NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The accompanying unaudited consolidated financial statements of Hormel Foods Corporation (the Company) have been prepared in accordance with generally accepted accounting principles for interim financial information, and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the interim period are not necessarily indicative of the results that may be expected for the full year. The Consolidated Statement of Financial Position at October 25, 2020, has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the fiscal year ended October 25, 2020. The significant accounting policies used in preparing these Consolidated Financial Statements are consistent with those described in Note A - Summary of Significant Accounting Policies to the Consolidated Financial Statements in the Form 10-K with the exception of new requirements adopted in the first quarter of fiscal 2021. The Company has considered the impact of COVID-19 and determined there have been no material changes in the Company’s significant accounting policies, including estimates and assumptions, as disclosed in its Annual Report on Form 10-K for the fiscal year ended October 25, 2020.
Rounding: Certain amounts in the Consolidated Financial Statements and associated notes may not foot due to rounding. All percentages have been calculated using unrounded amounts.
Accounting Changes and Recent Accounting Pronouncements:
New Accounting Pronouncements Adopted in Current Fiscal Year
In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326). The update provides guidance on the measurement of credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The amendment replaces the current incurred loss impairment approach with a methodology to reflect expected credit losses and requires consideration of a broader range of reasonable and supportable information to explain credit loss estimates. The updated guidance is to be applied on a modified retrospective approach and is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted the provisions of this new accounting standard at the beginning of fiscal 2021. The adoption did not have a material impact on the Company's consolidated financial statements, thus no cumulative-effect adjustment to retained earnings was necessary.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement - Disclosure Framework (Topic 820). The updated guidance requires entities to disclose the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. Amendments in this guidance also require disclosure of transfers into and out of Level 3 of the fair value hierarchy, purchases and issues of Level 3 assets and liabilities, and clarify that the measurement uncertainty disclosure is as of the reporting date. The guidance removes requirements to disclose the amounts and reasons for transfers between Level 1 and Level 2, policy for timing between of transfers between levels, and the valuation processes for Level 3 fair value measurements. The updated guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted the provisions of this new accounting standard at the beginning of fiscal 2021 and adoption did not have a material impact on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans (Topic 715). The updated guidance requires additional disclosures of weighted-average interest crediting rates for cash balance plans and an explanation of the reasons for significant gains and losses related to changes in the benefit obligation. Amendments in the guidance also clarify the requirement to disclose the projected benefit obligation (PBO) and fair value of plan assets for plans with PBOs in excess of plan assets. The same disclosure is needed for the accumulated benefit obligation (ABO) and fair value of plan assets for plans with ABOs in excess of plan assets. The guidance removes certain previous disclosure requirements no longer considered cost beneficial. The amendments are effective for fiscal years ending after December 15, 2020, with early adoption permitted. The Company adopted the provisions of this new accounting standard at the beginning of fiscal 2021. The adoption did not impact the Company's interim disclosure and is not anticipated to have a material impact on the annual disclosure.
New Accounting Pronouncements Not Yet Adopted
In December 2019, the FASB issued ASU 2019-12, Income Taxes - Simplifying the Accounting for Income Taxes (Topic 740). The updated guidance simplifies the accounting for income taxes by removing certain exceptions in Topic 740 and clarifying and amending existing guidance. The amendments are effective for fiscal years beginning after December 15, 2020, with early adoption permitted. The Company will adopt the provisions of this new accounting standard at the beginning of fiscal 2022 and does not expect adoption to have a material impact on its consolidated financial statements.
Recently issued accounting standards or pronouncements not disclosed have been excluded as they are not relevant to the Company.
NOTE B - ACQUISITIONS AND DIVESTITURES
Acquisitions: On June 7, 2021, the Company acquired the Planters® snack nuts business from The Kraft Heinz Company. The acquisition includes the Planters®, NUT-rition®, Planters® Cheez Balls and Corn Nuts® brands. The preliminary purchase price is $3.4 billion, pending final purchase accounting and working capital adjustments. The transaction was funded with the Company’s cash on hand and from the issuance of long-term debt. See Note J - Long-term Debt and Other Borrowing Arrangements for additional details.
Planters® is an iconic snack brand and this acquisition significantly expands the Company's presence, and should broaden the scope for future acquisitions, in the growing snacking space. Operating results for this acquisition have been included in the Company's Consolidated Statements of Operations from the date of acquisition and reflected primarily in the Grocery Products segment. The acquisition contributed $141.3 million of net sales since the date of acquisition. As the acquisition has been integrated within the Company's existing operations, post-acquisition net income is not discernible. Acquisition-related costs were $27.5 million and $30.3 million for the thirteen and thirty-nine weeks ended July 25, 2021, respectively, which are reflected in the Consolidated Statements of Operations as Selling, General and Administrative. Additional one-time adjustments related the preliminary revaluation of acquired inventory of $12.9 million were recognized in the Consolidated Statements of Operations as Cost of Products Sold for the thirteen and thirty-nine weeks ended July 25, 2021. The combined impact of these one-time acquisition costs and accounting adjustments were $40.4 million and $43.2 million for the thirteen and thirty-nine weeks ended July 25, 2021.
The acquisition was accounted for as a business combination using the acquisition method. The Company has estimated the acquisition date fair values of the assets acquired using independent appraisals. Preliminary allocations of the purchase price to acquired assets, including goodwill and intangibles assets, is presented in the table below. The Company expects to finalize purchase allocations as soon as practicable, but no later than one year from the acquisition date.
|
|
|
|
|
|
(in thousands)
|
Preliminary
Purchase Allocation
|
Inventory
|
$
|
149,224
|
|
Property, Plant and Equipment
|
162,091
|
|
Goodwill
|
2,286,932
|
|
Other Intangibles
|
798,000
|
|
Purchase Price
|
$
|
3,396,246
|
|
Goodwill is calculated as the excess of the purchase price over the fair values of the net assets acquired and is expected to be deductible for tax purposes. The goodwill recorded as part of the acquisition primarily reflects the value of the potential to expand the Company's presence in the growing snacking space and serve as a platform for innovation.
The following unaudited pro forma financial information presents the combined results of operations as if the acquisition of the Planters® snack nuts business had occurred on October 27, 2019. These unaudited pro forma results do not necessarily reflect the actual results of operations that would have been achieved had the acquisition occurred on that date, nor are they necessarily indicative of future results of operations.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
Thirty-Nine Weeks Ended
|
(in thousands)
|
July 25, 2021
|
|
July 26, 2020
|
|
July 25, 2021
|
|
July 26, 2020
|
Pro Forma Net Sales
|
$
|
2,981,630
|
|
|
$
|
2,635,561
|
|
|
$
|
8,606,935
|
|
|
$
|
7,983,636
|
|
Pro Forma Net Earnings Attributable to Hormel Foods Corporation
|
215,983
|
|
|
211,135
|
|
|
704,143
|
|
|
664,304
|
|
The pro forma results include charges for depreciation and amortization of acquired assets and interest expense on debt issued to finance the acquisition, as well as the related income taxes. The pro forma results for the thirty-nine weeks ended July 26, 2020 also include nonrecurring adjustments relating to the recognition of transaction costs incurred and revaluation of inventory acquired, along with the related income tax effects, which in the aggregate reduce pro forma net earnings by $41.1 million. The pro forma results for the thirteen and thirty-nine weeks ended July 25, 2021 include an adjustment to add back the transaction costs incurred and revaluation of inventory acquired in those periods, along with the related income tax effects, since those costs are reflected in the preceding fiscal year on a pro forma basis.
