. The Company expects a full-yearthe effective tax rate in fiscal 2021 to be between 17.519.0 and 20.5 percent for fiscal 2018.percent. For further descriptioninformation, refer to Note IK - Income Taxes.


Segment Results
 
Net sales and operating profitssegment profit for each of the Company’s reportable segments are set forth below. The Company is an integrated enterprise, characterized by substantial intersegment cooperation, cost allocations and sharing of assets. Therefore, the Company does not represent that these segments, if operated independently, would report the operating profit and other financial information shown below.  Additional segment financial information can be found in Note M of the Notes to Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

Three Months Ended Thirteen Weeks EndedThirty-Nine Weeks Ended
(in thousands)January 28, 2018 January 29, 2017 
%
Change
(in thousands)July 25, 2021July 26, 2020% ChangeJuly 25, 2021July 26, 2020% Change
Net Sales 
  
  
Net Sales      
Grocery Products$613,870
 $610,374
 0.6
Grocery Products$698,584 $580,798 20.3 $1,904,415 $1,804,674 5.5 
Refrigerated Foods1,176,456
 1,123,039
 4.8
Refrigerated Foods1,624,641 1,363,092 19.2 4,445,099 3,962,219 12.2 
Jennie-O Turkey Store390,648
 420,989
 (7.2)Jennie-O Turkey Store350,897 286,805 22.3 1,035,397 959,988 7.9 
International & Other150,319
 125,825
 19.5
International & Other189,548 150,762 25.7 546,528 461,475 18.4 
Total$2,331,293
 $2,280,227
 2.2
Total$2,863,670 $2,381,457 20.2 $7,931,438 $7,188,357 10.3 
     
Segment Operating Profit 
  
  
Segment ProfitSegment Profit      
Grocery Products$99,977
 $92,376
 8.2
Grocery Products$80,791 $80,169 0.8 $270,963 $276,367 (2.0)
Refrigerated Foods142,949
 173,808
 (17.8)Refrigerated Foods153,216 152,822 0.3 467,740 451,596 3.6 
Jennie-O Turkey Store49,874
 68,180
 (26.8)Jennie-O Turkey Store5,874 7,069 (16.9)45,514 72,968 (37.6)
International & Other24,655
 25,463
 (3.2)International & Other27,915 23,620 18.2 84,600 66,735 26.8 
Total segment operating profit317,455
 359,827
 (11.8)
Net interest and investment expense1,423
 577
 146.6
General corporate expense10,971
 4,621
 137.4
Less: Noncontrolling interest104
 156
 (33.3)
Total Segment ProfitTotal Segment Profit267,796 263,679 1.6 868,817 867,666 0.1 
Net Unallocated ExpenseNet Unallocated Expense63,715 4,457 1,329.6 95,166 31,754 199.7 
Noncontrolling InterestNoncontrolling Interest157 141 11.1 290 103 182.2 
Earnings Before Income TaxesEarnings Before Income Taxes$204,238 $259,364 (21.3)$773,940 $836,014 (7.4)
     
Earnings before income taxes$305,165
 $354,785
 (14.0)
 
Grocery Products
 Thirteen Weeks EndedThirty-Nine Weeks Ended
(in thousands)July 25, 2021July 26, 2020
%
Change
July 25, 2021July 26, 2020
%
Change
Volume (lbs.)319,216 307,198 3.9 937,345 963,819 (2.7)
Net Sales$698,584 $580,798 20.3 $1,904,415 $1,804,674 5.5 
Segment Profit80,791 80,169 0.8 270,963 276,367 (2.0)
Results for the Grocery Products segment compared to the prior year are as follows:
 Three Months Ended
(in thousands)January 28, 2018 January 29, 2017 
%
Change
Volume (lbs.)334,217
 338,792
 (1.4)
Net sales$613,870
 $610,374
 0.6
Segment profit99,977
 92,376
 8.2

NetVolume and net sales for the firstthird quarter increased due to the inclusion of fiscal 2018 increased on strongthe Planters®snack nuts business. On an organic basis, sales growth from brands such as SPAM®, Hormel® Compleats®and Wholly® overcame the impact of Wholly Guacamole® dips, Muscle Milk® protein products, Hormel®Compleats® microwave meals, Herdez® salsas, and the SPAM® family of products. These increases more than offset declines from thelower contract manufacturing business.

sales. For the first quarternine months of fiscal 2018,2021, net sales increased due to the contribution from the Planters®snack nuts business, offsetting the decline in many other product lines attributable to the extremely high levels of demand last year.

For the third quarter, segment profit increased due to strong earnings growthresults from the Wholly Guacamole®MegaMex joint venture and Herdezthe contribution from the Planters®brandssnack nuts business. These benefits were mostly offset by higher input costs, and a one-time tax gainhigher manufacturing and logistics

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costs. Segment profit declined for the first nine months of fiscal 2021 as the benefit of the Planters®snack nuts business in MegaMexthe third quarter was offset by lower organic net sales and higher input costs.

Specific to the third quarter, volume, net sales and segment profit were negatively impacted by production constraints due to labor shortages.

Grocery Products expects year-over-year volume, sales, and segment profit growth in the fourth quarter due to the impact from the Planters®snack nuts business and continued strength for the MegaMex joint venture. Risks to profitability include higher pork trim prices and labor shortages on key product lines.
Refrigerated Foods
 Thirteen Weeks EndedThirty-Nine Weeks Ended

(in thousands)
July 25, 2021July 26, 2020
%
Change
July 25, 2021July 26, 2020
%
Change
Volume (lbs.)591,143 605,546 (2.4)1,779,729 1,787,698 (0.4)
Net Sales$1,624,641 $1,363,092 19.2 $4,445,099 $3,962,219 12.2 
Segment Profit153,216 152,822 0.3 467,740 451,596 3.6 

Net sales for the third quarter increased due to strong results from the foodservice, retail and deli businesses, and elevated pricing across most categories. The recovery in foodservice continued to accelerate, with net sales exceeding both last year and pre-pandemic levels in almost every category. Retail and deli sales increased due primarily to growth from Hormel® Black Label® bacon, Columbus® grab-and-go items, Hormel® refrigerated entrees, and Hormel® Gatherings® party trays. The decline in volume was due to lower shipments of tax reform. Lower SG&A expensescommodity pork. For the first nine months of fiscal 2021, net sales increased due to strong growth from the retail, deli, and improved salesfoodservice businesses within Refrigerated Foods.

For the third quarter and first nine months of Skippy®fiscal 2021, higher earnings from the foodservice business, numerous pricing actions, and Justin's® nut butter products aided profits.
The Company anticipates sales growth in the second quarter, with margins negatively impacted by promotional activity, increased freight, andcommodity profits fully offset significantly higher raw material costs.
Refrigerated Foods
Results for the Refrigerated Foods segment compared to the prior year are as follows:
 Three Months Ended

(in thousands)
January 28, 2018 January 29, 2017 
%
Change
Volume (lbs.)562,495
 614,425
 (8.5)
Net sales$1,176,456
 $1,123,039
 4.8
Segment profit142,949
 173,808
 (17.8)

The divestiture of Farmer John during the first quarter of fiscal year 2017 was the primary contributor to lower sales volume in fiscal 2018. The increase in net sales was driven by the inclusion of Columbus and Fontanini sales, which more than offset the sales decline from the Farmer John divestiture. Additional sales increases are attributable to foodservice sales of Hormel®Bacon 1TM fully cooked bacon, Hormel® pizza toppings, and Hormel®Fire BraisedTM meats and retail sales of Hormel®Black Label® bacon and Applegate® natural and organic products.
Refrigerated Foods segment profit for the first quarter declined due to higher hog costs one-time transaction costs for the Columbus acquisition, the divestiture of the Farmer John business, and increased freight expenses.

