UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~July 30, 2017~~

April 29, 2018

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________________________________ to ________________________________________

Commission File Number: 1-2402

HORMEL FOODS CORPORATION

(Exact name of registrant as specified in its charter)



Delaware (State or other jurisdiction of incorporation or organization)		41-0319970 (I.R.S. Employer Identification No.)



1 Hormel Place Austin, Minnesota (Address of principal executive offices)		55912-3680 (Zip Code)

(507) 437-5611

(Registrant’s telephone number, including area code)

None

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X YES NO

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). X YES NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer X		Accelerated filer
Non-accelerated filer	(Do not check if a smaller reporting company)	Smaller reporting company
		Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes X No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

~~Class~~

Class	Outstanding at ~~September 8, 2017~~ June 3, 2018
Common Stock	$.01465 par value ~~527,828,196~~	530,506,904
Common Stock Non-Voting	$.01 par value -0-

~~Table of Contents~~

TABLE OF CONTENTS



PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION ~~– July 30, 2017~~- April 29, 2018 and October ~~30, 2016~~29, 2017
CONSOLIDATED STATEMENTS OF OPERATIONS –- Three and ~~Nine~~Six Months Ended ~~July~~April 29, 2018 and April 30, 2017 ~~and~~
~~July 24, 2016~~
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME –- Three and ~~Nine~~Six Months Ended ~~July~~April 29, 2018 and April 30, 2017
~~and July 24, 2016~~
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ INVESTMENT –- Twelve Months Ended October 29, 2017 and Six Months Ended April 29, 2018
~~Ended October 30, 2016 and Nine Months Ended July 30, 2017~~
CONSOLIDATED STATEMENTS OF CASH FLOWS ~~– Nine~~- Six Months Ended ~~July~~April 29, 2018 and April 30, 2017 ~~and July 24, 2016~~
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
CRITICAL ACCOUNTING POLICIES
RESULTS OF OPERATIONS
Overview
Consolidated Results
Segment Results
Related Party Transactions
LIQUIDITY AND CAPITAL RESOURCES
FORWARD-LOOKING STATEMENTS

Item 3.	Quantitative and Qualitative Disclosures About Market Risk

Item 4.	Controls and Procedures

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings

Item 1A.	Risk Factors

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

Item 6.	Exhibits

SIGNATURES

~~Table of Contents~~

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

HORMEL FOODS CORPORATION

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(in thousands, except share and per share amounts)

July 30,

October 30,

2017

2016

(Unaudited)

ASSETS

CURRENT ASSETS

Cash and cash equivalents

$
633,341

$
415,143

Accounts receivable

549,011

591,310

Inventories

1,013,214

985,683

Income taxes receivable

-

18,282

Prepaid expenses

17,096

13,775

Other current assets

4,433

5,719

TOTAL CURRENT ASSETS

2,217,095

2,029,912

DEFERRED INCOME TAXES

-

6,223

GOODWILL

1,822,671

1,834,497

OTHER INTANGIBLES

882,717

903,258

PENSION ASSETS

98,893

68,901

INVESTMENTS IN AND RECEIVABLES FROM AFFILIATES

248,129

239,590

OTHER ASSETS

184,364

182,237

PROPERTY, PLANT AND EQUIPMENT

Land

46,847

67,557

Buildings

757,190

805,858

Equipment

1,665,520

1,675,549

Construction in progress

152,217

218,351

Less: Allowance for depreciation

(1,567,678
)

(1,661,866
)
Net property, plant and equipment

1,054,096

1,105,449

TOTAL ASSETS

$
6,507,965

$
6,370,067




	April 29, 2018			October 29, 2017
	(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	261,571		$	444,122
Accounts receivable	551,392			618,351
Inventories	1,011,215			921,022
Income taxes receivable	2,930			22,346
Prepaid expenses	18,534			16,144
Other current assets	5,138			4,538
TOTAL CURRENT ASSETS	1,850,780			2,026,523

GOODWILL	2,731,956			2,119,813

OTHER INTANGIBLES	1,251,296			1,027,014

PENSION ASSETS	184,030			171,990

INVESTMENTS IN AND RECEIVABLES FROM AFFILIATES	265,579			242,369

OTHER ASSETS	192,255			184,948

PROPERTY, PLANT AND EQUIPMENT
Land	52,007			51,249
Buildings	900,139			866,855
Equipment	1,808,954			1,710,537
Construction in progress	226,119			148,064
Less: Allowance for depreciation	(1,633,366		)	(1,573,454		)
Net property, plant and equipment	1,353,853			1,203,251

TOTAL ASSETS	$	7,829,749		$	6,975,908

See Notes to Consolidated Financial Statements

~~Table of Contents~~

HORMEL FOODS CORPORATION

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(in thousands, except share and per share amounts)

July 30,

October 30,

2017

2016

(Unaudited)

LIABILITIES AND SHAREHOLDERS’ INVESTMENT

CURRENT LIABILITIES

Accounts payable

$
421,170

$
481,826

Accrued expenses

71,284

82,145

Accrued workers compensation

24,842

36,612

Accrued marketing expenses

77,151

119,583

Employee related expenses

188,327

251,433

Taxes payable

1,990

4,331

Interest and dividends payable

93,007

77,266

TOTAL CURRENT LIABILITIES

877,771

1,053,196

LONG-TERM DEBT–less current maturities

250,000

250,000

PENSION AND POST-RETIREMENT BENEFITS

529,107

522,356

OTHER LONG-TERM LIABILITIES

88,336

93,109

DEFERRED INCOME TAXES

9,571

-

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–

7,732

7,742

authorized 1,600,000,000 shares;

issued 527,739,696 shares July 30, 2017

issued 528,483,868 shares October 30, 2016

Additional paid-in capital

-

-

Accumulated other comprehensive loss

(291,964
)

(296,303
)
Retained earnings

5,033,945

4,736,567

HORMEL FOODS CORPORATION SHAREHOLDERS’ INVESTMENT

4,749,713

4,448,006

NONCONTROLLING INTEREST

3,467

3,400

TOTAL SHAREHOLDERS’ INVESTMENT

4,753,180

4,451,406

TOTAL LIABILITIES AND SHAREHOLDERS’ INVESTMENT

$
6,507,965

$
6,370,067




	April 29, 2018			October 29, 2017
	(Unaudited)
LIABILITIES AND SHAREHOLDERS’ INVESTMENT
CURRENT LIABILITIES
Accounts payable	$	465,572		$	552,714
Short-term debt	185,000			—
Accrued expenses	62,635			76,966
Accrued workers compensation	25,702			26,585
Accrued marketing expenses	127,998			101,573
Employee related expenses	180,132			209,562
Taxes payable	1,432			525
Interest and dividends payable	99,990			90,287
TOTAL CURRENT LIABILITIES	1,148,461			1,058,212

LONG-TERM DEBT–less current maturities	624,763			250,000

PENSION AND POST-RETIREMENT BENEFITS	535,282			530,249

OTHER LONG-TERM LIABILITIES	104,185			99,340

DEFERRED INCOME TAXES	125,425			98,410

SHAREHOLDERS’ INVESTMENT
Preferred stock, par value $.01 a share–
authorized 160,000,000 shares; issued–none
Common stock, non-voting, par value $.01
a share–authorized 400,000,000 shares; issued–none
Common stock, par value $.01465 a share–	7,766			7,741
authorized 1,600,000,000 shares;
issued 530,132,619 shares April 29, 2018
issued 528,423,605 shares October 29, 2017
Additional paid-in capital	10,971			13,670
Accumulated other comprehensive loss	(235,753		)	(248,075		)
Retained earnings	5,504,221			5,162,571
HORMEL FOODS CORPORATION SHAREHOLDERS’ INVESTMENT	5,287,205			4,935,907
NONCONTROLLING INTEREST	4,428			3,790
TOTAL SHAREHOLDERS’ INVESTMENT	5,291,633			4,939,697

TOTAL LIABILITIES AND SHAREHOLDERS’ INVESTMENT	$	7,829,749		$	6,975,908

See Notes to Consolidated Financial Statements

~~Table of Contents~~

HORMEL FOODS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(Unaudited)

Three Months Ended

Nine Months Ended

July 30,
2017

July 24,
2016

July 30,
2017

July 24,
2016

Net sales

$
2,207,375

$
2,302,376

$
6,674,911

$
6,895,283

Cost of products sold

1,754,966

1,827,091

5,183,302

5,335,628

GROSS PROFIT

452,409

475,285

1,491,609

1,559,655

Selling, general and administrative

176,660

206,876

567,886

627,968

Goodwill impairment charge

-

-

-

991

Equity in earnings of affiliates

3,956

6,381

27,376

27,449

OPERATING INCOME

279,705

274,790

951,099

958,145

Other income and expense:

Interest and investment income

1,376

2,474

6,643

3,920

Interest expense

(3,057
)

(3,147
)

(9,106
)

(9,583
)

EARNINGS BEFORE INCOME TAXES

278,024

274,117

948,636

952,482

Provision for income taxes

95,473

78,341

319,896

306,155

NET EARNINGS

182,551

195,776

628,740

646,327

Less: Net earnings attributable to noncontrolling interest

43

122

159

215

NET EARNINGS ATTRIBUTABLE TO HORMEL FOODS CORPORATION

$
182,508

$
195,654

$
628,581

$
646,112

NET EARNINGS PER SHARE:

BASIC

$
0.35

$
0.37

$
1.19

$
1.22

DILUTED

$
0.34

$
0.36

$
1.17

$
1.19

WEIGHTED-AVERAGE SHARES OUTSTANDING:

BASIC

528,165

529,660

528,487

529,473

DILUTED

538,814

542,163

539,504

542,890

DIVIDENDS DECLARED PER SHARE:

$
0.170

$
0.145

$
0.510

$
0.435



	Three Months Ended						Six Months Ended
	April 29, 2018			April 30, 2017			April 29, 2018			April 30, 2017
Net sales	$	2,330,568		$	2,187,309		$	4,661,861		$	4,467,536
Cost of products sold	1,833,882			1,700,389			3,662,996			3,428,336
GROSS PROFIT	496,686			486,920			998,865			1,039,200

Selling, general and administrative	203,799			181,009			422,921			391,226
Equity in earnings of affiliates	13,486			10,121			37,017			23,420

OPERATING INCOME	306,373			316,032			612,961			671,394

Other income and expense:
Interest and investment (expense) income	(2,489		)	2,818			817			5,267
Interest expense	(7,001		)	(3,023		)	(11,730		)	(6,049		)

EARNINGS BEFORE INCOME TAXES	296,883			315,827			602,048			670,612

Provision for income taxes	59,361			104,941			61,315			224,423

NET EARNINGS	237,522			210,886			540,733			446,189
Less: Net earnings attributable to noncontrolling interest	138			(40		)	242			116
NET EARNINGS ATTRIBUTABLE TO HORMEL FOODS CORPORATION	$	237,384		$	210,926		$	540,491		$	446,073

NET EARNINGS PER SHARE:
BASIC	$	0.45		$	0.40		$	1.02		$	0.84
DILUTED	$	0.44		$	0.39		$	1.00		$	0.83

WEIGHTED-AVERAGE SHARES OUTSTANDING:
BASIC	529,799			528,712			529,626			528,649
DILUTED	542,811			539,635			543,146			539,850

DIVIDENDS DECLARED PER SHARE:	$	0.1875		$	0.1700		$	0.3750		$	0.3400

See Notes to Consolidated Financial Statements

~~Table of Contents~~

HORMEL FOODS CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(Unaudited)

Three Months Ended

Nine Months Ended

July 30,
2017

July 24,
2016

July 30,
2017

July 24,
2016

NET EARNINGS

$
182,551

$
195,776

$
628,740

$
646,327

Other comprehensive income (loss), net of tax:

Foreign currency translation

4,143

(2,960
)

(3,037
)

(4,681
)
Pension and other benefits

3,314

(835
)

9,961

2,705

Deferred hedging

(170
)

5,017

(2,677
)

3,069

TOTAL OTHER COMPREHENSIVE INCOME (LOSS)

7,287

1,222

4,247

1,093

COMPREHENSIVE INCOME

189,838

196,998

632,987

647,420

Less: Comprehensive income attributable to noncontrolling interest

143

40

67

1

COMPREHENSIVE INCOME ATTRIBUTABLE TO HORMEL FOODS CORPORATION

$
189,695

$
196,958

$
632,920

$
647,419




	Three Months Ended						Six Months Ended
	April 29, 2018			April 30, 2017			April 29, 2018			April 30, 2017
NET EARNINGS	$	237,522		$	210,886		$	540,733		$	446,189
Other comprehensive income (loss), net of tax:
Foreign currency translation	4,796			907			9,008			(7,180		)
Pension and other benefits	2,487			3,314			4,973			6,647
Deferred hedging	(613		)	(1,184		)	(1,263		)	(2,507		)
TOTAL OTHER COMPREHENSIVE INCOME (LOSS)	6,670			3,037			12,718			(3,040		)
COMPREHENSIVE INCOME	244,192			213,923			553,451			443,149
Less: Comprehensive income (loss) attributable to noncontrolling interest	385			8			638			(76		)
COMPREHENSIVE INCOME ATTRIBUTABLE TO HORMEL FOODS CORPORATION	$	243,807		$	213,915		$	552,813		$	443,225

See Notes to Consolidated Financial Statements

~~Table of Contents~~

HORMEL FOODS CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ INVESTMENT

(in thousands, except per share amounts)

(Unaudited)

Hormel Foods Corporation Shareholders

Accumulated

Additional

Other

Non-

Total

Common

Treasury

Paid-in

Retained

Comprehensive

controlling

Shareholders’

Stock

Stock

Capital

Earnings

Income (Loss)

Interest

Investment

Balance at October 25, 2015

$
7,741

$
-

$
-

$
4,216,125

$
(225,668
)

$
3,195

$
4,001,393

Net earnings

890,052

465

890,517

Other comprehensive loss

(70,635
)

(260
)
(70,895
)
Purchases of common stock

(87,885
)

(87,885
)
Stock-based compensation expense

1

17,828

17,829

Exercise of stock options/nonvested shares

35

7,476

7,511

Shares retired

(35
)
87,885

(25,304
)
(62,546
)

-

Declared cash dividends – $0.58 per share

(307,064
)

(307,064
)
Balance at October 30, 2016

$
7,742

$
-

$
-

$
4,736,567

$
(296,303
)

$
3,400

$
4,451,406

Net earnings

628,581

159

628,740

Other comprehensive income (loss)

4,339

(92
)
4,247

Purchases of common stock

(94,487
)

(94,487
)
Stock-based compensation expense

1

13,866

13,867

Exercise of stock options/nonvested shares

29

18,881

18,910

Shares retired

(40
)
94,487

(32,747
)
(61,700
)

-

Declared cash dividends – $0.51 per share

(269,503
)

(269,503
)
Balance at July 30, 2017

$
7,732

$
-

$
-

$
5,033,945

$
(291,964
)

$
3,467

$
4,753,180




	Hormel Foods Corporation Shareholders
	Common Stock			Treasury Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Non- controlling Interest		Total Shareholders’ Investment
Balance at October 30, 2016	$	7,742		$	—		$	—		$	4,736,567		$	(296,303	)	$	3,400	$	4,451,406

Net earnings										846,735						368		847,103
Other comprehensive income													48,228			22		48,250
Purchases of common stock				(94,487		)												(94,487		)
Stock-based compensation expense	1						15,590											15,591
Exercise of stock options/restricted shares	38						30,827											30,865
Shares retired	(40		)	94,487			(32,747		)	(61,700		)						—
Declared cash dividends – $0.68 per share										(359,031		)						(359,031		)
Balance at October 29, 2017	$	7,741		$	—		$	13,670		$	5,162,571		$	(248,075	)	$	3,790	$	4,939,697
Net earnings										540,491						242		540,733
Other comprehensive income													12,322			396		12,718
Purchases of common stock				(44,741		)												(44,741		)
Stock-based compensation expense	1						11,390											11,391
Exercise of stock options/restricted shares	43						30,633											30,676
Shares retired	(19		)	44,741			(44,722		)									—
Declared cash dividends – $0.375 per share										(198,841		)						(198,841		)
Balance at April 29, 2018	$	7,766		$	—		$	10,971		$	5,504,221		$	(235,753	)	$	4,428	$	5,291,633

See Notes to Consolidated Financial Statements

~~Table of Contents~~

HORMEL FOODS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

July 30,

July 24,

2017

2016

OPERATING ACTIVITIES

Net earnings

$
628,740

$
646,327

Adjustments to reconcile to net cash provided by operating activities:

Depreciation

89,930

89,996

Amortization of intangibles

6,191

6,524

Goodwill impairment charge

-

991

Equity in earnings of affiliates, net of dividends

(7,855
)

(2,905
)

Provision for deferred income taxes

11,359

4,428

Gain on property/equipment sales and plant facilities

1,283

138

Non-cash investment activities

(3,790
)

(1,247
)

Stock-based compensation expense

13,867

16,091

Excess tax benefit from stock-based compensation

(24,859
)

(39,190
)

Changes in operating assets and liabilities, net of acquisitions:

Decrease in accounts receivable

18,348

47,767

Increase in inventories

(72,598
)

(60,579
)

(Increase) decrease in prepaid expenses and other current assets

(22,333
)

6,603

Decrease in pension and post-retirement benefits

(6,370
)

(26,266
)

Decrease in accounts payable and accrued expenses

(166,509
)

(105,466
)

Increase in net income taxes payable

46,069

38,474

NET CASH PROVIDED BY OPERATING ACTIVITIES

511,473

621,686

INVESTING ACTIVITIES

Proceeds from sale of business

135,944

110,149

Acquisitions of businesses/intangibles

-

(281,655
)

Purchases of property/equipment

(118,511
)

(165,828
)

Proceeds from sales of property/equipment

2,532

2,590

(Increase) decrease in investments, equity in affiliates, and other assets

(1,154
)

6,865

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES

18,811

(327,879
)

FINANCING ACTIVITIES

Proceeds from short-term debt

-

145,000

Principal payments on short-term debt

-

(185,000
)

Dividends paid on common stock

(256,341
)

(219,744
)

Share repurchase

(94,487
)

(44,976
)

Proceeds from exercise of stock options

14,337

9,233

Excess tax benefit from stock-based compensation

24,859

39,190

NET CASH USED IN FINANCING ACTIVITIES

(311,632
)

(256,297
)

EFFECT OF EXCHANGE RATE CHANGES ON CASH

(454
)

(5,152
)

INCREASE IN CASH AND CASH EQUIVALENTS

218,198

32,358

Cash and cash equivalents at beginning of year

415,143

347,239

CASH AND CASH EQUIVALENTS AT END OF QUARTER

$
633,341

$
379,597



	Six Months Ended
	April 29, 2018			April 30, 2017
OPERATING ACTIVITIES
Net earnings	$	540,733		$	446,189
Adjustments to reconcile to net cash provided by operating activities:
Depreciation	74,081			59,185
Amortization of intangibles	6,235			4,143
Equity in earnings of affiliates	(37,017		)	(23,420		)
Distribution from equity method investees	10,024			12,522
(Benefit) provision for deferred income taxes	(74,486		)	11,336
(Gain) loss on property/equipment sales and plant facilities	(1,384		)	1,285
Non-cash investment activities	(8,451		)	(2,618		)
Stock-based compensation expense	11,391			11,861
Changes in operating assets and liabilities, net of acquisitions:
Decrease in accounts receivable	87,141			40,728
Increase in inventories	(59,094		)	(47,792		)
Increase in prepaid expenses and other current assets	(3,926		)	(21,790		)
Increase in pension and post-retirement benefits	1,525			6,468
Decrease in accounts payable and accrued expenses	(122,847		)	(215,253		)
Increase (decrease) in net income taxes payable	19,416			(2,292		)
NET CASH PROVIDED BY OPERATING ACTIVITIES	443,341			280,552

INVESTING ACTIVITIES
Proceeds from sale of business	—			135,944
Acquisitions of businesses/intangibles	(857,673		)	—
Purchases of property/equipment	(141,160		)	(76,975		)
Proceeds from sales of property/equipment	6,439			1,157
Decrease (increase) in investments, equity in affiliates, and other assets	2,906			(1,028		)
Proceeds from company-owned life insurance	3,028			5,005
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES	(986,460		)	64,103

FINANCING ACTIVITIES
Net proceeds from short-term debt	185,000			—
Proceeds from long-term debt	375,000			—
Principal payments on long-term debt	(237		)	—
Dividends paid on common stock	(189,139		)	(166,507		)
Share repurchase	(44,741		)	(49,583		)
Proceeds from exercise of stock options	29,978			8,879
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES	355,861			(207,211		)

EFFECT OF EXCHANGE RATE CHANGES ON CASH	4,707			(3,686		)
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(182,551		)	133,758
Cash and cash equivalents at beginning of year	444,122			415,143
CASH AND CASH EQUIVALENTS AT END OF QUARTER	$	261,571		$	548,901

See Notes to Consolidated Financial Statements

~~Table of Contents~~

HORMEL FOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~(Unaudited)~~

NOTE AGENERAL

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 balance sheet at October ~~30, 2016,~~29, 2017, 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 ~~30, 2016. Fiscal 2017 is a 52-week year as compared with fiscal 2016, which was 53 weeks, with the additional week occurring in the fourth quarter.~~

~~Reclassifications~~

~~Assets Held for Sale~~

The Company classifies assets as held for sale when management approves and commits to a formal plan of sale with the expectation the sale will be completed within one year. The net assets of the business held for sale are then recorded at the lower of their current carrying value or the fair market value, less costs to sell. See additional discussion regarding the Company’s assets held for sale in Note E.

