Notes to Consolidated Financial Statements
Note A
Summary of Significant Accounting Policies
Principles of Consolidation:
The consolidated financial statements include the accounts of Hormel Foods Corporation (the Company) and all of its majority-owned subsidiaries after elimination of intercompany accounts, transactions, and profits.
Stock Split:
On November 23, 2015, the Company’s Board of Directors authorized a
two
-for-one split of the Company’s voting common stock, which was subsequently approved by shareholders at the Company’s Annual Meeting on January 26, 2016, and effected on January 27, 2016. The Company’s voting common stock was reclassified by reducing the par value from
$.0293
per share to
$0.01465
per share and the number of authorized shares was increased from
800 million
to
1.6 billion
shares, in order to effect the
two
-for-one stock split. The Company distributed the additional shares of
$.01465
par value common stock on February 9, 2016, and the shares began trading at the post-split price on February 10, 2016.
Unless otherwise noted, all prior year share amounts and per share calculations throughout this Annual Report have been restated to reflect the impact of this split and to provide data on a comparable basis. Such restatements include calculations regarding the Company’s weighted-average shares, earnings per share, and dividends per share, as well as disclosures regarding the Company’s stock-based compensation plans and share repurchase activity.
Use of Estimates:
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (U.S. GAAP) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Fiscal Year:
The Company’s fiscal year ends on the last Sunday in October. Fiscal years 2018 and 2017 consisted of 52 weeks and fiscal 2016 consisted of 53 weeks.
Cash and Cash Equivalents:
The Company considers all investments with an original maturity of three months or less on their acquisition date to be cash equivalents. The Company’s cash equivalents as of
October 28, 2018
, and
October 29, 2017
, consisted primarily of bank deposits, money market funds rated AAA, or other highly liquid investment accounts. The Net Asset Value (NAV) of the Company’s money market funds is based on the market value of the securities in their portfolio.
Fair Value Measurements:
Pursuant to the provisions of Accounting Standards Codification (ASC) 820,
Fair Value Measurements and Disclosures
(ASC 820), the Company measures certain assets and liabilities at fair value or discloses the fair value of certain assets and liabilities recorded at cost in the consolidated financial statements. Fair value is calculated as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). ASC 820 establishes a fair value hierarchy which requires assets and liabilities measured at fair value to be categorized into one of three levels based on the inputs used in the valuation. The Company classifies assets and liabilities in their entirety based on the lowest level of input significant to the fair value measurement. The three levels are defined as follows:
Level 1:
Observable inputs based on quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2:
Observable inputs, other than those included in Level 1, based on quoted prices for similar assets and liabilities in active markets, or quoted prices for identical assets and liabilities in inactive markets.
Level 3:
Unobservable inputs that reflect an entity’s own assumptions about what inputs a market participant would use in pricing the asset or liability based on the best information available in the circumstances.
See additional discussion regarding the Company’s fair value measurements in Notes G, H, and M.
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 losses and gains associated with these investments are included in the Company’s earnings. Securities held by the trust generated (losses) gains of
$(0.4) million
,
$6.2 million
, and
$2.6 million
for fiscal years
2018
,
2017
, and
2016
, respectively.
Inventories:
Inventories are stated at the lower of cost or net realizable value. Cost is determined principally under the average cost method. Adjustments to the Company’s lower of cost or net realizable value inventory reserve are reflected in cost of products sold in the Consolidated Statements of Operations.
Property, Plant and Equipment:
Property, plant and equipment are stated at cost. The Company uses the straight-line method in computing depreciation. The annual provisions for depreciation have been computed principally using the following ranges of asset lives: buildings
20
to
40
years, machinery and equipment
3
to
10
years.
Internal-use software development and implementation costs are expensed until the Company has determined that the software will result in probable future economic benefits, and management has committed to funding the project. Thereafter, all material development and implementation costs, and purchased software costs are capitalized as part of machinery and equipment and amortized using the straight-line method over the remaining estimated useful lives.
Goodwill and Other Indefinite-Lived Intangibles:
Indefinite-lived intangible assets are originally recorded at their estimated fair values at date of acquisition and the residual of the purchase price is recorded to goodwill. Goodwill and other indefinite-lived intangible assets are allocated to reporting units that will receive the related sales and income. Goodwill and indefinite-lived intangible assets are tested annually for impairment, or more frequently if impairment indicators arise.
In conducting the annual impairment test for goodwill, the Company has the option to first assess qualitative factors to determine whether it is more likely than not (> 50% likelihood) that the fair value of any reporting unit is less than its carrying amount. If the Company elects to perform a qualitative assessment and determines an impairment is more likely than not, the Company is required to perform a quantitative impairment test. Otherwise, no further analysis is required. Alternatively, the Company may elect not to perform the qualitative assessment and proceed directly to the quantitative impairment test.
In conducting a qualitative assessment, the Company analyzes actual and projected growth trends for net sales, gross margin, and segment profit for each reporting unit, as well as historical performance versus plan and the results of prior quantitative tests performed. Additionally, the Company assesses critical areas that may impact its business, including macroeconomic conditions and the related impact, market-related exposures, any plans to market for sale all or a portion of their business, competitive changes, new or discontinued product lines, changes in key personnel, or any other potential risks to their projected financial results.
If performed, the quantitative goodwill impairment test is performed at the reporting unit level. First, the fair value of each reporting unit is compared to its corresponding carrying value, including goodwill. The fair value of each reporting unit is estimated using discounted cash flow valuations (Level 3), which incorporate assumptions regarding future growth rates, terminal values, and discount rates. The estimates and assumptions used consider historical performance and are consistent with the assumptions used in determining future profit plans for each reporting unit, which are approved by the Company’s Board of Directors. If the quantitative assessment results in the carrying value exceeding the fair value of any reporting unit, then the results from the quantitative analysis will be relied upon to determine both the existence and amount of goodwill impairment. An impairment loss will be recognized for the amount by which the reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of goodwill in that reporting unit.
During the fourth quarter of fiscal 2018, the Company completed its annual impairment tests and elected to perform a qualitative assessment. As a result of the qualitative testing during fiscal 2018 and 2016 and quantitative testing during fiscal 2017, no material impairment charges were recorded. An immaterial impairment charge was recorded in the second quarter of fiscal 2016 for the Company's Diamond Crystal Brands (DCB) business based on the agreed-upon sales price for the business.
In conducting the annual impairment test for its indefinite-lived intangible assets, the Company first performs a qualitative assessment to determine whether it is more likely than not (> 50% likelihood) that an indefinite-lived intangible asset is impaired. If the Company concludes that this is the case, then a quantitative test for impairment must be performed. Otherwise, the Company does not need to perform a quantitative test.
In conducting the qualitative assessment, the Company analyzes growth rates for historical and projected net sales and the results of prior quantitative tests performed. Additionally, each reporting unit assesses critical areas that may impact their intangible assets or the applicable royalty rates to determine if there are factors that could indicate impairment of the asset.
If performed, the quantitative impairment test compares the fair value and carrying value of the indefinite-lived intangible asset. The fair value of indefinite-lived intangible assets is primarily determined on the basis of estimated discounted value, using the relief from royalty method (Level 3), which incorporates assumptions regarding future sales projections and discount rates. If the carrying value exceeds fair value, the indefinite-lived intangible asset is considered impaired and an impairment charge is recorded for the difference. Even if not required, the Company periodically elects to perform the quantitative test in order to confirm the qualitative assessment.
During the 2017 annual impairment review, the Company completed a quantitative assessment of indefinite-lived intangible assets. As a result of the review,
no
material impairment charges were recorded; however,
four
trademarks were determined to have fair values exceeding their carrying values by less than a 10 percent margin. Due to the lack of excess value of these assets, the Company elected to test these assets using a quantitative analysis during fiscal 2018. For all other indefinite-lived
intangible assets, the Company tested the assets using a qualitative analysis. During the qualitative review, it was revealed that further assessment in the form of a quantitative test was necessary for
two
additional indefinite-lived intangible assets. In total, the Company performed a quantitative test for
six
trade names in fiscal 2018 and only
one
was determined to be impaired. During the fourth quarter of fiscal 2018, a
$17.3 million
intangible asset impairment charge was recorded for the CytoSport trademark. See additional discussion regarding the Company’s goodwill and intangible assets in Note D. During fiscal years
2018
,
2017
, and
2016
, there were no other material remeasurements of assets or liabilities at fair value on a nonrecurring basis subsequent to their initial recognition.
Impairment of Long-Lived Assets and Definite-Lived Intangible Assets:
Definite-lived intangible assets are amortized over their estimated useful lives. The Company reviews long-lived assets and definite-lived intangible assets for impairment annually, or more frequently when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If impairment indicators are present and the estimated future undiscounted cash flows are less than the carrying value of the assets and any related goodwill, the carrying value is reduced to the estimated fair value.
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.
Employee Benefit Plans:
The Company has elected to use the corridor approach to recognize expenses related to its defined benefit pension and other post-retirement benefit plans. Under the corridor approach, actuarial gains or losses resulting from experience different from that assumed and from changes in assumptions are deferred and amortized over future periods. For the defined benefit pension plans, the unrecognized gains and losses are amortized when the net gain or loss exceeds 10.0% of the greater of the projected benefit obligation or the fair value of plan assets at the beginning of the year. For the other post-retirement plans, the unrecognized gains and losses are amortized when the net gain or loss exceeds 10.0% of the accumulated pension benefit obligation at the beginning of the year. For plans with active employees, net gains or losses in excess of the corridor are amortized over the average remaining service period of participating employees expected to receive benefits under those plans. For plans with only retiree participants, net gains or losses in excess of the corridor are amortized over the average remaining life of the retirees receiving benefits under those plans.
Contingent Liabilities:
The Company may be subject to investigations, legal proceedings, or claims related to the on-going operation of its business, including claims both by and against the Company. 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. Where the Company is able to reasonably estimate a range of potential losses, the Company records the amount within that range which constitutes the Company’s best estimate. The Company also discloses the nature of and range of loss for claims against the Company when losses are reasonably possible and material.
Foreign Currency Translation:
Assets and liabilities denominated in foreign currency are translated at the current exchange rate as of the statement of financial position date, and amounts in the statement of operations are translated at the average monthly exchange rate. Translation adjustments resulting from fluctuations in exchange rates are recorded as a component of accumulated other comprehensive loss in shareholders’ investment.
When calculating foreign currency translation, the Company deemed its foreign investments to be permanent in nature and has not provided for taxes on currency translation adjustments arising from converting the investment in a foreign currency to U.S. dollars.
Derivatives and Hedging Activity:
The Company uses commodity and currency positions to manage its exposure to price fluctuations in those markets. The contracts are recorded at fair value on the Consolidated Statements of Financial Position within other current assets or accounts payable. Additional information on hedging activities is presented in Note H.
Equity Method Investments:
The Company has a number of investments in joint ventures where its voting interests are in excess of 20 percent but not greater than 50 percent and for which there are no other indicators of control. The Company accounts for such investments under the equity method of accounting, and its underlying share of each investee’s equity is reported in the Consolidated Statements of Financial Position as part of investments in and receivables from affiliates.
The Company regularly monitors and evaluates the fair value of its equity investments. If events and circumstances indicate that a decline in the fair value of these assets has occurred and is other than temporary, the Company will record a charge in equity in earnings of affiliates in the Consolidated Statements of Operations. The Company’s equity investments do not have a readily determinable fair value as none of them are publicly traded. The fair values of the Company’s private equity investments are determined by discounting the estimated future cash flows of each entity. These cash flow estimates include assumptions on growth rates and future currency exchange rates (Level 3). The Company did not record an impairment charge on any of its equity investments in fiscal years 2018, 2017, or 2016. See additional discussion regarding the Company’s equity method investments in Note I.
Revenue Recognition:
The Company recognizes sales when title passes upon delivery of its products to customers, net of applicable provisions for discounts, returns, and allowances. Products are delivered upon receipt of customer purchase orders with acceptable terms, including price and reasonably assured collectability.
