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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 30, 2023
or

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

For the transition period from _______________ to _______________
Commission File Number: 1-2402
HORMEL FOODS CORPORATION
(Exact name of registrant as specified in its charter)

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

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

(507) 437-5611
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:

Title of each class |  | Trading Symbol |  | Name of each exchange on which registered
Common Stock | $0.01465 | par value |  | HRL |  | New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer | ☒ | Accelerated filer | ☐
Non-accelerated filer | ☐ | Smaller reporting company | ☐
|  | Emerging growth company | ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class |  | Outstanding at August 27, 2023 |
Common Stock |  | $0.01465 | par value | 546,481,141 |  |
Common Stock Non-Voting |  | $0.01 | par value | 0 |  |

Table of Contents
TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION | 3
Item 1. Financial Statements | 3
Consolidated Statements of Operations | 3
Consolidated Statements of Comprehensive Income | 4
Consolidated Condensed Statements of Financial Position | 5
Consolidated Statements of Changes in Shareholders' Investment | 7
Consolidated Condensed Statements of Cash Flows | 9
Notes to Consolidated Financial Statements | 10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 21
Results of Operations | 21
Overview | 21
Consolidated Results | 22
Segment Results | 24
Related Party Transactions | 26
Non-GAAP Financial Measures | 26
Liquidity and Capital Resources | 27
Critical Accounting Estimates | 29
Forward-looking Statements | 29
Item 3. Quantitative and Qualitative Disclosures About Market Risk | 30
Item 4. Controls and Procedures | 31
PART II - OTHER INFORMATION | 31
Item 1. Legal Proceedings | 31
Item 1A. Risk Factors | 32
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 32
Item 3. Defaults Upon Senior Securities | 32
Item 4. Mine Safety Disclosures | 32
Item 5. Other Information | 32
Item 6. Exhibits | 32
SIGNATURES | 33

2

Table of Contents
PART I – FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
HORMEL FOODS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
In thousands, except per share amounts
Unaudited

| Quarter Ended |  | Nine Months Ended
| July 30, 2023 |  | July 31, 2022 |  | July 30, 2023 |  | July 31, 2022
Net Sales | $ | 2,963,299 |  |  | $ | 3,034,414 |  |  | $ | 8,911,930 |  |  | $ | 9,175,331 |
Cost of Products Sold | 2,465,251 |  |  | 2,528,364 |  |  | 7,426,514 |  |  | 7,577,062 |
Gross Profit | 498,048 |  |  | 506,049 |  |  | 1,485,417 |  |  | 1,598,269 |
Selling, General, and Administrative | 291,073 |  |  | 222,147 |  |  | 725,621 |  |  | 672,777 |
Equity in Earnings of Affiliates | 9,784 |  |  | 7,138 |  |  | 42,213 |  |  | 19,951 |
Operating Income | 216,759 |  |  | 291,040 |  |  | 802,009 |  |  | 945,443 |
Interest and Investment Income | 9,239 |  |  | 14,411 |  |  | 20,700 |  |  | 20,078 |
Interest Expense | 18,372 |  |  | 15,615 |  |  | 55,042 |  |  | 44,913 |
Earnings Before Income Taxes | 207,626 |  |  | 289,836 |  |  | 767,666 |  |  | 920,608 |
Provision for Income Taxes | 45,055 |  |  | 71,010 |  |  | 170,230 |  |  | 200,393 |
Net Earnings | 162,571 |  |  | 218,826 |  |  | 597,437 |  |  | 720,215 |
Less: Net Earnings (Loss) Attributable to Noncontrolling Interest | (108) |  |  | (89) |  |  | (200) |  |  | 112 |
Net Earnings Attributable to Hormel Foods Corporation | $ | 162,679 |  |  | $ | 218,915 |  |  | $ | 597,637 |  |  | $ | 720,103 |
Net Earnings Per Share |  |  |  |  |  |  |
Basic | $ | 0.30 |  |  | $ | 0.40 |  |  | $ | 1.09 |  |  | $ | 1.32 |
Diluted | $ | 0.30 |  |  | $ | 0.40 |  |  | $ | 1.09 |  |  | $ | 1.31 |
Weighted-average Shares Outstanding |  |  |  |  |  |  |
Basic | 546,358 |  |  | 546,077 |  |  | 546,389 |  |  | 544,486 |
Diluted | 548,637 |  |  | 550,167 |  |  | 549,227 |  |  | 549,377 |

See Notes to Consolidated Financial Statements
3

Table of Contents
HORMEL FOODS CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
In thousands
Unaudited

| Quarter Ended |  | Nine Months Ended
| July 30, 2023 |  | July 31, 2022 |  | July 30, 2023 |  | July 31, 2022
Net Earnings | $ | 162,571 |  |  | $ | 218,826 |  |  | $ | 597,437 |  |  | $ | 720,215 |
Other Comprehensive Income (Loss), Net of Tax: |  |  |  |  |  |  |
Foreign Currency Translation | (10,572) |  |  | (29,228) |  |  | 27,362 |  |  | (14,233) |
Pension and Other Benefits | 2,195 |  |  | 2,505 |  |  | 7,368 |  |  | 7,643 |
Deferred Hedging | 2,518 |  |  | (35,138) |  |  | (31,058) |  |  | 967 |
Equity Method Investments | 8,733 |  |  | — |  |  | 10,141 |  |  | — |
Total Other Comprehensive Income (Loss) | 2,875 |  |  | (61,861) |  |  | 13,813 |  |  | (5,623) |
Comprehensive Income | 165,445 |  |  | 156,965 |  |  | 611,250 |  |  | 714,592 |
Less: Comprehensive Income (Loss) Attributable to Noncontrolling Interest | (510) |  |  | (540) |  |  | (338) |  |  | (206) |
Comprehensive Income Attributable to Hormel Foods Corporation | $ | 165,955 |  |  | $ | 157,505 |  |  | $ | 611,588 |  |  | $ | 714,798 |