On March 2, 2020, the Company acquired the assets comprising the Sadler's Smokehouse business (Sadler's) for a final purchase price of $270.8 million. Sadler's is an authentic, pit-smoked meats business based in Henderson, Texas. This acquisition strengthens the Company's foodservice position and provides an opportunity to further extend the Sadler's product line into the retail and deli channels.
The transaction was funded with cash on hand and accounted for as a business combination using the acquisition method. The Company completed an allocation of the fair value of the assets acquired utilizing third-party valuation appraisals during fiscal 2020.
Operating results for this acquisition have been included in the Company's Consolidated Statements of Operations from the date of acquisition and are reflected in the Refrigerated Foods segment. Pro forma results are not material for inclusion.
NOTE C - GOODWILL AND INTANGIBLE ASSETS
Goodwill: The changes in the carrying amounts of goodwill for the thirteen and thirty-nine weeks ended July 25, 2021, are:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Grocery
Products
|
|
Refrigerated
Foods
|
|
Jennie-O
Turkey Store
|
|
International
& Other
|
|
Total
|
Balance at April 25, 2021
|
$
|
632,301
|
|
|
$
|
1,607,005
|
|
|
$
|
176,628
|
|
|
$
|
198,102
|
|
|
$
|
2,614,036
|
|
Goodwill Acquired(1)
|
1,878,660
|
|
|
353,135
|
|
|
—
|
|
|
55,137
|
|
|
2,286,932
|
|
Foreign Currency Translation
|
—
|
|
|
—
|
|
|
—
|
|
|
6,105
|
|
|
6,105
|
|
Balance at July 25, 2021
|
$
|
2,510,961
|
|
|
$
|
1,960,140
|
|
|
$
|
176,628
|
|
|
$
|
259,344
|
|
|
$
|
4,907,073
|
|
(in thousands)
|
Grocery
Products
|
|
Refrigerated
Foods
|
|
Jennie-O
Turkey Store
|
|
International
& Other
|
|
Total
|
Balance at October 25, 2020
|
$
|
632,301
|
|
|
$
|
1,607,005
|
|
|
$
|
176,628
|
|
|
$
|
196,793
|
|
|
$
|
2,612,727
|
|
Goodwill Acquired(1)
|
1,878,660
|
|
|
353,135
|
|
|
—
|
|
|
55,137
|
|
|
2,286,932
|
|
Foreign Currency Translation
|
—
|
|
|
—
|
|
|
—
|
|
|
7,415
|
|
|
7,415
|
|
Balance at July 25, 2021
|
$
|
2,510,961
|
|
|
$
|
1,960,140
|
|
|
$
|
176,628
|
|
|
$
|
259,344
|
|
|
$
|
4,907,073
|
|
(1) Represents preliminary allocation of goodwill to reportable segments. See additional details regarding the acquisition in Note B - Acquisitions and Divestitures.
Intangible Assets: The carrying amounts for indefinite-lived intangible assets are:
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|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
July 25, 2021
|
|
October 25, 2020
|
Brands/Tradenames/Trademarks
|
$
|
1,700,190
|
|
|
$
|
953,190
|
|
Other Intangibles
|
184
|
|
|
184
|
|
Foreign Currency Translation
|
(5,766)
|
|
|
(6,923)
|
|
Total
|
$
|
1,694,609
|
|
|
$
|
946,452
|
|
The increase in Brands/Tradenames/Trademarks represents the estimated fair value of indefinite-lived assets acquired as part of the acquisition of the Planters® snack nuts business and is preliminary pending final purchase accounting adjustments. See Note B - Acquisitions and Divestitures.
The gross carrying amount and accumulated amortization for definite-lived intangible assets are:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 25, 2021
|
|
October 25, 2020
|
(in thousands)
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
Weighted Ave Life
(In Years)
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
Weighted Ave Life
(In Years)
|
Customer Lists/Relationships
|
$
|
168,239
|
|
|
$
|
(53,409)
|
|
|
12.7
|
|
$
|
117,239
|
|
|
$
|
(45,996)
|
|
|
12.2
|
Other Intangibles
|
60,241
|
|
|
(7,211)
|
|
|
13.8
|
|
60,631
|
|
|
(4,298)
|
|
|
13.8
|
Tradenames/Trademarks
|
10,536
|
|
|
(5,125)
|
|
|
4.9
|
|
10,536
|
|
|
(3,518)
|
|
|
4.9
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Translation
|
—
|
|
|
(4,165)
|
|
|
—
|
|
|
—
|
|
|
(4,760)
|
|
|
—
|
|
Total
|
$
|
239,016
|
|
|
$
|
(69,910)
|
|
|
12.7
|
|
$
|
188,406
|
|
|
$
|
(58,572)
|
|
|
12.3
|
The increase in Customer Lists/Relationships represents the estimated fair value of definite-lived assets acquired as part of the acquisition of the Planters® snack nuts business and is preliminary pending final purchase accounting adjustments. See Note B - Acquisitions and Divestitures.
Amortization expense was $4.4 million and $12.3 million for the thirteen and thirty-nine weeks ended July 25, 2021, respectively, compared to $4.1 million and $10.3 million for the thirteen and thirty-nine weeks ended July 26, 2020.
Estimated annual amortization expense for the five fiscal years after October 25, 2020, is as follows:
|
|
|
|
|
|
(in thousands)
|
|
2021
|
$
|
17,948
|
|
2022
|
19,680
|
|
2023
|
18,775
|
|
2024
|
16,691
|
|
2025
|
15,075
|
|
NOTE D - INVESTMENTS IN AND RECEIVABLES FROM AFFILIATES
The Company accounts for its majority-owned operations under the consolidation method. Investments in which the Company owns a minority interest, and for which there are no other indicators of control, are accounted for under the equity or cost method. These investments, along with any related receivables from affiliates, are included in the Consolidated Statements of Financial Position as Investments In and Receivables From Affiliates.
Investments In and Receivables From Affiliates consist of:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Segment
|
|
% Owned
|
|
July 25, 2021
|
|
October 25, 2020
|
MegaMex Foods, LLC
|
Grocery Products
|
|
50%
|
|
$
|
209,613
|
|
|
$
|
220,907
|
|
Other Joint Ventures
|
International & Other
|
|
Various (20-40%)
|
|
94,805
|
|
|
87,466
|
|
Total
|
|
|
|
|
$
|
304,417
|
|
|
$
|
308,372
|
|
Equity in Earnings of Affiliates consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
Thirty-Nine Weeks Ended
|
(in thousands)
|
Segment
|
|
July 25, 2021
|
|
July 26, 2020
|
|
July 25, 2021
|
|
July 26, 2020
|
MegaMex Foods, LLC
|
Grocery Products
|
|
$
|
7,529
|
|
|
$
|
5,799
|
|
|
$
|
29,625
|
|
|
$
|
22,939
|
|
Other Joint Ventures
|
International & Other
|
|
2,891
|
|
|
2,435
|
|
|
8,097
|
|
|
2,904
|
|
Total
|
|
|
$
|
10,420
|
|
|
$
|
8,235
|
|
|
$
|
37,722
|
|
|
$
|
25,843
|
|
For the thirteen and thirty-nine weeks ended July 25, 2021, $11.2 million and $33.7 million of dividends were received from affiliates, compared to $7.5 million and $27.5 million of dividends received for the thirteen and thirty-nine weeks ended July 26, 2020.