29, 2017.

Investments

The Company maintains a rabbi trust to fund certain supplemental executive retirement plans and deferred income 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 Company has corporate-owned life insurance policies on certain participants in the deferred compensation plans. The cash surrender value of the policies is included in other assets on the Consolidated Statements of Financial Position. The securities held by the trust are classified as trading securities. Therefore, unrealized gains and losses associated with these investments are included in the Company’s earnings. Securities held by the trust generated losses of $2.2 million and gains of ~~$1.5 million and $4.8~~$1.2 million for the ~~third~~second quarter and ~~nine~~six months ended ~~July 30, 2017, respectively,~~April 29, 2018, compared to gains of ~~$1.2~~$1.8 million and ~~$2.4~~$3.3 million for the ~~third~~second quarter and ~~nine~~six months ended ~~July 24, 2016.~~

April 30, 2017.

Supplemental Cash Flow Information

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

Guarantees

~~Table of Contents~~

~~Guarantees~~

The Company enters into various agreements guaranteeing specified obligations of affiliated parties. The Company’s guarantees either terminate in one year or remain in place until such time as the Company revokes the agreement. The Company currently provides revocable standby letters of credit totaling ~~$4.0~~$2.3 million to guarantee obligations that may arise under workers compensation claims of an affiliated party. This potential obligation is not reflected in the Company’s Consolidated Statements of Financial Position.

Reclassifications

Certain reclassifications of previously reported amounts have been made to conform to the current year presentation. The reclassifications had no impact on net earnings or operating cash flows as previously reported, other than those related to the adoption of ASU 2016-15 as described within the new accounting pronouncements adopted in the current fiscal year.

Accounting Changes and Recent Accounting Pronouncements

New Accounting Pronouncements adopted in current fiscal year

In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330). The updated guidance requires that inventory be measured at the lower of cost and net realizable value. The guidance is limited to inventory measured using the first-in, first-out (FIFO) or average cost methods and excludes inventory measured using last-in, first-out (LIFO) or retail inventory methods.

Net realizable value is defined as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The updated guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016, with early adoption permitted. The Company adopted the updated provisions on a prospective basis at the beginning of fiscal 2018. The adoption did not have a material impact on its consolidated financial statements, results of operations or cash flows.

In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting (Topic 718). The update simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The updated guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted in any interim or annual period, with adjustments reflected as of the beginning of the fiscal year. Accordingly, the Company adopted the provisions of this new accounting standard at the beginning of fiscal 2018. This resulted in the excess tax benefits (“windfalls”) and tax deficiencies (“shortfalls”) realized upon exercise or vesting of stock-based awards being recorded in its Consolidated Statements of Operations instead of additional paid-in capital within its Consolidated Statements of Financial Position. The amendments requiring recognition of excess tax benefits and tax deficiencies in the income statement have been applied prospectively. Excess tax benefits of $3.6 million and $15.4 million were recorded as a reduction of income tax expense for the second quarter and six months ended April 29, 2018, respectively. The effective tax rate was reduced by 1.2 percent and 2.6 percent for the second quarter and six months ended April 29, 2018, respectively, as a result of the exercise activity. The Company applied the amendments related to the presentation of excess tax benefits on the Consolidated Statement of Cash Flows using a retrospective transition method, and as a result, realized windfalls were reclassified from financing activities to operating activities in its Consolidated Statements of Cash Flows. In accordance with ASU 2016-09, the Company has made the accounting policy election to estimate forfeitures and adjust as actual forfeitures occur.

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

The following table reconciles the Consolidated Statements of Cash Flows line items impacted by the adoption of these standards at April 30, 2017:



	Reported April 30, 2017			ASU 2016-09			ASU 2016-15			Adjusted April 30, 2017
Operating Activities
Equity in earnings of affiliates	$	(10,898	)	$	—		$	(12,522	)	$	(23,420	)
Distributions received from equity method investees	—			—			12,522			12,522
Excess tax benefit from stock-based compensation	(20,704		)	20,704			—			—
Decrease in accounts receivable	42,036			—			(1,308		)	40,728
Net Cash Provided by Operating Activities	$	261,156		$	20,704		$	(1,308	)	$	280,552

Investing Activities
Decrease in investments, equity in affiliates, and other assets	$	2,669		$	—		$	(3,697	)	$	(1,028	)
Proceeds from company-owned life insurance	—			—			5,005			5,005
Net Cash Provided by Investing Activities	$	62,795		$	—		$	1,308		$	64,103

Financing Activities
Excess tax benefit from stock-based compensation	$	20,704		$	(20,704	)	$	—		$	—
Net Cash Used in Financing Activities	$	(186,507	)	$	(20,704	)	$	—		$	(207,211	)

In March 2018, the FASB issued ASU No. 2018-05, Income Taxes (Topic 740) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. The update provides guidance on accounting for the tax effects of the Tax Cuts and Jobs Act (the “Tax Act”). SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act. The Company’s accounting for certain income tax effects are incomplete; however, reasonable estimates have been determined for those tax effects. The estimates were recorded as provisional amounts in the consolidated financial statements as of January 28, 2018, and remain provisional as of April 29, 2018. The Company recognized a measurement-period adjustment during the three months ended April 29, 2018, and expects to have all provisional amounts related to the effects of the Tax Act finalized within the one year measurement period. Refer to Note I for further details regarding the Tax Act.

New Accounting Pronouncements not yet adopted

In May 2014, the FASB issued ~~ASC 606,~~ ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This topic converges the guidance within U.S. ~~generally accepted accounting principles (GAAP)~~GAAP and international financial reporting standards and supersedes ASC 605, Revenue Recognition. The new standard requires companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. The new standard will also result in enhanced disclosures about revenue, provide guidance for transactions which were not previously addressed comprehensively, and improve guidance for multiple-element arrangements. ~~On July 8,~~In August 2015, the FASB ~~approved a one-year deferral~~issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which defers the effective ~~date.~~date of ASU 2014-09 by one year allowing early adoption as of the original effective date of December 15, 2016. In 2016 and 2017, the FASB issued ASU 2016-08, ASU 2016-10, ASU 2016-11, ASU 2016-12, ASU 2016-20, ASU 2017-13, and ASU 2017-14 to clarify, among other things, the implementation guidance related to principal versus agent considerations, identifying performance obligations and accounting for licenses of intellectual property. The new guidance is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period, and early adoption is permitted for annual reporting periods beginning after December 15, 2016. The updated guidance is to be applied either retrospectively or by using a cumulative effect adjustment. The Company ~~expects to~~will adopt the provisions of this new accounting standard at the beginning of fiscal ~~year 2019,~~2019. The Company has completed a significant portion of its detailed assessments relating to revenue streams and customer arrangements, and is ~~currently assessing the impact~~focused on ~~its consolidated financial statements with a focus on arrangements with customers.~~

~~In April 2015, the FASB updated the guidance within ASC 835,~~ ~~Interest~~~~. The update provides guidance on simplifying the presentation of debt issuance costs. The amendments require debt issuance costs related~~controls to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. The updated guidance is effective for fiscal years beginning after December 15, 2015,support recognition and ~~interim periods within those fiscal years, with early adoption permitted. The Company retrospectively adopted~~

disclosure requirements under the new ~~provisions~~guidance. Based on the assessment to date, the Company does not expect the adoption of ~~this accounting~~the new standard ~~at the beginning of fiscal year 2017, and adoption did not~~to have a material impact on its ~~consolidated financial statements.~~

~~In May 2015, the FASB updated the guidance within ASC 820,~~ ~~Fair Value Measurements and Disclosures~~. The update provides guidance on the disclosures for investments in certain entities that calculate net asset value (NAV) per share (or its equivalent). The amendments remove the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the NAV per share (or its equivalent) as a practical expedient. The updated guidance is to be applied retrospectively and is effective for annual reporting periods beginning after December 15, 2015, and interim periods within those fiscal years, with early adoption permitted. The Company adopted the new provisionsresults of ~~this accounting standard at the beginning of fiscal year 2017, and adoption did not have a material impact on its consolidated financial statements.~~

operations.

In February 2016, the FASB ~~updated the guidance within ASC 842,~~ issued ASU 2016-02, Leases (Topic 842). The update requires lessees to put most leases on their balance sheets while recognizing expenses on their income statements in a manner similar to current U.S. GAAP. The guidance also eliminates current real estate-specific provisions for all entities. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. In 2018, the FASB issued ASU 2018-01, which permits an entity to elect an optional transition practical expedient to not evaluate land easements existing or expiring before the entity’s adoption of ASC 842 and not previously accounted for as leases under ASC 840. The updated guidance is effective for fiscal years ~~and~~beginning after December 15, 2018, including interim periods within those fiscal ~~years, beginning after December 15, 2018. Early adoption~~years. Currently, the updated guidance is ~~permitted and the~~to be applied using modified retrospective method and early adoption is permitted. The FASB recently proposed a practical expedient allowing for entities to ~~be applied.~~ apply the provisions of the updated lease guidance at the effective date, without adjusting the comparative periods presented. The Company expects to adopt the provisions of this new accounting standard at the beginning of fiscal ~~year~~ 2020 and is ~~currently assessing~~in the process of evaluating the impact of adoption on its consolidated financial ~~statements.~~

~~In March 2016, the FASB updated the guidance within ASC 718,~~ ~~Compensation~~ —~~Stock Compensation.~~ ~~The update simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities,~~statements and classification on the statement of cash flows. The updated guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted in any interim or annual period, with adjustments reflected as of the beginning of the fiscal year. related disclosures.~~The Company expects to adopt the provisions of this new accounting~~

~~Table of Contents~~

~~standard at the beginning of fiscal year 2018, and is currently assessing the impact on its consolidated financial statements.~~

In June 2016, the FASB ~~updated the guidance within ASC 326,~~ issued ASU 2016-13, Financial Instruments —- Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 958). 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 ~~amendments replace~~amendment replaces the current incurred loss impairment methodology with a methodology ~~that reflects~~to reflect expected credit losses and requires consideration of a broader range of reasonable and supportable information to explain credit loss estimates. The updated guidance is to be applied on a modified retrospective approach and is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for all entities for fiscal years beginning after December 15, 2018, and interim periods therein. The Company is currently assessing the timing and impact of adopting the updated provisions.

~~In August 2016, the FASB updated the guidance within ASC 230,~~ ~~Statement of Cash Flows.~~ ~~The update makes~~ eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. The updated guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted ~~provided all amendments are adopted in the same period. The guidance requires application using a retrospective transition method.~~ ~~The Company is currently assessing the timing and impact of adopting the updated provisions.~~

In October 2016, the FASB ~~updated the guidance within ASC 740,~~ issued ASU 2016-16, Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory (Topic 740). The updated guidance requires the recognition of the income tax consequences of an intra-entity asset transfer, other than transfers of inventory, when the transfer occurs. For intra-entity transfers of inventory, the income tax effects will continue to be deferred until the inventory has been sold to a third party. The updated guidance is effective for reporting periods beginning after December 15, 2017, with early adoption permitted only within the first interim period of a fiscal year. The guidance is required to be applied on a modified retrospective basis through a ~~cumulative-effect~~cumulative effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company ~~is currently assessing~~will adopt the ~~timing and~~provisions of the new accounting standard at the beginning of fiscal 2019, which will result in a reclassification from prepaid tax assets to deferred tax assets. In addition, due to impact of ~~adopting~~ the ~~updated provisions.~~

~~In January 2017, the FASB updated the guidance within ASC 350,~~ ~~Intangibles—Goodwill and Other.~~ ~~The updated guidance eliminates the~~ ~~second step of the two-step impairment test. The updated guidance modifies the concept of impairment~~lower tax rate on deferred tax balances resulting from the ~~condition that exists when~~Tax Act, the ~~carrying amount~~Company expects to recognize a cumulative effect adjustment to retained earnings of ~~goodwill exceeds its implied fair value to the condition that exists when the carrying amount of a reporting unit exceeds its fair value.~~ ~~An impairment charge should be made if~~approximately $10.0 million. ~~a reporting unit’s carrying amount exceeds its fair value, limited to the amount of goodwill allocated to that reporting unit. The updated guidance is effective~~ for fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The updated guidance is required to be adopted on a prospective basis. The Company is currently assessing the timing and impact of adopting the updated provisions.

In March 2017, the FASB ~~updated~~issued ASU 2017-07, Compensation - Retirement Benefits: Improving the ~~guidance within ASC 715,~~ ~~Compensation – Retirement Benefits.~~Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (Topic 715). The updated guidance requires an employer to report the service cost component of net periodic pension cost and net periodic ~~postretirement~~post-retirement benefit cost in the same line item or items as other compensation costs. The updated guidance also requires the other components of net periodic pension cost and net periodic ~~postretirement~~post-retirement benefit cost to be presented in the income statement separately from the service cost component and outside income from operations. Additionally, only the service cost component is eligible for capitalization, when applicable. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, ~~2017, with early~~2017. Early adoption is permitted. The updated guidance should be applied retrospectively for the presentation of the service cost component and other components of net benefit cost in the income statement and prospectively, on and after the effective date, for the capitalization of the service cost component of net benefit cost. The Company will adopt the provisions of this new accounting standard at the beginning of fiscal 2019 and is currently assessing the ~~timing and~~ impact of ~~adopting the updated provisions.~~adoption on its consolidated financial statements.

In August 2017, the FASB ~~updated the guidance within ASC 815,~~ issued ASU 2017-12, Derivatives and ~~Hedging.~~ Hedging - Targeted Improvements to Accounting for Hedging Activities (Topic 815). The updated guidance ~~expand~~expands an entity’s ability to hedge nonfinancial and financial risk components and reduce complexity in fair value hedges of interest rate risk. The guidance eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The guidance also eases certain documentation and assessment requirements and modifies the accounting for components excluded from the assessment of

~~Table of Contents~~

hedge effectiveness. Entities will apply the amendments to cash flow and net investment hedge relationships that exist on the date of adoption using a modified retrospective approach. The presentation and disclosure ~~requirements~~requirement apply prospectively. The updated guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those years. Early adoption is

permitted in any interim or annual period. The Company is currently assessing the timing and impact of adopting the updated provisions.

In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220). The updated guidance allows entities to reclassify stranded income tax effects resulting from the Tax Act from accumulated other comprehensive income to retained earnings in their consolidated financial statements. Under the Tax Act, deferred taxes were adjusted to reflect the reduction of the historical corporate income tax rate to the newly enacted corporate income tax rate, which left the tax effects on items within accumulated other comprehensive income stranded at an inappropriate tax rate. The updated guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those years. Early adoption is permitted in any interim period and should be applied either in the period of adoption or ~~annual period.~~retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Act is recognized. The Company is ~~currently~~in the process of assessing the ~~timing and~~ impact of ~~adopting~~adoption this standard will have on its consolidated financial statements and related disclosures.

Any other recently issued accounting standards or pronouncements not disclosed above have been excluded as they either are not relevant to the ~~updated provisions.~~

Company, or they are not expected to have a material effect on its business practices, financial condition, results of operations, or disclosures.

NOTE BACQUISITIONS

On November 27, 2017, the Company acquired Columbus Manufacturing, Inc. (Columbus), an authentic premium deli meat and salami company, from Chicago-based Arbor Investments for a preliminary purchase price of $857.4 million. The purchase price is preliminary pending final purchase accounting adjustments. The transaction was funded with cash on hand and by borrowing $375.0 million under a term loan facility and $375.0 million under a revolving credit facility.

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

The acquisition was accounted for as a business combination using the acquisition method. The Company has estimated the acquisition date fair values of the assets acquired and liabilities assumed using independent appraisals, and determined final working capital adjustments. A preliminary allocation of the purchase price to the acquired assets, liabilities, and goodwill is presented in the table below.



(in thousands)
Accounts receivable	$	21,257
Inventory	29,699
Prepaid and other assets	881
Other assets	935
Property, plant and equipment	83,663
Intangible assets	231,964
Goodwill	610,836
Current liabilities	(21,366		)
Deferred taxes	(100,511		)
Purchase price	$	857,358

Goodwill is calculated as the excess of the purchase price over the fair value of the net assets recognized. The goodwill recorded as part of the acquisition primarily reflects the value of the potential to expand presence in the deli channel and serve as the catalyst for uniting all of the Company's deli businesses into one customer-facing organization. The goodwill balance is not expected to be deductible for income tax purposes. The goodwill and intangible assets have been allocated to the Refrigerated Foods segment.

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.

On August 22, 2017, ~~subsequent to the end of the third quarter,~~ the Company acquired Cidade do Sol (Ceratti) for a preliminary purchase price of ~~approximately $104.0 million, subject to customary working capital adjustments~~.$103.3 million. The transaction was funded by the Company with cash on hand.

The Company has completed a preliminary allocation of the fair value of Ceratti. Allocations are based on the acquisition method of accounting and in-process third-party valuation appraisals.

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

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

On August 16, 2017, ~~subsequent to the end of the third quarter,~~ the Company acquired Fontanini Italian Meats and Sausages (Fontanini), a branded foodservice business, from Capitol Wholesale Meats, Inc. for a preliminary purchase price of ~~$425.0 million, subject to customary working capital adjustments.~~$428.4 million. The transaction provides a cash flow benefit resulting from the amortization of the tax basis of assets, the net present value of which is approximately $90.0 million. The transaction was funded by the Company with cash on hand and by utilizing short-term financing.

The Company has completed a preliminary allocation of the fair value of Fontanini. Allocations are based on the acquisition method of accounting and in-process third-party valuation appraisals. Primary assets acquired include goodwill of $223.7 million and intangibles of $110.3 million.

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

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 in the Refrigerated Foods segment.~~

On May 26, 2016, the Company acquired Justin’s, LLC (Justin’s) for a final purchase price of $280.9 million. The transaction provides a cash flow benefit resulting from the amortization of the tax basis of assets, the net present value of which is approximately $70.0 million. The purchase price was funded by the Company with cash on hand and by utilizing short-term financing. Primary assets acquired include goodwill of $186.4 million and intangibles of $89.9 million.

Justin’s is a pioneer in nut butter-based snacking and this acquisition allows the Company to enhance its presence in the specialty natural and organic nut butter category, complementing the Company’s ~~SKIPPY~~ ~~peanut butter products.~~

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

NOTE CINVENTORIES

Principal components of inventories are:

(in thousands)

July 30,
2017

October 30,
2016

Finished products

  $
580,835

  $
553,634

Raw materials and work-in-process

261,926

253,662

Materials and supplies

170,453

178,387

Total

  $
1,013,214

  $
985,683



(in thousands)	April 29, 2018		October 29, 2017
Finished products	$	579,438	$	511,789
Raw materials and work-in-process	250,963		237,903
Operating supplies	121,530		114,098
Maintenance materials and parts	59,284		57,232
Total	$	1,011,215	$	921,022

~~Table of Contents~~

NOTE DGOODWILL AND INTANGIBLE ASSETS

The carrying amounts of goodwill for the ~~nine~~second quarter and six months ended ~~July 30, 2017,~~April 29, 2018, are presented in the table below. ~~There were no changes~~The reduction in goodwill for the quarter is primarily related to the ~~carrying amount~~acquisition of ~~goodwill in~~Columbus on November 27, 2017. During the ~~third~~second quarter, ~~of fiscal 2017. The reduction during the first nine months is due~~an allocation from goodwill to the ~~sale of Farmer John~~identifiable intangible assets was made based on ~~January 3, 2017. See additional discussion regarding~~ the ~~Company’s assets held~~preliminary third-party valuation appraisal report received. The other changes in goodwill for ~~sale in Note E.~~

(in thousands)

Grocery
Products

Refrigerated
Foods

JOTS

Specialty
Foods

International
& Other

Total

Balance as of October 30, 2016

$
508,800

$
584,443

$
203,214

$
373,782

$
164,258

$
1,834,497

Goodwill sold

-

(11,826
)

-

-

-

(11,826
)

Balance as of July 30, 2017

$
508,800

$
572,617

$
203,214

$
373,782

$
164,258

$
1,822,671

the second quarter and first six months relate to purchase accounting adjustments for the Fontanini and Ceratti acquisitions, acquired on August 16, 2017, and August 22, 2017, respectively.



