Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Management

Management’s Responsibility for Financial Statements

The accompanying financial statements were prepared by the management of Hormel Foods Corporation which is responsible for their integrity and objectivity. These statements have been prepared in accordance with U.S. generally accepted accounting principles appropriate in the circumstances and, as such, include amounts that are based on our best estimates and judgments.

Hormel Foods Corporation has developed a system of internal controls designed to assure that the records reflect the transactions of the Company and that the established policies and procedures are adhered to. This system is augmented by well-communicated written policies and procedures, a strong program of internal audit and well-qualified personnel.

These financial statements have been audited by Ernst & Young LLP, an independent registered public accounting firm, and their report is included herein. The audit was conducted in accordance with the standards of the U.S. Public Company Accounting Oversight Board and includes a review of the Company’s accounting and financial controls and tests of transactions.

The Audit Committee of the Board of Directors, composed solely of outside directors, meets periodically with the independent auditors, management, and the internal auditors to assure that each is carrying out its responsibilities. Both Ernst & Young LLP and our internal auditors have full and free access to the Audit Committee, with or without the presence of management, to discuss the results of their audit work and their opinions on the adequacy of internal controls and the quality of financial reporting.

Management’s Report on Internal Control Over Financial Reporting

Management of Hormel Foods Corporation is responsible for establishing and maintaining adequate internal control over financial reporting for the Company, as such term is defined in Exchange Act Rule 13a–15(f). The Company’s internal control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting standards. Under the supervision, and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework).

Based on our evaluation under the framework in Internal Control - Integrated Framework, we concluded that our internal control over financial reporting was effective as of October 25, 2020. Our internal control over financial reporting as of October 25, 2020, has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included herein.

/s/ James P. Snee			/s/ James N. Sheehan
Chairman of the Board,			Executive Vice President
President and Chief Executive Officer			and Chief Financial Officer

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Hormel Foods Corporation

Opinion on Internal Control Over Financial Reporting

We have audited Hormel Foods Corporation’s internal control over financial reporting as of October 25, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Hormel Foods Corporation (the Company) maintained, in all material respects, effective internal control over financial reporting as of October 25, 2020, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the accompanying consolidated statements of financial position of the Company as of October 25, 2020 and October 27, 2019, the related consolidated statements of operations, comprehensive income, changes in shareholders’ investment, and cash flows for each of the three years in the period ended October 25, 2020 and the related notes and financial statement schedule listed in the index at Item 15 and our report dated December 4, 2020 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

Minneapolis, Minnesota

December 4, 2020

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Hormel Foods Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated statements of financial position of Hormel Foods Corporation (the Company) as of October 25, 2020 and October 27, 2019, the related consolidated statements of operations, comprehensive income, changes in shareholders’ investment, and cash flows for each of the three years in the period ended October 25, 2020 and the related notes and financial statement schedule listed in the index at Item 15 (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at October 25, 2020 and October 27, 2019, and the results of its operations and its cash flows for each of the three years in the period ended October 25, 2020, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of October 25, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated December 4, 2020 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion**.**

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.

			Valuation of Alternative Investments - Pension Assets
Description of the Matter			At October 25, 2020, the Company had $1.6 billion in plan assets related to the defined benefit pension plans. Approximately 48% of the total pension assets are in global stocks – collective investment funds, private equity funds, real estate – domestic funds, hedge funds, fixed income – collective investment funds, and fixed income – hedge funds. These types of investments are referred to as “alternative investments.” As documented in Note F of the financial statements, these alternative investments are valued at net asset value (NAV) or are valued using significant unobservable inputs.
			Auditing the fair value of these alternative investments is challenging because of the higher estimation uncertainty of the inputs to the fair value calculations, including the underlying NAVs, discounted cash flow valuations, comparable market valuations, and adjustments for currency, credit liquidity and other risks. Additionally, certain information regarding the fair value of these alternative investments is based on unaudited information available to management at the time of valuation.
How We Addressed the Matter in Our Audit			We obtained an understanding, evaluated the design and tested the operating effectiveness of controls addressing the risk of material misstatement relating to valuation of alternative investments. This included testing management's review controls over the valuation of alternative investments, for example, a review of fund performance in comparison to the selected benchmark and meetings with the investment advisor on a quarterly basis to review market performance and fund returns in comparison with relevant indices and the investment policy. We also tested management’s independent price testing of underlying investments performed for certain investments on a quarterly basis.
			Our audit procedures included, among others, inquiring of management and the investment advisor regarding changes to the investment portfolio and investment strategies. We confirmed the fair value of the investments and ownership interest directly with the fund managers. We inspected the trust statement for observable transactions near year end to compare to the estimated fair value. We also obtained the latest audited financial statements for certain investments, performed a rollforward of the investment balance to compute an estimated market return on investment, and compared the market return to relevant benchmarks.

/s/ Ernst & Young LLP

We have served as the Company's auditor since 1931.

Minneapolis, Minnesota

December 4, 2020

Consolidated Statements of Financial Position

						October 25,						October 27,
(in thousands, except share and per share amounts)						2020						2019
Assets
Current Assets
Cash and Cash Equivalents						$	1,714,309					$	672,901
Short-term Marketable Securities						17,338						14,736
Accounts Receivable (Net of Allowance for Doubtful Accounts of $4,012 at October 25, 2020, and $4,063 at October 27, 2019)						702,419						574,396
Inventories						1,072,762						1,042,362
Taxes Receivable						41,449						19,924
Prepaid Expenses						18,349						22,637
Other Current Assets						12,438						14,457
Total Current Assets						3,579,063						2,361,413
Goodwill						2,612,727						2,481,645
Other Intangibles						1,076,285						1,033,862
Pension Assets						183,232						135,915
Investments In and Receivables from Affiliates						308,372						289,157
Other Assets						250,382						177,901
Property, Plant, and Equipment
Land						62,543						49,758
Buildings						1,250,529						1,083,902
Equipment						2,084,930						1,965,478
Construction in Progress						369,453						256,190
Less: Allowance for Depreciation						(1,869,233)						(1,726,217)
Net Property, Plant, and Equipment						1,898,222						1,629,111
Total Assets						$	9,908,282					$	8,109,004
Liabilities and Shareholders’ Investment
Current Liabilities
Accounts Payable						$	644,609					$	590,033
Accrued Expenses						59,136						62,031
Accrued Workers Compensation						25,070						24,272
Accrued Marketing Expenses						108,502						96,305
Employee Related Expenses						252,845						213,515
Taxes Payable						22,480						6,208
Interest and Dividends Payable						132,632						112,685
Current Maturities of Long-term Debt						258,691						—
Total Current Liabilities						1,503,965						1,105,049
Long-term Debt – Less Current Maturities						1,044,936						250,000
Pension and Post-retirement Benefits						552,878						536,490
Other Long-term Liabilities						157,399						115,356
Deferred Income Taxes						218,779						176,574
Shareholders’ Investment
Preferred Stock, Par Value $0.01 a Share — Authorized 160,000,000 Shares; Issued — None						—						—
Common Stock, Nonvoting, Par Value $0.01 a Share — Authorized 400,000,000 Shares; Issued — None						—						—
Common Stock, Par Value $0.01465 a Share — Authorized 1,600,000,000 Shares; Issued 539,887,092 Shares October 25, 2020 Issued 534,488,746 Shares October 27, 2019						7,909						7,830
Additional Paid-in Capital						289,554						184,921
Accumulated Other Comprehensive Loss						(395,250)						(399,500)
Retained Earnings						6,523,335						6,128,207
Hormel Foods Corporation Shareholders’ Investment						6,425,548						5,921,458
Noncontrolling Interest						4,778						4,077
Total Shareholders’ Investment						6,430,326						5,925,535
Total Liabilities and Shareholders’ Investment						$	9,908,282					$	8,109,004

See Notes to Consolidated Financial Statements

Consolidated Statements of Operations

						Fiscal Year Ended
						October 25,						October 27,						October 28,
(in thousands, except per share amounts)						2020						2019						2018*
Net Sales						$	9,608,462					$	9,497,317					$	9,545,700
Cost of Products Sold						7,782,498						7,612,669						7,566,227
Gross Profit						1,825,963						1,884,648						1,979,473
Selling, General, and Administrative						761,315						727,584						841,205
Goodwill/Intangible Impairment						—						—						17,279
Equity in Earnings of Affiliates						35,572						39,201						58,972
Operating Income						1,100,220						1,196,265						1,179,961
Other Income and Expense:
Interest and Investment Income						35,596						31,520						27,817
Interest Expense						(21,069)						(18,070)						(26,494)
Earnings Before Income Taxes						1,114,747						1,209,715						1,181,284
Provision for Income Taxes						206,393						230,567						168,702
Net Earnings						908,354						979,148						1,012,582
Less: Net Earnings Attributable to Noncontrolling Interest						272						342						442
Net Earnings Attributable to Hormel Foods Corporation						$	908,082					$	978,806					$	1,012,140
Net Earnings Per Share:
Basic						$	1.69					$	1.83					$	1.91
Diluted						$	1.66					$	1.80					$	1.86
Weighted-average Shares Outstanding:
Basic						538,007						534,578						530,742
Diluted						546,592						545,232						543,869

*Adjusted due to the adoption of Accounting Standards Update (ASU) 2017-07, Compensation - Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (Topic 715). See Note A - Summary of Significant Accounting Policies.