See Notes to Consolidated Financial Statements
4

Table of Contents
HORMEL FOODS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION
In thousands, except share and per share amounts
Unaudited

| July 30, 2023 |  | October 30, 2022
Assets |  |  |
Cash and Cash Equivalents | $ | 669,124 |  |  | $ | 982,107 |
Short-term Marketable Securities | 17,423 |  |  | 16,149 |
Accounts Receivable (Net of Allowance for Doubtful Accounts of $3,561 at July 30, 2023, and $3,507 at October 30, 2022) | 786,246 |  |  | 867,593 |
Inventories | 1,737,865 |  |  | 1,716,059 |
Taxes Receivable | 7,498 |  |  | 7,177 |
Prepaid Expenses and Other Current Assets | 36,613 |  |  | 48,041 |
Total Current Assets | 3,254,770 |  |  | 3,637,125 |
Goodwill | 4,931,590 |  |  | 4,925,829 |
Other Intangibles | 1,790,761 |  |  | 1,803,027 |
Pension Assets | 235,943 |  |  | 245,566 |
Investments in Affiliates | 743,474 |  |  | 271,058 |
Other Assets | 338,741 |  |  | 283,169 |
Property, Plant, and Equipment |  |  |
Land | 72,648 |  |  | 74,303 |
Buildings | 1,426,048 |  |  | 1,398,255 |
Equipment | 2,717,472 |  |  | 2,636,660 |
Construction in Progress | 216,478 |  |  | 216,246 |
Less: Allowance for Depreciation | (2,301,168) |  |  | (2,184,319) |
Net Property, Plant, and Equipment | 2,131,479 |  |  | 2,141,146 |
Total Assets | $ | 13,426,757 |  |  | $ | 13,306,919 |

See Notes to Consolidated Financial Statement s
5

Table of Contents
HORMEL FOODS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION
In thousands, except share and per share amounts
Unaudited

| July 30, 2023 |  | October 30, 2022
Liabilities and Shareholders' Investment |  |  |
Accounts Payable | $ | 703,407 |  |  | $ | 816,604 |
Accrued Expenses | 119,464 |  |  | 58,801 |
Accrued Marketing Expenses | 100,974 |  |  | 113,105 |
Employee Related Expenses | 241,879 |  |  | 279,072 |
Interest and Dividends Payable | 158,335 |  |  | 163,963 |
Taxes Payable | 49,583 |  |  | 32,925 |
Current Maturities of Long-term Debt | 946,981 |  |  | 8,796 |
Total Current Liabilities | 2,320,622 |  |  | 1,473,266 |
Long-term Debt Less Current Maturities | 2,360,380 |  |  | 3,290,549 |
Pension and Post-retirement Benefits | 396,297 |  |  | 385,832 |
Deferred Income Taxes | 467,827 |  |  | 475,212 |
Other Long-term Liabilities | 163,768 |  |  | 141,840 |
Shareholders' Investment |  |  |
Preferred Stock, Par Value $0.01 a Share– | — |  |  | — |
Authorized 160,000,000 Shares: Issued–None |  |  |
Common Stock, Non-voting, Par Value $0.01 a Share– | — |  |  | — |
Authorized 400,000,000 Shares: Issued–None |  |  |
Common Stock, Par Value $0.01465 a Share– | 8,005 |  |  | 8,002 |
Authorized 1,600,000,000 Shares: |  |  |
Shares Issued as of July 30, 2023: 546,466,703 |  |  |
Shares Issued as of October 30, 2022: 546,237,051 |  |  |
Additional Paid-in Capital | 499,304 |  |  | 469,468 |
Accumulated Other Comprehensive Loss | (241,610) |  |  | (255,561) |
Retained Earnings | 7,447,567 |  |  | 7,313,374 |
Hormel Foods Corporation Shareholders' Investment | 7,713,265 |  |  | 7,535,284 |
Noncontrolling Interest | 4,598 |  |  | 4,936 |
Total Shareholders' Investment | 7,717,863 |  |  | 7,540,219 |
Total Liabilities and Shareholders' Investment | $ | 13,426,757 |  |  | $ | 13,306,919 |