The Company offers various sales incentives to customers and consumers. Incentives offered off-invoice include prompt pay allowances, will call allowances, spoilage allowances, and temporary price reductions. These incentives are recognized as reductions of revenue at the time title passes. Coupons are used as an incentive for consumers to purchase various products. The coupons reduce revenues at the time they are offered, based on estimated redemption rates. Promotional contracts are performed by customers to promote the Company’s products to consumers. These incentives reduce revenues at the time of performance through direct payments and accrued promotional funds. Accrued promotional funds are unpaid liabilities for promotional contracts in process or completed at the end of a quarter or fiscal year. Promotional contract accruals are based on a review of the unpaid outstanding contracts on which performance has taken place. Estimates used to determine the revenue reduction include the level of customer performance and the historical spend rate versus contracted rates.
Allowance for Doubtful Accounts:
The Company estimates the allowance for doubtful accounts based on a combination of factors, including the age of its accounts receivable balances, customer history, collection experience, and current market factors. Additionally, a specific reserve may be established if the Company becomes aware of a customer’s inability to meet its financial obligations.
Advertising Expenses:
Advertising costs are expensed when incurred. Advertising expenses include all media advertising but exclude the costs associated with samples, demonstrations, and market research. Advertising costs for fiscal years
2018
,
2017
, and
2016
were
$151.5 million
,
$135.6 million
, and
$204.1 million
, respectively.
Shipping and Handling Costs:
The Company’s shipping and handling expenses are included in cost of products sold.
Research and Development Expenses:
Research and development costs are expensed as incurred and are included in selling, general and administrative expenses. Research and development expenses incurred for fiscal years
2018
,
2017
, and
2016
were
$33.8 million
,
$34.2 million
, and
$34.7 million
, respectively.
Income Taxes:
The Company records income taxes in accordance with the liability method of accounting. Deferred taxes are recognized for the estimated taxes ultimately payable or recoverable based on enacted tax law. Changes in enacted tax rates are reflected in the tax provision as they occur.
In accordance with ASC 740,
Income Taxes
, the Company recognizes a tax position in its financial statements when it is more likely than not that the position will be sustained upon examination based on the technical merits of the position. That position is then measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement.
Employee Stock Options:
The Company records stock-based compensation expense in accordance with ASC 718,
Compensation – Stock Compensation
. For options subject to graded vesting, the Company recognizes stock-based compensation expense ratably over the shorter of the vesting period or requisite service period. Stock-based compensation expense for grants made to retirement-eligible employees is recognized on the date of grant.
Share Repurchases:
On January 29, 2013, the Company’s Board of Directors authorized the repurchase of
10.0 million
shares (pre-split) of its common stock with no expiration date. The Company may purchase shares of its common stock through open market and privately negotiated transactions at prices deemed appropriate by management. On November 23, 2015, the Company’s Board of Directors authorized a
two
-for-one split of the Company’s voting common stock. As part of the Board’s approval of that stock split, the number of shares remaining to be repurchased was adjusted proportionately. The timing and amount of repurchase transactions under the repurchase authorization depend on market conditions as well as corporate and regulatory considerations. During the year ended
October 28, 2018
, the Company repurchased a total of
1.4 million
shares at an average price of
$33.86
. As of
October 28, 2018
, the remaining share repurchase authorization under the program was
9.1 million
shares (post-split).
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.
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.
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 and tax deficiencies 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
$19.6 million
and
$40.4 million
were recorded as a reduction of income tax expense for the fourth quarter and fiscal year ended October 28, 2018, respectively. The effective tax rate was reduced by
6.1
percent and
3.4
percent for the fourth quarter and twelve months ended October 28, 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 received from the settlement of insurance claims to be classified on the basis of the related insurance coverage. Accordingly, the Company classified cash settlements received from insurance claims to the specific type of loss to determine the cash flow classification of the proceeds. The guidance also 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 tables reconciles the Consolidated Statements of Cash Flows line items impacted by the adoption of these standards at October 29, 2017 for fiscal years 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Reported October 29, 2017
|
|
ASU 2016-09
|
|
ASU 2016-15
|
|
Adjusted October 29, 2017
|
Operating Activities
|
|
|
|
|
|
|
|
Equity in earnings of affiliates
|
$
|
(12,069
|
)
|
|
$
|
—
|
|
|
$
|
(27,521
|
)
|
|
$
|
(39,590
|
)
|
Distributions received from equity method investees
|
—
|
|
|
—
|
|
|
27,521
|
|
|
27,521
|
|
Gain on insurance proceeds
|
—
|
|
|
—
|
|
|
(3,914
|
)
|
|
(3,914
|
)
|
Excess tax benefit from stock-based compensation
|
(29,513
|
)
|
|
29,513
|
|
|
—
|
|
|
|
Increase in accounts receivable
|
(28,091
|
)
|
|
—
|
|
|
(1,626
|
)
|
|
(29,717
|
)
|
Decrease in inventories
|
41,312
|
|
|
—
|
|
|
(284
|
)
|
|
41,028
|
|
Net Cash Provided by Operating Activities
|
1,010,196
|
|
|
29,513
|
|
|
(5,824
|
)
|
|
1,033,885
|
|
|
|
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
Proceeds from sales of property/equipment
|
4,010
|
|
|
—
|
|
|
(256
|
)
|
|
3,754
|
|
Increase in investments, equity in affiliates, and other assets
|
8,792
|
|
|
—
|
|
|
(3,697
|
)
|
|
5,095
|
|
Proceeds from company-owned life insurance
|
—
|
|
|
—
|
|
|
5,323
|
|
|
5,323
|
|
Proceeds from insurance recoveries
|
—
|
|
|
—
|
|
|
4,454
|
|
|
4,454
|
|
Net Cash Used in Investing Activities
|
(593,003
|
)
|
|
—
|
|
|
5,824
|
|
|
(587,179
|
)
|
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
Excess tax benefit from stock-based compensation
|
29,513
|
|
|
(29,513
|
)
|
|
—
|
|
|
—
|
|
Net Cash Used in Financing Activities
|
(389,258
|
)
|
|
(29,513
|
)
|
|
—
|
|
|
(418,771
|
)
|
Effect of Exchange Rate Changes on Cash
|
1,044
|
|
|
—
|
|
|
—
|
|
|
1,044
|
|
Increase in Cash and Cash Equivalents
|
$
|
28,979
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
28,979
|
|
Cash and cash equivalents at beginning of year
|
415,143
|
|
|
—
|
|
|
—
|
|
|
415,143
|
|
Cash and Cash Equivalents at the End of Year
|
$
|
444,122
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
444,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Reported October 30, 2016*
|
|
ASU 2016-09
|
|
ASU 2016-15
|
|
Adjusted October 30, 2016*
|
Operating Activities
|
|
|
|
|
|
|
|
Equity in earnings of affiliates
|
$
|
7,505
|
|
|
$
|
—
|
|
|
$
|
(46,190
|
)
|
|
$
|
(38,685
|
)
|
Distributions received from equity method investees
|
—
|
|
|
—
|
|
|
46,190
|
|
|
46,190
|
|
Excess tax benefit from stock-based compensation
|
(47,657
|
)
|
|
47,657
|
|
|
—
|
|
|
—
|
|
Increase in accounts receivable
|
21,389
|
|
|
—
|
|
|
(485
|
)
|
|
20,904
|
|
Net Cash Provided by Operating Activities
|
992,848
|
|
|
47,657
|
|
|
(485
|
)
|
|
1,040,020
|
|
|
|
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
Increase in investments, equity in affiliates, and other assets
|
11,078
|
|
|
—
|
|
|
(864
|
)
|
|
10,214
|
|
Proceeds from company-owned life insurance
|
—
|
|
|
—
|
|
|
1,349
|
|
|
1,349
|
|
Net Cash Used in Investing Activities
|
(408,959
|
)
|
|
—
|
|
|
485
|
|
|
(408,474
|
)
|
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
Excess tax benefit from stock-based compensation
|
47,657
|
|
|
(47,657
|
)
|
|
—
|
|
|
—
|
|
Net Cash Used in Financing Activities
|
(509,646
|
)
|
|
(47,657
|
)
|
|
—
|
|
|
(557,303
|
)
|
Effect of Exchange Rate Changes on Cash
|
(6,339
|
)
|
|
—
|
|
|
—
|
|
|
(6,339
|
)
|
Increase in Cash and Cash Equivalents
|
$
|
67,904
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
67,904
|
|
Cash and cash equivalents at beginning of year
|
347,239
|
|
|
—
|
|
|
—
|
|
|
347,239
|
|
Cash and Cash Equivalents at the End of Year
|
$
|
415,143
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
415,143
|
|
*Fiscal 2016 included 53 weeks.
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 (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 Company recognized a measurement-period adjustment during the fiscal year ended October 28, 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 ASU 2014-09,
Revenue from Contracts with Customers (Topic 606)
. This topic converges the guidance within U.S. GAAP and international financial reporting standards and supersedes ASC 605,
Revenue Recognition
. The new standard requires companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. The new standard will also result in enhanced disclosures about revenue, provide guidance for transactions which were not previously addressed comprehensively, and improve guidance for multiple-element arrangements. The new guidance is effective for annual reporting periods beginning after December 15, 2017. The updated guidance is to be applied either retrospectively or by using a cumulative effect adjustment. The Company will adopt the provisions of the new standard using the full retrospective method at the beginning of fiscal 2019. The Company has completed its detailed assessments relating to revenue streams and customer arrangements, and is focused on controls to support recognition and disclosure requirements under the new guidance. The Company plans to make the following policy elections upon adoption:
to account for shipping and handling costs as contract fulfillment costs and to exclude taxes imposed on and collected from customers in revenue producing transactions (e.g., sales, use, and value added taxes) from the transaction price. The Company will account for variable consideration using the expected value method. The Company also plans to apply the practical expedient to not capitalize contract costs to obtain contracts with a duration of one year or less, which are expensed and included in the Consolidated Statements of Operations. The Company will not have a cumulative effect adjustment as a result of adoption. Adoption of the new standard will not
have a material impact on the Company’s results of operations.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The updated guidance requires lessees to recognize a right-of-use asset and lease liability for all leases with terms of more than 12 months. Recognition, measurement, and presentation of expenses will depend on the classification as a finance or operating lease. The update also requires certain quantitative and qualitative disclosures. Accounting guidance for lessors is largely unchanged. In July 2018, the FASB issued ASU 2018-11, which provides an optional transition method in addition to the existing modified retrospective transition method allowing entities to recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption rather than in the earliest period presented. The requirements of the new standard are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company expects to adopt the provisions of this new accounting standard at the beginning of fiscal 2020 and is in the process of evaluating the impact of adoption on its consolidated financial statements and related disclosures.
In June 2016, the FASB 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 amendment replaces the current incurred loss impairment methodology with a methodology to reflect expected credit losses and requires consideration of a broader range of reasonable and supportable information to explain credit loss estimates. The updated guidance is to be applied on a modified retrospective approach and is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for all entities for fiscal years beginning after December 15, 2018, and interim periods therein. The Company is currently assessing the timing and impact of adopting the updated provisions.
In October 2016, the FASB issued ASU 2016-16,
Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory (Topic 740)
. The updated guidance requires the recognition of the income tax consequences of an intra-entity asset transfer, other than transfers of inventory, when the transfer occurs. For intra-entity transfers of inventory, the income tax effects will continue to be deferred until the inventory has been sold to a third party. The updated guidance is effective for reporting periods beginning after December 15, 2017, with early adoption permitted only within the first interim period of a fiscal year. The guidance is required to be applied on a modified retrospective basis through a cumulative effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company will adopt the 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 the lower tax rate on deferred tax balances resulting from the Tax Act, the Company expects to recognize a cumulative effect adjustment to retained earnings of approximately
$10.5 million
.
In March 2017, the FASB issued ASU 2017-07,
Compensation - Retirement Benefits: Improving the 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 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 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. 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. In connection with this adoption, we expect to record reductions in Operating Income of
$19.0 million
and
$3.7 million
with corresponding increases in Other Income for fiscal years ended October 28, 2018, and October 29, 2017, respectively.