(in thousands)	Grocery Products		Refrigerated Foods			JOTS		International & Other		Total
Balance as of January 28, 2018	$	882,582	$	1,633,188		$	203,214	$	238,479	$	2,957,463
Purchase adjustments	—		(226,057		)	—		550		(225,507		)
Balance as of April 29, 2018	$	882,582	$	1,407,131		$	203,214	$	239,029	$	2,731,956



(in thousands)	Grocery Products		Refrigerated Foods		JOTS		International & Other		Total
Balance as of October 29, 2017	$	882,582	$	795,699	$	203,214	$	238,318	$	2,119,813
Goodwill acquired	—		610,836		—		—		610,836
Purchase adjustments	—		596		—		711		1,307
Balance as of April 29, 2018	$	882,582	$	1,407,131	$	203,214	$	239,029	$	2,731,956

The gross carrying amount and accumulated amortization for definite-lived intangible assets are presented in the table below.

July 30, 2017

October 30, 2016

(in thousands)

Gross Carrying
Amount

Accumulated
Amortization

Gross Carrying
Amount

Accumulated
Amortization

Customer lists/relationships

$
85,440

$
(23,931)

$
88,240

$
(20,737)

Formulas and recipes

1,950

(1,943)

1,950

(1,796)

Other intangibles

3,100

(1,918)

3,520

(1,677)

Total

$
90,490

$
(27,792)

$
93,710

$
(24,210)

Additions in the first six months of fiscal 2018 are due to the allocation of $29.4 million related to the preliminary valuation of customer relationships acquired as part of the Columbus acquisition. Once fully amortized, the definite-lived intangible assets are removed from the table.



	April 29, 2018					October 29, 2017
(in thousands)	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
Customer lists/relationships	$	144,514	$	(31,488	)	$	115,940	$	(25,973	)
Formulas and recipes	—		—			1,950		(1,950		)
Other intangibles	7,056		(1,885		)	3,100		(2,044		)
Total	$	151,570	$	(33,373	)	$	120,990	$	(29,967	)

Amortization expense was ~~$2.1~~$3.0 million and $6.2 million for the ~~third~~second quarter and ~~nine~~six months ended ~~July 30, 2017,~~April 29, 2018, respectively, compared to ~~$2.5~~$2.0 million and ~~$6.5~~$4.1 million for the ~~third~~second quarter and ~~nine~~six months ended ~~July 24, 2016.~~

April 30, 2017.

Estimated annual amortization expense for the five fiscal years after October ~~30, 2016,~~29, 2017, is as follows:

(in millions)

2017

$ 8.1

2018

7.6

2019

7.4

2020

7.4

2021

7.4



(in millions)
2018	$12.7
2019	12.8
2020	12.7
2021	12.8
2022	12.5

The carrying amounts for indefinite-lived intangible assets are presented in the table below.

(in thousands)

July 30, 2017

October 30, 2016

Brands/tradenames/trademarks

$
819,835

$
825,774

Other intangibles

184

7,984

Total

$
820,019

$
833,758

Additions in the first six months of fiscal 2018 are due to the allocation of $201.3 million related to the tradenames acquired as part of the Columbus acquisition.

(in thousands) April 29,
2018 October 29,
2017
Brands/tradenames/trademarks $ 1,132,915
$ 935,807
Other intangibles 184
184
Total $ 1,133,099
$ 935,991

NOTE E~~ASSETS HELD FOR SALE~~

At the end of fiscal year 2016, the Company was actively marketing Clougherty Packing, LLC, parent company of Farmer John and Saag’s Specialty Meats, along with PFFJ, LLC, farm operations in California, Arizona, and Wyoming (Farmer John). Through this process, the Company identified the specific assets and liabilities to be sold and allocated goodwill based on the relative fair values of the assets held for sale and the assets that would be retained by the Company. In November 2016, the Company entered into an agreement for the sale and the transaction closed on January 3, 2017. The purchase price was $145 million in cash. The assets held for sale were

~~Table of Contents~~

~~reported within the Company’s Refrigerated Foods segment. The assets held for sale were not material to the Company’s annual net sales, net earnings, or earnings per share.~~

Amounts classified as assets and liabilities held for sale on October 30, 2016, were presented on the Company’s Consolidated Statement of Financial Position within their respective accounts, and include the following:

Assets held for sale (in thousands)

Current assets

$
80,861

Goodwill

12,703

Intangibles

14,321

Property, plant and equipment

74,812

Total assets held for sale

$
182,697

Liabilities held for sale (in thousands)

Total current liabilities held for sale

$
44,066

~~NOTE F~~PENSION AND OTHER POST-RETIREMENT BENEFITS

Net periodic benefit cost for pension and other post-retirement benefit plans consists of the following:

Pension Benefits

Three Months Ended

Nine Months Ended

(in thousands)

July 30, 2017

July 24, 2016

July 30, 2017

July 24, 2016

Service cost

$
7,564

$
6,645

$
22,692

$
20,005

Interest cost

13,565

13,674

40,697

41,030

Expected return on plan assets

(22,734)

(21,716)

(68,202)

(65,071)

Amortization of prior service cost

(750)

(1,037)

(2,250)

(3,169)

Recognized actuarial loss

6,542

4,787

19,625

13,958

Curtailment gain

-

(4,438)

-

(4,438)

Net periodic cost

$
4,187

$
(2,085)

$
12,562

$
2,315

Post-retirement Benefits

Three Months Ended

Nine Months Ended

(in thousands)

July 30, 2017

July 24, 2016

July 30, 2017

July 24, 2016

Service cost

$
275

$
317

$
824

$
950

Interest cost

2,871

3,236

8,613

9,708

Amortization of prior service cost

(1,069)

(1,050)

(3,206)

(3,151)

Recognized actuarial loss

598

392

1,825

1,176

Net periodic cost

$
2,675

$
2,895

$
8,056

$
8,683

During the third quarter of fiscal 2017, the Company made discretionary contributions of $16.1 million to fund its pension plans, compared to discretionary contributions of $25.7 million during the third quarter of fiscal 2016. The curtailment gain recognized in the third quarter of fiscal 2016 is due to plan amendments related to the sale of Diamond Crystal Brands (DCB).

Pension Benefits
Three Months Ended Six Months Ended
(in thousands) April 29,
2018 April 30,
2017 April 29,
2018 April 30,
2017
Service cost $ 7,903
$ 7,564
$ 15,806
$ 15,128
Interest cost 14,049
13,566
28,098
27,132
Expected return on plan assets (24,771 ) (22,734 ) (49,541 ) (45,468 )
Amortization of prior service cost (617 ) (750 ) (1,234 ) (1,500 )
Recognized actuarial loss 4,540
6,542
9,079
13,083
Net periodic cost $ 1,104
$ 4,188
$ 2,208
$ 8,375

Post-retirement Benefits
Three Months Ended Six Months Ended
(in thousands) April 29,
2018 April 30,
2017 April 29,
2018 April 30,
2017
Service cost $ 321
$ 274
$ 641
$ 549
Interest cost 2,832
2,871
5,664
5,742
Amortization of prior service cost (711 ) (1,069 ) (1,421 ) (2,137 )
Recognized actuarial loss 45
599
89
1,227
Net periodic cost $ 2,487
$ 2,675
$ 4,973
$ 5,381

NOTE GFDERIVATIVES AND HEDGING

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

~~Table of Contents~~

Cash Flow Hedges: The Company utilizes corn and lean hog futures to offset price fluctuations in the Company’s future direct grain and hog purchases. The financial instruments are designated and accounted for as cash flow hedges, and the Company measures the effectiveness of the hedges at least quarterly. Effective gains or losses related to these cash flow hedges are reported in accumulated other comprehensive loss (AOCL) and reclassified into earnings, through cost of products sold, in the period or periods in which the hedged transactions affect earnings. Any gains or losses related to hedge ineffectiveness are recognized in the current period cost of products sold. The Company typically does not hedge its grain exposure beyond the next two upcoming fiscal years and its hog exposure beyond the next fiscal year. As of ~~July 30, 2017,~~April 29, 2018, and October ~~30, 2016,~~29, 2017, the Company had the following outstanding commodity futures contracts that were entered into to hedge forecasted purchases:

			~~Volume~~
~~Commodity~~	~~July 30, 2017~~	~~October 30, 2016~~
~~Corn~~	~~12.1~~Volume
Commodity	April 29, 2018	October 29, 2017
Corn	11.5 million bushels	~~22.4~~11.5 million bushels
Lean hogs	~~0.1~~1.0 million cwt	- 0.3 million cwt

As of ~~July 30, 2017,~~April 29, 2018, the Company has included in AOCL hedging ~~gains~~losses of ~~$4.9 million~~sixteen thousand dollars (before tax) relating to ~~these~~its positions, compared to gains of ~~$9.2~~$1.8 million (before tax) as of October ~~30, 2016.~~29, 2017. The Company expects to recognize the majority of these ~~gains~~losses over the next 12 months.

Fair Value Hedges: The Company utilizes futures to minimize the price risk assumed when fixed forward priced contracts are offered to the Company’s commodity suppliers. The intent of the program is to make the forward priced commodities cost nearly the same as cash market purchases at the date of delivery. The futures contracts are designated and accounted for as fair value hedges, and the Company measures the effectiveness of the hedges at least quarterly. Changes in the fair value of the

futures contracts, along with the gain or loss on the hedged purchase commitment, are marked-to-market through earnings and are recorded on the Consolidated Statements of Financial Position as a current asset and liability, respectively. Effective gains or losses related to these fair value hedges are recognized through cost of products sold in the period or periods in which the hedged transactions affect earnings. Any gains or losses related to hedge ineffectiveness are recognized in the current period cost of products sold. As of ~~July 30, 2017,~~April 29, 2018, and October ~~30, 2016,~~29, 2017, the Company had the following outstanding commodity futures contracts designated as fair value hedges:

			~~Volume~~
~~Commodity~~	~~July 30, 2017~~	~~October 30, 2016~~
~~Corn~~	~~3.9~~Volume
Commodity	April 29, 2018	October 29, 2017
Corn	5.6 million bushels	~~3.6~~4.1 million bushels
Lean hogs	0.1 million cwt	0.4 million cwt	~~0.2 million cwt~~

Other Derivatives: The Company holds certain futures and options contract positions as part of a merchandising program ~~and~~ to manage the Company’s exposure to fluctuations in commodity markets. The Company has not applied hedge accounting to these positions.

As of ~~July 30, 2017,~~April 29, 2018, and October ~~30, 2016,~~29, 2017, the Company had the following outstanding futures and options contracts related to these programs:

			~~Volume~~
~~Commodity~~	~~July 30, 2017~~	~~October 30, 2016~~
~~Corn~~	~~0.3~~Volume
Commodity	April 29, 2018	October 29, 2017
Corn	0.2 million bushels	~~4.0 million bushels~~
~~Soybean meal~~	-	~~11,000 tons~~ —

~~Table of Contents~~

Fair Values: The fair values of the Company’s derivative instruments (in thousands) as of ~~July 30, 2017,~~April 29, 2018, and October ~~30, 2016,~~29, 2017, were as follows:

Fair Value (1)

Location on Consolidated

Statements of Financial
Position

July 30,
2017

October 30,
2016
Asset Derivatives:

Derivatives Designated as Hedges:

     Commodity contracts

Other current assets

$
1,109

$
(194)

Derivatives Not Designated as Hedges:

     Commodity contracts

Other current assets

19

144

          Total Asset Derivatives

$
1,128

$
(50)



		Fair Value (1)
	Location on Consolidated Statements of Financial Position	April 29, 2018			October 29, 2017
Asset Derivatives:
Derivatives Designated as Hedges:
Commodity contracts	Other current assets	$	(579	)	$	326

Derivatives Not Designated as Hedges:
Commodity contracts	Other current assets	5			—

Total Asset Derivatives		$	(574	)	$	326

(1) Amounts represent the gross fair value of derivative assets and liabilities. The Company nets the derivative assets and liabilities for each of its hedging programs, including cash collateral, when a master netting arrangement exists between the Company and the counterparty to the derivative contract. The amount or timing of cash collateral balances may impact the classification of the derivative in the Consolidated Statements of Financial Position. See Note LK “Fair Value Measurements” for a discussion of these net amounts as reported in the Consolidated Statements of Financial Position.

Derivative Gains and Losses: Gains or losses (before tax, in thousands) related to the Company’s derivative instruments for the ~~third~~second quarter ended ~~July~~April 29, 2018, and April 30, 2017, ~~and July 24, 2016,~~ were as follows:

Gain/(Loss)
Recognized in AOCL
(Effective Portion) (1)

Location on

Gain/(Loss)
Reclassified from
AOCL into Earnings
(Effective Portion) (1)

Gain/(Loss)
Recognized in
Earnings (Ineffective
Portion) (2) (4)

Three Months Ended

Consolidated

Three Months Ended

Three Months Ended
Cash Flow Hedges:

July 30,
2017

July 24,
2016

Statements
of Operations

July 30,
2017

July 24,
2016

July 30,
2017

July 24,
2016
Commodity contracts

  $
1,490

  $
7,702

Cost of products sold

  $
1,758

  $
(346)

  $
(22)

  $
(14,277)

Location on

Gain/(Loss)
Recognized in
Earnings (Effective
Portion) (3)

Gain/(Loss)
Recognized in
Earnings (Ineffective
Portion) (2) (5)

Consolidated

Three Months Ended

Three Months Ended
Fair Value Hedges:

Statements
of Operations

July 30,
2017

July 24,
2016

July 30,
2017

July 24,
2016
Commodity contracts

Cost of products sold

  $
(730)

  $
(1)

  $
51

  $
4,658

Location on

Gain/(Loss)
Recognized
in Earnings

Consolidated

Three Months Ended

Derivatives Not
Designated as Hedges:

Statements
of Operations

July 30,
2017

July 24,
2016

Commodity contracts

Cost of products sold

  $
9

  $
(244)



	Gain/(Loss) Recognized in AOCL (Effective Portion) (1)						Location on Consolidated Statements of Operations	Gain/(Loss) Reclassified from AOCL into Earnings (Effective Portion) (1)					Gain/(Loss) Recognized in Earnings (Ineffective Portion) (2) (4)
	Three Months Ended							Three Months Ended					Three Months Ended
Cash Flow Hedges:	April 29, 2018			April 30, 2017				April 29, 2018			April 30, 2017		April 29, 2018			April 30, 2017
Commodity contracts	$	(862	)	$	(141	)	Cost of products sold	$	(40	)	$	1,753	$	(271	)	$	40

~~Table of Contents~~

Location on
Consolidated
Statements
of Operations

Gain/(Loss)
Recognized in
Earnings (Effective
Portion) (3)

Gain/(Loss)
Recognized in
Earnings (Ineffective
Portion) (2) (5)
Three Months Ended Three Months Ended
Fair Value Hedges: April 29, 2018 April 30, 2017 April 29, 2018 April 30, 2017
Commodity contracts Cost of products sold $ 1,224
$ (467 ) $ (23 ) $ 1

Location on
Consolidated
Statements
of Operations

Gain/(Loss)
Recognized
in Earnings

Three Months Ended
Derivatives Not
Designated as Hedges:
April 29, 2018 April 30, 2017
Commodity contracts Cost of products sold $ 54
$ (9 )

Derivative Gains and Losses: Gains or losses (before tax, in thousands) related to the Company’s derivative instruments for the ~~nine~~six months ended ~~July~~April 29, 2018, and April 30, 2017, ~~and July 24, 2016,~~ were as follows:

Gain/(Loss)
Recognized in AOCL
(Effective Portion) (1)

Location on

Gain/(Loss)
Reclassified from
AOCL into Earnings
(Effective Portion) (1)

Gain/(Loss)
Recognized in
Earnings (Ineffective
Portion) (2) (4)

Nine Months Ended

Consolidated

Nine Months Ended

Nine Months Ended
Cash Flow Hedges:

July 30,
2017

July 24,
2016

Statements
of Operations

July 30,
2017

July 24,
2016

July 30,
2017

July 24,
2016
Commodity contracts

  $
703

  $
3,234

Cost of products sold

  $
4,980

  $
(1,690)

  $
17

  $
(14,255)

Location on

Gain/(Loss)
Recognized in
Earnings (Effective
Portion) (3)

Gain/(Loss)
Recognized in
Earnings (Ineffective
Portion) (2) (5)

Consolidated

Nine Months Ended

Nine Months Ended
Fair Value Hedges:

Statements
of Operations

July 30,
2017

July 24,
2016

July 30,
2017

July 24,
2016
Commodity contracts

Cost of products sold

  $
(1,321)

  $
1,905

  $
52

  $
4,419

Location on

Gain/(Loss)
Recognized
in Earnings

Consolidated

Nine Months Ended

Derivatives Not
Designated as Hedges:

Statements
of Operations

July 30,
2017

July 24,
2016

Commodity contracts

Cost of products sold

  $
(228)

  $
(674)



	Gain/(Loss) Recognized in AOCL (Effective Portion) (1)						Location on Consolidated Statements of Operations	Gain/(Loss) Reclassified from AOCL into Earnings (Effective Portion) (1)				Gain/(Loss) Recognized in Earnings (Ineffective Portion) (2) (4)
	Six Months Ended							Six Months Ended				Six Months Ended
Cash Flow Hedges:	April 29, 2018			April 30, 2017				April 29, 2018		April 30, 2017		April 29, 2018			April 30, 2017
Commodity contracts	$	(1,249	)	$	(787	)	Cost of products sold	$	568	$	3,222	$	(361	)	$	40



	Location on Consolidated Statements of Operations	Gain/(Loss) Recognized in Earnings (Effective Portion) (3)					Gain/(Loss) Recognized in Earnings (Ineffective Portion) (2) (5)
		Six Months Ended					Six Months Ended
Fair Value Hedges:		April 29, 2018		April 30, 2017			April 29, 2018			April 30, 2017
Commodity contracts	Cost of products sold	$	1,781	$	(591	)	$	(272	)	$	1

Location on

Consolidated

Statements

of Operations

Gain/(Loss)

Recognized

in Earnings

Six Months Ended

Derivatives Not

Designated as Hedges:

April 29, 2018

April 30, 2017

Commodity contracts

Cost of products sold

(237

)

(1) Amounts represent gains or losses in AOCL before tax. See Note IH “Accumulated Other Comprehensive Loss” ~~or the Consolidated Statements of Comprehensive Income~~ for the after-tax impact of these gains or losses on net earnings.

(2) There were no gains or losses excluded from the assessment of hedge effectiveness during the ~~third~~second quarter or first ~~nine~~six months. Due to market volatility, the Company temporarily suspended the use of the special hedge accounting exemption for its JOTS corn futures contracts in the third quarter of fiscal 2016 due to ineffectiveness. During the time of suspension, all gains or losses related to these contracts were recorded in earnings as incurred.

(3) Amounts represent losses on commodity contracts designated as fair value hedges that were closed during the ~~third~~second quarter or the first ~~nine~~six months, which were offset by a corresponding gain on the underlying hedged purchase commitment. Additional gains or losses related to changes in the fair value of open commodity contracts, along with the offsetting gain or loss on the hedged purchase commitment, are also marked-to-market through earnings with no impact on a net basis.

(4) There were no gains or losses resulting from the discontinuance of cash flow hedges during the ~~third~~second quarter or ~~the~~ first ~~nine~~six months.

(5) There were no gains or losses recognized as a result of a hedged firm commitment no longer qualifying as a fair value hedge duringthe ~~third~~second quarter or first ~~nine~~six months.