Looking forward,Specific to the Company expectsthird quarter, volume, net sales growthand segment profit were negatively impacted by production constraints due to labor shortages.

Led by the continued recovery in the second quarter from the value-added businesses and the incremental impact of Columbus and Fontanini. Higher hog costs and increased freight expenses are expected to continue near-term, though the segment still expects to show segment profit growth due tofoodservice business, Refrigerated Foods is expecting improved results in the value-added businesses.fourth quarter in spite of higher input and logistics costs and the impact of labor shortages.


Jennie-O Turkey Store
 Thirteen Weeks EndedThirty-Nine Weeks Ended
(in thousands)July 25, 2021July 26, 2020
%
Change
July 25, 2021July 26, 2020
%
Change
Volume (lbs.)187,220 171,313 9.3 583,413 577,990 0.9 
Net Sales$350,897 $286,805 22.3 $1,035,397 $959,988 7.9 
Segment Profit5,874 7,069 (16.9)45,514 72,968 (37.6)
Results for
Volume and net sales increased in the JOTS segment comparedthird quarter of fiscal 2021 due to theimproved foodservice, whole bird, and commodity shipments. Sales of Jennie-O® lean ground turkey increased due to pricing actions implemented in prior year are as follows:
 Three Months Ended
(in thousands)January 28, 2018 January 29, 2017 
%
Change
Volume (lbs.)208,431
 216,643
 (3.8)
Net sales$390,648
 $420,989
 (7.2)
Segment profit49,874
 68,180
 (26.8)
quarters and remain meaningfully above pre-pandemic levels. For the first quarter of fiscal 2018,nine months, higher shipments and better pricing on commodity items, including whole birds, drove higher volume and sales declines were due primarily to lower harvest volumes and turkey commodity prices as a result of continued oversupply of turkeys infor the industry and excess meat in cold storage. Sales declines of whole birds were partially offset by increased retail sales, led by Jennie-O® lean ground turkey and Jennie-O®Oven Ready® products.segment.


Segment profit for the third quarter and first quarternine months of fiscal 2018 decreased as a result2021 was lower due primarily to the impact of lower profitssignificantly higher feed costs.

Jennie-O Turkey Store expects improved results in the fourth quarter from whole birdboth the value-added and commodity sales, and increased freight expenses. Lower selling, general, and administrative expenses offset a portion of the earnings decline.
Looking forward, the challenging environment for commodity turkey prices and higher freight costsportfolios, which are expected to continue impacting year-over-year business performance.benefit from higher pricing, to be offset by the impact from dramatically higher grain costs.


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International & Other
 Thirteen Weeks EndedThirty-Nine Weeks Ended
(in thousands)July 25, 2021July 26, 2020
%
Change
July 25, 2021July 26, 2020
%
Change
Volume (lbs.)83,055 81,156 2.3 252,801 255,766 (1.2)
Net Sales$189,548 $150,762 25.7 $546,528 $461,475 18.4 
Segment Profit27,915 23,620 18.2 84,600 66,735 26.8 
Results
Strong sales growth from SPAM®luncheon meat, a recovery in foodservice exports, continued strong results in China, and improved performance in Brazil led to record net sales during the third quarter. For the first nine months of fiscal 2021, net sales increased, driven by continued strong results in China and higher demand for branded exports.

In addition to higher sales, the improvement in segment profit for the International & Other segment compared to the prior year are as follows:
 Three Months Ended
(in thousands)January 28, 2018 January 29, 2017 
%
Change
Volume (lbs.)85,449
 75,049
 13.9
Net sales$150,319
 $125,825
 19.5
Segment profit24,655
 25,463
 (3.2)
Volumethird quarter was driven by higher branded and net sales forfresh pork export margins. For the first quarternine months of fiscal 2018 increased due to2021, segment profit improved significantly, driven by gains from exports, higher income from the addition ofCompany's partners in the Ceratti business in Brazil, increased export sales,Philippines, South Korea and Europe, and strong results in China.

Segment profit declines for the first quarter of fiscal 2018 were driven primarily by higher costs of goods forInternational & Other expects strength from exports partially offset by the inclusion of the Ceratti business. Profitability in Chinato continue, leading to improved dueresults. International shipping interruptions pose a risk to lower raw material costs.
The Company anticipates continued volume,export sales and earnings growth in the second quarter driven by improving results in China and the addition of the Ceratti business.profit growth.




Unallocated Income and Expenses
 
The Company does not allocate deferred compensation, investment income, interest expense or interest income to its segments when measuring performance. The Company also retains various other income and unallocated expenses at corporate.the corporate level. Equity in earnings of affiliates is included in segment operating profit; however, earnings attributable to the Company’s noncontrolling interests are excluded. These items are included in the segment table for the purpose of reconciling segment results to earnings before income taxes.
 Three Months Ended
(in thousands)January 28, 2018 January 29,
2017
Net interest and investment expense$1,423
 $577
Interest expense4,729
 3,026
General corporate expense10,971
 4,621
Noncontrolling interest earnings104
 156
 Thirteen Weeks EndedThirty-Nine Weeks Ended
(in thousands)July 25, 2021July 26, 2020July 25, 2021July 26, 2020
Net Unallocated Expense$63,715 $4,457 $95,166 $31,754 
Noncontrolling Interest157 141 290 103 
 
General corporateFor the third quarter and first nine months of fiscal 2021, net unallocated expense increased for the first quarter due to higher employee-related expensesincluded $40 million and favorable$43 million, respectively, of one-time acquisition costs and accounting adjustments in fiscal 2017 related to both a lowerthe acquisition of cost or market inventory reservethe Planters® snack nuts business. Higher interest expense and finalizingemployee related expenses also contributed to the sale of Diamond Crystal Brands.increase from prior year.



Related Party Transactions
 
There has been no material change in the information regarding Related Party Transactions as disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended October 29, 2017.25, 2020.


LIQUIDITY AND CAPITAL RESOURCES
 
Cash and cash equivalentsCash Equivalents were $385.8$291 million at the end of the first quarterthirty-nine weeks of fiscal 20182021 compared to $609.8$1,729 million at the end of the comparable fiscal 20172020 period. The primary driver of the decrease is the use of cash to fund the acquisition of the Planters® snack nuts business the third quarter of fiscal 2021.
 
Cash provided by operating activities was $304.2$438 million in the first quarterthirty-nine weeks of fiscal 20182021 compared to $195.2$878 million in the same period of fiscal 2017.  Higher net earnings2020. The decline was due to increased inventory driven by significantly higher raw material markets along with the additional accounts receivable and lower working capital ininventory activity for the first quarterPlanters® snack nuts business since its acquisition. Cash flows from operating activities continue to provide a consistent source of liquidity. The Company believes its balanced business model and strong balance sheet make it well-positioned to continue to weather the effects of the year led to the increase.COVID-19 pandemic.