See Notes to Consolidated Financial Statement s
6

Table of Contents
HORMEL FOODS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ INVESTMENT
In thousands, except per share amounts
Unaudited

| Quarter Ended July 31, 2022
| Common Stock |  | Treasury Stock |  | Additional Paid-in Capital |  | Retained Earnings |  | Accumulated Other Comprehensive Income (Loss) |  | Non- controlling Interest |  | Total Shareholders’ Investment
| Shares |  | Amount |  | Shares |  | Amount |  |  |  |  |
Balance at May 1, 2022 | 546,053 |  |  | $ | 8,000 |  |  | — |  |  | $ | — |  |  | $ | 451,836 |  |  | $ | 7,100,730 |  |  | $ | (221,164) |  |  | $ | 5,812 |  |  | $ | 7,345,214 |
Net Earnings |  |  |  |  |  |  |  |  |  |  | 218,915 |  |  |  |  | (89) |  |  | 218,826 |
Other Comprehensive Income (Loss) |  |  |  |  |  |  |  |  |  |  |  |  | (61,410) |  |  | (451) |  |  | (61,861) |
Stock-based Compensation Expense |  |  |  |  |  |  |  |  | 4,566 |  |  |  |  |  |  |  |  | 4,566 |
Exercise of Stock Options/Restricted Shares | 103 |  |  | 2 |  |  |  |  |  |  | 2,870 |  |  |  |  |  |  |  |  | 2,872 |
Declared Dividends – $0.2600 per Share |  |  |  |  |  |  |  |  |  |  | (142,668) |  |  |  |  |  |  | (142,668) |
Balance at July 31, 2022 | 546,156 |  |  | $ | 8,001 |  |  | — |  |  | $ | — |  |  | $ | 459,272 |  |  | $ | 7,176,977 |  |  | $ | (282,574) |  |  | $ | 5,272 |  |  | $ | 7,366,948 |
| Quarter Ended July 30, 2023
| Common Stock |  | Treasury Stock |  | Additional Paid-in Capital |  | Retained Earnings |  | Accumulated Other Comprehensive Income (Loss) |  | Non- controlling Interest |  | Total Shareholders’ Investment
| Shares |  | Amount |  | Shares |  | Amount |  |  |  |  |
Balance at April 30, 2023 | 546,255 |  |  | $ | 8,002 |  |  | — |  |  | $ | — |  |  | $ | 488,100 |  |  | $ | 7,435,292 |  |  | $ | (244,887) |  |  | $ | 5,108 |  |  | $ | 7,691,615 |
Net Earnings |  |  |  |  |  |  |  |  |  |  | 162,679 |  |  |  |  | (108) |  |  | 162,571 |
Other Comprehensive Income (Loss) |  |  |  |  |  |  |  |  |  |  |  |  | 3,277 |  |  | (402) |  |  | 2,875 |
Stock-based Compensation Expense |  |  |  |  |  |  |  |  |  | 5,034 |  |  |  |  |  |  |  |  | 5,034 |
Exercise of Stock Options/Restricted Shares | 212 |  |  | 3 |  |  |  |  |  |  | 5,931 |  |  |  |  |  |  |  |  | 5,933 |
Declared Dividends – $0.2750 per Share |  |  |  |  |  |  |  |  | 239 |  | (150,404) |  |  |  |  |  |  | (150,165) |
Balance at July 30, 2023 | 546,467 |  |  | $ | 8,005 |  |  | — |  |  | $ | — |  |  | $ | 499,304 |  |  | $ | 7,447,567 |  |  | $ | (241,610) |  |  | $ | 4,598 |  |  | $ | 7,717,863 |

See Notes to Consolidated Financial Statements
7

Table of Contents
HORMEL FOODS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ INVESTMENT
In thousands, except per share amounts
Unaudited