NOTE HGINVESTMENTS 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 consists of the following:

(in thousands)

Segment

% Owned

July 30,
2017

October 30,
2016
MegaMex Foods, LLC

Grocery Products

50%

  $
184,470

  $
180,437
Foreign Joint Ventures

International & Other

Various (26-40%)

63,659

59,153
Total

  $
248,129

  $
239,590



(in thousands)	Segment	% Owned	April 29, 2018		October 29, 2017
MegaMex Foods, LLC	Grocery Products	50%	$	197,204	$	177,657
Foreign Joint Ventures	International & Other	Various (26-40%)	68,375		64,712
Total			$	265,579	$	242,369

~~Table of Contents~~

Equity in earnings of affiliates consists of the following:

Three Months Ended

Nine Months Ended
(in thousands)

Segment

July 30,
2017

July 24,
2016

July 30,
2017

July 24,
2016
MegaMex Foods, LLC
Grocery Products

$
2,528

$
5,039

$
20,715

$
20,812
Foreign Joint Ventures
International & Other

1,428

1,342

6,661

6,637
Total

$
3,956

$
6,381

$
27,376

$
27,449



		Three Months Ended				Six Months Ended
(in thousands)	Segment	April 29, 2018		April 30, 2017		April 29, 2018		April 30, 2017
MegaMex Foods, LLC	Grocery Products	$	12,934	$	9,116	$	32,522	$	18,187
Foreign Joint Ventures	International & Other	552		1,005		4,495		5,233
Total		$	13,486	$	10,121	$	37,017	$	23,420

Dividends received from affiliates for the ~~three~~second quarter and ~~nine~~six months ended ~~July 30, 2017,~~April 29, 2018, were ~~$7.0~~$10.0 million and ~~$19.5~~$10.0 million, respectively, compared to $10.0 million and ~~$24.5~~$12.5 million of dividends received for the ~~three~~second quarter and ~~nine~~six months ended ~~July 24, 2016.~~

April 30, 2017.

The Company recognized a basis difference of $21.3 million associated with the formation of MegaMex Foods, LLC, of which ~~$14.6~~$14.0 million is remaining as of ~~July 30, 2017.~~April 29, 2018. This difference is being amortized through equity in earnings of affiliates.

NOTE IHACCUMULATED OTHER COMPREHENSIVE LOSS

Components of accumulated other comprehensive loss are as follows:

(in thousands)

Foreign
Currency
Translation

Pension &
Other
Benefits

Deferred
Gain (Loss) -
Hedging

Accumulated
Other
Comprehensive
Loss

Balance at April 30, 2017

$
(12,477)

$
(289,905)

$
3,231

$
(299,151)

Unrecognized gains (losses)

Gross

4,043

-

1,490

5,533

Tax effect

-

-

(559)

(559)

Reclassification into net earnings

Gross

-

5,321(1)

(1,758)(2)

3,563

Tax effect

-

(2,007)

657

(1,350)

Net of tax amount

4,043

3,314

(170)

7,187

Balance at July 30, 2017

$
(8,434)

$
(286,591)

$
3,061

$
(291,964)

(in thousands)

Foreign
Currency
Translation

Pension &
Other
Benefits

Deferred
Gain (Loss) -
Hedging

Accumulated
Other
Comprehensive
Loss

Balance at October 30, 2016

$
(5,489)

$
(296,552)

$
5,738

$
(296,303)

Unrecognized gains (losses)

Gross

(2,945)

-

703

(2,242)

Tax effect

-

-

(265)

(265)

Reclassification into net earnings

Gross

-

15,994(1)

(4,980)(2)

11,014

Tax effect

-

(6,033)

1,865

(4,168)

Net of tax amount

(2,945)

9,961

(2,677)

4,339

Balance at July 30, 2017

$
(8,434)

$
(286,591)

$
3,061

$
(291,964)



(in thousands)	Foreign Currency Translation			Pension & Other Benefits				Deferred Gain (Loss) - Hedging				Accumulated Other Comprehensive Loss
Balance at January 28, 2018	$	(2,783	)	$	(239,989	)		$	596			$	(242,176	)
Unrecognized gains (losses)
Gross	4,549			—				(862		)		3,687
Tax effect	—			—				218				218
Reclassification into net earnings
Gross	—			3,257			(1)	40			(2)	3,297
Tax effect	—			(770		)		(9		)		(779		)
Net of tax amount	4,549			2,487				(613		)		6,423
Balance at April 29, 2018	$	1,766		$	(237,502	)		$	(17	)		$	(235,753	)



(in thousands)	Foreign Currency Translation			Pension & Other Benefits				Deferred Gain (Loss) - Hedging				Accumulated Other Comprehensive Loss
Balance at October 29, 2017	$	(6,846	)	$	(242,475	)		$	1,246			$	(248,075	)
Unrecognized gains (losses)
Gross	8,612			—				(1,249		)		7,363
Tax effect	—			—				310				310
Reclassification into net earnings
Gross	—			6,513			(1)	(568		)	(2)	5,945
Tax effect	—			(1,540		)		244				(1,296		)
Net of tax amount	8,612			4,973				(1,263		)		12,322
Balance at April 29, 2018	$	1,766		$	(237,502	)		$	(17	)		$	(235,753	)

(1) I~~Included~~ncluded in the computation of net periodic cost (see Note FE “Pension and Other Post-Retirement Benefits” for additional details).

(2) Included in cost of products sold in the Consolidated Statements of Operations.

~~Table of Contents~~

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

The lower effective tax rate for both the second quarter and first six months of fiscal 2018 is largely due to the passage of the Tax Act, lowering the Company's long-term effective tax rate. In the second quarter, the Company recorded an adjustment to the provisional non-cash tax benefit of $5.8 million, bringing the deferred tax liability revaluation to $73.8 million for the first six months of fiscal 2018. A provisional charge of $5.2 million for deemed repatriation of the Company's previously undistributed foreign earnings was recorded in the first quarter with no additional charges in the second quarter of fiscal 2018. At this point, no additional income taxes have been provided for any undistributed foreign earnings not subject to the transition tax and additional outside basis difference inherent in these entities, as these amounts continue to be indefinitely reinvested in foreign operations. Determining the amount of unrecognized deferred tax liability related to any remaining undistributed foreign earnings not subject to the transition tax and additional outside basis difference in these entities (i.e., basis difference in excess of that subject to the one-time transition tax) is not practical at this time. The one-time tax events and reduction in the federal statutory tax rate were the main drivers of the Company's effective tax rates for the second quarter and first six months of fiscal 2018 of 20.0 percent and 10.2 percent, respectively, compared to 33.2 percent and 33.5 percent for the respective periods last year. The Company expects a full-year effective tax rate between 17.5 percent and 19.5 percent for fiscal 2018.

In March 2018, the FASB issued ASU 2018-05, which provides guidance for companies related to the Tax Act. ASU 2018-05 allows for 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. Based on current interpretation of the Tax Act, the Company made reasonable estimates to record provisional adjustments during the second quarter and first six months of fiscal 2018, as described above. As the Company accumulates and processes data to finalize the underlying calculations, and as regulators issue further guidance, estimates may change during fiscal 2018. The Company will continue to refine such amounts within the measurement period allowed, which will be completed no later than the first quarter of fiscal 2019.

The amount of unrecognized tax benefits, including interest and penalties, is recorded in other long-term liabilities. If recognized as of ~~July~~April 29, 2018, and April 30, 2017, ~~and July 24, 2016, $20.3~~$24.6 million and ~~$18.4~~$19.8 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~~expense, with $0.2 million and $(0.1) million of interest and penalties included in ~~income tax~~ expense ~~for~~in the ~~third~~second quarter, and $0.4 million and $0.1 million recorded in the first ~~nine~~six months of fiscal years 2018 and 2017, ~~was $0.1 million and $0.2 million, respectively, compared to $0.1 million expense and $0.3 million benefit for the comparable quarter and first nine months of fiscal 2016.~~respectively. The amount of accrued interest and penalties at ~~July~~April 29, 2018, and April 30, 2017, ~~and July 24, 2016,~~ associated with unrecognized tax benefits was ~~$2.8~~$6.8 million and ~~$3.0~~$2.7 million, respectively.

The Company is regularly audited by federal and state taxing authorities. The United States Internal Revenue Service (I.R.S.) concluded its examination of fiscal ~~year 2015~~2016 in the first quarter of fiscal ~~2017.~~2018. The Company has elected to participate in the Compliance Assurance Process (CAP) for fiscal years ~~2016~~2017 and ~~2017.~~2018. The objective of CAP is to contemporaneously work with the I.R.S. to achieve federal tax compliance and resolve all or most of the issues prior to filing of the tax return. The Company may elect to continue participating in CAP for future tax years; the Company may withdraw from the program at any time.

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

NOTE KJSTOCK-BASED COMPENSATION

The Company issues stock options and ~~nonvested~~restricted shares as part of its stock incentive plans for employees and non-employee directors. The Company’s policy is to grant options with the exercise price equal to the market price of the common stock on the date of grant. Options typically vest over four years and expire ten years after the date of the grant. The Company recognizes stock-based compensation expense ratably over the shorter of the requisite service period or vesting period. The fair value of stock-based compensation granted to retirement-eligible individuals is expensed at the time of grant.

A reconciliation of the number of options outstanding and exercisable (in thousands) as of ~~July 30, 2017,~~April 29, 2018, and changes during the ~~nine~~six months then ended, is as follows:

Shares
Weighted-
Average
Exercise Price
Weighted-
Average
Remaining
Contractual
Term
Aggregate
Intrinsic Value

Outstanding at October 30, 2016
31,998
$ 16.05

Granted
2,360
33.58

Exercised
2,935
10.17

Forfeited
36
9.35

Outstanding at July 30, 2017
31,387
$ 17.93
4.8 years
$ 518,421

Exercisable at July 30, 2017
25,228
$ 14.54
3.9 years
$ 496,814



	Shares	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Outstanding at October 29, 2017	30,685	$	18.08
Granted	2,334	36.63
Exercised	2,934	10.23
Forfeited	11	35.31
Expired	1	37.76
Outstanding at April 29, 2018	30,073	$	20.28	4.9	$	492,127
Exercisable at April 29, 2018	24,177	$	16.76	4.0	$	478,511

The weighted-average grant date fair value of stock options granted and the total intrinsic value of options exercised (in thousands) during the ~~third~~second quarter and first ~~nine~~six months of fiscal years ~~2017~~2018 and ~~2016,~~2017, are as follows. ~~There were no stock options granted during the third quarter of fiscal year 2017.~~

Three Months Ended

Nine Months Ended

July 30,
2017

July 24,
2016

July 30
2017

July 24,
2016

Weighted-average grant date fair value

$
-

$
7.46

$
6.41

$
7.82

Intrinsic value of exercised options

$
12,385

$
7,895

$
73,473

$
111,111



	Three Months Ended				Six Months Ended
	April 29, 2018		April 30, 2017		April 29, 2018		April 30, 2017
Weighted-average grant date fair value	$	6.49	$	7.03	$	6.86	$	6.41
Intrinsic value of exercised options	$	15,512	$	9,070	$	71,814	$	61,088

~~Table of Contents~~

The fair value of each option award is calculated on the date of grant using the Black-Scholes valuation model utilizing the following weighted-average assumptions:

Three Months Ended

Nine Months Ended

July 30,
2017

July 24,
2016

July 30,
2017

July 24,
2016
Risk-free interest rate
-

1.9%

2.4%

2.1%
Dividend yield
-

1.5%

2.0%

1.5%
Stock price volatility
-

19.0%

19.0%

19.0%
Expected option life
-

8 years

8 years

8 years



	Three Months Ended				Six Months Ended
	April 29, 2018		April 30, 2017		April 29, 2018		April 30, 2017
Risk-free interest rate	2.7	%	2.5	%	2.3	%	2.4	%
Dividend yield	2.2	%	1.9	%	2.1	%	2.0	%
Stock price volatility	19.0	%	19.0	%	19.0	%	19.0	%
Expected option life	8 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 stripped U.S. Treasury yields as of the grant date where the remaining term is approximately the expected life of the option. The dividend yield is set based on the dividend rate approved by the Company’s Board of Directors and the stock price on the grant date. The expected volatility assumption is set based primarily on historical volatility. As a reasonableness test, implied volatility from exchange traded options is also examined to validate the volatility range obtained from the historical analysis. The expected life assumption is set based on an analysis of past exercise behavior by option holders. In performing the valuations for option grants, the Company has not stratified option holders as exercise behavior has historically been consistent across all executive employee and non-employee director groups.

~~Nonvested~~

Restricted shares ~~vest~~awarded on February 1 are subject to a restricted period which expires the ~~earlier~~date of ~~the day before~~ the Company’s next annual ~~meeting date or one year from grant date.~~

stockholders meeting. A reconciliation of the ~~nonvested~~restricted shares (in thousands) as of ~~July 30, 2017,~~April 29, 2018, and changes during the ~~nine~~six months then ended, is as follows:

Shares

Weighted-
Average Grant-
Date Fair Value
Nonvested at October 30, 2016
47

$
41.01
Granted
58

35.62
Vested
47

41.01
Nonvested at July 30, 2017
58

$
35.62



	Shares	Weighted- Average Grant Date Fair Value
Restricted at October 29, 2017	58	$	35.62
Granted	52	34.08
Vested	57	35.62
Forfeited	1	35.62
Restricted at April 29, 2018	52	$	34.08

The weighted-average grant date fair value of ~~nonvested~~restricted shares granted, the total fair value (in thousands) of ~~nonvested~~restricted shares granted, and the fair value (in thousands) of shares that have vested during the first ~~nine~~six months of fiscal years ~~2017~~2018 and ~~2016,~~2017, are as follows:

Nine Months Ended

July 30,
2017

July 24,
2016
Weighted-average grant date fair value
$
35.62

$
41.01
Fair value of nonvested shares granted
2,080

1,920
Fair value of shares vested
1,920

1,920

~~Stock-based~~



	Six Months Ended
	April 29, 2018		April 30, 2017
Weighted-average grant date fair value	$	34.08	$	35.62
Fair value of restricted shares granted	1,760		2,080
Fair value of shares vested	2,053		1,920

During the second quarter and six months ended April 29, 2018, stock-based compensation expense ~~along with the related income tax benefit,~~was $4.1 million and $11.4 million, respectively, compared to $4.6 million and $11.9 million for the ~~third~~second quarter and ~~first nine~~six months ~~of fiscal years 2017 and 2016, is presented in the table below.~~

Three Months Ended

Nine Months Ended

(in thousands)

July 30,
2017

July 24,
2016

July 30,
2017

July 24,
2016

Stock-based compensation expense recognized

  $
2,006

  $
1,913

  $
13,867

  $
16,091

Income tax benefit recognized

(757)

(726)

(5,231)

(6,105)

After-tax stock-based compensation expense

  $
1,249

  $
1,187

  $
8,636

  $
9,986

~~At July~~ended April 30, 2017, respectively.

At April 29, 2018, there was ~~$13.2~~$17.8 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 ~~2.3~~2.5 years. During the ~~third~~second quarter and ~~nine~~six months ended ~~July 30, 2017,~~April 29, 2018, cash received from stock option exercises was ~~$5.4~~$6.5 million and ~~$14.3~~$30.0 million, respectively, compared to ~~$0.8~~$1.5 million and ~~$9.2~~$8.9 million for the ~~third~~second quarter and ~~nine~~six months ended ~~July 24, 2016. The total tax benefit to be~~

~~Table of Contents~~

~~realized for tax deductions from these option exercises for the third quarter and nine months ended July~~April 30, 2017, ~~was $4.7 million and $27.7 million, respectively, compared to $3.0 million and $42.2 million in the comparable periods of fiscal 2016.~~

respectively.

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

NOTE LKFAIR 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. Assets and liabilities are classified in their entirety based on the lowest level of input significant to the fair value measurement. The three levels are defined as follows:

Level 1: Observable inputs based on quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: Observable inputs, other than those included in Level 1, based on quoted prices for similar assets and liabilities in active markets, or quoted prices for identical assets and liabilities in inactive markets.

Level 3: Unobservable inputs that reflect an entity’s own assumptions about what inputs a market participant would use in pricing the asset or liability based on the best information available in the circumstances.

The Company’s financial assets and liabilities ~~are~~ measured at fair value on a recurring basis as of ~~July 30, 2017,~~April 29, 2018, and October ~~30, 2016,~~29, 2017, and their level within the fair value hierarchy, are presented in the tables below.

Fair Value Measurements at July 30, 2017

(in thousands)

Fair Value at
July 30,
2017

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)

$
633,341

$
633,341

$
-

$
-

Other trading securities (2)

127,114

-

127,114

-

Commodity derivatives (3)

3,005

3,005

-

-

Total Assets at Fair Value

$
763,460

$
636,346

$
127,114

$
-

Liabilities at Fair Value

Deferred compensation (2)

$
60,029

$
-

$
60,029

$
-

Total Liabilities at Fair Value

$
60,029

$
-

$
60,029

$
-

~~Table of Contents~~

Fair Value Measurements at October 30, 2016

(in thousands)

Fair Value at
October 30,
2016

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)

$
415,143

$
415,143

$
-

$
-

Other trading securities (2)

122,305

-

122,305

-

Commodity derivatives (3)

3,094

3,094

-

-

Total Assets at Fair Value

$
540,542

$
418,237

$
122,305

$
-

Liabilities at Fair Value

Deferred compensation (2)

$
60,949

$
-

$
60,949

$
-

Total Liabilities at Fair Value

$
60,949

$
-

$
60,949

$
-

Fair Value Measurements at April 29, 2018
(in thousands) Total Fair Value
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)
Assets at Fair Value

Cash and cash equivalents (1)
$ 261,571
$ 261,571
$ —
$ —
Other trading securities (2)
137,499
—
137,499
—
Commodity derivatives (3)
3,509
3,509
—
—
Total Assets at Fair Value $ 402,579
$ 265,080
$ 137,499
$ —
Liabilities at Fair Value
Deferred compensation (2)
$ 61,679
$ —
$ 61,679
$ —
Total Liabilities at Fair Value $ 61,679
$ —
$ 61,679
$ —



	Fair Value Measurements at October 29, 2017
(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)	$	444,122	$	444,122	$	—	$	—
Other trading securities (2)	128,530		—		128,530		—
Commodity derivatives (3)	2,821		2,821		—		—
Total Assets at Fair Value	$	575,473	$	446,943	$	128,530	$	—
Liabilities at Fair Value
Deferred compensation (2)	$	62,341	$	—	$	62,341	$	—
Total Liabilities at Fair Value	$	62,341	$	—	$	62,341	$	—

The following methods and assumptions were used to estimate the fair value of the financial assets and liabilities above:

~~(1)~~The Company’s cash equivalents consist primarily of bank deposits, money market funds rated AAA, or other highly liquid investment accounts. As these investments have a maturity date of three months or less, the carrying value approximates fair value.

~~(2)~~A majority of the funds held in the rabbi trust relate to the supplemental executive retirement plans and have been invested in fixed income funds managed by a third party. The declared rate on these funds is set based on a formula using the yield of the general account investment portfolio supporting the fund, adjusted for expenses and other charges. The rate is guaranteed for one year at issue, and may be reset annually on the policy anniversary, subject to a guaranteed minimum rate. As the value is based on adjusted market rates, and the fixed rate is only reset on an annual basis, these funds are classified as Level 2. The funds held in the rabbi trust are included in other assets on the Consolidated Statements of Financial Position. The remaining funds held are also managed by a third party insurance policy, the values of which represent their cash surrender value based on the fair value of the underlying investments in the account and include equity securities, money market accounts, bond funds, or other portfolios for which there is an active quoted market. Therefore these policies are also classified as Level 2. The related deferred compensation liabilities are included in other long-term liabilities on the Consolidated Statements of Financial Position with investment options generally mirroring those funds held by the rabbi trust. Therefore these investment balances are classified as Level 2. The Company also offers a fixed rate investment option to participants. The rate earned on these investments is adjusted annually based on a specified percentage of the United States Internal Revenue Service (I.R.S.) Applicable Federal Rates. These balances are classified as Level 2.

~~(3)~~The Company’s commodity derivatives represent futures contracts used in its hedging or other programs to offset price fluctuations associated with purchases of corn, soybean meal, and hogs, and to minimize the price risk assumed when forward priced contracts are offered to the Company’s commodity suppliers. The Company’s futures contracts for corn and soybean meal are traded on the Chicago Board of Trade, while futures contracts for lean hogs are traded on the Chicago Mercantile Exchange. These are active markets with quoted prices available, and these contracts are classified as Level 1. All derivatives are reviewed for potential credit risk and risk of nonperformance. The Company nets the derivative assets and liabilities for each of its hedging programs, including cash collateral, when a master netting arrangement exists between the Company and the counterparty to the derivative contract. The net balance for each program is included in other current assets or accounts payable, as appropriate, in the Consolidated Statements of Financial Position. As of July 30, 2017, the Company has recognized the right to reclaim net cash collateral of $1.9 million from various counterparties (including $11.4 million of realized gains offset by cash owed of $9.5 million on closed positions). As of October 30, 2016, the Company had recognized the right to reclaim net cash collateral of $3.1 million from various counterparties (including $7.1 million of realized gains offset by cash owed of $4.0 million on closed positions).


