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).

On June 7, 2021, the Company acquired the Planters*®* snack nuts business. In conducting its assessment of the effectiveness of the Company's internal control over financial reporting at October 31, 2021, management has excluded the acquired business from the assessment. The Planters*®* snack nuts business represented approximately 4 percent and 4 percent of the Company’s consolidated Net Sales and Total Assets, respectively, for the fiscal year ended October 31, 2021. The acquired business is in process of being fully integrated into the Company's existing operations. 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 31, 2021. Our internal control over financial reporting as of October 31, 2021, 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 31, 2021, 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 31, 2021, based on the COSO criteria.

As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management's assessment of and conclusion on the effectiveness of internal controls over financial reporting did not include the internal controls of the Planters*®* snack nuts business, which is included in the 2021 consolidated financial statements of the Company and constituted 4% of total assets as of October 31, 2021 and 4% of revenues for the year then ended. Our audit of internal control over financial reporting of the Company also did not include the evaluation of the internal control over financial reporting of the Planters*®* snack nuts business.

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 31, 2021 and October 25, 2020, 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 31, 2021 and the related notes and financial statement schedule listed in the index at Item 15 and our report dated December 10, 2021 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 10, 2021

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 31, 2021 and October 25, 2020, 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 31, 2021 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 31, 2021 and October 25, 2020, and the results of its operations and its cash flows for each of the three years in the period ended October 31, 2021, 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 31, 2021, 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 10, 2021 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 matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate 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 critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.

			Valuation of Alternative Investments - Pension Assets
Description of the Matter			At October 31, 2021, the Company had $1.7 billion in plan assets related to the defined benefit pension plans. Approximately 55% of the total pension assets are in private equity funds, real estate – domestic funds, global stocks – collective investment funds, hedge funds, fixed income – hedge funds, and fixed income – collective investment 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.

			Valuation of Alternative Investments - Pension Assets
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.
			Valuation of acquired intangible assets - trade names
Description of the Matter			As described in Note B to the consolidated financial statements, during the year-ended October 31, 2021, the Company completed the acquisition of the Planters*®* snack nuts business for a cash purchase price of $3.4 billion. The Company’s accounting for this acquisition included determining the fair value of the $763 million of identifiable intangible assets acquired, which included trade names and customer relationships, with the remaining residual value recorded as goodwill.
			Auditing the Company's accounting for its acquisition of the Planters*®* snack nuts business was complex due to the significant estimation uncertainty in the Company’s determination of the fair value of the identified intangible assets. The primary intangible assets identified were trade names which were determined to have a fair value of $712 million. The significant estimation uncertainty was primarily due to the sensitivity of the respective fair values to underlying assumptions about the future performance of the acquired business. The Company used a relief from royalty model to measure the identified trade names. The significant assumptions used to estimate the value of the trade names included net sales projections, royalty rates, and discount rates, which are forward looking and could be affected by future economic and market conditions.
How We Addressed the Matter in Our Audit			We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s accounting for acquisitions. For example, our tests included controls over the estimation process supporting the recognition and measurement of consideration transferred and trade names. We also tested management’s review of the valuation models and significant assumptions used in the valuations.
			To test the estimated fair value of the trade name intangible assets, we performed audit procedures that included, among others, evaluating the Company's selection of the valuation methodology, evaluating the methods and significant assumptions used by management, and evaluating the completeness and accuracy of the underlying data supporting the significant assumptions and estimates. We involved our valuation specialists to assist with our evaluation of the methodology used by the Company and significant assumptions included in the fair value estimates. We compared the significant assumptions to current industry, market and economic trends, to the assumptions used to value similar assets in other acquisitions, and to the historical results of the acquired business. We also performed sensitivity analyses of significant assumptions to evaluate the changes in fair value of the acquired trade name intangible assets that would result from changes in the assumptions.

/s/ Ernst & Young LLP

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

Minneapolis, Minnesota

December 10, 2021

Consolidated Statements of Financial Position

						October 31,						October 25,
(in thousands, except share and per share amounts)						2021						2020
Assets
Current Assets
Cash and Cash Equivalents						$	613,530					$	1,714,309
Short-term Marketable Securities						21,162						17,338
Accounts Receivable (Net of Allowance for Doubtful Accounts of $4,033 at October 31, 2021, and $4,012 at October 25, 2020)						895,719						702,419
Inventories						1,369,198						1,072,762
Taxes Receivable						8,293						41,449
Prepaid Expenses						24,971						18,349
Other Current Assets						14,943						12,438
Total Current Assets						2,947,816						3,579,063
Goodwill						4,929,102						2,612,727
Other Intangibles						1,822,273						1,076,285
Pension Assets						289,096						183,232
Investments In and Receivables from Affiliates						299,019						308,372
Other Assets						299,907						250,382
Property, Plant, and Equipment
Land						72,133						62,543
Buildings						1,332,881						1,250,529
Equipment						2,415,063						2,084,930
Construction in Progress						316,455						369,453
Less: Allowance for Depreciation						(2,027,414)						(1,869,233)
Net Property, Plant, and Equipment						2,109,117						1,898,222
Total Assets						$	12,696,329					$	9,908,282
Liabilities and Shareholders’ Investment
Current Liabilities
Accounts Payable						$	793,310					$	644,609
Accrued Expenses						51,192						59,136
Accrued Workers Compensation						27,350						25,070
Accrued Marketing Expenses						114,746						108,502
Employee Related Expenses						241,977						252,845
Taxes Payable						23,520						22,480
Interest and Dividends Payable						154,803						132,632
Current Maturities of Long-term Debt						8,756						258,691
Total Current Liabilities						1,415,654						1,503,965
Long-term Debt Less Current Maturities						3,315,147						1,044,936
Pension and Post-retirement Benefits						546,362						552,878
Other Long-term Liabilities						162,623						157,399
Deferred Income Taxes						278,183						218,779
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 542,412,403 Shares October 31, 2021 Issued 539,887,092 Shares October 25, 2020						7,946						7,909
Additional Paid-in Capital						360,336						289,554
Accumulated Other Comprehensive Loss						(277,269)						(395,250)
Retained Earnings						6,881,870						6,523,335
Hormel Foods Corporation Shareholders’ Investment						6,972,883						6,425,548
Noncontrolling Interest						5,478						4,778
Total Shareholders’ Investment						6,978,360						6,430,326
Total Liabilities and Shareholders’ Investment						$	12,696,329					$	9,908,282

See Notes to Consolidated Financial Statements

Consolidated Statements of Operations

						Fiscal Year Ended
						October 31,						October 25,						October 27,
(in thousands, except per share amounts)						2021						2020						2019
Net Sales						$	11,386,189					$	9,608,462					$	9,497,317
Cost of Products Sold						9,458,283						7,782,498						7,612,669
Gross Profit						1,927,906						1,825,963						1,884,648
Selling, General, and Administrative						853,071						761,315						727,584
Equity in Earnings of Affiliates						47,763						35,572						39,201
Operating Income						1,122,599						1,100,220						1,196,265
Other Income and Expense:
Interest and Investment Income						46,878						35,596						31,520
Interest Expense						(43,307)						(21,069)						(18,070)
Earnings Before Income Taxes						1,126,170						1,114,747						1,209,715
Provision for Income Taxes						217,029						206,393						230,567
Net Earnings						909,140						908,354						979,148
Less: Net Earnings Attributable to Noncontrolling Interest						301						272						342
Net Earnings Attributable to Hormel Foods Corporation						$	908,839					$	908,082					$	978,806
Net Earnings Per Share:
Basic						$	1.68					$	1.69					$	1.83
Diluted						$	1.66					$	1.66					$	1.80
Weighted-average Shares Outstanding:
Basic						541,114						538,007						534,578
Diluted						547,580						546,592						545,232