| Nine Months Ended July 31, 2022
| Common Stock |  | Treasury Stock |  | Additional Paid-in Capital |  | Retained Earnings |  | Accumulated Other Comprehensive Income (Loss) |  | Non- controlling Interest |  | Total Shareholders’ Investment
| Shares |  | Amount |  | Shares |  | Amount |  |  |  |  |
Balance at October 31, 2021 | 542,412 |  |  | $ | 7,946 |  |  | — |  |  | $ | — |  |  | $ | 360,336 |  |  | $ | 6,881,870 |  |  | $ | (277,269) |  |  | $ | 5,478 |  |  | $ | 6,978,360 |
Net Earnings |  |  |  |  |  |  |  |  |  |  | 720,103 |  |  |  |  | 112 |  |  | 720,215 |
Other Comprehensive Income (Loss) |  |  |  |  |  |  |  |  |  |  |  |  | (5,305) |  |  | (318) |  |  | (5,623) |
Stock-based Compensation Expense | 37 |  | 1 |  |  |  |  |  |  | 20,933 |  |  |  |  |  |  |  |  | 20,933 |
Exercise of Stock Options/Restricted Shares | 3,706 |  |  | 54 |  |  |  |  |  |  | 78,003 |  |  |  |  |  |  |  |  | 78,058 |
Declared Dividends – $0.7800 per Share |  |  |  |  |  |  |  |  |  |  | (424,996) |  |  |  |  |  |  | (424,996) |
Balance at July 31, 2022 | 546,156 |  |  | $ | 8,001 |  |  | — |  |  | $ | — |  |  | $ | 459,272 |  |  | $ | 7,176,977 |  |  | $ | (282,574) |  |  | $ | 5,272 |  |  | $ | 7,366,948 |
| Nine Months Ended July 30, 2023
| Common Stock |  | Treasury Stock |  | Additional Paid-in Capital |  | Retained Earnings |  | Accumulated Other Comprehensive Income (Loss) |  | Non- controlling Interest |  | Total Shareholders’ Investment
| Shares |  | Amount |  | Shares |  | Amount |  |  |  |  |
Balance at October 30, 2022 | 546,237 |  |  | $ | 8,002 |  |  | — |  |  | $ | — |  |  | $ | 469,468 |  |  | $ | 7,313,374 |  |  | $ | (255,561) |  |  | $ | 4,936 |  |  | $ | 7,540,219 |
Net Earnings |  |  |  |  |  |  |  |  |  |  | 597,637 |  |  |  |  | (200) |  |  | 597,437 |
Other Comprehensive Income (Loss) |  |  |  |  |  |  |  |  |  |  |  |  | 13,950 |  |  | (138) |  |  | 13,813 |
Purchases of Common Stock |  |  |  |  | (310) |  |  | (12,303) |  |  |  |  |  |  |  |  |  |  | (12,303) |
Stock-based Compensation Expense | 44 |  |  | – |  |  |  |  |  |  | 20,946 |  |  |  |  |  |  |  |  | 20,946 |
Exercise of Stock Options/Restricted Shares | 496 |  |  | 7 |  |  |  |  |  |  | 8,482 |  |  |  |  |  |  |  |  | 8,489 |
Shares Retired | (310) |  |  | (5) |  |  | 310 |  |  | 12,303 |  |  | (277) |  |  | (12,021) |  |  |  |  |  |  | — |
Declared Dividends – $0.8250 per Share |  |  |  |  |  |  |  |  | 685 |  |  | (451,423) |  |  |  |  |  |  | (450,738) |
Balance at July 30, 2023 | 546,467 |  |  | $ | 8,005 |  |  | — |  |  | $ | — |  |  | $ | 499,304 |  |  | $ | 7,447,567 |  |  | $ | (241,610) |  |  | $ | 4,598 |  |  | $ | 7,717,863 |

See Notes to Consolidated Financial Statements
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HORMEL FOODS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
In thousands
Unaudited

| Nine Months Ended
| July 30, 2023 |  | July 31, 2022
Operating Activities |  |  |
Net Earnings | $ | 597,437 |  |  | $ | 720,215 |
Adjustments to Reconcile to Net Cash Provided by (Used in) Operating Activities: |  |  |
Depreciation and Amortization | 216,432 |  |  | 191,568 |
Equity in Earnings of Affiliates | (42,213) |  |  | (19,951) |
Distributions Received from Equity Method Investees | 28,160 |  |  | 30,539 |
Provision for Deferred Income Taxes | (273) |  |  | 71,427 |
Loss (Gain) on Sales of Property, Plant, and Equipment | (314) |  |  | 5,098 |
Non-cash Investment Activities | (12,047) |  |  | 13,610 |
Stock-based Compensation Expense | 20,946 |  |  | 20,933 |
Changes in Operating Assets and Liabilities: |  |  |
Decrease (Increase) in Accounts Receivable | 81,423 |  |  | 96,674 |
Decrease (Increase) in Inventories | (20,536) |  |  | (311,312) |
Decrease (Increase) in Prepaid Expenses and Other Assets | (52,117) |  |  | (3,666) |
Increase (Decrease) in Pension and Post-retirement Benefits | 29,571 |  |  | (6,906) |
Increase (Decrease) in Accounts Payable and Accrued Expenses | (131,204) |  |  | (84,384) |
Increase (Decrease) in Net Income Taxes Payable | 13,491 |  |  | 39,312 |
Net Cash Provided by (Used in) Operating Activities | 728,756 |  |  | 763,157 |
Investing Activities |  |  |
Net (Purchase) Sale of Securities | (49) |  |  | 1,296 |
Purchases of Property, Plant, and Equipment | (168,529) |  |  | (189,184) |
Proceeds from Sales of Property, Plant, and Equipment | 5,306 |  |  | 1,044 |
Proceeds from (Purchases of) Affiliates and Other Investments | (427,195) |  |  | 8,275 |
Proceeds from Company-owned Life Insurance | 1,980 |  |  | 6,742 |
Net Cash Provided by (Used in) Investing Activities | (588,489) |  |  | (171,827) |
Financing Activities |  |  |
Proceeds from Long-term Debt | 1,980 |  |  | — |
Repayments of Long-term Debt and Finance Leases | (6,584) |  |  | (6,498) |
Dividends Paid on Common Stock | (442,560) |  |  | (415,923) |
Share Repurchase | (12,303) |  |  | — |
Proceeds from Exercise of Stock Options | 8,489 |  |  | 77,958 |
Net Cash Provided by (Used in) Financing Activities | (450,977) |  |  | (344,463) |
Effect of Exchange Rate Changes on Cash | (2,273) |  |  | (10,054) |
Increase (Decrease) in Cash and Cash Equivalents | (312,983) |  |  | 236,814 |
Cash and Cash Equivalents at Beginning of Year | 982,107 |  |  | 613,530 |
Cash and Cash Equivalents at End of Period | $ | 669,124 |  |  | $ | 850,344 |