(1)	The Company’s cash equivalents consist primarily of bank deposits, money market funds rated AAA, or other highly liquid investment accounts. As these investments have a maturity date of three months or less, the carrying value approximates fair value.

(2)

A majority of the funds held in the rabbi trust relate to the supplemental executive retirement plans and have been invested in fixed income funds managed by a third party. The declared rate on these funds is set based on a formula using the yield of the general account investment portfolio supporting the fund, adjusted for expenses and other charges. The rate is guaranteed for one year at issue, and may be reset annually on the policy anniversary, subject to a guaranteed minimum rate. As the value is based on adjusted market rates, and the fixed rate is only reset on an annual basis, these funds are classified as Level 2. The funds held in the rabbi trust are included in other assets on the Consolidated Statements of Financial Position. The remaining funds held are also managed by a third-party insurance policy, the values of which represent their cash surrender value based on the fair value of the underlying investments in the account and include equity securities, money market accounts, bond funds, or other portfolios for which there is an active quoted market. Therefore these policies are also classified as Level 2. The related deferred compensation liabilities are included in other long-term liabilities on the Consolidated Statements of Financial Position with investment options generally mirroring those funds held by the rabbi trust. Therefore these investment balances are classified as Level 2. The Company also offers a fixed rate investment option to participants. The rate earned on these investments is adjusted annually based on a specified percentage of the I.R.S. Applicable Federal Rates. These balances are classified as Level 2.

(3)

The Company’s commodity derivatives represent futures contracts used in its hedging or other programs to offset price fluctuations associated with purchases of corn and hogs, and to minimize the price risk assumed when forward priced contracts are offered to the Company’s commodity suppliers. The Company’s futures contracts for corn and soybean meal are traded on the Chicago Board of Trade, while futures contracts for lean hogs are traded on the Chicago Mercantile Exchange. These are active markets with quoted prices available, and these contracts are classified as Level 1. All derivatives are reviewed for potential credit risk and risk of nonperformance. The Company nets the derivative assets and liabilities for each of its hedging programs, including cash collateral, when a master netting arrangement exists between the Company and the counterparty to the derivative contract. The net balance for each program is included in other current assets or accounts payable, as appropriate, in the Consolidated Statements of Financial Position. As of April 29, 2018, the Company has recognized the right to reclaim net cash collateral of $4.1 million from various counterparties (including $5.7 million of realized gains offset by cash owed of $1.6 million on closed positions). As of October 29, 2017, the Company had recognized the right to reclaim net cash collateral of $2.5 million from various counterparties (including $11.0 million of realized gains offset by cash owed of $8.5 million on closed positions).

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, the fair value of long-term debt, utilizing discounted cash flows (Level 2), was ~~$271.6~~$632.4 million as of ~~July 30, 2017,~~April 29, 2018, and ~~$274.9~~$266.5 million as of October ~~30, 2016.~~

29, 2017.

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 ~~second quarter of fiscal year 2016, a $1.0 million goodwill impairment charge was recorded for the portion of DCB assets held for sale which was based on the valuation of~~

~~Table of Contents~~

~~these assets as implied by the agreed-upon sales price. See additional discussion regarding the Company’s assets held for sale in Note E. During the nine~~first six months ended ~~July~~April 29, 2018, and April 30, 2017, there were no material remeasurements of assets or liabilities at fair value on a nonrecurring basis subsequent to their initial ~~recognition~~

recognition.

NOTE MLEARNINGS 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:

Three Months Ended

Nine Months Ended

(in thousands)

July 30,
2017

July 24,
2016

July 30,
2017

July 24,
2016

Basic weighted-average shares outstanding

528,165

529,660

528,487

529,473

Dilutive potential common shares

10,649

12,503

11,017

13,417

Diluted weighted-average shares outstanding

538,814

542,163

539,504

542,890



	Three Months Ended		Six Months Ended
(in thousands)	April 29, 2018	April 30, 2017	April 29, 2018	April 30, 2017
Basic weighted-average shares outstanding	529,799	528,712	529,626	528,649
Dilutive potential common shares	13,012	10,923	13,520	11,201
Diluted weighted-average shares outstanding	542,811	539,635	543,146	539,850

For the ~~third~~second quarter and ~~nine~~six months ended ~~July 30, 2017, 2.4~~April 29, 2018, a total of 6.8 million and ~~3.4~~6.1 million weighted-average stock options, respectively, were not included in the computation of dilutive potential common shares since their inclusion would have had an antidilutive effect on earnings per share, compared to ~~1.8~~4.5 million and ~~0.9~~3.9 million, respectively, for the ~~third~~second quarter and ~~nine~~six months ended ~~July 24, 2016.~~

April 30, 2017.

NOTE NMSEGMENT 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 ~~five~~four segments: Grocery Products, Refrigerated Foods, Jennie-O Turkey Store, ~~Specialty Foods,~~ and International & Other.

As a result of a business realignment at the beginning of fiscal 2018, the former Specialty Foods segment results are now reported as part of the Grocery Products segment. Periods presented herein have been recast to reflect this change.

The Grocery Products segment consists primarily of the processing, marketing, and sale of shelf-stable food products sold predominantly in the retail ~~market.~~market, along with the sale of nutritional and private label shelf-stable products to retail, foodservice, and industrial customers. This segment also includes the results from the Company’s MegaMex Foods, LLC joint venture.

The Refrigerated Foods segment consists primarily of the processing, marketing, and sale of branded and unbranded pork, beef, ~~chicken,~~ and ~~turkey products~~poultry products for retail, foodservice, and fresh product 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 product customers.

~~The Specialty Foods segment consists of the processing, marketing, and sale of nutritional and private label shelf-stable products to retail, foodservice, and industrial 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.

Intersegment sales are recorded at approximate cost and are eliminated in the Consolidated Statements of Operations. The Company does not allocate investment income, interest expense, and interest income to its segments when measuring performance. The Company also retains various other income and unallocated expenses at corporate. Equity in earnings of affiliates is included in segment operating profit; however, earnings attributable to the Company’s noncontrolling interests are excluded. These items are included below as net interest and investment expense (income), general corporate 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

~~Table of Contents~~

these segments, if operated independently, would report the operating profit and other financial information shown below.

Three Months Ended

Nine Months Ended

(in thousands)

July 30, 2017

July 24, 2016

July 30, 2017

July 24, 2016

Sales to Unaffiliated Customers

Grocery Products

$
421,986

$
399,342

$
1,271,936

$
1,193,032

Refrigerated Foods

1,086,546

1,155,297

3,237,071

3,409,897

Jennie-O Turkey Store

369,078

403,953

1,178,304

1,199,559

Specialty Foods

196,873

212,197

597,716

722,460

International & Other

132,892

131,587

389,884

370,335

Total

$
2,207,375

$
2,302,376

$
6,674,911

$
6,895,283

Intersegment Sales

Grocery Products

$
-

$
-

$
-

$
-

Refrigerated Foods

1,223

1,648

5,039

7,635

Jennie-O Turkey Store

29,264

27,921

85,080

88,604

Specialty Foods

7

8

22

17

International & Other

-

-

-

-

Total

$
30,494

$
29,577

$
90,141

$
96,256

Intersegment elimination

(30,494)

(29,577)

(90,141)

(96,256)

Total

$
-

$
-

$
-

$
-

Net Sales

Grocery Products

$
421,986

$
399,342

$
1,271,936

$
1,193,032

Refrigerated Foods

1,087,769

1,156,945

3,242,110

3,417,532

Jennie-O Turkey Store

398,342

431,874

1,263,384

1,288,163

Specialty Foods

196,880

212,205

597,738

722,477

International & Other

132,892

131,587

389,884

370,335

Intersegment elimination

(30,494)

(29,577)

(90,141)

(96,256)

Total

$
2,207,375

$
2,302,376

$
6,674,911

$
6,895,283

Segment Operating Profit

Grocery Products

$
58,780

$
53,344

$
201,894

$
185,727

Refrigerated Foods

138,314

120,702

442,316

417,612

Jennie-O Turkey Store

44,986

56,147

176,952

237,128

Specialty Foods

23,336

27,089

80,895

90,735

International & Other

17,111

20,308

62,191

58,839

Total segment operating profit

$
282,527

$
277,590

$
964,248

$
990,041

Net interest and investment expense

1,681

673

2,463

5,663

General corporate expense

2,865

2,922

13,308

32,111

Less: Noncontrolling interest

43

122

159

215

Earnings before income taxes

$
278,024

$
274,117

$
948,636

$
952,482



	Three Months Ended						Six Months Ended
(in thousands)	April 29, 2018			April 30, 2017			April 29, 2018			April 30, 2017
Sales to Unaffiliated Customers
Grocery Products	$	631,550		$	640,419		$	1,245,420		$	1,250,793
Refrigerated Foods	1,166,967			1,027,486			2,343,423			2,150,525
Jennie-O Turkey Store	371,916			388,237			762,564			809,226
International & Other	160,135			131,167			310,454			256,992
Total	$	2,330,568		$	2,187,309		$	4,661,861		$	4,467,536

Intersegment Sales
Grocery Products	$	10		$	10		$	14		$	15
Refrigerated Foods	1,386			1,677			3,550			3,816
Jennie-O Turkey Store	25,539			27,560			50,228			55,816
International & Other	—			—			—			—
Total	26,935			29,247			53,792			59,647
Intersegment elimination	(26,935		)	(29,247		)	(53,792		)	(59,647		)
Total	$	—		$	—		$	—		$	—

Net Sales
Grocery Products	$	631,560		$	640,429		$	1,245,434		$	1,250,808
Refrigerated Foods	1,168,353			1,029,163			2,346,973			2,154,341
Jennie-O Turkey Store	397,455			415,797			812,792			865,042
International & Other	160,135			131,167			310,454			256,992
Intersegment elimination	(26,935		)	(29,247		)	(53,792		)	(59,647		)
Total	$	2,330,568		$	2,187,309		$	4,661,861		$	4,467,536

Segment Operating Profit
Grocery Products	$	95,651		$	108,297		$	195,628		$	200,673
Refrigerated Foods	154,192			130,194			297,141			304,002
Jennie-O Turkey Store	42,356			63,786			92,230			131,966
International & Other	20,850			19,617			45,505			45,080
Total segment operating profit	313,049			321,894			630,504			681,721
Net interest and investment expense (income)	9,490			205			10,913			782
General corporate expense	6,814			5,822			17,785			10,443
Noncontrolling interest	138			(40		)	242			116
Earnings Before Income Taxes	$	296,883		$	315,827		$	602,048		$	670,612

~~Table of Contents~~

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

CRITICAL ACCOUNTING POLICIES

There have been no material changes in the Company’s Critical Accounting Policies, as disclosed in its Annual Report on Form 10-K for the fiscal year ended October ~~30, 2016.~~

29, 2017.

RESULTS OF OPERATIONS

Overview

The Company is a ~~processor~~multinational manufacturer and marketer of ~~branded~~consumer-branded food and ~~unbranded food products for retail, foodservice, and fresh product customers.~~meat products. It operates in ~~five~~four reportable segments as described in Note NM in the Notes to Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

The Company reported net earnings per diluted share of ~~$0.34~~$0.44 for the ~~third~~second quarter of fiscal ~~2017,~~2018, compared to ~~$0.36~~$0.39 per diluted share in the ~~third~~second quarter of fiscal ~~2016.~~2017. Significant factors impacting the quarter were:

The Company delivered record net earnings ~~before income~~as a result of strong results in Refrigerated Foods, the impact from three acquisitions, and the benefit from tax ~~as strong earnings growth~~reform, more than offsetting increases in freight, a dynamic pork environment, and continued oversupply in the ~~Refrigerated Foods and Grocery Products segments was able to offset lower earnings in the Company’s other segments.~~

·turkey industry.

Refrigerated Foods segment profit ~~rose as strong demand for pork~~increased despite a decline in commodity profits, increases in per-unit freight expenses, and ~~operational improvements offset~~ higher ~~input costs~~advertising expenses. Strong results by the branded retail and foodservice businesses in addition to the ~~divestiture~~inclusion of ~~Farmer John.~~

·the Fontanini and Columbus acquisitions supported results.

Grocery Products segment profit ~~increased as~~decreased due to higher ~~input costs were offset by advertising reductions~~promotional activity and ~~incremental~~lower volumes at CytoSport and lower earnings from ~~an additional period of~~ ~~Justin’s~~ ~~specialty nut butters.~~

· ~~Specialty Foods~~the Company's contract manufacturing business.

JOTS segment profit ~~declined~~decreased as ~~pricing~~a result of ~~contract packaging~~lower profits from whole bird and commodity sales ~~did not keep pace with input cost increases along with lower sales of~~ ~~Muscle Milk~~ ~~ready-to-drink protein products.~~

·and increased freight and advertising expenses.

International & Other segment profit ~~decreased driven by lower results~~increased on improved profitability in China ~~reflecting startup costs for the Company’s new Jiaxing production facility and the closing of the Shanghai facility.~~

· ~~Jennie-O Turkey Store (JOTS) segment profit decreased during the quarter~~ due to lower ~~turkey commodity prices, pricing pressure from competing proteins,~~raw material costs, but were partially offset by higher advertising expenses and ~~increased operating expenses.~~

lower branded export margins.

Consolidated Results

Net Earnings and Diluted Earnings per Share

Three Months

Nine Months
(in thousands, except per share amounts)
July 30,
2017

July 24,
2016

%
Change

July 30,
2017

July 24,
2016

%
Change
Net earnings
$
182,508

$
195,654

(6.7)

$
628,581

$
646,112

(2.7)
Diluted earnings per share

0.34

0.36

(5.6)

1.17

1.19

(1.7)

Three Months Ended Six Months Ended
(in thousands, except per share amounts) April 29, 2018 April 30, 2017
%
Change
April 29, 2018 April 30, 2017
%
Change
Net earnings $ 237,384
$ 210,926
12.5 $ 540,491
$ 446,073
21.2
Diluted earnings per share 0.44
0.39
12.8 1.00
0.83
20.5

Net Sales

Three Months Ended

Nine Months Ended
(in thousands)
July 30,
2017

July 24,
2016

%
Change

July 30,
2017

July 24,
2016

%
Change
Tonnage (lbs.)

1,112,064

1,220,435

(8.9)

3,495,215

3,771,041

(7.3)
Adjusted(1) tonnage

1,110,950

1,121,474

(0.9)

3,408,331

3,357,537

1.5
Net sales
$
2,207,375

$
2,302,376

(4.1)

$
6,674,911

$
6,895,283

(3.2)
Adjusted(1) net sales

2,198,696

2,168,140

1.4

6,531,534

6,384,837

2.3



	Three Months Ended						Six Months Ended
(in thousands)	April 29, 2018		April 30, 2017		% Change		April 29, 2018		April 30, 2017		% Change
Volume (lbs.)	1,171,401		1,138,242		2.9		2,361,993		2,383,151		(0.9	)
Organic volume⁽¹⁾	1,122,323		1,138,242		(1.4	)	2,268,422		2,302,697		(1.5	)
Net sales	$	2,330,568	$	2,187,309	6.5		$	4,661,861	$	4,467,536	4.3
Organic net sales⁽¹⁾	2,176,650		2,187,309		(0.5	)	4,375,071		4,367,305		0.2

(1) The non-GAAP adjusted financial measurements of organic net sales and organic volume are presented to provide investors additional information to facilitate the comparison of past and present operations. The Company believes these non-GAAP ~~adjusted~~ 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

~~Table of Contents~~

not in accordance with generally accepted accounting principles and may be different from non-GAAP measures used by other companies.

~~Adjusted volume and~~

Organic net sales ~~excludes~~and organic volume are defined as net sales and volume excluding the impact ~~from~~of acquisitions and divestitures. Organic net sales and organic volume exclude the ~~Justin’s~~impacts of the acquisition ~~in May 2016,~~of Columbus Craft Meats (November 2017), the acquisition of Fontanini Italian Meats and Sausages (August 2017), and the ~~divestitures~~divestiture of ~~the DCB business~~Farmer John (January 2017) in ~~May 2016,~~Refrigerated Foods and the ~~Farmer John business~~acquisition of Ceratti (August 2017) in January 2017. Results below reflect only the incremental sales and tonnage through period 7 of fiscal 2017 for the Justin’s, LLC acquisition and only through the date of divestiture, or period 7 of fiscal 2016, for the DCB divestiture.International. The tables below show the calculations to reconcile from the non-GAAP adjusted measures to the GAAP measures in the ~~third~~second quarter and ~~third quarter year-to-date~~first six months of fiscal ~~2016~~2018 and fiscal 2017.

~~3rd Quarter~~

~~Tonnage (lbs.)~~

(in thousands)
2017
Tonnage
Justin's
Acquisition
(Pd 7, 2017)
2017
Non-GAAP
Tonnage
2016
Tonnage
DCB
Divestiture
(Pd 7, 2016)
Farmer
John
Divestiture
2016
Non-GAAP
Tonnage
Non-GAAP
% Change
Grocery Products
219,088
(1,114)
217,974
210,877

210,877
3.4%
Refrigerated Foods
503,296

503,296
596,389

(87,264)
509,125
(1.1%)
Jennie-O Turkey Store
200,143

200,143
215,447

215,447
(7.1%)
Specialty Foods
111,417

111,417
120,487
(11,697)

108,790
2.4%
International & Other
78,120

78,120
77,235

77,235
1.1%
Total Tonnage
1,112,064
(1,114)
1,110,950
1,220,435
(11,697)
(87,264)
1,121,474
(0.9%)

~~Net Sales~~

(in thousands)
2017
Net Sales
Justin's
Acquisition
(Pd 7, 2017)
2017
Non-GAAP
Net Sales
2016
Net Sales
DCB
Divestiture
(Pd 7, 2016)
Farmer
John
Divestiture
2016
Non-GAAP
Net Sales
Non-GAAP
% Change
Grocery Products
$ 421,986
$
(8,679)
$
413,307
$
399,342
$
-
$
-
$
399,342
3.5%
Refrigerated Foods
1,086,546

1,086,546
1,155,297

(121,065)
1,034,232
5.1%
Jennie-O Turkey Store
369,078

369,078
403,953

403,953
(8.6%)
Specialty Foods
196,873

196,873
212,197
(13,171)

199,026
(1.1%)
International & Other
132,892

132,892
131,587

131,587
1.0%
Total Net Sales
$2,207,375
$
(8,679)
$
2,198,696
$
2,302,376
$
(13,171)
$
(121,065)
$
2,168,140
1.4%

~~Year to Date~~

~~Tonnage (lbs.)~~

(in thousands)
2017
Tonnage
Justin's
Acquisition
(Period 7,
2017 YTD)
Farmer John
Divestiture
2017
Non-GAAP
Tonnage
2016
Tonnage
DCB
Divestiture
(Pd 7, 2016
YTD)
Farmer John
Divestiture
2016
Non-GAAP
Tonnage
Non-GAAP
% Change
Grocery Products
667,502
(6,430)

661,072
647,816

647,816
2.0%
Refrigerated Foods
1,633,211

(80,454)
1,552,757
1,834,852

(279,771)
1,555,081
(0.1%)
Jennie-O Turkey Store
620,343

620,343
610,486

610,486
1.6%
Specialty Foods
340,678

340,678
456,214
(133,733)

322,481
5.6%
International & Other
233,481

233,481
221,673

221,673
5.3%
Total Tonnage
3,495,215
(6,430)
(80,454)
3,408,331
3,771,041
(133,733)
(279,771)
3,357,537
1.5%

��

~~Net Sales~~

(in thousands)
2017
Net Sales
Justin's
Acquisition
(Period 7,
2017 YTD)
Farmer John
Divestiture
2017
Non-GAAP
Net Sales
2016
Net Sales
DCB
Divestiture
(Pd 7, 2016
YTD)
Farmer John
Divestiture
2016
Non-GAAP
Net Sales
Non-GAAP
% Change
Grocery Products
$ 1,271,936
$  (43,146)
$              -
$ 1,228,790
$ 1,193,032
$
-
$              -
$ 1,193,032
3.0%
Refrigerated Foods
3,237,071

(100,231)
3,136,840
3,409,897

(370,362)
3,039,535
3.2%
Jennie-O Turkey Store
1,178,304

1,178,304
1,199,559

1,199,559
(1.8%)
Specialty Foods
597,716

597,716
722,460
(140,084)