In August 2017, the FASB issued ASU 2017-12,
Derivatives and Hedging - Targeted Improvements to Accounting for Hedging Activities (Topic 815)
. The updated guidance expands an entity’s ability to hedge nonfinancial and financial risk components and reduce complexity in fair value hedges of interest rate risk. The guidance eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The guidance also eases certain documentation and assessment requirements and modifies the accounting for components excluded from the assessment of hedge effectiveness. Entities will apply the amendments to cash flow and net investment hedge relationships that exist on the date of adoption using a modified retrospective approach. The presentation and disclosure requirement apply prospectively. The updated guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those years. Early adoption is permitted in any interim or annual period. The Company plans to early adopt the provisions of this new accounting standard at the beginning of fiscal 2019 and does not expect a material impact to its consolidated financial statements.
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 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 will adopt the provisions of this new accounting standard at the beginning of fiscal 2019. The adoption will result in a reclassification of
$50.7 million
from Accumulated Other Comprehensive Income to Retained Earnings.
In July 2018, the FASB issued ASU 2018-09,
Codification Improvements
. This amendment makes changes to a variety of topics to clarify, correct errors in, or make minor improvements to the Accounting Standards Codification (ASC). The transition and effective date guidance is based on the facts and circumstances of each amendment. Some of the amendments do not require transition guidance and will be effective upon issuance of ASU 2018-09. However, many of the amendments do have transition guidance with effective dates for annual periods beginning after December 15, 2018. The Company is currently assessing the impact of adoption on its consolidated financial statements, results of operations and cash flows.
In August 2018, the FASB issued ASU 2018-13,
Fair Value Measurement - Disclosure Framework (Topic 820).
The updated guidance
improves the disclosure requirements on fair value measurements. The updated guidance if effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for any removed or modified disclosures. The Company is currently assessing the timing and impact of adopting the updated provisions.
In August 2018, the FASB issued ASU 2018-14,
Compensation - Retirement Benefits - Defined Benefit Plans (Topic 715)
. The updated guidance improves disclosure requirements for employers who sponsor defined benefit pension or other postretirement plans. The amendments are effective for fiscal years ending after December 15, 2020, with early adoption permitted. The Company is currently assessing the timing and impact of adopting the updated provisions.
In August 2018, the FASB issued ASU No. 2018-15,
Intangibles - Goodwill and Other - Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (Topic 350).
The amendments in the update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The amendments are effective for fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years and is to be applied either retrospectively or prospectively to all implementation costs incurred after the adoption date. Early adoption is permitted, including adoption in any interim period. The Company is currently evaluating the effect of this update and expects to adopt the provisions of this new accounting standard at the beginning of fiscal 2019.
Any other recently issued accounting standards or pronouncements not disclosed above have been excluded as they either are not relevant to the Company, or they are not expected to have a material effect on its business practices, financial condition, results of operations, or disclosures.
Note B
Acquisitions
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 final purchase price of
$857.4 million
. 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 obtained an independent appraisal. A final allocation of the purchase price to the acquired assets, liabilities, and goodwill is presented in the table below.
|
|
|
|
|
(in thousands)
|
|
Accounts receivable
|
$
|
21,199
|
|
Inventory
|
32,817
|
|
Prepaid and other assets
|
881
|
|
Other assets
|
936
|
|
Property, plant and equipment
|
83,662
|
|
Intangible assets
|
223,704
|
|
Goodwill
|
610,602
|
|
Current liabilities
|
(21,366
|
)
|
Deferred taxes
|
(95,077
|
)
|
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, the Company acquired Cidade do Sol (Ceratti) for a final purchase price of
$103.3 million
. The transaction was funded by the Company with cash on hand. The Company has completed a final allocation of the fair value of Ceratti. Allocations are based on the acquisition method of accounting and third party valuation appraisals. Refer to Note D for amounts assigned to goodwill and intangible assets.
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 in the fast-growing Brazilian market with a premium brand.
Operating results for this acquisition have been included in the Company’s Consolidated Statements of Operations from the date of acquisition and are reflected in the International & Other segment.
On August 16, 2017, the Company acquired Fontanini Italian Meats and Sausages (Fontanini), a branded foodservice business, from Capitol Wholesale Meats, Inc. for a final purchase price of
$425.7 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
$64.7 million
. The transaction was funded by the Company with cash on hand and by utilizing short-term financing. Primary assets acquired include goodwill of
$223.7 million
and intangibles of
$110.3 million
.
The Company has completed a final allocation of the fair value of Fontanini. Allocations are based on the acquisition method of accounting and third party valuation appraisals. Refer to Note D for amounts assigned to goodwill and intangible assets.
Fontanini specializes in authentic Italian meats and sausages, as well as a variety of other premium meat products including pizza toppings and meatballs and allows the Company to expand the foodservice business.
Operating results for this acquisition have been included in the Company’s Consolidated Statements of Operations from the date of acquisition and are reflected in the Refrigerated Foods segment.
On May 26, 2016, the Company acquired Justin’s, LLC (Justin’s) of Boulder, Colorado, for a final purchase price of
$280.9 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
Skippy
® peanut butter products.
Operating results for this acquisition are included in the Company’s Consolidated Statements of Operations from the date of acquisition and are reflected in the Grocery Products segment.
Note C
Inventories
Principal components of inventories are:
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
October 28, 2018
|
|
October 29, 2017
|
Finished products
|
|
$
|
525,628
|
|
|
$
|
511,789
|
|
Raw materials and work-in-process
|
|
247,495
|
|
|
237,903
|
|
Operating supplies
|
|
126,644
|
|
|
114,098
|
|
Maintenance materials and parts
|
|
63,760
|
|
|
57,232
|
|
Total
|
|
$
|
963,527
|
|
|
$
|
921,022
|
|
Note D
Goodwill and Intangible Assets
The changes in the carrying amount of goodwill for the fiscal years ended
October 28, 2018
, and
October 29, 2017
, are presented in the table below. Additions relate to the acquisitions of Columbus on November 27, 2017, for fiscal 2018 and the acquisitions of Fontanini on August 16, 2017, and Ceratti on August 22, 2017, for fiscal 2017. The reduction during fiscal 2017 is due to the sale of 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) on January 3, 2017. See additional discussion regarding the Company’s assets held for sale in Note E.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Grocery
Products
|
|
Refrigerated
Foods
|
|
Jennie-O
Turkey Store
|
|
International
& Other
|
|
Total
|
Balance as of October 30, 2016
|
|
$
|
882,582
|
|
|
$
|
584,443
|
|
|
$
|
203,214
|
|
|
$
|
164,258
|
|
|
$
|
1,834,497
|
|
Goodwill acquired
|
|
—
|
|
|
223,082
|
|
|
—
|
|
|
74,060
|
|
|
297,142
|
|
Goodwill sold
|
|
—
|
|
|
(11,826
|
)
|
|
—
|
|
|
—
|
|
|
(11,826
|
)
|
Balance as of October 29, 2017
|
|
$
|
882,582
|
|
|
$
|
795,699
|
|
|
$
|
203,214
|
|
|
$
|
238,318
|
|
|
$
|
2,119,813
|
|
Goodwill acquired
|
|
—
|
|
|
610,602
|
|
|
—
|
|
|
—
|
|
|
610,602
|
|
Foreign currency translation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(20,224
|
)
|
|
(20,224
|
)
|
Purchase adjustments
|
|
—
|
|
|
596
|
|
|
—
|
|
|
3,329
|
|
|
3,925
|
|
Balance as of October 28, 2018
|
|
$
|
882,582
|
|
|
$
|
1,406,897
|
|
|
$
|
203,214
|
|
|
$
|
221,423
|
|
|
$
|
2,714,116
|
|
The gross carrying amount and accumulated amortization for definite-lived intangible assets are presented in the table below. In fiscal 2018, customer relationships of
$29.4 million
were acquired related to Columbus. In fiscal 2017, customer relationships of
$13.1 million
were acquired related to Ceratti and
$10.0 million
were acquired related to Fontanini. Once fully amortized, the definite-lived intangible assets are removed from the table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 28, 2018
|
|
October 29, 2017
|
|
|
Gross
|
|
|
|
Weighted-
|
|
Gross
|
|
|
|
Weighted-
|
|
|
Carrying
|
|
Accumulated
|
|
Avg Life
|
|
Carrying
|
|
Accumulated
|
|
Avg Life
|
(in thousands)
|
|
Amount
|
|
Amortization
|
|
(in Years)
|
|
Amount
|
|
Amortization
|
|
(in Years)
|
Customer lists/relationships
|
|
$
|
137,039
|
|
|
$
|
(36,367
|
)
|
|
12.4
|
|
|
$
|
115,940
|
|
|
$
|
(25,767
|
)
|
|
12.3
|
|
Other intangibles
|
|
6,155
|
|
|
(1,547
|
)
|
|
6.4
|
|
|
3,100
|
|
|
(2,044
|
)
|
|
5.8
|
|
Formulas and recipes
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,950
|
|
|
(1,950
|
)
|
|
10.0
|
|
Foreign currency translation
|
|
—
|
|
|
(2,883
|
)
|
|
—
|
|
|
—
|
|
|
(206
|
)
|
|
—
|
|
Total
|
|
$
|
143,194
|
|
|
$
|
(40,797
|
)
|
|
12.2
|
|
|
$
|
120,990
|
|
|
$
|
(29,967
|
)
|
|
12.1
|
|
Amortization expense for the last three fiscal years was as follows:
|
|
|
|
|
|
(in millions)
|
|
|
|
2018
|
|
$
|
12.7
|
|
2017
|
|
8.4
|
|
2016
|
|
8.4
|
|
Estimated annual amortization expense for the five fiscal years after
October 28, 2018
, is as follows:
|
|
|
|
|
|
(in millions)
|
|
|
2019
|
|
$
|
12.6
|
|
2020
|
|
12.6
|
|
2021
|
|
12.7
|
|
2022
|
|
12.4
|
|
2023
|
|
11.6
|
|
The carrying amounts for indefinite-lived intangible assets are in the following table. The increases largely represent the fair value of trademarks acquired with Columbus of
$193.0 million
in fiscal 2018. Fiscal 2017 additions included the trademarks acquired with Ceratti and Fontanini of
$15.9 million
and
$100.4 million
, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
October 28,
|
|
October 29,
|
(in thousands)
|
|
2018
|
|
2017
|
Brands/tradenames/trademarks
|
|
$
|
1,108,122
|
|
|
$
|
935,816
|
|
Other intangibles
|
|
184
|
|
|
184
|
|
Foreign currency translation
|
|
(3,484
|
)
|
|
(9
|
)
|
Total
|
|
$
|
1,104,822
|
|
|
$
|
935,991
|
|
During the fourth quarter of fiscal years
2018
,
2017
, and
2016
, the Company completed the required annual impairment tests of indefinite-lived intangible assets and goodwill. An impairment was indicated for the CytoSport trademark in the Grocery Products segment, resulting in a charge of
$17.3 million
in fiscal 2018. No other impairment was indicated. Useful lives of intangible assets were also reviewed during this process, with no material changes identified.
Note E
Assets Held for Sale
At the end of fiscal 2016, the Company was actively marketing 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 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
Long-term Debt and Other Borrowing Arrangements
Long-term debt consists of:
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
October 28, 2018
|
|
October 29, 2017
|
Term loan
|
|
$
|
374,840
|
|
|
$
|
—
|
|
Senior unsecured notes, with interest at 4.125%, interest due semi-
annually through April 2021 maturity date
|
|
250,000
|
|
|
250,000
|
|
Less: current maturities
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
624,840
|
|
|
$
|
250,000
|
|
The Company has a $
400.0
million unsecured revolving line of credit which matures in June 2021. The unsecured revolving line of credit bears interest at a variable rate based on LIBOR, and a fixed fee is paid for the availability of this credit line. As of
October 28, 2018
, and
October 29, 2017
the Company had
no
outstanding draws from this line of credit.