See Notes to Consolidated Financial Statements

Consolidated Statements of Comprehensive Income

						Fiscal Year Ended
						October 31,						October 25,						October 27,
(in thousands)						2021						2020						2019
Net Earnings						$	909,140					$	908,354					$	979,148
Other Comprehensive Income (Loss), Net of Tax:
Foreign Currency Translation						13,379						(10,812)						(8,414)
Pension and Other Benefits						71,967						15,698						(97,486)
Deferred Hedging						33,034						(284)						3,425
Total Other Comprehensive Income (Loss)						118,380						4,602						(102,475)
Comprehensive Income						1,027,520						912,956						876,673
Less: Comprehensive Income Attributable to Noncontrolling Interest						700						624						70
Comprehensive Income Attributable to Hormel Foods Corporation						$	1,026,820					$	912,332					$	876,603

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 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
Net Earnings																																				908,839												301						909,140
Other Comprehensive Income (Loss)																																										117,981						399						118,380
Purchases of Common Stock																		(469)						(19,958)																														(19,958)
Stock-based Compensation Expense						38						1																		24,743																								24,744
Exercise of Stock Options/ Restricted Shares						2,956						43																		46,326																								46,369
Shares Retired						(469)						(7)						469						19,958						(287)						(19,664)																		—
Declared Cash Dividends — $0.98 per Share																																				(530,640)																		(530,640)
Balance at October 31, 2021						542,412						$	7,946					—						$	—					$	360,336					$	6,881,870					$	(277,269)					$	5,478					$	6,978,360

See Notes to Consolidated Financial Statements

Consolidated Statements of Cash Flows

						Fiscal Year Ended
						October 31,						October 25,						October 27,
(in thousands)						2021						2020						2019
Operating Activities
Net Earnings						$	909,140					$	908,354					$	979,148
Adjustments to Reconcile to Net Cash Provided by Operating Activities:
Depreciation						183,772						165,716						153,182
Amortization						44,634						40,065						12,027
Equity in Earnings of Affiliates						(47,763)						(35,572)						(39,201)
Distributions Received from Equity Method Investees						44,999						37,499						22,500
Provision for Deferred Income Taxes						28,677						32,039						28,641
Loss (Gain) on Property/Equipment Sales and Plant Facilities						3,731						1,793						(811)
Gain on Sale of Business						—						—						(16,469)
Non-cash Investment Activities						(24,215)						(15,315)						(20,180)
Stock-based Compensation Expense						24,744						22,458						19,707
Changes in Operating Assets and Liabilities, Net of Acquisitions:
Decrease (Increase) in Accounts Receivable						(191,627)						(119,516)						(11,146)
Decrease (Increase) in Inventories						(145,176)						(1,839)						(123,843)
Decrease (Increase) in Prepaid Expenses and Other Current Assets						34,555						5,860						(10,105)
Increase (Decrease) in Pension and Post-retirement Benefits						(15,448)						(10,509)						(10,416)
Increase (Decrease) in Accounts Payable and Accrued Expenses						115,099						111,277						(44,109)
Increase (Decrease) in Net Income Taxes Payable						36,811						(14,286)						(15,929)
Net Cash Provided by (Used in) Operating Activities						$	1,001,934					$	1,128,024					$	922,996
Investing Activities
Net (Purchase) Sale of Securities						$	(4,364)					$	(2,589)					$	(14,496)
Proceeds from Sale of Business						—						—						479,806
Acquisitions of Businesses and Intangibles						(3,396,246)						(270,789)						—
Purchases of Property and Equipment						(232,416)						(367,501)						(293,838)
Proceeds from Sales of Property and Equipment						2,216						1,916						37,402
Decrease (Increase) in Investments, Equity in Affiliates, and Other Assets						(343)						(21,124)						(6,479)
Proceeds from Company-owned Life Insurance						5,315						3,772						17,758
Net Cash Provided by (Used in) Investing Activities						$	(3,625,839)					$	(656,316)					$	220,153
Financing Activities
Proceeds from Long-term Debt						$	2,276,292					$	992,381					$	—
Repayments of Long-term Debt and Finance Leases						(258,617)						(8,368)						(374,840)
Dividends Paid on Common Stock						(523,114)						(487,376)						(437,053)
Share Repurchase						(19,958)						(12,360)						(174,246)
Proceeds from Exercise of Stock Options						45,919						81,818						59,895
Proceeds from Noncontrolling Interest						—						77						—
Net Cash Provided by (Used in) Financing Activities						$	1,520,520					$	566,172					$	(926,244)
Effect of Exchange Rate Changes on Cash						2,606						3,526						(3,140)
Increase (Decrease) in Cash and Cash Equivalents						(1,100,778)						1,041,407						213,765
Cash and Cash Equivalents at Beginning of Year						1,714,309						672,901						459,136
Cash and Cash Equivalents at End of Year						$	613,530					$	1,714,309					$	672,901

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 2021 consisted of 53 weeks. Fiscal years 2020 and 2019 consisted of 52 weeks. Fiscal 2022 will consist of 52 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 31, 2021, and October 25, 2020, 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 - Derivatives and Hedging, Note G - Pension and Other Post-retirement Benefits, and Note I - 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 $21.2 million, $7 million, and $8.3 million for fiscal years 2021, 2020, and 2019, 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.

Leases: 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. Leases and right-of-use assets that existed prior to the adoption of ASU 2016-02, Leases (Topic 842) were valued using the incremental borrowing rate on October 28, 2019.

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 2021, 2020, or 2019.

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. Acquired goodwill and other indefinite-lived intangible assets are allocated to reporting units that will receive the related benefits. Goodwill and indefinite-lived intangible assets are tested annually for impairment during the fourth quarter following the annual planning process or more frequently if impairment indicators arise. See additional discussion regarding the Company’s goodwill and intangible assets in Note C - 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 percent 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 2021, the Company completed its annual goodwill impairment tests and performed quantitative assessments. No impairment charges were recorded as a result of the testing performed during fiscal 2021. The Company performed qualitative assessments in fiscal years 2020 and 2019 with no impairment charges in either year.

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 percent 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 2021, the Company completed its annual indefinite-lived asset impairment tests by performing quantitative assessments. No impairment charges were recorded as a result of the testing during fiscal year 2021. The Company performed qualitative assessments of indefinite-lived intangible assets in fiscal year 2020. 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.

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 percent 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 percent 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 F - 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. During the fourth quarter of fiscal 2021, the Company completed its annual assessment of its equity investments. The Company did not record an impairment charge on any of its equity investments in fiscal years 2021, 2020, or 2019. See additional discussion regarding the Company’s equity method investments in Note D - 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, evaluations, and professional judgments of historical data while considering current and future economic conditions alongside management’s input.

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 2021, 2020, and 2019 were $138.5 million, $123.6 million, and $131.1 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 2021, 2020, and 2019 were $33.6 million, $31.9 million, and $32.5 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 the individual's retirement eligibility date. 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.

Accounting Changes and Recent Accounting Pronouncements

New Accounting Pronouncements Recently Adopted

Fiscal 2021

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326). The update provides guidance on the measurement of credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The amendment replaces the current incurred loss impairment approach with a methodology to reflect expected credit losses and requires consideration of a broader range of reasonable and supportable information to explain credit loss estimates. The updated guidance is to be applied on a modified retrospective approach and is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted the provisions of this new accounting standard at the beginning of fiscal 2021. The adoption did not have a material impact on the Company's consolidated financial statements, thus no cumulative-effect adjustment to retained earnings was necessary.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement - Disclosure Framework (Topic 820). The updated guidance requires entities to disclose the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. Amendments in this guidance also require disclosure of transfers into and out of Level 3 of the fair value hierarchy, purchases and issues of Level 3 assets and liabilities, and clarify that the measurement uncertainty disclosure is as of the reporting date. The guidance removes requirements to disclose the amounts and reasons for transfers between Level 1 and Level 2, policy for timing between of transfers between levels, and the valuation processes for Level 3 fair value measurements. The updated guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted the provisions of this new accounting standard at the beginning of fiscal 2021. Presentation and disclosure requirements were applied prospectively and retrospectively as required by the amendments. The adoption did not have a material impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans (Topic 715). The updated guidance requires additional disclosures of weighted-average interest crediting rates for cash balance plans and an explanation of the reasons for significant gains and losses related to changes in the benefit obligation. Amendments in the guidance also clarify the requirement to disclose the projected benefit obligation (PBO) and fair value of plan assets for plans with PBOs in excess of plan assets. The same disclosure is needed for the accumulated benefit obligation (ABO) and fair value of plan assets for plans with ABOs in excess of plan assets. The guidance removes certain previous disclosure requirements no longer considered cost beneficial. The amendments are effective for fiscal years ending after December 15, 2020, with early adoption permitted. The Company adopted the provisions of this new accounting standard at the beginning of fiscal 2021. Presentation and disclosure requirements were applied retrospectively to all periods presented. The adoption did not have a material impact on the Company’s consolidated financial statements.

