UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 26, 202025, 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)
Delaware41-0319970
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
1 Hormel Place
Austin,, MN55912
(Address of Principal Executive Office, including zip code)

(507) (507) 437-5611
(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$0.01465par valueHRLNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   ☒ Yes                ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).        ☒  Yes                ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”  “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☒Accelerated filer☐
Non-accelerated filer☐Smaller reporting company☐
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
ClassOutstanding at May 30, 2021
Common Stock$.01465par value542,074,906 
Common Stock Non-Voting$.01par value0 

Class Outstanding at June 1, 2020 
Common Stock $.01465par value538,951,833
 
Common Stock Non-Voting $.01par value0
 

Table of Contents
TABLE OF CONTENTS
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 6.



2
Table of Contents
PART I – FINANCIAL INFORMATION

Item 1.  FINANCIAL STATEMENTS

HORMEL FOODS CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(inIn thousands, except share and per share amounts)amounts
   
April 26,
2020		 October 27,
2019		April 25, 2021October 25, 2020
(Unaudited)  
 (Unaudited) 
Assets 
  
Assets  
Current Assets 
  
Current Assets  
Cash and Cash Equivalents$606,073
 $672,901
Cash and Cash Equivalents$1,484,533 $1,714,309 
Short-term Marketable Securities16,841
 14,736
Short-term Marketable Securities17,700 17,338 
Accounts Receivable536,009
 574,396
Accounts Receivable (Net of Allowance for Doubtful Accounts of
$3,711 at April 25, 2021, and $4,012 at October 25, 2020)
Accounts Receivable (Net of Allowance for Doubtful Accounts of
$3,711 at April 25, 2021, and $4,012 at October 25, 2020)
722,185 702,419 
Inventories1,048,992
 1,042,362
Inventories1,229,030 1,072,762 
Income Taxes Receivable342
 19,924
Income Taxes Receivable9,263 41,449 
Prepaid Expenses24,229
 22,637
Prepaid Expenses23,875 18,349 
Other Current Assets16,410
 14,457
Other Current Assets27,707 12,438 
Total Current Assets2,248,896
 2,361,413
Total Current Assets3,514,292 3,579,063 
   
Goodwill2,682,839
 2,481,645
Goodwill2,614,036 2,612,727 
   
Other Intangibles1,023,936
 1,033,862
Other Intangibles1,068,399 1,076,285 
   
Pension Assets147,878
 135,915
Pension Assets196,473 183,232 
   
Investments In and Receivables From Affiliates303,194
 289,157
Investments In and Receivables From Affiliates309,256 308,372 
   
Other Assets238,273
 177,901
Other Assets289,059 250,382 
   
Property, Plant and Equipment   Property, Plant and Equipment
Land54,670
 49,758
Land64,228 62,543 
Buildings1,152,119
 1,083,902
Buildings1,286,802 1,250,529 
Equipment2,017,183
 1,965,478
Equipment2,229,687 2,084,930 
Construction in Progress325,075
 256,190
Construction in Progress257,658 369,453 
Less: Allowance for Depreciation(1,798,882) (1,726,217)Less: Allowance for Depreciation(1,940,887)(1,869,233)
Net Property, Plant and Equipment1,750,165
 1,629,111
Net Property, Plant and Equipment1,897,489 1,898,222 
   
Total Assets$8,395,181
 $8,109,004
Total Assets$9,889,004 $9,908,282 
 
See Notes to Consolidated Financial Statements












3
Table of Contents

HORMEL FOODS CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(inIn thousands, except share and per share amounts)amounts
   
April 26,
2020		 October 27,
2019		April 25, 2021October 25, 2020
(Unaudited)   (Unaudited) 
Liabilities and Shareholders' Investment 
  
Liabilities and Shareholders' Investment  
Current Liabilities 
  
Current Liabilities  
Accounts Payable$502,133
 $590,033
Accounts Payable$577,365 $644,609 
Accrued Expenses67,481
 62,031
Accrued Expenses47,196 59,136 
Accrued Workers Compensation25,339
 24,272
Accrued Workers Compensation28,681 25,070 
Accrued Marketing Expenses111,657
 96,305
Accrued Marketing Expenses118,452 108,502 
Employee Related Expenses179,328
 213,515
Employee Related Expenses226,111 252,845 
Taxes Payable54,765
 6,208
Taxes Payable28,940 22,480 
Interest and Dividends Payable125,595
 112,685
Interest and Dividends Payable139,102 132,632 
Current Maturities of Long-term Debt258,295
 —
Current Maturities of Long-term Debt9,333 258,691 
Total Current Liabilities1,324,595
 1,105,049
Total Current Liabilities1,175,179 1,503,965 
   
Long-term Debt–Less Current Maturities56,861
 250,000
Long-term Debt - Less Current MaturitiesLong-term Debt - Less Current Maturities1,040,486 1,044,936 
   
Pension and Post-retirement Benefits542,753
 536,490
Pension and Post-retirement Benefits557,400 552,878 
   
Other Long-term Liabilities139,517
 115,356
Other Long-term Liabilities172,626 157,399 
   
Deferred Income Taxes165,253
 176,574
Deferred Income Taxes237,461 218,779 
   
Shareholders' Investment   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–7,896
 7,830
Preferred Stock, Par Value $0.01 a Share–Preferred Stock, Par Value $0.01 a Share–0 0 
Authorized 160,000,000 Shares; Issued–NaNAuthorized 160,000,000 Shares; Issued–NaN
Common Stock, Non-voting, Par Value $0.01 a Share–Common Stock, Non-voting, Par Value $0.01 a Share–0 0 
Authorized 400,000,000 Shares; Issued–NaNAuthorized 400,000,000 Shares; Issued–NaN
Common Stock, Par Value $0.01465 a Share–Common Stock, Par Value $0.01465 a Share–7,917 7,909 
Authorized 1,600,000,000 Shares;   Authorized 1,600,000,000 Shares;
Shares Issued as of April 26, 2020: 538,949,485   
Shares Issued as of October 27, 2019: 534,488,746   
Shares Issued as of April 25, 2021: 540,410,998Shares Issued as of April 25, 2021: 540,410,998
Shares Issued as of October 25, 2020: 539,887,092Shares Issued as of October 25, 2020: 539,887,092
Additional Paid-in Capital265,128
 184,921
Additional Paid-in Capital319,048 289,554 
Accumulated Other Comprehensive Loss(447,908) (399,500)Accumulated Other Comprehensive Loss(325,629)(395,250)
Retained Earnings6,336,946
 6,128,207
Retained Earnings6,699,336 6,523,335 
Hormel Foods Corporation Shareholders' Investment6,162,061
 5,921,458
Hormel Foods Corporation Shareholders' Investment6,700,672 6,425,548 
Noncontrolling Interest4,140
 4,077
Noncontrolling Interest5,178 4,778 
Total Shareholders' Investment6,166,202
 5,925,535
Total Shareholders' Investment6,705,851 6,430,326 
   
Total Liabilities and Shareholders' Investment$8,395,181
 $8,109,004
Total Liabilities and Shareholders' Investment$9,889,004 $9,908,282 
 
See Notes to Consolidated Financial Statements


4
Table of Contents
HORMEL FOODS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(inIn thousands, except per share amounts)amounts
(Unaudited)Unaudited
Thirteen Weeks Ended Twenty-Six Weeks Ended Thirteen Weeks EndedTwenty-Six Weeks Ended
April 26,
2020		 April 28,
2019		 April 26,
2020		 April 28,
2019		 April 25, 2021April 26, 2020April 25, 2021April 26, 2020
Net Sales$2,422,465
 $2,344,744
 $4,806,899
 $4,705,099
Net Sales$2,606,621 $2,422,465 $5,067,768 $4,806,899 
Cost of Products Sold1,945,113
 1,875,595
 3,861,127
 3,747,616
Cost of Products Sold2,130,314 1,945,113 4,141,291 3,861,127 
Gross Profit477,352
 469,149
 945,773
 957,483
Gross Profit476,307 477,352 926,477 945,773 
       
Selling, General and Administrative193,912
 170,076
 389,433
 363,620
Selling, General and Administrative199,966 193,912 396,346 389,433 
Equity in Earnings of Affiliates10,021
 13,291
 17,608
 24,749
Equity in Earnings of Affiliates13,074 10,021 27,302 17,608 
       
Operating Income293,460
 312,364
 573,948
 618,612
Operating Income289,415 293,460 557,433 573,948 
       
Other Income and Expense:       Other Income and Expense:
Interest and Investment Income (Expense)(3,474) 11,297
 9,777
 18,171
Interest and Investment Income (Expense)10,992 (3,474)28,284 9,777 
Interest Expense(3,497) (5,615) (7,074) (11,762)Interest Expense(7,788)(3,497)(16,015)(7,074)
       
Earnings Before Income Taxes286,489
 318,046
 576,651
 625,021
Earnings Before Income Taxes292,620 286,489 569,702 576,651 
       
Provision for Income Taxes58,873
 35,410
 106,083
 100,866
Provision for Income Taxes64,699 58,873 119,386 106,083 
       
Net Earnings227,615
 282,636
 470,568
 524,155
Net Earnings227,921 227,615 450,316 470,568 
Less: Net Earnings (Loss) Attributable to Noncontrolling Interest(119) 207
 (39) 301
Less: Net Earnings (Loss) Attributable to Noncontrolling Interest21 (119)133 (39)
Net Earnings Attributable to Hormel Foods Corporation$227,734
 $282,429
 $470,606
 $523,854
Net Earnings Attributable to Hormel Foods Corporation$227,901 $227,734 $450,184 $470,606 
       
Net Earnings Per Share       Net Earnings Per Share
Basic$0.42
 $0.53
 $0.88
 $0.98
Basic$0.42 $0.42 $0.83 $0.88 
Diluted$0.42
 $0.52
 $0.86
 $0.96
Diluted$0.42 $0.42 $0.82 $0.86 
       
Weighted-average Shares Outstanding       Weighted-average Shares Outstanding
Basic538,119
 535,480
 536,597
 534,988
Basic540,195 538,119 540,054 536,597 
Diluted546,373
 546,330
 545,594
 546,724
Diluted547,536 546,373 547,490 545,594 
 

See Notes to Consolidated Financial Statements



5
Table of Contents
HORMEL FOODS CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)In thousands
(Unaudited)Unaudited
       
Thirteen Weeks Ended Twenty-Six Weeks Ended Thirteen Weeks EndedTwenty-Six Weeks Ended
April 26,
2020		 April 28,
2019		 April 26,
2020		 April 28,
2019		 April 25, 2021April 26, 2020April 25, 2021April 26, 2020
Net Earnings$227,615
 $282,636
 $470,568
 $524,155
Net Earnings$227,921 $227,615 $450,316 $470,568 
Other Comprehensive Income (Loss), Net of Tax:       Other Comprehensive Income (Loss), Net of Tax:
Foreign Currency Translation(26,206) 5,901
 (18,268) 7,747
Foreign Currency Translation(7,025)(26,206)10,863 (18,268)
Pension and Other Benefits3,582
 1,770
 7,093
 5,209
Pension and Other Benefits4,199 3,582 8,399 7,093 
Deferred Hedging(32,103) 6,707
 (37,206) 6,346
Deferred Hedging38,029 (32,103)50,628 (37,206)
Total Other Comprehensive Income (Loss)(54,727) 14,378
 (48,381) 19,302
Total Other Comprehensive Income (Loss)35,203 (54,727)69,890 (48,381)
Comprehensive Income172,888
 297,014
 422,187
 543,457
Comprehensive Income263,124 172,888 520,206 422,187 
Less: Comprehensive Income (Loss) Attributable to Noncontrolling Interest(217) 378
 (12) 441
Less: Comprehensive Income (Loss) Attributable to Noncontrolling Interest(16)(217)401 (12)
Comprehensive Income Attributable to Hormel Foods Corporation$173,105
 $296,636
 $422,199
 $543,016
Comprehensive Income Attributable to Hormel Foods Corporation$263,140 $173,105 $519,805 $422,199 
 
See Notes to Consolidated Financial Statements



6
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 April 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 January 26, 2020537,415 $7,873 0 $0 $230,529 $6,246,641 $(393,278)$4,281 $6,096,045 
Net Earnings227,734 (119)227,615 
Other Comprehensive Income (Loss)(54,630)(98)(54,727)
Contribution from Noncontrolling Interest76 76 
Purchases of Common Stock(302)(12,360)(12,360)
Stock-based Compensation Expense1 6,166 6,167 
Exercise of Stock Options/Restricted Shares1,836 26 28,582 28,608 
Shares Retired(302)(4)302 12,360 (149)(12,207)0 
Declared Cash Dividends – $0.2325 per Share(125,222)(125,222)
Balance at April 26, 2020538,949 $7,896 0 $0 $265,128 $6,336,946 $(447,908)$4,140 $6,166,202 
Thirteen Weeks Ended April 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 January 24, 2021539,796 $7,908 0 $0 $298,988 $6,604,506 $(360,869)$5,195 $6,555,727 
Net Earnings227,901 21 227,921 
Other Comprehensive Income (Loss)35,240 (37)35,203 
Purchases of Common Stock(18)(816)(816)
Stock-based Compensation Expense381 8,053 8,054 
Exercise of Stock Options/Restricted Shares595 9 12,017 12,026 
Shares Retired(18)— 18 816 (10)(806)0 
Declared Cash Dividends – $0.2450 per Share(132,265)(132,265)
Balance at April 25, 2021540,411 $7,917 0 $0 $319,048 $6,699,336 $(325,629)$5,178 $6,705,851 

7
Table of Contents
Twenty-Six Weeks Ended April 26, 2020
Thirteen Weeks Ended April 28, 2019
Common
Stock
 
Treasury
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
(Loss) Income
 
Non-
controlling
Interest
 
Total
Shareholders’
Investment
Shares Amount Shares Amount Common
Stock		Treasury
Stock		Additional
Paid-in
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
Income (Loss)		Non-
controlling
Interest		Total
Shareholders’
Investment
Balance at January 27, 2019534,170
 $7,826
 —
 $—
 $130,196
 $5,856,029
 $(292,342) $4,070
 $5,705,779
Net Earnings          282,429
   207
 282,636
Other Comprehensive Income (Loss)            14,207
 171
 14,378
Purchases of Common Stock    (562) (22,813)         (22,813)
Stock-based Compensation Expense  1
     5,567
       5,568
Exercise of Stock Options/Restricted Shares2,485
 35
     28,390
       28,425
Shares Retired(562) (8) 562
 22,813
 (173) (22,632)     —
Declared Cash Dividends – $0.21 per Share        

 (112,189)     (112,189)
Balance at April 28, 2019536,093
 $7,854
 —
 $—
 $163,980
 $6,003,637
 $(278,135) $4,448
 $5,901,784
       ��         SharesAmountSharesAmountAdditional
Paid-in
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
Income (Loss)		Non-
controlling
Interest		Total
Shareholders’
Investment
Thirteen Weeks Ended April 26, 2020
Common
Stock		 Treasury
Stock		 Additional
Paid-in
Capital		 Retained
Earnings		 Accumulated
Other
Comprehensive
(Loss) Income		 Non-
controlling
Interest		 Total
Shareholders’
Investment
Shares Amount Shares Amount 
Balance at January 26, 2020537,415
 $7,873
 —
 $—
 $230,529
 $6,246,641
 $(393,278) $4,281
 $6,096,045
Balance at October 27, 2019Balance at October 27, 2019534,489 $7,830 0 $0 $184,921 $6,128,207 $(399,500)$4,077 $5,925,535 
Net Earnings

 

 

 

 

 227,734
 —
 (119) 227,615
Net Earnings470,606 (39)470,568 
Other Comprehensive Income (Loss)

 

 

 

 

 

 (54,630) (98) (54,727)Other Comprehensive Income (Loss)(48,408)27 (48,381)
Contribution from Noncontrolling Interest              76
 76
Contribution from Noncontrolling Interest7676 
Purchases of Common Stock

 

 (302) (12,360) 

 

 

 

 (12,360)Purchases of Common Stock(302)(12,360)(12,360)
Stock-based Compensation Expense