See Notes to Consolidated Financial Statements

Consolidated Statements of Comprehensive Income

						Fiscal Year Ended
						October 25,						October 27,						October 28,
(in thousands)						2020						2019						2018
Net Earnings						$	908,354					$	979,148					$	1,012,582
Other Comprehensive Income (Loss), Net of Tax:
Foreign Currency Translation						(10,812)						(8,414)						(38,233)
Pension and Other Benefits						15,698						(97,486)						44,862
Deferred Hedging						(284)						3,425						(2,277)
Total Other Comprehensive Income (Loss)						4,602						(102,475)						4,352
Comprehensive Income						912,956						876,673						1,016,934
Less: Comprehensive Income Attributable to Noncontrolling Interest						624						70						217
Comprehensive Income Attributable to Hormel Foods Corporation						$	912,332					$	876,603					$	1,016,717

See Notes to Consolidated Financial Statements

Consolidated Statements of Changes in Shareholders’ Investment

						Hormel Foods Corporation Shareholders
(in thousands, except per						Common Stock												Treasury Stock												Additional Paid-In Capital						Retained Earnings						Accumulated Other Comprehensive Income (Loss)						Non-controlling Interest						Total Shareholders’ Investment
share amounts)						Shares						Amount						Shares						Amount
Balance at October 29, 2017						528,424						$	7,741					—						$	—					$	13,670					$	5,162,571					$	(248,075)					$	3,790					$	4,939,697
Net Earnings																																				1,012,140												442						1,012,582
Other Comprehensive Income (Loss)																																										4,577						(225)						4,352
Purchases of Common Stock																		(1,385)						(46,898)																														(46,898)
Stock-based Compensation Expense												1																		20,594																								20,595
Exercise of Stock Options/ Restricted Shares						7,096						103																		72,399																								72,502
Shares Retired						(1,385)						(20)						1,385						46,898						(135)						(46,743)																		—
Declared Cash Dividends — $0.75 per Share																																				(398,012)																		(398,012)
Balance at October 28, 2018						534,135						$	7,825					—						$	—					$	106,528					$	5,729,956					$	(243,498)					$	4,007					$	5,604,818
Net Earnings																																				978,806												342						979,148
Other Comprehensive Income (Loss)																																										(102,203)						(272)						(102,475)
Purchases of Common Stock																		(4,309)						(174,246)																														(174,246)
Stock-based Compensation Expense												1																		19,706																								19,707
Exercise of Stock Options/ Restricted Shares						4,663						67																		59,974																								60,041
Shares Retired						(4,309)						(63)						4,309						174,246						(1,287)						(172,896)																		—
Cumulative Effect Adjustment from the Adoption of:
ASU 2016-16																																				(10,475)																		(10,475)
ASU 2017-12																																				21						(21)												—
ASU 2018-02																																				52,342						(53,778)												(1,436)
Declared Cash Dividends — $0.84 per Share																																				(449,547)																		(449,547)
Balance at October 27, 2019						534,489						$	7,830					—						$	—					$	184,921					$	6,128,207					$	(399,500)					$	4,077					$	5,925,535
Net Earnings																																				908,082												272						908,354
Other Comprehensive Income (Loss)																																										4,250						352						4,602
Contribution from Non-controlling Interest																																																77						77
Purchases of Common Stock																		(302)						(12,360)																														(12,360)
Stock-based Compensation Expense																														22,458																								22,458
Exercise of Stock Options/ Restricted Shares						5,700						83																		82,324																								82,407
Shares Retired						(302)						(4)						302						12,360						(149)						(12,207)																		—
Declared Cash Dividends — $0.93 per Share																																				(500,747)																		(500,747)
Balance at October 25, 2020						539,887						$	7,909					—						$	—					$	289,554					$	6,523,335					$	(395,250)					$	4,778					$	6,430,326

See Notes to Consolidated Financial Statements

Consolidated Statements of Cash Flows

						Fiscal Year Ended
						October 25,						October 27,						October 28,
(in thousands)						2020						2019						2018
Operating Activities
Net Earnings						$	908,354					$	979,148					$	1,012,582
Adjustments to Reconcile to Net Cash Provided by Operating Activities:
Depreciation						165,716						153,182						149,205
Amortization						40,065						12,027						12,653
Goodwill/Intangible Impairment						—						—						17,279
Equity in Earnings of Affiliates						(35,572)						(39,201)						(58,972)
Distributions Received from Equity Method Investees						37,499						22,500						30,023
Provision for Deferred Income Taxes						32,039						28,641						(7,441)
Loss (Gain) on Property/Equipment Sales and Plant Facilities						1,793						(811)						(2,867)
Gain on Sale of Business						—						(16,469)						—
Non-cash Investment Activities						(15,315)						(20,180)						(7,908)
Stock-based Compensation Expense						22,458						19,707						20,595
Changes in Operating Assets and Liabilities, Net of Acquisitions:
Decrease (Increase) in Accounts Receivable						(119,516)						(11,146)						36,133
Decrease (Increase) in Inventories						(1,839)						(123,843)						(8,293)
Decrease (Increase) in Prepaid Expenses and Other Current Assets						5,860						(10,105)						(4,771)
Increase (Decrease) in Pension and Post-retirement Benefits						(10,509)						(10,416)						(13,216)
Increase (Decrease) in Accounts Payable and Accrued Expenses						111,277						(44,109)						48,376
Increase (Decrease) in Net Income Taxes Payable						(14,286)						(15,929)						18,351
Net Cash Provided by Operating Activities						$	1,128,024					$	922,996					$	1,241,729
Investing Activities
Net (Purchase) Sale of Securities						$	(2,589)					$	(14,496)					$	—
Proceeds from Sale of Business						—						479,806						—
Acquisitions of Businesses and Intangibles						(270,789)						—						(857,668)
Purchases of Property and Equipment						(367,501)						(293,838)						(389,607)
Proceeds from Sales of Property and Equipment						1,916						37,402						9,749
Decrease (Increase) in Investments, Equity in Affiliates, and Other Assets						(21,124)						(6,479)						(7,546)
Proceeds from Company-owned Life Insurance						3,772						17,758						9,704
Net Cash Provided by (Used in) Investing Activities						$	(656,316)					$	220,153					$	(1,235,368)
Financing Activities
Proceeds from Long-term Debt						$	992,381					$	—					$	375,000
Repayments of Long-term Debt and Finance Leases						(8,368)						(374,840)						(160)
Dividends Paid on Common Stock						(487,376)						(437,053)						(388,107)
Share Repurchase						(12,360)						(174,246)						(46,898)
Proceeds from Exercise of Stock Options						81,818						59,895						71,803
Proceeds from Noncontrolling Interest						77						—						—
Net Cash Provided by (Used in) Financing Activities						$	566,172					$	(926,244)					$	11,638
Effect of Exchange Rate Changes on Cash						3,526						(3,140)						(2,985)
Increase in Cash and Cash Equivalents						1,041,407						213,765						15,014
Cash and Cash Equivalents at Beginning of Year						672,901						459,136						444,122
Cash and Cash Equivalents at End of Year						$	1,714,309					$	672,901					$	459,136

See Notes to Consolidated Financial Statements

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.

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. These estimates and assumptions take into account historical and forward looking factors, including but not limited to the potential impacts arising from COVID-19 and related public and private sector policies and initiatives.

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.

Fiscal Year: The Company’s fiscal year ends on the last Sunday in October. Fiscal years 2020, 2019, and 2018 consisted of 52 weeks. Fiscal 2021 will consist 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 25, 2020, and October 27, 2019, 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 the 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 Note F - Pension and Other Post-retirement Benefits, Note G - Derivatives and Hedging, and Note L - Fair Value Measurements.

Compensation: The Company maintains a rabbi trust to fund certain supplemental executive retirement plans and deferred compensation plans. Under the 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, 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 gains (losses) of $7.0 million, $8.3 million, and $(0.4) million for fiscal years 2020, 2019, and 2018, 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, and equipment 3 to 14 years.

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. The Company recorded no material impairment charges for long-lived or definite-lived assets in fiscal years 2020, 2019, or 2018.

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. See additional discussion regarding the Company’s goodwill and intangible assets in Note E - Goodwill and Intangible Assets.

Goodwill

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) 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 to 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. Additionally, the Company assesses factors that may impact the business's financial results such as macroeconomic conditions and the related impact, market-related exposures, plans to market for sale all or a portion of the business, competitive changes, new or discontinued product lines, and changes in key personnel.

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, 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 2020, the Company completed its annual goodwill impairment tests and elected to perform a qualitative assessment. No impairment charges were recorded as a result of the qualitative testing performed during fiscal 2020, as well as fiscal years 2019 and 2018.

Indefinite-Lived Intangibles

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) an indefinite-lived intangible asset is impaired. If the Company concludes this is the case, 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. Additionally, each operating segment assesses items that may impact the value of their intangible assets or the applicable royalty rates to determine if impairment may be indicated.