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.

New Accounting Pronouncements Not Yet Adopted

In December 2019, the FASB issued ASU 2019-12, Income Taxes - Simplifying the Accounting for Income Taxes (Topic 740). The updated guidance simplifies the accounting for income taxes by removing certain exceptions in Topic 740 and clarifying and amending existing guidance. The amendments are effective for fiscal years beginning after December 15, 2020, with early adoption permitted. The Company will adopt the provisions of this new accounting standard at the beginning of fiscal 2022 and does not expect adoption to have a material impact on its consolidated financial statements.

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

Note B

Acquisitions and Divestitures

Acquisitions: On June 7, 2021, the Company acquired the Planters*®* snack nuts business from The Kraft Heinz Company. The acquisition includes the Planters*®, NUT-rition®, Planters®* Cheez Balls, and Corn Nuts*®* brands. The final purchase price, including working capital adjustments, was $3.4 billion. The transaction was funded with the Company’s cash on hand and from the issuance of long-term debt. See Note L - Long-term Debt and Other Borrowing Arrangements for additional details.

Planters*®* is an iconic snack brand and this acquisition significantly expands the Company's presence, and should broaden the scope for future acquisitions, in the growing snacking space. Operating results for this acquisition have been included in the Company's Consolidated Statements of Operations from the date of acquisition and are reflected in the Grocery Products, Refrigerated Foods, and International & Other segments. The acquisition contributed $410.8 million of net sales since the date of acquisition. As the acquisition has been integrated within the Company's existing operations, post-acquisition net income is not discernible. Acquisition-related costs were $30.3 million for the fiscal year ended October 31, 2021, which are reflected in the Consolidated Statements of Operations as Selling, General, and Administrative. Additional one-time adjustments related to the revaluation of acquired inventory of $12.9 million were recognized in the Consolidated Statements of Operations as Cost of Products Sold for the fiscal year ended October 31, 2021. The combined impact of these one-time acquisition costs and accounting adjustments was $43.2 million for the fiscal year ended October 31, 2021.

The acquisition was accounted for as a business combination using the acquisition method. The Company determined the acquisition date fair values of the assets acquired using independent appraisals. The Company completed purchase accounting allocations in the fourth quarter of fiscal 2021. Allocations of the purchase price to acquired assets, including goodwill and intangibles assets, are presented in the table below.

(in thousands)			Purchase Allocation
Inventory			$	149,224
Property, Plant and Equipment			170,958
Goodwill			2,313,064
Other Intangibles:
Tradenames			712,000
Customer Relationships			51,000
Purchase Price			$	3,396,246

Goodwill is calculated as the excess of the purchase price over the fair values of the identifiable net assets acquired and is expected to be deductible for tax purposes. The goodwill recorded as part of the acquisition primarily reflects the value of the potential to expand the Company's presence in the growing snacking space and serve as a platform for innovation.

The following unaudited pro forma financial information presents the combined results of operations as if the acquisition of the Planters*®* snack nuts business had occurred on October 27, 2019. These unaudited pro forma results do not necessarily reflect the actual results of operations that would have been achieved had the acquisition occurred on that date, nor are they necessarily indicative of future results of operations.

									Fiscal Year Ended
(in thousands)															October 31, 2021						October 25, 2020
Pro Forma Net Sales															$	12,061,686					$	10,657,992
Pro Forma Net Earnings Attributable to Hormel Foods Corporation															985,881						934,783

The pro forma results include charges for depreciation and amortization of acquired assets and interest expense on debt issued to finance the acquisition, as well as the related income taxes. The pro forma results for the fiscal year ended October 25, 2020 also include nonrecurring adjustments relating to the recognition of transaction costs incurred and revaluation of inventory acquired, along with the related income tax effects, which in the aggregate reduce pro forma net earnings by $41.1 million. The pro forma results for the fiscal year ended October 31, 2021 include an adjustment to add back the transaction costs incurred and revaluation of inventory acquired in those periods, along with the related income tax effects, since those costs are reflected in the preceding fiscal year on a pro forma basis.

On March 2, 2020, the Company acquired the assets comprising the Sadler's Smokehouse business (Sadler's) for a final purchase price of $270.8 million. Sadler's is an authentic, pit-smoked meats business based in Henderson, Texas. This acquisition strengthens the Company's foodservice position and provides an opportunity to further extend the Sadler's product line into the retail and deli channels.

The transaction was funded with cash on hand and accounted for as a business combination using the acquisition method. The Company completed an allocation of the fair value of the assets acquired utilizing third-party valuation appraisals during fiscal 2020.

Operating results for this acquisition have been included in the Company's Consolidated Statements of Operations from the date of acquisition and are reflected in the Refrigerated Foods segment. Pro forma results are not material for inclusion.

See Note C - Goodwill and Intangible Assets for amounts assigned to goodwill and intangible assets.

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

Goodwill and Intangible Assets

Goodwill: The changes in the carrying amount of goodwill for the fiscal years ended October 31, 2021, and October 25, 2020, are:

(in thousands)						Grocery Products						Refrigerated Foods						Jennie-O Turkey Store						International & Other						Total
Balance at October 27, 2019						$	632,301					$	1,458,692					$	176,628					$	214,024					$	2,481,645
Goodwill Acquired						—						148,313						—						—						148,313
Foreign Currency Translation						—						—						—						(17,232)						(17,232)
Balance at October 25, 2020						$	632,301					$	1,607,005					$	176,628					$	196,793					$	2,612,727
Goodwill Acquired						1,766,053						487,416						—						59,595						2,313,064
Foreign Currency Translation						—						—						—						3,311						3,311
Balance at October 31, 2021						$	2,398,354					$	2,094,421					$	176,628					$	259,699					$	4,929,102

The increase in goodwill during fiscal 2021 represents the allocation of goodwill to reportable segments as part of the acquisition of the Planters*®* snack nuts business. The increase to goodwill during fiscal 2020 is due to the acquisition of Sadler's*.* See Note B - Acquisitions and Divestitures for additional information.

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

						October 31,						October 25,
(in thousands)						2021						2020
Brands/Tradenames/Trademarks						$	1,665,190					$	953,190
Other Intangibles						184						184
Foreign Currency Translation						(6,646)						(6,923)
Total						$	1,658,728					$	946,452

The increase in Brands/Tradenames/Trademarks represents the fair value of indefinite-lived assets acquired as part of the acquisition of the Planters*®* snack nuts business. See Note B - Acquisitions and Divestitures for additional information.

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

						October 31, 2021																		October 25, 2020
						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						$	168,239					$	(56,882)					12.7						$	117,239					$	(45,996)					12.2
Other Intangibles						60,241						(8,356)						13.8						60,631						(4,298)						13.8
Tradenames/Trademarks						10,536						(5,700)						4.9						10,536						(3,518)						4.9
Foreign Currency Translation						—						(4,534)						—						—						(4,760)						—
Total						$	239,016					$	(75,471)					12.7						$	188,406					$	(58,572)					12.3

The increase in Customer Lists/Relationships represents the fair value of definite-lived assets acquired as part of the acquisition of the Planters*®* snack nuts business. See Note B - Acquisitions and Divestitures for additional information.