The Company had a
$300.0 million
term loan facility which expired in December 2016. With the acquisition of Columbus Manufacturing Inc. in November 2017, the Company obtained a
two
-year
$375.0 million
term loan which is due in full in November 2019. In December 2018, the Company will consider this term loan short term since the due date is less than one year.
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 current fiscal year, the Company was in compliance with all of these covenants.
Total interest paid in the last three fiscal years is as follows:
|
|
|
|
|
|
(in millions)
|
|
|
|
2018
|
|
$
|
25.6
|
|
2017
|
|
12.7
|
|
2016
|
|
12.9
|
|
Note G
Pension and Other Post-retirement Benefits
The Company has several defined benefit plans and defined contribution plans covering most employees. Benefits for defined benefit pension plans covering hourly employees are provided based on stated amounts for each year of service, while plan benefits covering salaried employees are based on final average compensation. In fiscal 2011, an amendment was enacted for a defined benefit plan which included a change in the pension formula effective January 1, 2017. The amended formula remains a defined benefit formula, but bases the accrued benefit credit on age and service and defines the benefit as a lump sum. Effective October 31, 2016, the 401(k) match for these participants was increased. Total costs associated with the Company’s defined contribution benefit plans in fiscal years
2018
,
2017
, and
2016
were
$44.2 million
,
$45.2 million
, and
$33.5 million
, respectively.
Certain groups of employees are eligible for post-retirement health or welfare benefits. Benefits for retired employees vary for each group depending on respective retirement dates and applicable plan coverage in effect. Contribution requirements for retired employees are governed by the Retiree Health Care Payment Program and may change each year as the cost to provide coverage is determined.
Net periodic cost of defined benefit plans included the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Post-retirement Benefits
|
(in thousands)
|
|
2018
|
|
2017
|
|
2016
|
|
2018
|
|
2017
|
|
2016
|
Service cost
|
|
$
|
31,612
|
|
|
$
|
30,256
|
|
|
$
|
26,951
|
|
|
$
|
980
|
|
|
$
|
1,106
|
|
|
$
|
1,297
|
|
Interest cost
|
|
56,196
|
|
|
54,263
|
|
|
55,728
|
|
|
11,169
|
|
|
11,630
|
|
|
13,346
|
|
Expected return on plan assets
|
|
(99,091
|
)
|
|
(90,936
|
)
|
|
(88,681
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Amortization of prior service cost
|
|
(2,468
|
)
|
|
(3,000
|
)
|
|
(4,120
|
)
|
|
(3,111
|
)
|
|
(4,274
|
)
|
|
(4,282
|
)
|
Recognized actuarial loss (gain)
|
|
18,166
|
|
|
26,166
|
|
|
20,318
|
|
|
179
|
|
|
2,424
|
|
|
1,617
|
|
Curtailment (gain) charge
|
|
—
|
|
|
—
|
|
|
(4,438
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Net periodic cost
|
|
$
|
4,415
|
|
|
$
|
16,749
|
|
|
$
|
5,758
|
|
|
$
|
9,217
|
|
|
$
|
10,886
|
|
|
$
|
11,978
|
|
Actuarial gains and losses and any adjustments resulting from plan amendments are deferred and amortized to expense over periods ranging from
9
-
23
years for pension benefits and
5
-
18
years for post-retirement benefits. The following amounts have not been recognized in net periodic pension cost and are included in accumulated other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Post-retirement Benefits
|
(in thousands)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Unrecognized prior service credit
|
|
$
|
8,097
|
|
|
$
|
10,565
|
|
|
$
|
6,461
|
|
|
$
|
4,585
|
|
Unrecognized actuarial losses
|
|
(336,894
|
)
|
|
(380,114
|
)
|
|
(9,302
|
)
|
|
(30,857
|
)
|
The following amounts are expected to be recognized in net periodic benefit expense in fiscal 2019:
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Pension
Benefits
|
|
Post-
retirement
Benefits
|
Amortized prior service credit
|
|
$
|
(2,468
|
)
|
|
$
|
(2,937
|
)
|
Recognized actuarial losses
|
|
15,670
|
|
|
—
|
|
The following is a reconciliation of the beginning and ending balances of the benefit obligation, the fair value of plan assets, and the funded status of the plans as of the
October 28, 2018
, and the
October 29, 2017
, measurement dates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Post-retirement Benefits
|
(in thousands)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Change in benefit obligation
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
1,460,098
|
|
|
$
|
1,394,870
|
|
|
$
|
304,683
|
|
|
$
|
317,472
|
|
Service cost
|
|
31,612
|
|
|
30,256
|
|
|
980
|
|
|
1,106
|
|
Interest cost
|
|
56,196
|
|
|
54,263
|
|
|
11,169
|
|
|
11,630
|
|
Actuarial (gain) loss
|
|
(134,924
|
)
|
|
35,379
|
|
|
(24,515
|
)
|
|
(10,977
|
)
|
Plan amendments
|
|
—
|
|
|
3,483
|
|
|
—
|
|
|
4,986
|
|
Participant contributions
|
|
—
|
|
|
—
|
|
|
2,232
|
|
|
2,661
|
|
Medicare Part D subsidy
|
|
—
|
|
|
—
|
|
|
768
|
|
|
1,355
|
|
Benefits paid
|
|
(62,079
|
)
|
|
(58,153
|
)
|
|
(23,045
|
)
|
|
(23,550
|
)
|
Benefit obligation at end of year
|
|
$
|
1,350,903
|
|
|
$
|
1,460,098
|
|
|
$
|
272,272
|
|
|
$
|
304,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Post-retirement Benefits
|
(in thousands)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Change in plan assets
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
1,379,953
|
|
|
$
|
1,232,626
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Actual return on plan assets
|
|
(10,780
|
)
|
|
184,126
|
|
|
—
|
|
|
—
|
|
Participant contributions
|
|
—
|
|
|
—
|
|
|
2,232
|
|
|
2,661
|
|
Employer contributions
|
|
6,286
|
|
|
21,354
|
|
|
20,813
|
|
|
20,889
|
|
Benefits paid
|
|
(62,079
|
)
|
|
(58,153
|
)
|
|
(23,045
|
)
|
|
(23,550
|
)
|
Fair value of plan assets at end of year
|
|
$
|
1,313,380
|
|
|
$
|
1,379,953
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Funded status at end of year
|
|
$
|
(37,523
|
)
|
|
$
|
(80,145
|
)
|
|
$
|
(272,272
|
)
|
|
$
|
(304,683
|
)
|
Amounts recognized in the Consolidated Statements of Financial Position as of
October 28, 2018
, and
October 29, 2017
, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Post-retirement Benefits
|
(in thousands)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Pension assets
|
|
$
|
195,153
|
|
|
$
|
171,990
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Employee-related expenses
|
|
(6,851
|
)
|
|
(5,957
|
)
|
|
(20,540
|
)
|
|
(20,612
|
)
|
Pension and post-retirement benefits
|
|
(225,825
|
)
|
|
(246,178
|
)
|
|
(251,732
|
)
|
|
(284,071
|
)
|
Net amount recognized
|
|
$
|
(37,523
|
)
|
|
$
|
(80,145
|
)
|
|
$
|
(272,272
|
)
|
|
$
|
(304,683
|
)
|
The accumulated benefit obligation for all pension plans was
$1.3 billion
as of
October 28, 2018
, and
$1.4 billion
as of
October 29, 2017
. The following table provides information for pension plans with accumulated benefit obligations in excess of plan assets:
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2018
|
|
2017
|
Projected benefit obligation
|
|
$
|
232,676
|
|
|
$
|
252,136
|
|
Accumulated benefit obligation
|
|
227,015
|
|
|
247,687
|
|
Fair value of plan assets
|
|
—
|
|
|
—
|
|
Weighted-average assumptions used to determine benefit obligations are as follows:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Discount rate
|
|
4.55
|
%
|
|
3.91
|
%
|
Rate of future compensation increase (for plans that base benefits on
final compensation level)
|
|
3.96
|
%
|
|
3.95
|
%
|
Weighted-average assumptions used to determine net periodic benefit costs are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Discount rate
|
|
3.91
|
%
|
|
3.94
|
%
|
|
4.50
|
%
|
Rate of future compensation increase (for plans
that base benefits on final compensation level)
|
|
3.95
|
%
|
|
3.96
|
%
|
|
3.92
|
%
|
Expected long-term return on plan assets
|
|
7.30
|
%
|
|
7.50
|
%
|
|
7.60
|
%
|
The expected long-term rate of return on plan assets is based on fair value and is developed in consultation with outside advisors. A range is determined based on the composition of the asset portfolio, historical long-term rates of return, and estimates of future performance.
For measurement purposes, an
8.0%
annual rate of increase in the per capita cost of covered health care benefits for pre-Medicare and post-Medicare retirees’ coverage is assumed for 2019. The pre-Medicare and post-Medicare rate is assumed to decrease to
5.0%
for
2024
, and remain steady thereafter.
The assumed discount rate, expected long-term rate of return on plan assets, rate of future compensation increase, and health care cost trend rate have a significant impact on the amounts reported for the benefit plans. A one-percentage-point change in these rates would have the following effects:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-Percentage-Point
|
|
|
Expense
|
|
Benefit Obligation
|
(in thousands)
|
|
Increase
|
|
Decrease
|
|
Increase
|
|
Decrease
|
Pension benefits
|
|
|
|
|
|
|
|
|
Discount rate
|
|
$
|
(11,445
|
)
|
|
$
|
14,215
|
|
|
$
|
(163,270
|
)
|
|
$
|
203,780
|
|
Expected long-term rate of return on plan assets
|
|
(12,849
|
)
|
|
12,849
|
|
|
—
|
|
|
—
|
|
Rate of future compensation increase
|
|
3,421
|
|
|
(2,965
|
)
|
|
5,279
|
|
|
(4,592
|
)
|
Post-retirement benefits
|
|
|
|
|
|
|
|
|
Discount rate
|
|
$
|
1,172
|
|
|
$
|
158
|
|
|
$
|
(23,946
|
)
|
|
$
|
28,491
|
|
Health care cost trend rate
|
|
1,290
|
|
|
(1,104
|
)
|
|
26,017
|
|
|
(22,482
|
)
|
The Company’s funding policy is to make annual contributions of not less than the minimum required by applicable regulations. The Company expects to make contributions of
$28.0 million
during fiscal 2019 that represent benefit payments for unfunded plans.
Benefits expected to be paid over the next ten fiscal years are as follows:
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Pension Benefits
|
|
Post-retirement Benefits
|
2019
|
|
$
|
63,348
|
|
|
$
|
20,999
|
|
2020
|
|
65,640
|
|
|
20,880
|
|
2021
|
|
67,796
|
|
|
20,762
|
|
2022
|
|
70,275
|
|
|
20,642
|
|
2023
|
|
74,272
|
|
|
20,397
|
|
2024-2028
|
|
422,443
|
|
|
94,912
|
|
Post-retirement benefits are net of expected federal subsidy receipts related to prescription drug benefits granted under the Medicare Prescription Drug, Improvement and Modernization Act of 2003, which are estimated to be
$0.5 million
per year through 2028.
The actual and target weighted-average asset allocations for the Company’s pension plan assets as of the plan measurement date are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Asset Category
|
|
Actual %
|
|
Target
Range %
|
|
Actual %
|
|
Target
Range %
|
Large capitalization equity
|
|
13.7
|
|
12-22
|
|
|
22.1
|
|
12-22
|
|
Small capitalization equity
|
|
12.7
|
|
3-13
|
|
|
5.4
|
|
3-13
|
|
International equity
|
|
14.9
|
|
10-20
|
|
|
15.1
|
|
10-20
|
|
Global equity
|
|
12.4
|
|
5-20
|
|
|
12.0
|
|
5-20
|
|
Private equity
|
|
5.8
|
|
0-15
|
|
|
5.4
|
|
0-15
|
|
Total equity securities
|
|
59.5
|
|
50-75
|
|
|
60.0
|
|
50-75
|
|
Fixed income
|
|
33.6
|
|
25-45
|
|
|
33.5
|
|
25-45
|
|
Real estate
|
|
5.7
|
|
0-10
|
|
|
5.0
|
|
0-10
|
|
Cash and cash equivalents
|
|
1.2
|
|
—
|
|
|
1.5
|
|
—
|
|
Target allocations are established in consultation with outside advisors through the use of asset-liability modeling to attempt to match the duration of the plan assets with the duration of the Company’s projected benefit liability. The asset allocation strategy attempts to minimize the long-term cost of pension benefits, reduce the volatility of pension expense, and achieve a healthy funded status for the plans.