 1
 

 

 6,166
 

 

 

 6,167
Stock-based Compensation Expense1 15,464 15,465 
Exercise of Stock Options/Restricted Shares1,836
 26
 

 

 28,582
 

 

 

 28,608
Exercise of Stock Options/Restricted Shares4,762 69 64,892 64,961 
Shares Retired(302) (4) 302
 12,360
 (149) (12,207) 

 

 —
Shares Retired(302)(4)302 12,360 (149)(12,207)0 
Declared Cash Dividends – $0.2325 per Share

 

 

 

 

 (125,222) 

 

 (125,222)
Declared Cash Dividends – $0.4650 per ShareDeclared Cash Dividends – $0.4650 per Share(249,660)(249,660)
Balance at April 26, 2020538,949
 $7,896
 —
 $—
 $265,128
 $6,336,946
 $(447,908) $4,140
 $6,166,202
Balance at April 26, 2020538,949 $7,896 0 $0 $265,128 $6,336,946 $(447,908)$4,140 $6,166,202 
Twenty-Six Weeks Ended April 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, 2020Balance at October 25, 2020539,887 $7,909 0 $0 $289,554 $6,523,335 $(395,250)$4,778 $6,430,326 
Net EarningsNet Earnings450,184 133 450,316 
Other Comprehensive Income (Loss)Other Comprehensive Income (Loss)69,622 268 69,890 
Purchases of Common StockPurchases of Common Stock(217)(9,653)(9,653)
Stock-based Compensation ExpenseStock-based Compensation Expense381 15,834 15,834 
Exercise of Stock Options/Restricted SharesExercise of Stock Options/Restricted Shares703 11 13,780 13,791 
Shares RetiredShares Retired(217)(3)217 9,653 (120)(9,530)0 
Declared Cash Dividends – $0.4900 per ShareDeclared Cash Dividends – $0.4900 per Share(264,653)(264,653)
Balance at April 25, 2021Balance at April 25, 2021540,411 $7,917 0 $0 $319,048 $6,699,336 $(325,629)$5,178 $6,705,851 


 Twenty-Six Weeks Ended April 28, 2019
 
Common
Stock
 
Treasury
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
(Loss) Income
 
Non-
controlling
Interest
 
Total
Shareholders’
Investment
 Shares Amount Shares Amount     
Balance at October 28, 2018534,135
 $7,825
 —
 $—
 $106,528
 $5,729,956
 $(243,498) $4,007
 $5,604,818
Net Earnings          523,854
   301
 524,155
Other Comprehensive Income (Loss)            19,162
 140
 19,302
Purchases of Common Stock    (1,627) (67,622)         (67,622)
Stock-based Compensation Expense  1
     13,513
       13,514
Exercise of Stock Options/Restricted Shares3,585
 52
     44,371
       44,423
Shares Retired(1,627) (24) 1,627
 67,622
 (432) (67,166)     —
Cumulative Effect Adjustment from the Adoption of:                 
    ASU 2016-16          (10,475)     (10,475)
    ASU 2017-12          21
 (21)   —
    ASU 2018-02          52,342
 (53,778)   (1,436)
Declared Cash Dividends – $0.42 per Share          (224,895)     (224,895)
Balance at April 28, 2019536,093
 $7,854
 —
 $—
 $163,980
 $6,003,637
 $(278,135) $4,448
 $5,901,784
                  
 Twenty-Six Weeks Ended April 26, 2020
 Common
Stock		 Treasury
Stock		 Additional
Paid-in
Capital		 Retained
Earnings		 Accumulated
Other
Comprehensive
(Loss) Income		 Non-
controlling
Interest		 Total
Shareholders’
Investment
 Shares Amount Shares Amount     
Balance at October 27, 2019534,489
 $7,830
 —
 $—
 $184,921
 $6,128,207
 $(399,500) $4,077
 $5,925,535
Net Earnings          470,606
   (39) 470,568
Other Comprehensive Income (Loss)            (48,408) 27
 (48,381)
Contribution from Noncontrolling Interest              76
 76
Purchases of Common Stock    (302) (12,360)         (12,360)
Stock-based Compensation Expense  1
     15,464
       15,465
Exercise of Stock Options/Restricted Shares4,762
 69
     64,892
       64,961
Shares Retired(302) (4) 302
 12,360
 (149) (12,207)     —
Declared Cash Dividends – $0.465 per Share          (249,660)     (249,660)
Balance at April 26, 2020538,949
 $7,896
 —
 $—
 $265,128
 $6,336,946
 $(447,908) $4,140
 $6,166,202
See Notes to Consolidated Financial Statements



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HORMEL FOODS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)In thousands
Unaudited
Twenty-Six Weeks Ended
April 25, 2021April 26, 2020
Operating Activities  
Net Earnings$450,316 $470,568 
Adjustments to Reconcile to Net Cash Provided by Operating Activities:
Depreciation83,404 82,532 
Amortization19,902 17,385 
Equity in Earnings of Affiliates(27,302)(17,608)
Distributions Received from Equity Method Investees22,500 20,000 
Provision for Deferred Income Taxes2,007 (1,607)
Loss (Gain) on Property/Equipment Sales and Plant Facilities1,508 255 
Non-cash Investment Activities(16,526)(1,635)
Stock-based Compensation Expense15,834 15,465 
Changes in Operating Assets and Liabilities, Net of Acquisitions:
Decrease (Increase) in Accounts Receivable(19,823)47,174 
Decrease (Increase) in Inventories(154,647)20,625 
Decrease (Increase) in Prepaid Expenses and Other Current Assets45,848 (52,500)
Increase (Decrease) in Pension and Post-retirement Benefits2,375 2,590 
Increase (Decrease) in Accounts Payable and Accrued Expenses(103,438)(120,224)
Increase (Decrease) in Net Income Taxes Payable39,301 65,270 
Net Cash Provided by (Used in) Operating Activities361,259 548,290 
Investing Activities
Net (Purchase) Sale of Securities(722)(1,991)
Acquisitions of Businesses/Intangibles0 (268,878)
Purchases of Property and Equipment(85,544)(138,563)
Proceeds from Sales of Property and Equipment1,653 1,121 
Decrease (Increase) in Investments, Equity in Affiliates, and Other Assets(3,599)(16,004)
Proceeds from Company-owned Life Insurance956 1,180 
Net Cash Provided by (Used in) Investing Activities(87,256)(423,135)
Financing Activities
Repayments of Long-term Debt and Finance Leases(254,360)(4,069)
Dividends Paid on Common Stock(257,787)(236,750)
Share Repurchase(9,653)(12,360)
Proceeds from Exercise of Stock Options13,340 64,372 
Proceeds from Noncontrolling Interest0 76 
Net Cash Provided by (Used in) Financing Activities(508,459)(188,731)
Effect of Exchange Rate Changes on Cash4,680 (3,252)
Increase (Decrease) in Cash and Cash Equivalents(229,776)(66,828)
Cash and Cash Equivalents at Beginning of Year1,714,309 672,901 
Cash and Cash Equivalents at End of Quarter$1,484,533 $606,073 
(Unaudited)
 Twenty-Six Weeks Ended
 April 26,
2020		 April 28,
2019
Operating Activities 
  
Net Earnings$470,568
 $524,155
Adjustments to Reconcile to Net Cash Provided by Operating Activities:   
Depreciation82,532
 74,458
Amortization17,385
 6,285
Equity in Earnings of Affiliates(17,608) (24,749)
Distribution from Equity Method Investees20,000
 10,000
Provision for Deferred Income Taxes(1,607) (37,940)
Loss (Gain) on Property/Equipment Sales and Plant Facilities255
 458
Gain on Sale of Business—
 (16,469)
Non-cash Investment Activities(1,635) (17,632)
Stock-based Compensation Expense15,465
 13,514
Changes in Operating Assets and Liabilities, Net of Acquisitions:   
Decrease (Increase) in Accounts Receivable47,174
 32,634
Decrease (Increase) in Inventories20,625
 (111,601)
(Increase) Decrease in Prepaid Expenses and Other Current Assets(52,500) (7,198)
Increase (Decrease) in Pension and Post-retirement Benefits2,590
 6,380
(Decrease) Increase in Accounts Payable and Accrued Expenses(120,224) (108,347)
Increase (Decrease) in Net Income Taxes Payable65,270
 21,645
Net Cash Provided by Operating Activities548,290
 365,593
    
Investing Activities   
Net (Purchase) Sale of Securities(1,991) (6,664)
Proceeds from Sale of Business—
 473,885
Acquisitions of Businesses/Intangibles(268,878) —
Purchases of Property/Equipment(138,563) (87,621)
Proceeds from Sales of Property/Equipment1,121
 31,167
(Increase) Decrease in Investments, Equity in Affiliates, and Other Assets(16,004) (110)
Proceeds from Company-owned Life Insurance1,180
 14,170
Net Cash (Used in) Provided by Investing Activities(423,135) 424,827
    
Financing Activities   
Repayments of Long-term Debt and Finance Leases(4,069) (374,840)
Dividends Paid on Common Stock(236,750) (212,287)
Share Repurchase(12,360) (67,622)
Proceeds from Exercise of Stock Options64,372
 44,277
Proceeds from Noncontrolling Interest76
 —
Net Cash (Used in) Provided by Financing Activities(188,731) (610,472)
    
Effect of Exchange Rate Changes on Cash(3,252) 243
(Decrease) Increase in Cash and Cash Equivalents(66,828) 180,191
Cash and Cash Equivalents at Beginning of Year672,901
 459,136
Cash and Cash Equivalents at End of Quarter$606,073
 $639,327

See Notes to Consolidated Financial Statements


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HORMEL FOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)Unaudited
 
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Basis of 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 Consolidated Statement of Financial Position at October 27, 2019,25, 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 27, 2019.25, 2020. The significant accounting policies used in preparing these Consolidated Financial Statements are consistent with those described in Note A - Summary of Significant Accounting Policies to the Consolidated Financial Statements in the Form 10-K with the exception of new requirements adopted in the first quarter of fiscal 2020.2021. The Company has considered the impact of COVID-19 and determined there have been no material changes in the Company’s Significant Accounting Policies,significant accounting policies, including estimates and assumptions, as disclosed in its Annual Report on Form 10-K for the fiscal year ended October 27, 2019.25, 2020.

Rounding: Certain amounts in the Consolidated Financial Statements and associated notes may not foot due to rounding. All percentages have been calculated using unrounded amounts.

Accounting Changes and Recent Accounting Pronouncements:
New Accounting Pronouncements Adopted in Current Fiscal Year 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The updated guidance requires lessees to recognize a right-of-use asset and lease liability for all leases with terms of more than twelve months. Recognition, measurement, and presentation of expenses will depend on the classification as a finance or operating lease. The update also requires expanded quantitative and qualitative disclosures. Accounting guidance for lessors is largely unchanged. The requirements of the new standard are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company adopted the provisions of this new accounting standard at the beginning of fiscal 2020. For transition purposes, the Company elected the package of practical expedients to not reassess prior conclusions related to contracts containing leases, lease classification, and initial direct costs. The Company elected the comparative periods practical expedient, and as a result, the Company did not adjust its comparative period financial information or make the new required lease disclosures for periods before the effective date. Upon adoption, the Company recognized right-of-use assets of $112.7 million and lease liabilities of $114.1 million in the Consolidated Statements of Financial Position as of October 28, 2019. The new standard did not have a material impact on the Consolidated Statements of Operations or the Consolidated Statements of Cash Flows.

New Accounting Pronouncements Not Yet Adopted
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 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 approach 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 will adoptadopted the provisions of this new accounting standard at the beginning of fiscal 2021 and is in2021. The adoption did not have a material impact on the process of evaluating the impact.Company's consolidated financial statements, thus no cumulative-effect adjustment to retained earnings was necessary.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement - Disclosure Framework (Topic 820). The updated guidance requires entities to disclose changes 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 significant unobservable inputs used to develop Level 3 fair value measurements. Amendments in this guidance also require disclosure of transfers into and out of Level 3 of the fair value hierarchy, purchases and issues of Level 3 assets and liabilities, and clarify that the measurement uncertainty disclosure is as of the reporting date. The guidance removes requirements to disclose the amounts and reasons for transfers between Level 1 and Level 2, policy for timing between of transfers between levels, and the valuation processes for Level 3 fair value measurements. The updated guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for any removed or modified disclosures. The Company will adoptadopted the provisions of this new accounting standard at the beginning of fiscal 2021 and is in the process of evaluating the impact.adoption 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 requires 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 accumulated 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 provisions of this new accounting standard at the beginning of fiscal 2021. The adoption did not impact the Company's interim disclosure and is currently assessingnot anticipated to have a material impact on the timing and impact of adopting the updated provisions.annual disclosure.

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 Topic 740 and clarifying and

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amending existing guidance. The amendments are effective for fiscal years endingbeginning after December 15, 2020, with early adoption permitted. The Company is currently assessing the timing and impact of adopting the updated provisions.

Recently issued accounting standards or pronouncements not disclosed above have been excluded as they are not relevant to the Company.


NOTE B - ACQUISITIONS AND DIVESTITURES
 
Acquisition:Acquisitions: On February 10, 2021, the Company entered into a definitive agreement to acquire the Planters®snack nuts business from the Kraft Heinz Company. The proposed transaction is expected to close in June 2021. The acquisition includes the Planters®, NUT-rition®, Planters®Cheez Balls and Corn Nuts®brands. The purchase price is $3.35 billion, subject to customary adjustments. The transaction is expected to provide a tax benefit valued at approximately $560 million.

Planters®is an iconic snack brand and this acquisition will allow the Company to significantly expand its presence and broaden the scope for future acquisitions in the growing snacking space. Operating results for this acquisition will be included in the Company's Consolidated Statements of Operations from the date of acquisition and will be reflected primarily in the Grocery Products segment.

The transaction is expected to be funded from the Company’s cash on hand and a combination of long- and short-term debt. See Note J - Long-term Debt and Other Borrowing Arrangements for additional details.

On March 2, 2020, the Company acquired the assets comprising the Sadler's Smokehouse business (Sadler's) for a preliminaryfinal purchase price of $268.9 million, subject to customary working capital adjustments.$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. AllocationsThe Company completed an allocation of the purchase price tofair value of the assets acquired assets, including goodwill and intangibles assets, is pending the completion of autilizing third-party valuation. See Note D - Goodwill and Intangible Assets for preliminary amounts assigned to goodwill.valuation appraisals during fiscal 2020.

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. Pro forma results are not material for inclusion.

Divestiture: On April 15, 2019, the Company completed the sale of CytoSport, Inc. (CytoSport), which included the Muscle Milk® and Evolve® brands, to PepsiCo, Inc., and received final proceeds of $479.8 million. The divestiture resulted in a pretax gain of $16.5 million recognized in Selling, General and Administrative expense and a tax benefit of $17.0 million recognized within the Provision for Income Taxes on the Consolidated Statements of Operations.

CytoSport's results of operations through the date of divestiture are included within Earnings Before Income Taxes in the Consolidated Statements of Operations and are reported within the Grocery Products and International & Other segments (See Note N - Segment Reporting).