Amortization expense for the last three fiscal years was:

(in thousands)
2021						$	17,518
2020						14,251
2019						11,586

Estimated annual amortization expense for the five fiscal years after October 31, 2021, is as follows:

(in thousands)
2022						$	19,244
2023						18,351
2024						16,352
2025						14,627
2026						14,170

During the fourth quarter of fiscal years 2021, 2020, and 2019, the Company completed the required annual impairment tests of indefinite-lived intangible assets and goodwill. No impairment was indicated. Useful lives of intangible assets were also reviewed during this process with no material changes identified.

Note D

Investments In and Receivables From Affiliates

The Company accounts for its majority-owned operations under the consolidation method. Investments in which the Company owns a minority interest and for which there are no other indicators of control, are accounted for under the equity or cost method. These investments, along with any related receivables from affiliates, are included in the Consolidated Statements of Financial Position as Investments In and Receivables From Affiliates.

Investments In and Receivables from Affiliates consists of:

(in thousands)						Segment						Percent Owned						October 31, 2021						October 25, 2020
MegaMex Foods, LLC						Grocery Products						50%						$	205,413					$	220,907
Other Joint Ventures						International & Other						Various (20 – 40%)						93,606						87,466
Total																		$	299,019					$	308,372

Equity in Earnings of Affiliates consists of:

(in thousands)						Segment						2021						2020						2019
MegaMex Foods, LLC						Grocery Products						$	38,178					$	31,919					$	38,676
Other Joint Ventures						International & Other						9,585						3,653						525
Total												$	47,763					$	35,572					$	39,201

Dividends received from affiliates for the fiscal years ended October 31, 2021, October 25, 2020, and October 27, 2019, were $45.0 million, $37.5 million, and $22.5 million, respectively.

The Company recognized a basis difference of $21.3 million associated with the formation of MegaMex Foods, LLC, of which $11.0 million is remaining as of October 31, 2021. This difference is being amortized through Equity in Earnings of Affiliates.

Note E

Inventories

Principal components of inventories are:

(in thousands)						October 31, 2021						October 25, 2020
Finished Products						$	725,115					$	546,070
Raw Materials and Work-in-Process						395,403						318,975
Operating Supplies						163,416						136,547
Maintenance Materials and Parts						85,264						71,170
Total						$	1,369,198					$	1,072,762

Note F

Derivatives and Hedging

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

Cash Flow Commodity Hedges: The Company designates grain and lean hog futures, swaps, and options used to offset price fluctuations in the Company’s future direct grain and hog purchases as cash flow hedges. Effective gains or losses related to these cash flow hedges are reported in Accumulated Other Comprehensive Loss (AOCL) and reclassified into earnings, through Cost of Products Sold, in the period or periods in which the hedged transactions affect earnings. The Company typically does not hedge its grain exposure beyond the next two upcoming fiscal years and its hog exposure beyond the next fiscal year. Due to extreme market volatility, the Company took strategic hedges to cover a significant portion of its expected grain purchases through fiscal 2022.

Fair Value Commodity Hedges: The Company designates the futures it uses to minimize the price risk assumed when fixed forward priced contracts are offered to the Company’s commodity suppliers as fair value hedges. The intent of the program is to make the forward priced commodities cost nearly the same as cash market purchases at the date of delivery. Changes in the fair value of the futures contracts, along with the gain or loss on the hedged purchase commitment, are marked-to-market through earnings and recorded on the Consolidated Statements of Financial Position as a Current Asset and Liability, respectively. Effective gains or losses related to these fair value hedges are recognized through Cost of Products Sold in the period or periods in which the hedged transactions affect earnings.

Cash Flow Interest Rate Hedges: In the second quarter of fiscal 2021, the Company designated two separate interest rate locks as cash flow hedges to manage interest rate risk associated with the anticipated debt transactions required to fund the acquisition of the Planters*®* snack nuts business. The total notional amount of the Company's locks was $1,250 million. In the third quarter of fiscal 2021, the associated unsecured senior notes were issued with a tenor of 7 and 30 years and both locks were lifted (See Note L - Long-term Debt and Other Borrowing Arrangements). Mark-to-market gains and losses on these instruments were deferred as a component of AOCL. The resulting gain in AOCL is reclassified to Interest Expense in the period when the hedged transactions affect earnings.

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

Volume: The Company's outstanding contracts related to its commodity hedging programs include:

			Volume
Commodity Contracts			October 31, 2021			October 25, 2020
Corn			33.1 million bushels			26.0 million bushels
Lean Hogs			120.0 million pounds			153.7 million pounds

Fair Value of Derivatives: The fair values of the Company’s derivative instruments designated as hedges are:

						Location on Consolidated						Gross Fair Value(1)
(in thousands)						Statements of Financial Position						October 31, 2021						October 25, 2020
Commodity Contracts						Other Current Assets						$	21,798					$	(1,330)

(1) Amounts represent the gross fair value of commodity derivative assets and liabilities. The Company nets the derivative assets and liabilities for each of its commodity 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 commodity derivative in the Consolidated Statements of Financial Position. The gross asset position as of October 31, 2021 is offset by the obligation to return cash collateral of $10.8 million contained within the master netting arrangement. The gross liability position as of October 25, 2020, is offset by the right to reclaim cash collateral of $12.3 million. See Note I - Fair Value Measurements for a discussion of these net amounts as reported in the Consolidated Statements of Financial Position.

Fair Value Hedge - Assets (Liabilities): The carrying amount of the Company’s fair value hedge assets (liabilities) are:

Location on Consolidated Statements of Financial Position						Carrying Amount(1) of the Hedged Assets/(Liabilities)
(in thousands)						October 31, 2021						October 25, 2020
Accounts Payable						$	3,432					$	4,269

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

Accumulated Other Comprehensive Loss Impact: As of October 31, 2021, the Company included in AOCL hedging gains (before tax) of $32.0 million on commodity contracts and $14.5 million related to interest rate settled positions. The Company expects to recognize the majority of the gains on commodity contracts over the next twelve months. Gains on interest rate contracts offset the hedged interest payments over the tenor of the debt instruments.

The effect of AOCL for gains or losses (before tax) related to the Company's derivative instruments 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 31, 2021						October 25, 2020									October 31, 2021						October 25, 2020
Commodity Contracts						$	59,143					$	(38,213)					Cost of Products Sold						$	31,044					$	(37,834)
Excluded Component(2)						1,078						—												—						—
Interest Rate Contracts						14,864						—						Interest Expense						399						—

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

(2) Represents the time value of corn options excluded from the assessment of effectiveness for which the difference between changes in fair value and periodic amortization is recorded in AOCL.

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

			Consolidated Statement of Operations Impact
(in thousands)			October 31, 2021						October 25, 2020						October 27, 2019
Net Earnings Attributable to Hormel Foods Corporation			$	908,839					$	908,082					$	978,806
Cash Flow Hedges - Commodity Contracts
Gain (Loss) Reclassified from AOCL			$	31,787					$	(37,834)					$	(1,701)
Amortization of Excluded Component from Options			(3,033)						—						(2,489)
Gain (Loss) Reclassified from AOCL Due to Discontinuance of Cash Flow Hedges(1)			(743)						—						—
Fair Value Hedges - Commodity Contracts
Gain (Loss) on Commodity Futures(2)			(28,078)						13,192						5,197
Total Gain (Loss) on Commodity Contracts**(3)**			$	(67)					$	(24,642)					$	1,007
Cash Flow Hedges - Interest Rate Locks
Amortization of Gain on Interest Rate Locks			$	399					$	—					$	—
Total Gain on Interest Rate Locks**(4)**			$	399					$	—					$	—
Total Gain (Loss) Recognized in Earnings			$	332					$	(24,642)					$	1,007

(1) During the fourth quarter of fiscal 2021, the Company discontinued hedge accounting on 2.8 million bushels of corn usage that was deemed no longer probable to occur. A loss of $0.7 million related to the discontinued hedges was reclassified directly into earnings.