The following tables show the categories of defined benefit pension plan assets and the level under which fair values were determined in the fair value hierarchy. Assets measured at fair value using the net asset value (NAV) per share practical expedient are not required to be classified in the fair value hierarchy. These amounts are provided to permit reconciliation to the total fair value of plan assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of October 28, 2018
|
(in thousands)
|
|
Total
Fair Value
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
Significant Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Plan assets in fair value hierarchy
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents (1)
|
|
$
|
16,129
|
|
|
$
|
16,129
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Large capitalization equity (2)
|
|
|
|
|
|
|
|
|
Domestic
|
|
113,086
|
|
|
113,086
|
|
|
—
|
|
|
—
|
|
Foreign
|
|
29,810
|
|
|
29,810
|
|
|
—
|
|
|
—
|
|
Small capitalization equity (3)
|
|
|
|
|
|
|
|
|
Domestic
|
|
145,872
|
|
|
145,872
|
|
|
—
|
|
|
—
|
|
Foreign
|
|
21,417
|
|
|
21,417
|
|
|
—
|
|
|
—
|
|
Private equity (4)
|
|
|
|
|
|
|
|
|
Domestic
|
|
51,377
|
|
|
—
|
|
|
—
|
|
|
51,377
|
|
International
|
|
24,880
|
|
|
—
|
|
|
—
|
|
|
24,880
|
|
Fixed income (5)
|
|
|
|
|
|
|
|
|
US government issues
|
|
157,312
|
|
|
153,566
|
|
|
3,746
|
|
|
—
|
|
Municipal issues
|
|
19,456
|
|
|
—
|
|
|
19,456
|
|
|
—
|
|
Corporate issues – domestic
|
|
222,617
|
|
|
—
|
|
|
222,617
|
|
|
—
|
|
Corporate issues – foreign
|
|
42,513
|
|
|
—
|
|
|
42,513
|
|
|
—
|
|
Plan assets in fair value hierarchy
|
|
$
|
844,469
|
|
|
$
|
479,880
|
|
|
$
|
288,332
|
|
|
$
|
76,257
|
|
|
|
|
|
|
|
|
|
|
Plan assets at net asset value
|
|
|
|
|
|
|
|
|
Large capitalization equity – domestic (6)
|
|
$
|
37,176
|
|
|
|
|
|
|
|
International equity – mutual fund (7)
|
|
107,956
|
|
|
|
|
|
|
|
International equity – collective trust (8)
|
|
86,641
|
|
|
|
|
|
|
|
Global equity – mutual fund (9)
|
|
162,630
|
|
|
|
|
|
|
|
Real estate – domestic (10)
|
|
74,508
|
|
|
|
|
|
|
|
Plan assets at net asset value
|
|
$
|
468,911
|
|
|
|
|
|
|
|
Total plan assets at fair value
|
|
$
|
1,313,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of 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)
|
Plan assets in fair value hierarchy
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents (1)
|
|
$
|
21,653
|
|
|
$
|
21,653
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Large capitalization equity (2)
|
|
|
|
|
|
|
|
|
Domestic
|
|
189,536
|
|
|
189,536
|
|
|
—
|
|
|
—
|
|
Foreign
|
|
47,069
|
|
|
47,069
|
|
|
—
|
|
|
—
|
|
Small capitalization equity (3)
|
|
|
|
|
|
|
|
|
Domestic
|
|
64,448
|
|
|
64,448
|
|
|
—
|
|
|
—
|
|
Foreign
|
|
9,486
|
|
|
9,486
|
|
|
—
|
|
|
—
|
|
Private equity (4)
|
|
|
|
|
|
|
|
|
Domestic
|
|
53,652
|
|
|
—
|
|
|
—
|
|
|
53,652
|
|
International
|
|
20,552
|
|
|
—
|
|
|
—
|
|
|
20,552
|
|
Fixed income (5)
|
|
|
|
|
|
|
|
|
US government issues
|
|
159,690
|
|
|
154,977
|
|
|
4,713
|
|
|
—
|
|
Municipal issues
|
|
21,002
|
|
|
—
|
|
|
21,002
|
|
|
—
|
|
Corporate issues – domestic
|
|
228,753
|
|
|
—
|
|
|
228,753
|
|
|
—
|
|
Corporate issues – foreign
|
|
52,610
|
|
|
—
|
|
|
52,610
|
|
|
—
|
|
Plan assets in fair value hierarchy
|
|
$
|
868,451
|
|
|
$
|
487,169
|
|
|
$
|
307,078
|
|
|
$
|
74,204
|
|
|
|
|
|
|
|
|
|
|
Plan assets at net asset value
|
|
|
|
|
|
|
|
|
Large capitalization equity – domestic (6)
|
|
$
|
68,579
|
|
|
|
|
|
|
|
International equity – mutual fund (7)
|
|
123,608
|
|
|
|
|
|
|
|
International equity – collective trust (8)
|
|
85,317
|
|
|
|
|
|
|
|
Global equity – mutual fund (9)
|
|
165,138
|
|
|
|
|
|
|
|
Real estate – domestic (10)
|
|
68,860
|
|
|
|
|
|
|
|
Plan assets at net asset value
|
|
$
|
511,502
|
|
|
|
|
|
|
|
Total plan assets at fair value
|
|
$
|
1,379,953
|
|
|
|
|
|
|
|
The following is a description of the valuation methodologies used for instruments measured at fair value, including the general classification of such instruments:
(1) Cash Equivalents: These Level 1 investments consist primarily of highly liquid money market mutual funds traded in active markets.
(2) Large Capitalization Equity: The Level 1 investments include a mix of predominately U.S. common stocks and foreign common stocks, which are valued at the closing price reported on the active market in which the individual securities are traded.
(3) Small Capitalization Equity: The Level 1 investments include a mix of predominately U.S. common stocks and foreign common stocks, which are valued at the closing price reported on the active market in which the individual securities are traded.
(4) Private Equity: These Level 3 investments consist of various collective investment funds, which are managed by a third party, invested in a well-diversified portfolio of equity investments from top performing, high quality firms focused on U.S. and foreign small to mid-markets, venture capitalists, and entrepreneurs with a concentration in areas of innovation. Investment strategies include buyouts, growth capital, buildups, and distressed, as well as early stages of company development mainly in the U.S. The fair value of these funds is based on the fair value of the underlying investments.
(5) Fixed Income: The Level 1 investments include U.S. Treasury bonds and notes, which are valued at the closing price reported on the active market in which the individual securities are traded. The Level 2 investments consist principally of U.S. government securities, which are valued daily using institutional bond quote sources and mortgage-backed securities pricing sources and municipal, domestic, and foreign securities, which are valued daily using institutional bond quote sources.
(6) Large Capitalization Equity – Domestic: The collective investment is valued at the publicly available NAV of shares held by the Master Trust at year end. The investment objective is to maintain a portfolio of equity securities that approximate the weighted total rate of return within the Standard & Poor’s 500 stock index. There are no restrictions on redemptions.
(7) International Equity – Mutual Funds: The mutual funds are valued at the publicly available NAV of shares held by the Master Trust at year end. The investment seeks long term growth of principal and income by investing in medium to large well established companies. There are no restrictions on redemptions.
(8) International Equity – Collective Trust: The collective investment funds are valued at the NAV of shares held by the Master Trust at year end. The investment objective of this fund is to generate a long term return through investments in quoted international equities. Redemptions can be made on a monthly basis as of the first business day of each month.
(9) Global Equity – Mutual Fund: This investment includes an open-ended mutual fund consisting of a mix of U.S. common stocks and foreign common stocks, which is valued at the publicly available NAV of shares held by the Master Trust at year end. The investment strategy is to obtain long term capital appreciation by focusing on companies generating above average earnings growth and are leading growth businesses in the marketplace. There are no restrictions on redemptions.
(10) Real Estate: These investments include ownership in open-ended real estate funds, which manage diversified portfolios of commercial properties within the office, residential, retail, and industrial property sectors. Investment strategies aim to acquire, own, hold, or dispose of investments with the goal of achieving
current income and/or capital appreciation. The real estate investments are valued at the NAV of shares held by the Master Trust. Requests to redeem shares are granted on a quarterly basis with either
45
or
90
days advance notice, subject to availability of cash.
A reconciliation of the beginning and ending balance of the investments measured at fair value using significant unobservable inputs (Level 3) is as follows:
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2018
|
|
2017
|
Beginning balance
|
|
$
|
74,204
|
|
|
$
|
68,102
|
|
Purchases, issuances, and settlements (net)
|
|
(14,867
|
)
|
|
(8,630
|
)
|
Unrealized gains (losses)
|
|
3,724
|
|
|
(2,251
|
)
|
Realized gains
|
|
11,331
|
|
|
15,560
|
|
Interest and dividend income
|
|
1,865
|
|
|
1,423
|
|
Ending balance
|
|
$
|
76,257
|
|
|
$
|
74,204
|
|
The Company has commitments totaling
$125.0 million
for the private equity investments within the pension plans. The unfunded private equity commitment balance for each investment category as of
October 28, 2018
, and
October 29, 2017
is as follows:
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2018
|
|
2017
|
Domestic equity
|
|
$
|
677
|
|
|
$
|
1,585
|
|
International equity
|
|
36,142
|
|
|
41,076
|
|
Unfunded commitment balance
|
|
$
|
36,819
|
|
|
$
|
42,661
|
|
Funding for future private equity capital calls will come from existing pension plan asset investments and not from additional cash contributions into the Company’s pension plans.
Note H
Derivatives and Hedging
The Company uses hedging programs to manage price risk associated with commodity purchases. These programs utilize futures contracts to manage the Company’s exposure to price fluctuations in the commodities markets. The Company has determined its designated hedging programs to be highly effective in offsetting the changes in fair value or cash flows generated by the items hedged.
Cash Flow Hedges:
The Company utilizes corn and lean hog futures to offset price fluctuations in the Company’s future direct grain and hog purchases. The financial instruments are designated and accounted for as cash flow hedges, and the Company measures the effectiveness of the hedges at least quarterly. Effective gains or losses related to these cash flow hedges are reported in accumulated other comprehensive loss (AOCL) and reclassified into earnings, through cost of products sold, in the period or periods in which the hedged transactions affect earnings. Any gains or losses related to hedge ineffectiveness are recognized in the current period cost of products sold. The Company typically does not hedge its grain exposure beyond the next
two
upcoming fiscal years and its hog exposure beyond the next fiscal year. As of
October 28, 2018
, and
October 29, 2017
, the Company had the following outstanding commodity futures contracts that were entered into to hedge forecasted purchases:
|
|
|
|
|
Volume
|
Commodity
|
October 28, 2018
|
October 29, 2017
|
Corn
|
16.8 million bushels
|
11.5 million bushels
|
Lean hogs
|
0.4 million cwt
|
0.3 million cwt
|
As of
October 28, 2018
, the Company has included in AOCL hedging losses of
$1.4 million
(before tax) relating to its positions, compared to gains of
$1.8 million
(before tax) as of
October 29, 2017
. The Company expects to recognize the majority of these 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
October 28, 2018
, and
October 29, 2017
, the Company had the following outstanding commodity futures contracts designated as fair value hedges:
|
|
|
|
|
Volume
|
Commodity
|
October 28, 2018
|
October 29, 2017
|
Corn
|
6.2 million bushels
|
4.1 million bushels
|
Lean hogs
|
0.2 million cwt
|
0.4 million cwt
|
Other Derivatives:
The Company holds certain futures and options contract positions as part of a merchandising program and to manage the Company’s exposure to fluctuations in commodity markets. The Company has not applied hedge accounting to these positions.