NOTE C - INVENTORIES
Principal components of inventories are:
(in thousands)April 26,
2020		 October 27,
2019
Finished Products$596,966
 $604,035
Raw Materials and Work-in-Process254,431
 255,474
Operating Supplies128,774
 116,981
Maintenance Materials and Parts68,820
 65,872
Total$1,048,992
 $1,042,362




NOTE D - GOODWILL AND INTANGIBLE ASSETS
 
Goodwill: The changes in the carrying amounts of goodwill for the thirteen and twenty-six weeks ended April 26, 2020,25, 2021, are:
(in thousands)Grocery
Products		Refrigerated
Foods		Jennie-O
Turkey Store		International
& Other		Total
Balance at January 24, 2021$632,301 $1,607,005 $176,628 $201,656 $2,617,589 
Foreign Currency Translation0 0 0 (3,554)(3,554)
Balance at April 25, 2021$632,301 $1,607,005 $176,628 $198,102 $2,614,036 
(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 
Foreign Currency Translation0 0 0 1,309 1,309 
Balance at April 25, 2021$632,301 $1,607,005 $176,628 $198,102 $2,614,036 
(in thousands)Grocery
Products		 Refrigerated
Foods		 
Jennie-O
Turkey Store
 International
& Other		 Total
Balance at January 26, 2020$632,301
 $1,458,692
 $176,628
 $216,467
 $2,484,088
Goodwill Acquired—
 212,871
 —
 —
 212,871
Foreign Currency Translation—
 —
 —
 (14,120) (14,120)
Balance at April 26, 2020$632,301
 $1,671,563
 $176,628
 $202,347
 $2,682,839
(in thousands)Grocery
Products		 Refrigerated
Foods		 Jennie-O
Turkey Store		 International
& Other		 Total
Balance at October 27, 2019$632,301
 $1,458,692
 $176,628
 $214,024
 $2,481,645
Goodwill Acquired—
 212,871
 —
 —
 212,871
Foreign Currency Translation—
 —
 —
 (11,677) (11,677)
Balance at April 26, 2020$632,301
 $1,671,563
 $176,628
 $202,347
 $2,682,839


The increase to goodwill during the thirteen and twenty-six weeks ended April 26, 2020, is related to the acquisition of Sadler's. The allocation from goodwill to identifiable assets is pending a third party valuation.

Intangible Assets: The carrying amounts for indefinite-lived intangible assets are:
(in thousands)April 25, 2021October 25, 2020
Brands/Tradenames/Trademarks$953,190 $953,190 
Other Intangibles184 184 
Foreign Currency Translation(6,955)(6,923)
Total$946,419 $946,452 
(in thousands)April 26,
2020		 October 27,
2019
Brands/Tradenames/Trademarks$953,190
 $959,400
Other Intangibles184
 184
Foreign Currency Translation(6,211) (3,803)
Total$947,163
 $955,781

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The gross carrying amount and accumulated amortization for definite-lived intangible assets are:
 April 26, 2020 October 27, 2019
(in thousands)
Gross Carrying
Amount
 
Accumulated
Amortization
 
Gross Carrying
Amount
 
Accumulated
Amortization
Customer Lists/Relationships$113,739
 $(41,350) $113,739
 $(36,744)
Tradenames/Trademarks10,536
 (2,447) 4,326
 (1,589)
Other Intangibles2,631
 (1,920) 2,631
 (1,228)
Foreign Currency Translation—
 (4,415) —
 (3,054)
Total$126,906
 $(50,132) $120,696
 $(42,615)

 April 25, 2021October 25, 2020
(in thousands)
Gross Carrying
Amount
Accumulated
Amortization
Gross Carrying
Amount
Accumulated
Amortization
Customer Lists/Relationships$117,239 $(50,607)$117,239 $(45,996)
Other Intangibles60,241 (6,133)60,631 (4,298)
Tradenames/Trademarks10,536 (4,589)10,536 (3,518)
Foreign Currency Translation0 (4,706)0 (4,760)
Total$188,016 $(66,036)$188,406 $(58,572)
 
Amortization expense was $4.0 million and $7.9 million for the thirteen and twenty-six weeks ended April 25, 2021, respectively, compared to $3.4 million and $6.2 million for the thirteen and twenty-six weeks ended April 26, 2020, respectively, compared to $3.1 million and $6.3 for the thirteen and twenty-six weeks ended April 28, 2019.2020.
 
Estimated annual amortization expense for the five fiscal years after October 27, 2019,25, 2020, excluding the impact from the pending acquisition of the Planters® snack nuts business, is:
(in thousands)
2021$16,477 
202216,037 
202315,132 
202413,048 
202511,432 
(in thousands) 
2020$11,700
202112,000
202211,644
202310,739
20248,921




NOTE D - 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 In and Receivables From Affiliates.
Investments In and Receivables From Affiliates consist of:
 
(in thousands)
Segment% OwnedApril 25, 2021October 25, 2020
MegaMex Foods, LLCGrocery Products50%$216,955 $220,907 
Other Joint VenturesInternational & OtherVarious (20-40%)92,301 87,466 
Total$309,256 $308,372 

Equity in Earnings of Affiliates consists of:
  Thirteen Weeks EndedTwenty-Six Weeks Ended
(in thousands)
 
Segment
April 25, 2021April 26, 2020April 25, 2021April 26, 2020
MegaMex Foods, LLCGrocery Products$9,663 $7,679 $22,096 $17,140 
Other Joint VenturesInternational & Other3,411 2,342 5,206 469 
Total$13,074 $10,021 $27,302 $17,608 
For the thirteen and twenty-six weeks ended April 25, 2021, $11.2 million and $22.5 million of dividends were received from affiliates, compared to $10.0 million and $20.0 million of dividends received for the thirteen and twenty-six weeks ended April 26, 2020.

The Company recognized a basis difference of $21.3 million associated with the formation of MegaMex Foods, LLC, of which $11.5 million is remaining as of April 25, 2021. This difference is being amortized through Equity in Earnings of Affiliates.



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NOTE E - PENSION AND OTHER POST-RETIREMENT BENEFITSINVENTORIES
 
Net periodic benefit cost for pension and other post-retirement benefit plans consists of:
 Pension Benefits
 Thirteen Weeks Ended Twenty-Six Weeks Ended
(in thousands)April 26,
2020		 April 28,
2019		 April 26,
2020		 April 28,
2019
Service Cost$8,896
 $6,511
 $17,792
 $13,021
Interest Cost13,411
 15,095
 26,821
 30,192
Expected Return on Plan Assets(25,321) (23,121) (50,642) (46,246)
Amortization of Prior Service Cost(542) (699) (1,084) (1,397)
Recognized Actuarial Loss5,597
 3,701
 11,192
 7,402
Curtailment Loss (Gain)—
 —
 —
 2,825
Net Periodic Cost$2,041
 $1,487
 $4,079
 $5,797
 Post-retirement Benefits
 Thirteen Weeks Ended Twenty-Six Weeks Ended
(in thousands)April 26,
2020		 April 28,
2019		 April 26,
2020		 April 28,
2019
Service Cost$193
 $173
 $387
 $347
Interest Cost2,329
 3,009
 4,789
 6,174
Amortization of Prior Service Cost(663) (669) (1,326) (1,338)
Recognized Actuarial Loss247
 —
 523
 —
Curtailment Loss (Gain)—
 —
 —
 (620)
Net Periodic Cost$2,106
 $2,513
 $4,373
 $4,563

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

(in thousands)April 25, 2021October 25, 2020
Finished Products$646,700 $546,070 
Raw Materials and Work-in-Process356,898 318,975 
Operating Supplies149,025 136,547 
Maintenance Materials and Parts76,407 71,170 
Total$1,229,030 $1,072,762 
Curtailments recognized in the first twenty-six weeks of fiscal 2019 were due to the sale of the Fremont, Nebraska, production facility.


NOTE F - DERIVATIVES AND HEDGING
 
The Company uses hedging programs to manage price risk associated with commodity purchases.purchases and interest rates. These programs utilize futures and options 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. 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, subsequent to the end of the second quarter, the Company took strategic hedges to cover a significant portion of its expected grain purchases for the remainder of the fiscal year.

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: The Company is utilizing derivative instruments to manage interest rate risk associated with the anticipated debt transactions required to fund the acquisition of the Planters® snack nuts portfolio in the third quarter of fiscal 2021. The Company designated 2 separate interest rate locks as cash flow hedges. As of April 25, 2021, the total notional amount of the Company's locks was $1,250 million. The associated debt instruments are expected to have a tenor of seven and thirty years. Mark to market gains or losses on these instruments are deferred as a component of Accumulated Other Comprehensive Loss and will be reclassified to Interest Expense in the period when the hedged transactions affect earnings. On May 25, 2021, subsequent to the end of the second quarter, both interest rate locks were lifted in conjunction with the issuance of unsecured senior notes. For more detail on the notes issued, see Note J - Long-term Debt and Other Borrowing Arrangements.

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: As of April 26, 2020, and October 27, 2019, the Company had the followingThe Company's outstanding commodity futures and options contracts related to its hedging programs:programs include:
Volume
Commodity ContractsApril 26,25, 2021October 25, 2020October 27, 2019
Corn20.431.9 million bushels30.426.0 million bushels
Lean Hogs199.1120.6 million pounds187.3153.7 million pounds

 

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Fair Value of Derivatives:  The fair values of the Company’s derivative instruments as of April 26, 2020, and October 27, 2019, are:
   
Fair Value (1)
  Gross Fair Value
(in thousands) 
Location on Consolidated Statements
of Financial Position
 April 26,
2020		 October 27,
2019		(in thousands)
Location on Consolidated Statements
of Financial Position
April 25, 2021October 25, 2020
Derivatives Designated as Hedges:    Derivatives Designated as Hedges:
Commodity Contracts Other Current Assets $(32,187) $6,405
Commodity Contracts(1)
Commodity Contracts(1)
Other Current Assets$23,848 $(1,330)
Interest Rate ContractsInterest Rate ContractsOther Current Assets$18,539 $0 
(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 liabilityasset position as of April 26, 202025, 2021 is offset by the obligation to return net cash collateral of $42.0$16.1 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 KI - 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 amountamounts of the Company's fair value hedge assets (liabilities) as of April 26, 2020, and October 27, 2019, are:
Location on Consolidated Statements
    of Financial Position
Carrying Amount of the Hedged
Assets/(Liabilities)
(in thousands)April 25, 2021October 25, 2020
Accounts Payable(1)
$15,690 $4,269 
Location on Consolidated Statements
    of Financial Position
 
Carrying Amount of the Hedged
Assets/(Liabilities)
(in thousands) April 26,
2020		 October 27, 2019
Accounts Payable $(5,642) $(2,805)
(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 April 26, 2020,25, 2021, the Company included in Accumulated Other Comprehensive Loss hedging losses of $46.1 milliongains (before tax) relatingof $51.0 million on commodity contracts and $18.5 million related to itsinterest rate positions. The Company expects to recognize the majority of these lossesthe gains on commodity contracts over the next twelve months. Gains on interest rate contracts will 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 for the thirteen weeks ended April 26, 2020, and April 28, 2019, are: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)April 25, 2021April 26, 2020April 25, 2021April 26, 2020
Cash Flow Hedges:
Commodity Contracts$36,109 $(47,944)Cost of Products Sold$4,512 $(5,477)
Interest Rate Contracts$18,539 $0 Interest Expense$0 $0 
 
Gain/(Loss)
Recognized
 in AOCL (1)
 
Location on
Consolidated
Statements
of Operations
 
Gain/(Loss)
Reclassified from
AOCL into Earnings (1)
Gain/(Loss)
Recognized
 in AOCL (1)
Location on
Consolidated
Statements
of Operations
Gain/(Loss)
Reclassified from
AOCL into Earnings (1)
 Thirteen Weeks Ended Thirteen Weeks Ended Twenty-Six Weeks EndedTwenty-Six Weeks Ended
(in thousands) April 26, 2020 April 28, 2019 April 26, 2020 April 28, 2019(in thousands)April 25, 2021April 26, 2020April 25, 2021April 26, 2020
Cash Flow Hedges:        Cash Flow Hedges:
Commodity Contracts $(47,944) $505
 Cost of Products Sold $(5,477) $(532)Commodity Contracts$52,661 $(56,571)Cost of Products Sold$4,462 $(7,352)
Excluded Component (2)
 —
 5,930
    
Interest Rate ContractsInterest Rate Contracts$18,539 $0 Interest Expense$0 $0 


The effect of(1) See Note H - Accumulated Other Comprehensive Loss for the after-tax impact of these gains or losses (before tax) related to the Company's derivative instruments for the twenty-six weeks ended April 26, 2020 and April 28, 2019, are:on Net Earnings.


14
  
Gain/(Loss)
Recognized
 in AOCL (1)
 
Location on
Consolidated
Statements
of Operations
 
Gain/(Loss)
Reclassified from
AOCL into Earnings (1)
  Twenty-Six Weeks Ended  Twenty-Six Weeks Ended
(in thousands) April 26, 2020 April 28, 2019  April 26, 2020 April 28, 2019
Cash Flow Hedges:          
Commodity Contracts $(56,571) $(337) Cost of Products Sold $(7,352) $(1,775)
Excluded Component (2)
 —
 5,243
      
(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 lean hog options excluded from the assessment of effectiveness for which the difference between changes in fair value and periodic amortization is recorded in AOCL.

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 foris as follows:
Cost of Products Sold
Thirteen Weeks EndedTwenty-Six Weeks Ended
(in thousands)April 25, 2021April 26, 2020April 25, 2021April 26, 2020
Consolidated Statements of Operations$2,130,314 $1,945,113 $4,141,291 $3,861,127 
Cash Flow Hedges - Commodity Contracts
   Gain (Loss) Reclassified from AOCL4,512 (5,477)4,462 (7,352)
Fair Value Hedges - Commodity Contracts
   Gain (Loss) on Commodity Futures (1)
(11,357)5,960 (14,271)9,146 
Total Gain (Loss) Recognized in Earnings$(6,845)$483 $(9,809)$1,794 

(1)Amounts represent gains or losses on commodity contracts designated as fair value hedges that were closed during the thirteen and twenty-six weeks ended April 26, 2020,25, 2021, and April 28, 2019, are:
  Cost of Products Sold
  Thirteen Weeks Ended Twenty-Six Weeks Ended
(in thousands) April 26, 2020 April 28, 2019 April 26, 2020 April 28, 2019
Consolidated Statements of Operations $1,945,113
 $1,875,595
 $3,861,127
 $3,747,616
         
Cash Flow Hedges - Commodity Contracts        
   Gain (Loss) Reclassified from AOCL (5,477) (532) (7,352) (1,775)
 Amortization of Excluded Component from Options —
 (1,110) —
 (2,468)
         
Fair Value Hedges - Commodity Contracts        
   Gain (Loss) on Commodity Futures (1)
 5,960
 705
 9,146
 1,637
Total Gain (Loss) Recognized in Earnings $483
 $(937)
$1,794

$(2,606)

(1)
Amounts represent losses on commodity contracts designated as fair value hedges that were closed during the
thirteen and twenty-six weeks ended April 26, 2020, and April 28, 2019, 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.


NOTE G - INVESTMENTS INPENSION AND RECEIVABLES FROM AFFILIATESOTHER POST-RETIREMENT BENEFITS
 
The Company accountsNet periodic benefit cost for its majority-owned operations under the consolidation method.  Investments in which the Company owns a minority interest,pension and for which thereother post-retirement benefit plans consists of:
 Pension Benefits
 Thirteen Weeks EndedTwenty-Six Weeks Ended
(in thousands)April 25, 2021April 26, 2020April 25, 2021April 26, 2020
Service Cost$9,107 $8,896 $18,214 $17,792 
Interest Cost12,362 13,411 24,724 26,821 
Expected Return on Plan Assets(25,189)(25,321)(50,378)(50,642)
Amortization of Prior Service Cost(367)(542)(734)(1,084)
Recognized Actuarial Loss5,578 5,597 11,156 11,192 
Net Periodic Cost$1,491 $2,041 $2,982 $4,079 
 Post-retirement Benefits
 Thirteen Weeks EndedTwenty-Six Weeks Ended
(in thousands)April 25, 2021April 26, 2020April 25, 2021April 26, 2020
Service Cost$131 $193 $261 $387 
Interest Cost1,948 2,329 3,896 4,789 
Amortization of Prior Service Cost(164)(663)(328)(1,326)
Recognized Actuarial Loss495 247 991 523 
Net Periodic Cost$2,410 $2,106 $4,820 $4,373 

Non-service cost components of net pension and postretirement benefit cost 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 inpresented within Interest and Investment Income on the Consolidated Statements of Financial Position as Investments In and Receivables From Affiliates.Operations.
Investments In and Receivables From Affiliates consist of:
 
(in thousands)
Segment % Owned April 26,
2020		 October 27,
2019
MegaMex Foods, LLCGrocery Products 50% $221,591
 $218,592
Other Joint VenturesInternational & Other Various (20-40%) 81,602
 70,565
Total    $303,194
 $289,157



Equity in Earnings of Affiliates consists of:
   Thirteen Weeks Ended Twenty-Six Weeks Ended
(in thousands)
 
Segment
 April 26,
2020		 April 28,
2019		 April 26,
2020		 April 28,
2019
MegaMex Foods, LLCGrocery Products $7,679
 $13,479
 $17,140
 $23,981
Other Joint VenturesInternational & Other 2,342
 (188) 469
 768
Total  $10,021
 $13,291
 $17,608
 $24,749


For the thirteen and twenty-six weeks ended April 26, 2020, $10.0 million and $20.0 million15
Table of dividends were received from affiliates, compared to $10.0 million of dividends received for the thirteen and twenty-six weeks ended April 28, 2019.Contents

The Company recognized a basis difference of $21.3 million associated with the formation of MegaMex Foods, LLC, of which $12.3 million is remaining as of April 26, 2020.  This difference is being amortized through Equity in Earnings of Affiliates.