(2) 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.

(3) Total Gain (Loss) on Commodity Contracts is recognized in earnings through Cost of Products Sold.

(4) Total Gain on Interest Rate Locks is recognized in earnings through Interest Expense.

Note G

Pension and Other Post-retirement Benefits

The Company has several defined benefit plans and defined contribution plans covering most employees. Benefits for defined benefit pension plans covering hourly employees are provided based on stated amounts for each year of service, while plan benefits covering salaried employees are based on final average compensation. Total costs associated with the Company’s defined contribution benefit plans in fiscal years 2021, 2020, and 2019 were $46.7 million, $44.5 million, and $43.0 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)						2021						2020						2019						2021						2020						2019
Service Cost						$	37,127					$	35,584					$	26,042					$	533					$	770					$	690
Interest Cost						50,399						53,642						60,385						7,945						9,306						12,016
Expected Return on Plan Assets						(102,693)						(101,283)						(92,492)						—						—						—
Amortization of Prior Service Cost						(1,496)						(2,168)						(2,795)						(669)						(2,651)						(2,675)
Recognized Actuarial Loss (Gain)						22,742						22,383						14,805						2,020						1,045						—
Curtailment (Gain) Charge						—						—						2,825						—						—						1,219
Net Periodic Cost						$	6,080					$	8,158					$	8,770					$	9,830					$	8,470					$	11,250

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 over periods ranging from 8-20 years for pension benefits and 4-15 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)						2021						2020						2021						2020
Unrecognized Prior Service Credit						$	(3,624)					$	(2,128)					$	(154)					$	514
Unrecognized Actuarial Losses						(305,433)						(402,289)						(35,616)						(36,144)

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 31, 2021, and the October 25, 2020, measurement dates:

						Pension Benefits												Post-retirement Benefits
(in thousands)						2021						2020						2021						2020
Change in Benefit Obligation
Benefit Obligation at Beginning of Year						$	1,666,886					$	1,616,177					$	285,293					$	290,946
Service Cost						37,127						35,584						533						770
Interest Cost						50,399						53,642						7,945						9,306
Actuarial (Gain) Loss						34,247						77,447						1,539						2,362
Participant Contributions						—						—						2,113						2,344
Medicare Part D Subsidy						—						—						461						555
Benefits Paid						(76,702)						(115,965)						(23,218)						(20,990)
Benefit Obligation at End of Year						$	1,711,958					$	1,666,886					$	274,666					$	285,293

						Pension Benefits												Post-retirement Benefits
(in thousands)						2021						2020						2021						2020
Change in Plan Assets
Fair Value of Plan Assets at Beginning of Year						$	1,553,532					$	1,477,288					$	—					$	—
Actual Return on Plan Assets						211,054						183,647						—						—
Participant Contributions						—						—						2,113						2,344
Employer Contributions						10,712						8,562						21,105						18,646
Benefits Paid						(76,702)						(115,965)						(23,218)						(20,990)
Fair Value of Plan Assets at End of Year						$	1,698,596					$	1,553,532					$	—					$	—
Funded Status at End of Year						$	(13,362)					$	(113,354)					$	(274,666)					$	(285,293)

Amounts recognized in the Consolidated Statements of Financial Position as of October 31, 2021, and October 25, 2020, are as follows:

						Pension Benefits												Post-retirement Benefits
(in thousands)						2021						2020						2021						2020
Pension Assets						$	289,096					$	183,232					$	—					$	—
Employee-related Expenses						(11,173)						(9,332)						(19,589)						(19,669)
Pension and Post-retirement Benefits						(291,285)						(287,254)						(255,077)						(265,624)
Net Amount Recognized						$	(13,362)					$	(113,354)					$	(274,666)					$	(285,293)

The accumulated benefit obligation for all pension plans was $1.7 billion and $1.6 billion as of October 31, 2021, and October 25, 2020, respectively. The following table provides information for pension plans with projected and accumulated benefit obligations in excess of plan assets:

(in thousands)						2021						2020
Projected Benefit Obligation						$	302,458					$	296,585
Accumulated Benefit Obligation						292,877						288,359
Fair Value of Plan Assets						—						—

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

						2021						2020
Discount Rate						3.00		%				3.06		%
Rate of Future Compensation Increase (For Plans that Base Benefits on Final Compensation Level)						4.14		%				4.09		%

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

						2021						2020						2019
Discount Rate						3.06		%				3.37		%				4.55		%
Rate of Future Compensation Increase (For Plans that Base Benefits on Final Compensation Level)						4.09		%				4.06		%				3.96		%
Expected Long-term Return on Plan Assets						6.75		%				7.00		%				7.15		%

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 percent 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 2022. The pre-Medicare and post-Medicare rate is assumed to decrease to 5 percent for 2027 and remain steady thereafter.

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 $31.1 million during fiscal 2022 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
2022						$	75,704					$	19,832
2023						77,767						19,760
2024						79,870						19,445
2025						82,118						18,901
2026						86,066						18,265
2027-2031						459,902						80,310

Plan assets for certain defined benefit pension plans are held in the Hormel Foods Corporation Master Trust (Master Trust). The investment strategy for the Master Trust 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:

						2021									2020
Asset Category						Actual %						Target Range %			Actual %						Target Range %
Fixed Income						43.8						35-60			46.3						35-60
Global Stocks						40.7						20-55			39.2						20-55
Private Equity						6.4						0-10			5.4						0-10
Real Estate						5.3						0-10			5.2						0-10
Hedge Funds						2.6						0-10			2.4						0-10
Cash and Cash Equivalents						1.1						—			1.5						—

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 31, 2021
(in thousands)						Total Fair Value						Quoted Prices in Active Markets for Identical Assets (Level 1)						Significant Other Observable Inputs (Level 2)						Significant Unobservable Inputs (Level 3)
Plan Assets in Fair Value Hierarchy
Cash Equivalents(1)						$	19,328					$	—					$	19,328					$	—
Private Equity(2)
Domestic						53,229						—						—						53,229
International						56,190						—						—						56,190
Fixed Income(3)
U.S. Government Issues						262,181						164,357						97,824						—
Municipal Issues						14,024						—						14,024						—
Corporate Issues – Domestic						321,639						—						321,639						—
Corporate Issues – Foreign						56,102						—						56,102						—
Global Stocks - Mutual Funds(4)						94,115						94,115						—						—
Plan Assets in Fair Value Hierarchy						$	876,808					$	258,472					$	508,917					$	109,419
Plan Assets at Net Asset Value
Real Estate – Domestic(5)						$	90,106
Global Stocks - Collective Investment Funds(6)						596,985
Hedge Funds(7)						44,848
Fixed Income - Hedge Funds(8)						62,609
Fixed Income - Collective Investment Funds(9)						27,239
Plan Assets at Net Asset Value						$	821,787
Total Plan Assets at Fair Value						$	1,698,596

						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

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 Commodity Trading Advisor 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)						2021						2020
Beginning Balance						$	83,838					$	84,901
Purchases, Issuances, and Settlements (Net)						(23,151)						(10,151)
Unrealized Gains (Losses)(1)						26,879						(4,577)
Realized Gains						604						8,130
Interest and Dividend Income						21,248						5,535
Ending Balance						$	109,419					$	83,838

(1) Included in Accumulated Other Comprehensive Loss in the Consolidated Statements of Financial Position.

During fiscal 2021, the value of the Level 3 investments ranged from $83.8 million to $109.4 million, with an average value of $97.6 million.

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 31, 2021, and October 25, 2020, is as follows:

(in thousands)						2021						2020
Domestic Equity						$	81					$	203
International Equity						9,794						15,919
Unfunded Commitment Balance						$	9,875					$	16,122

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

Note H

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 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)
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)
Unrecognized Gains (Losses)
Gross						12,980						72,623									75,084									160,687
Tax Effect						—						(17,715)									(18,259)									(35,974)
Reclassification into Net Earnings
Gross						—						22,597			(1)						(31,443)			(2)						(8,846)
Tax Effect						—						(5,538)									7,652									2,114
Net of Tax Amount						12,980						71,967									33,034									117,981
Balance at October 31, 2021						$	(51,181)					$	(261,211)								$	35,123								$	(277,269)

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

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

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

Note I

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 31, 2021, and October 25, 2020, and their level within the fair value hierarchy are presented in the table below.