As of
October 28, 2018
, the Company had an immaterial amount of outstanding corn futures and options contracts related to these programs and
no
ne at October 29, 2017.
Fair Values:
The fair values of the Company’s derivative instruments as of
October 28, 2018
, and
October 29, 2017
, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
(1)
|
(in thousands)
|
|
Location on Consolidated
Statements of Financial Position
|
|
October 28, 2018
|
|
October 29, 2017
|
Asset derivatives
|
|
|
|
|
|
|
|
|
Derivatives designated as hedges
|
|
|
|
|
|
|
Commodity contracts
|
|
Other current assets
|
|
$
|
(30
|
)
|
|
$
|
326
|
|
Derivatives not designated as hedges
|
|
|
|
|
|
|
Commodity contracts
|
|
Other current assets
|
|
6
|
|
|
—
|
|
Total asset derivatives
|
|
|
|
$
|
(24
|
)
|
|
$
|
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 M “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 fiscal years ended
October 28, 2018
, and
October 29, 2017
, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain/(Loss)
Recognized in AOCL
(Effective Portion)
(1)
|
|
Location on
Consolidated
Statements
of Operations
|
|
Gain/(Loss)
Reclassified from
AOCL into Earnings
(Effective Portion)
(1)
|
|
Gain/(Loss)
Recognized in
Earnings (Ineffective
Portion)
(2) (4)
|
|
|
Fiscal Year Ended
|
|
|
Fiscal Year Ended
|
|
Fiscal Year Ended
|
Cash Flow Hedges:
|
|
October 28, 2018
|
|
October 29, 2017
|
|
|
October 28, 2018
|
|
October 29, 2017
|
|
October 28, 2018
|
|
October 29, 2017
|
Commodity contracts
|
|
$
|
(8,634
|
)
|
|
$
|
(1,393
|
)
|
|
Cost of products sold
|
|
$
|
(5,480
|
)
|
|
$
|
5,994
|
|
|
$
|
(177
|
)
|
|
$
|
156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location on
Consolidated
Statements
of Operations
|
|
Gain/(Loss)
Recognized in
Earnings (Effective
Portion)
(3)
|
|
Gain/(Loss)
Recognized in
Earnings (Ineffective
Portion)
(2) (5)
|
|
|
|
|
|
Fiscal Year Ended
|
|
Fiscal Year Ended
|
Fair Value Hedges:
|
|
|
|
|
|
|
October 28, 2018
|
|
October 29, 2017
|
|
October 28, 2018
|
|
October 29, 2017
|
Commodity contracts
|
|
|
|
|
|
Cost of products sold
|
|
$
|
3,572
|
|
|
$
|
(327
|
)
|
|
$
|
(171
|
)
|
|
$
|
267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location on
Consolidated
Statements
of Operations
|
|
Gain/(Loss)
Recognized
in Earnings
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
Derivatives Not Designated as Hedges:
|
|
|
October 28, 2018
|
|
October 29, 2017
|
|
|
|
|
Commodity contracts
|
|
|
|
|
|
Cost of products sold
|
|
$
|
20
|
|
|
$
|
(408
|
)
|
|
|
|
|
(1) Amounts represent gains or losses in AOCL before tax. See Note J 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 fiscal year.
(3) Amounts represent losses on commodity contracts designated as fair value hedges that were closed during the fiscal year, 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 fiscal year.
(5) There were no gains or losses recognized as a result of a hedged firm commitment no longer qualifying as a fair value hedge during the fiscal year.
Note I
Investments In and Receivables From Affiliates
The Company accounts for its majority-owned operations under the consolidation method. Investments in which the Company owns a minority interest, and for which there are no other indicators of control, are accounted for under the equity or cost method. These investments, along with any related receivables from affiliates, are included in the Consolidated Statements of Financial Position as investments in and receivables from affiliates.
Investments in and receivables from affiliates consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Segment
|
|
% Owned
|
|
October 28, 2018
|
|
October 29, 2017
|
MegaMex Foods, LLC
|
|
Grocery Products
|
|
50%
|
|
$
|
205,148
|
|
|
$
|
177,657
|
|
Foreign joint ventures
|
|
International & Other
|
|
Various (26 – 40%)
|
|
68,005
|
|
|
64,712
|
|
Total
|
|
|
|
|
|
$
|
273,153
|
|
|
$
|
242,369
|
|
Equity in earnings of affiliates consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Segment
|
|
2018
|
|
2017
|
|
2016
|
MegaMex Foods, LLC
|
|
Grocery Products
|
|
$
|
52,988
|
|
|
$
|
31,357
|
|
|
$
|
30,651
|
|
Foreign joint ventures
|
|
International & Other
|
|
5,984
|
|
|
8,233
|
|
|
8,034
|
|
Total
|
|
|
|
$
|
58,972
|
|
|
$
|
39,590
|
|
|
$
|
38,685
|
|
Dividends received from affiliates for the fiscal years ended
October 28, 2018
,
October 29, 2017
, and
October 30, 2016
, were
$30.0 million
,
$27.5 million
, and
$46.2 million
, respectively. The Company recognized a basis difference of
$21.3 million
associated with the formation of MegaMex Foods, LLC, of which
$13.6 million
is remaining as of
October 28, 2018
. This difference is being amortized through equity in earnings of affiliates.
Note J
Accumulated 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 October 25, 2015
|
|
$
|
969
|
|
|
$
|
(227,266
|
)
|
|
|
$
|
629
|
|
|
|
$
|
(225,668
|
)
|
Unrecognized gains (losses)
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
(6,458
|
)
|
|
(124,783
|
)
|
|
|
6,852
|
|
|
|
(124,389
|
)
|
Tax effect
|
|
—
|
|
|
47,068
|
|
|
|
(2,792
|
)
|
|
|
44,276
|
|
Reclassification into net earnings
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
—
|
|
|
13,533
|
|
(1)
|
|
1,310
|
|
(2)
|
|
14,843
|
|
Tax effect
|
|
—
|
|
|
(5,104
|
)
|
|
|
(261
|
)
|
|
|
(5,365
|
)
|
Net of tax amount
|
|
(6,458
|
)
|
|
(69,286
|
)
|
|
|
5,109
|
|
|
|
(70,635
|
)
|
Balance at October 30, 2016
|
|
$
|
(5,489
|
)
|
|
$
|
(296,552
|
)
|
|
|
$
|
5,738
|
|
|
|
$
|
(296,303
|
)
|
Unrecognized gains (losses)
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
(1,357
|
)
|
|
65,305
|
|
|
|
(1,393
|
)
|
|
|
62,555
|
|
Tax effect
|
|
—
|
|
|
(24,535
|
)
|
|
|
759
|
|
|
|
(23,776
|
)
|
Reclassification into net earnings
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
—
|
|
|
21,316
|
|
(1)
|
|
(5,994
|
)
|
(2)
|
|
15,322
|
|
Tax effect
|
|
—
|
|
|
(8,009
|
)
|
|
|
2,136
|
|
|
|
(5,873
|
)
|
Net of tax amount
|
|
(1,357
|
)
|
|
54,077
|
|
|
|
(4,492
|
)
|
|
|
48,228
|
|
Balance at October 29, 2017
|
|
$
|
(6,846
|
)
|
|
$
|
(242,475
|
)
|
|
|
$
|
1,246
|
|
|
|
$
|
(248,075
|
)
|
Unrecognized gains (losses)
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
(38,008
|
)
|
|
46,430
|
|
|
|
(8,634
|
)
|
|
|
(212
|
)
|
Tax effect
|
|
—
|
|
|
(11,244
|
)
|
|
|
2,090
|
|
|
|
(9,154
|
)
|
Reclassification into net earnings
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
—
|
|
|
12,766
|
|
(1)
|
|
5,480
|
|
(2)
|
|
18,246
|
|
Tax effect
|
|
—
|
|
|
(3,090
|
)
|
|
|
(1,213
|
)
|
|
|
(4,303
|
)
|
Net of tax amount
|
|
(38,008
|
)
|
|
44,862
|
|
|
|
(2,277
|
)
|
|
|
4,577
|
|
Balance at October 28, 2018
|
|
$
|
(44,854
|
)
|
|
$
|
(197,613
|
)
|
|
|
$
|
(1,031
|
)
|
|
|
$
|
(243,498
|
)
|
(1) Included in computation of net periodic cost (see Note G for additional details).
(2) Included in cost of products sold in the Consolidated Statements of Operations.
Note K
Income Taxes
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, such as eliminating the domestic manufacturing deduction, creating new taxes on certain foreign sourced income, and introducing new limitations on certain business deductions, will not apply for the Company until fiscal 2019. 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
35.0 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
21.0 percent
in subsequent fiscal years.
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 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 the first quarter of fiscal 2019. 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.
In connection with the Company’s ongoing analysis of the impact of the U.S. tax law changes, which is provisional and subject to change, the Company recorded a net tax benefit of
$72.9 million
during fiscal 2018. This provisional net tax benefit arises from a benefit of
$81.2 million
from re-measuring the Company’s net U.S. deferred tax liabilities, partially offset by the Company’s accrual for the transition tax and other U.S. tax law changes of
$8.3 million
.
With respect to the new Tax Act provision on global intangible low-tax income (GILTI), which will apply to the Company starting in fiscal 2019, we have not made an accounting policy election on the deferred tax treatment.
The components of the provision for income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2018
|
|
2017
|
|
2016
|
Current
|
|
|
|
|
|
|
U.S. Federal
|
|
$
|
134,869
|
|
|
$
|
329,707
|
|
|
$
|
341,799
|
|
State
|
|
27,782
|
|
|
32,719
|
|
|
33,753
|
|
Foreign
|
|
13,492
|
|
|
6,950
|
|
|
6,819
|
|
Total current
|
|
176,143
|
|
|
369,376
|
|
|
382,371
|
|
Deferred
|
|
|
|
|
|
|
U.S. Federal
|
|
(15,573
|
)
|
|
57,533
|
|
|
40,456
|
|
State
|
|
10,975
|
|
|
4,510
|
|
|
3,770
|
|
Foreign
|
|
(2,843
|
)
|
|
123
|
|
|
101
|
|
Total deferred
|
|
(7,441
|
)
|
|
62,166
|
|
|
44,327
|
|
Total provision for income taxes
|
|
$
|
168,702
|
|
|
$
|
431,542
|
|
|
$
|
426,698
|
|
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the deferred income tax liabilities and assets are as follows:
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
October 28, 2018
|
|
October 29, 2017
|
Deferred tax liabilities
|
|
|
|
|
|
|
Goodwill and intangible assets
|
|
$
|
(266,709
|
)
|
|
$
|
(298,159
|
)
|
Tax over book depreciation and basis differences
|
|
(117,861
|
)
|
|
(107,076
|
)
|
Other, net
|
|
(11,221
|
)
|
|
(18,657
|
)
|
Deferred tax assets
|
|
|
|
|
Pension and post-retirement benefits
|
|
75,501
|
|
|
144,392
|
|
Employee compensation related liabilities
|
|
64,852
|
|
|
100,311
|
|
Marketing and promotional accruals
|
|
22,595
|
|
|
32,011
|
|
Other, net
|
|
35,750
|
|
|
48,768
|
|
Net deferred tax (liabilities) assets
|
|
$
|
(197,093
|
)
|
|
$
|
(98,410
|
)
|
Reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
U.S. statutory rate
|
|
23.4
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
State taxes on income, net of federal tax benefit
|
|
2.6
|
|
|
1.7
|
|
|
2.1
|
|
Domestic production activities deduction
|
|
(1.5
|
)
|
|
(2.4
|
)
|
|
(2.8
|
)
|
Foreign tax credit
|
|
—
|
|
|
—
|
|
|
(0.9
|
)
|
Provisional tax law change
|
|
(6.3
|
)
|
|
—
|
|
|
—
|
|
Equity based compensation
|
|
(3.4
|
)
|
|
—
|
|
|
—
|
|
All other, net
|
|
(0.5
|
)
|
|
(0.6
|
)
|
|
(1.0
|
)
|
Effective tax rate
|
|
14.3
|
%
|
|
33.7
|
%
|
|
32.4
|
%
|
In fiscal 2016, the Company approved a repatriation of
$38.0 million
of foreign earnings related to an international entity restructuring which generated a U.S. tax benefit of
$12.1 million
.