If performed, the quantitative impairment test compares the fair value and carrying amount 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, discount rates and royalty rates. If the carrying amount 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 may elect to perform the quantitative test in order to gain further assurance in the qualitative assessment.

During the fourth quarter of fiscal 2020, the Company completed its annual indefinite-lived asset impairment tests by performing a qualitative assessment. During fiscal 2019, the Company elected to quantitatively test two indefinite-lived intangible assets and to perform a qualitative assessment for the remaining assets. No impairment charges were recorded as a result of the qualitative and quantitative testing during fiscal years 2020 and 2019. During fiscal 2018, a $17.3 million intangible asset impairment charge was recorded for the CytoSport trademark. No other material impairment charges were recorded in fiscal 2018.

Pension and Other Post-retirement Benefits: 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 and 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 ongoing operation of its business, including claims both by and against the Company. Such proceedings typically involve claims related to product liability, contract disputes, antitrust regulations, wage and hour laws, employment practices, or other actions brought by employees, consumers, competitors or suppliers. The Company establishes accruals for its potential exposure for claims 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 date of the Consolidated Statements of Financial Position. Amounts in the Consolidated Statements 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 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 G - Derivatives and Hedging.

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 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 2020, 2019, or 2018. See additional discussion regarding the Company’s equity method investments in Note H - Investments In and Receivables From Affiliates.

Revenue Recognition: The Company’s customer contracts predominantly contain a single performance obligation to fulfill customer orders for the purchase of specified products. Revenue from product sales is primarily identified by purchase orders (“contracts”) which in some cases are governed by a master sales agreement. The purchase orders in combination with the invoice typically specify quantity and product(s) ordered, shipping terms, and certain aspects of the transaction price including discounts. Contracts are at standalone pricing or governed by pricing lists or brackets. The Company's revenue is recognized at the point in time when performance obligations have been satisfied, and control of the product has transferred to the customer. This is typically once the shipped product is received or picked up by the customer. Revenues are recognized at the net consideration the Company expects to receive in exchange for the goods. The amount of net consideration recognized includes estimates of variable consideration, including costs for trade promotion programs, consumer incentives, and allowances and discounts associated with distressed or potentially unsaleable products.

A majority of the Company’s revenue is short-term in nature with shipments within one year from order date. The Company's payment terms generally range between 7 to 45 days and vary by sales channel and other factors. The Company accounts for shipping and handling costs as contract fulfillment costs and excludes taxes imposed on and collected from customers in revenue producing transactions from the transaction price. The Company does not have significant deferred revenue or unbilled receivable balances as a result of transactions with customers. Costs to obtain contracts with a duration of one year or less are expensed and included in the Consolidated Statements of Operations.

The Company promotes products through advertising, consumer incentives, and trade promotions. These programs include discounts, slotting fees, coupons, rebates and in-store display incentives. Customer trade promotion and consumer incentive activities are recorded as a reduction to the sale price based on amounts estimated as variable consideration. The Company estimates variable consideration at the expected value method to determine the total consideration which the Company expects to be entitled. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The Company’s estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of anticipated performance and all information (historical, current and forecasted) that is reasonably available.

The Company discloses revenue by reportable segment, sales channel and class of similar product in Note P - Segment Reporting.

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 included in Selling, General, and Administrative and 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 2020, 2019, and 2018 were $123.6 million, $131.1 million, and $151.5 million, respectively.

Shipping and Handling Costs: The Company’s shipping and handling expenses are included in Cost of Products Sold on the Consolidated Statements of Operations.

Research and Development Expenses: Research and development costs are expensed as incurred and are included in Selling, General, and Administrative expenses on the Consolidated Statements of Operations. Research and development expenses incurred for fiscal years 2020, 2019, and 2018 were $31.9 million, $32.5 million, and $33.8 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.

Stock-Based Compensation: 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. The Company estimates forfeitures at the time of grant based on historical experience and revises in subsequent periods if actual forfeitures differ.

Share Repurchases: The Company may purchase shares of its common stock through open market and privately negotiated transactions at prices deemed appropriate by management. The timing and amount of repurchase transactions under the repurchase authorization depend on market conditions as well as corporate and regulatory considerations. For additional share repurchases information, see Part II, Item 5 - Market for Registrants' Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

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 presented in the Consolidated Statements of Operations as Interest and Investment Income.

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 Income, other than those related to the adoption of ASU 2017-07, as described within New Accounting Pronouncements Recently Adopted.

Accounting Changes and Recent Accounting Pronouncements

New Accounting Pronouncements Recently Adopted

Fiscal 2020

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

Fiscal 2019

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 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 standard provides enhanced disclosures about revenue, guidance for transactions which were not previously addressed, and improves guidance for multiple-element arrangements. The guidance was 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 adopted the provisions of the new standard using the full retrospective method at the beginning of fiscal 2019.

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 was 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 adopted the updated provisions at the beginning of fiscal 2019, resulting in a reclassification from prepaid tax assets to deferred tax assets. In addition, due to the impact of the lower tax rate on deferred tax balances resulting from the Tax Cuts and Jobs Act (Tax Act), the Company recognized a cumulative effect adjustment to Retained Earnings of $10.5 million in fiscal 2019.

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 as other compensation costs. Other components of net periodic pension cost and net periodic post-retirement benefit cost must 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. This guidance was effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The updated guidance should be applied retrospectively for the presentation of components of net benefit cost and prospectively for the capitalization of the service cost component of net benefit cost. The Company adopted the updated provisions at the beginning of fiscal 2019. The Company elected to utilize a practical expedient which allows the Company to use historical amounts disclosed in the Pension and Other Post-retirement Benefits footnote as an estimation basis for retrospectively applying the requirements to separately report the other components in the Consolidated Statements of Operations. Due to the retrospective adoption, the Company reclassified $19.0 million of non-service cost components of net periodic benefit costs from Operating Income to Interest and Investment Income on the Consolidated Statements of Operations for the year ended October 28, 2018.

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 requirements 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 early adopted the updated guidance at the beginning of fiscal 2019; therefore, eliminating

the requirement to separately measure and report hedge ineffectiveness. The Company applied the amendment to cash flow hedge relationships existing on the date of adoption using a modified retrospective approach. Presentation and disclosure requirements were applied on a prospective basis. The adoption resulted in an immaterial adjustment from Retained Earnings to Accumulated Other Comprehensive Loss.

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 Loss 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 early adopted the updated provisions at the beginning of fiscal 2019, resulting in a reclassification of $53.8 million from Accumulated Other Comprehensive Loss 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 are effective upon issuance of ASU 2018-09. The amendments effective upon issuance did not have a material impact on the Company's consolidated financial statements. A majority of the amendments do have transition guidance with effective dates for annual periods beginning after December 15, 2018. The Company early adopted the remaining amendments in the fourth quarter of fiscal 2019. The adoption did not have an impact on the Company’s consolidated financial statements.

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 early adopted the updated provisions on a prospective basis at the beginning of fiscal 2019.

Fiscal 2018

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 was 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 the Company's consolidated financial statements.

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 $40.4 million were recorded as a reduction of income tax expense for the fiscal year ended October 28, 2018. The effective tax rate was reduced by 3.4 percent for the twelve months ended October 28, 2018 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.

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.

New Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326). The update provides guidance on the measurement of credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The amendment replaces the current incurred loss impairment approach with a methodology to reflect expected credit losses and requires consideration of a broader range of reasonable and supportable information to explain credit loss estimates. The updated guidance is to be applied on a modified retrospective approach and is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for all entities for fiscal years beginning after December 15, 2018, and interim periods therein. The Company will adopt the provisions of this new accounting standard at the beginning of fiscal 2021 and does not expect adoption to have a material impact on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement - Disclosure Framework (Topic 820). The updated guidance requires entities to disclose changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. Amendments in this guidance also require disclosure of transfers into and out of Level 3 of the fair value hierarchy, purchases and issues of Level 3 assets and liabilities, and clarify that the measurement uncertainty disclosure is as of the reporting date. The guidance removes requirements to disclose the amounts and reasons for transfers between Level 1 and Level 2, policy for timing between of transfers between levels, and the valuation processes for Level 3 fair value measurements. The updated guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for any removed or modified disclosures. The Company will adopt the provisions of this new accounting standard at the beginning of fiscal 2021 and does not expect adoption to 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 is currently assessing the timing and impact of adopting the updated provisions.

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 ending after December 15, 2020, with early adoption permitted. The Company is currently assessing the timing and impact of adopting the updated provisions.

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

Note B

Acquisitions and Divestitures

Acquisitions: 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 has completed an allocation of the fair value of the assets acquired utilizing third-party valuation appraisals. See Note D - Goodwill and Intangible Assets for amounts assigned to goodwill and intangible assets.

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.

On November 27, 2017, the Company acquired Columbus Manufacturing, Inc. (Columbus), an authentic premium deli meat and salami company, from 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 completed an allocation of the fair value of the assets acquired utilizing third-party valuation appraisals.