						Fair Value Measurements at October 31, 2021
						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)						$	613,530					$	611,111					$	2,419					$	—
Short-term Marketable Securities(2)						21,162						8,790						12,372						—
Other Trading Securities(3)						203,020						—						203,020						—
Commodity Derivatives(4)						13,522						8,104						5,418						—
Total Assets at Fair Value						$	851,234					$	628,005					$	223,229					$	—
Liabilities at Fair Value
Deferred Compensation(3)						$	70,466					$	—					$	70,466					$	—
Total Liabilities at Fair Value						$	70,466					$	—					$	70,466					$	—

						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					$	—

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 exchange-traded funds 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 of $21.2 million, $7.0 million, and $8.3 million for fiscal years 2021, 2020, and 2019, respectively.

(4) The Company’s commodity derivatives represent futures, swaps, and options contracts used in its hedging or other programs to offset price fluctuations associated with purchases of corn and hogs, and to minimize the price risk assumed when forward priced contracts are offered to the Company’s commodity suppliers. The Company’s futures contracts for corn are traded on the Chicago Board of Trade, while futures contracts for lean hogs are traded on the Chicago Mercantile Exchange. These are active markets with quoted prices available, and these contracts are classified as Level 1. Over-the-counter (OTC) derivative

instruments are valued using discounted cash flow models, observable and non-observable market inputs, and other mathematical pricing models. The Company’s corn futures options contracts are OTC instruments classified as Level 2 whose value is calculated using the Black-Scholes pricing model, corn future prices quoted from the Chicago Board of Trade, and other adjustments to inputs that are observable in active markets. All derivatives are reviewed for potential credit risk and risk of nonperformance. The net balance for each program is included in Other Current Assets or Accounts Payable, as appropriate, in the Consolidated Statements of Financial Position. As of October 31, 2021, the Company has recognized the obligation to return net cash collateral of $10.8 million from various counterparties (including cash of $45.6 million less $34.8 million of realized gain). As of October 25, 2020, the Company had recognized the right to reclaim net cash collateral of $12.3 million from various counterparties (including cash of $25.5 million less $13.2 million of realized loss ).

The Company’s financial assets and liabilities include accounts receivable, accounts payable, and other liabilities, for which carrying value approximates fair value. The Company does not carry its long-term debt at fair value in its Consolidated Statements of Financial Position. The fair value of long-term debt, utilizing discounted cash flows (Level 2), was $3.3 billion as of October 31, 2021, and $1.2 billion as of October 25, 2020. See Note L - 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). See additional discussion regarding the Company’s goodwill and intangible assets in Note D - Goodwill and Intangible Assets. During fiscal years 2021, 2020, and 2019, there were no other material remeasurements of assets or liabilities at fair value on a nonrecurring basis subsequent to their initial recognition.

Note J

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 4 years. Under these contracts, the Company is committed to make purchases, assuming current price levels, as follows:

(in thousands)			October 31, 2021
2022			$	1,180,277
2023			778,324
2024			612,248
2025			439,812
2026			336,428
Later Years			302,455
Total			$	3,649,544

Purchases under these contracts for fiscal years 2021, 2020, and 2019 were $1.1 billion, $0.9 billion, and $1 billion, respectively.

As of October 31, 2021, the Company has $47.3 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 K

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.

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

(in thousands)			Location on Consolidated Statements of Financial Position						October 31, 2021			October 25, 2020
Right-of-Use Assets
Operating			Other Assets						$	72,291		$	53,119
Finance			Net Property, Plant, and Equipment						53,433			61,059
Total Right-of-Use Assets									$	125,724		$	114,179
Liabilities
Current
Operating			Accrued Expenses						$	18,331		$	12,025
Finance			Current Maturities of Long-term Debt						8,362			8,308
Noncurrent
Operating			Other Long-term Liabilities						56,779			43,126
Finance			Long-term Debt Less Current Maturities						44,637			52,722
Total Lease Liabilities									$	128,109		$	116,182

Lease expenses are:

						Fiscal Year Ended
(in thousands)						October 31, 2021			October 25, 2020
Operating Lease Cost (1)						$	21,993		$	19,602
Finance Lease Cost
Amortization of Right-of-Use Assets						8,104			7,985
Interest on Lease Liabilities						2,019			2,304
Variable Lease Cost (2)						544,635			424,955
Net Lease Cost						$	576,751		$	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 31, 2021			October 25, 2020
Weighted Average Remaining Lease Term
Operating Leases			5.92 years			7.31 years
Finance Leases			7.18 years			8.14 years
Weighted Average Discount Rate
Operating Leases			1.76		%	2.28		%
Finance Leases			3.48		%	3.54		%

Supplemental cash flow and other information related to leases for the fiscal year-end are:

(in thousands)						October 31, 2021			October 25, 2020
Cash Paid for Amounts Included in the Measurement of Lease Liabilities
Operating Cash Flows from Operating Leases						$	20,305		$	15,412
Operating Cash Flows from Finance Leases						2,019			2,304
Financing Cash Flows from Finance Leases						8,598			8,189
Right-of-Use Assets obtained in exchange for new operating lease liabilities						31,962			5,210

The maturity of the Company's lease liabilities as of October 31, 2021, are:

(in thousands)						Operating Leases						Finance Leases (1)						Total
2022						$	20,062					$	10,025					$	30,088
2023						17,334						9,827						27,161
2024						12,548						9,688						22,236
2025						9,557						8,134						17,690
2026						5,856						5,652						11,508
2027 and beyond						16,516						15,540						32,056
Total Lease Payments						$	81,872					$	58,867					$	140,738
Less: Imputed Interest						6,762						5,868						12,630
Present Value of Lease Liabilities						$	75,110					$	52,999					$	128,109

(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.

Prior to the adoption of ASC 842 on October 28, 2019, rent expense under operating leases was $23.1 million in fiscal year 2019.

Note L

Long-term Debt and Other Borrowing Arrangements

Long-term Debt consists of:

(in thousands)			October 31, 2021			October 25, 2020
Senior Unsecured Notes, with Interest at 3.050%, Interest Due Semi-annually through June 2051 Maturity Date			$	600,000		$	—
Senior Unsecured Notes, with Interest at 1.800%, Interest Due Semi-annually through June 2030 Maturity Date			1,000,000			1,000,000
Senior Unsecured Notes, with Interest at 1.700%, Interest Due Semi-annually through June 2028 Maturity Date			750,000			—
Senior Unsecured Notes, with Interest at 0.650%, Interest Due Semi-annually through June 2024 Maturity Date			950,000			—
Senior Unsecured Notes, with Interest at 4.125%, Interest Due Semi-annually through April 2021 Maturity Date			—			250,000
Unamortized Discount on Senior Notes			(8,484)			(2,630)
Unamortized Debt Issuance Costs			(23,435)			(7,979)
Finance Lease Liabilities(1)			52,999			61,030
Other Financing Arrangements			2,823			3,206
Total			3,323,903			1,303,627
Less: Current Maturities of Long-term Debt			8,756			258,691
Long-term Debt Less Current Maturities			$	3,315,147		$	1,044,936

(1) See Note K - Leases for additional information

Senior Unsecured Notes: The Company repaid its $250.0 million senior unsecured notes upon maturity in April 2021.

On June 11, 2020, the Company issued senior notes in an aggregate principal amount of $1.0 billion, due June 11, 2030. The notes bear interest at a fixed rate of 1.800% per annum, with interest paid semi-annually in arrears on June 11 and December 11 of each year, commencing December 11, 2020. The notes may be redeemed in whole or in part at any time at the applicable redemption price set forth in the prospectus supplement. If a change of control triggering event occurs, the Company must offer to purchase the notes at a purchase price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, to the date of purchase.