The Company recorded a favorable discrete tax event related to this transaction.
During 2018, the Company provisionally recorded the transition tax on its foreign earnings. Those foreign earnings, aggregating to approximately
$105.9 million
at October 28, 2018, have been deemed repatriated for U.S. federal tax purposes. The Company maintains all earnings are permanently reinvested. Accordingly, no additional income taxes have been provided for withholding tax, state tax, or other taxes.
Total income taxes paid during fiscal years
2018
,
2017
, and
2016
were
$147.5 million
,
$336.0 million
, and
$372.0 million
, respectively.
The following table sets forth changes in the unrecognized tax benefits, excluding interest and penalties, for fiscal years
2017
and
2018
.
|
|
|
|
|
|
(in thousands)
|
|
|
Balance as of October 30, 2016
|
|
$
|
27,389
|
|
Tax positions related to the current period
|
|
|
Increases
|
|
3,094
|
|
Tax positions related to prior periods
|
|
|
Increases
|
|
8,923
|
|
Decreases
|
|
(2,388
|
)
|
Settlements
|
|
(1,825
|
)
|
Decreases related to a lapse of applicable statute of limitations
|
|
(2,396
|
)
|
Balance as of October 29, 2017
|
|
$
|
32,797
|
|
Tax positions related to the current period
|
|
|
Increases
|
|
3,540
|
|
Tax positions related to prior periods
|
|
|
Increases
|
|
3,712
|
|
Decreases
|
|
(1,874
|
)
|
Settlements
|
|
(2,702
|
)
|
Decreases related to a lapse of applicable statute of limitations
|
|
(2,356
|
)
|
Balance as of October 28, 2018
|
|
$
|
33,117
|
|
The amount of unrecognized tax benefits, including interest and penalties, is recorded in other long-term liabilities. If recognized as of
October 28, 2018
, and
October 29, 2017
,
$26.3 million
and
$20.2 million
, respectively, would impact the Company’s effective tax rate. The Company includes accrued interest and penalties related to uncertain tax positions in income tax expense, with losses of
$0.6 million
and
$0.1 million
included in expense for fiscal 2018 and 2017, respectively. The amount of accrued interest and penalties at
October 28, 2018
, and
October 29, 2017
, associated with unrecognized tax benefits was
$6.5 million
and
$7.1 million
, respectively.
The Company is regularly audited by federal and state taxing authorities. The United States Internal Revenue Service (I.R.S.) concluded their examination of fiscal 2016 in the first quarter of fiscal 2018. The Company has elected to participate in the Compliance Assurance Process (CAP) for fiscal years through 2019. 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 the related unrecognized tax benefits may change based on the status of the examinations, it is not possible to reasonably estimate the effect of any amount of such change to previously recorded uncertain tax positions.
Note L
Stock-Based Compensation
The Company issues stock options and 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.
During the third quarter of fiscal 2018, the Company made a one-time grant of
200
stock options to each active, full-time employee and
100
stock options to each active, part-time employee of the Company on April 30, 2018. The options vest in
five years
and expire
ten years
after the grant date.
A reconciliation of the number of options outstanding and exercisable (in thousands) as of
October 28, 2018
, and changes during the fiscal year then ended, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted-
Average
Exercise
Price
|
|
Weighted-
Average
Remaining
Contractual
Term
|
|
Aggregate
Intrinsic
Value
|
Outstanding at October 29, 2017
|
|
30,685
|
|
|
$
|
18.08
|
|
|
|
|
|
Granted
|
|
6,272
|
|
|
36.39
|
|
|
|
|
|
Exercised
|
|
6,991
|
|
|
10.27
|
|
|
|
|
Forfeited
|
|
427
|
|
|
36.19
|
|
|
|
|
Expired
|
|
3
|
|
|
37.76
|
|
|
|
|
Outstanding at October 28, 2018
|
|
29,536
|
|
|
$
|
23.55
|
|
|
5.4
|
|
$
|
520,424
|
|
Exercisable at October 28, 2018
|
|
20,121
|
|
|
$
|
18.06
|
|
|
3.9
|
|
$
|
464,982
|
|
The weighted-average grant date fair value of stock options granted, and the total intrinsic value of options exercised (in thousands) during each of the past three fiscal years is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
October 28,
|
|
October 29,
|
|
October 30,
|
|
|
2018
|
|
2017
|
|
2016
|
Weighted-average grant date fair value
|
|
$
|
7.16
|
|
|
$
|
6.41
|
|
|
$
|
7.82
|
|
Intrinsic value of exercised options
|
|
187,486
|
|
|
87,543
|
|
|
135,593
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
October 28,
|
|
October 29,
|
|
October 30,
|
|
|
2018
|
|
2017
|
|
2016
|
Risk-free interest rate
|
|
2.7
|
%
|
|
2.4
|
%
|
|
2.1
|
%
|
Dividend yield
|
|
2.1
|
%
|
|
2.0
|
%
|
|
1.5
|
%
|
Stock price volatility
|
|
19.0
|
%
|
|
19.0
|
%
|
|
19.0
|
%
|
Expected option life
|
|
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 employee and non-employee director groups.
Restricted shares awarded on February 1 are subject to a restricted period which expires the date of the Company’s next annual
stockholders meeting. A reconciliation of the restricted shares (in thousands) as of
October 28, 2018
, and changes during the fiscal year then ended, is as follows:
|
|
|
|
|
|
|
|
|
|
|
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 October 28, 2018
|
|
52
|
|
|
$
|
34.08
|
|
The weighted-average grant date fair value of restricted shares granted, the total fair value (in thousands) of restricted shares granted, and the fair value (in thousands) of shares that have vested during each of the past three fiscal years is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
October 28,
|
|
October 29,
|
|
October 30,
|
|
|
2018
|
|
2017
|
|
2016
|
Weighted-average grant date fair value
|
|
$
|
34.08
|
|
|
$
|
35.62
|
|
|
$
|
41.01
|
|
Fair value of restricted shares granted
|
|
1,760
|
|
|
2,080
|
|
|
1,920
|
|
Fair value of shares vested
|
|
$
|
2,053
|
|
|
$
|
1,920
|
|
|
$
|
1,920
|
|
Stock-based compensation expense, along with the related income tax benefit, for each of the past three fiscal years is presented in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
October 28,
|
|
October 29,
|
|
October 30,
|
(in thousands)
|
|
2018
|
|
2017
|
|
2016
|
Stock-based compensation expense recognized
|
|
$
|
20,595
|
|
|
$
|
15,591
|
|
|
$
|
17,829
|
|
Income tax benefit recognized
|
|
(4,943
|
)
|
|
(5,879
|
)
|
|
(6,764
|
)
|
After-tax stock-based compensation expense
|
|
$
|
15,652
|
|
|
$
|
9,712
|
|
|
$
|
11,065
|
|
At
October 28, 2018
, there was
$34.2 million
of total unrecognized compensation expense from stock-based compensation arrangements granted under the plans. This compensation is expected to be recognized over a weighted-average period of approximately
3.2 years
. During fiscal years
2018
,
2017
, and
2016
, cash received from stock option exercises was
$71.8 million
,
$21.7 million
, and
$12.1 million
, respectively.
Shares issued for option exercises and restricted shares may be either authorized but unissued shares, or shares of treasury stock acquired in the open market or otherwise. The number of shares available for future grants was
16.1 million
at
October 28, 2018
,
46.7 million
at
October 29, 2017
, and
48.1 million
at
October 30, 2016
.
Note M
Fair Value Measurements
Pursuant to the provisions of ASC 820, the Company’s financial assets and liabilities carried at fair value on a recurring basis in the consolidated financial statements as of
October 28, 2018
, and
October 29, 2017
, and their level within the fair value hierarchy, are presented in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at October 28, 2018
|
|
|
Total Fair
Value
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1)
|
|
Significant Other Observable Inputs (Level 2)
|
|
Significant Unobservable Inputs (Level 3)
|
(in thousands)
|
|
|
|
|
Assets at fair value
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
(1)
|
|
$
|
459,136
|
|
|
$
|
459,136
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Other trading securities
(2)
|
|
137,311
|
|
|
—
|
|
|
137,311
|
|
|
—
|
|
Commodity derivatives
(3)
|
|
4,611
|
|
|
4,611
|
|
|
—
|
|
|
—
|
|
Total assets at fair value
|
|
$
|
601,058
|
|
|
$
|
463,747
|
|
|
$
|
137,311
|
|
|
$
|
—
|
|
Liabilities at fair value
|
|
|
|
|
|
|
|
|
Deferred compensation
(2)
|
|
$
|
60,181
|
|
|
$
|
—
|
|
|
$
|
60,181
|
|
|
$
|
—
|
|
Total liabilities at fair value
|
|
$
|
60,181
|
|
|
$
|
—
|
|
|
$
|
60,181
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at October 29, 2017
|
|
|
Total Fair
Value
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
Significant Other Observable Inputs (Level 2)
|
|
Significant Unobservable Inputs (Level 3)
|
(in thousands)
|
|
|
|
|
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
October 28, 2018
, the Company has recognized the right to reclaim net cash collateral of
$4.6 million
from various counterparties (including cash of
$4.7 million
less
$0.1
of realized losses). 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
$631.3 million
as of
October 28, 2018
, and
$266.5 million
as of
October 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 fourth quarter of fiscal year 2018, a
$17.3 million
intangible asset impairment charge was recorded for a CytoSport trademark. See additional discussion regarding the Company’s goodwill and intangible assets in Note D. During fiscal years
2018
,
2017
, and
2016
, there were no other material remeasurements of assets or liabilities at fair value on a nonrecurring basis subsequent to their initial recognition.
Note N
Commitments and Contingencies
In order to ensure a steady supply of hogs and turkeys, and to keep the cost of products stable, the Company has entered into contracts with producers for the purchase of hogs and turkeys at formula-based prices over periods up to
10 years
. The Company has also entered into grow-out contracts with independent farmers to raise turkeys for the Company for periods up to
25 years
. Under these arrangements, the Company owns the livestock, feed, and other supplies while the independent farmers provide facilities and labor. The Company has also contracted for the purchase of corn, soybean meal, and other feed ingredients from independent suppliers for periods up to
three years
. Under these contracts, the Company is committed at
October 28, 2018
, to make purchases, assuming current price levels, as follows:
|
|
|
|
|
(in thousands)
|
|
|
2019
|
$
|
1,147,784
|
|
2020
|
697,347
|
|
2021
|
408,855
|
|
2022
|
195,638
|
|
2023
|
111,037
|
|
Later Years
|
88,418
|
|
Total
|
$
|
2,649,079
|
|
Purchases under these contracts for fiscal years
2018
,
2017
, and
2016
were
$1.3 billion
,
$1.4 billion
, and
$1.6 billion
, respectively.
The Company has noncancelable operating lease commitments on facilities and equipment at
October 28, 2018
, as follows:
|
|
|
|
|
(in thousands)
|
|
|
2019
|
$
|
12,886
|
|
2020
|
8,996
|
|
2021
|
6,988
|
|
2022
|
5,301
|
|
2023
|
4,453
|
|
Later Years
|
23,846
|
|
Total
|
$
|
62,470
|
|
The Company expensed
$22.9 million
,
$19.2 million
, and
$21.6 million
for rent in fiscal years
2018
,
2017
, and
2016
, respectively.
As of
October 28, 2018
, the Company has
$45.5 million
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 includes revocable standby letters of credit totaling
$2.4 million
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.