NOTE H - ACCUMULATED OTHER COMPREHENSIVE LOSS
 
Components of Accumulated Other Comprehensive Loss are:

(in thousands)Foreign
Currency
Translation		Pension &
Other
Benefits
Hedging
Deferred
Gain (Loss)
Accumulated
Other
Comprehensive
Loss
Balance at January 24, 2021$(46,578)$(328,979)$14,688 $(360,869)
Unrecognized Gains (Losses)
Gross(6,988)0 54,648 47,660 
Tax Effect0 0 (13,197)(13,197)
Reclassification into Net Earnings
Gross0 5,542 (1)(4,512)(2)1,030 
Tax Effect0 (1,343)1,090 (253)
Net of Tax Amount(6,988)4,199 38,029 35,240 
Balance at April 25, 2021$(53,565)$(324,780)$52,717 $(325,629)
Balance at October 25, 2020$(64,161)$(333,178)$2,089 $(395,250)
Unrecognized Gains (Losses)
Gross10,596 0 71,200 81,796 
Tax Effect0 0 (17,190)(17,190)
Reclassification into Net Earnings
Gross0 11,085 (1)(4,462)(2)6,623 
Tax Effect0 (2,686)1,080 (1,606)
Net of Tax Amount10,596 8,399 50,628 69,622 
Balance at April 25, 2021$(53,565)$(324,780)$52,717 $(325,629)

(in thousands)Foreign
Currency
Translation		 Pension &
Other
Benefits		 
Hedging
Deferred
Gain (Loss)
 Accumulated
Other
Comprehensive
Loss
Balance at January 26, 2020$(45,184) $(345,364)  $(2,730)  $(393,278)
Unrecognized Gains (Losses)         
Gross(26,108) 78
  (47,944)  (73,975)
Tax Effect—
 —
  11,702
  11,702
Reclassification into Net Earnings         
Gross—
 4,639
(1) 
 5,477
(2) 
 10,116
Tax Effect—
 (1,136)  (1,337)  (2,473)
Net of Tax Amount(26,108) 3,582
  (32,103)  (54,630)
Balance at April 26, 2020$(71,292) $(341,783)  $(34,833)  $(447,908)
(1)    Included in the computation of net periodic cost. See Note G - Pension and Other Post-Retirement Benefits for additional details.

(2)Included in Cost of Products Sold in the Consolidated Statements of Operations. See Note F - Derivatives and Hedging for additional details.

(in thousands)Foreign
Currency
Translation		 Pension &
Other
Benefits		 
Hedging
Deferred
Gain (Loss)
 Accumulated
Other
Comprehensive
Loss
Balance at October 27, 2019$(52,996) $(348,877)  $2,373
  $(399,500)
Unrecognized Gains (Losses)         
Gross(18,296) 68
  (56,571)  (74,799)
Tax Effect—
 —
  13,807
  13,807
Reclassification into Net Earnings         
Gross—
 9,305
(1) 
 7,352
(2) 
 16,657
Tax Effect—
 (2,279)  (1,794)  (4,073)
Net of Tax Amount(18,296) 7,093
  (37,206)  (48,408)
Balance at April 26, 2020$(71,292) $(341,783)  $(34,833)  $(447,908)


(1)
Included in the computation of net periodic cost. See Note E - Pension and Other Post-Retirement Benefits for additional details.
(2)
Included in Cost of Products Sold in the Consolidated Statements of Operations.



NOTE I - 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.

On December 22, 2017, the United States (U.S.) 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, such as eliminating the domestic manufacturing deduction, creating new taxes on certain foreign sourced income, and introducing new limitations on certain business deductions, applied to the Company in fiscal 2019. For fiscal 2019 and future periods, the U.S. federal corporate income tax rate is 21.0 percent.

In March 2018, the FASB issued ASU 2018-05, Income Taxes: Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 (Topic 740), allowing a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impacts. As of January 27, 2019, the Company completed the accounting for the tax effects of the Tax Act.

During fiscal 2018, the Company provisionally recorded the transition tax on its foreign earnings. Those foreign earnings have been deemed repatriated for U.S. federal tax purposes. The Company maintains all earnings are permanently reinvested. Accordingly, no additional income taxes have been provided for withholding tax, state tax, or other taxes.

The Company's effective tax rate for the thirteen and twenty-six weeks ended April 26, 2020, was 20.6 percent and 18.4 percent, respectively, compared to 11.1 percent and 16.1 percent for the thirteen and twenty-six weeks ended April 28, 2019. The lower rate for the second quarter of 2019 resulted from the net tax benefits generated from the CytoSport divestiture and equity based compensation.

The amount of unrecognized tax benefits, including interest and penalties, is recorded in Other Long-term Liabilities.  If recognized as of April 26, 2020, and April 28, 2019, $24.0 million and $27.7 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 twenty-six weeks ended April 26, 2020, and April 28, 2019. The amount of accrued interest and penalties at April 26, 2020, and April 28, 2019, associated with unrecognized tax benefits was $6.1 million and $6.7 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 2017 in the second quarter of fiscal 2019. The Company has elected to participate in the Compliance Assurance Process (CAP) for fiscal years 2018 through 2021.  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 2011.  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 J - STOCK-BASED COMPENSATION
The Company issues stock options, restricted stock units, and restricted shares as part of its stock incentive plans for employees and non-employee directors. During the thirteen and twenty-six weeks ended April 26, 2020, stock-based compensation expense was $6.2 million and $15.5 million, respectively, compared to $5.6 million and $13.5 million for the thirteen and twenty-six weeks ended April 28, 2019. The Company recognizes stock-based compensation expense ratably over the shorter of the vesting period or the individual's retirement eligibility date. The fair value of stock-based compensation granted to retirement-eligible individuals is expensed at the time of grant.

At April 26, 2020, there was $31.2 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 2.4 years.  During the thirteen and twenty-six weeks ended April 26, 2020, cash received from stock option exercises was $28.0 million and $64.4 million, respectively, compared to $28.3 million and $44.3 million for the thirteen and twenty-six weeks ended April 28, 2019.

Shares issued for option exercises, restricted stock units, and restricted shares may be either authorized but unissued shares or shares of treasury stock.


Stock Options: 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. 

Effective with fiscal 2020 grants, the Company has determined the equity award value for eligible employees will be delivered 50 percent in stock options as described above and 50 percent in time-vested restricted stock units with a three-year cliff vesting.

During the third quarter of fiscal 2018, the Company made a one-time grant of 200 stock options to each active, full-time employee and 100 stock options to each active, part-time employee of the Company on April 30, 2018. The options vest in five years and expire ten years after the grant date.

A reconciliation of the number of options outstanding and exercisable (in thousands) as of April 26, 2020 is:
 Shares 
Weighted-
Average
Exercise Price
 
Weighted-
Average
Remaining
Contractual
Term (Years)
 
Aggregate
Intrinsic Value
Stock Options Outstanding at October 27, 201925,994
 $26.49
    
Granted1,209
 45.86
    
Exercised4,927
 15.40
    
Forfeited124
 36.41
    
Stock Options Outstanding at April 26, 202022,152
 29.96
 5.6 $369,036
Stock Options Exercisable at April 26, 202015,141
 $25.63
 4.3 $317,637

The weighted-average grant date fair value of stock options granted and the total intrinsic value of options exercised (in thousands) during the thirteen and twenty-six weeks ended April 26, 2020, and April 28, 2019, are:
 Thirteen Weeks Ended Twenty-Six Weeks Ended
 April 26,
2020		 April 28,
2019		 April 26,
2020		 April 28,
2019
Weighted-average Grant Date Fair Value$7.92
 $8.21
 $7.71
 $9.24
Intrinsic Value of Exercised Options55,948
 75,545
 153,894
 107,786

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:
 Thirteen Weeks Ended Twenty-Six Weeks Ended
 April 26,
2020		 April 28,
2019		 April 26,
2020		 April 28,
2019
Risk-free Interest Rate1.5% 2.6% 1.7% 2.8%
Dividend Yield2.0% 2.0% 2.0% 1.9%
Stock Price Volatility19.0% 19.0% 19.0% 19.0%
Expected Option Life8 years
 8 years
 8 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 U.S. Treasury yields as of the grant date.  The dividend yield is 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 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 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 employees.

Restricted Stock Units: Restricted stock units are valued equal to the market price of the common stock on the date of grant and vest after three years. These awards accumulate dividend equivalents, which are provided as additional units and are subject to the same vesting requirements as the underlying grant.


A reconciliation of the restricted stock units (in thousands) as of April 26, 2020 is:
 Shares 
Weighted-
Average
Exercise Price
 
Weighted-
Average
Remaining
Contractual
Term (Years)
 
Aggregate
Intrinsic Value
Restricted Stock Units Outstanding at October 27, 2019—
 $—
    
Granted203
 45.86
    
Vested7
 45.54
    
Restricted Stock Units Outstanding at April 26, 2020196
 $45.87
 2.1 $9,114


The weighted-average grant date fair value of restricted stock units granted and the total fair value (in thousands) of restricted stock units granted during the thirteen and twenty-six weeks ended April 26, 2020, and April 28, 2019, are:
 Thirteen Weeks Ended Twenty-Six Weeks Ended
 April 26,
2020		 April 28,
2019		 April 26,
2020		 April 28,
2019
Weighted-average Grant Date Fair Value$47.43
 $—
 $45.86
 $—
Fair Value of Restricted Stock Units Granted1,625
 —
 9,320
 —


Restricted Shares: Restricted shares awarded to non-employee directors annually on February 1 are subject to a restricted period which expires the date of the Company’s next annual stockholders meeting. Newly elected directors receive a prorated award of restricted shares of the Company's common stock, which expires on the date of the Company's second succeeding annual stockholders meeting. A reconciliation of the restricted shares (in thousands) as of April 26, 2020 is:
 Shares 
Weighted-
Average Grant
Date Fair Value
Restricted Shares Outstanding at October 27, 201951
 $42.23
Granted41
 47.29
Vested47
 42.08
Restricted Shares Outstanding at April 26, 202045
 $47.03

The weighted-average grant date fair value of restricted shares granted, the total fair value (in thousands) of restricted shares granted, and the fair value (in thousands) of shares that have vested during the twenty-six weeks ended April 26, 2020, and April 28, 2019, are:
 Twenty-Six Weeks Ended
 April 26,
2020		 April 28,
2019
Weighted-average Grant Date Fair Value$47.29
 $42.23
Fair Value of Restricted Shares Granted1,973
 2,134
Fair Value of Shares Vested1,974
 1,760



NOTE K - FAIR 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. The Company classifies assets and liabilities 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.
 

16
Table of Contents
The Company’s financial assets and liabilities carried at fair value on a recurring basis as of April 26, 2020,25, 2021, and October 27, 2019,25, 2020, and their level within the fair value hierarchy, are:
 Fair Value Measurements at April 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)
$1,484,533 $1,483,708 $825 $0 
Short-term Marketable Securities (2)
17,700 6,377 11,323 0 
Other Trading Securities (3)
197,937 0 197,937 0 
Commodity Derivatives (4)
7,993 7,993 0 0 
Interest Rate Derivatives (5)
18,539 0 18,539 0 
Total Assets at Fair Value$1,726,702 $1,498,078 $228,624 $0 
Liabilities at Fair Value
Deferred Compensation (3)
$70,066 $0 $70,066 $0 
Total Liabilities at Fair Value$70,066 $0 $70,066 $0 
 Fair Value Measurements at April 26, 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)
Assets at Fair Value 
  
  
  
Cash and Cash Equivalents (1)
$606,073
 $604,583
 $1,490
 $—
Short-term Marketable Securities (2)
16,841
 6,848
 9,993
 —
Other Trading Securities (3)
159,190
 —
 159,190
 —
Commodity Derivatives (4)
15,072
 15,072
 —
 —
Total Assets at Fair Value$797,176
 $626,503
 $170,673
 $—
Liabilities at Fair Value       
Deferred Compensation (3)
$57,902
 $—
 $57,902
 $—
Total Liabilities at Fair Value$57,902
 $—
 $57,902
 $—

Fair Value Measurements at October 27, 2019 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)
$672,901
 $672,458
 $443
 $—
Cash and Cash Equivalents (1)
$1,714,309 $1,713,098 $1,211 $0 
Short-term Marketable Securities (2)
14,736
 5,186
 9,550
 —
Short-term Marketable Securities (2)
17,338 5,728 11,610 0 
Other Trading Securities (3)
157,526
 —
 157,526
 —
Other Trading Securities (3)
173,114 0 173,114 0 
Commodity Derivatives (4)
12,882
 12,882
 —
 —
Commodity Derivatives (4)
10,950 10,950 0 0 
Total Assets at Fair Value$858,045
 $690,526
 $167,519
 $—
Total Assets at Fair Value$1,915,711 $1,729,776 $185,935 $0 
Liabilities at Fair Value       Liabilities at Fair Value
Deferred Compensation (3)
$62,373
 $—
 $62,373
 $—
Deferred Compensation (3)
$65,154 $0 $65,154 $0 
Total Liabilities at Fair Value$62,373
 $—
 $62,373
 $—
Total Liabilities at Fair Value$65,154 $0 $65,154 $0 
 
The following methods and assumptions were used to estimate the fair value of the financial assets and liabilities above:
(1)
(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.
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.  Under the plans, the 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, primarily a variety of mutual funds. The 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 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

(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 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

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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.  These 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 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. Therefore, unrealizedUnrealized gains and losses associated with these investments are included in the Company's earnings. During the thirteen and twenty-six weeks ended April 26, 2020,25, 2021, securities held by the trust generated gains of $5.2 million and $17.0 million, respectively, compared to losses of $11.4 million and $6.7 million, respectively, compared to gains of $4.8 million and $6.2 million for the thirteen and twenty-six weeks ended April 28, 2019.26, 2020.
(4)
(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. 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 April 25, 2021, the Company has recognized the obligation to return net cash collateral of $16.1 million from various counterparties (including $25.0 million of realized gains offset by cash owed of $41.1 million). As of October 25, 2020, the Company had recognized the right to reclaim net cash collateral of $12.3 million from various counterparties (including cash of $25.5 million less $13.2 million of realized loss).
(5) The fair value of the Company’s outstanding interest rate hedge agreements are based on similar exchange traded derivatives (market approach) and therefore classified as Level 2. The fair value was determined by comparing the locked rates against the benchmarked treasury rate.

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. 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 April 26, 2020, the Company has recognized the right to reclaim net cash collateral of $47.5 million from various counterparties (including $5.5 million of realized gains on closed positions and cash of $42.0 million).  As of October 27, 2019, the Company had recognized the right to reclaim net cash collateral of $6.5 million from various counterparties (including $10.5 million of realized gains on closed positions offset by cash owed of $4.0 million).
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 $254.1$977.8 million as of April 26, 2020,25, 2021, and $257.7$1,238.8 million as of October 27, 2019.25, 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 twenty-six weeks ended April 26, 2020,25, 2021, and April 28, 2019,26, 2020, there were no material remeasurements of assets or liabilities at fair value on a nonrecurring basis subsequent to their initial recognition.