On June 3, 2021, the Company issued $950.0 million aggregate principal amount of its 0.650% notes due 2024 (the "2024 Notes"), $750.0 million aggregate principal amount of its 1.700% notes due 2028 (the "2028 Notes"), and $600.0 million aggregate principal amount of its 3.050% notes due 2051 (the "2051 Notes"). Interest will accrue per annum at the stated rates with interest on the notes being paid semi-annually in arrears on June 3 and December 3 of each year, commencing December 3, 2021. Interest rate risk was hedged utilizing interest rate locks on the 2028 Notes and 2051 Notes. The Company lifted the hedges in conjunction with the issuance of these notes. See Note F - Derivatives and Hedging for additional details. The 2024 Notes may be redeemed in whole or in part one year after their issuance without penalty for early partial payments or full redemption. The 2028 Notes and 2051 Notes may be redeemed in whole or in part at any time at the applicable redemption price. If a change of control triggering event occurs, the Company must offer to purchase the notes at a purchase price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, to the date of purchase.

Unsecured Revolving Credit Facility: On May 6, 2021, the Company entered into an unsecured revolving credit agreement with Wells Fargo Bank, National Association as administrative agent, swingline lender and issuing lender, U.S. Bank National Association, JPMorgan Chase Bank, N.A. and BofA Securities, Inc. as syndication agents and the lenders party thereto. In connection with entering the revolving credit agreement, the Company terminated its existing credit facility that was entered into on June 24, 2015. The revolving credit agreement provides for an unsecured revolving credit facility with an aggregate principal commitment amount at any time outstanding of up to $750.0 million with an uncommitted increase option of an additional $375.0 million upon the satisfaction of certain conditions. The unsecured revolving line of credit bears interest, at the Company’s election, at either a Base Rate plus margin of 0.0% to 0.150% or the Eurocurrency Rate plus margin of 0.575% to 1.150% and a variable fee of 0.050% to 0.100% is paid for the availability of this credit line. Extensions of credit under the facility may be made in the form of revolving loans, swingline loans and letters of credit. The lending commitments under the agreement are scheduled to expire on May 6, 2026, at which time the Company will be required to pay in full all obligations then outstanding. As of October 31, 2021, and October 25, 2020, the Company had no outstanding draws from these facilities.

Debt Covenants: The Company is required by certain covenants in its debt agreements to maintain specified levels of financial ratios and financial position. As of October 31, 2021, the Company was in compliance with all of these covenants.

Total interest paid in the last three fiscal years is as follows:

(in millions)
2021						$	25.1
2020						14.5
2019						19.0

Note M

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 2021, 2020, and 2019, was $24.7 million, $22.5 million, and $19.7 million, respectively. The Company recognizes stock-based compensation expense ratably over the vesting period or the individual's retirement eligibility date.

At October 31, 2021, there was $19.3 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 1.4 years. During fiscal years 2021, 2020, and 2019, cash received from stock option exercises was $45.9 million, $81.8 million, and $59.9 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 12.5 million at October 31, 2021, 13.7 million at October 25, 2020, and 14.9 million at October 27, 2019.

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

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

A reconciliation of the number of options outstanding and exercisable as of October 31, 2021, is:

						Shares (in thousands)						Weighted-Average Exercise Price						Weighted-Average Remaining Contractual Term (Years)						Aggregate Intrinsic Value (in thousands)
Stock Options Outstanding at October 25, 2020						21,073						$	30.39
Granted						1,277						47.45
Exercised						(3,050)						17.61
Forfeited						(277)						37.23
Expired						(1)						36.25
Stock Options Outstanding at October 31, 2021						19,022						$	33.49					4.9						$	182,432
Stock Options Exercisable at October 31, 2021						13,047						$	29.91					3.8						$	164,766

The weighted-average grant date fair value of stock options granted and the total intrinsic value of options exercised during each of the past three fiscal years, are:

						Fiscal Year Ended
						October 31,						October 25,						October 27,
(in thousands, except per share amounts)						2021						2020						2019
Weighted-average Grant Date Fair Value						$	7.52					$	7.71					$	9.24
Intrinsic Value of Exercised Options						94,108						182,821						138,282

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 31,						October 25,						October 27,
						2021						2020						2019
Risk-free Interest Rate						1.0		%				1.7		%				2.8		%
Dividend Yield						2.1		%				2.0		%				1.9		%
Stock Price Volatility						20.0		%				19.0		%				19.0		%
Expected Option Life						7.4 years						7.5 years						8.0 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. 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 as of October 31, 2021, is:

						Shares (in thousands)						Weighted- Average Grant Date Fair Value			Weighted-Average Remaining Contractual Term (Years)			Aggregate Intrinsic Value (in thousands)
Restricted Stock Units Outstanding at October 25, 2020						188						$	45.91
Granted						225						47.52
Dividend Equivalents						6						46.62
Vested						(31)						46.56
Forfeited						(3)						46.52
Restricted Stock Units Outstanding at October 31, 2021						385						$	46.81		1.7			$	16,277

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

						Fiscal Year Ended
						October 31,						October 25,						October 27,
(in thousands, except per share amounts)						2021						2020						2019
Weighted-average Grant Date Fair Value						$	47.52					$	45.88					$	—
Fair Value of Restricted Stock Units Granted						10,699						9,383						—
Fair Value of Restricted Stock Units Vested						$	1,460					$	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 as of October 31, 2021, is:

(in thousands, except per share amounts)						Shares						Weighted- Average Grant Date Fair Value
Restricted Shares Outstanding at October 25, 2020						45						$	47.03
Granted						38						46.92
Vested						(45)						47.03
Restricted Shares Outstanding at October 31, 2021						38						$	46.92

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

						Fiscal Year Ended
						October 31,						October 25,						October 27,
(in thousands, except per share amounts)						2021						2020						2019
Weighted-average Grant Date Fair Value						$	46.92					$	47.29					$	42.23
Fair Value of Restricted Shares Granted						1,760						1,973						2,134
Fair Value of Restricted Shares Vested						$	2,133					$	1,974					$	1,760

Note N

Income Taxes

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

(in thousands)						2021						2020						2019
Current
U.S. Federal						$	171,732					$	142,708					$	161,233
State						7,541						13,353						30,774
Foreign						9,079						18,293						9,919
Total Current						188,352						174,354						201,926
Deferred
U.S. Federal						23,507						34,408						27,817
State						2,220						4,937						1,473
Foreign						2,950						(7,306)						(649)
Total Deferred						28,677						32,039						28,641
Total Provision for Income Taxes						$	217,029					$	206,393					$	230,567

The Company has elected to treat global intangible low taxed income (GILTI) as a period cost.

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 31, 2021						October 25, 2020
Deferred Tax Liabilities
Goodwill and Intangible Assets						$	(322,822)					$	(269,218)
Tax over Book Depreciation and Basis Differences						(143,891)						(164,911)
Other, net						(21,967)						(24,316)
Deferred Tax Assets
Pension and Other Post-retirement Benefits						71,190						97,129
Employee Compensation Related Liabilities						68,133						65,024
Marketing and Promotional Accruals						22,916						20,783
Other, net						50,767						62,302
Net Deferred Tax (Liabilities) Assets						$	(275,674)					$	(213,207)

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

						2021						2020						2019
U.S. Statutory Rate						21.0		%				21.0		%				21.0		%
State Taxes on Income, Net of Federal Tax Benefit						0.8						1.6						2.5
Divestitures						—						—						(1.4)
Stock-based Compensation						(1.6)						(3.1)						(2.2)
All Other, net						(0.9)						(1.0)						(0.8)
Effective Tax Rate						19.3		%				18.5		%				19.1		%

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

As of October 31, 2021, the Company had $221.4 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 2021, 2020, and 2019 were $167.0 million, $169.7 million, and $221.4 million, respectively.

The following table sets forth changes in the unrecognized tax benefits, excluding interest and penalties, for fiscal years 2021 and 2020.