Goodwill is calculated as the excess of the purchase price over the fair value of the net assets recognized. The $610.6 million of 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 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.

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

CytoSport's results of operations through the date of divestiture are included within Earnings Before Income Taxes in the Consolidated Statements of Operations and are reflected within the Grocery Products and International & Other segments.

Note C

Inventories

Principal components of inventories are:

(in thousands)						October 25, 2020						October 27, 2019
Finished Products						$	546,070					$	604,035
Raw Materials and Work-in-Process						318,975						255,474
Operating Supplies						136,547						116,981
Maintenance Materials and Parts						71,170						65,872
Total						$	1,072,762					$	1,042,362

Note D

Goodwill and Intangible Assets

Goodwill: The changes in the carrying amount of goodwill for the fiscal years ended October 25, 2020, and October 27, 2019, are:

(in thousands)						Grocery Products						Refrigerated Foods						Jennie-O Turkey Store						International & Other						Total
Reported Balance at October 28, 2018						$	882,582					$	1,406,897					$	203,214					$	221,423					$	2,714,116
Segment Reclassification						(25,209)						51,795						(26,586)						—						—
Adjusted Balance at October 28, 2018						$	857,373					$	1,458,692					$	176,628					$	221,423					$	2,714,116
Goodwill Sold						(225,072)						—						—						(4,945)						(230,017)
Foreign Currency Translation						—						—						—						(2,454)						(2,454)
Balance at October 27, 2019						$	632,301					$	1,458,692					$	176,628					$	214,024					$	2,481,645
Goodwill Acquired						—						148,313						—						—						148,313
Foreign Currency Translation						—						—						—						(17,232)						(17,232)
Balance as of October 25, 2020						$	632,301					$	1,607,005					$	176,628					$	196,793					$	2,612,727

The increase to goodwill during fiscal 2020 is due to the acquisition of Sadler's. The reduction in goodwill during fiscal 2019 is due to the divestiture of CytoSport on April 15, 2019. See Note B - Acquisitions and Divestitures for additional information. Beginning balances for fiscal 2019 have been reclassified to present the current allocation between segments. See Note P - Segment Reporting for additional detail.

Intangible Assets: The carrying amounts for indefinite-lived intangible assets are:

						October 25,						October 27,
(in thousands)						2020						2019
Brands/Tradenames/Trademarks						$	953,190					$	959,400
Other Intangibles						184						184
Foreign Currency Translation						(6,923)						(3,803)
Total						$	946,452					$	955,781

The gross carrying amount and accumulated amortization for definite-lived intangible assets are:

						October 25, 2020																		October 27, 2019
						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						$	117,239					$	(45,996)					12.2						$	113,739					$	(36,744)					12.7
Other Intangibles						60,631						(4,298)						13.8						6,957						(2,817)						6.3
Tradenames/Trademarks						10,536						(3,518)						4.9						—						—						—
Foreign Currency Translation						—						(4,760)						—						—						(3,054)						—
Total						$	188,406					$	(58,572)					12.3						$	120,696					$	(42,615)					12.2

The increase in gross carrying amount of other intangibles during fiscal 2020, is related to the acquisition of Sadler's. See Note B - Acquisitions and Divestitures for additional information.

Amortization expense for the last three fiscal years was:

(in thousands)
2020						$	14,251
2019						11,586
2018						12,653

Estimated annual amortization expense for the five fiscal years after October 25, 2020, is as follows:

(in thousands)
2021						$	16,477
2022						16,037
2023						15,132
2024						13,048
2025						11,432

During the fourth quarter of fiscal years 2020, 2019, and 2018, the Company completed the required annual impairment tests of indefinite-lived intangible assets and goodwill. In fiscal 2018, an impairment was indicated for the CytoSport trademark in the Grocery Products segment, resulting in a charge of $17.3 million. No other impairment was indicated. Useful lives of intangible assets were also reviewed during this process, with no material changes identified.

Note E

Long-term Debt and Other Borrowing Arrangements

Long-term Debt consists of:

(in thousands)			October 25, 2020			October 27, 2019
Senior Unsecured Notes, with Interest at 1.800%, Interest Due Semi-annually through June 2030 Maturity Date			$	1,000,000		$	—
Senior Unsecured Notes, with Interest at 4.125%, Interest Due Semi-annually through April 2021 Maturity Date			250,000			250,000
Unamortized Discount on Senior Notes			(2,630)			—
Unamortized Debt Issuance Costs			(7,979)			—
Finance Lease Liabilities(1)			61,030			—
Other Financing Arrangements			3,206			—
Total			1,303,627			250,000
Less: Current Maturities of Long-term Debt			258,691			—
Long-term Debt - Less Current Maturities			$	1,044,936		$	250,000

(1) See Note N - Leases for additional information

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.

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 25, 2020, and October 27, 2019, the Company had no outstanding draws from this line of credit.

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)
2020						$	14.5
2019						19.0
2018						25.6

Note F

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. Total costs associated with the Company’s defined contribution benefit plans in fiscal years 2020, 2019, and 2018 were $44.5 million, $43.0 million, and $44.2 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)						2020						2019						2018						2020						2019						2018
Service Cost						$	35,584					$	26,042					$	31,612					$	770					$	690					$	980
Interest Cost						53,642						60,385						56,196						9,306						12,016						11,169
Expected Return on Plan Assets						(101,283)						(92,492)						(99,091)						—						—						—
Amortization of Prior Service Cost						(2,168)						(2,795)						(2,468)						(2,651)						(2,675)						(3,111)
Recognized Actuarial Loss (Gain)						22,383						14,805						18,166						1,045						—						179
Curtailment (Gain) Charge						—						2,825						—						—						1,219						—
Net Periodic Cost						$	8,158					$	8,770					$	4,415					$	8,470					$	11,250					$	9,217

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

Actuarial gains and losses and any adjustments resulting from plan amendments are deferred and amortized to expense over periods ranging from 8-20 years for pension benefits and 4-16 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)						2020						2019						2020						2019
Unrecognized Prior Service Credit						$	(2,128)					$	40					$	514					$	3,166
Unrecognized Actuarial Losses						(402,289)						(429,599)						(36,144)						(34,266)

The following amounts are expected to be recognized in net periodic benefit expense in fiscal 2021:

(in thousands)						Pension Benefits						Post- retirement Benefits
Amortized Prior Service Credit						$	(1,496)					$	(669)
Recognized Actuarial Losses						22,742						2,020

The following is a reconciliation of the beginning and ending balances of the benefit obligation, fair value of plan assets, and funded status of the plans as of the October 25, 2020, and the October 27, 2019, measurement dates:

						Pension Benefits												Post-retirement Benefits
(in thousands)						2020						2019						2020						2019
Change in Benefit Obligation
Benefit Obligation at Beginning of Year						$	1,616,177					$	1,350,903					$	290,946					$	272,272
Service Cost						35,584						26,042						770						690
Interest Cost						53,642						60,385						9,306						12,016
Actuarial (Gain) Loss						77,447						241,694						2,362						24,912
Plan Amendments						—						8,086						—						—
Curtailment (Gain) Loss						—						(513)						—						1,839
Participant Contributions						—						—						2,344						2,302
Medicare Part D Subsidy						—						—						555						662
Benefits Paid						(115,965)						(70,420)						(20,990)						(23,747)
Benefit Obligation at End of Year						$	1,666,886					$	1,616,177					$	285,293					$	290,946

						Pension Benefits												Post-retirement Benefits
(in thousands)						2020						2019						2020						2019
Change in Plan Assets
Fair Value of Plan Assets at Beginning of Year						$	1,477,288					$	1,313,380					$	—					$	—
Actual Return on Plan Assets						183,647						226,171						—						—
Participant Contributions						—						—						2,344						2,302
Employer Contributions						8,562						8,157						18,646						21,445
Benefits Paid						(115,965)						(70,420)						(20,990)						(23,747)
Fair Value of Plan Assets at End of Year						$	1,553,532					$	1,477,288					$	—					$	—
Funded Status at End of Year						$	(113,354)					$	(138,889)					$	(285,293)					$	(290,946)

Amounts recognized in the Consolidated Statements of Financial Position as of October 25, 2020, and October 27, 2019, are as follows:

						Pension Benefits												Post-retirement Benefits
(in thousands)						2020						2019						2020						2019
Pension Assets						$	183,232					$	135,915					$	—					$	—
Employee-related Expenses						(9,332)						(8,842)						(19,669)						(20,418)
Pension and Post-retirement Benefits						(287,254)						(265,962)						(265,624)						(270,528)
Net Amount Recognized						$	(113,354)					$	(138,889)					$	(285,293)					$	(290,946)

The accumulated benefit obligation for all pension plans was $1.6 billion as of October 25, 2020, and October 27, 2019. The following table provides information for pension plans with accumulated benefit obligations in excess of plan assets:

(in thousands)						2020						2019
Projected Benefit Obligation						$	296,585					$	274,804
Accumulated Benefit Obligation						288,359						269,114
Fair Value of Plan Assets						—						—

Weighted-average assumptions used to determine benefit obligations are as follows:

						2020						2019
Discount Rate						3.06		%				3.37		%
Rate of Future Compensation Increase (For Plans that Base Benefits on Final Compensation Level)						4.09		%				4.06		%

Weighted-average assumptions used to determine net periodic benefit costs are as follows:

						2020						2019						2018
Discount Rate						3.37		%				4.55		%				3.91		%
Rate of Future Compensation Increase (For Plans that Base Benefits on Final Compensation Level)						4.06		%				3.96		%				3.95		%
Expected Long-term Return on Plan Assets						7.00		%				7.15		%				7.30		%

The expected long-term rate of return on plan assets is based on fair value and 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 2020. The pre-Medicare and post-Medicare rate is assumed to decrease to 5.0% for 2026 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						$	(16,062)					$	22,386					$	(214,368)					$	271,048
Expected Long-term Rate of Return on Plan Assets						(14,670)						14,670						—						—
Rate of Future Compensation Increase						5,146						(4,460)						12,382						(10,800)
Post-retirement Benefits
Discount Rate						$	(362)					$	5,183					$	(26,065)					$	31,217
Health Care Cost Trend Rate						1,061						(911)						28,661						(24,573)

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 $29.4 million during fiscal 2021 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
2021						$	71,674					$	19,949
2022						74,017						19,825
2023						76,706						19,633
2024						79,906						19,260
2025						83,430						18,722
2026-2030						451,164						83,572

The investment strategy for defined benefit pension plan assets 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 Company establishes target allocations in consultation with outside advisors through the use of asset-liability modeling in an effort to match the duration of the plan assets with the duration of the Company’s projected benefit liability.

The actual and target weighted-average asset allocations for the Company’s pension plan assets as of the plan measurement date are as follows:

						2020									2019
Asset Category						Actual %						Target Range %			Actual %						Target Range %
Fixed Income						46.3						35-60			44.9						35-60
Global Stocks						39.2						20-55			38.0						20-55
Private Equity						5.4						0-10			5.7						0-10
Real Estate						5.2						0-10			5.4						0-10
Hedge Funds						2.4						0-10			4.8						0-10
Cash and Cash Equivalents						1.5						—			1.2						—

The following tables show the categories of defined benefit pension plan assets and the level under which fair values were determined pursuant to the provisions of ASC 820. 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 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)
Plan Assets in Fair Value Hierarchy
Cash Equivalents(1)						$	23,392					$	1,294					$	22,098					$	—
Private Equity(2)
Domestic						43,479						—						—						43,479
International						40,359						—						—						40,359
Fixed Income(3)
U.S. Government Issues						239,239						158,525						80,714						—
Municipal Issues						15,768						—						15,768						—
Corporate Issues – Domestic						323,070						—						323,070						—
Corporate Issues – Foreign						52,132						—						52,132						—
Global Stocks - Mutual Funds(4)						151,175						151,175						—						—
Plan Assets in Fair Value Hierarchy						$	888,614					$	310,994					$	493,782					$	83,838
Plan Assets at Net Asset Value
Real Estate – Domestic(5)						$	81,015
Global Stocks - Collective Investment Funds(6)						457,713
Hedge Funds(7)						37,293
Fixed Income - Hedge Funds(8)						51,956
Fixed Income - Collective Investment Funds(9)						36,941
Plan Assets at Net Asset Value						$	664,918
Total Plan Assets at Fair Value						$	1,553,532

						Fair Value Measurements as of October 27, 2019
(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)						$	17,385					$	2,445					$	14,940					$	—
Private Equity(2)
Domestic						49,049						—						—						49,049
International						35,852						—						—						35,852
Fixed Income(3)
U.S. Government Issues						281,879						277,790						4,089						—
Municipal Issues						20,846						—						20,846						—
Corporate Issues – Domestic						313,719						—						313,719						—
Corporate Issues – Foreign						46,181						—						46,181						—
Global Stocks - Mutual Funds(4)						156,974						156,974						—						—
Plan Assets in Fair Value Hierarchy						$	921,885					$	437,209					$	399,775					$	84,901
Plan Assets at Net Asset Value
Real Estate – Domestic(5)						$	79,329
Global Stocks - Collective Investment Funds(6)						404,971
Hedge Funds(7)						71,103
Plan Assets at Net Asset Value						$	555,403
Total Plan Assets at Fair Value						$	1,477,288

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 and Level 2 investments consist primarily of highly liquid money market mutual funds traded in active markets in addition to highly liquid futures and T-bills with an observable daily settlement price.

(2) 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.

(3) 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.

(4) Global Stocks - Mutual Fund: These Level 1 investments include open-ended mutual funds consisting of a mix of U.S. common stocks and foreign common stocks, which are valued at closing price reported on the active market in which the fund is traded. 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.

(5) Real Estate - Domestic: 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.

(6) Global Stocks - Collective Investment Funds: These investments include commingled funds consisting of a mix of U.S. common stocks and foreign common stocks. The collective investment funds are valued at the NAV of shares held by the Master Trust. 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. All funds are daily liquid with the exception of one that is available on the first business day of the month for subscriptions and withdrawals.

(7) Hedge Funds: These investments are designed to provide diversification to an overall institutional portfolio and, in particular, provide protection against equity market downturns. They are comprised of CTAs/Managed Futures, Global Macro (Discretionary and/or Quant), and Long Volatility/Tail Risk Hedging strategies. The hedge funds are valued at the NAV of shares held by the Master Trust. Requests to redeem shares are granted daily, monthly or quarterly.

(8) Fixed Income - Hedge Funds: These investments target absolute, risk-adjusted returns by taking advantage of price dislocations and inconsistencies within credit markets. Funds are comprised primarily of U.S. and European corporate credit and structured credit. The investments are valued at the NAV of shares held by the Master Trust. Requests to redeem shares are granted on a quarterly basis on the three year fund anniversary with a ninety day notice period.

(9) Fixed Income - Collective Investment Funds: These investments include commingled funds consisting of a mix of U.S. government and investment grade corporate bonds. The collective investment funds are valued at NAV of the shares held by the Master Trust. The investment strategy is to achieve an investment return that approximates as closely to the Bloomberg Barclays U.S. Aggregate Bond Index over the long term by investing in the securities that comprise the benchmark. There are no restrictions on redemptions.

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)						2020						2019
Beginning Balance						$	84,901					$	76,257
Purchases, Issuances, and Settlements (Net)						(10,151)						(2,894)
Unrealized Gains (Losses)						(4,577)						1,182
Realized Gains						8,130						9,738
Interest and Dividend Income						5,535						618
Ending Balance						$	83,838					$	84,901

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 25, 2020, and October 27, 2019, is as follows:

(in thousands)						2020						2019
Domestic Equity						$	203					$	363
International Equity						15,919						22,969
Unfunded Commitment Balance						$	16,122					$	23,332

Funding for future private equity capital calls will come from existing pension plan assets and not from additional cash contributions into the Company’s pension plans.

Note G

Derivatives and Hedging

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

Cash Flow 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 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.

Fair Value 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.

Other Derivatives: The Company holds certain futures and options contract positions as part of a merchandising program and to manage the Company’s exposure to fluctuations in commodity markets. The Company has not applied hedge accounting to these positions. Activity related to derivatives not designated as hedges is immaterial to the consolidated financial statements.

Volume: As of October 25, 2020, and October 27, 2019, the Company had the following outstanding commodity futures and options contracts related to its hedging programs:

			Volume
Commodity Contracts			October 25, 2020			October 27, 2019
Corn			26.0 million bushels			30.4 million bushels
Lean Hogs			153.7 million pounds			187.3 million pounds

Fair Value of Derivatives: The fair values of the Company’s derivative instruments as of October 25, 2020, and October 27, 2019, are:

(in thousands)												Fair Value(1)
Derivatives Designated as Hedges						Location on Consolidated Statements of Financial Position						October 25, 2020						October 27, 2019
Commodity Contracts						Other Current Assets						$	(1,330)					$	6,405

(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. The gross liability position as of October 25, 2020 is offset by cash collateral of $25.5 million contained within the master netting arrangement. The gross asset position as of October 27, 2019, is offset by cash owed of $4.0 million. See Note L - 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 amount of the Company’s fair value hedge assets (liabilities) as of October 25, 2020, and October 27, 2019, are:

Location on Consolidated Statements of Financial Position						Carrying Amount(1) of the Hedged Assets/(Liabilities)
(in thousands)						October 25, 2020						October 27, 2019
Accounts Payable						$	4,269					$	(2,805)

(1) Amounts represent the carrying amount of fair value hedged assets and liabilities which are offset by other assets included in master netting arrangements described above.

Accumulated Other Comprehensive Loss Impact: As of October 25, 2020, the Company included in Accumulated Other Comprehensive Loss, hedging gains of $2.8 million (before tax) relating to its positions. The Company expects to recognize the majority of these gains over the next twelve months.