The Company recognized a basis difference of $21.3 million associated with the formation of MegaMex Foods, LLC, of which $11.2 million is remaining as of July 25, 2021. This difference is being amortized through Equity in Earnings of Affiliates.
NOTE E - INVENTORIES
Principal components of inventories are:
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
July 25, 2021
|
|
October 25, 2020
|
Finished Products
|
$
|
766,817
|
|
|
$
|
546,070
|
|
Raw Materials and Work-in-Process
|
414,039
|
|
|
318,975
|
|
Operating Supplies
|
161,239
|
|
|
136,547
|
|
Maintenance Materials and Parts
|
84,642
|
|
|
71,170
|
|
Total
|
$
|
1,426,738
|
|
|
$
|
1,072,762
|
|
NOTE F - DERIVATIVES AND HEDGING
The Company uses hedging programs to manage price risk associated with commodity purchases and interest rates. These programs utilize futures and options contracts to manage the Company’s exposure to price fluctuations in the markets. The Company has determined its designated hedging programs to be highly effective in offsetting the changes in fair value or cash flows generated by the items hedged. Effectiveness testing is performed on a quarterly basis to ascertain a high level of effectiveness for cash flow and fair value hedging programs.
Cash Flow Commodity Hedges: The Company designates corn and lean hog futures and options used to offset price fluctuations in the Company’s future direct grain and hog purchases as cash flow hedges. Effective gains or losses related to these cash flow hedges are reported in Accumulated Other Comprehensive Loss (AOCL) and reclassified into earnings, through Cost of Products Sold, in the period or periods in which the hedged transactions affect earnings. The Company typically does not hedge its grain exposure beyond the next two upcoming fiscal years and its hog exposure beyond the next fiscal year. Due to extreme market volatility, the Company took strategic hedges to cover a significant portion of its expected grain purchases through fiscal 2022.
Fair Value Commodity Hedges: The Company designates the futures it uses to minimize the price risk assumed when fixed forward priced contracts are offered to the Company’s commodity suppliers as fair value hedges. The intent of the program is to make the forward priced commodities cost nearly the same as cash market purchases at the date of delivery. Changes in the fair value of the futures contracts, along with the gain or loss on the hedged purchase commitment, are marked-to-market through earnings and recorded on the Consolidated Statements of Financial Position as a Current Asset and Liability, respectively. Effective gains or losses related to these fair value hedges are recognized through Cost of Products Sold in the period or periods in which the hedged transactions affect earnings.
Cash Flow Interest Rate Hedges: In the second quarter of fiscal 2021, the Company designated two separate interest rate locks as cash flow hedges to manage interest rate risk associated with the anticipated debt transactions required to fund the acquisition of the Planters® snack nuts business. The total notional amount of the Company's locks was $1,250 million. In the third quarter of fiscal 2021, the associated unsecured senior notes were issued with a tenor of seven and thirty years and both locks were lifted (See Note J - Long-term Debt and Other Borrowing Arrangements). Mark-to-market gains and losses on these instruments were deferred as a component of AOCL until lifted. The resulting gain in AOCL is reclassified to Interest Expense in the period when the hedged transactions affect earnings.
Other Derivatives: The Company holds certain futures and options contract positions as part of a merchandising program and to manage the Company’s exposure to fluctuations in commodity markets. The Company has not applied hedge accounting to these positions. Activity related to derivatives not designated as hedges is immaterial to the consolidated financial statements.
Volume: The Company's outstanding commodity futures and options contracts related to its hedging programs include:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
Commodity Contracts
|
|
July 25, 2021
|
|
October 25, 2020
|
Corn
|
|
43.5 million bushels
|
|
26.0 million bushels
|
Lean Hogs
|
|
115.9 million pounds
|
|
153.7 million pounds
|
Fair Value of Derivatives: The fair values of the Company’s derivative instruments are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Fair Value
|
(in thousands)
|
|
Location on Consolidated Statements
of Financial Position
|
|
July 25, 2021
|
|
October 25, 2020
|
Derivatives Designated as Hedges:
|
|
|
|
|
|
|
Commodity Contracts(1)
|
|
Other Current Assets
|
|
$
|
24,824
|
|
|
$
|
(1,330)
|
|
|
|
|
|
|
|
|
(1) Amounts represent the gross fair value of commodity derivative assets and liabilities. The Company nets the commodity derivative assets and liabilities for each of its hedging programs, including cash collateral, when a master netting arrangement exists between the Company and the counterparty to the commodity derivative contract. The amount or timing of cash collateral balances may impact the classification of the commodity derivative in the Consolidated Statements of Financial Position. The gross asset position as of July 25, 2021 is offset by the obligation to return net cash collateral of $17.1 million contained within the master netting arrangement. The gross liability position as of October 25, 2020 is offset by the right to reclaim net cash collateral of $12.3 million. See Note I - Fair Value Measurements for a discussion of these net amounts as reported in the Consolidated Statements of Financial Position.
Fair Value Hedge - Assets (Liabilities): The carrying amounts of the Company's fair value hedge assets (liabilities) are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location on Consolidated Statements
of Financial Position
|
|
Carrying Amount of the Hedged
Assets/(Liabilities)
|
(in thousands)
|
|
July 25, 2021
|
|
October 25, 2020
|
Accounts Payable(1)
|
|
$
|
5,400
|
|
|
$
|
4,269
|
|
(1) Amounts represent the carrying amount of fair value hedged assets and liabilities which are offset by other assets included in master netting arrangements described above.
Accumulated Other Comprehensive Loss Impact: As of July 25, 2021, the Company included in Accumulated Other Comprehensive Loss hedging gains (before tax) of $43.4 million on commodity contracts and $14.7 million related to interest rate settled positions. The Company expects to recognize the majority of the gains on commodity contracts over the next twelve months. Gains on interest rate contracts offset the hedged interest payments over the tenor of the debt instruments.