See Notes to Consolidated Financial Statements
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HORMEL FOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The accompanying unaudited consolidated financial statements of Hormel Foods Corporation (the Company) have been prepared in accordance with accounting principles generally accepted in the United States (U.S.) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include certain information and footnotes required by U.S. generally accepted accounting principles (GAAP) for comprehensive financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results and cash flows for the interim period are not necessarily indicative of the results that may be expected for the full year.
These statements should be reviewed in conjunction with the consolidated financial statements and associated notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended October 30, 2022. The significant accounting policies used in preparing these interim consolidated financial statements are consistent with those described in Note A - Summary of Significant Accounting Policies to the consolidated financial statements in the Form 10-K. The Company has determined there have been no material changes in the Company’s significant accounting policies, including estimates and assumptions, as disclosed in its Annual Report on Form 10-K for the fiscal year ended October 30, 2022.
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.
Reclassifications: Certain reclassifications of previously reported amounts have been made to conform to the current year presentation.
Reportable Segments: As of October 30, 2022, the Company had four operating and reportable segments: Grocery Products, Refrigerated Foods, Jennie-O Turkey Store, and International and Other. At the beginning of fiscal 2023, the Company transitioned to a new strategic operating model, which aligns its businesses to be more agile, consumer and customer focused, and market driven. Effective on October 31, 2022, the Company operates with the following three operating and reportable segments: Retail, Foodservice, and International, which are consistent with how the Company's chief operating decision maker assesses performance and allocates resources. This change had no impact on the consolidated results of operations, financial position, shareholders' investment, or cash flows. Prior period segment results have been retrospectively recast to reflect the new reportable segments.
Accounting Changes and Recent Accounting Pronouncements: Recently issued accounting standards or pronouncements not disclosed have been excluded as they are currently not relevant to the Company.
NOTE B - GOODWILL AND INTANGIBLE ASSETS
Goodwill: In the first quarter of fiscal 2023, as a result of the organizational changes referenced in Note A - Summary of Significant Accounting Policies, the Company conducted an assessment of its operating segments and reporting units. Based on this analysis, goodwill was reallocated using the relative fair value approach. The change in the carrying amount of goodwill for the nine months ended July 30, 2023, is:

in thousands | Retail |  | Foodservice |  | International |  | Total
Balance at October 30, 2022 | $ | 2,916,796 |  |  | $ | 1,750,594 |  |  | $ | 258,440 |  |  | $ | 4,925,829 |
Foreign Currency Translation | — |  |  | — |  |  | 5,761 |  |  | 5,761 |
Balance at July 30, 2023 | $ | 2,916,796 |  |  | $ | 1,750,594 |  |  | $ | 264,200 |  |  | $ | 4,931,590 |

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

in thousands | July 30, 2023 |  | October 30, 2022
Brands/Tradenames/Trademarks | $ | 1,665,190 |  |  | $ | 1,665,190 |
Other Intangibles | 184 |  |  | 184 |
Foreign Currency Translation | (5,380) |  |  | (6,599) |
Total | $ | 1,659,994 |  |  | $ | 1,658,775 |

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

| July 30, 2023 |  |  |  | October 30, 2022
in thousands | Gross Carrying Amount |  | Accumulated Amortization |  |  |  | Gross Carrying Amount |  | Accumulated Amortization |  |
Customer Lists/Relationships | $ | 168,239 |  |  | $ | (79,450) |  |  |  |  | $ | 168,239 |  |  | $ | (69,779) |  |  |
Other Intangibles | 59,241 |  |  | (14,794) |  |  |  |  | 59,241 |  |  | (11,606) |  |  |
Tradenames/Trademarks | 6,540 |  |  | (4,779) |  |  |  |  | 10,536 |  |  | (7,828) |  |  |
Foreign Currency Translation | — |  |  | (4,229) |  |  |  |  | — |  |  | (4,551) |  |  |
Total | $ | 234,020 |  |  | $ | (103,252) |  |  |  |  | $ | 238,016 |  |  | $ | (93,764) |  |  |

Amortization expense is as follows:

| Quarter Ended |  |  |  | Nine Months Ended
in thousands | July 30, 2023 |  | July 31, 2022 |  |  |  | July 30, 2023 |  | July 31, 2022 |  |
Amortization Expense | $ | 4,605 |  |  | $ | 4,838 |  |  |  |  | $ | 13,806 |  |  | $ | 14,474 |  |  |

Estimated annual amortization expense for the five fiscal years after October 30, 2022, is as follows:

in thousands | Amortization Expense
2023 | $ | 18,320 |
2024 | 16,331 |
2025 | 14,628 |
2026 | 14,172 |
2027 | 13,940 |