582,376
2.6%
International & Other
389,884

389,884
370,335

370,335
5.3%
Total Net Sales
$ 6,674,911
$  (43,146)
$ (100,231)
$ 6,531,534
$ 6,895,283
$  (140,084)
$ (370,362)
$ 6,384,837
2.3%



Second Quarter
Volume (lbs.)	FY 2018							FY 2017
(in thousands)	Reported (GAAP)		Acquisitions			Organic (Non-GAAP)		Reported (GAAP)		Organic % Change
Grocery Products	333,398		—			333,398		338,883		(1.6	)
Refrigerated Foods	548,319		(38,402		)	509,917		515,490		(1.1	)
Jennie-O Turkey Store	197,806		—			197,806		203,557		(2.8	)
International & Other	91,878		(10,676		)	81,202		80,312		1.1
Total Volume	1,171,401		(49,078		)	1,122,323		1,138,242		(1.4	)


Net Sales	FY 2018							FY 2017
(in thousands)	Reported (GAAP)		Acquisitions			Organic (Non-GAAP)		Reported (GAAP)		Organic % Change
Grocery Products	$	631,550	$	—		$	631,550	$	640,419	(1.4	)
Refrigerated Foods	1,166,967		(134,878		)	1,032,089		1,027,486		0.4
Jennie-O Turkey Store	371,916		—			371,916		388,237		(4.2	)
International & Other	160,135		(19,040		)	141,095		131,167		7.6
Total Net Sales	$	2,330,568	$	(153,918	)	$	2,176,650	$	2,187,309	(0.5	)



First Six Months
Volume (lbs.)	FY 2018							FY 2017
(in thousands)	Reported (GAAP)		Acquisitions			Organic (Non-GAAP)		Reported (GAAP)		Divestitures			Organic (Non-GAAP)		Organic % Change
Grocery Products	667,615		—			667,615		677,675		—			677,675		(1.5	)
Refrigerated Foods	1,110,814		(70,062		)	1,040,752		1,129,915		(80,454		)	1,049,461		(0.8	)
Jennie-O Turkey Store	406,237		—			406,237		420,200		—			420,200		(3.3	)
International & Other	177,327		(23,509		)	153,818		155,361		—			155,361		(1.0	)
Total Volume	2,361,993		(93,571		)	2,268,422		2,383,151		(80,454		)	2,302,697		(1.5	)


Net Sales	FY 2018							FY 2017
(in thousands)	Reported (GAAP)		Acquisitions			Organic (Non-GAAP)		Reported (GAAP)		Divestitures			Organic (Non-GAAP)		Organic % Change
Grocery Products	$	1,245,420	$	—		$	1,245,420	$	1,250,793	$	—		$	1,250,793	(0.4	)
Refrigerated Foods	2,343,423		(245,895		)	2,097,528		2,150,525		(100,231		)	2,050,294		2.3
Jennie-O Turkey Store	762,564		—			762,564		809,226		—			809,226		(5.8	)
International & Other	310,454		(40,895		)	269,559		256,992		—			256,992		4.9
Total Net Sales	$	4,661,861	$	(286,790	)	$	4,375,071	$	4,467,536	$	(100,231	)	$	4,367,305	0.2

~~Table of Contents~~

The ~~decline~~increase in net sales for the ~~third~~second quarter ~~and first nine months~~ of fiscal ~~2017~~2018 was primarily related to the ~~divestitures~~inclusion of the ~~DCB business on May 9, 2016,~~Columbus, Fontanini, and Ceratti acquisitions. Organic sales growth was flat for the quarter, as retail sales of Wholly Guacamole® dips, retail and foodservice sales of Hormel® pepperoni and Hormel® Natural Choice® products, and foodservice sales of Hormel® Bacon 1^TM fully cooked bacon were offset by lower sales of whole birds at JOTS, declines across the CytoSport portfolio, and the ~~Farmer John~~Company's contract manufacturing business ~~on January 3, 2017.~~

in Grocery Products.

For the first six months of 2018, the increase in net sales was primarily related to the inclusion of the Columbus, Fontanini, and Ceratti acquisitions, more than offsetting declines at JOTS.

Cost of Products Sold

Three Months Ended

Nine Months Ended
(in thousands)
July 30,
2017

July 24,
2016

%
Change

July 30,
2017

July 24,
2016

%
Change
Cost of products sold
$
1,754,966

$
1,827,091

(3.9)

$
5,183,302

$
5,335,628

(2.9)

~~Cost~~



	Three Months Ended					Six Months Ended
(in thousands)	April 29, 2018		April 30, 2017		% Change	April 29, 2018		April 30, 2017		% Change
Cost of products sold	$	1,833,882	$	1,700,389	7.9	$	3,662,996	$	3,428,336	6.8

The cost of products sold ~~was down~~ for ~~both~~ the ~~third~~second quarter and first ~~nine~~six months of 2018 were higher as a result of the inclusion of the Columbus, Fontanini, and Ceratti acquisitions and higher freight expenses, especially in the Refrigerated Foods and JOTS segments.

Gross Profit



	Three Months Ended							Six Months Ended
(in thousands)	April 29, 2018			April 30, 2017			% Change	April 29, 2018			April 30, 2017			% Change
Gross profit	$	496,686		$	486,920		2.0	$	998,865		$	1,039,200		(3.9	)
Percentage of net sales	21.3		%	22.3		%		21.4		%	23.3		%

Gross profit as a percentage of net sales for Refrigerated Foods and International & Other increased in the second quarter of fiscal ~~2017~~2018, while Grocery Products and JOTS declined compared to the prior year. InLower input costs in Refrigerated Foods were able to offset significant increases in freight, while lower raw material costs in China positively impacted International & Other margins during the ~~third~~quarter. Grocery Products margins in the second quarter were impacted by higher input costs and a weaker sales mix due to declines at CytoSport. Depressed turkey commodity markets and higher freight expenses pressured JOTS in the second quarter. For the first six months of 2018, gross profit as a percentage of net sales declined in all segments. Input cost volatility and higher freight expenses were the main drivers.

Looking to the second half of fiscal 2018, the Company ~~faced record-high input costs for pork bellies~~expects Refrigerated Foods, Grocery Products, and ~~beef trim, two of~~ the Company’s primary raw materials. The loss of the Farmer John business more than offset the higher costs and was the primary contributor to the lower cost for both the third quarter and first nine months of fiscal 2017.

~~Gross Profit~~

Three Months Ended

Nine Months Ended
(in thousands)
July 30,
2017

July 24,
2016

%
Change

July 30,
2017

July 24,
2016

%
Change
Gross profit
$
452,409

$
475,285

(4.8)

$
1,491,609

$
1,559,655

(4.4)
Percentage of net sales

20.5%

20.6%

22.3%

22.6%

~~Lower margin results in the JOTS, Specialty Foods, and~~ International & Other segments ~~drove~~to grow their value-added businesses and offset a portion of the ~~overall decline in the third quarter~~impact of ~~fiscal 2017 compared~~higher freight. Pork export margins could be challenged near-term due to ~~the prior year.~~tariffs on exports to China. The depressed turkey commodity markets are anticipated to continue affecting JOTS for ~~JOTS were relatively unchanged from~~ the ~~second quarter and contributed to~~remainder of the ~~lower margin percentage result for both the third quarter and first nine months.~~

~~Looking ahead to the fourth quarter, the Company’s price increases are not expected to fully offset the high raw material prices until late in the quarter. While~~ ~~Jennie-O~~ branded products continue to show positive demand trends, JOTS expects to see sustained pressure from the commodity markets and competitive price compression. Specialty Foods anticipates lower sales trends for ~~Muscle Milk~~ protein products to continue. Refrigerated Foods is expected to be impacted by rising input costs. Grocery Products anticipates a solid quarter, aided by value-added product growth while working to overcome higher commodity markets. The International & Other segment is expected to have lower results in China due to high raw material costs.

year.

Selling, General and Administrative (SG&A)

Three Months Ended

Nine Months Ended
(in thousands)
July 30,
2017

July 24,
2016

%
Change

July 30,
2017

July 24,
2016

%
Change
SG&A
$
176,660

$
206,876

(14.6)

$
567,886

$
627,968

(9.6)
Percentage of net sales

8.0%

9.0%

8.5%

9.1%



	Three Months Ended							Six Months Ended
(in thousands)	April 29, 2018			April 30, 2017			% Change	April 29, 2018			April 30, 2017			% Change
SG&A	$	203,799		$	181,009		12.6	$	422,921		$	391,226		8.1
Percentage of net sales	8.7		%	8.3		%		9.1		%	8.8		%

For the ~~third~~second quarter and first six months of fiscal ~~2017,~~2018, SG&A expenses ~~declined primarily on reductions~~increased due to the impact of the Columbus, Fontanini, and Ceratti acquisitions and higher advertising ~~and marketing~~ expenses. ~~The lower expense~~Advertising expenses are expected to increase approximately 20 percent for the ~~first nine months is driven by the DCB and Farmer John divestitures.~~

year.

Equity in Earnings of Affiliates

Three Months Ended

Nine Months Ended
(in thousands)
July 30,
2017

July 24,
2016

%
Change

July 30,
2017

July 24,
2016

%
Change
Equity in earnings of affiliates
$
3,956

$
6,381

(38.0)

$
27,376

$
27,449

(0.3)



	Three Months Ended					Six Months Ended
(in thousands)	April 29, 2018		April 30, 2017		% Change	April 29, 2018		April 30, 2017		% Change
Equity in earnings of affiliates	$	13,486	$	10,121	33.2	$	37,017	$	23,420	58.1

Results for the ~~third~~second quarter and first six months of fiscal ~~2017~~2018 were ~~negatively~~positively impacted by ~~high avocado costs~~strong MegaMex results and tax reform.

Effective Tax Rate



	Three Months Ended				Six Months Ended
	April 29, 2018		April 30, 2017		April 29, 2018		April 30, 2017
Effective tax rate	20.0	%	33.2	%	10.2	%	33.5	%

The lower effective tax rate for both the second quarter and first six months of fiscal 2018 reflects the impact of the Tax Cuts and Jobs Act signed into law on December 22, 2017. In the second quarter, the Company recorded an adjustment to the provisional non-cash tax benefit of $5.8 million, bringing the deferred tax liability revaluation to $73.8 million for the ~~Company’s MegaMex Foods, LLC joint venture, offsetting strong results earlier~~first six months of fiscal 2018. A provisional charge of $5.2 million for deemed repatriation of the Company's previously undistributed foreign earnings was recorded in the ~~year.~~

~~Table of Contents~~

~~Effective Tax Rate~~

Three Months Ended

Nine Months Ended

July 30,
2017

July 24,
2016

July 30,
2017

July 24,
2016
Effective tax rate
34.3%

28.6%

33.7%

32.1%

~~The higher rate~~first quarter with no additional charges in the ~~third~~second quarter. The one-time tax events and reduction in the federal statutory tax rate were the main drivers of the Company's effective tax rates for the second quarter and first six months of fiscal ~~2017 is due~~2018 of 20.0 percent and 10.2 percent, respectively, compared to 33.2 percent and 33.5 percent for the ~~benefit from the one-time foreign restructuring that occurred in the third quarter of fiscal 2016.~~respective periods last year. The Company expects a full-year effective tax rate between ~~33.25~~17.5 and ~~33.75~~19.5 percent for fiscal ~~2017.~~

2018. For further description refer to Note I "Income Taxes".

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 these segments, if operated independently, would report the operating profit and other financial information shown below. Additional segment financial information can be found in Note NM of the Notes to Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

Three Months Ended

Nine Months Ended
(in thousands)
July 30,
2017

July 24,
2016

%
Change

July 30,
2017

July 24,
2016

% Change
Net Sales

Grocery Products
$
421,986

$
399,342

5.7

$
1,271,936

$
1,193,032

6.6
Refrigerated Foods

1,086,546

1,155,297

(6.0)

3,237,071

3,409,897

(5.1)
Jennie-O Turkey Store

369,078

403,953

(8.6)

1,178,304

1,199,559

(1.8)
Specialty Foods

196,873

212,197

(7.2)

597,716

722,460

(17.3)
International & Other

132,892

131,587

1.0

389,884

370,335

5.3
Total
$
2,207,375

$
2,302,376

(4.1)

$
6,674,911

$
6,895,283

(3.2)

Segment Operating Profit

Grocery Products
$
58,780

$
53,344

10.2

$
201,894

$
185,727

8.7
Refrigerated Foods

138,314

120,702

14.6

442,316

417,612

5.9
Jennie-O Turkey Store

44,986

56,147

(19.9)

176,952

237,128

(25.4)
Specialty Foods

23,336

27,089

(13.9)

80,895

90,735

(10.8)
International & Other

17,111

20,308

(15.7)

62,191

58,839

5.7
Total segment operating profit
$
282,527

$
277,590

1.8

$
964,248

$
990,041

(2.6)
Net interest and investment expense

1,681

673

149.8

2,463

5,663

(56.5)
General corporate expense

2,865

2,922

(2.0)

13,308

32,111

(58.6)
Less: Noncontrolling interest

43

122

(64.8)

159

215

(26.0)

Earnings before income taxes
$
278,024

$
274,117

1.4

$
948,636

$
952,482

(0.4)

Three Months Ended Six Months Ended
(in thousands) April 29, 2018 April 30, 2017 % Change April 29, 2018 April 30, 2017 % Change
Net Sales

Grocery Products $ 631,550
$ 640,419
(1.4 ) $ 1,245,420
$ 1,250,793
(0.4 )
Refrigerated Foods 1,166,967
1,027,486
13.6
2,343,423
2,150,525
9.0
Jennie-O Turkey Store 371,916
388,237
(4.2 ) 762,564
809,226
(5.8 )
International & Other 160,135
131,167
22.1
310,454
256,992
20.8
Total $ 2,330,568
$ 2,187,309
6.5
$ 4,661,861
$ 4,467,536
4.3

Segment Operating Profit

Grocery Products $ 95,651
$ 108,297
(11.7 ) $ 195,628
$ 200,673
(2.5 )
Refrigerated Foods 154,192
130,194
18.4
297,141
304,002
(2.3 )
Jennie-O Turkey Store 42,356
63,786
(33.6 ) 92,230
131,966
(30.1 )
International & Other 20,850
19,617
6.3
45,505
45,080
0.9
Total segment operating profit 313,049
321,894
(2.7 ) 630,504
681,721
(7.5 )
Net interest and investment expense 9,490
205
4,529.3
10,913
782
1,295.5
General corporate expense 6,814
5,822
17.0
17,785
10,443
70.3
Noncontrolling interest 138
(40 ) 445.0
242
116
108.6

Earnings before income taxes $ 296,883
$ 315,827
(6.0 ) $ 602,048
$ 670,612
(10.2 )

Grocery Products

Results for the Grocery Products segment compared to the prior year are as follows:

Three Months Ended

Nine Months Ended
(in thousands)

July 30,
2017

July 24,
2016

%
Change

July 30,
2017

July 24,
2016

%
Change
Tonnage (lbs.)

219,088

210,877

3.9

667,502

647,816

3.0
Net sales

  $
421,986

  $
399,342

5.7

  $
1,271,936

  $
1,193,032

6.6
Segment profit

58,780

53,344

10.2

201,894

185,727

8.7



	Three Months Ended						Six Months Ended
(in thousands)	April 29, 2018		April 30, 2017		% Change		April 29, 2018		April 30, 2017		% Change
Volume (lbs.)	333,398		338,883		(1.6	)	667,615		677,675		(1.5	)
Net sales	$	631,550	$	640,419	(1.4	)	$	1,245,420	$	1,250,793	(0.4	)
Segment profit	95,651		108,297		(11.7	)	195,628		200,673		(2.5	)

~~Table of Contents~~

Net sales for the ~~third~~second quarter and first six months of fiscal ~~2017~~2018 increased on strong sales of Wholly Guacamole^® dips, ~~an additional period of~~ ~~Justin’s~~ ~~specialty nut butters, and higher sales of~~ ~~SKIPPY~~ ~~peanut butter products.~~ Herdez^® salsas, and ~~foods~~the SPAM^® family of products. These increases were more than offset by declines from CytoSport and ~~SPAM~~ ~~luncheon meat also contributed to improved sales results for~~ the Company's contract manufacturing business.

For the second quarter and first ~~nine~~six months of fiscal ~~2017.~~

~~For the third quarter of fiscal 2017,~~2018, segment profit ~~results increased as higher input costs for beef trim, pork trim,~~declined due to lower volumes at CytoSport and ~~avocados~~lower earnings from the Company's contract manufacturing business. Declines were partially offset by ~~advertising reductions and incremental earnings from an additional period of~~ ~~Justin’s~~ ~~specialty nut butters. For the first nine months of fiscal 2017, segment profit results benefitted from incremental profits from~~ ~~Justin’s~~ ~~specialty nut butters and from the increased sales of many value-added products, including those categories listed above.~~

strong MegaMex results.

The Company anticipates sales and earnings growth in the ~~fourth~~third quarter, with ~~margins impacted~~earnings growth tempered by declines in the contract manufacturing business and increased ~~raw material markets.~~

freight expenses.

Refrigerated Foods

Results for the Refrigerated Foods segment compared to the prior year are as follows:

Three Months Ended

Nine Months Ended
(in thousands)

July 30,
2017

July 24,
2016

%
Change

July 30,
2017

July 24,
2016

%
Change
Tonnage (lbs.)

503,296

596,389

(15.6)

1,633,211

1,834,852

(11.0)
Net sales

  $
1,086,546

  $
1,155,297

(6.0)

  $
3,237,071

  $
3,409,897

(5.1)
Segment profit

138,314

120,702

14.6

442,316

417,612

5.9



	Three Months Ended					Six Months Ended
(in thousands)	April 29, 2018		April 30, 2017		% Change	April 29, 2018		April 30, 2017		% Change
Volume (lbs.)	548,319		515,490		6.4	1,110,814		1,129,915		(1.7	)
Net sales	$	1,166,967	$	1,027,486	13.6	$	2,343,423	$	2,150,525	9.0
Segment profit	154,192		130,194		18.4	297,141		304,002		(2.3	)

~~The divestiture of Farmer John during the first~~Second quarter ~~was the primary contributor to the lower~~ net sales ~~in fiscal 2017. Many~~increased as a result of the ~~Company’s value-added~~Columbus and Fontanini acquisitions in addition to strong retail sales of Hormel^®Natural Choice^® products ~~enjoyed strong sales growth during the third quarter.~~ ~~On the retail side, sales gains were led by~~ ~~Hormel Black Label~~ ~~bacon,~~ ~~Hormel~~ ~~pepperoni,~~ and~~Hormel Gatherings~~ ~~party trays. Within~~ foodservice sales of Hormel^® pepperoni and Hormel^®Bacon 1^TMfully cooked ~~bacon~~bacon. For the first six months of 2018, incremental sales from acquisitions and ~~Hormel~~ ~~pepperoni~~ ~~experienced gains for~~growth in the ~~quarter.~~

value-added portfolios offset the impact of the Farmer John divestiture and lower hog harvest volumes.

Refrigerated Foods segment profit for the ~~third~~second quarter ~~finished above last year as~~increased on strong ~~demand for pork and operational improvements offset higher input costs related to bellies, pork trim, and beef trim, along with~~results from the ~~divestiture of Farmer John. Solid value-added profit growth of both~~branded retail and foodservice ~~products also contributed~~businesses in addition to the inclusion of the Fontanini and Columbus acquisitions. Segment profit ~~increases~~ for ~~both~~ the ~~third quarter~~first six months declined due to reduced commodity profits, increased freight expenses, one-time transaction costs for the Columbus acquisition, and ~~first nine months of fiscal 2017.~~

~~Looking forward, the Company expects sales growth to be muted by~~ the divestiture of the Farmer John business. ~~Input costs are~~

Looking forward, Refrigerated Foods is expected to ~~trend higher than fiscal 2016 levels. Continued~~continue to benefit from the impact of acquisitions and strong ~~sales growth is expected~~momentum in the ~~Company’s~~ value-added businesses.

~~Subsequent~~ Freight pressure is anticipated to ~~the end of the third quarter, the Company completed the acquisition of Fontanini Italian Meats and Sausages,~~remain a ~~branded foodservice~~ business from Capitol Wholesale Meats, Inc. Due to the timing within the fiscal year and the related acquisition and integration costs, the Company does not expect an incremental benefit from this business in 2017. The benefits of this acquisition are expected to be realized in fiscal 2018.

headwind.