The effect of Accumulated Other Comprehensive Loss for gains or losses (before tax) related to the Company's derivative instruments is as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain/(Loss)
Recognized
in AOCL (1)
|
|
Location on
Consolidated
Statements
of Operations
|
|
Gain/(Loss)
Reclassified from
AOCL into Earnings (1)
|
|
|
Thirteen Weeks Ended
|
|
|
Thirteen Weeks Ended
|
(in thousands)
|
|
July 25, 2021
|
|
July 26, 2020
|
|
|
July 25, 2021
|
|
July 26, 2020
|
Cash Flow Hedges:
|
|
|
|
|
|
|
|
|
|
|
Commodity Contracts
|
|
$
|
5,467
|
|
|
$
|
(943)
|
|
|
Cost of Products Sold
|
|
$
|
14,261
|
|
|
$
|
(18,645)
|
|
Excluded Component (2)
|
|
1,261
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
Interest Rate Contracts
|
|
(3,675)
|
|
|
—
|
|
|
Interest Expense
|
|
152
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain/(Loss)
Recognized
in AOCL (1)
|
|
Location on
Consolidated
Statements
of Operations
|
|
Gain/(Loss)
Reclassified from
AOCL into Earnings (1)
|
|
|
Thirty-Nine Weeks Ended
|
|
|
Thirty-Nine Weeks Ended
|
(in thousands)
|
|
July 25, 2021
|
|
July 26, 2020
|
|
|
July 25, 2021
|
|
July 26, 2020
|
Cash Flow Hedges:
|
|
|
|
|
|
|
|
|
|
|
Commodity Contracts
|
|
$
|
58,129
|
|
|
$
|
(57,514)
|
|
|
Cost of Products Sold
|
|
$
|
18,723
|
|
|
$
|
(25,997)
|
|
Excluded Component (2)
|
|
1,261
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
Interest Rate Contracts
|
|
14,864
|
|
|
—
|
|
|
Interest Expense
|
|
152
|
|
|
—
|
|
(1) See Note H - Accumulated Other Comprehensive Loss for the after-tax impact of these gains or losses on Net Earnings.
(2) Represents the time value amount of corn options excluded from the assessment of effectiveness for which the difference between changes in fair value and periodic amortization is recorded in AOCL.
Consolidated Statements of Operations Impact: The effect on the Consolidated Statements of Operations for gains or losses (before tax) related to the Company's derivative instruments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statements of Operations Impact
|
|
|
Thirteen Weeks Ended
|
|
Thirty-Nine Weeks Ended
|
(in thousands)
|
|
July 25, 2021
|
|
July 26, 2020
|
|
July 25, 2021
|
|
July 26, 2020
|
Net Earnings Attributable to Hormel Foods Corporation
|
|
$
|
176,917
|
|
|
$
|
203,119
|
|
|
$
|
627,101
|
|
|
$
|
673,726
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Hedges - Commodity Contracts
|
|
|
|
|
|
|
|
|
Gain (Loss) Reclassified from AOCL
|
|
14,261
|
|
|
(18,645)
|
|
|
18,723
|
|
|
(25,997)
|
|
|
|
|
|
|
|
|
|
|
Amortization of Excluded Component from Options
|
|
(1,543)
|
|
|
—
|
|
|
(1,543)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Fair Value Hedges - Commodity Contracts
|
|
|
|
|
|
|
|
|
Gain (Loss) on Commodity Futures (1)
|
|
(11,739)
|
|
|
4,341
|
|
|
(26,010)
|
|
|
13,487
|
|
|
|
|
|
|
|
|
|
|
Total Gain (Loss) on Commodity Contracts (2)
|
|
$
|
979
|
|
|
$
|
(14,304)
|
|
|
$
|
(8,830)
|
|
|
$
|
(12,510)
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Hedges - Interest Rate Locks
|
|
|
|
|
|
|
|
|
Amortization of Gain on Interest Rate Locks
|
|
152
|
|
|
—
|
|
|
152
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Gain on Interest Rate Locks (3)
|
|
$
|
152
|
|
|
$
|
—
|
|
|
$
|
152
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Total Gain (Loss) Recognized in Earnings
|
|
$
|
1,131
|
|
|
$
|
(14,304)
|
|
|
$
|
(8,678)
|
|
|
$
|
(12,510)
|
|
(1) Amounts represent gains or losses on commodity contracts designated as fair value hedges that were closed during the thirteen and thirty-nine weeks ended July 25, 2021, and July 26, 2020, which were offset by a corresponding gain or loss on the underlying hedged purchase commitment. Additional gains or losses related to changes in the fair value of open commodity contracts, along with the offsetting gain or loss on the hedged purchase commitment, are also marked-to-market through earnings with no impact on a net basis.
(2) Total Gain (Loss) on Commodity Contracts is recognized in earnings through Cost of Products Sold.
(3) Total Gain (Loss) on Interest Rate Locks is recognized in earnings through Interest Expense.
NOTE G - PENSION AND OTHER POST-RETIREMENT BENEFITS
Net periodic benefit cost for pension and other post-retirement benefit plans consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Thirteen Weeks Ended
|
|
Thirty-Nine Weeks Ended
|
(in thousands)
|
July 25, 2021
|
|
July 26, 2020
|
|
July 25, 2021
|
|
July 26, 2020
|
Service Cost
|
$
|
9,107
|
|
|
$
|
8,896
|
|
|
$
|
27,321
|
|
|
$
|
26,688
|
|
Interest Cost
|
12,362
|
|
|
13,411
|
|
|
37,086
|
|
|
40,232
|
|
Expected Return on Plan Assets
|
(25,189)
|
|
|
(25,321)
|
|
|
(75,567)
|
|
|
(75,963)
|
|
Amortization of Prior Service Cost
|
(367)
|
|
|
(542)
|
|
|
(1,101)
|
|
|
(1,626)
|
|
Recognized Actuarial Loss
|
5,578
|
|
|
5,595
|
|
|
16,735
|
|
|
16,787
|
|
|
|
|
|
|
|
|
|
Net Periodic Cost
|
$
|
1,491
|
|
|
$
|
2,039
|
|
|
$
|
4,474
|
|
|
$
|
6,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-retirement Benefits
|
|
Thirteen Weeks Ended
|
|
Thirty-Nine Weeks Ended
|
(in thousands)
|
July 25, 2021
|
|
July 26, 2020
|
|
July 25, 2021
|
|
July 26, 2020
|
Service Cost
|
$
|
131
|
|
|
$
|
192
|
|
|
$
|
392
|
|
|
$
|
579
|
|
Interest Cost
|
1,948
|
|
|
2,322
|
|
|
5,844
|
|
|
7,111
|
|
Amortization of Prior Service Cost
|
(164)
|
|
|
(662)
|
|
|
(492)
|
|
|
(1,988)
|
|
Recognized Actuarial Loss
|
495
|
|
|
261
|
|
|
1,486
|
|
|
784
|
|
|
|
|
|
|
|
|
|
Net Periodic Cost
|
$
|
2,410
|
|
|
$
|
2,113
|
|
|
$
|
7,230
|
|
|
$
|
6,486
|
|
Non-service cost components of net pension and postretirement benefit cost are presented within Interest and Investment Income on the Consolidated Statements of Operations.