Cash used in investing activities was $905.3$3,530 million in the first quarterthirty-nine weeks of fiscal 20182021 compared to cash provided by investing activities of $105.6 million in the comparable quarter of fiscal 2017.  In the first quarter of fiscal 2018, the Company spent $857.6 million on the acquisition of Columbus.  Capital expenditures in the first quarter of fiscal 2018 increased to $53.7 million from $37.9 million in the comparable quarter of fiscal 2017.  The Company currently estimates its fiscal 2018 capital expenditures will be approximately $425.0 million.  Key projects include bacon capacity increases in the Wichita, Kansas, facility; a new whole bird facility in Melrose, Minnesota; modernization of the Austin, Minnesota, plant; and projects designed to increase value-added capacity.
Cash provided by financing activities was $538.2 million in the first quarter of fiscal 2018 compared to cash used in financing activities of $99.8$506 million in the same period of fiscal 2017.2020. In connection with the purchasethird quarter of Columbus,fiscal 2021, the Company borrowed $375.0completed the acquisition of the Planters® snack nuts business for a preliminary purchase price of $3.4 billion. In the first thirty-nine weeks of 2020, the Company acquired Sadler's Smokehouse for $271 million. See Note B - Acquisitions and Divestitures for additional information on acquisitions.


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Capital expenditures in the first thirty-nine weeks of fiscal 2021 were $139 million under a term loan facility and $375.0compared to $227 million under a revolving credit facility, with $120.0 million paid down duringin the quarter.same period of fiscal 2020. The Company repurchased $25.2estimates its fiscal 2021 capital expenditures to be approximately $260 million. Key projects for the full year include expansion of the Company’s dry sausage operations in Nebraska and other projects to support growth of branded products.
Cash provided by financing activities was $1,664 million in the first thirty-nine weeks of fiscal 2021 compared to $684 million in the same period of fiscal 2020. On June 3, 2021, the Company issued unsecured senior notes in an aggregate principal amount of $2.3 billion to fund the acquisition of the Planters® snack nuts business. The Company repaid $250 million of its senior unsecured notes upon maturity in April 2021. On June 11, 2020, the Company issued senior notes in an aggregate principal amount of $1.0 billion. See Note J - Long-term Debt and Other Borrowing Arrangements for additional information on debt.

The Company used $10 million for common stock repurchases in the first quarterthirty-nine weeks of fiscal 20182021 compared to $30.6$12 million purchased inrepurchased during the first quartersame period of the prior year. For additional information pertaining to the Company’s share repurchase plans or programs, see Part II, Item 2 “Unregistered- Unregistered Sales of Equity Securities and Use of Proceeds.

Cash dividends paid to the Company’s shareholders continue to be an ongoing financing activity for the Company. Dividends paid in the first quarterthirty-nine weeks of fiscal 20182021 were $89.8$390 million compared to $76.6$362 million in the comparable period of fiscal 2017.2020. For fiscal 2018,2021, the annual dividend rate was increased to $0.75$0.98 per share, representing the 52nd55th consecutive annual dividend increase. The Company has paid dividends for 358372 consecutive quarters and expects to continue doing so.quarters.


The Company is required by certain covenants in its debt agreements to maintain specified levels of financial ratios and financial position. At the endAs of the first quarter of fiscal 2018,July 25, 2021, the Company was in compliance with all of these debt covenants.

Cash flows from operating activities continue to provide the Company with its principal source of liquidity.  The Company does not anticipate a significant risk to cash flows from this source in the foreseeable future because the Company operates in a relatively stable industry and has strong brands across many product lines.
The Company is dedicated to returning excess cash flow to shareholders through dividend payments.  Growing the business through innovation and evaluating opportunities for strategic acquisitions remains a focus for the Company.  Reinvestments in the business to ensure employee and food safety are a top priority for the Company.  Capital spending to enhance and expand current operations will also be a significant cash outflow for fiscal 2018.
 
Contractual Obligations and Commercial Commitments


The Company records income taxes in accordance with the provisions of ASC 740, Income Taxes. The Company is unable to determine its contractual obligations by year related to this pronouncement, as the ultimate amount or timing of settlement of its reserves for income taxes cannot be reasonably estimated. The total liability for unrecognized tax benefits, including interest and penalties, at January 28, 2018,July 25, 2021, was $34.2$24 million.

There have been no other material changes to the information regarding the Company’s future contractual financial obligations that waspreviously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended October 29, 2017.25, 2020.

Off-Balance Sheet Arrangements
 
As of January 28, 2018,July 25, 2021, and October 29, 2017,25, 2020, the Company had $48.0$47 million of standby letters of credit issued on its behalf for both periods.behalf. The standby letters of credit are related primarily related to the Company’s self-insured workers compensation programs. However, thatThis amount also includes $4.0$3 million as of July 25, 2021, and October 25, 2020 of revocable standby letters of credit for obligations of an affiliated party that may arise under workers compensation claims. Letters of credit are not reflected in the Company’s Consolidated Statements of Financial Position.
 
Trademarks
 
References to the Company’s brands or products in italics within this report represent valuable trademarks owned or licensed by Hormel Foods, LLC or other subsidiaries of Hormel Foods Corporation.
 
CRITICAL ACCOUNTING POLICIES
The discussion and analysis of financial condition and results of operations is based upon the Company's consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires the Company to make estimates, judgments, and assumptions that can have a meaningful impact on the reporting of consolidated financial statements. See Note A - Summary of Significant Accounting Policies for a discussion of significant accounting policies.

Critical accounting policies are defined as those reflective of significant judgments, estimates, and uncertainties, which may result in materially different results under different assumptions and conditions. The Company has considered the impact of COVID-19 and recent acquisition of the Planters® snack nuts business and determined there have been no material changes in the Company’s Critical Accounting Policies as disclosed in its Annual Report on Form 10-K for the fiscal year ended October 25, 2020. As conditions resulting from the COVID-19 pandemic evolve, the Company expects these judgments and estimates may be subject to change, which could materially impact future periods.


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FORWARD-LOOKING STATEMENTS
 
This report contains “forward-looking” information within the meaning of the federal securities laws. The “forward-looking” information may include statements concerning the Company’s outlook for the future as well as other statements of beliefs, future plans, strategies, or anticipated events and similar expressions concerning matters that are not historical facts.
 
The Private Securities Litigation Reform Act of 1995 (the Reform Act) provides a “safe harbor” for forward-looking statements to encourage companies to provide prospective information. The Company is filing this cautionary statement in connection with the Reform Act. When used in this Quarterly Report on Form 10-Q, the Company’s Annual Report to Stockholders, other filings by the Company with the Securities and Exchange Commission, (the Commission), the Company’s press releases, and oral statements made by the Company’s representatives, the words or phrases “should result,” “believe,” “intend,” “plan,” “are expected to,” “targeted,” “will continue,” “will approximate,” “is anticipated,” “estimate,” “project,” or similar expressions are intended to identify forward-looking statements within the meaning of the Reform Act. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those anticipated or projected.