Jennie-O Turkey Store

Results for the JOTS segment compared to the prior year are as follows:

Three Months Ended

Nine Months Ended
(in thousands)

July 30,
2017

July 24,
2016

%
Change

July 30,
2017

July 24,
2016

%
Change
Tonnage (lbs.)

200,143

215,447

(7.1)

620,343

610,486

1.6
Net sales

  $
369,078

  $
403,953

(8.6)

  $
1,178,304

  $
1,199,559

(1.8)
Segment profit

44,986

56,147

(19.9)

176,952

237,128

(25.4)



	Three Months Ended						Six Months Ended
(in thousands)	April 29, 2018		April 30, 2017		% Change		April 29, 2018		April 30, 2017		% Change
Volume (lbs.)	197,806		203,557		(2.8	)	406,237		420,200		(3.3	)
Net sales	$	371,916	$	388,237	(4.2	)	$	762,564	$	809,226	(5.8	)
Segment profit	42,356		63,786		(33.6	)	92,230		131,966		(30.1	)

~~The majority of~~For the ~~decline in net sales~~second quarter and ~~tonnage for the third quarter~~first six months of fiscal ~~2017 is linked~~2018, volume and sales declines were due primarily to lower harvest volumes and turkey commodity prices as a result of continued ~~lower commodity along with reduced harvest tonnage levels.~~ oversupply of turkeys in the industry and excess meat in cold storage. Sales declines of whole birds were partially offset by increased retail sales, led byJennie-O^® lean ground turkey ~~sales grew despite the market conditions~~ and ~~operating challenges. Increases in both net sales and tonnage in the first quarter aided the~~

29Jennie-O

^®Oven Ready^® products.

~~Table of Contents~~

~~comparison~~Segment profit for the second quarter and first ~~nine~~six months of fiscal ~~2017~~2018 decreased as ~~fiscal 2016 was still recovering~~a result of lower profits from ~~Highly Pathogenic Avian Influenza (HPAI).~~

~~Segment profit for both the third quarter~~whole bird and ~~first nine months of fiscal 2017 were impacted by lower turkey~~ commodity ~~prices, pricing pressure from competing proteins,~~sales, increased freight expenses, and increased ~~operating expenses.~~

advertising.

Looking forward, the challenging environment for commodity turkey prices ~~along with competitive pressures from other proteins,~~and higher freight costs are expected to continue impacting year-over-year ~~comparisons for the fourth quarter in tonnage, net sales, and segment profit.~~

~~Specialty Foods~~

~~Results for the Specialty Foods segment compared to the prior year are as follows:~~

Three Months Ended

Nine Months Ended
(in thousands)

July 30,
2017

July 24,
2016

%
Change

July 30,
2017

July 24,
2016

%
Change
Tonnage (lbs.)

111,417

120,487

(7.5)

340,678

456,214

(25.3)
Net sales

  $
196,873

  $
212,197

(7.2)

  $
597,716

  $
722,460

(17.3)
Segment profit

23,336

27,089

(13.9)

80,895

90,735

(10.8)

~~Net sales declines in the third quarter primarily relate to one extra period of DCB in fiscal 2016 and lower sales of~~ ~~Muscle Milk~~ ~~protein products. The comparative results for the first nine months of fiscal 2017 reflect the divestiture of the DCB~~ business ~~which was the main contributor to sales and profit declines.~~

~~Segment profit declined for the third quarter of fiscal 2017 as pricing of contract packaging sales did not keep pace with input cost increases. Lower sales of~~ ~~Muscle Milk~~ ~~ready-to-drink protein products also contributed to the decline.~~

~~The Company expects flat earnings in the fourth quarter for Specialty Foods.~~

performance.

International & Other

Results for the International & Other segment compared to the prior year are as follows:

Three Months Ended

Nine Months Ended
(in thousands)

July 30,
2017

July 24,
2016

%
Change

July 30,
2017

July 24,
2016

%
Change
Tonnage (lbs.)

78,120

77,235

1.1

233,481

221,673

5.3
Net sales

  $
132,892

  $
131,587

1.0

  $
389,884

  $
370,335

5.3
Segment profit

17,111

20,308

(15.7)

62,191

58,839

5.7

~~Pork~~



	Three Months Ended					Six Months Ended
(in thousands)	April 29, 2018		April 30, 2017		% Change	April 29, 2018		April 30, 2017		% Change
Volume (lbs.)	91,878		80,312		14.4	177,327		155,361		14.1
Net sales	$	160,135	$	131,167	22.1	$	310,454	$	256,992	20.8
Segment profit	20,850		19,617		6.3	45,505		45,080		0.9

Volume and net sales for the second quarter and first six months of fiscal 2018 increased due to the addition of the Ceratti business in Brazil, strong results in China, and increased export ~~markets remained favorable throughout~~sales.

Segment profit increases for the second quarter of fiscal 2018 were driven primarily by improved profitability in China due to lower raw material costs, partially offset by higher advertising expenses and lower branded export margins. For the first six months of fiscal 2018, segment profit increased on strong results in China, partially offset by weaker export margins.

The Company anticipates continued volume, sales, and earnings growth in the third quarter ~~driving the overall tonnage and net sales gains versus last year for both the third quarter and first nine months of fiscal 2017.~~

~~Segment profit declines for the third quarter of fiscal 2017 were primarily~~ driven by ~~lower~~improving results in China ~~reflecting high pork raw material costs, startup costs for the Jiaxing production facility~~ and the ~~closing~~addition of the ~~Company’s Shanghai facility. Segment profit results for the first nine months of fiscal 2017 were aided by strong export sales, with margins well above the prior year.~~

~~Entering the fourth quarter, the Company expects high raw material costs~~Ceratti business. Pork exports remain a risk due to ~~continue to impact results in China.~~

Subsequent to the end of the third quarter, the Company completed the acquisition of Ceratti, a growing, branded, value-added meats company in Brazil. Due to the timing within the fiscal year and the related acquisition and integration costs, the Company does not expect an incremental benefit from this business in 2017.

~~The benefits of this acquisition are expected to be realized in fiscal 2018.~~

tariffs.

~~Table of Contents~~

Unallocated Income and Expenses

The Company does not allocate investment income, interest expense, or interest income to its segments when measuring performance. The Company also retains various other income and unallocated expenses at corporate. Equity in earnings of affiliates is included in segment operating profit; however, earnings attributable to the Company’s noncontrolling interests are excluded. These items are included in the segment table for the purpose of reconciling segment results to earnings before income taxes.

Three Months Ended

Nine Months Ended
(in thousands)

July 30,
2017

July 24,
2016

July 30,
2017

July 24,
2016
Net interest and investment expense

  $
1,681

  $
673

  $
2,463

  $
5,663
Interest expense

3,057

3,147

9,106

9,583
General corporate expense

2,865

2,922

13,308

32,111
Noncontrolling interest earnings

43

122

159

215



	Three Months Ended					Six Months Ended
(in thousands)	April 29, 2018		April 30, 2017			April 29, 2018			April 30, 2017
Interest and investment expense (income)	$	2,489	$	(2,818	)	$	(817	)	$	(5,267	)
Interest expense	7,001		3,023			11,730			6,049
General corporate expense	6,814		5,822			17,785			10,443
Noncontrolling interest earnings	138		(40		)	242			116

Interest and investment income decreased for the second quarter and first six months of 2018 due to market-based losses in the rabbi trust related to the supplemental executive retirement plans. Interest expense increased for both the second quarter and first six month due to the higher level of debt associated with the acquisition of Columbus. General corporate expense ~~was lower~~increased for the ~~third~~second quarter and first six months due ~~primarily~~ to higher employee-related expenses and favorable adjustments in fiscal 2017 related to both a lower of cost or market inventory reserve and finalizing the ~~continued focus on strategic cost management. Lower salary and legal expenses also contributed to the lower expense for the first nine months compared to the prior year.~~

sale of Diamond Crystal Brands.

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 ~~30, 2016.~~

29, 2017.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents were ~~$633.3~~$261.6 million at the end of the ~~third~~second quarter of fiscal ~~year 2017~~2018 compared to ~~$379.6~~$548.9 million at the end of the comparable fiscal ~~2016~~2017 period.

Cash provided by operating activities was ~~$511.5~~$443.3 million in the first ~~nine~~six months of fiscal ~~2017~~2018 compared to ~~$621.7~~$280.6 million in the same period of fiscal ~~2016.~~2017. Higher net earnings and lower working capital in the first ~~half~~six months of the year led to the ~~decrease.~~

increase.

Cash used in investing activities was $986.5 million in the first six months of fiscal 2018 compared to cash provided by investing activities ~~was $18.8 million in the first nine months~~ of fiscal 2017 compared to cash used in investing activities of $327.9 million in the comparable quarter of fiscal 2016. In the first quarter of fiscal 2017, the Company received $135.9 million for the sale of Farmer John. The first nine months of fiscal 2016 include $281.7 million used to purchase Justin’s, partially offset by $110.1 million provided by the divestiture of DCB. Capital expenditures in the first nine months of fiscal 2017 have decreased to $118.5 million from $165.8 million in the comparable nine months of fiscal 2016. The Company currently estimates its fiscal 2017 capital expenditures will be approximately $190.0 million. Projects include completion of the Company’s plant in Jiaxing, China, the replacement of the JOTS whole bird production facility in Melrose, Minnesota, the bacon expansion in Wichita, Kansas, and ongoing investments for food and employee safety.

~~Cash used in financing activities was $311.6 million in the first nine months of fiscal 2017 compared to $256.3~~$64.1 million in the same period of fiscal ~~2016. The outstanding $185.0 million of debt was paid down in~~2017. In the first quarter of fiscal ~~2016.~~2018, the Company spent $857.6 million on the acquisition of Columbus. Capital expenditures in the first six months of fiscal 2018 increased to $141.2 million from $77.0 million in the comparable period of fiscal 2017. The Company currently estimates its fiscal 2018 capital expenditures will be approximately $425.0 million. Key projects include bacon capacity increases in the Wichita, Kansas, facility; a new whole bird facility in Melrose, Minnesota; modernization of the Austin, Minnesota, plant; and projects designed to increase value-added capacity.

Cash provided by financing activities was $355.9 million in the first six months of fiscal 2018 compared to cash used in financing activities of $207.2 million in the same period of fiscal 2017. In connection with the purchase of Columbus, the Company borrowed $375.0 million under a term loan facility and $375.0 million under a revolving credit facility, with $190.0 million paid down during the first six months. The Company repurchased ~~$94.5~~$44.7 million of its common stock in the first ~~nine~~six months of fiscal ~~2017~~2018 compared to ~~$45.0 purchased in~~$49.6 million repurchased during the ~~first nine months~~same period of the prior year. 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 ~~nine~~six months of fiscal ~~2017~~2018 were ~~$256.3~~$189.1 million compared to ~~$219.7~~$166.5 million in the comparable period of fiscal ~~2016.~~2017. For fiscal ~~2017,~~2018, the annual dividend rate was increased to ~~$0.68~~$0.75 per share, representing the ~~51st~~52nd consecutive annual dividend increase. The Company has paid dividends for ~~356~~359 consecutive quarters and expects to continue doing so.

~~Table of Contents~~

The Company is required, by certain covenants in its debt agreements, to maintain specified levels of financial ratios and financial position. At the end of the ~~third~~second quarter of fiscal ~~2017,~~2018, the Company was in compliance with all of these debt covenants.

Cash flows from operating activities continue to provide the Company with its principal source of liquidity. The Company does not anticipate a significant risk to cash flows from this source in the foreseeable future because the Company operates in a relatively stable industry and has strong brands across many product lines.

The Company is dedicated to returning excess cash flow to shareholders through dividend payments. Growing the business through innovation and evaluating opportunities for strategic acquisitions remains a focus for the Company. Reinvestments in the business to ensure employee and food safety are a top priority for the Company. Capital spending to enhance and expand current operations will also be a significant cash outflow for fiscal ~~2017.~~

2018. Along with these commitments, the Company will continue payments to reduce short-term debt borrowed in connection with the acquisition of Columbus.

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 ~~July 30, 2017,~~April 29, 2018, was ~~$20.3~~$24.6 million.

There have been no other material changes to the information regarding the Company’s future contractual financial obligations that was disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended October ~~30, 2016.~~

29, 2017.

Off-Balance Sheet Arrangements

As of ~~July 30, 2017,~~April 29, 2018, and October ~~30, 2016,~~29, 2017, the Company had ~~$48.0~~$44.5 million and ~~$44.4~~$48.0 million, respectively, of standby letters of credit issued on its behalf. The standby letters of credit are primarily related to the Company’s self-insured workers compensation programs. However, that amount ~~also~~ includes $2.3 million as of April 29, 2018, and $4.0 million as of October 29, 2017, 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.

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.

~~Table of Contents~~

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

In making these statements, the Company is not undertaking, and specifically declines to undertake, any obligation to address or update each or any factor in future filings or communications regarding the Company’s business or results, and is not undertaking to address how any of these factors may have caused changes to discussions or information contained in previous filings or communications. Though the Company has attempted to list comprehensively these important cautionary risk factors, the Company wishes to caution investors and others that other factors may in the future prove to be important in affecting the Company’s business or results of operations.

The Company cautions readers not to place undue reliance on forward-looking statements, which represent current views as of the date made. Forward-looking statements are inherently at risk to any changes in the national and worldwide economic environment, which could include, among other things, economic conditions, political developments, 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. Purchased hogs under contract accounted for 9596 percent and 9395 percent of the total hogs purchased by the Company during the first ~~nine~~six months of fiscal ~~2017~~years 2018 and ~~2016,~~2017, respectively. The majority of these contracts use market-based formulas based on hog futures, hog primal values, or industry reported hog markets. Other contracts use a formula based on the cost of production, which can fluctuate independently from hog markets.

The Company’s value-added branded portfolio helps mitigate changes in hog and pork market prices. Therefore, a hypothetical 10 percent change in the cash hog market would have had an immaterial effect on the Company’s results of operations.

In the second quarter of 2017, the Company initiated a hedge program to offset the fluctuation in the Company’s future direct hog purchases. This program currently utilizes lean hog futures, and these contracts are accounted for under cash flow hedge accounting. The fair value of the Company’s open futures contracts in this hedging program as of July 30, 2017, was $0.2 million, before tax. 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 grain. A 10 percent decrease in the market price for lean hogs would have negatively impacted the fair value of the Company’s July 30, 2017, open lean hog contracts by $0.5 million, which in turn would lower the Company’s future cost on purchased hogs by a similar amount.

Certain procurement contracts allow for future hog deliveries (firm commitments) to be forward priced. The Company generally hedges these firm commitments by using hog futures contracts. These futures contracts are designated and accounted for as fair value hedges. The change in the market value of such futures contracts is highly effective at offsetting changes in price movements of the hedged item, and the Company evaluates the effectiveness of the contracts at least quarterly. Changes in the fair value of the futures contracts, along with the gain or loss on the firm commitment, are marked-to-market through earnings and are recorded on the Consolidated Statements of Financial Position as a current asset and liability, respectively. The fair value of the Company’s open futures contracts as of ~~July 30, 2017,~~April 29, 2018, was ~~$0.5~~$0.7 million compared to ~~$1.4~~$(0.9) million as of October ~~30, 2016.~~29, 2017. The Company measures its market risk exposure on its hog futures contracts using a sensitivity analysis, which considers a hypothetical 10 percent change in market prices. A 10 percent increase in market prices would have negatively impacted the fair value of the Company’s ~~July 30, 2017,~~April 29, 2018, open contracts by ~~$2.6~~$1.0 million, which in turn would lower the Company’s future cost of purchased hogs by a similar amount.

~~Table of Contents~~

Turkey Production Costs: The Company raises or contracts for live turkeys to meet ~~some~~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.

To reduce the Company’s exposure to changes in grain prices, the Company utilizes a hedge program to offset the fluctuation in the Company’s future direct grain purchases. This program currently utilizes corn futures for JOTS, and these contracts are accounted for under cash flow hedge accounting. The fair value of the Company’s open futures contracts as of ~~July 30, 2017,~~April 29, 2018, was ~~$0.0~~$1.5 million compared to ~~$(3.2)~~$(2.2) million, before tax, as of October ~~30, 2016.~~29, 2017. 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 ~~July 30, 2017,~~April 29, 2018, open grain contracts by $4.8 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.

Long-Term Debt: A principal market risk affecting the Company is the exposure to changes in interest rates on the Company’s fixed-rate, long-term debt. Market risk for fixed-rate, long-term debt is estimated as the potential increase in fair value, resulting from a hypothetical 10 percent decrease in interest rates, and amounts to approximately ~~$1.8~~$2.2 million. The fair value of the Company’s long-term debt was estimated using discounted future cash flows based on the Company’s incremental borrowing rate for similar types of borrowing arrangements.

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 ~~July 30, 2017,~~April 29, 2018, the balance of these securities totaled ~~$127.1~~$137.5 million compared to ~~$122.3~~$128.5 million as of October ~~30, 2016.~~29, 2017. A majority of these securities represent fixed income funds. The Company is subject to market risk due to fluctuations in the value of the remaining investments, as unrealized gains and losses associated with these securities are included in the Company’s net earnings on a mark-to-market basis. A 10 percent decline in the value of the investments not held in fixed income funds would have a direct negative impact to the Company’s pretax earnings of approximately ~~$4.3~~$4.5 million, while a 10 percent increase in value would have a positive impact of the same amount.

International: While the Company does have international operations and operates in international markets, it considers its market risk in such activities to be immaterial.

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 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.

~~Table of Contents~~

~~(b)Internal Controls.~~

During the ~~first nine months~~second quarter of fiscal ~~year 2017,~~2018, there has been no change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

The Company is a party to various legal proceedings related to the on-going operation of its business, including claims both by and against the Company. At any time, such proceedings typically involve claims related to product liability, contract disputes, wage and hour laws, employment practices, or other actions brought by employees, 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. Resolution of any currently known matters, either individually or in the aggregate, is not expected to have a material effect on the Company’s financial condition, results of operations, or liquidity.

Item 1A. Risk Factors

Risk Factors

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

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

§ ~~food spoilage;~~

§ ~~food contamination caused by disease-producing organisms or pathogens, such as~~ ~~Listeria monocytogenes~~, ~~Salmonella~~~~, and pathogenic~~ ~~E coli~~.;

§ ~~food allergens;~~

§ ~~nutritional and health-related concerns;~~

§ ~~federal, state, and local food processing controls;~~

§ ~~consumer product liability claims;~~

§ ~~product tampering; and~~

§ ~~the possible unavailability and/or expense of liability insurance.~~


▪	food spoilage;


▪	food contamination caused by disease-producing organisms or pathogens, such as Listeria monocytogenes, Salmonella, and pathogenic E coli.;


▪	food allergens;


▪	nutritional and health-related concerns;


▪	federal, state, and local food processing controls;


▪	consumer product liability claims;


▪	product tampering; and


▪	the possible unavailability and/or expense of liability insurance.

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

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

The ~~Company’s~~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 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.

~~Table of Contents~~

§ 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. Most recently, due to market volatility the Company temporarily suspended the use of the special hedge accounting exemption for its JOTS corn futures contracts in the third quarter of fiscal 2016 due to ineffectiveness. During the time of suspension, all gains or losses related to these contracts were recorded in earnings as incurred.

Additionally, if a highly pathogenic 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.

Fluctuations in commodity prices and availability of pork, poultry, beef, feed grains, avocados, peanuts, energy, and whey 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 whey 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. This has resulted in fewer hogs being available on the cash spot market. Consequently, the Company uses long-term supply contracts based 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 costs for live hogs that are higher than 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.

JOTS 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 fluctuate due to climate conditions, production forecasts, and supply and demand conditions at local, regional, national, and worldwide levels. 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 supply 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 could result in less foreign demand and increased domestic supply of proteins which could lower prices. The Company occasionally utilizes in-country production to limit this exposure.

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 Bovine Spongiform Encephalopathy (BSE), pneumo-virus, Porcine Circovirus 2 (PCV2), Porcine Reproduction & Respiratory Syndrome (PRRS), Foot-and-Mouth Disease (FMD), Porcine Epidemic Diarrhea Virus

~~Table of Contents~~

(PEDv), and ~~HPAI.~~Highly Pathogenic Avian Influenza (HPAI). The outbreak of disease could adversely affect the Company’s supply of raw materials, increase the cost of production, reduce utilization of the Company’s harvest facilities, and reduce operating margins. Additionally, the outbreak of disease may hinder the Company’s ability to market and sell products both domestically and internationally. Most recently, HPAI impacted the Company’s operations and several of the Company’s independent turkey suppliers. The impact of HPAI in the industry reduced volume through the Company’s turkey facilities through the first part of fiscal 2016. The Company has developed business continuity plans for various disease scenarios and will continue to update these plans as necessary. There can be no assurance given, however, these plans will be effective in eliminating the negative effects of any such diseases on the Company’s operating results.