The effect of Accumulated Other Comprehensive Loss for gains or losses (before tax) related to the Company's derivative instruments for the fiscal years ended October 25, 2020, and October 27, 2019, are:

						Gain/(Loss) Recognized in AOCL(1)												Location on Consolidated Statements of Operations						Gain/(Loss) Reclassified from AOCL into Earnings(1)
(in thousands)						Fiscal Year Ended															Fiscal Year Ended
Cash Flow Hedges:						October 25, 2020						October 27, 2019									October 25, 2020						October 27, 2019
Commodity Contracts						$	(38,213)					$	2,813					Cost of Products Sold						$	(37,834)					$	(1,701)

(1) See Note I - Accumulated Other Comprehensive Loss for the after-tax impact of these gains or losses on Net Earnings.

Consolidated Statements of Operations Impact: The effect on the Consolidated Statements of Operations for gains or losses (before tax, in thousands) related to the Company's derivative instruments for the fiscal years ended, are:

			Cost of Products Sold
(in thousands)			October 25, 2020						October 27, 2019						October 28, 2018
Consolidated Statements of Operations			$	7,782,498					$	7,612,669					$	7,566,227
Cash Flow Hedges - Commodity Contracts
Gain (Loss) Reclassified from AOCL			$	(37,834)					$	(1,701)					$	(5,480)
Amortization of Excluded Component from Options			—						(2,489)						—
Gain (Loss) Due to Ineffectiveness			—						—						(177)
Fair Value Hedges - Commodity Contracts
Gain (Loss) on Commodity Futures(1)			13,192						5,197						3,572
Gain (Loss) Due to Ineffectiveness			—						—						(171)
Total Gain (Loss) Recognized in Earnings			$	(24,642)					$	1,007					$	(2,256)

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

Note H

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:

(in thousands)						Segment						% Owned						October 25, 2020						October 27, 2019
MegaMex Foods, LLC						Grocery Products						50%						$	220,907					$	218,592
Other Joint Ventures						International & Other						Various (20 – 40%)						87,466						70,565
Total																		$	308,372					$	289,157

Equity in Earnings of Affiliates consists of:

(in thousands)						Segment						2020						2019						2018
MegaMex Foods, LLC						Grocery Products						$	31,919					$	38,676					$	52,988
Other Joint Ventures						International & Other						3,653						525						5,984
Total												$	35,572					$	39,201					$	58,972

Dividends received from affiliates for the fiscal years ended October 25, 2020, October 27, 2019, and October 28, 2018, were $37.5 million, $22.5 million, and $30.0 million, respectively.

The Company recognized a basis difference of $21.3 million associated with the formation of MegaMex Foods, LLC, of which $11.9 million is remaining as of October 25, 2020. This difference is being amortized through Equity in Earnings of Affiliates.

Note I

Accumulated Other Comprehensive Loss

Components of Accumulated Other Comprehensive Loss are as follows:

(in thousands)						Foreign Currency Translation						Pension & Other Post-retirement Benefits									Deferred Hedging Gain (Loss)									Accumulated Other Comprehensive Loss
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)
Impact of Adoption of ASU:
ASU 2017-12						—						—									(21)			(3)						(21)
ASU 2018-02						—						(53,778)			(3)						—									(53,778)
Adjusted Balance at October 28,2018						$	(44,854)					$	(251,391)								$	(1,052)								$	(297,297)
Unrecognized Gains (Losses)
Gross						(8,142)						(138,356)									2,834									(143,664)
Tax Effect						—						33,822									(699)									33,123
Reclassification into Net Earnings
Gross						—						9,335			(1)						1,701			(2)						11,036
Tax Effect						—						(2,287)									(411)									(2,698)
Net of Tax Amount						(8,142)						(97,486)									3,425									(102,203)
Adjusted Balance at October 27,2019						$	(52,996)					$	(348,877)								$	2,373								$	(399,500)
Unrecognized Gains (Losses)
Gross						(11,164)						2,003									(38,213)									(47,374)
Tax Effect						—						(404)									9,324									8,920
Reclassification into Net Earnings
Gross						—						18,609			(1)						37,834			(2)						56,443
Tax Effect						—						(4,510)									(9,229)									(13,739)
Net of Tax Amount						(11,164)						15,698									(284)									4,250
Balance at October 25, 2020						$	(64,161)					$	(333,178)								$	2,089								$	(395,250)

(1) Included in computation of net periodic cost. See Note F - Pension and Other Post-Retirement Benefits for additional details.

(2) Included in Cost of Products Sold in the Consolidated Statements of Operations.

(3) Cumulative effect from the adoption of Accounting Standards Updates. See Note A - Significant Accounting Policies for additional details.

Note J

Income Taxes

On December 22, 2017, the United States enacted comprehensive tax legislation into law, H.R. 1, commonly referred to as the Tax Cuts and Jobs Act (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, became effective for the Company in fiscal 2019. The global intangible low taxed income (GILTI) and foreign derived intangible income (FDII) provisions became effective for fiscal 2019 and resulted in an immaterial impact to the Company. For fiscal 2018, the most significant impacts included lowering of the U.S. federal corporate income tax rate, remeasuring certain net deferred tax liabilities, and 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 21.0 percent tax rate for fiscal 2019 and a blended tax rate of 23.4 percent for fiscal 2018,

as compared to the pretax reform federal corporate income tax rate of 35.0 percent. The tax rate will continue to be 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. The Company made reasonable estimates to record a net tax benefit of $72.9 million during fiscal 2018. This provisional net tax benefit included 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. The Company completed its provisional tax analysis during the first quarter of fiscal 2019 and did not record any significant adjustments to the provisional amounts booked in fiscal 2018.

With respect to the Tax Act provision on GILTI, the Company has elected to treat GILTI as a period cost.

The components of the Provision for Income Taxes are as follows:

(in thousands)						2020						2019						2018
Current
U.S. Federal						$	142,708					$	161,233					$	134,869
State						13,353						30,774						27,782
Foreign						18,293						9,919						13,492
Total Current						174,354						201,926						176,143
Deferred
U.S. Federal						34,408						27,817						(15,573)
State						4,937						1,473						10,975
Foreign						(7,306)						(649)						(2,843)
Total Deferred						32,039						28,641						(7,441)
Total Provision for Income Taxes						$	206,393					$	230,567					$	168,702

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 25, 2020						October 27, 2019
Deferred Tax Liabilities
Goodwill and Intangible Assets						$	(269,218)					$	(240,935)
Tax over Book Depreciation and Basis Differences						(164,911)						(153,104)
Other, net						(24,316)						(11,844)
Deferred Tax Assets
Pension and Other Post-retirement Benefits						97,129						105,948
Employee Compensation Related Liabilities						65,024						65,887
Marketing and Promotional Accruals						20,783						15,581
Other, net						62,302						41,893
Net Deferred Tax (Liabilities) Assets						$	(213,207)					$	(176,574)

Reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is as follows:

						2020						2019						2018
U.S. Statutory Rate						21.0		%				21.0		%				23.4		%
State Taxes on Income, Net of Federal Tax Benefit						1.6						2.5						2.6
Domestic Production Activities Deduction						—						—						(1.5)
Divestitures						—						(1.4)						—
Provisional Tax Law Change						—						—						(6.3)
Stock-based Compensation						(3.1)						(2.2)						(3.4)
All Other, net						(1.0)						(0.8)						(0.5)
Effective Tax Rate						18.5		%				19.1		%				14.3		%

In fiscal 2019, the Company recorded a net tax benefit of $17.5 million related to the divestiture of CytoSport.

As of October 25, 2020, the Company had $162.0 million of undistributed earnings from non-U.S. subsidiaries. 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 2020, 2019, and 2018 were $169.7 million, $221.4 million, and $147.5 million, respectively.

The following table sets forth changes in the unrecognized tax benefits, excluding interest and penalties, for fiscal years 2020 and 2019.

(in thousands)
Balance as of October 28, 2018						$	33,117
Tax Positions Related to the Current Period
Increases						4,885
Tax Positions Related to Prior Periods
Increases						2,997
Decreases						(9,585)
Settlements						(927)
Decreases Related to a Lapse of Applicable Statute of Limitations						(2,661)
Balance as of October 27, 2019						$	27,826
Tax Positions Related to the Current Period
Increases						3,177
Tax Positions Related to Prior Periods
Increases						8,299
Decreases						(2,549)
Settlements						(1,107)
Decreases Related to a Lapse of Applicable Statute of Limitations						(2,404)
Balance as of October 25, 2020						$	33,242

The amount of unrecognized tax benefits, including interest and penalties, is recorded in Other Long-term Liabilities. If recognized as of October 25, 2020, and October 27, 2019, $29.1 million, and $22.5 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 $1.9 million and $0.1 million included in expense for fiscal 2020 and 2019, respectively. The amount of accrued interest and penalties at October 25, 2020, and October 27, 2019, associated with unrecognized tax benefits was $7.2 million and $6.2 million, respectively.

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

The Company is in various stages of audit by several state taxing authorities on a variety of fiscal years, 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 K

Stock-Based Compensation

The Company issues stock options, restricted stock units, and restricted shares as part of its stock incentive plans for employees and non-employee directors. Stock-based compensation expense for fiscal years 2020, 2019, and 2018, was $22.5 million, $19.7 million, and $20.6 million, respectively. The Company recognizes stock-based compensation expense ratably over the shorter of the vesting period or the individual's retirement eligibility date. The fair value of stock-based compensation granted to retirement-eligible individuals is expensed at the time of grant.