In connection with the “safe harbor” provisions of the Reform Act, the Company is identifying risk factors that could affect financial performance and cause the Company’s actual results to differ materially from opinions or statements expressed with respect to future periods. The discussion of risk factors in Part II, Item 1A of this Quarterly Report on Form 10-Q contains certain cautionary statements regarding the Company’s business, which should be considered by investors and others. Such risk factors should be considered in conjunction with any discussions of operations or results by the Company or its representatives, including any forward-looking discussion, as well as comments contained in press releases, presentations to securities analysts or investors, or other communications by the Company.
 

In making these statements, the Company is not undertaking, and specifically declines to undertake, any obligation to address or update each or any factor in future filings or communications regarding the Company’s business or results, and is not undertaking to address how any of these factors may have caused changes to discussions or information contained in previous filings or communications. Though the Company has attempted to list comprehensively these important cautionary risk factors, the Company wishes to caution investors and others that other factors may in the future prove to be important in affecting the Company’s business or results of operations.
 
The Company cautions readers not to place undue reliance on forward-looking statements, which represent current views as of the date made. Forward-looking statements are inherently at risk to any changes in the national and worldwide economic environment, which could include, among other things, changes resulting from the COVID-19 pandemic, economic conditions, political developments, civil unrest, currency exchange rates, interest and inflation rates, accounting standards, taxes, and laws and regulations affecting the Company and its markets.



Item 3.  Quantitative and Qualitative Disclosures About Market RiskQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Hog Markets:  The Company’s earnings are affected by fluctuations in the live hog market. To minimize the impact on earnings, and to ensure a steady supply of quality hogs, the Company has entered into contracts with producers for the purchase of hogs at formula-based prices over periods of up to 10 years. Purchased hogsHogs purchased under contract accounted for 95 percent96 and 94 percent of the total hogs purchased by the Company during the first quarterthirty-nine weeks of fiscal years 20182021 and 2017,2020, respectively. The majority of these contracts use market-based formulas based on hog futures, hog primal values, or industry reported hog markets. Other contracts use a formula based on the cost of production, which can fluctuate independently from hog markets. The Company’s value-added branded portfolio helps mitigate changes in hog and pork market prices. Therefore, a hypothetical 10 percent change in the cash hog market would have had an immaterial effect on the Company’s results of operations.
 
In the second quarter of 2017, theThe Company initiatedutilizes a hedge program to reduce exposure and offset the fluctuationfluctuations in the Company’sCompany's future direct hog purchases. ThisThe program currently utilizes lean hog futures and these contractswhich are accounted for under cash flow hedge accounting. The fair value of the Company’sCompany's open futures contracts in this hedging program as of January 28, 2018,July 25, 2021 was $1.0$8.2 million compared to $1.7$3.1 million as of October 29, 2017.25, 2020. The Company measures its market risk exposure on its lean hog futures contracts using a sensitivity analysis, which considers a hypothetical 10 percent change in the market prices for lean hogs. A 10 percent decrease in the market price for lean hogs would have negatively impacted the fair value of the Company’s January 28, 2018,Company's July 25, 2021, open lean hog contracts by $1.4$7.5 million, which in turn would lower the Company’sCompany's future cost on purchased hogs by a similar amount.

Certain procurement contracts allow for future hog deliveries (firm commitments) to be forward priced.  The Company generally hedges these firm commitments by using hog futures contracts.  These futures contracts are designated and accounted for as fair value hedges.  The change in the market value of such futures contracts is highly effective at offsetting changes in price movements of the hedged item, and the Company evaluates the effectiveness of the contracts at least quarterly.  Changes in the fair value of the futures contracts, along with the gain or loss on the firm commitment, are marked-to-market through earnings and are recorded on the Consolidated Statements of Financial Position as a current asset and liability, respectively.  The fair value of the Company’s open futures contracts as of January 28, 2018, was $(0.7) million compared to $(0.9) million as of October 29, 2017.  The Company measures its market risk exposure on its hog futures contracts using a sensitivity analysis, which considers a hypothetical 10 percent change in market prices.  A 10 percent increase in market prices would have negatively impacted the fair value of the Company’s January 28, 2018, open contracts by $2.2 million, which in turn would lower the Company’s future cost of purchased hogs by a similar amount.

Turkey Production Costs:  The Company raises or contracts for live turkeys to meet somethe majority of its raw material supply requirements. Production costs in raising turkeys are subject primarily to fluctuations in feed prices, and to a lesser extent, fuel costs. Under normal, long-term market conditions, changes in the cost to produce turkeys are offset by proportional changes in the turkey market.
 
To reduce the Company’s exposure to changes in grain prices, the

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The Company utilizes a hedge program to reduce exposure and offset the fluctuation in the Company’sCompany's future direct grain purchases. This program currently utilizes corn futures and options for JOTS,Jennie-O Turkey Store, and these contracts are accounted for under cash flow hedge accounting. The fair value of the Company’s open futures contracts and options as of January 28, 2018,July 25, 2021, was $(1.7)$22.0 million compared to $(2.2)$(0.1) million before tax, as of October 29, 2017.25, 2020. The Company measures its market risk exposure on its grain futures contracts and options using a sensitivity analysis, which considers a hypothetical 10 percent change in the market prices for grain. A 10 percent decrease in the market price for grain would have negatively impacted the fair value of the Company’s January 28, 2017,July 25, 2021, open grain contracts by $4.4$11.9 million, which in turn would lower the Company’s future cost on purchased grain by a similar amount.


Long-Term Debt: A principal market risk affectingOther Input Costs: The costs of other raw materials such as beef, nuts, and, chicken, packaging materials, freight, fuel, and energy may cause the Company's results to fluctuate significantly. To manage input cost volatility, the Company is the exposure to changes in interest rates on the Company’s fixed-rate, long-term debt.  Market risk for fixed-rate, long-term debt is estimated as the potential increase in fair value, resulting from a hypothetical 10 percent decrease in interest rates,pursues cost saving measures, forward pricing, derivatives, and amounts to approximately $2.1 million.  The fair value of the Company’s long-term debt was estimated using discounted future cash flows based on the Company’s incremental borrowing rate for similar types of borrowing arrangements.pricing actions when necessary.
 
Investments: The Company has corporate-owned life insurance policies classified as trading securities as part of a rabbi trust to fund certain supplemental executive retirement plans and deferred income plans. As of January 28, 2018,July 25, 2021, the balance of these securities totaled $139.8$200.3 million compared to $128.5$173.1 million as of October 29, 2017.  A majority of these securities represent25, 2020. The rabbi trust is invested primarily in fixed income funds. The Company is subject to market risk due to fluctuations in the value of the remaining investments as unrealized gains and losses associated with these securities are included in the Company’s net earnings on a mark-to-market basis. A 10 percent decline in the value of the investments not held in fixed income funds would have a direct negative impact to the Company’s pretax earnings of approximately $4.7$9.8 million, while a 10 percent increase in value would have a positive impact of the same amount.
 
International:  WhileInternational Assets:  The fair values of certain Company assets are subject to fluctuations in foreign currencies. The Company's net asset position in foreign currencies as of July 25, 2021 was $639.4 million, compared to $541.2 million as of October 25, 2020, with most of the exposure existing in Chinese yuan and Brazilian real. Changes in currency exchange rates impact the fair values of the Company does have international operationsassets either currently through the Consolidated Statements of Operations within Interest and operatesInvestment Income or through the Consolidated Statements of Financial Position within Accumulated Other Comprehensive Loss.