NOTE C - INVESTMENTS IN 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 method. These investments, including balances due to or from affiliates, are reflected in the Consolidated Condensed Statements of Financial Position as Investments in Affiliates. Financial results for certain entities are reported on a 30- to 90-day lag. The Company reviewed the investments in affiliates and determined that no other-than-temporary impairment existed as of July 30, 2023.
On December 15, 2022, the Company purchased a 29% common stock interest in PT Garudafood Putra Putri Jaya Tbk (Garudafood), a food and beverage company in Indonesia, from various minority shareholders. On April 12, 2023, the Company purchased additional shares increasing the ownership interest to 30%. This investment expands the Company's presence in Southeast Asia and supports the global execution of the snacking and entertaining strategic priority. The Company has the ability to exercise significant influence, but not control, over Garudafood; therefore, the investment is accounted for under the equity method.
The Company obtained the Garudafood interest for a purchase price of $425.8 million, including associated transaction costs. The transaction was funded using the Company's cash on hand. Based on a third-party valuation, the Company's basis difference between the fair value of the investment and proportionate share of the carrying value of Garudafood's net assets is $324.8 million. The basis difference related to inventory, property, plant and equipment, and certain intangible assets is being amortized through Equity in Earnings of Affiliates over the associated useful lives. As of July 30, 2023, the remaining basis difference was $335.3 million, which includes the impact of foreign currency translation. Based on quoted market prices, the fair value of the common stock held in Garudafood was $348.2 million as of July 28, 2023.
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Equity in Earnings of Affiliates consists of:

|  |  | Quarter Ended |  | Nine Months Ended
in thousands | % Owned | Segment | July 30, 2023 |  | July 31, 2022 |  | July 30, 2023 |  | July 31, 2022
MegaMex Foods, LLC | 50% | Retail | $ | 8,099 |  |  | $ | 4,555 |  |  | $ | 34,712 |  |  | $ | 14,562 |
Other Joint Ventures | Various (20-50%) | International | 1,685 |  |  | 2,582 |  |  | 7,501 |  |  | 5,390 |
Total |  |  | $ | 9,784 |  |  | $ | 7,138 |  |  | $ | 42,213 |  |  | $ | 19,951 |

Distributions received from equity method investees include:

| Quarter Ended |  | Nine Months Ended
in thousands | July 30, 2023 |  | July 31, 2022 |  | July 30, 2023 |  | July 31, 2022
Dividends | $ | 14,509 |  |  | $ | — |  |  | $ | 28,160 |  |  | $ | 30,539 |

The Company recognized a basis difference of $21.3 million associated with the formation of MegaMex Foods, LLC, of which $9.5 million is remaining as of July 30, 2023. This difference is being amortized through Equity in Earnings of Affiliates.
NOTE D - INVENTORIES
Principal components of inventories are:

in thousands | July 30, 2023 |  | October 30, 2022
Finished Products | $ | 969,749 |  |  | $ | 974,160 |
Raw Materials and Work-in-Process | 479,371 |  |  | 440,193 |
Operating Supplies | 182,586 |  |  | 206,289 |
Maintenance Materials and Parts | 106,159 |  |  | 95,417 |
Total | $ | 1,737,865 |  |  | $ | 1,716,059 |

NOTE E - DERIVATIVES AND HEDGING
The Company uses hedging programs to manage risk associated with commodity purchases and interest rates. These programs utilize futures, swaps, and options contracts to manage the Company’s exposure to market fluctuations. 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. If the requirements of hedge accounting are no longer met, hedge accounting is discontinued immediately and any future changes to fair value are recorded directly through earnings.
Cash Flow Commodity Hedges: The Company designates grain, lean hog, and natural gas futures, swaps, and options contracts used to offset price fluctuations in the Company’s future purchases of these commodities 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 periods in which the hedged transactions affect earnings. The Company typically does not hedge its grain or natural gas exposure beyond the next two upcoming fiscal years and its lean hog exposure beyond the next fiscal year.
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 and the gain or loss on the hedged purchase commitment are marked-to-market through earnings and recorded in the Consolidated Condensed Statements of Financial Position as a Current Asset and Current Liability, respectively. Gains or losses related to these fair value hedges are recognized through Cost of Products Sold in the 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 $1.25 billion. In the third quarter of fiscal 2021, the associated unsecured senior notes were issued with a tenor of seven and thirty years and both locks
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were lifted (See Note J - Long-Term Debt and Other Borrowing Arrangements). Mark-to-market gains and losses on these instruments were deferred as a component of AOCL. The resulting gain in AOCL is reclassified to Interest Expense in the period in which the hedged transactions affect earnings.
Fair Value Interest Rate Hedge: In the first quarter of fiscal 2022, the Company entered into an interest rate swap to protect against changes in the fair value of a portion of previously issued senior unsecured notes attributable to the change in the benchmark interest rate. The hedge specifically designated the last $450 million of the notes due June 2024 (the 2024 Notes). The Company terminated the swap in the fourth quarter of fiscal 2022. The loss related to the swap was recorded as a fair value hedging adjustment to the hedged debt and will be amortized through earnings over the remaining life of the debt.
Other Derivatives: The Company holds certain futures and swap contracts to manage the Company's exposure to fluctuations in grain and pork 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
in millions | July 30, 2023 |  | October 30, 2022
Corn | 30.0 bushels |  | 34.3 bushels
Lean Hogs | 151.9 pounds |  | 177.5 pounds
Natural Gas | 2.1 MMBtu |  | — MMBtu

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

|  | Gross Fair Value
in thousands | Location on Consolidated Condensed Statements of Financial Position | July 30, 2023 |  | October 30, 2022
Commodity Contracts (1) | Other Current Assets | $ | (6,510) |  |  | $ | 13,504 |