At October 25, 2020, there was $23.8 million of total unrecognized compensation expense from stock-based compensation arrangements granted under the plans. This compensation is expected to be recognized over a weighted-average period of approximately 2.0 years. During fiscal years 2020, 2019, and 2018, cash received from stock option exercises was $81.8 million, $59.9 million, and $71.8 million, respectively.

Shares issued for option exercises, restricted stock units, and restricted shares may be either authorized but unissued shares or shares of treasury stock. The number of shares available for future grants was 13.7 million at October 25, 2020, 14.9 million at October 27, 2019, and 16.1 million at October 28, 2018.

Stock Options: The Company’s policy is to grant options with the exercise price equal to the market price of the common stock on the date of grant. Options typically vest over four years and expire ten years after the date of the grant.

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

In 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 as of 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 25, 2020, is:

						Shares						Weighted-Average Exercise Price						Weighted-Average Remaining Contractual Term (Years)						Aggregate Intrinsic Value
Stock Options Outstanding at October 27, 2019						25,994						$	26.49
Granted						1,218						45.88
Exercised						(5,865)						16.00
Forfeited						(273)						36.85
Expired						(1)						36.25
Stock Options Outstanding at October 25, 2020						21,073						$	30.39					5.2						$	404,936
Stock Options Exercisable at October 25, 2020						14,204						$	26.06					3.9						$	334,529

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, are:

						Fiscal Year Ended
						October 25,						October 27,						October 28,
						2020						2019						2018
Weighted-average Grant Date Fair Value						$	7.71					$	9.24					$	7.16
Intrinsic Value of Exercised Options						182,821						138,282						187,486

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 25,						October 27,						October 28,
						2020						2019						2018
Risk-free Interest Rate						1.7		%				2.8		%				2.7		%
Dividend Yield						2.0		%				1.9		%				2.1		%
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 U.S. Treasury yields as of the grant date. The dividend yield is based on the dividend rate approved by the Company’s Board of Directors and the stock price on the grant date. The expected volatility assumption is based primarily on historical volatility. As a reasonableness test, implied volatility from exchange traded options is also examined to validate the volatility range obtained from the historical analysis. The expected life assumption is based on an analysis of past exercise behavior by option holders. In performing the valuations for option grants, the Company has not stratified option holders as exercise behavior has historically been consistent across all employees.

Restricted Stock Units: Restricted stock units are valued equal to the market price of the common stock on the date of the grant and generally vest after three years. These awards accumulate dividend equivalents, which are provided as additional units and are subject to the same vesting requirements as the underlying grant. A reconciliation of the restricted stock units (in thousands) as of October 25, 2020, is:

						Shares						Weighted- Average Grant Date Fair Value			Weighted-Average Remaining Contractual Term (Years)			Aggregate Intrinsic Value
Restricted Stock Units Outstanding at October 27, 2019						—						$	—
Granted						205						45.88
Dividend Equivalents						2						49.49
Vested						(18)						45.54
Forfeited						(1)						45.54
Restricted Stock Units Outstanding at October 25, 2020						188						$	45.91		2.1			$	9,306

The weighted-average grant date fair value of restricted stock units granted and the total fair value (in thousands) of restricted stock units granted during each of the past three fiscal years, are:

						Fiscal Year Ended
						October 25,						October 27,						October 28,
						2020						2019						2018
Weighted-average Grant Date Fair Value						$	45.88					$	—					$	—
Fair Value of Restricted Stock Units Granted						9,383						—						—
Fair Value of Restricted Stock Units Vested						$	839					$	—					$	—

Restricted Shares: Restricted shares awarded to non-employee directors annually on February 1 are subject to a restricted period which expires the date of the Company’s next annual stockholders meeting. Newly elected directors receive a prorated award of restricted shares of the Company's common stock, which expires on the date of the Company's second succeeding annual stockholders meeting. A reconciliation of the restricted shares (in thousands) as of October 25, 2020, is:

						Shares						Weighted- Average Grant Date Fair Value
Restricted Shares Outstanding at October 27, 2019						51						$	42.23
Granted						42						47.29
Vested						(47)						42.08
Restricted Shares Outstanding at October 25, 2020						45						$	47.03

The weighted-average grant date fair value of restricted shares granted, the total fair value (in thousands) of restricted shares granted, and the fair value (in thousands) of shares that have vested during each of the past three fiscal years, are:

						Fiscal Year Ended
						October 25,						October 27,						October 28,
						2020						2019						2018
Weighted-average Grant Date Fair Value						$	47.29					$	42.23					$	34.08
Fair Value of Restricted Shares Granted						1,973						2,134						1,760
Fair Value of Restricted Shares Vested						$	1,974					$	1,760					$	2,053

Note L

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 25, 2020, and October 27, 2019, and their level within the fair value hierarchy are presented in the table below.

						Fair Value Measurements at October 25, 2020
						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)						$	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					$	—

						Fair Value Measurements at October 27, 2019
						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)						$	672,901					$	672,458					$	443					$	—
Short-term Marketable Securities(2)						14,736						5,186						9,550						—
Other Trading Securities(3)						157,526						—						157,526						—
Commodity Derivatives(4)						12,882						12,882						—						—
Total Assets at Fair Value						$	858,045					$	690,526					$	167,519					$	—
Liabilities at Fair Value
Deferred Compensation(3)						$	62,373					$	—					$	62,373					$	—
Total Liabilities at Fair Value						$	62,373					$	—					$	62,373					$	—

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 booked 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. 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 as 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, these investment balances 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. Securities held by the trust generated gains (losses) of $7.0 million, $8.3 million, and $(0.4) million for fiscal years 2020, 2019, and 2018, 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. 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 October 25, 2020, the Company has 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). As of October 27, 2019, the Company had recognized the right to reclaim net cash collateral of $6.5 million from various counterparties (including $10.5 million of realized gains on closed positions offset by cash owed of $4.0 million).

The Company’s financial assets and liabilities include accounts receivable, accounts payable, and other liabilities, for which carrying value approximates fair value. The Company does not carry its long-term debt at fair value in its Consolidated Statements of Financial Position. The fair value of long-term debt, utilizing discounted cash flows (Level 2), was $1,238.8 million as of October 25, 2020, and $257.7 million as of October 27, 2019. See Note E - Long Term Debt and Other Borrowing Arrangements for additional information.

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 fiscal 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 E - Goodwill and Intangible Assets. During fiscal years 2020, 2019, and 2018, there were no other material remeasurements of assets or liabilities at fair value on a nonrecurring basis subsequent to their initial recognition.

Note M

Commitments and Contingencies

To ensure a steady supply of hogs and turkeys and 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. In addition, the Company has contracted for the purchase of corn, soybean meal, feed ingredients, and other raw materials from independent suppliers for periods up to four years. Under these contracts, the Company is committed to make purchases, assuming current price levels, as follows:

(in thousands)			October 25, 2020
2021			$	964,165
2022			849,614
2023			577,898
2024			388,917
2025			164,580
Later Years			61,873
Total			$	3,007,047

Purchases under these contracts for fiscal years 2020, 2019 and 2018 were $0.9 billion, $1.0 billion and $1.3 billion, respectively.

As of October 25, 2020, the Company has $47.5 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 $3.1 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 ongoing 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 N

Leases

The Company has operating leases for manufacturing facilities, office space, warehouses, transportation equipment, and miscellaneous real estate and equipment contracts. Finance leases primarily include turkey growing facilities and an aircraft. The Company's lessor portfolio consists primarily of immaterial operating leases of farmland to third parties.

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

The length of the lease term used in recording right-of-use assets and lease liabilities is based on the contractually required lease term adjusted for any options to renew, early terminate, or purchase the lease that are reasonably certain of being exercised. Most leases include one or more options to renew or terminate. The exercise of lease renewal and termination options is at the Company’s discretion and generally is not reasonably certain at lease commencement. The Company’s lease agreements typically do not contain material residual value guarantees. The Company has one lease with an immaterial residual value guarantee that is included in the minimum lease payments.

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

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

Lease information included in the Consolidated Statements of Financial Position are:

(in thousands)			Location on Consolidated Statements of Financial Position						October 25, 2020
Right-of-Use Assets
Operating			Other Assets						$	53,119
Finance			Net Property, Plant, and Equipment						61,059
Total Right-of-Use Assets									$	114,179
Liabilities
Current
Operating			Accrued Expenses						$	12,025
Finance			Current Maturities of Long-term Debt						8,308
Noncurrent
Operating			Other Long-term Liabilities						43,126
Finance			Long-term Debt - Less Current Maturities						52,722
Total Lease Liabilities									$	116,182

Lease expenses are:

						Fiscal Year Ended
(in thousands)						October 25, 2020
Operating Lease Cost (1)						$	19,602
Finance Lease Cost
Amortization of Right-of-Use Assets						7,985
Interest on Lease Liabilities						2,304
Variable Lease Cost (2)						424,955
Net Lease Cost						$	454,846

(1) Includes short-term lease costs, which are immaterial.