The Company measures its foreign currency exchange risk by using a 10 percent sensitivity analysis on the Company's primary foreign net asset position, the Chinese yuan and Brazilian real, as of July 25, 2021. A 10 percent strengthening in international markets, it considers its market riskthe value of the Chinese yuan relative to the U.S. dollar would result in such activitiesother comprehensive income of approximately $41.0 million pretax. A 10 percent weakening in the value of the Chinese yuan relative to be immaterial.the U.S. dollar would result in other comprehensive loss of approximately $33.5 million pretax. A 10 percent strengthening in the value of the Brazilian real relative to the U.S. dollar would result in other comprehensive income of approximately $13.3 million pretax. A 10 percent weakening in the value of the Brazilian real relative to the U.S. dollar would result in other comprehensive loss of approximately $10.9 million pretax.



Item 4.  CONTROLS AND PROCEDURES
(a)    Disclosure Controls and ProceduresProcedures.
(a)Disclosure Controls and Procedures.
As of the end of the period covered by this report (the Evaluation Date), the Company carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act)). In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures were effective to provide reasonable assurance that information the Company is required to disclose in reports it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.


(b)Internal Controls.
During(b)    Internal Controls.
The Company is in the first quartermidst of a multi-year transformation project (Project Orion) to achieve better analytics, customer service, and process efficiencies through the use of Oracle Cloud Solutions. Components supporting human resources, payroll, and finance were implemented in fiscal 2018, there2020. There have been no material implementations in fiscal 2021. Additional phases will continue over the next several years. Emphasis has been on the maintenance of internal controls and assessment of the design and operating effectiveness of key control activities throughout development and deployment of each phase. On June 7, 2021, the Company completed its acquisition of the Planters® snack nuts business. In conducting

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its assessment of the effectiveness of the Company’s internal control over financial reporting at fiscal year-end, management intends to exclude Planters® from that assessment, as permitted under Securities and Exchange Commission rules.

There were no changechanges in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the third quarter of fiscal 2021 that hashave materially affected, or isare reasonably likely to materially affect, the Company’s internal control over financial reporting.



PART II - OTHER INFORMATION
 
Item 1.  Legal ProceedingsLEGAL PROCEEDINGS
 
The Company is a party to various legal proceedings related to the on-goingongoing operation of its business, including claims both by and against the Company. At any time, such proceedings typically involve claims related to product liability, contract disputes, wage and hourlabeling, contracts, antitrust regulations, intellectual property, competition laws, employment practices, or other actions brought by employees, customers, consumers, competitors or suppliers. The

Company establishes accruals for its potential exposure, as appropriate, for claims against the Company when losses become probable and reasonably estimable. However, future developments or settlements are uncertain and may require the Company to change such accruals as proceedings progress. ResolutionResolutions of any currently known matters, either individually or in the aggregate, isare not expected to have a material effect on the Company’s financial condition, results of operations, or liquidity.

The Company is a defendant in three sets of antitrust lawsuits broadly targeting the pork and turkey industries. None of these cases involve allegations of bid rigging or other criminal conduct. The Company has not established reserves as it does not believe it will have liability in any of these cases.


Item 1A.  Risk FactorsRISK FACTORS
 
Risk FactorsBUSINESS AND OPERATIONAL RISKS


The Company’s operations are subject to the general risks of the food industry.

The food products manufacturing industry is subject to the risks posed by:

food spoilage;
food contamination caused by disease-producing organisms or pathogens, such as Listeria monocytogenes, Salmonella, and pathogenic E coli.;
food allergens;
nutritional and health-related concerns;
federal, state, and local food processing controls;
consumer product liability claims;

product tampering; and
the possible unavailability and/or expense of liability insurance.

The pathogens which may cause food contamination are found generally in livestock and in the environment and thus may be present in our products. These pathogens also can be introduced to our products as a result of improper handling by customers or consumers. We do not have control over handling procedures once our products have been shipped for distribution. If one or more of these risks were to materialize, the Company’s brand and business reputation could be negatively impacted. In addition, revenues could decrease, costs of doing business could increase, and the Company’s operating results could be adversely affected.

Deterioration of economic conditions could harm the Company’s business.

The Company's business may be adversely affected by changes in national or global economic conditions, including inflation, interest rates, tax rates, availability of capital, energy availability and costs (including fuel surcharges), political developments, civil unrest, and the effects of governmental initiatives to manage economic conditions. Decreases in consumer spending rates and shifts in consumer product preferences could also negatively impact the Company.


Volatility in financial markets and the deterioration of national and global economic conditions could impact the Company’s operations as follows:

The financial stability of our customers and suppliers may be compromised, which could result in additional bad debts for the Company or non-performance by suppliers.
The financial stability of our customers and suppliers may be compromised, which could result in additional bad debts for the Company or non-performance by suppliers; and
The value of our investments in debt and equity securities may decline, including most significantly the Company’s trading securities held as part of a rabbi trust to fund supplemental executive retirement plans and deferred income plans, and the Company’s assets held in pension plans.

The value of our investments in debt and equity securities may decline, including most significantly the Company’s trading securities held as part of a rabbi trust to fund supplemental executive retirement plans and deferred income plans, and the Company’s assets held in pension plans.
The Company depends on stable, liquid and well-functioning capital and credit markets to fund operations. There can be no assurance that future volatility or disruption in the capital and credit markets will not impair the Company's liquidity or increase costs of borrowing.
The Company may be required to redirect cash flow from operations or explore alternative strategies, such as disposing of assets, to the payment of principal and interest on its indebtedness.

The Company utilizesmay utilize hedging programs to manage its exposure to various commodity market risks, such as commodity prices and interest rates, which qualify for hedge accounting for financial reporting purposes. Volatile fluctuations in market conditions could cause these instruments to become ineffective, which could require any gains or losses associated with these instruments to be reported in the Company’s earnings each period. These instruments may limit the Company’s ability to benefit from market gains if commodity prices or interest rates become more favorable than those secured under the Company’s hedging programs.


The Company's goodwill and indefinite lived intangible assets are initially recorded at fair value and are not amortized, but are reviewed for impairment annually or more frequently if impairment indicators arise. Impairment testing requires judgement around estimates and assumptions and is impacted by factors such as revenue growth rates, operating margins, tax rates, royalty rates, and discount rates. An unfavorable change in these factors may lead to the impairment of goodwill and/or intangible assets.


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Additionally, if a highly pathogenic human disease outbreak developed in the United States, it may negatively impact the national economy, demand for Company products, and/or the Company’s workforce availability, and the Company’s financial results could suffer. The Company has developed contingency plans to address infectious disease scenarios and the potential impact on its operations, and will continue to update these plans as necessary. There can be no assurance given, however, these plans will be effective in eliminating the negative effects of any such diseases on the Company’s operating results.


The uncertain and rapidly changing COVID-19 pandemic could adversely affect the Company’s business, financial condition and results of operations. The ongoing COVID-19 global pandemic has had, and will likely continue to have, negative impacts across many of the Company's business units and facilities. The Company's operations and business have been impacted directly and indirectly by various government actions taken to stop or slow the spread of COVID-19, including travel restrictions, border shutdowns, stay-at-home and shelter-in-place orders, shutdowns of non-essential businesses, and emergency declarations.