NOTE H - ACCUMULATED OTHER COMPREHENSIVE LOSS
Components of Accumulated Other Comprehensive Loss are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Foreign
Currency
Translation
|
|
Pension &
Other
Benefits
|
|
Derivatives & Hedging
|
|
Accumulated
Other
Comprehensive
Loss
|
Balance at April 25, 2021
|
$
|
(53,565)
|
|
|
$
|
(324,780)
|
|
|
|
$
|
52,717
|
|
|
|
$
|
(325,629)
|
|
Unrecognized Gains (Losses)
|
|
|
|
|
|
|
|
|
|
Gross
|
12,513
|
|
|
—
|
|
|
|
3,054
|
|
|
|
15,567
|
|
Tax Effect
|
—
|
|
|
—
|
|
|
|
(738)
|
|
|
|
(738)
|
|
Reclassification into Net Earnings
|
|
|
|
|
|
|
|
|
|
Gross
|
—
|
|
|
5,542
|
|
(1)
|
|
(14,413)
|
|
(2)
|
|
(8,871)
|
|
Tax Effect
|
—
|
|
|
(1,343)
|
|
|
|
3,485
|
|
|
|
2,142
|
|
Net of Tax Amount
|
12,513
|
|
|
4,199
|
|
|
|
(8,612)
|
|
|
|
8,100
|
|
Balance at July 25, 2021
|
$
|
(41,053)
|
|
|
$
|
(320,580)
|
|
|
|
$
|
44,105
|
|
|
|
$
|
(317,528)
|
|
|
|
|
|
|
|
|
|
|
|
Balance at October 25, 2020
|
$
|
(64,161)
|
|
|
$
|
(333,178)
|
|
|
|
$
|
2,089
|
|
|
|
$
|
(395,250)
|
|
Unrecognized Gains (Losses)
|
|
|
|
|
|
|
|
|
|
Gross
|
23,108
|
|
|
—
|
|
|
|
74,254
|
|
|
|
97,362
|
|
Tax Effect
|
—
|
|
|
—
|
|
|
|
(17,928)
|
|
|
|
(17,928)
|
|
Reclassification into Net Earnings
|
|
|
|
|
|
|
|
|
|
Gross
|
—
|
|
|
16,628
|
|
(1)
|
|
(18,875)
|
|
(2)
|
|
(2,247)
|
|
Tax Effect
|
—
|
|
|
(4,030)
|
|
|
|
4,565
|
|
|
|
535
|
|
Net of Tax Amount
|
23,108
|
|
|
12,598
|
|
|
|
42,016
|
|
|
|
77,722
|
|
Balance at July 25, 2021
|
$
|
(41,053)
|
|
|
$
|
(320,580)
|
|
|
|
$
|
44,105
|
|
|
|
$
|
(317,528)
|
|
(1) Included in the computation of net periodic cost. See Note G - Pension and Other Post-Retirement Benefits for additional details.
(2) Included in Cost of Products Sold and Interest Expense in the Consolidated Statements of Operations. See Note F - Derivatives and Hedging for additional details.
NOTE I - FAIR VALUE MEASUREMENTS
Pursuant to the provisions of ASC 820, Fair Value Measurements and Disclosures (ASC 820), the Company measures certain assets and liabilities at fair value or discloses the fair value of certain assets and liabilities recorded at cost in the consolidated financial statements. Fair value is calculated as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). ASC 820 establishes a fair value hierarchy which requires assets and liabilities measured at fair value to be categorized into one of three levels based on the inputs used in the valuation. The Company classifies assets and liabilities in their entirety based on the lowest level of input significant to the fair value measurement. The three levels are defined as follows:
Level 1: Observable inputs based on quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Observable inputs, other than those included in Level 1, based on quoted prices for similar assets and liabilities in active markets, or quoted prices for identical assets and liabilities in inactive markets.
Level 3: Unobservable inputs that reflect an entity’s own assumptions about what inputs a market participant would use in pricing the asset or liability based on the best information available in the circumstances.
The Company’s financial assets and liabilities carried at fair value on a recurring basis as of July 25, 2021, and October 25, 2020, and their level within the fair value hierarchy, are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at July 25, 2021
|
(in thousands)
|
Total Fair Value
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Assets at Fair Value
|
|
|
|
|
|
|
|
Cash and Cash Equivalents (1)
|
$
|
291,363
|
|
|
$
|
286,153
|
|
|
$
|
5,210
|
|
|
$
|
—
|
|
Short-term Marketable Securities (2)
|
18,372
|
|
|
6,722
|
|
|
11,650
|
|
|
—
|
|
Other Trading Securities (3)
|
200,339
|
|
|
—
|
|
|
200,339
|
|
|
—
|
|
Commodity Derivatives (4)
|
11,821
|
|
|
7,023
|
|
|
4,798
|
|
|
—
|
|
Total Assets at Fair Value
|
$
|
521,895
|
|
|
$
|
299,898
|
|
|
$
|
221,997
|
|
|
$
|
—
|
|
Liabilities at Fair Value
|
|
|
|
|
|
|
|
Deferred Compensation (3)
|
$
|
69,365
|
|
|
$
|
—
|
|
|
$
|
69,365
|
|
|
$
|
—
|
|
Total Liabilities at Fair Value
|
$
|
69,365
|
|
|
$
|
—
|
|
|
$
|
69,365
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at October 25, 2020
|
(in thousands)
|
Total Fair
Value
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Assets at Fair Value
|
|
|
|
|
|
|
|
Cash and Cash Equivalents (1)
|
$
|
1,714,309
|
|
|
$
|
1,713,098
|
|
|
$
|
1,211
|
|
|
$
|
—
|
|
Short-term Marketable Securities (2)
|
17,338
|
|
|
5,728
|
|
|
11,610
|
|
|
—
|
|
Other Trading Securities (3)
|
173,114
|
|
|
—
|
|
|
173,114
|
|
|
—
|
|
Commodity Derivatives (4)
|
10,950
|
|
|
10,950
|
|
|
—
|
|
|
—
|
|
Total Assets at Fair Value
|
$
|
1,915,711
|
|
|
$
|
1,729,776
|
|
|
$
|
185,935
|
|
|
$
|
—
|
|
Liabilities at Fair Value
|
|
|
|
|
|
|
|
Deferred Compensation (3)
|
$
|
65,154
|
|
|
$
|
—
|
|
|
$
|
65,154
|
|
|
$
|
—
|
|
Total Liabilities at Fair Value
|
$
|
65,154
|
|
|
$
|
—
|
|
|
$
|
65,154
|
|
|
$
|
—
|
|
The following methods and assumptions were used to estimate the fair value of the financial assets and liabilities above:
(1) The Company’s cash equivalents considered Level 1 consist primarily of bank deposits, money market funds rated AAA, or other highly liquid investment accounts, and have a maturity date of three months or less. Cash equivalents considered Level 2 are funds holding agency bonds or securities recognized at amortized cost.
(2) The Company holds securities as part of a portfolio maintained to generate investment income and to provide cash for operations of the Company, if necessary. The portfolio is managed by a third party who is responsible for daily trading activities, and all assets within the portfolio are highly liquid. The cash, U.S. government securities, and money market funds rated AAA held by the portfolio are classified as Level 1. The current investment portfolio also includes corporate bonds and other asset backed securities for which there is an active, quoted market. Market prices are obtained from a variety of industry providers, large financial institutions, and other third-party sources to calculate a representative daily market value, and therefore, these securities are classified as Level 2.
(3) The Company maintains a rabbi trust to fund certain supplemental executive retirement plans and deferred compensation plans. The funds held in the rabbi trust relate to the supplemental executive retirement plans and have been invested primarily in fixed income funds managed by a third party. The declared rate on these funds is set based on a formula using the yield of the general account investment portfolio supporting the fund, adjusted for expenses and other charges. The rate is guaranteed for one year at issue and may be reset annually on the policy anniversary, subject to a guaranteed minimum rate. As the value is based on adjusted market rates and the fixed rate is only reset on an annual basis, these funds are classified as Level 2.