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

The weighted-average remaining lease term and discount rate for lease liabilities included in the Consolidated Statements of Financial Position are:

			October 25, 2020
Weighted Average Remaining Lease Term
Operating Leases			7.31 years
Finance Leases			8.14 years
Weighted Average Discount Rate
Operating Leases			2.28		%
Finance Leases			3.54		%

Supplemental cash flow and other information related to leases for the fifty-two weeks ended October 25, 2020, are:

(in thousands)						October 25, 2020
Cash Paid for Amounts Included in the Measurement of Lease Liabilities
Operating Cash Flows from Operating Leases						$	15,412
Operating Cash Flows from Finance Leases						2,304
Financing Cash Flows from Finance Leases						8,189
Right-of-Use Assets obtained in exchange for new operating lease liabilities						5,210

The maturity of the Company's lease liabilities as of October 25, 2020, are:

(in thousands)						Operating Leases						Finance Leases (1)						Total
2021						$	13,363					$	10,327					$	23,690
2022						10,354						9,934						20,287
2023						8,658						9,738						18,396
2024						5,835						9,612						15,447
2025						3,545						8,117						11,661
2026 and beyond						18,644						21,192						39,836
Total Lease Payments						$	60,399					$	68,919					$	129,318
Less: Imputed Interest						5,247						7,889						13,136
Present Value of Lease Liabilities						$	55,152					$	61,030					$	116,182

(1) Over the life of the lease contracts, finance lease payments include $8.7 million related to purchase options which are reasonably certain of being exercised.

Noncancelable future operating and capital lease commitments on facilities and equipment at October 27, 2019, were as follows:

(in thousands)						Operating						Capital
2020						$	15,603					$	1,834
2021						10,470						1,787
2022						7,951						1,709
2023						6,953						1,709
2024						4,840						1,709
2025 and beyond						21,773						13,815
Total Future Payments						$	67,590					$	22,563
Less: Interest												2,850
Present Value of Future Minimum Capital Lease Payments												$	19,713

The Company expensed $23.1 million and $22.9 million for rent in fiscal years 2019 and 2018, respectively.

Note O

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:

(in thousands)						2020						2019						2018
Basic Weighted-Average Shares Outstanding						538,007						534,578						530,742
Dilutive Potential Common Shares						8,585						10,654						13,127
Diluted Weighted-Average Shares Outstanding						546,592						545,232						543,869
Antidilutive Potential Common Shares						1,822						2,801						7,292

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. At the beginning of fiscal 2019, the Company aligned all deli businesses, including the Jennie-O Turkey Store deli division, into Hormel Deli Solutions reporting within the Refrigerated Foods segment. In addition, the ingredients business was realigned from the Grocery Products segment to the Refrigerated Foods segment. Periods presented herein have been adjusted to reflect these changes.

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 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 investment income, interest expense, or interest income to its segments when measuring performance. The Company also retains various other income and expenses at the corporate level. Equity in 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 operating profits for each of the Company’s reportable segments and reconciliation to Earnings Before Income Taxes are set forth below. The Company is an integrated enterprise, characterized by substantial intersegment cooperation, cost allocations, and sharing of assets. Therefore, the Company does not represent that these segments, if operated independently, would report the profit and other financial information shown below.

			Fiscal Year
(in thousands)						2020						2019						2018
Sales to Unaffiliated Customers
Grocery Products						$	2,385,291					$	2,369,317					$	2,480,367
Refrigerated Foods						5,271,061						5,210,741						5,109,881
Jennie-O Turkey Store						1,333,459						1,323,783						1,331,013
International & Other						618,650						593,476						624,439
Total						$	9,608,462					$	9,497,317					$	9,545,700
Intersegment Sales
Grocery Products						$	13					$	41					$	38
Refrigerated Foods						21,067						16,351						8,591
Jennie-O Turkey Store						108,276						123,712						110,753
International & Other						—						—						—
Total						129,356						140,104						119,382
Intersegment Elimination						(129,356)						(140,104)						(119,382)
Total						$	—					$	—					$	—
Net Sales
Grocery Products						$	2,385,304					$	2,369,358					$	2,480,405
Refrigerated Foods						5,292,128						5,227,092						5,118,472
Jennie-O Turkey Store						1,441,735						1,447,495						1,441,766
International & Other						618,650						593,476						624,439
Intersegment Elimination						(129,356)						(140,104)						(119,382)
Total						$	9,608,462					$	9,497,317					$	9,545,700
Segment Profit
Grocery Products						$	358,008					$	339,497					$	353,266
Refrigerated Foods						609,406						681,763						670,948
Jennie-O Turkey Store						105,585						117,962						131,846
International & Other						93,782						75,513						88,953
Total Segment Profit						$	1,166,782					$	1,214,735					$	1,245,013
Net Unallocated Expense						52,307						5,362						64,171
Noncontrolling Interest						272						342						442
Earnings Before Income Taxes						$	1,114,747					$	1,209,715					$	1,181,284
Assets
Grocery Products						$	1,713,883					$	1,774,235					$	2,172,117
Refrigerated Foods						4,188,250						3,583,639						3,444,646
Jennie-O Turkey Store						1,111,318						1,023,787						1,016,961
International & Other						721,729						692,310						679,003
Corporate						2,173,101						1,035,033						829,565
Total						$	9,908,282					$	8,109,004					$	8,142,292
Additions to Property, Plant, & Equipment
Grocery Products						$	34,409					$	37,892					$	13,042
Refrigerated Foods						249,441						174,506						220,499
Jennie-O Turkey Store						42,042						31,607						131,946
International & Other						3,737						9,248						16,513
Corporate						37,872						40,585						7,607
Total						$	367,501					$	293,838					$	389,607
Depreciation and Amortization
Grocery Products						$	32,148					$	31,406					$	35,210
Refrigerated Foods						97,317						77,100						70,579
Jennie-O Turkey Store						46,322						34,696						33,316
International & Other						16,226						10,666						10,755
Corporate						13,767						11,342						11,998
Total						$	205,781					$	165,210					$	161,858

Revenue has been disaggregated into the categories below to show how sales channels affect the nature, amount, timing, and uncertainty of revenue and cash flows. The amount of total revenues contributed by sales channel for the last three fiscal years are:

						Fiscal Year Ended
(in thousands)						October 25, 2020						October 27, 2019						October 28, 2018
U.S. Retail						$	5,441,412					$	4,947,398					$	5,112,988
U.S. Foodservice						2,489,644						2,943,352						2,824,951
U.S. Deli						970,327						939,069						914,009
International						707,078						667,498						693,752
Total						$	9,608,462					$	9,497,317					$	9,545,700

The shift in revenues from the U.S. Foodservice to the U.S. Retail channel in fiscal 2020 was driven by the COVID-19 pandemic and subsequent restrictions.

The Company’s products primarily consist of meat and other food products. The amount of total revenues contributed by classes of similar products for the last three fiscal years are:

						Fiscal Year Ended
(in thousands)						October 25, 2020						October 27, 2019						October 28, 2018
Perishable						$	5,328,738					$	5,370,409					$	5,336,046
Shelf-stable						2,092,551						1,829,138						1,765,955
Poultry						1,886,367						1,849,294						1,842,320
Miscellaneous						300,806						448,476						601,379
Total						$	9,608,462					$	9,497,317					$	9,545,700

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, tortillas, salsas, tortilla chips and other items that do not require refrigeration. The Poultry category is composed primarily of Jennie-O Turkey Store products. The Miscellaneous category primarily consists of nutritional food products and supplements, dessert and drink mixes, and industrial gelatin products. The reduction in the Miscellaneous category during fiscal 2019 and 2020 is due to the divestiture of CytoSport on April 15, 2019.

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:

						Fiscal Year Ended
(in thousands)						October 25, 2020						October 27, 2019						October 28, 2018
United States						$	9,006,007					$	8,934,911					$	8,957,305
Foreign						602,454						562,406						588,395
Total						$	9,608,462					$	9,497,317					$	9,545,700

In fiscal 2020, sales to Walmart Inc. (Walmart) represented $1.5 billion or 14.6% of the Company’s consolidated revenues (measured as gross sales less returns and allowances). In fiscal 2019, sales to Walmart represented $1.4 billion or 13.5% 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 25, 2020, and October 27, 2019.

(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)
2020
First Quarter						$	2,384,434					$	468,421					$	242,953					$	242,872					$	0.45					$	0.45
Second Quarter						2,422,465						477,352						227,615						227,734						0.42						0.42
Third Quarter						2,381,457						422,426						203,260						203,119						0.38						0.37
Fourth Quarter						2,420,105						457,765						234,526						234,356						0.43						0.43
2019
First Quarter						$	2,360,355					$	488,334					$	241,519					$	241,425					$	0.45					$	0.44
Second Quarter						2,344,744						469,149						282,636						282,429						0.53						0.52
Third Quarter						2,290,705						433,442						199,427						199,449						0.37						0.37
Fourth Quarter						2,501,513						493,723						255,566						255,503						0.48						0.47

(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.