The near- and long-term impacts of COVID-19 are unknown and impossible to predict with any level of certainty. The following risk factors arising from COVID-19 pandemic have had and/or may continue to have one or more of the following impacts on the Company's operations:

One or more of the Company's manufacturing facilities may be shut down or have their operations significantly impacted due to employee illnesses, increased absenteeism, and/or actions by government agencies. Capital projects may be delayed as additional capacity is no longer currently needed. The Company's co-manufacturers and material suppliers may face similar impacts.
Regulatory restrictions and measures taken at the Company's facilities to prevent or slow down the spread of COVID-19 may impact facilities’ efficiency.
Operating costs may increase as measures are put in place to prevent or slow down the spread of COVID-19, such as facility improvements, employee testing, short-term disability policies, and manufacturing employee bonus payments.
Any new or additional measures required by national, state or local governments to combat COVID-19 may similarly add additional operational costs.
Ongoing closure or reduced operations at foodservice establishments may impact results for the Company's foodservice business. Bankruptcy filings and/or delinquent payments from foodservice industry or other customers may negatively impact cash flow.
A national and/or global economic downturn may impact consumer purchase behavior, such as reduced foodservice volume, lower volume in premium brands, and potential loss of business to private label.
It may become more difficult and/or expensive to obtain debt or equity financing necessary to sustain the Company's operations, make capital expenditures, and/or finance future acquisitions.
The Company may face litigation by stockholders, employees, suppliers, customers, consumers, and others relating to COVID-19 and its effects.
The Company relies on its dedicated employees, many of whom have a long tenure with the Company. Operations may be negatively impacted if members of the Company's leadership team, or other key employees, become ill with COVID-19 or otherwise terminate their employment as a result of COVID-19. Further, the Company may face challenges hiring, onboarding, and training new employees, including leadership, which may impact results. The Company also may face operational challenges if government quarantine orders restrict movement of employees.
It is possible that the COVID-19 pandemic could negatively affect the Company's labor availability, relations, or labor costs.
Many of the Company's office-based employees are working remotely, which may bring additional information technology and data security risks.
Supply chain disruptions of various types arising from COVID-19 may impact the Company's ability to make products, the cost for such products, and the ability to deliver products to customers. Closure or reduced operations of material suppliers could result in shortages of key raw materials, as well as impact prices for those materials. The volatility in the market for raw material and supplies could impact the Company's profitability.
National, state, and local government orders closing or limiting operation of borders and ports, or imposing quarantine, could impact the Company's ability to obtain raw materials and to deliver finished goods to customers.
COVID-19 has wide-reaching impacts to society and the business making all decisions, interactions, and transactions significantly more complex.
The Company is committed to being transparent through communications to inform shareholders, employees, customers, consumers, and others about the enhanced safety protocols implemented. The Company must keep pace with a rapidly changing media environment. If the Company's public relations efforts are not effective or if consumers perceive them to be irresponsible, the Company's competitive position, reputation, and market share may suffer.

The extent of the impact on the Company’s business, financial condition, and results of operations is dependent on the length and severity of the pandemic. Vaccines to prevent COVID-19 were approved by health agencies in the U.S. and other countries in which the Company operates, which began to be administered near the end of calendar year 2020. New variants of the virus appear to have increased transmissibility, which could complicate treatment and vaccination programs. The COVID-19 pandemic is an unprecedented situation and the Company's understanding of and response to its impacts is changing and evolving. The

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additional risk factors identified here are based upon information known at this time. The COVID-19 pandemic may adversely impact the Company's operations in one or more ways not identified to date.

The Company’s operations are subject to the general risks associated with acquisitions and divestitures. The Company has made several acquisitions and divestitures in recent years that align with the Company’s strategic initiative of delivering long-term value to shareholders. The Company regularly reviews strategic opportunities to grow through acquisitions and to divest non-strategic assets. Potential risks associated with these transactions include the inability to consummate a transaction timely or on favorable terms, diversion of management's attention from other business concerns, potential loss of key employees and customers of current or acquired companies, inability to integrate or divest operations successfully, possible assumption of unknown liabilities, potential disputes with buyers or sellers, inability to obtain favorable financing terms, potential impairment charges if purchase assumptions are not achieved, and the inherent risks in entering markets or lines of business in which the Company has limited or no prior experience. Any or all of these risks could impact the Company’s financial results and business reputation. In addition, acquisitions outside the United States may present unique challenges and increase the Company's exposure to the risks associated with foreign operations. The Company's level of indebtedness increased significantly to fund the purchase of the Planters® snack nuts business and may continue to increase to fund future acquisitions. Higher levels of debt may among other things, impact the Company's liquidity and increase the Company's exposure to negative fluctuations in interest rates.

The Company is subject to disruption of operations at co-manufacturers, suppliers, customers, or other third-party service providers. Disruption of operations at co‑manufacturers or other suppliers may impact the Company’s product or raw material supply, which could have an adverse effect on the Company’s financial results. Additionally, actions taken to mitigate the impact of any potential disruption, including increasing inventory in anticipation of a potential production or supply interruption, may adversely affect the Company’s financial results.

Disruptions related to significant customers or sales channels could result in a reduction in sales or change in the mix of products sold, which could adversely affect the Company's results of operations.

The Company regularly engages third-party service providers to support various business functions such as benefit plan administration, payroll processing, information technology, and cloud computing services. A disruption in services from these partners could have an adverse effect on the Company's business.

The Company is subject to the loss of a material contract. The Company is a party to several supply, distribution, contract packaging and other material contracts. The loss of a material contract could adversely affect the Company’s financial results.

The Company may be adversely impacted if the Company is unable to protect information technology systems against, or effectively respond to, cyber-attacks or security breaches. Information technology systems are an important part of the Company’s business operations. In addition, the Company increasingly relies upon third-party service providers for a variety of business functions, including cloud-based services. Cyber-attacks and other cyber incidents are occurring more frequently and are being made by groups and individuals with a wide range of motives and expertise.

In addition, the Company is in the midst of a multi-year transformation project (Project Orion) to achieve better analytics, customer service, and process efficiencies through the use of Oracle Cloud Solutions. This project is expected to improve the efficiency and effectiveness of certain financial and business transaction processes and the underlying systems environment. The initial phase to implement the human resource and payroll process was deployed during the first quarter of fiscal 2020. During the third quarter of fiscal 2020, the Company implemented the finance phase of the project. Additional integrations are expected to take place over the next few years. Such an implementation is a major undertaking from a financial, management, and personnel perspective. The implementation of the enterprise resource planning system may prove to be more difficult, costly, or time consuming than expected, and there can be no assurance that this system will be beneficial to the extent anticipated.

In an attempt to mitigate these risks, the Company has implemented and continues to evaluate security initiatives and business continuity plans.

Deterioration of labor relations, labor availability or increases in labor costs could harm the Company’s Business. As of July 25, 2021, the Company had over 20,000 employees worldwide, of which approximately 20 percent of the Company's employees were represented by labor unions, principally the United Food and Commercial Workers Union. A significant increase in labor costs or a deterioration of labor relations at any of the Company’s facilities or co-manufacturing facilities resulting in work slowdowns or stoppages could harm the Company’s financial results. Labor and skilled labor availability challenges could continue to have an adverse effect on the Company's business.