(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 on the Consolidated Condensed Statements of Financial Position. The gross liability position as of July 30, 2023, includes the right to reclaim net cash collateral of $27.3 million contained within the master netting arrangement. The gross asset position as of October 30, 2022, is offset by the obligation to return net cash collateral of $1.3 million. See Note H - Fair Value Measurements for a discussion of these net amounts as reported on the Consolidated Condensed Statements of Financial Position.
Fair Value Hedge - Assets (Liabilities): The carrying amount of the Company's fair value hedged assets (liabilities) are:

|  | Carrying Amount of Hedged Assets (Liabilities)
in thousands | Location on Consolidated Condensed Statements of Financial Position | July 30, 2023 |  | October 30, 2022
Commodity Contracts | Accounts Payable (1) | $ | 2,664 |  |  | $ | 5,725 |
Interest Rate Contracts | Current Maturities of Long-term Debt (2) | (439,424) |  |  | — |
Interest Rate Contracts | Long-term Debt Less Current Maturities | — |  |  | (430,050) |

(1) Represents the carrying amount of fair value hedged assets and liabilities which are offset by other assets included in master netting arrangements described above.
(2) Represents the carrying amount of the hedged portion of the 2024 Notes. As of July 30, 2023, the carrying amount of the 2024 Notes included a cumulative fair value hedging adjustment of $10.6 million from discontinued hedges. In the third quarter of fiscal 2023, the 2024 Notes and the fair value hedging adjustment were reclassified from Long-term Debt less Current Maturities to Current Maturities of Long-term Debt on the Consolidated Condensed Statements of Financial Position.
Accumulated Other Comprehensive Loss Impact: As of July 30, 2023, the Company included in AOCL hedging losses (before tax) of $14.3 million on commodity contracts and gains of $12.7 million related to interest rate settled positions. The Company expects to recognize the majority of the losses on commodity contracts over the next twelve months. Gains on interest rate contracts offset the hedged interest payments over the tenor of the associated debt instruments.
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The effect on AOCL for gains or losses (before tax) related to the Company's derivative instruments are:

| Gain/(Loss) Recognized in AOCL (1) |  | Gain/(Loss) Reclassified from AOCL into Earnings (1) | Location on Consolidated Statements of Operations
| Quarter Ended |  | Quarter Ended
in thousands | July 30, 2023 |  | July 31, 2022 |  | July 30, 2023 |  | July 31, 2022
Cash Flow Hedges |  |  |  |  |  |  |  |
Commodity Contracts | $ | (2,600) |  |  | $ | (24,312) |  |  | $ | (5,758) |  |  | $ | 21,216 |  | Cost of Products Sold
Excluded Component (2) | 423 |  |  | (576) |  |  | — |  |  | — |  |
Interest Rate Contracts | — |  |  | — |  |  | 247 |  |  | 247 |  | Interest Expense
| Gain/(Loss) Recognized in AOCL (1) |  | Gain/(Loss) Reclassified from AOCL into Earnings (1) | Location on Consolidated Statements of Operations
| Nine Months Ended |  | Nine Months Ended
in thousands | July 30, 2023 |  | July 31, 2022 |  | July 30, 2023 |  | July 31, 2022
Cash Flow Hedges |  |  |  |  |  |  |  |
Commodity Contracts | $ | (34,151) |  |  | $ | 46,299 |  |  | $ | 5,833 |  |  | $ | 40,231 |  | Cost of Products Sold
Excluded Component (2) | (268) |  |  | (4,020) |  |  | — |  |  | — |  |
Interest Rate Contracts | — |  |  | — |  |  | 741 |  |  | 741 |  | Interest Expense

(1) See Note G - 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 are:

| Consolidated Statements of Operations Impact
| Quarter Ended |  | Nine Months Ended
in thousands | July 30, 2023 |  | July 31, 2022 |  | July 30, 2023 |  | July 31, 2022
Net Earnings Attributable to Hormel Foods Corporation | $ | 162,679 |  |  | $ | 218,915 |  |  | $ | 597,637 |  |  | $ | 720,103 |
Cash Flow Hedges - Commodity Contracts |  |  |  |  |  |  |
Gain (Loss) Reclassified from AOCL | (5,758) |  |  | 21,216 |  |  | 5,833 |  |  | 38,561 |
Amortization of Excluded Component from Options | (1,531) |  |  | (1,145) |  |  | (4,441) |  |  | (3,089) |
Gain (Loss) Reclassified from AOCL Due to Discontinuance of Cash Flow Hedges (1) | — |  |  | — |  |  | — |  |  | 1,620 |
Fair Value Hedges - Commodity Contracts |  |  |  |  |  |  |
Gain (Loss) on Commodity Futures (2) | 1,019 |  |  | (6,758) |  |  | (440) |  |  | (20,165) |
Total Gain (Loss) on Commodity Contracts (3) | (6,271) |  |  | 13,313 |  |  | 952 |  |  | 16,927 |
Cash Flow Hedges - Interest Rate Locks |  |  |  |  |  |  |
Gain (Loss) Reclassified from AOCL | 247 |  |  | 247 |  |  | 741 |  |  | 741 |
Fair Value Hedge - Interest Rate Swap |  |  |  |  |  |  |
Gain (Loss) on Interest Rate Swap | — |  |  | (222) |  |  | — |  |  | 1,270 |
Amortization of Loss Due to Discontinuance of Fair Value Hedge (4) | (3,125) |  |  | — |  |  | (9,374) |  |  | — |
Total Gain (Loss) on Interest Rate Contracts (5) | (2,878) |  |  | 25 |  |  | (8,633) |  |  | 2,011 |
Total Gain (Loss) Recognized in Earnings | $ | (9,148) |  |  | $ | 13,338 |  |  | $ | (7,681) |  |  | $ | 18,938 |