NOTE LJ - LEASESLONG-TERM DEBT AND OTHER BORROWING ARRANGEMENTS
Long-term Debt consists of: 
(in thousands) April 25, 2021October 25, 2020
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 4.125%, Interest Due
   Semi-annually through April 2021 Maturity Date
0 250,000 
Unamortized Discount on Senior Notes(2,494)(2,630)
Unamortized Debt Issuance Costs(7,565)(7,979)
Finance Lease Liabilities56,861 61,030 
Other Financing Arrangements3,016 3,206 
Total1,049,818 1,303,627 
Less: Current Maturities of Long-term Debt9,333 258,691 
Long-term Debt - Less Current Maturities$1,040,486 $1,044,936 

The Company has operating leases for manufacturing facilities, office space, warehouses, transportation equipment,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 miscellaneous real estateDecember 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 equipment contracts. Finance leases primarily include turkey growing facilitiesunpaid interest, if any, to the date of purchase.


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As of April 25, 2021, the Company had a $400.0 million unsecured revolving line of credit, which was scheduled to mature in June 2021. As of April 25, 2021, and an aircraft. The Company's lessor portfolio consists primarilyOctober 25, 2020, the Company had 0 outstanding draws from this line of immaterial operating leases of farm land to third parties.credit.

The Company determines ifis required by certain covenants in its debt agreements to maintain specified levels of financial ratios and financial position. As of April 25, 2021, the Company was in compliance with all of these covenants.

Activities Subsequent to the End of the Quarter: The Company entered several financing arrangements subsequent to the end of the second quarter. Proceeds are intended to be used to fund a portion of the pending acquisition of the Planters® snack nuts business and for general corporate purposes.

On May 6, 2021, the Company entered into an arrangement containsunsecured 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.

On May 6, 2021, the Company also entered into an unsecured term loan agreement with Wells Fargo Bank, National Association as administrative agent and lender. This agreement provides for an unsecured term loan facility with a leasesingle term loan in a principal amount not to exceed $300.0 million. The lending commitments under the term loan agreement are scheduled to expire on May 5, 2022, at inception. Right-of-usewhich time the Company will be required to pay in full all obligations then outstanding.

On May 25, 2021, the Company entered into an underwriting agreement with several investment banks providing for the issuance and sale of securities as outlined below. The issuance and sale of the notes is scheduled to be completed on June 3, 2021, subject to customary closing conditions.

Senior Unsecured Notes
(in millions)Aggregate PrincipalInterest RateInterest Payments
Scheduled Maturity
2024 (1)
$950 0.65 %Semi-annual
2028 (2) (3)
750 1.70 %Semi-annual
2051 (2) (3)
600 3.05 %Semi-annual
Total Issuance$2,300 
(1) Notes include the option to redeem in whole or in part one year after their issuance.
(2) Notes include the option to redeem in whole at any time or in part from time to time.
(3) Interest rate risk was hedged utilizing interest rate locks. The Company lifted the corresponding hedges in conjunction with the issuance of the notes. See Note F - Derivatives and Hedging for additional details.


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 lease liabilities are recognized based on the present value of future minimum lease payments over the lease term at the commencement date. Leases with an initial term of twelve months or less are not recorded on the Consolidated Statements of Financial Position. The Company combines lease and non-lease components together in determining the minimum lease payments for all leases.

The length of the lease term used in recording right-of-use assets and lease liabilities is based on the contractually required lease term adjusted for any optionsremeasured using enacted tax rates expected to renew, early terminate, or purchase the lease that are reasonably certain of being exercised. Most leases include 1 or more optionsapply to renew or terminate. The exercise of lease renewal and termination options is at the Company’s discretion and generally is not reasonably certain at lease commencement. The Company’s lease agreements typically do not contain material residual value guarantees. The Company has 1 lease with an immaterial residual value guarantee that is includedtaxable income in the minimum lease payments.years the related temporary differences are anticipated to reverse.

Certain lease agreements include rental payment increases over the lease term that can be fixed or variable. Fixed payment increases and variable payment increases based on an index or rate are included in the initial lease liability using the index or rate at commencement date. Variable payment increases not based on an index or rate are recognized as incurred.

If the rate implicit in the lease is not readily determinable, the Company used its periodic incremental borrowing rate, based on the information available at commencement date, to determine the present value of future lease payments. For the initial implementation of ASU 2016-02, Leases (Topic 842) the incremental borrowing rate on October 28, 2019, was used to determine the present value of existing operating right-of-use assets and lease liabilities.


Supplemental balance sheet information related to leases as of April 26, 2020, are:
(in thousands)Location on Consolidated Statements of Financial Position April 26, 2020
Right-of-Use Assets   
OperatingOther Assets $59,054
FinanceNet Property, Plant and Equipment 65,059
Total Right-of-Use Assets $124,114
Liabilities   
Current   
OperatingAccrued Expenses $13,767
FinanceCurrent Maturities of Long-Term Debt 8,295
Noncurrent   
OperatingOther Long-Term Liabilities 47,339
FinanceLong-Term Debt - Less Current Maturities 56,861
Total Lease Liabilities
 $126,263


Lease expensesThe Company's effective tax rate for the thirteen and twenty-six weeks ended April 26, 2020, are:25, 2021, was 22.1 percent and 21.0 percent compared to 20.6 percent and 18.4 percent for the corresponding periods a year ago.
  Thirteen Weeks EndedTwenty-Six Weeks Ended
(in thousands) April 26, 2020April 26, 2020
Operating Lease Cost (1)
 $5,366
$10,490
Finance Lease Cost  
 
Amortization of Right-of-Use Assets 2,001
4,000
Interest on Lease Liabilities 587
1,192
Variable Lease Cost (2)
 106,866
209,534
Net Lease Cost $114,820
$225,216

(1)
Includes short-term lease costs, which are immaterial.
(2)
ASC 842 - Leases requires disclosure of payments related to agreements with an embedded lease that are not otherwise reflected on the balance sheet. The Company's variable lease costs primarily include inventory related expenses, such as materials, labor, and overhead from manufacturing and service agreements that contain embedded leases. Variability of these costs is determined based on usage or output and may vary for other reasons such as changes in material prices.

The weighted-average remaining lease termamount of unrecognized tax benefits, including interest and discount rate for lease liabilities includedpenalties, is recorded in the Consolidated Statements of Financial PositionOther Long-term Liabilities. If recognized as of April 25, 2021, and April 26, 2020, are:
April 26, 2020
Weighted Average Remaining Lease Term
Operating Leases7.37 years
Finance Leases8.59 years
Weighted Average Discount Rate
Operating Leases2.29%
Finance Leases3.57%



Supplemental cash flow$28.1 million and other information$24.0 million, respectively, would impact the Company’s effective tax rate. The Company includes accrued interest and penalties related to leasesuncertain tax positions in income tax expense. Interest and penalties included in income tax expense was immaterial for the thirteen and twenty-six weeks ended April 25, 2021, and April 26, 2020, are:
(in thousands) April 26, 2020
Cash Paid for Amounts Included in the Measurement of Lease Liabilities  
Operating Cash Flows from Operating Leases $7,258
Operating Cash Flows from Finance Leases 1,192
Financing Cash Flows from Finance Leases 4,069
   
ROU assets obtained in exchange for new operating lease liabilities 3,600


2020. The maturityamount of the Company's lease liabilities as ofaccrued interest and penalties at April 25, 2021, and April 26, 2020, are:associated with unrecognized tax benefits was $7.0 million and $6.1 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

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(in thousands)
Operating Leases(1)
 
Finance Leases (2)
 Total
2020 (twenty-six weeks remaining)$9,055
 $5,240
 $14,296
202112,787
 10,324
 23,111
202210,087
 9,934
 20,021
20238,428
 9,738
 18,166
20245,598
 9,612
 15,209
20253,415
 8,117
 11,532
2026 and beyond18,644
 21,192
 39,836
Total Lease Payments$68,015
 $74,157
 $142,172
Less: Imputed Interest6,908
 9,001
 15,909
Present Value of Lease Liabilities$61,107
 $65,156
 $126,263
(1)
Operating lease payments exclude $0.2 million of legally binding minimum lease payments for leases signed but not yet commenced.
(2)
Over the life of the lease contracts, finance lease payments include $8.7 million related to purchase options which are reasonably certain of being exercised.

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 ML - 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 EndedTwenty-Six Weeks Ended
(in thousands)April 25, 2021April 26, 2020April 25, 2021April 26, 2020
Basic Weighted-Average Shares Outstanding540,195 538,119 540,054 536,597 
Dilutive Potential Common Shares7,341 8,254 7,436 8,997 
Diluted Weighted-Average Shares Outstanding547,536 546,373 547,490 545,594 
Antidilutive Potential Common Shares2,373 2,172 2,283 2,453 
 Thirteen Weeks Ended Twenty-Six Weeks Ended
(in thousands)April 26,
2020		 April 28,
2019		 April 26,
2020		 April 28,
2019
Basic Weighted-Average Shares Outstanding538,119
 535,480
 536,597
 534,988
Dilutive Potential Common Shares8,254
 10,850
 8,997
 11,736
Diluted Weighted-Average Shares Outstanding546,373
 546,330
 545,594
 546,724
        
Antidilutive Potential Common Shares2,172
 2,145
 2,453
 1,607




NOTE N -M- 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 4 segments: Grocery Products, Refrigerated Foods, Jennie-O Turkey Store, and International & Other.
 
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, and poultry products for retail, foodservice, deli, and commercial customers.
 
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 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, or interest income to its segments when measuring performance. The Company also retains various other income and expenses at the corporate level. Equity in earningsEarnings of affiliatesAffiliates is included in segment profit; however, earnings attributable to the Company’s noncontrolling interests are excluded. These items are included below as Net Unallocated Expense and Noncontrolling Interest when reconciling to Earnings Before Income Taxes.
 
Sales and operating profits for each of the Company’s reportable segments and reconciliation to Earnings 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 profit and other financial information shown below.
 

 Thirteen Weeks Ended Twenty-Six Weeks Ended
(in thousands)April 26,
2020		 April 28,
2019		 April 26, 2020 April 28, 2019
Sales to Unaffiliated Customers 
  
    
Grocery Products$683,250
 $635,319
 $1,223,876
 $1,242,144
Refrigerated Foods1,247,336
 1,257,884
 2,599,127
 2,536,631
Jennie-O Turkey Store343,056
 305,256
 673,183
 626,490
International & Other148,823
 146,285
 310,714
 299,834
Total$2,422,465
 $2,344,744
 $4,806,899
 $4,705,099
        
Intersegment Sales       
Grocery Products$6
 $—
 $13
 $22
Refrigerated Foods5,248
 3,273
 11,051
 5,451
Jennie-O Turkey Store28,878
 30,050
 56,720
 58,861
International & Other—
 —
 —
 —
Total34,132
 33,323
 67,784
 64,334
Intersegment Elimination(34,132) (33,323) (67,784) (64,334)
Total$—
 $—
 $—
 $—
        
Net Sales       
Grocery Products$683,256
 $635,319
 $1,223,889
 $1,242,166
Refrigerated Foods1,252,584
 1,261,157
 2,610,178
 2,542,082
Jennie-O Turkey Store371,934
 335,306
 729,903
 685,351
International & Other148,823
 146,285
 310,714
 299,834
Intersegment Elimination(34,132) (33,323) (67,784) (64,334)
Total$2,422,465
 $2,344,744
 $4,806,899
 $4,705,099
        
Segment Profit       
Grocery Products$127,763
 $104,499
 $196,198
 $199,796
Refrigerated Foods131,431
 158,088
 298,775
 320,681
Jennie-O Turkey Store27,348
 17,749
 65,899
 55,653
International & Other23,164
 14,325
 43,115
 39,303
Total Segment Profit309,706
 294,661
 603,986
 615,433
Net Unallocated Expense23,098
 (23,178) 27,297
 (9,287)
Noncontrolling Interest(119) 207
 (39) 301
Earnings Before Income Taxes$286,489
 $318,046
 $576,651
 $625,021

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 Thirteen Weeks EndedTwenty-Six Weeks Ended
(in thousands)April 25, 2021April 26, 2020April 25, 2021April 26, 2020
Sales to Unaffiliated Customers  
Grocery Products$628,232 $683,250 $1,205,831 $1,223,876 
Refrigerated Foods1,453,380 1,247,336 2,820,457 2,599,127 
Jennie-O Turkey Store351,179 343,056 684,500 673,183 
International & Other173,830 148,823 356,980 310,714 
Total$2,606,621 $2,422,465 $5,067,768 $4,806,899 
Intersegment Sales
Grocery Products$0 $6 $0 $13 
Refrigerated Foods5,933 5,248 11,891 11,051 
Jennie-O Turkey Store32,442 28,878 59,135 56,720 
International & Other0 0 0 0 
Total38,376 34,132 71,026 67,784 
Intersegment Elimination(38,376)(34,132)(71,026)(67,784)
Total$— $— $— $— 
Net Sales
Grocery Products$628,232 $683,256 $1,205,831 $1,223,889 
Refrigerated Foods1,459,313 1,252,584 2,832,348 2,610,178 
Jennie-O Turkey Store383,621 371,934 743,635 729,903 
International & Other173,830 148,823 356,980 310,714 
Intersegment Elimination(38,376)(34,132)(71,026)(67,784)
Total$2,606,621 $2,422,465 $5,067,768 $4,806,899 
Segment Profit
Grocery Products$97,970 $127,763 $190,172 $196,198 
Refrigerated Foods173,352 131,431 314,524 298,775 
Jennie-O Turkey Store12,700 27,348 39,640 65,899 
International & Other24,481 23,164 56,685 43,115 
Total Segment Profit308,503 309,706 601,020 603,986 
Net Unallocated Expense15,904 23,098 31,451 27,297 
Noncontrolling Interest21 (119)133 (39)
Earnings Before Income Taxes$292,620 $286,489 $569,702 $576,651 

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 for the thirteen and twenty-six weeks ended April 26, 2020, and April 28, 2019, are:
 Thirteen Weeks EndedTwenty-Six Weeks Ended
(in thousands)April 25, 2021April 26, 2020April 25, 2021April 26, 2020
U.S. Retail$1,454,088 $1,455,652 $2,844,716 $2,682,082 
U.S. Foodservice724,248 566,814 1,310,584 1,275,920 
U.S. Deli231,543 223,034 510,802 483,672 
International196,742 176,966 401,666 365,226 
Total$2,606,621 $2,422,465 $5,067,768 $4,806,899 
 Thirteen Weeks Ended Twenty-Six Weeks Ended
(in thousands)April 26,
2020		 April 28,
2019		 April 26,
2020		 April 28,
2019
U.S. Retail$1,455,652
 $1,255,507
 $2,682,082
 $2,508,822
U.S. Foodservice566,814
 716,407
 1,275,920
 1,406,312
U.S. Deli223,034
 212,715
 483,672
 463,991
International176,966
 160,115
 365,226
 325,974
Total$2,422,465
 $2,344,744
 $4,806,899
 $4,705,099


The shiftimprovement demonstrated in revenues from the U.S. Foodservice to U.S. Retail channel in the thirteen weeks ended April 26, 2020,25, 2021, was driven by recovery of the foodservice industry following restrictions imposed by the COVID-19 pandemic and subsequent shelter-in-place restrictions.in fiscal 2020.



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The Company’s products primarily consist of meat and other food products. The amount of total revenues contributed by classes of similar products for the thirteen and twenty-six weeks ended April 26, 2020, and April 28, 2019, are: 
 Thirteen Weeks EndedTwenty-Six Weeks Ended
(in thousands)April 25, 2021April 26, 2020April 25, 2021April 26, 2020
Perishable$1,453,149 $1,250,330 $2,829,969 $2,650,525 
Shelf-stable567,501 619,353 1,091,437 1,070,058 
Poultry494,186 482,959 968,837 942,041 
Miscellaneous91,786 69,823 177,525 144,275 
Total$2,606,621 $2,422,465 $5,067,768 $4,806,899 
 Thirteen Weeks Ended Twenty-Six Weeks Ended
(in thousands)April 26,
2020		 April 28,
2019		 April 26,
2020		 April 28,
2019
Perishable$1,250,330
 $1,317,455
 $2,650,525
 $2,658,607
Shelf-stable619,353
 444,831
 1,070,058
 881,728
Poultry482,959
 427,663
 942,041
 869,055
Miscellaneous69,823
 154,795
 144,275
 295,709
Total$2,422,465
 $2,344,744
 $4,806,899
 $4,705,099


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, peanut butter,nut butters, chilies, shelf-stable microwaveable meals, hash, stews, meat spreads, flour and corn tortillas, salsas, tortilla chips, 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.