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INDUSTRY RISKS

The Company’s operations are subject to the general risks of the food industry. The food products manufacturing industry is subject to the risks posed by:
food spoilage;
food contamination caused by disease-producing organisms or pathogens, such as Listeria monocytogenes, Salmonella, and pathogenic E coli.;
food allergens;
nutritional and health-related concerns;
federal, state, and local food processing controls;
consumer product liability claims;
product tampering; and
the possible unavailability and/or expense of liability insurance.

The pathogens that may cause food contamination are found generally in livestock and in the environment and thus may be present in our products. These pathogens can also be introduced to our products as a result of improper handling by customers or consumers. We do not have control over handling procedures once our products have been shipped for distribution. If one or more of these risks were to materialize, the Company’s brand and business reputation could be negatively impacted. In addition, revenues could decrease, costs of doing business could increase, and the Company’s operating results could be adversely affected.

Outbreaks of disease among livestock and poultry flocks could harm the Company’s revenues and operating margins.
The Company is subject to risks associated with the outbreak of disease in pork and beef livestock, and poultry flocks, including African swine fever (ASF), Bovine Spongiform Encephalopathy (BSE), pneumo-virus, Porcine Circovirus 2 (PCV2), Porcine Reproduction & Respiratory Syndrome (PRRS), Foot-and-Mouth Disease (FMD), Porcine Epidemic Diarrhea Virus (PEDv), and Highly Pathogenic Avian Influenza (HPAI). The outbreak of such diseases could adversely affect the Company’s supply of raw materials, increase the cost of production, reduce utilization of the Company’s harvest facilities, and reduce operating margins. Additionally, the outbreak of disease may hinder the Company’s ability to market and sell products both domestically and internationally.

In recent years, the outbreak of ASF has impacted hog herds in China, Asia, Europe, and the Caribbean. If an outbreak of ASF were to occur in the United States, the Company's supply of hogs and pork could be materially impacted.

The Company has developed business continuity plans for various disease scenarios and will continue to update these plans as necessary. There can be no assurance given, however, that these plans will be effective in eliminating the negative effects of any such diseases on the Company’s operating results.

Fluctuations in commodity prices and availability of pork, poultry, beef, feed grains, avocados, peanuts, energy,raw materials and wheyother inputs could harm the Company’s earnings.

The Company’s results of operations and financial condition are largely dependent upon the cost and supply of pork, poultry, beef, feed grains, avocados, peanuts and wheytree nuts as well as supplies, energy, costsand other inputs and the selling prices for many of our products, which are determined by constantly changing market forces of supply and demand.


The live hog industry has evolved to large, vertically-integrated operations using long-term supply agreements. This has resultedTypically, this results in fewer hogs being available on the cash spot market. Consequently, the Company uses long-term supply contracts basedpriced on market-based formulas or the cost of production to ensure a stable supply of raw materials while minimizing extreme fluctuations in costs over the long-term. This may result, in the short-term, in higher live hog and pork costs for live hogs that are higher thancompared to the cash spot market, depending on the relationship of the cash spot market to contract prices. Market-based pricing on certain product lines, and lead time required to implement pricing adjustments, may prevent all or part of these cost increases from being recovered, and these higher costs could adversely affect our short-term financial results.


JOTSJennie-O Turkey Store raises turkeys and contracts with turkey growers to meet its raw material requirements for whole birds and processed turkey products. Results in these operations are affected by the cost and supply of feed grains, which fluctuatefluctuates due to climate conditions, production forecasts, and supply and demand conditions at local, regional, national, and worldwide levels.markets. The Company attempts to manage some of its short-term exposure to fluctuations in feed prices by forward buying, using futures contracts, and pursuing pricing advances. However, these strategies may not be adequate to overcome sustained increases in market prices due to alternate uses for feed grains or other changes in these market conditions.


The supplysupplies of natural and organic proteins may impact the Company’s ability to ensure a continuing supply of these products. To mitigate this risk, the Company partners with multiple long-term suppliers.


International trade barriers and other restrictions and disruptions could result in lessdecreased foreign demand and increased domestic supply of proteins, which could lowerthereby potentially lowering prices. The Company occasionally utilizes in-country production to limit this exposure.


Outbreaks40

Table of disease among livestock and poultry flocks could harm the Company’s revenues and operating margins.Contents


The Company is subject to risks associated with the outbreak of disease in pork and beef livestock, and poultry flocks, including Bovine Spongiform Encephalopathy (BSE), pneumo-virus, Porcine Circovirus 2 (PCV2), Porcine Reproduction & Respiratory Syndrome (PRRS), Foot-and-Mouth Disease (FMD), Porcine Epidemic Diarrhea Virus (PEDv), and Highly Pathogenic Avian Influenza (HPAI). The outbreak of disease could adversely affect the Company’s supply of raw materials, increase the cost of production, reduce utilization of the Company’s harvest facilities, and reduce operating margins. Additionally, the outbreak of disease may hinder the Company’s ability to market and sell products both domestically and internationally. The Company has developed business continuity plans for various disease scenarios and will continue to update these plans as necessary. There can be no assurance given, however, these plans will be effective in eliminating the negative effects of any such diseases on the Company’s operating results.

Market demand for the Company’s products may fluctuate.

The Company faces competition from producers of alternative meats and protein sources, including pork, beef, turkey, chicken, fish, nut butters, whey, and whey.plant-based proteins. The basesfactors on which the Company competes include:

price;
price;
product quality and attributes;
brand identification;
breadth of product line; and
customer service.

product quality and attributes;
brand identification;
breadth of product line; and
customer service.

Demand for the Company’s products is also affected by competitors’ promotional spending, the effectiveness of the Company’s advertising and marketing programs, and consumer perceptions. Failure to identify and react to changes in food trends such as sustainability of product sources and animal welfare could lead to, among other things, reduced demand for the Company’s brands and products. The Company may be unable to compete successfully on any or all of these basesfactors in the future.


The Company’s operations are subject to the general risks associated with acquisitions.LEGAL AND REGULATORY RISKS


The Company has made several acquisitions in recent years, most recently the acquisitions of Columbus, Fontanini, and Ceratti, and regularly reviews opportunities for strategic growth through acquisitions. Potential risks associated with acquisitions include the inability to integrate new operations successfully, the diversion of management's attention from other business concerns, the potential loss of key employees and customers of the acquired companies, the possible assumption of unknown liabilities, potential disputes with the sellers, potential impairment charges if purchase assumptions are not achieved or market conditions decline, and the inherent risks in entering markets or lines of business in which the Company has limited or no prior experience. Any or all of these risks could impact the Company’s financial results and business reputation. In addition, acquisitions outside the United States may present unique challenges and increase the Company's exposure to the risks associated with foreign operations.

The Company is subject to disruption of operations at co-packers or other suppliers.
Disruption of operations at co‑packers or other suppliers may impact the Company’s product or raw material supply, which could have an adverse effect on the Company’s financial results. Additionally, actions taken to mitigate the impact of any potential disruption, including increasing inventory in anticipation of a potential production or supply interruption, may adversely affect the Company’s financial results.
The Company’s operations are subject to the general risks of litigation.