The Company is involved in litigation on an on-going basis arising in the ordinary course of business. In the opinion of management, the outcome of litigation currently pending will not materially affect the Company’s results of operations, financial condition, or liquidity.
Note O
Earnings Per Share Data
The reported net earnings attributable to the Company were used when computing basic and diluted earnings per share for all years presented. A reconciliation of the shares used in the computation is as follows:
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2018
|
|
2017
|
|
2016
|
Basic weighted-average shares outstanding
|
|
530,742
|
|
|
528,363
|
|
|
529,290
|
|
Dilutive potential common shares
|
|
13,127
|
|
|
10,753
|
|
|
13,183
|
|
Diluted weighted-average shares outstanding
|
|
543,869
|
|
|
539,116
|
|
|
542,473
|
|
For fiscal years
2018
,
2017
, and
2016
, a total of
7.3 million
,
3.7 million
, and
1.1 million
weighted-average outstanding stock options, respectively, were not included in the computation of dilutive potential common shares since their inclusion would have had an antidilutive effect on earnings per share.
Note P
Segment Reporting
The Company develops, processes, and distributes a wide array of food products in a variety of markets. The Company reports its results in the following
four
segments: Grocery Products, Refrigerated Foods, Jennie-O Turkey Store, and International & Other. As a result of a business realignment at the beginning of fiscal 2018, the former Specialty Foods segment results are now reported as part of the Grocery Products segment. Periods presented herein have been recast to reflect this change.
The Grocery Products segment consists primarily of the processing, marketing, and sale of shelf-stable food products sold predominantly in the retail market, along with the sale of nutritional and private label shelf-stable products to retail, foodservice, and industrial customers. This segment also includes the results from the Company’s MegaMex joint venture.
The Refrigerated Foods segment consists primarily of the processing, marketing, and sale of branded and unbranded pork, beef, and poultry products for retail, foodservice, deli, and commercial customers.
The Jennie-O Turkey Store segment consists primarily of the processing, marketing, and sale of branded and unbranded turkey products for retail, foodservice, and fresh product customers.
The International & Other segment includes Hormel Foods International which manufactures, markets, and sells Company products internationally. This segment also includes the results from the Company’s international joint ventures and royalty arrangements.
Intersegment sales are recorded at prices that approximate cost and are eliminated in the Consolidated Statements of Operations. The Company does not allocate 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 that these segments, if operated independently, would report the operating profit and other financial information shown below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2018
|
|
2017
|
|
2016
|
Net Sales
(to unaffiliated customers)
|
|
|
|
|
|
|
Grocery Products
|
|
$
|
2,521,992
|
|
|
$
|
2,555,613
|
|
|
$
|
2,623,890
|
|
Refrigerated Foods
|
|
4,771,836
|
|
|
4,403,732
|
|
|
4,647,173
|
|
Jennie-O Turkey Store
|
|
1,627,433
|
|
|
1,663,160
|
|
|
1,740,968
|
|
International & Other
|
|
624,439
|
|
|
545,014
|
|
|
511,193
|
|
Total
|
|
$
|
9,545,700
|
|
|
$
|
9,167,519
|
|
|
$
|
9,523,224
|
|
Intersegment Sales
|
|
|
|
|
|
|
Grocery Products
|
|
$
|
38
|
|
|
$
|
32
|
|
|
$
|
26
|
|
Refrigerated Foods
|
|
8,591
|
|
|
7,832
|
|
|
11,341
|
|
Jennie-O Turkey Store
|
|
110,753
|
|
|
113,384
|
|
|
120,742
|
|
International & Other
|
|
$
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
119,382
|
|
|
121,248
|
|
|
132,109
|
|
Intersegment elimination
|
|
(119,382
|
)
|
|
(121,248
|
)
|
|
(132,109
|
)
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Segment Net Sales
|
|
|
|
|
|
|
Grocery Products
|
|
$
|
2,522,030
|
|
|
$
|
2,555,645
|
|
|
$
|
2,623,916
|
|
Refrigerated Foods
|
|
4,780,427
|
|
|
4,411,564
|
|
|
4,658,514
|
|
Jennie-O Turkey Store
|
|
1,738,186
|
|
|
1,776,544
|
|
|
1,861,710
|
|
International & Other
|
|
624,439
|
|
|
545,014
|
|
|
511,193
|
|
Intersegment elimination
|
|
(119,382
|
)
|
|
(121,248
|
)
|
|
(132,109
|
)
|
Total
|
|
$
|
9,545,700
|
|
|
$
|
9,167,519
|
|
|
$
|
9,523,224
|
|
Segment Operating Profit
|
|
|
|
|
|
|
Grocery Products
|
|
$
|
362,750
|
|
|
$
|
387,637
|
|
|
$
|
379,378
|
|
Refrigerated Foods
|
|
617,626
|
|
|
587,929
|
|
|
585,652
|
|
Jennie-O Turkey Store
|
|
175,684
|
|
|
247,322
|
|
|
329,427
|
|
International & Other
|
|
88,953
|
|
|
85,304
|
|
|
78,409
|
|
Total segment operating profit
|
|
1,245,013
|
|
|
$
|
1,308,192
|
|
|
$
|
1,372,866
|
|
Net interest and investment expense (income)
|
|
17,637
|
|
|
1,824
|
|
|
6,680
|
|
General corporate expense
|
|
46,534
|
|
|
28,091
|
|
|
49,436
|
|
Noncontrolling interest
|
|
442
|
|
|
368
|
|
|
465
|
|
Earnings Before Income Taxes
|
|
$
|
1,181,284
|
|
|
$
|
1,278,645
|
|
|
$
|
1,317,215
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Grocery Products
|
|
$
|
2,205,396
|
|
|
$
|
2,215,154
|
|
|
$
|
2,277,913
|
|
Refrigerated Foods
|
|
3,379,612
|
|
|
2,324,749
|
|
|
1,999,821
|
|
Jennie-O Turkey Store
|
|
1,048,716
|
|
|
942,369
|
|
|
882,812
|
|
International & Other
|
|
679,003
|
|
|
675,878
|
|
|
510,904
|
|
Corporate
|
|
829,565
|
|
|
817,758
|
|
|
698,617
|
|
Total
|
|
$
|
8,142,292
|
|
|
$
|
6,975,908
|
|
|
$
|
6,370,067
|
|
Additions to Property, Plant & Equipment
|
|
|
|
|
|
|
Grocery Products
|
|
$
|
13,042
|
|
|
$
|
16,443
|
|
|
$
|
21,202
|
|
Refrigerated Foods
|
|
220,499
|
|
|
79,836
|
|
|
93,430
|
|
Jennie-O Turkey Store
|
|
131,946
|
|
|
88,063
|
|
|
61,340
|
|
International & Other
|
|
16,513
|
|
|
33,124
|
|
|
44,407
|
|
Corporate
|
|
7,607
|
|
|
3,820
|
|
|
35,145
|
|
Total
|
|
$
|
389,607
|
|
|
$
|
221,286
|
|
|
$
|
255,524
|
|
Depreciation and Amortization
|
|
|
|
|
|
|
Grocery Products
|
|
$
|
35,217
|
|
|
$
|
37,096
|
|
|
$
|
34,890
|
|
Refrigerated Foods
|
|
70,564
|
|
|
45,911
|
|
|
53,229
|
|
Jennie-O Turkey Store
|
|
33,324
|
|
|
31,611
|
|
|
29,225
|
|
International & Other
|
|
10,755
|
|
|
4,042
|
|
|
3,969
|
|
Corporate
|
|
11,998
|
|
|
12,317
|
|
|
10,655
|
|
Total
|
|
$
|
161,858
|
|
|
$
|
130,977
|
|
|
$
|
131,968
|
|
The Company’s products primarily consist of meat and other food products. Perishable includes fresh meats, frozen items, refrigerated meal solutions, sausages, hams, guacamole, and bacon (excluding JOTS products). Shelf-stable includes canned luncheon meats, peanut butter, chilies, shelf-stable microwaveable meals, hash, stews, meat spreads, flour and corn tortillas, salsas, tortilla chips, and other items that do not require refrigeration. The Poultry category is composed primarily of JOTS products. The Miscellaneous category primarily consists of nutritional food products and supplements, dessert and drink mixes, and industrial gelatin products. The percentages of total revenues contributed by classes of similar products for the last three fiscal years are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
October 28, 2018
|
|
October 29, 2017
|
|
October 30, 2016
|
Perishable
|
|
55.9
|
%
|
|
53.7
|
%
|
|
53.1
|
%
|
Poultry
|
|
19.3
|
%
|
|
19.1
|
%
|
|
20.5
|
%
|
Shelf-stable
|
|
18.5
|
%
|
|
20.2
|
%
|
|
18.2
|
%
|
Miscellaneous
|
|
6.3
|
%
|
|
7.0
|
%
|
|
8.2
|
%
|
Total
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
Revenues from external customers are classified as domestic or foreign based on the destination where title passes. No individual foreign country is material to the consolidated results. Additionally, the Company’s long-lived assets located in foreign countries are not significant. Total revenues attributed to the U.S. and all foreign countries in total for the last three fiscal years are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
(in thousands)
|
|
October 28, 2018
|
|
October 29, 2017
|
|
October 30, 2016
|
United States
|
|
$
|
8,957,305
|
|
|
$
|
8,631,325
|
|
|
$
|
9,012,797
|
|
Foreign
|
|
588,395
|
|
|
536,194
|
|
|
510,427
|
|
Total
|
|
$
|
9,545,700
|
|
|
$
|
9,167,519
|
|
|
$
|
9,523,224
|
|
In fiscal
2018
, sales to Walmart Inc. (Walmart) represented
$1.4 billion
or
13.6%
percent of the Company’s consolidated revenues (measured as gross sales less returns and allowances). In fiscal
2017
, sales to Walmart represented
$1.5 billion
or
14.4%
percent of the Company’s consolidated revenues. Walmart is a customer for all
four
segments of the Company.
Note Q
Quarterly Results of Operations (Unaudited)
The following tabulations reflect the unaudited quarterly results of operations for the years ended
October 28, 2018
, and
October 29, 2017
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share data)
|
|
Net Sales
|
|
Gross
Profit
|
|
Net
Earnings
|
|
Net Earnings
Attributable to
Hormel Foods
Corporation
(1)
|
|
Basic
Earnings
Per Share
|
|
Diluted
Earnings
Per Share
(2)
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
2,331,293
|
|
|
$
|
502,179
|
|
|
$
|
303,211
|
|
|
$
|
303,107
|
|
|
$
|
0.57
|
|
|
$
|
0.56
|
|
Second quarter
|
|
2,330,568
|
|
|
496,686
|
|
|
237,522
|
|
|
237,384
|
|
|
0.45
|
|
|
0.44
|
|
Third quarter
|
|
2,359,142
|
|
|
459,172
|
|
|
210,353
|
|
|
210,243
|
|
|
0.40
|
|
|
0.39
|
|
Fourth quarter
|
|
2,524,697
|
|
|
537,396
|
|
|
261,496
|
|
|
261,406
|
|
|
0.49
|
|
|
0.48
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
2,280,227
|
|
|
$
|
552,280
|
|
|
$
|
235,303
|
|
|
$
|
235,147
|
|
|
$
|
0.44
|
|
|
$
|
0.44
|
|
Second quarter
|
|
2,187,309
|
|
|
486,920
|
|
|
210,886
|
|
|
210,926
|
|
|
0.40
|
|
|
0.39
|
|
Third quarter
|
|
2,207,375
|
|
|
452,409
|
|
|
182,551
|
|
|
182,508
|
|
|
0.35
|
|
|
0.34
|
|
Fourth quarter
|
|
2,492,608
|
|
|
511,554
|
|
|
218,363
|
|
|
218,154
|
|
|
0.41
|
|
|
0.41
|
|
(1) Excludes net earnings attributable to the Company’s noncontrolling interests.
(2) Quarterly amounts are independently computed and may not add to the annual amounts.