NOTE N - SUBSEQUENT EVENTS

The reduction in the Miscellaneous category during fiscal 2020 is dueCompany initiated several financing transactions subsequent to the divestitureend of CytoSportthe second quarter primarily in preparation for the pending acquisiton of the Planters® snack nuts business. See Note J - Long-term Debt and Other Borrowing Arrangements for additional details.

To mitigate the impact of extreme market volatility on April 15, 2019.feed costs, the Company hedged a significant portion of its grain exposure subsequent to the end of the second quarter. See Note F - Derivatives and Hedging for additional details.




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Table of Contents
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
RESULTS OF OPERATIONS
 
Overview
 
The Company is a global manufacturer and marketer of branded food products. It operates in four reportable segments as described in Note NM - 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 $0.42 for the second quarter of fiscal 2020,2021, flat compared to $0.52 per diluted share in the second quarter of fiscal 2019.last year. Significant factors impacting the quarter were:
 
Due•The Company delivered record sales for the second quarter. Foodservice sales exceeded pre-pandemic levels after steep declines last year caused by the effects of the pandemic. Along with the strong foodservice sales and improved supply chain performance, demand remained elevated in the retail, deli and international channels during the quarter.
•Segment profit for the quarter was flat, as increases in Refrigerated Foods and International & Other profits mostly offset lower earnings in Grocery Products and Jennie-O Turkey Store.
•Earnings before income taxes for the quarter increased 2 percent compared to the impact of the COVID-19 pandemicprior year.
•Refrigerated Foods segment profit improved, driven by foodservice growth, increased retail fresh pork profits and subsequent shelter-in-place restrictions, the Company experienced significant demand shifts from its foodservice business to its retail business. The Company also experiencedlower operational interruptions as its manufacturing facilities and suppliers were impacted by COVID-19.costs.
Segment•International & Other segment profit increased due to strong growth from in China and the Philippines, and higher fresh pork export margins.
•Grocery Products Jennie-O Turkey Store, and International & Other more than offsetting a declinesegment profit declined due to lower sales. For reference, the segment delivered exceptional growth in Refrigerated Foods.
Net earnings decreasedthe second quarter of fiscal 2020 due primarily to one-time gains resulting from the CytoSport divestiture last year and losses on investmentsconsumer stock-up during the quarter.onset of the pandemic.
Grocery Products profit increased significantly due to higher sales and an improved mix across the portfolio.
•Jennie-O Turkey Store segment profit increaseddecreased due to higher sales and improved plant and live production performance.the impact of a dramatic increase in feed costs during the quarter.
International & Other profit increased as higher branded export margins and income from affiliates more than offset weaker results in China and lower fresh pork export margins.
Refrigerated Foods segment profit decreased as improved results from many branded retail products were more than offset by the adverse profit impact from significantly lower foodservice sales and higher operational costs.
•Year-to-date cash flow from operations was $548.3$361 million, up 50down 34 percent compared to last yearyear. The primary driver of the decrease was due to lower levelsthe intentional increase in inventory to meet elevated demand.
•In February 2021, the Company entered into a definitive agreement to acquire the Planters®snack nuts business for $3.35 billion in cash in a transaction that is expected to provide a tax benefit valued at approximately $560 million, equating to an effective purchase price of inventory$2.79 billion. The proposed transaction is expected to close in June 2021. The acquisition includes the Planters®, NUT-rition®, Planters®Cheez Balls and accounts receivable.Corn Nuts® brands.
The Company acquired Sadler's Smokehouse for $268.9 million during the quarter. The transaction closed on March 2, 2020.

Response to COVID-19

The Company is committed to making theinvestments necessary investments to keep its team members safe. EnhancedIn the second quarter of fiscal 2021, the Company absorbed approximately $6 million ($19 million for the first six months of fiscal 2021) in direct incremental supply chain costs primarily related to enhanced safety procedures have been implemented across the Company's facilities, including providing personal protective equipment for allmeasures in its production team members, frequent disinfecting of high-touch areas, reconfiguration of common areas and workstations, temperature and wellness screenings, revised shift scheduling, reducing production line speeds, new guidelines on carpooling, more extensive social distancing measures throughout each facility and where possible, providing remote work opportunities and facilitating access to rapid testing for employees.facilities. The Company has also announced over $11 million in bonusesestimates most of the incremental supply chain costs are temporary and will continue to all full- and part-time plant production team members.decline as the pandemic subsides.


Consolidated Results
 
Volume, Net Sales, Earnings, and Diluted Earnings per Share
 Thirteen Weeks Ended Twenty-Six Weeks Ended
(in thousands, except per share amounts)April 26, 2020 April 28, 2019 
%
Change
 April 26, 2020 April 28, 2019 
%
Change
Volume (lbs.)1,233,072
 1,180,007
 4.5
 2,420,059
 2,376,900
 1.8
Organic Volume (1)
1,229,343
 1,143,879
 7.5
 2,416,329
 2,304,939
 4.8
Net Sales$2,422,465
 $2,344,744
 3.3
 $4,806,899
 $4,705,099
 2.2
Organic Net Sales (1)
2,400,855
 2,275,422
 5.5
 4,785,289
 4,570,623
 4.7
Earnings Before Income Taxes286,489
 318,046
 (9.9) 576,651
 625,021
 (7.7)
Net Earnings Attributable to Hormel Foods Corporation227,734
 282,429
 (19.4) 470,606
 523,854
 (10.2)
Diluted Earnings per Share0.42
 0.52
 (19.2) 0.86
 0.96
 (10.4)
Adjusted Earnings Before Income Taxes (1)
286,489
 301,577
 (5.0) 576,651
 608,552
 (5.2)
Adjusted Diluted Earnings Per Share (1)
0.42
 0.46
 (8.7) 0.86
 0.90
 (4.4)

 Thirteen Weeks EndedTwenty-Six Weeks Ended
(in thousands, except per share amounts)April 25, 2021April 26, 2020
%
Change
April 25, 2021April 26, 2020
%
Change
Volume (lbs.)1,192,948 1,233,072 (3.3)2,372,654 2,420,059 (2.0)
Net Sales$2,606,621 $2,422,465 7.6 $5,067,768 $4,806,899 5.4 
Earnings Before Income Taxes292,620 286,489 2.1 569,702 576,651 (1.2)
Net Earnings Attributable to Hormel Foods Corporation227,901 227,734 0.1 450,184 470,606 (4.3)
Diluted Earnings per Share0.42 0.42 — 0.82 0.86 (4.7)
(1)
Net Sales

The non-GAAP adjusted financial measurements of adjusted earnings before income taxes (adjusted pretax earnings) and adjusted diluted earnings per share are presented to provide investors with additional information to facilitate the comparison of past and present operations. Adjusted earnings per share excludes the one-time gain associated with the divestiture of the CytoSport businessCompany delivered record second quarter sales driven by a significant improvement in the second quarter of fiscal 2019, which was recognized in net unallocated expensefoodservice businesses within Refrigerated Foods. Most foodservice categories exhibited growth, led by strong demand for pizza toppings, bacon and provision for income taxes. The tax benefit was driven by the sale of shares of the CytoSport legal entity.

The non-GAAP adjusted financial measurements of organic net sales and organic volume 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 Sadler's Smokehouse acquisition (March 2020) in theauthentic Italian meats. Strength from Refrigerated Foods segment and the CytoSport divestiture (April 2019) in the Grocery Products and International & Other segments.

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.

The tables below show the calculations to reconcile from the GAAP measures to the non-GAAP adjusted measures.


RECONCILIATION OF NON-GAAP MEASURES
(in thousands)
        
ADJUSTED EARNINGS (NON-GAAP)
    
 Thirteen Weeks Ended
 April 26, 2020 April 28, 2019  
 GAAP Earnings GAAP EarningsGain on CytoSport SaleNon-GAAP Adjusted Earnings % Change
Total Segment Profit$309,706
 $294,661
$—
$294,661
 5.1
Net Unallocated Expense23,098
 (23,178)16,469
(6,709) (444.3)
Noncontrolling Interest(119) 207
—
207
 (157.5)
Earnings Before Income Taxes$286,489
 $318,046
$(16,469)$301,577
 (5.0)
Provision for Income Taxes58,873
 35,410
16,972
52,382
 12.4
Net Earnings$227,615
 $282,636
$(33,441)$249,195
 (8.7)
Less: Net Earnings Attributable to Noncontrolling Interest(119) 207
—
207
 (157.5)
Net Earnings Attributable to Hormel Foods Corporation$227,734
 $282,429
$(33,441)$248,988
 (8.5)
        
Diluted Earnings Per Share$0.42
 $0.52
$(0.06)$0.46
 (8.7)

 Twenty-Six Weeks Ended
 April 26, 2020 April 28, 2019  
 GAAP Earnings GAAP EarningsGain on CytoSport SaleNon-GAAP Adjusted Earnings % Change
Total Segment Profit$603,986
 $615,433
$—
$615,433
 (1.9)
Net Unallocated Expense27,297
 (9,287)16,469
7,182
 280.1
Noncontrolling Interest(39) 301
—
301
 (113.0)
Earnings Before Income Taxes$576,651
 $625,021
$(16,469)$608,552
 (5.2)
Provision for Income Taxes106,083
 100,866
16,972
117,838
 (10.0)
Net Earnings$470,568
 $524,155
$(33,441)$490,714
 (4.1)
Less: Net Earnings Attributable to Noncontrolling Interest(39) 301
—
301
 (113.0)
Net Earnings Attributable to Hormel Foods Corporation$470,606
 $523,854
$(33,441)$490,413
 (4.0)
        
Diluted Earnings Per Share$0.86
 $0.96
$(0.06)$0.90
 (4.4)


ORGANIC VOLUME AND NET SALES (NON-GAAP)
          
 Thirteen Weeks Ended
 April 26, 2020 April 28, 2019  
(in thousands)Reported GAAPAcquisitionsOrganic (Non-GAAP) Reported GAAPDivestituresOrganic (Non-GAAP) Organic
% Change
Volume (lbs.)         
Grocery Products363,703
—
363,703
 340,602
(35,103)305,499
 19.1
Refrigerated Foods576,543
(3,730)572,813
 578,795
—
578,795
 (1.0)
Jennie-O Turkey Store209,477
—
209,477
 175,611
—
175,611
 19.3
International & Other83,350
—
83,350
 84,999
(1,025)83,974
 (0.7)
   Total Volume1,233,072
(3,730)1,229,343
 1,180,007
(36,128)1,143,879
 7.5
          
Net Sales         
Grocery Products$683,250
$—
$683,250
 $635,319
$(67,415)$567,904
 20.3
Refrigerated Foods1,247,336
(21,610)1,225,726
 1,257,884
—
1,257,884
 (2.6)
Jennie-O Turkey Store343,056
—
343,056
 305,256
—
305,256
 12.4
International & Other148,823
—
148,823
 146,285
(1,907)144,378
 3.1
   Total Net Sales$2,422,465
$(21,610)$2,400,855
 $2,344,744
$(69,322)$2,275,422
 5.5

 Twenty-Six Weeks Ended
 April 26, 2020 April 28, 2019  
(in thousands)Reported GAAPAcquisitionsOrganic (Non-GAAP) Reported GAAPDivestituresOrganic (Non-GAAP) Organic
% Change
Volume (lbs.)         
Grocery Products656,621
—
656,621
 679,345
(69,910)609,435
 7.7
Refrigerated Foods1,182,152
(3,730)1,178,422
 1,168,151
—
1,168,151
 0.9
Jennie-O Turkey Store406,676
—
406,676
 357,770
—
357,770
 13.7
International & Other174,610
—
174,610
 171,634
(2,052)169,583
 3.0
   Total Volume2,420,059
(3,730)2,416,329
 2,376,900
(71,962)2,304,939
 4.8
          
Net Sales         
Grocery Products$1,223,876
$—
$1,223,876
 $1,242,144
$(130,588)$1,111,556
 10.1
Refrigerated Foods2,599,127
(21,610)2,577,516
 2,536,631
—
2,536,631
 1.6
Jennie-O Turkey Store673,183
—
673,183
 626,490
—
626,490
 7.5
International & Other310,714
—
310,714
 299,834
(3,889)295,946
 5.0
   Total Net Sales$4,806,899
$(21,610)$4,785,289
 $4,705,099
$(134,477)$4,570,623
 4.7

Net Sales

The increase in net sales for the second quarter of fiscal 2020 was primarily related to higher branded retail sales across the enterprise and higher sales of commodity items in Jennie-O Turkey Store and Refrigerated Foods. These increases more than offset significantly lower foodservice sales and the impact from the CytoSport divestiture last year. Due todecline in Grocery Products. For reference, shelter-in-place orders and restaurant closures across the country during the second quarter of fiscal 2020 dramatically shifted consumer shopping patterns dramatically shifted away from foodservice toward the retail channel.

23
Table of Contents

For the first six months of fiscal 2020,2021, the increase in netCompany delivered record sales. Net sales was attributed to higher brandedgrowth from the retail, salesdeli and foodservice businesses within Refrigerated Foods and continued strength within International & Other, driven by China, overcame a slight decline in Grocery Products and Refrigerated Foods and higher commodity sales in Jennie-O Turkey Store and Refrigerated Foods. These increases more than offset lower foodservice sales in Refrigerated Foods and Jennie-O Turkey Store and the impact from the CytoSport divestiture last year.sales.


Cost of Products Sold
 Thirteen Weeks EndedTwenty-Six Weeks Ended
(in thousands)April 25, 2021April 26, 2020
%
Change
April 25, 2021April 26, 2020
%
Change
Cost of Products Sold$2,130,314 $1,945,113 9.5 $4,141,291 $3,861,127 7.3 
 Thirteen Weeks Ended Twenty-Six Weeks Ended
(in thousands)April 26, 2020 April 28,
2019		 
%
Change
 April 26, 2020 April 28,
2019		 
%
Change
Cost of Products Sold$1,945,113
 $1,875,595
 3.7 $3,861,127
 $3,747,616
 3.0

Cost of products sold for the second quarter and first six months of fiscal 2021 increased driven by higherdue to record net sales and higher raw material input costs. Direct incremental supply chain costs related to the COVID-19 pandemic for the second quarter and first six months of fiscal 2021 were approximately $6 million and $19 million, respectively. This compares to approximately $20 million of higher operational costs related to the COVID-19 pandemic.

Cost of products sold forpandemic incurred in the first six monthssecond quarter of fiscal 2020 increased primarily due to higher sales.2020.

The Company expects to absorb another $60-$80 millionoperate in COVID-19 related operational costs ina high cost environment for the second halfremainder of the year, weighted primarily to the third quarter. The majority of theimpacted by higher hog and pork markets, increased feed costs at Jennie-O Turkey Store and inflationary pressures. Incremental COVID-related costs are expected to be temporary.decrease as the pandemic subsides.

Gross Profit
Thirteen Weeks Ended Twenty-Six Weeks Ended Thirteen Weeks EndedTwenty-Six Weeks Ended
(in thousands)April 26,
2020		 April 28,
2019		 
%
Change
 April 26,
2020		 April 28,
2019		 
%
Change
(in thousands)April 25, 2021April 26, 2020
%
Change
April 25, 2021April 26, 2020
%
Change
Gross Profit$477,352
 $469,149
 1.7 $945,773
 $957,483
 (1.2)Gross Profit$476,307 $477,352 (0.2)$926,477 $945,773 (2.0)
Percentage of Net Sales19.7% 20.0%   19.7% 20.3%  Percentage of Net Sales18.3 %19.7 % 18.3 %19.7 % 
 
Gross profit as a percentage of net sales declined for the second quarter. The primary driver of the decline was sales mix due to lower enterprise-wide foodservice salesquarter and higher operational costs related to the impact of the COVID-19 pandemic. Offsetting some of this impact was improved mix within the Grocery Products segment due to strong demand for branded retail items.