The Company is involved on an ongoing basis in litigation arising in the ordinary course of business. Trends in litigation may include class actions involving employees, consumers, competitors, suppliers, shareholders, or injured persons,others, and claims relating to product liability, contract disputes, antitrust regulations, intellectual property, advertising, labeling, wage and hour laws, employment

practices or environmental matters. LitigationNeither litigation trends andnor the outcomeoutcomes of litigation cannotcan be predicted with certainty and adverse litigation trends and outcomes could adverselynegatively affect the Company’s financial results.


The Company is subject to the loss of a material contract.

The Company is a party to several supply, distribution, contract packaging, and other material contracts. The loss of a material contract could adversely affect the Company’s financial results.

Government regulation, present and future, exposes the Company to potential sanctions and compliance costs that could adversely affect the Company’s business.

The Company’s operations are subject to extensive regulation by the U.S. Department of Homeland Security, the U.S. Department of Agriculture, the U.S. Food and Drug Administration, federal and state taxing authorities and other federal, state, and local authorities whowhich oversee workforce immigration, laws, tax regulations,taxation, animal welfare, food safety, standards, and the processing, packaging, storage, distribution, advertising, and labeling of the Company’s products. The Company’s manufacturing facilities and products are subject to continuousongoing inspection by federal, state and local authorities. Claims or enforcement proceedings could be brought against the Company in the future. The availability of government inspectors due to a government furlough could also cause disruption to the Company’s manufacturing facilities. Additionally, the Company is subject to new or modified laws, regulations, and accounting standards. The Company’s failure or inability to comply with such requirements could subject the Company to civil remedies, including fines, injunctions, recalls or seizures, as well as potential criminal sanctions. A recent federal district court ruling has had a negative impact on harvest capacity and labor costs. Harvest facilities the Company uses are negotiating to resolve the situation and expect to reach a solution, but harvest capacity and labor costs will continue to be negatively impacted until a solution is reached. There can be no assurance a solution will be reached, in which case the negative impacts of the ruling would continue.


The Company is subject to stringent environmental regulation and potentially subject to environmental litigation, proceedings, and investigations.

The Company’s past and present business operations and ownership and operation of real property are subject to stringent federal, state, and local environmental laws and regulations pertaining to the discharge of materials into the environment and the handling and disposition of wastes (including solid and hazardous wastes) or otherwise relating to protection of the environment. Compliance with these laws and regulations, and the ability to comply withas well as any modifications, to these laws and regulations, is material to the Company’s business. New matters or sites may be identified in the future requiring additional investigation, assessment, or expenditures. In addition, someSome of the Company’s facilities have been in operation for many years and, over time, the Company and other prior operators of these facilities may have generated and disposed of wastes that now may be considered hazardous. Future discovery of contamination of property underlying or in the vicinity of the Company’s present or former properties or manufacturing facilities and/or waste disposal sites could require the Company to incur additional expenses.expenses related to additional investigation, assessment or other requirements. The occurrence of any of these events, the implementation of new laws and regulations or stricter interpretation of existing laws or regulations could adversely affect the Company’s financial results.


The Company’s foreign operations pose additional risks to the Company’s business.

business. The Company operates its business and markets its products internationally. The Company’s foreign operations are subject to the risks described above, as well as risks related to fluctuations in currency values, foreign currency exchange controls, compliance with foreign laws, compliance with applicable U.S. laws, including the Foreign Corrupt Practices Act, and other economic or political uncertainties. International sales are subject to risks related to general economic conditions, imposition of tariffs, quotas, trade barriers and other restrictions, enforcement of remedies in foreign jurisdictions and compliance with applicable foreign laws, and other economic and political uncertainties. All of these risks could result in increased costs or decreased revenues, which could adversely affect the Company’s financial results.


The Company may be adversely impacted if the Company is unable to protect information technology systems against, or effectively respond to, cyber-attacks or security breaches.


Information technology systems are an important part41

Table of the Company’s business operations. Attempted cyber-attacks and other cyber incidents are occurring more frequently and are being made by groups and individuals with a wide range of motives and expertise. In an attempt to mitigate this risk, the Company has implemented and continues to evaluate security initiatives and business continuity plans.Contents

Deterioration of labor relations or increases in labor costs could harm the Company’s business.

As of January 28, 2018, the Company had approximately 20,500 employees worldwide, of which approximately 4,500 were represented by labor unions, principally the United Food and Commercial Workers Union. A significant increase in labor costs

or a deterioration of labor relations at any of the Company’s facilities or contracted hog processing facilities resulting in work slowdowns or stoppages could harm the Company’s financial results. A union contract at the Company’s facility in Rochelle, Illinois expired on February 25, 2018, covering approximately 625 employees. Negotiations are ongoing under an indefinite extension agreement.


Item 2.  Unregistered Sales of Equity Securities and Use of ProceedsUNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
Issuer PurchasesThere were no issuer purchases of Equity Securitiesequity securities in the First Quarterthirteen weeks ended July 25, 2021. The maximum number of Fiscal 2018
Period 
Total
Number of
Shares
Purchased1
 
Average
Price Paid
Per Share
 
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans
or Programs1
 
Maximum Number
of Shares that May
Yet Be Purchased
Under the Plans or
Programs1
October 30, 2017 –
 December 3, 2017
 737,500
 $34.17
 737,500
 9,714,837
December 4, 2017 –
December 31, 2017
 
 
 
 9,714,837
January 1, 2018 –
January 28, 2018
 
 
 
 9,714,837
Total 737,500
 $34.17
 737,500
  
1shares that may yet be purchased under the plans or programs as of July 25, 2021 is 4,239,594. On January 31,29, 2013, the Company announced  itsCompany's Board of Directors had authorized the repurchase of 10,000,000 shares of its common stock with no expiration date. The repurchase program was authorized at a meeting of the Company’s Board of Directors onOn January 29, 2013.  On November 23, 2015,26, 2016, the Board of Directors authorizedapproved a two-for-one split of the Company’s common stock.stock to be effective January 27, 2016. As part of the resolution to approve the stock split resolution, the number of shares remaining to be repurchased was adjusted proportionately.  The stock split was subsequently approved by shareholders at the Company’s Annual Meeting on January 26, 2016, and effected January 27, 2016.  All numbers in the table above reflect the impact of this stock split.


Item 6.  Exhibits
EXHIBITS
101.INS101XBRL Instance DocumentThe following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended July 25, 2021, formatted in Inline XBRL: (i) Consolidated Statements of Financial Position, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Shareholders' Investment, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags.
101.SCH104The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended July 25, 2021, formatted in Inline XBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Labels Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Document(included as Exhibit 101).




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SIGNATURES
 
 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
HORMEL FOODS CORPORATION
(Registrant)
HORMEL FOODS CORPORATION
Date: September 3, 2021By(Registrant)
Date: March 9, 2018By/s/ JAMES N. SHEEHAN
JAMES N. SHEEHAN
SeniorExecutive Vice President and Chief Financial Officer
(Principal Financial Officer)
Date: March 9, 2018September 3, 2021By/s/ JANA L. HAYNES
JANA L. HAYNES
Vice President and Controller
(Principal Accounting Officer)



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