Under the deferred compensation plans, participants can defer certain types of compensation and elect to receive a return on the deferred amounts based on the changes in fair value of various investment options. These funds are managed by a
third-party insurance policy, the values of which represent their cash surrender value based on the fair value of the underlying investments in the account and include equity securities, money market accounts, bond funds or other portfolios for which there is an active quoted market. Therefore, these policies are classified as Level 2. The Company also offers a fixed rate investment option to participants. The rate earned on these investments is adjusted annually based on a specified percentage of the I.R.S. applicable federal rates. These balances are also classified as Level 2. The funds held in the rabbi trust are included in Other Assets on the Consolidated Statements of Financial Position. The related deferred compensation liabilities are included in Other Long-term Liabilities on the Consolidated Statements of Financial Position with investment options generally mirroring those funds held by the rabbi trust. Therefore, the investments are classified as Level 2. Securities held by the trust are classified as trading securities. Unrealized gains and losses associated with these investments are included in the Company's earnings. During the thirteen and thirty-nine weeks ended July 25, 2021, securities held by the trust generated gains of $1.5 million and $18.6 million, respectively, compared to losses of $9.3 million and $2.6 million for the thirteen and thirty-nine weeks ended July 26, 2020, respectively.
(4) The Company’s commodity derivatives represent futures contracts and options used in its hedging or other programs to offset price fluctuations associated with purchases of corn and hogs, and to minimize the price risk assumed when forward priced contracts are offered to the Company’s commodity suppliers. The Company’s futures contracts for corn are traded on the Chicago Board of Trade, while futures contracts for lean hogs are traded on the Chicago Mercantile Exchange. These are active markets with quoted prices available, and these contracts are classified as Level 1. Over-the-counter (OTC) derivative instruments are valued using discounted cash flow models, observable and non-observable market inputs, and other mathematical pricing models. The Company’s corn futures option contracts are OTC instruments classified as Level 2 whose value is calculated using the Black-Scholes pricing model, corn future prices quoted from the Chicago Board of Trade, and other adjustments to inputs that are observable in active markets. All derivatives are reviewed for potential credit risk and risk of nonperformance. The net balance for each program is included in Other Current Assets or Accounts Payable, as appropriate, in the Consolidated Statements of Financial Position. As of July 25, 2021, the Company has recognized the obligation to return net cash collateral of $17.1 million from various counterparties (including $29.4 million of realized gains offset by cash owed of $46.5 million). As of October 25, 2020, the Company had recognized the right to reclaim net cash collateral of $12.3 million from various counterparties (including cash of $25.5 million less $13.2 million of realized loss).
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. The fair value of long-term debt, utilizing discounted cash flows (Level 2), was $3,367.0 million as of July 25, 2021, and $1,238.8 million as of October 25, 2020.
In accordance with the provisions of ASC 820, the Company measures certain nonfinancial assets and liabilities at fair value, which are recognized or disclosed on a nonrecurring basis (e.g. goodwill, intangible assets, and property, plant and equipment). During the thirty-nine weeks ended July 25, 2021, and July 26, 2020, there were no material remeasurements of assets or liabilities at fair value on a nonrecurring basis subsequent to their initial recognition.
NOTE J - LONG-TERM DEBT AND OTHER BORROWING ARRANGEMENTS
Long-term Debt consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
July 25, 2021
|
|
October 25, 2020
|
Senior Unsecured Notes, with Interest at 3.050%, Interest Due
Semi-annually through June 2051 Maturity Date
|
|
$
|
600,000
|
|
|
$
|
—
|
|
Senior Unsecured Notes, with Interest at 1.800%, Interest Due
Semi-annually through June 2030 Maturity Date
|
|
1,000,000
|
|
|
1,000,000
|
|
Senior Unsecured Notes, with Interest at 1.700%, Interest Due
Semi-annually through June 2028 Maturity Date
|
|
750,000
|
|
|
—
|
|
Senior Unsecured Notes, with Interest at 0.650%, Interest Due
Semi-annually through June 2024 Maturity Date
|
|
950,000
|
|
|
—
|
|
Senior Unsecured Notes, with Interest at 4.125%, Interest Due
Semi-annually through April 2021 Maturity Date
|
|
—
|
|
|
250,000
|
|
Unamortized Discount on Senior Notes
|
|
(8,668)
|
|
|
(2,630)
|
|
Unamortized Debt Issuance Costs
|
|
(24,329)
|
|
|
(7,979)
|
|
Finance Lease Liabilities
|
|
55,071
|
|
|
61,030
|
|
Other Financing Arrangements
|
|
2,920
|
|
|
3,206
|
|
Total
|
|
$
|
3,324,994
|
|
|
$
|
1,303,627
|
|
Less: Current Maturities of Long-term Debt
|
|
8,732
|
|
|
258,691
|
|
Long-term Debt - Less Current Maturities
|
|
$
|
3,316,262
|
|
|
$
|
1,044,936
|
|
Senior Unsecured Notes: The Company repaid its $250.0 million senior unsecured notes upon maturity in April 2021.
On June 11, 2020, the Company issued senior notes in an aggregate principal amount of $1.0 billion, due June 11, 2030. The notes bear interest at a fixed rate of 1.800% per annum, with interest paid semi-annually in arrears on June 11 and December 11 of each year, commencing December 11, 2020. The notes may be redeemed in whole or in part at any time at the applicable redemption price set forth in the prospectus supplement. If a change of control triggering event occurs, the Company must offer to purchase the notes at a purchase price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, to the date of purchase.
On June 3, 2021, the Company issued $950.0 million aggregate principal amount of its 0.650% notes due 2024 (the "2024 Notes"), $750.0 million aggregate principal amount of its 1.700% notes due 2028 (the "2028 Notes") and $600.0 million aggregate principal amount of its 3.050% notes due 2051 (the "2051 Notes"). Interest will accrue per annum at the stated rates with interest on the notes being paid semi-annually in arrears on June 3 and December 3 of each year, commencing December 3, 2021. Interest rate risk was hedged utilizing interest rate locks on the 2028 Notes and 2051 Notes. The Company lifted the hedges in conjunction with the issuance of these notes. See Note F - Derivatives and Hedging for additional details. The 2024 Notes may be redeemed in whole or in part one year after their issuance without penalty for early partial payments or full redemption. The 2028 Notes and 2051 Notes may be redeemed in whole or in part at any time at the applicable redemption price. If a change of control triggering event occurs, the Company must offer to purchase the notes at a purchase price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, to the date of purchase.
Unsecured Revolving Credit Facility: On May 6, 2021, the Company entered into an unsecured revolving credit agreement with Wells Fargo Bank, National Association as administrative agent, swingline lender and issuing lender, U.S. Bank National Association, JPMorgan Chase Bank, N.A. and BofA Securities, Inc. as syndication agents and the lenders party thereto. In connection with entering the revolving credit agreement, the Company terminated its existing credit facility that was entered into on June 24, 2015. The revolving credit agreement provides for an unsecured revolving credit facility with an aggregate principal commitment amount at any time outstanding of up to $750.0 million with an uncommitted increase option of an additional $375.0 million upon the satisfaction of certain conditions. Extensions of credit under the facility may be made in the form of revolving loans, swingline loans and letters of credit. The lending commitments under the agreement are scheduled to expire on May 6, 2026, at which time the Company will be required to pay in full all obligations then outstanding. As of July 25, 2021, and October 25, 2020, the Company had no outstanding draws from these facilities.