Market demand for the Company’s products may fluctuate.

The Company faces competition from producers of alternative meats and protein sources, including pork, beef, turkey, chicken, fish, ~~peanut butter,~~nut butters, and whey. The bases 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, ~~and~~ 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 bases in the future.

The Company’s operations are subject to the general risks associated with acquisitions.

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

addition, acquisitions outside the United States may present unique challenges and increase the ~~Company’s~~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~~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, and claims relating to product liability, contract disputes, intellectual property, advertising, labeling, wage and hour laws, employment practices, or environmental matters. Litigation trends and the outcome of litigation cannot be predicted with certainty and adverse litigation trends and outcomes could adversely affect the Company’s financial results.

~~Table of Contents~~

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 who oversee workforce immigration laws, tax regulations, 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 continuous inspection by federal, state, and local authorities. Claims or enforcement proceedings could be brought against the Company in the future. The availability of government inspectors due to a government furlough could also cause disruption to the Company’s manufacturing facilities. Additionally, the Company is subject to new or modified laws, regulations, and accounting standards. The Company’s failure or inability to comply with such requirements could subject the Company to civil remedies, including fines, injunctions, recalls, or seizures, as well as potential criminal sanctions.

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

The Company’s past and present business operations and ownership and operation of real property are subject to stringent federal, state, and local environmental laws and regulations pertaining to the discharge of materials into the environment and the handling and disposition of wastes (including solid and hazardous wastes) or otherwise relating to protection of the environment. Compliance with these laws and regulations, and the ability to comply with any modifications to these laws and regulations, is material to the Company’s business. New matters or sites may be identified in the future requiring additional investigation, assessment, or expenditures. In addition, 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. The occurrence of any of these events, the implementation of new laws and regulations, or stricter interpretation of existing laws or regulations could adversely affect the Company’s financial results.

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

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

~~Table of Contents~~

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

As of ~~July 30, 2017,~~April 29, 2018, the Company had approximately ~~19,500~~20,600 employees worldwide, of which approximately ~~4,500~~4,470 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.

The company successfully negotiated a union contract at its facility in Rochelle, Illinois during the second quarter covering approximately 625 employees.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities in the ~~Third~~Second Quarter of Fiscal ~~2017~~2018

Period
Total
Number of
Shares
Purchased¹

Average
Price Paid
Per Share

Total Number of
Shares Purchased as
Part of Publicly
Announced Plans
or Programs¹

Maximum Number
of Shares that May
Yet Be Purchased
Under the Plans or
Programs¹
January 29, 2018 –
March 4, 2018
593,014
$ 32.95
539,014
9,121,823
March 5, 2018 – April 1, 2018 —
—
—
9,121,823
April 2, 2018 –
April 29, 2018
—
—
—
9,121,823
Total 593,014
$ 32.95
539,014

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
May 1, 2017 –
June 4, 2017

-

$
-

-

11,773,637
June 5, 2017 –
July 2, 2017

721,300

34.47

721,300

11,052,337
July 3, 2017 –
July 30, 2017

600,000

33.40

600,000

10,452,337
Total

1,321,300

$
33.99

1,321,300

1On January 31, 2013, the Company announced its Board of Directors had authorized the repurchase of 10,000,000 shares of its common stock with no expiration date. The repurchase program was authorized at a meeting of the Company’s Board of Directors on January 29, 2013. On November 23, 2015, the Board of Directors authorized a two-for-one split of the Company’s common stock. As part of the resolution to approve the stock split, the number of shares remaining to be repurchased was adjusted proportionately. The stock split was subsequently approved by shareholders at the Company’s Annual Meeting on January 26, 2016, and effected January 27, 2016. All numbers in the table above reflect the impact of this stock split.

Item 6. Exhibits

~~31.1~~

31.1	Certification Required Under Section 302 of the Sarbanes-Oxley Act of 2002

31.2	Certification Required Under Section 302 of the Sarbanes-Oxley Act of 2002

32.1	Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS	XBRL Instance Document

101.SCH	XBRL Taxonomy Extension Schema Document

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

101.LAB	XBRL Taxonomy Extension Labels Linkbase Document

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

~~Table of Contents~~

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)


Date: ~~September~~June 8, ~~2017~~ 2018	By	/s/ JAMES N. SHEEHAN
		JAMES N. SHEEHAN
		Senior Vice President and Chief Financial Officer
		(Principal Financial Officer)

Date: ~~September~~June 8, ~~2017~~ 2018	By	/s/ JANA L. HAYNES
		JANA L. HAYNES
		Vice President and Controller
		(Principal Accounting Officer)

	July 30,			October 30,
	2017			2016
	(Unaudited)
ASSETS

CURRENT ASSETS

Cash and cash equivalents	$	633,341		$	415,143
Accounts receivable	549,011			591,310
Inventories	1,013,214			985,683
Income taxes receivable	-			18,282
Prepaid expenses	17,096			13,775
Other current assets	4,433			5,719
TOTAL CURRENT ASSETS	2,217,095			2,029,912

DEFERRED INCOME TAXES	-			6,223

GOODWILL	1,822,671			1,834,497

OTHER INTANGIBLES	882,717			903,258

PENSION ASSETS	98,893			68,901

INVESTMENTS IN AND RECEIVABLES FROM AFFILIATES	248,129			239,590

OTHER ASSETS	184,364			182,237

PROPERTY, PLANT AND EQUIPMENT
Land	46,847			67,557
Buildings	757,190			805,858
Equipment	1,665,520			1,675,549
Construction in progress	152,217			218,351
Less: Allowance for depreciation	(1,567,678		)	(1,661,866		)
Net property, plant and equipment	1,054,096			1,105,449

TOTAL ASSETS	$	6,507,965		$	6,370,067

	Three Months Ended						Nine Months Ended
	July 30, 2017			July 24, 2016			July 30, 2017			July 24, 2016

Net sales	$	2,207,375		$	2,302,376		$	6,674,911		$	6,895,283
Cost of products sold	1,754,966			1,827,091			5,183,302			5,335,628
GROSS PROFIT	452,409			475,285			1,491,609			1,559,655

Selling, general and administrative	176,660			206,876			567,886			627,968
Goodwill impairment charge	-			-			-			991
Equity in earnings of affiliates	3,956			6,381			27,376			27,449

OPERATING INCOME	279,705			274,790			951,099			958,145

Other income and expense:
Interest and investment income	1,376			2,474			6,643			3,920
Interest expense	(3,057		)	(3,147		)	(9,106		)	(9,583		)

EARNINGS BEFORE INCOME TAXES	278,024			274,117			948,636			952,482

Provision for income taxes	95,473			78,341			319,896			306,155

NET EARNINGS	182,551			195,776			628,740			646,327
Less: Net earnings attributable to noncontrolling interest	43			122			159			215
NET EARNINGS ATTRIBUTABLE TO HORMEL FOODS CORPORATION	$	182,508		$	195,654		$	628,581		$	646,112

NET EARNINGS PER SHARE:
BASIC	$	0.35		$	0.37		$	1.19		$	1.22
DILUTED	$	0.34		$	0.36		$	1.17		$	1.19

WEIGHTED-AVERAGE SHARES OUTSTANDING:
BASIC	528,165			529,660			528,487			529,473
DILUTED	538,814			542,163			539,504			542,890

DIVIDENDS DECLARED PER SHARE:	$	0.170		$	0.145		$	0.510		$	0.435

	Hormel Foods Corporation Shareholders
													Accumulated
							Additional						Other			Non-			Total
	Common			Treasury			Paid-in			Retained			Comprehensive			controlling			Shareholders’
	Stock			Stock			Capital			Earnings			Income (Loss)			Interest			Investment

Balance at October 25, 2015	$	7,741		$	-		$	-		$	4,216,125		$	(225,668	)	$	3,195		$	4,001,393

Net earnings										890,052						465			890,517
Other comprehensive loss													(70,635		)	(260		)	(70,895		)
Purchases of common stock				(87,885		)													(87,885		)
Stock-based compensation expense	1						17,828												17,829
Exercise of stock options/nonvested shares	35						7,476												7,511
Shares retired	(35		)	87,885			(25,304		)	(62,546		)							-
Declared cash dividends – $0.58 per share										(307,064		)							(307,064		)
Balance at October 30, 2016	$	7,742		$	-		$	-		$	4,736,567		$	(296,303	)	$	3,400		$	4,451,406

Net earnings										628,581						159			628,740
Other comprehensive income (loss)													4,339			(92		)	4,247
Purchases of common stock				(94,487		)													(94,487		)
Stock-based compensation expense	1						13,866												13,867
Exercise of stock options/nonvested shares	29						18,881												18,910
Shares retired	(40		)	94,487			(32,747		)	(61,700		)							-
Declared cash dividends – $0.51 per share										(269,503		)							(269,503		)
Balance at July 30, 2017	$	7,732		$	-		$	-		$	5,033,945		$	(291,964	)	$	3,467		$	4,753,180

	July 30,			July 24,
	2017			2016
OPERATING ACTIVITIES
Net earnings	$	628,740		$	646,327
Adjustments to reconcile to net cash provided by operating activities:
Depreciation	89,930			89,996
Amortization of intangibles	6,191			6,524
Goodwill impairment charge	-			991
Equity in earnings of affiliates, net of dividends	(7,855		)	(2,905		)
Provision for deferred income taxes	11,359			4,428
Gain on property/equipment sales and plant facilities	1,283			138
Non-cash investment activities	(3,790		)	(1,247		)
Stock-based compensation expense	13,867			16,091
Excess tax benefit from stock-based compensation	(24,859		)	(39,190		)
Changes in operating assets and liabilities, net of acquisitions:
Decrease in accounts receivable	18,348			47,767
Increase in inventories	(72,598		)	(60,579		)
(Increase) decrease in prepaid expenses and other current assets	(22,333		)	6,603
Decrease in pension and post-retirement benefits	(6,370		)	(26,266		)
Decrease in accounts payable and accrued expenses	(166,509		)	(105,466		)
Increase in net income taxes payable	46,069			38,474
NET CASH PROVIDED BY OPERATING ACTIVITIES	511,473			621,686

INVESTING ACTIVITIES
Proceeds from sale of business	135,944			110,149
Acquisitions of businesses/intangibles	-			(281,655		)
Purchases of property/equipment	(118,511		)	(165,828		)
Proceeds from sales of property/equipment	2,532			2,590
(Increase) decrease in investments, equity in affiliates, and other assets	(1,154		)	6,865
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES	18,811			(327,879		)

FINANCING ACTIVITIES
Proceeds from short-term debt	-			145,000
Principal payments on short-term debt	-			(185,000		)
Dividends paid on common stock	(256,341		)	(219,744		)
Share repurchase	(94,487		)	(44,976		)
Proceeds from exercise of stock options	14,337			9,233
Excess tax benefit from stock-based compensation	24,859			39,190
NET CASH USED IN FINANCING ACTIVITIES	(311,632		)	(256,297		)

EFFECT OF EXCHANGE RATE CHANGES ON CASH	(454		)	(5,152		)
INCREASE IN CASH AND CASH EQUIVALENTS	218,198			32,358
Cash and cash equivalents at beginning of year	415,143			347,239
CASH AND CASH EQUIVALENTS AT END OF QUARTER	$	633,341		$	379,597

(in thousands)	July 30, 2017		October 30, 2016
Finished products	$	580,835	$	553,634
Raw materials and work-in-process	261,926		253,662
Materials and supplies	170,453		178,387
Total	$	1,013,214	$	985,683

	July 30, 2017				October 30, 2016
(in thousands)	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Customer lists/relationships	$	85,440	$	(23,931)	$	88,240	$	(20,737)
Formulas and recipes	1,950		(1,943)		1,950		(1,796)
Other intangibles	3,100		(1,918)		3,520		(1,677)
Total	$	90,490	$	(27,792)	$	93,710	$	(24,210)

Assets held for sale (in thousands)
Current assets	$	80,861
Goodwill	12,703
Intangibles	14,321
Property, plant and equipment	74,812
Total assets held for sale	$	182,697

Liabilities held for sale (in thousands)
Total current liabilities held for sale	$	44,066

	Pension Benefits
	Three Months Ended				Nine Months Ended
(in thousands)	July 30, 2017		July 24, 2016		July 30, 2017		July 24, 2016
Service cost	$	7,564	$	6,645	$	22,692	$	20,005
Interest cost	13,565		13,674		40,697		41,030
Expected return on plan assets	(22,734)		(21,716)		(68,202)		(65,071)
Amortization of prior service cost	(750)		(1,037)		(2,250)		(3,169)
Recognized actuarial loss	6,542		4,787		19,625		13,958
Curtailment gain	-		(4,438)		-		(4,438)
Net periodic cost	$	4,187	$	(2,085)	$	12,562	$	2,315

	Post-retirement Benefits
	Three Months Ended				Nine Months Ended
(in thousands)	July 30, 2017		July 24, 2016		July 30, 2017		July 24, 2016
Service cost	$	275	$	317	$	824	$	950
Interest cost	2,871		3,236		8,613		9,708
Amortization of prior service cost	(1,069)		(1,050)		(3,206)		(3,151)
Recognized actuarial loss	598		392		1,825		1,176
Net periodic cost	$	2,675	$	2,895	$	8,056	$	8,683



	Pension Benefits
	Three Months Ended						Six Months Ended
(in thousands)	April 29, 2018			April 30, 2017			April 29, 2018			April 30, 2017
Service cost	$	7,903		$	7,564		$	15,806		$	15,128
Interest cost	14,049			13,566			28,098			27,132
Expected return on plan assets	(24,771		)	(22,734		)	(49,541		)	(45,468		)
Amortization of prior service cost	(617		)	(750		)	(1,234		)	(1,500		)
Recognized actuarial loss	4,540			6,542			9,079			13,083
Net periodic cost	$	1,104		$	4,188		$	2,208		$	8,375



	Post-retirement Benefits
	Three Months Ended						Six Months Ended
(in thousands)	April 29, 2018			April 30, 2017			April 29, 2018			April 30, 2017
Service cost	$	321		$	274		$	641		$	549
Interest cost	2,832			2,871			5,664			5,742
Amortization of prior service cost	(711		)	(1,069		)	(1,421		)	(2,137		)
Recognized actuarial loss	45			599			89			1,227
Net periodic cost	$	2,487		$	2,675		$	4,973		$	5,381

		Fair Value (1)
	Location on Consolidated
	Statements of Financial Position	July 30, 2017			October 30, 2016
Asset Derivatives:
Derivatives Designated as Hedges:
Commodity contracts	Other current assets	$		1,109	$	(194)

Derivatives Not Designated as Hedges:
Commodity contracts	Other current assets	19			144

Total Asset Derivatives		$	1,128		$	(50)

(in thousands)	Segment	% Owned	July 30, 2017		October 30, 2016
MegaMex Foods, LLC	Grocery Products	50%	$	184,470	$	180,437
Foreign Joint Ventures	International & Other	Various (26-40%)	63,659		59,153
Total			$	248,129	$	239,590

	Shares	Weighted- Average Exercise Price	Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at October 30, 2016	31,998	$ 16.05
Granted	2,360	33.58
Exercised	2,935	10.17
Forfeited	36	9.35
Outstanding at July 30, 2017	31,387	$ 17.93	4.8 years	$ 518,421
Exercisable at July 30, 2017	25,228	$ 14.54	3.9 years	$ 496,814

	Shares	Weighted- Average Grant- Date Fair Value
Nonvested at October 30, 2016	47	$	41.01
Granted	58	35.62
Vested	47	41.01
Nonvested at July 30, 2017	58	$	35.62

	Fair Value Measurements at July 30, 2017
(in thousands)	Fair Value at July 30, 2017		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)	$	633,341	$	633,341	$	-	$	-
Other trading securities (2)	127,114		-		127,114		-
Commodity derivatives (3)	3,005		3,005		-		-
Total Assets at Fair Value	$	763,460	$	636,346	$	127,114	$	-

Liabilities at Fair Value
Deferred compensation (2)	$	60,029	$	-	$	60,029	$	-
Total Liabilities at Fair Value	$	60,029	$	-	$	60,029	$	-

	Fair Value Measurements at October 30, 2016
(in thousands)	Fair Value at October 30, 2016		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)	$	415,143	$	415,143	$	-	$	-
Other trading securities (2)	122,305		-		122,305		-
Commodity derivatives (3)	3,094		3,094		-		-
Total Assets at Fair Value	$	540,542	$	418,237	$	122,305	$	-

Liabilities at Fair Value
Deferred compensation (2)	$	60,949	$	-	$	60,949	$	-
Total Liabilities at Fair Value	$	60,949	$	-	$	60,949	$	-

	Three Months					Nine Months
(in thousands, except per share amounts)	July 30, 2017		July 24, 2016		% Change	July 30, 2017		July 24, 2016		% Change
Net earnings	$	182,508	$	195,654	(6.7)	$	628,581	$	646,112	(2.7)
Diluted earnings per share		0.34		0.36	(5.6)		1.17		1.19	(1.7)

(in thousands)	2017 Tonnage	Justin's Acquisition (Pd 7, 2017)	2017 Non-GAAP Tonnage	2016 Tonnage	DCB Divestiture (Pd 7, 2016)	Farmer John Divestiture	2016 Non-GAAP Tonnage	Non-GAAP % Change
Grocery Products	219,088	(1,114)	217,974	210,877			210,877	3.4%
Refrigerated Foods	503,296		503,296	596,389		(87,264)	509,125	(1.1%)
Jennie-O Turkey Store	200,143		200,143	215,447			215,447	(7.1%)
Specialty Foods	111,417		111,417	120,487	(11,697)		108,790	2.4%
International & Other	78,120		78,120	77,235			77,235	1.1%
Total Tonnage	1,112,064	(1,114)	1,110,950	1,220,435	(11,697)	(87,264)	1,121,474	(0.9%)

(in thousands)	2017 Net Sales	Justin's Acquisition (Pd 7, 2017)		2017 Non-GAAP Net Sales		2016 Net Sales		DCB Divestiture (Pd 7, 2016)		Farmer John Divestiture		2016 Non-GAAP Net Sales		Non-GAAP % Change
Grocery Products	$ 421,986	$	(8,679)	$	413,307	$	399,342	$	-	$	-	$	399,342	3.5%
Refrigerated Foods	1,086,546			1,086,546		1,155,297				(121,065)		1,034,232		5.1%
Jennie-O Turkey Store	369,078			369,078		403,953						403,953		(8.6%)
Specialty Foods	196,873			196,873		212,197		(13,171)				199,026		(1.1%)
International & Other	132,892			132,892		131,587						131,587		1.0%
Total Net Sales	$2,207,375	$	(8,679)	$	2,198,696	$	2,302,376	$	(13,171)	$	(121,065)	$	2,168,140	1.4%

(in thousands)	2017 Tonnage	Justin's Acquisition (Period 7, 2017 YTD)	Farmer John Divestiture	2017 Non-GAAP Tonnage	2016 Tonnage	DCB Divestiture (Pd 7, 2016 YTD)	Farmer John Divestiture	2016 Non-GAAP Tonnage	Non-GAAP % Change
Grocery Products	667,502	(6,430)		661,072	647,816			647,816	2.0%
Refrigerated Foods	1,633,211		(80,454)	1,552,757	1,834,852		(279,771)	1,555,081	(0.1%)
Jennie-O Turkey Store	620,343			620,343	610,486			610,486	1.6%
Specialty Foods	340,678			340,678	456,214	(133,733)		322,481	5.6%
International & Other	233,481			233,481	221,673			221,673	5.3%
Total Tonnage	3,495,215	(6,430)	(80,454)	3,408,331	3,771,041	(133,733)	(279,771)	3,357,537	1.5%
					��



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 29, 2018 – March 4, 2018	593,014	$	32.95	539,014	9,121,823
March 5, 2018 – April 1, 2018	—	—		—	9,121,823
April 2, 2018 – April 29, 2018	—	—		—	9,121,823
Total	593,014	$	32.95	539,014

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
May 1, 2017 – June 4, 2017	-	$	-	-	11,773,637
June 5, 2017 – July 2, 2017	721,300		34.47	721,300	11,052,337
July 3, 2017 – July 30, 2017	600,000		33.40	600,000	10,452,337
Total	1,321,300	$	33.99	1,321,300