For the first six months of fiscal 2020,2021 declined. Record sales were more than offset by higher pork raw material costs and higher feed costs at Jennie-O Turkey Store. Refrigerated Foods margins in the second quarter improved slightly compared to the prior year, while gross profit as a percentage of net sales for all four segments declined due to the mix impact from lower foodservice sales across the Company, higher pork and beef raw material costs duringfor the first quarter and higher operational costs due to the impacthalf of the COVID-19 pandemic.fiscal 2021.
Looking ahead to the third quarter of fiscal 2020,2021, the Company expects to be negatively impacted by operational interruptions, record highbenefit from continued foodservice strength and from the impact of pricing actions across the portfolio. These factors may help offset some of the inflationary pressures to margin, including higher pork raw material input costs lower foodservice demand and higher operatingincreased feed costs relatedat Jennie-O Turkey Store. Due to extreme market volatility, subsequent to the COVID-19 pandemic. Theend of the second quarter, the Company expects continued strength from branded, value-added retail productstook strategic hedges to offsetcover a significant portion of these impacts.expected grain purchases for the remainder of the fiscal year.

Selling, General and Administrative (SG&A)
Thirteen Weeks Ended Twenty-Six Weeks Ended Thirteen Weeks EndedTwenty-Six Weeks Ended
(in thousands)April 26, 2020 April 28,
2019		 
%
Change
 April 26, 2020 April 28,
2019		 
%
Change
(in thousands)April 25, 2021April 26, 2020
%
Change
April 25, 2021April 26, 2020
%
Change
SG&A$193,912
 $170,076
 14.0 $389,433
 $363,620
 7.1SG&A$199,966 $193,912 3.1 $396,346 $389,433 1.8 
Percentage of Net Sales8.0% 7.3%   8.1% 7.7%  Percentage of Net Sales7.7 %8.0 % 7.8 %8.1 % 
 
For the second quarter SG&A expenses increased primarily due to the inclusion of a one-time gain resulting from the CytoSport divestiture in fiscal 2019. For theand first six months of fiscal 2020,2021, SG&A expenses increased as fiscal 2019 benefited from bothcompared to the one-time gain from the divestiture of CytoSport and a legal settlement.prior year due to higher employee-related expenses.

Advertising investmentsspend in the second quarter were even with the prior year but declinedwas $31 million, compared to $35 million last year. Advertising investments for the first half of fiscal 2020 due2021 were down 7.2 percent compared to the divestiture of CytoSport.last year. The Company plans to continue to invest behind its leading brands.

Equity in Earnings of Affiliates
Thirteen Weeks Ended Twenty-Six Weeks Ended Thirteen Weeks EndedTwenty-Six Weeks Ended
(in thousands)April 26, 2020 April 28, 2019 
%
Change
 April 26, 2020 April 28, 2019 
%
Change
(in thousands)April 25, 2021April 26, 2020
%
Change
April 25, 2021April 26, 2020
%
Change
Equity in Earnings of Affiliates$10,021
 $13,291
 (24.6) $17,608
 $24,749
 (28.9)Equity in Earnings of Affiliates$13,074 $10,021 30.5 $27,302 $17,608 55.0 
 
The decline in equity

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Table of Contents
Equity in earnings of affiliates for the second quarter was attributed to weak foodservice demand and higher operational costs from a temporary plant closure at MegaMex due to the effects of the COVID-19 pandemic.

For the first six months of fiscal 2020, equity in earnings of affiliates declinedincreased significantly due to lower earnings for MegaMex.stronger performances at MegaMex and from the Company's joint venture in the Philippines.


Effective Tax Rate
 Thirteen Weeks EndedTwenty-Six Weeks Ended
 April 25, 2021April 26, 2020April 25, 2021April 26, 2020
Effective Tax Rate22.1 %20.6 %21.0 %18.4 %
 Thirteen Weeks Ended Twenty-Six Weeks Ended
 April 26, 2020 April 28, 2019 April 26,
2020		 April 28,
2019
Effective Tax Rate20.6% 11.1% 18.4% 16.1%

The lower effective tax rate in fiscal 2019the prior year was due to the benefitdriven by a higher volume of the tax gain from the CytoSport divestiture.stock option exercises. For further information, refer to Note IK - Income Taxes.


Excluding the estimated impact from the pending acquisition of the Planters® snack nuts business, the Company expects the effective tax rate in fiscal 2021 to be between 20.0 and 21.5 percent.

Segment Results
 
Net sales and operating profits 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.
Thirteen Weeks Ended Twenty-Six Weeks Ended Thirteen Weeks EndedTwenty-Six Weeks Ended
(in thousands)April 26, 2020 April 28, 2019 % Change April 26, 2020 April 28,
2019		 % Change(in thousands)April 25, 2021April 26, 2020% ChangeApril 25, 2021April 26, 2020% Change
Net Sales 
  
  
  
  
  
Net Sales      
Grocery Products$683,250
 $635,319
 7.5
 $1,223,876
 $1,242,144
 (1.5)Grocery Products$628,232 $683,250 (8.1)$1,205,831 $1,223,876 (1.5)
Refrigerated Foods1,247,336
 1,257,884
 (0.8) 2,599,127
 2,536,631
 2.5
Refrigerated Foods1,453,380 1,247,336 16.5 2,820,457 2,599,127 8.5 
Jennie-O Turkey Store343,056
 305,256
 12.4
 673,183
 626,490
 7.5
Jennie-O Turkey Store351,179 343,056 2.4 684,500 673,183 1.7 
International & Other148,823
 146,285
 1.7
 310,714
 299,834
 3.6
International & Other173,830 148,823 16.8 356,980 310,714 14.9 
Total$2,422,465
 $2,344,744
 3.3
 $4,806,899
 $4,705,099
 2.2
Total$2,606,621 $2,422,465 7.6 $5,067,768 $4,806,899 5.4 
           
Segment Profit 
  
  
  
  
  
Segment Profit      
Grocery Products$127,763
 $104,499
 22.3
 $196,198
 $199,796
 (1.8)Grocery Products$97,970 $127,763 (23.3)$190,172 $196,198 (3.1)
Refrigerated Foods131,431
 158,088
 (16.9) 298,775
 320,681
 (6.8)Refrigerated Foods173,352 131,431 31.9 314,524 298,775 5.3 
Jennie-O Turkey Store27,348
 17,749
 54.1
 65,899
 55,653
 18.4
Jennie-O Turkey Store12,700 27,348 (53.6)39,640 65,899 (39.8)
International & Other23,164
 14,325
 61.7
 43,115
 39,303
 9.7
International & Other24,481 23,164 5.7 56,685 43,115 31.5 
Total Segment Profit309,706
 294,661
 5.1
 603,986
 615,433
 (1.9)Total Segment Profit308,503 309,706 (0.4)601,020 603,986 (0.5)
Net Unallocated Expense23,098
 (23,178) (199.7) 27,297
 (9,287) (393.9)Net Unallocated Expense15,904 23,098 (31.1)31,451 27,297 15.2 
Noncontrolling Interest(119) 207
 (157.5) (39) 301
 (113.0)Noncontrolling Interest21 (119)117.4 133 (39)444.1 
Earnings Before Income Taxes$286,489
 $318,046
 (9.9) $576,651
 $625,021
 (7.7)Earnings Before Income Taxes$292,620 $286,489 2.1 $569,702 $576,651 (1.2)
 
Grocery Products
 Thirteen Weeks Ended Twenty-Six Weeks Ended
(in thousands)April 26,
2020		 April 28,
2019		 
%
Change
 April 26,
2020		 April 28,
2019		 
%
Change
Volume (lbs.)363,703
 340,602
 6.8 656,621
 679,345
 (3.3)
Net Sales$683,250
 $635,319
 7.5 $1,223,876
 $1,242,144
 (1.5)
Segment Profit127,763
 104,499
 22.3 196,198
 199,796
 (1.8)

 Thirteen Weeks EndedTwenty-Six Weeks Ended
(in thousands)April 25, 2021April 26, 2020
%
Change
April 25, 2021April 26, 2020
%
Change
Volume (lbs.)313,795 363,703 (13.7)618,129 656,621 (5.9)
Net Sales$628,232 $683,250 (8.1)$1,205,831 $1,223,876 (1.5)
Segment Profit97,970 127,763 (23.3)190,172 196,198 (3.1)
Net
Volume and sales for the second quarter increased as a resultand first half of higher consumerfiscal 2021 declined due to the extremely high levels of demand last year, especially in the second quarter of fiscal 2020. Demand for branded retail products drivenremained elevated compared to pre-pandemic levels, led by growth in the second quarter from productsWholly®guacamole and Herdez® salsas and sauces.


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For the second quarter and first six months of fiscal 2021, segment profit declined due to lower sales. For reference, the segment delivered exceptional growth in the second quarter of fiscal 2020 due to consumer stock-up during the onset of the pandemic.

Grocery Products expects strong demand for its branded retail items to continue in the third quarter. Inventory levels across the portfolio are expected to improve sequentially. Profits may be impacted by higher pork trim prices.
Refrigerated Foods
 Thirteen Weeks EndedTwenty-Six Weeks Ended

(in thousands)
April 25, 2021April 26, 2020
%
Change
April 25, 2021April 26, 2020
%
Change
Volume (lbs.)593,271 576,543 2.9 1,188,586 1,182,152 0.5 
Net Sales$1,453,380 $1,247,336 16.5 $2,820,457 $2,599,127 8.5 
Segment Profit173,352 131,431 31.9 314,524 298,775 5.3 

Strong sales growth in the second quarter of fiscal 2021 was led by a significant recovery in foodservice, growth from retail and deli brands, and higher commodity sales. Nearly every foodservice category experienced growth, led by pizza toppings and brands such as the SPAMFontanini®family of products, Skippy® peanut butter, Hormel® chili and Hormel®Bacon 1™. Retail and deli growth was driven by numerous brands, including Hormel® Black LabelCompleats®, Hormel® microwave meals. These gains more than offset the impact from the CytoSport divestiture in fiscal 2019.Gatherings®, Sadlers® and Applegate®. For the first six months of fiscal 2020,2021, net sales declined as growth from many center store brands did not fully offset the impact from the CytoSport divestiture last year.increases were driven by a recovery in foodservice and higher sales of value-added retail and deli products.

For the second quarter, Refrigerated Foods segment profit improved driven by foodservice growth, increased retail fresh pork profits and lower operational costs. Segment profit increased for the first half of fiscal 2021 due to higher sales and anvalue-added profits.

Refrigerated Foods is expecting improved mix across the portfolio. Segment profit decreased for the first six months of fiscal 2020 due primarily to the divestiture of CytoSport last year. Grocery Products also benefited from a legal settlement in fiscal 2019.

The Company anticipates continued strong demand for its branded retail itemsresults in the third quarter. Profits may be impacted by higher beef and pork trim pricesquarter due to lower supplies from operational disruptionshigher foodservice demand as the industry continues to recover.

Jennie-O Turkey Store
 Thirteen Weeks EndedTwenty-Six Weeks Ended
(in thousands)April 25, 2021April 26, 2020
%
Change
April 25, 2021April 26, 2020
%
Change
Volume (lbs.)202,624 209,477 (3.3)396,193 406,676 (2.6)
Net Sales$351,179 $343,056 2.4 $684,500 $673,183 1.7 
Segment Profit12,700 27,348 (53.6)39,640 65,899 (39.8)

Sales increased for the second quarter due to a recovery in the industry.

Refrigerated Foods
 Thirteen Weeks Ended Twenty-Six Weeks Ended

(in thousands)
April 26,
2020		 April 28,
2019		 
%
Change
 April 26,
2020		 April 28,
2019		 
%
Change
Volume (lbs.)576,543
 578,795
 (0.4) 1,182,152
 1,168,151
 1.2
Net Sales$1,247,336
 $1,257,884
 (0.8) $2,599,127
 $2,536,631
 2.5
Segment Profit131,431
 158,088
 (16.9) 298,775
 320,681
 (6.8)

Second quarter netfoodservice and higher whole bird shipments. Retail sales declined as strong branded retail and deli products sales, commodity sales and the Sadler's Smokehouse acquisition did not fully offset a dramatic decline in foodservice sales duebut remain elevated compared to the effect of the COVID-19 pandemic.pre-pandemic levels. For the first six months of fiscal 2020, net2021, sales increases from brandedincreased due to higher retail products and commodity sales more than offset declines in foodservicewhole bird sales.

Refrigerated Foods segment
Segment profit declined for the second quarter as improved results from products such as Hormel® Black Label® bacon, Applegate® natural and organic meats, Columbus® charcuterie, Hormel® pepperoni and Lloyd's® barbecue meats were more than offset bydecreased due to the adverseimpact of a dramatic increase in feed costs during the quarter. The decline in segment profit impact from significantly lower foodservice sales and higher operational costs. Segment profit declined for the first six monthshalf of fiscal 20202021 was due primarily due to lowerhigher feeds costs and a decline in foodservice sales and earnings.sales.

Looking ahead toIn the third quarter, Refrigerated Foods is expectedJennie-O Turkey Store expects the impact from dramatically higher grain costs to be negatively impactedpartially offset by higher input costs, lower foodservice demand and higher operating costs. These costs are primarily related to lower production volumes,pricing actions across the cost of enhanced safety measures in the Company's production facilities, and special employee bonuses.portfolio.

Jennie-O Turkey StoreInternational & Other
Thirteen Weeks Ended Twenty-Six Weeks Ended Thirteen Weeks EndedTwenty-Six Weeks Ended
(in thousands)April 26,
2020		 April 28,
2019		 
%
Change
 April 26,
2020		 April 28,
2019		 
%
Change
(in thousands)April 25, 2021April 26, 2020
%
Change
April 25, 2021April 26, 2020
%
Change
Volume (lbs.)209,477
 175,611
 19.3 406,676
 357,770
 13.7Volume (lbs.)83,257 83,350 (0.1)169,746 174,610 (2.8)
Net Sales$343,056
 $305,256
 12.4 $673,183
 $626,490
 7.5Net Sales$173,830 $148,823 16.8 $356,980 $310,714 14.9 
Segment Profit27,348
 17,749
 54.1 65,899
 55,653
 18.4Segment Profit24,481 23,164 5.7 56,685 43,115 31.5 
 
For the second quarter and first six months of fiscal 2020, improved commodity, retail and whole-bird sales more than offset a decline in foodservice sales due to the COVID-19 pandemic.

Segment profit for the second quarter and first six months of fiscal 2020 increased due to higher sales and improved plant and live production performance.
Jennie-O Turkey Store anticipates being negatively impacted by operational interruptions during the third quarter.

International & Other
 Thirteen Weeks Ended Twenty-Six Weeks Ended
(in thousands)April 26,
2020		 April 28,
2019		 
%
Change
 April 26,
2020		 April 28,
2019		 
%
Change
Volume (lbs.)83,350
 84,999
 (1.9) 174,610
 171,634
 1.7
Net Sales$148,823
 $146,285
 1.7
 $310,714
 $299,834
 3.6
Segment Profit23,164
 14,325
 61.7
 43,115
 39,303
 9.7
Sales for the second quarter increased as strong global demand for SPAM® luncheon meat and other branded exports overcame softer foodservice sales, especially in China. For the first six months of fiscal 2020, net2021, sales increased, due to higher branded and fresh pork export volume.
Segment profit for the second quarter increased as higher branded export margins and income from affiliates more than offset weakerdriven by continued strong results in China and lowerhigher sales of branded exports.

The increase in segment profit for the quarter was due to growth in China and the Philippines, and higher fresh pork export margins. SegmentThe significant increase in segment profit for the first six months of fiscal 2020 increasedhalf was due to improved results fromfor branded exports, strong results in China and higher income from affiliates.the Company's partners in the Philippines, South Korea and Europe.