Debt Covenants: The Company is required by certain covenants in its debt agreements to maintain specified levels of financial ratios and financial position. As of July 25, 2021, the Company was in compliance with all of these covenants.
NOTE K - INCOME TAXES
The Company's tax provision is determined using an estimated annual effective tax rate and adjusted for discrete taxable events that may occur during the quarter. The effects of tax legislation are recognized in the period in which the law is enacted. The deferred tax assets and liabilities are remeasured using enacted tax rates expected to apply to taxable income in the years the related temporary differences are anticipated to reverse.
The Company's effective tax rate for the thirteen and thirty-nine weeks ended July 25, 2021, was 13.3 percent and 18.9 percent compared to 21.6 percent and 19.4 percent for the corresponding periods a year ago. The decrease in the effective tax rate for the thirteen weeks ended July 25, 2021 was primarily driven by an increased volume of stock option exercises and a one-time foreign tax benefit.
The amount of unrecognized tax benefits, including interest and penalties, is recorded in Other Long-term Liabilities. If recognized as of July 25, 2021, and July 26, 2020, $24.5 million and $24.7 million, respectively, would impact the Company’s effective tax rate. The Company includes accrued interest and penalties related to uncertain tax positions in income tax expense. Interest and penalties included in income tax expense was immaterial for the thirteen and thirty-nine weeks ended July 25, 2021, and July 26, 2020. The amount of accrued interest and penalties at July 25, 2021, and July 26, 2020, associated with unrecognized tax benefits was $7.5 million and $6.2 million, respectively.
The Company is regularly audited by federal and state taxing authorities. The United States Internal Revenue Service (I.R.S.) concluded its examination of fiscal 2018 in the fourth quarter of fiscal 2020, and fiscal 2019 in the second quarter of fiscal 2021. The Company has elected to participate in the Compliance Assurance Process (CAP) for fiscal years through 2022. The objective of CAP is to contemporaneously work with the I.R.S. to achieve federal tax compliance and resolve all or most of the issues prior to filing of the tax return. The Company may elect to continue participating in CAP for future tax years; the Company may withdraw from the program at any time.
The Company is in various stages of audit by several state taxing authorities on a variety of fiscal years, dating back to 2015. While it is reasonably possible that one or more of these audits may be completed within the next 12 months and the related unrecognized tax benefits may change, based on the status of the examinations it is not possible to reasonably estimate the effect of any amount of such change to previously recorded uncertain tax positions.
NOTE L - EARNINGS PER SHARE DATA
The reported net earnings attributable to the Company were used when computing basic and diluted earnings per share. The following table sets forth the shares used as the denominator for those computations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
Thirty-Nine Weeks Ended
|
|
|
(in thousands)
|
July 25, 2021
|
|
July 26, 2020
|
|
July 25, 2021
|
|
July 26, 2020
|
|
|
|
|
Basic Weighted-Average Shares Outstanding
|
541,746
|
|
|
539,108
|
|
|
540,618
|
|
|
537,434
|
|
|
|
|
|
Dilutive Potential Common Shares
|
6,326
|
|
|
8,041
|
|
|
7,066
|
|
|
8,678
|
|
|
|
|
|
Diluted Weighted-Average Shares Outstanding
|
548,072
|
|
|
547,149
|
|
|
547,684
|
|
|
546,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Antidilutive Potential Common Shares
|
2,350
|
|
|
1,626
|
|
|
2,305
|
|
|
2,178
|
|
|
|
|
|
NOTE M- SEGMENT REPORTING
The Company develops, processes, and distributes a wide array of food products in a variety of markets. The Company reports its results in the following four segments: Grocery Products, Refrigerated Foods, Jennie-O Turkey Store, and International & Other.
The Grocery Products segment consists primarily of the processing, marketing, and sale of shelf-stable food products sold predominantly in the retail market, along with the sale of nutritional and private label shelf-stable products to retail, foodservice, and industrial customers. This segment also includes the results from the Company’s MegaMex Foods, LLC joint venture.
The Refrigerated Foods segment consists primarily of the processing, marketing, and sale of branded and unbranded pork, beef, and poultry products for retail, foodservice, deli, and commercial customers.
The Jennie-O Turkey Store segment consists primarily of the processing, marketing, and sale of branded and unbranded turkey products for retail, foodservice, and commercial customers.
The International & Other segment includes Hormel Foods International which manufactures, markets, and sells Company products internationally. This segment also includes the results from the Company’s international joint ventures and royalty arrangements.
Intersegment sales are recorded at prices that approximate cost and are eliminated in the Consolidated Statements of Operations. The Company does not allocate deferred compensation, investment income, interest expense, or interest income to its segments when measuring performance. The Company also retains various other income and expenses at the corporate level. One-time acquisition-related costs and accounting adjustments associated with the purchase of the Planters® snack nuts business were also retained at the corporate level. Equity in Earnings of Affiliates is included in segment profit; however, earnings attributable to the Company’s noncontrolling interests are excluded. These items are included below as Net Unallocated Expense and Noncontrolling Interest when reconciling to Earnings Before Income Taxes.