(in thousands)
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
Tax Positions Related to the Current Period
Increases						4,003
Tax Positions Related to Prior Periods
Increases						2,117
Decreases						(4,170)
Settlements						(8,934)
Decreases Related to a Lapse of Applicable Statute of Limitations						(4,166)
Balance as of October 31, 2021						$	22,092

The amount of unrecognized tax benefits, including interest and penalties, is recorded in Other Long-term Liabilities. If recognized as of October 31, 2021, and October 25, 2020, $19.6 million, and $29.1 million, respectively, would impact the Company’s effective tax rate. The Company includes accrued interest and penalties related to uncertain tax positions in income tax expense, with losses of $0.9 million and $1.9 million included in expense for fiscal 2021 and 2020, respectively. The amount of accrued interest and penalties at October 31, 2021, and October 25, 2020, associated with unrecognized tax benefits was $5.0 million and $7.2 million, respectively.

The Company is regularly audited by federal and state taxing authorities. The U.S. Internal Revenue Service (I.R.S.) concluded their examinations of fiscal 2018 in the fourth quarter of fiscal 2020, and fiscal 2019 in the second quarter of fiscal 2021. The Company has elected to participate in the Compliance Assurance Process (CAP) for fiscal years through 2022. The objective of CAP is to contemporaneously work with the I.R.S. to achieve federal tax compliance and resolve all or most of the issues prior to filing of the tax return. The Company may elect to continue participating in CAP for future tax years; the Company may withdraw from the program at any time.

The Company is in various stages of audit by several state taxing authorities on a variety of fiscal years, as far back as 2015. While it is reasonably possible that one or more of these audits may be completed within the next 12 months and the related unrecognized tax benefits may change based on the status of the examinations, it is not possible to reasonably estimate the effect of any amount of such change to previously recorded uncertain tax positions.

Note 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)						2021						2020						2019
Basic Weighted-Average Shares Outstanding						541,114						538,007						534,578
Dilutive Potential Common Shares						6,466						8,585						10,654
Diluted Weighted-Average Shares Outstanding						547,580						546,592						545,232
Antidilutive Potential Common Shares						2,839						1,822						2,801

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.

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

The Refrigerated Foods segment consists primarily of the processing, marketing, and sale of branded and unbranded pork, beef, and poultry products for retail, foodservice, deli, convenience store, and commercial customers.

The Jennie-O Turkey Store segment consists primarily of the processing, marketing, and sale of branded and unbranded turkey products for retail, foodservice, and commercial customers.

The International & Other segment includes Hormel Foods International which manufactures, markets, and sells Company products internationally. This segment also includes the results from the Company’s international joint ventures and royalty arrangements.

Intersegment sales are recorded at prices that approximate cost and are eliminated in the Consolidated Statements of Operations. The Company does not allocate deferred compensation, investment income, interest expense, or interest income to its segments when measuring performance. The Company also retains various other income and expenses at the corporate level. One-time acquisition-related costs and accounting adjustments associated with the purchase of the Planters*®* snack nuts business were also retained at the corporate level. Equity in Earnings of Affiliates is included in segment profit; however, earnings attributable to the Company’s noncontrolling interests are excluded. These items are included below as Net Unallocated Expense and Noncontrolling Interest when reconciling to Earnings Before Income Taxes.

Sales and segment profit for each of the Company’s reportable segments and reconciliation to Earnings Before Income Taxes are set forth below. The Company is an integrated enterprise, characterized by substantial intersegment cooperation, cost allocations, and sharing of assets. Therefore, the Company does not represent that these segments, if operated independently, would report the profit and other financial information shown below.

			Fiscal Year
(in thousands)						2021						2020						2019
Sales to Unaffiliated Customers
Grocery Products						$	2,809,445					$	2,385,291					$	2,369,317
Refrigerated Foods						6,333,410						5,271,061						5,210,741
Jennie-O Turkey Store						1,495,151						1,333,459						1,323,783
International & Other						748,183						618,650						593,476
Total						$	11,386,189					$	9,608,462					$	9,497,317
Intersegment Sales
Grocery Products						$	—					$	13					$	41
Refrigerated Foods						28,019						21,067						16,351
Jennie-O Turkey Store						134,563						108,276						123,712
International & Other						—						—						—
Total						162,582						129,356						140,104
Intersegment Elimination						(162,582)						(129,356)						(140,104)
Total						$	—					$	—					$	—
Net Sales
Grocery Products						$	2,809,445					$	2,385,304					$	2,369,358
Refrigerated Foods						6,361,429						5,292,128						5,227,092
Jennie-O Turkey Store						1,629,714						1,441,735						1,447,495
International & Other						748,183						618,650						593,476
Intersegment Elimination						(162,582)						(129,356)						(140,104)
Total						$	11,386,189					$	9,608,462					$	9,497,317
Segment Profit
Grocery Products						$	382,197					$	358,008					$	339,497
Refrigerated Foods						664,558						609,406						681,763
Jennie-O Turkey Store						76,006						105,585						117,962
International & Other						115,943						93,782						75,513
Total Segment Profit						$	1,238,704					$	1,166,782					$	1,214,735
Net Unallocated Expense						112,836						52,307						5,362
Noncontrolling Interest						301						272						342
Earnings Before Income Taxes						$	1,126,170					$	1,114,747					$	1,209,715
Assets
Grocery Products						$	4,711,475					$	1,713,883					$	1,774,235
Refrigerated Foods						4,900,427						4,188,250						3,583,639
Jennie-O Turkey Store						1,073,249						1,111,318						1,023,787
International & Other						800,828						721,729						692,310
Corporate						1,210,351						2,173,101						1,035,033
Total						$	12,696,329					$	9,908,282					$	8,109,004
Additions to Property, Plant, & Equipment
Grocery Products						$	19,911					$	34,409					$	37,892
Refrigerated Foods						159,380						249,441						174,506
Jennie-O Turkey Store						14,606						42,042						31,607
International & Other						8,626						3,737						9,248
Corporate						29,894						37,872						40,585
Total						$	232,416					$	367,501					$	293,838
Depreciation and Amortization
Grocery Products						$	34,645					$	32,148					$	31,406
Refrigerated Foods						116,206						97,317						77,100
Jennie-O Turkey Store						47,669						46,322						34,696
International & Other						15,244						16,226						10,666
Corporate						14,643						13,767						11,342
Total						$	228,406					$	205,781					$	165,210

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 amounts of total revenues contributed by sales channel for the last three fiscal years are:

						Fiscal Year Ended
(in thousands)						October 31, 2021						October 25, 2020						October 27, 2019
U.S. Retail						$	6,196,761					$	5,441,412					$	4,947,398
U.S. Foodservice						3,239,424						2,489,644						2,943,352
U.S. Deli						1,087,081						970,327						939,069
International						862,923						707,078						667,498
Total						$	11,386,189					$	9,608,462					$	9,497,317

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

						Fiscal Year Ended
(in thousands)						October 31, 2021						October 25, 2020						October 27, 2019
Perishable						$	6,271,164					$	5,328,738					$	5,370,409
Shelf-stable						2,661,194						2,092,551						1,829,138
Poultry						2,100,356						1,886,367						1,849,294
Miscellaneous						353,475						300,806						448,476
Total						$	11,386,189					$	9,608,462					$	9,497,317

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, snack nuts, chili, 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 divestiture of CytoSport in fiscal 2019 led to the reduction in the Miscellaneous category as compared to fiscal 2021 and 2020.

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 31, 2021						October 25, 2020						October 27, 2019
United States						$	10,653,088					$	9,006,007					$	8,934,911
Foreign						733,101						602,454						562,406
Total						$	11,386,189					$	9,608,462					$	9,497,317

In fiscal 2021, sales to Walmart Inc. (Walmart) represented $1.9 billion or 15.2% of the Company’s consolidated gross sales less returns and allowances compared to $1.5 billion or 14.6% in fiscal 2020. Walmart is a customer for all four segments of the Company.