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International & Other expects continued strong demand forimproved results in the third quarter from branded exports and retail items in China. Higher input costs in Chinafresh pork exports. International shipping interruptions pose a risk to export sales and Brazil are expected to negatively impact results.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 the corporate level. Equity in earnings of affiliates is included in segment 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.
Thirteen Weeks Ended Twenty-Six Weeks Ended Thirteen Weeks EndedTwenty-Six Weeks Ended
(in thousands)April 26,
2020		 April 28,
2019		 April 26,
2020		 April 28,
2019		(in thousands)April 25, 2021April 26, 2020April 25, 2021April 26, 2020
Net Unallocated Expense$23,098
 $(23,178) $27,297
 $(9,287)Net Unallocated Expense$15,904 $23,098 $31,451 $27,297 
Net Earnings (Loss) Attributable to Noncontrolling Interest(119) 207
 (39) 301
Noncontrolling InterestNoncontrolling Interest21 (119)133 (39)
 
Net unallocated expense increased significantly forFor the second quarter, andnet unallocated expense decreased as higher investment income partially offset the additional interest expense from the bond issuance in the prior year. For the first six months of fiscal 2020 due primarily2021, net unallocated expense increased as higher investment income was more than offset by higher interest expense and expenses related to the one-time gain from the CytoSport divestiture last yeartax settlements and losses on investments.deal fees.

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 27, 2019.25, 2020.

LIQUIDITY AND CAPITAL RESOURCES
 
Cash and cash equivalentsCash Equivalents were $606.1$1,485 million at the end of the second quarterfirst twenty-six weeks of fiscal 20202021 compared to $639.3$606 million at the end of the comparable fiscal 20192020 period. The primary driver of the increased cash is the issuance of $1 billion in debt in the third quarter of fiscal 2020.
 
Cash provided by operating activities was $548.3$361 million in the first twenty-six weeks of fiscal 20202021 compared to $365.6$548 million in the same period of fiscal 2019.  Lower levels of inventory and accounts receivable drove2020. The decline was primarily due to the majority of the increase.strategic increase in inventory. Cash flows from operating activities continue to provide the Company with its principala consistent source of liquidity.  The COVID-19 pandemic has caused supply chain disruptions, market volatility and a shift in consumer behavior. The Company believes its balanced business model and strong balance sheet make it well-positioned to continue to weather the effects of the COVID-19 pandemic.

Cash used in investing activities was $423.1$87 million in the first twenty-six weeks of fiscal 20202021 compared to cash provided by investing activities of $424.8$423 million in the same period of fiscal 2019.2020. In the second quarter of 2020, the Company acquired Sadler's Smokehouse for $268.9$269 million. In fiscal 2019, the Company received proceeds of $473.9 million for the sale of CytoSport. Capital expenditures in the first twenty-six weeks of fiscal 2020 increased2021 were $86 million compared to $138.6 million from $87.6$139 million in the comparablesame period of fiscal 2019.2020. The Company estimates its fiscal 20202021 capital expenditures to be approximately $340.0$260 million. Key projects for the full year include an expansion of the Company's Burke Corporation pizza-toppings facility in Nevada, Iowa; a newCompany’s dry sausage production facilityoperations in Papillion, Nebraska; Project Orion; and other projects to support growth of branded products.
 
Cash used in financing activities was $188.7$508 million in the first twenty-six weeks of fiscal 20202021 compared to $610.5$189 million in the same period of fiscal 2019.2020. The Company repurchased $12.4 sharesrepaid $250 million of its senior unsecured notes upon maturity in April 2021. The Company also used $10 million for common stock repurchases in the first twenty-six weeks of fiscal 20202021 compared to $67.6$12 million repurchased during the same period of the prior year.  In the first twenty-six weeks of fiscal 2019, the Company repaid $374.8 million of debt related to the purchase of Columbus. For additional information pertaining to the Company’s share repurchase plans or programs, see Part II, Item 2 - 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 twenty-six weeks of fiscal 20202021 were $236.8$258 million compared to $212.3$237 million in the comparable period of fiscal 2019.2020. For fiscal 2020,2021, the annual dividend rate was increased to $0.93$0.98 per share, representing the 54th55th consecutive annual dividend increase. The Company has paid dividends for 367371 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 second quarter of fiscal 2020,April 25, 2021, the Company was in compliance with all of these debt covenants.
Subsequent to the end of the quarter, the Company entered into an underwriting agreement with several investment banks providing for the issuance and sale of senior unsecured notes. The proceeds of these notes, along with short-term debt and cash on hand, will be used to fund the acquisition of the Planters® snack nuts business and for general corporate purposes. Details regarding these financing activities can be found in Note J - Long-term Debt and Other Borrowing Arrangements. The Company recently renewedexpects the pending Planters® acquisition will responsibly leverage its shelf registration statement and will be looking at near-term opportunities to access the debtbalance sheet without compromising its disciplined capital markets to refinance existing debt maturing in April 2021 and to maintain ample liquidity at favorable interest rates.
In light of the COVID-19 pandemic, theallocation policy. The Company remains confident in its ability to meet its current and future cash flow needs and remainsis dedicated to

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returning excess cash flow to shareholders through dividend payments. TopOther top priorities for the Company include reinvestments to ensure employee and food safety.  Growing the business through innovation and evaluating opportunities for strategic acquisitions remain a focus for the Company.  Capital spendingsafety, capital expenditures to enhance and expand current operations, will also be a significant cash outflowand growing the business through innovation. The Company continues to evaluate opportunities for fiscal 2020.

strategic acquisitions.
 
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 April 26, 2020,25, 2021, was $24.0$28 million.

There have been no other material changes to the information regarding the Company’s future contractual financial obligations previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended October 27, 2019.25, 2020.

Off-Balance Sheet Arrangements
 
As of April 26, 2020,25, 2021, and October 27, 2019,25, 2020, the Company had $46.5$47 million and $44.8$47 million, respectively, of standby letters of credit issued on its behalf. The standby letters of credit are related primarily related to the Company’s self-insured workers compensation programs. This amount includes $2.7$3 million as of April 26, 2020,25, 2021, and October 27, 2019,25, 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 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 27, 2019.25, 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.

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.
 

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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 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. Hogs purchased under contract accounted for 94 percent and 96 percent of the total hogs purchased by the Company during the first twenty-six weeks of fiscal years 20202021 and 2019, respectively.2020. 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.
 
The Company utilizes a hedge program to reduce exposure and offset the fluctuations in the Company's future direct hog purchases. The program utilizes lean hog futures which are accounted for under cash flow hedge accounting. The fair value of the Company's open futures contracts in this program as of April 26, 202025, 2021 was $(24.4)$12.2 million (before tax) compared to $5.8$3.1 million (before tax) as of October 27, 2019.25, 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 April 26, 2020,25, 2021, open lean hog contracts by $9.0$7.7 million, which in turn would lower the Company's future cost on purchased hogs by a similar amount.

Turkey Production Costs:  The Company raises or contracts for live turkeys to meet the 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.
 
The Company’sCompany utilizes a hedge program to reduce exposure and offset the fluctuation in the Company's future direct grain purchases. This program utilizes corn futures for 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 as of April 26, 2020,25, 2021, was $(13.4)$27.3 million (before tax) compared to $(2.2)$(0.1) million (before tax) as of October 27, 2019.25, 2020. The Company measures its market risk exposure on its grain futures contracts 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 April 26, 2020,25, 2021, open grain contracts by $6.7$10.9 million, which in turn would lower the Company’s future cost on purchased grain by a similar amount.

Other Input Costs: The costs of raw materials, packaging materials, freight, fuel, and energy may cause the Company's results to fluctuate significantly. To manage input cost volatility, the Company pursues cost saving measures, forward pricing, derivatives, and pricing actions when necessary.

Interest Rates: The Company is exposed to interest rate risk with regards to the expected issuance of long-term debt to acquire the Planters® snack nuts portfolio from the Kraft Heinz Company. To mitigate this risk, in the second quarter of fiscal 2021, the Company entered interest rate locks, which are accounted for under cash flow hedge accounting. The fair value of the Company's interest rate risk hedges was $18.5 million as of April 25, 2021. The Company measures its market risk exposure on interest rate contracts using sensitivity analysis, which considers a hypothetical change of 25 basis points in the underlying benchmark rate. A decrease of 25 basis points in the rate would have negatively impacted the fair value of the Company's interest rate contracts by $39.7 million, while an increase of 25 basis points would have a positive impact of $36.1 million.
 
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 April 26, 2020,25, 2021, the balance of these securities totaled $159.2$197.9 million compared to $157.5$173.1 million as of October 27, 2019.  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 negative impact to the Company’s

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pretax earnings of approximately $7.1$9.8 million, while a 10 percent increase in value would have a positive impact of the same amount.
 
International 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 April 26, 202025, 2021 was $534.3$601.4 million, compared to $543.8$541.2 million as of October 27, 2019,25, 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 assets either currently through the Consolidated Statements of Operations within Interest and Investment 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 April 26, 2020.25, 2021. A 10 percent strengthening in the value of the Chinese yuan relative to the U.S. dollar would result in other comprehensive income of approximately $33.4$39.7 million pretax. A

10 percent weakening in the value of the Chinese yuan relative to the U.S. dollar would result in other comprehensive loss of approximately $27.3$32.5 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 $11.2$11.1 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 $9.2$9.1 million pretax.


Item 4.  CONTROLS AND PROCEDURES
 
(a)Disclosure Controls and Procedures.
(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.
(b)    Internal Controls.
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. During the first quarter of fiscal year 2020, the Company completed the implementation of certainComponents supporting human resources, payroll, and payroll solutions.finance were implemented in fiscal 2020. There have been no material implementations in fiscal 2021. Additional phases will be implementedcontinue over the next several years. Emphasis has been on the maintenance of effective internal controls and assessment of the design and operating effectiveness of key control activities throughout development and deployment of all phases. The Company evaluated and concluded the first phase of Project Orion has not materially affected the Company's internal control over financial reporting. Based on this evaluation there has beeneach phase.

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 first twenty-six weekssecond quarter of fiscal 20202021 that hashave materially affected, or isare reasonably likely to materially affect, the Company’s internal control over financial reporting. The Company will continue to evaluate as additional phases are deployed.



PART II - OTHER INFORMATION
 
Item 1.  LEGAL PROCEEDINGS
 
The Company is a party to various legal proceedings related to the ongoing operation of its business, including claims both by and against the Company. At any time, such proceedings typically involve claims related to product liability, labeling, contract disputes,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. Resolutions of any currently known matters, either individually or in the aggregate, are 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.

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Item 1A.  RISK FACTORS
 
Risk FactorsBUSINESS AND OPERATIONAL RISKS

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 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 may utilize hedging programs to manage its exposure to various 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.

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.

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•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.
•In accordance with recommendations to reduce large gatherings and increase social distancing, 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 strains 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 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 may increase significantly to fund future acquisitions, such as the definitive agreement to acquire the Planters® snack nuts business. Additional 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.


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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 currently sources approximately 30% of its pork raw materials from Wholestone Farms, LLC (Wholestone) under a supply agreement expiring in December 2021. The Company is in negotiations with Wholestone as well as evaluating alternative procurement options.

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. Attempted cyber-attack 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 April 25, 2021, the Company had approximately 19,800 employees worldwide, of which approximately 3,600 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 availability challenges could have an adverse effect on the Company's business.

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 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.

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 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, availability of capital, energy availability and costs (including fuel surcharges), 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; 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 Company utilizes hedging programs to manage its exposure to various commodity market risks, 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 become more favorable than those secured under the Company’s hedging programs.

Additionally, if a highly pathogenic human disease outbreak developed in the United States or internationally, it may negatively impact the national or global economy, demand for Company products, supplies to the Company, the Company's production processes, 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, that 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. At this time, the following potential risk factors arising from COVID-19 pandemic, have had and/or may continue to cause one or more of the following impacts on the Company's operations:

One or more of the Company's manufacturing facilities may be shutdown 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 slowdown the spread of COVID-19 may impact facilities’ efficiency.
Operating costs may increase as measures are put in place to prevent or slowdown 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 may also 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 relations or labor costs.
In accordance with recommendations to reduce large gatherings and increase social distancing, 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 Company has already seen many of these risks materialize and impact the business, but is unable to predict the ultimate extent of these impacts or the effects they will have on the Company’s business, financial condition, and results of operations. The COVID-19 pandemic is an unprecedented situation and the Company's understanding of its impacts are changing and evolving on a weekly if not daily basis. The 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.


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.

According to the Ministry

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Table of Agriculture and Rural Affairs of the People's Republic of China, as of November 2019,Contents
In recent years, the outbreak of ASF has impacted hog herds in China, has eliminated over 40 percent of the country's hog herd compared to the prior year. The disease has also spread to additional countries in Asia, and Europe. 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,tree nuts and wheyenergy 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 energy costs 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. Typically, 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 costs compared 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.

Jennie-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 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 supplies 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, thereby potentially lowering prices. The Company occasionally utilizes in-country production to limit this exposure.

Market demand for the Company’s products may fluctuate.

The Company faces competition from other producers of proteins such asalternative meats and protein sources, including pork, beef, turkey, chicken, and fish, as well as providers of alternative proteins such as nut butters, whey, and plant-based proteins. The factors on which the Company competes include:
▪price;
▪product quality and attributes;
▪brand identification;
▪breadth of product line; and
▪customer service.
▪price;
▪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 factors in the future.


LEGAL AND REGULATORY RISKS
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, most recently the acquisition of Sadler's Smokehouse, that align with the Company’s strategic initiative to deliver 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 on favorable terms, the diversion of management's attention from other business concerns, the potential loss of key employees and customers of current or acquired companies, the inability to integrate or divest operations successfully, the possible assumption of unknown liabilities, potential disputes with buyers or 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 negatively 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, laws regulating the protection of personal information, cyber-security regulations, 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

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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. There is current uncertainty around a recent federal district court ruling which could reduce harvest capacity or increase labor costs.

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, as well as any modifications, is material to the Company’s business. Some 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 related to additional investigation, assessment or other requirements. The occurrence of any of these events, the implementation of new laws and regulations or updatedstricter 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.

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 part of the Company’s business operations. Attempted cyber-attack 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 Company implemented human resources and payroll functionality in December 2019. Additional integrations are expected to take place throughout fiscal 2020 and 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 or increases in labor costs could harm the Company’s business.

As of April 26, 2020, the Company had approximately 18,700 employees worldwide, of which approximately 3,230 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.

Item 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
Issuer Purchases of Equity Securities in the Thirteen Weeks Ended April 26, 2020
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
January 27, 2020 - March 1, 2020—
—
—
4,758,235
March 2, 2020 - March 29, 2020—
—
—
4,758,235
March 30, 2020 - April 26, 2020301,915
$40.94
301,915
4,456,320
Total301,915
$40.94
301,915
 

Issuer Purchases of Equity Securities
Thirteen Weeks Ended April 25, 2021
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
January 25, 2021-
February 28, 2021		18,001 $45.33 18,001 4,239,594 
March 1, 2021 -
March 28, 2021		— — — 4,239,594 
March 29, 2021 -
April 25, 2021		— — — 4,239,594 
Total18,001 $45.33 18,001 
1On January 29, 2013, the Company's Board of Directors authorized the repurchase of 10,000,000 shares of its common stock with no expiration date. On January 26, 2016, the Board of Directors approved a two-for-one split of the Company’s common stock to be effective January 27, 2016. As part of the stock split resolution, the number of shares remaining to be repurchased was adjusted proportionately.
 



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Item 6.  EXHIBITS
10.1
31.110.2
10.3
31.1
31.2
32.1
101The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended April 26, 2020,25, 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.
104The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended April 26, 2020,25, 2021, formatted in Inline XBRL (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
(Registrant)
Date: June 2, 20201, 2021By/s/ JAMES N. SHEEHAN
JAMES N. SHEEHAN
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
Date: June 2, 20201, 2021By/s/ JANA L. HAYNES
JANA L. HAYNES
Vice President and Controller
(Principal Accounting Officer)


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