Sales and segment profit for each of the Company’s reportable segments and reconciliation to Earnings Before Income Taxes are set forth below. The Company is an integrated enterprise, characterized by substantial intersegment cooperation, cost allocations, and sharing of assets. Therefore, the Company does not represent that these segments, if operated independently, would report the profit and other financial information shown below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
Thirty-Nine Weeks Ended
|
|
(in thousands)
|
July 25, 2021
|
|
July 26, 2020
|
|
July 25, 2021
|
|
July 26, 2020
|
|
|
|
|
Sales to Unaffiliated Customers
|
|
|
|
|
|
|
|
|
|
|
|
Grocery Products
|
$
|
698,584
|
|
|
$
|
580,798
|
|
|
$
|
1,904,415
|
|
|
$
|
1,804,674
|
|
|
|
|
|
Refrigerated Foods
|
1,624,641
|
|
|
1,363,092
|
|
|
4,445,099
|
|
|
3,962,219
|
|
|
|
|
|
Jennie-O Turkey Store
|
350,897
|
|
|
286,805
|
|
|
1,035,397
|
|
|
959,988
|
|
|
|
|
|
International & Other
|
189,548
|
|
|
150,762
|
|
|
546,528
|
|
|
461,475
|
|
|
|
|
|
Total
|
$
|
2,863,670
|
|
|
$
|
2,381,457
|
|
|
$
|
7,931,438
|
|
|
$
|
7,188,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment Sales
|
|
|
|
|
|
|
|
|
|
|
|
Grocery Products
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
13
|
|
|
|
|
|
Refrigerated Foods
|
7,636
|
|
|
5,092
|
|
|
19,527
|
|
|
16,143
|
|
|
|
|
|
Jennie-O Turkey Store
|
30,581
|
|
|
25,361
|
|
|
89,715
|
|
|
82,082
|
|
|
|
|
|
International & Other
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
Total
|
38,217
|
|
|
30,454
|
|
|
109,242
|
|
|
98,237
|
|
|
|
|
|
Intersegment Elimination
|
(38,217)
|
|
|
(30,454)
|
|
|
(109,242)
|
|
|
(98,237)
|
|
|
|
|
|
Total
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
Grocery Products
|
$
|
698,584
|
|
|
$
|
580,798
|
|
|
$
|
1,904,415
|
|
|
$
|
1,804,687
|
|
|
|
|
|
Refrigerated Foods
|
1,632,277
|
|
|
1,368,185
|
|
|
4,464,626
|
|
|
3,978,362
|
|
|
|
|
|
Jennie-O Turkey Store
|
381,478
|
|
|
312,166
|
|
|
1,125,112
|
|
|
1,042,070
|
|
|
|
|
|
International & Other
|
189,548
|
|
|
150,762
|
|
|
546,528
|
|
|
461,475
|
|
|
|
|
|
Intersegment Elimination
|
(38,217)
|
|
|
(30,454)
|
|
|
(109,242)
|
|
|
(98,237)
|
|
|
|
|
|
Total
|
$
|
2,863,670
|
|
|
$
|
2,381,457
|
|
|
$
|
7,931,438
|
|
|
$
|
7,188,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Profit
|
|
|
|
|
|
|
|
|
|
|
|
Grocery Products
|
$
|
80,791
|
|
|
$
|
80,169
|
|
|
$
|
270,963
|
|
|
$
|
276,367
|
|
|
|
|
|
Refrigerated Foods
|
153,216
|
|
|
152,822
|
|
|
467,740
|
|
|
451,596
|
|
|
|
|
|
Jennie-O Turkey Store
|
5,874
|
|
|
7,069
|
|
|
45,514
|
|
|
72,968
|
|
|
|
|
|
International & Other
|
27,915
|
|
|
23,620
|
|
|
84,600
|
|
|
66,735
|
|
|
|
|
|
Total Segment Profit
|
267,796
|
|
|
263,679
|
|
|
868,817
|
|
|
867,666
|
|
|
|
|
|
Net Unallocated Expense
|
63,715
|
|
|
4,457
|
|
|
95,166
|
|
|
31,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling Interest
|
157
|
|
|
141
|
|
|
290
|
|
|
103
|
|
|
|
|
|
Earnings Before Income Taxes
|
$
|
204,238
|
|
|
$
|
259,364
|
|
|
$
|
773,940
|
|
|
$
|
836,014
|
|
|
|
|
|
Revenue has been disaggregated into the categories below to show how sales channels affect the nature, amount, timing, and uncertainty of revenue and cash flows. The amount of total revenues contributed by sales channel are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
Thirty-Nine Weeks Ended
|
|
(in thousands)
|
July 25, 2021
|
|
July 26, 2020
|
|
July 25, 2021
|
|
July 26, 2020
|
|
|
|
|
U.S. Retail
|
$
|
1,520,365
|
|
|
$
|
1,390,075
|
|
|
$
|
4,365,081
|
|
|
$
|
4,072,156
|
|
|
|
|
|
U.S. Foodservice
|
851,897
|
|
|
588,130
|
|
|
2,162,481
|
|
|
1,864,050
|
|
|
|
|
|
U.S. Deli
|
266,506
|
|
|
238,076
|
|
|
777,308
|
|
|
721,748
|
|
|
|
|
|
International
|
224,902
|
|
|
165,177
|
|
|
626,568
|
|
|
530,402
|
|
|
|
|
|
Total
|
$
|
2,863,670
|
|
|
$
|
2,381,457
|
|
|
$
|
7,931,438
|
|
|
$
|
7,188,357
|
|
|
|
|
|
The improvement demonstrated in U.S. Foodservice in the thirteen and thirty-nine weeks ended July 25, 2021, was driven by recovery of the foodservice industry following restrictions imposed by the COVID-19 pandemic in fiscal 2020.
The Company’s products primarily consist of meat and other food products. The amount of total revenues contributed by classes of similar products are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
Thirty-Nine Weeks Ended
|
|
(in thousands)
|
July 25, 2021
|
|
July 26, 2020
|
|
July 25, 2021
|
|
July 26, 2020
|
|
|
|
|
Perishable
|
$
|
1,610,378
|
|
|
$
|
1,365,741
|
|
|
$
|
4,440,347
|
|
|
$
|
4,016,266
|
|
|
|
|
|
Shelf-stable
|
670,446
|
|
|
511,732
|
|
|
1,761,883
|
|
|
1,581,789
|
|
|
|
|
|
Poultry
|
500,121
|
|
|
426,345
|
|
|
1,468,957
|
|
|
1,368,386
|
|
|
|
|
|
Miscellaneous
|
82,726
|
|
|
77,640
|
|
|
260,251
|
|
|
221,915
|
|
|
|
|
|
Total
|
$
|
2,863,670
|
|
|
$
|
2,381,457
|
|
|
$
|
7,931,438
|
|
|
$
|
7,188,357
|
|
|
|
|
|
Perishable includes fresh meats, frozen items, refrigerated meal solutions, sausages, hams, guacamole, and bacon (excluding Jennie-O Turkey Store products). Shelf-stable includes canned luncheon meats, nut butters, chilies, shelf-stable microwaveable meals, hash, stews, salsas, tortilla chips, snack nuts, and other items that do not require refrigeration. The Poultry category is composed primarily of Jennie-O Turkey Store products. The Miscellaneous category primarily consists of nutritional food products and supplements, dessert and drink mixes, and industrial gelatin products.
The asset values below reflect the preliminary purchase allocations associated with the acquisition of the Planters® snack nuts business.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
July 25, 2021
|
|
October 25, 2020
|
|
|
|
Assets
|
|
|
|
|
|
|
Grocery Products
|
$
|
4,590,540
|
|
|
$
|
1,713,883
|
|
|
|
|
Refrigerated Foods
|
4,758,687
|
|
|
4,188,250
|
|
|
|
|
Jennie-O Turkey Store
|
1,087,773
|
|
|
1,111,318
|
|
|
|
|
International & Other
|
797,181
|
|
|
721,729
|
|
|
|
|
Corporate
|
1,098,001
|
|
|
2,173,101
|
|
|
|
|
Total
|
$
|
12,332,182
|
|
|
$
|
9,908,282
|
|
|
|
|
|
|
|
|
|
|
|
Additions to Property, Plant, & Equipment
|
|
|
|
|
|
|
Grocery Products
|
$
|
12,468
|
|
|
$
|
34,409
|
|
|
|
|
Refrigerated Foods
|
93,020
|
|
|
249,441
|
|
|
|
|
Jennie-O Turkey Store
|
10,723
|
|
|
42,042
|
|
|
|
|
International & Other
|
6,776
|
|
|
3,737
|
|
|
|
|
Corporate
|
16,375
|
|
|
37,872
|
|
|
|
|
Total
|
$
|
139,361
|
|
|
$
|
367,501
|
|
|
|
|