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(1) During the second quarter of fiscal 2022, the Company discontinued hedge accounting on 0.6 million bushels of corn usage that was deemed no longer probable to occur. A gain of $1.7 million related to the discontinued hedges and an immaterial loss related to the excluded component from options was reclassified directly into earnings.
(2) Represents gains or losses on commodity contracts designated as fair value hedges that were closed during the quarter ended July 30, 2023, 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) Represents the fair value hedging adjustment amortized through earnings.
(5) Total Gain (Loss) on Interest Rate Contracts is recognized in earnings through Interest Expense.
NOTE F - PENSION AND OTHER POST-RETIREMENT BENEFITS
Net periodic benefit cost for pension and other post-retirement benefit plans consists of:

| Pension Benefits
| Quarter Ended |  | Nine Months Ended
in thousands | July 30, 2023 |  | July 31, 2022 |  | July 30, 2023 |  | July 31, 2022
Service Cost | $ | 8,902 |  |  | $ | 10,019 |  |  | $ | 26,705 |  |  | $ | 30,057 |
Interest Cost | 17,157 |  |  | 12,639 |  |  | 51,472 |  |  | 37,919 |
Expected Return on Plan Assets | (19,571) |  |  | (27,062) |  |  | (58,714) |  |  | (81,186) |
Amortization of Prior Service Cost | (461) |  |  | (374) |  |  | (1,383) |  |  | (1,122) |
Recognized Actuarial (Gain) Loss | 3,325 |  |  | 3,132 |  |  | 9,976 |  |  | 9,397 |
Net Periodic Benefit Cost | $ | 9,353 |  |  | $ | (1,645) |  |  | $ | 28,058 |  |  | $ | (4,936) |

| Post-retirement Benefits
| Quarter Ended |  | Nine Months Ended
in thousands | July 30, 2023 |  | July 31, 2022 |  | July 30, 2023 |  | July 31, 2022
Service Cost | $ | 62 |  |  | $ | 118 |  |  | $ | 185 |  |  | $ | 351 |
Interest Cost | 3,016 |  |  | 1,923 |  |  | 9,044 |  |  | 5,763 |
Amortization of Prior Service Cost | 2 |  |  | 2 |  |  | 6 |  |  | 6 |
Recognized Actuarial (Gain) Loss | (7) |  |  | 610 |  |  | (21) |  |  | 1,829 |
Net Periodic Benefit Cost | $ | 3,073 |  |  | $ | 2,652 |  |  | $ | 9,214 |  |  | $ | 7,950 |

Non-service cost components of net pension and post-retirement benefit cost are presented within Interest and Investment Income in the Consolidated Statements of Operations.
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NOTE G - ACCUMULATED OTHER COMPREHENSIVE LOSS
Components of Accumulated Other Comprehensive Loss are as follows:

in thousands | Foreign Currency Translation |  | Pension & Other Benefits |  | Derivatives & Hedging |  | Equity Method Investments |  | Accumulated Other Comprehensive Loss
Balance at April 30, 2023 | $ | (52,124) |  |  | $ | (190,451) |  |  |  | $ | (3,720) |  |  |  | $ | 1,408 |  |  | $ | (244,887) |
Unrecognized Gains (Losses) | 0 |  |  |  |  | 0 |  |  |  |  |
Gross | (10,170) |  |  | 39 |  |  |  | (2,177) |  |  |  | 8,733 |  |  | (3,575) |
Tax Effect | — |  |  | — |  |  |  | 542 |  |  |  | — |  |  | 542 |
Reclassification into Net Earnings | 0 |  | 0 |  |  | 0 |  |  |  |  | 0
Gross | — |  |  | 2,859 |  | (1) |  | 5,511 |  | (2) |  | — |  |  | 8,371 |
Tax Effect | — |  |  | (703) |  |  |  | (1,358) |  |  |  | — |  |  | (2,062) |
Change Net of Tax | (10,170) |  |  | 2,195 |  |  |  | 2,518 |  |  |  | 8,733 |  |  | 3,277 |
Balance at July 30, 2023 | $ | (62,293) |  |  | $ | (188,256) |  |  |  | $ | (1,202) |  |  |  | $ | 10,141 |  |  | $ | (241,610) |
Balance at October 30, 2022 | $ | (89,793) |  |  | $ | (195,624) |  |  |  | $ | 29,856 |  |  |  | $ | — |  |  | $ | (255,561) |
Unrecognized Gains (Losses) |  |  |  |  |  |  |  |  |  |  |
Gross | 27,499 |  |  | 1,166 |  |  |  | (34,419) |  |  |  | 10,141 |  |  | 4,388 |
Tax Effect | — |  |  | (266) |  |  |  | 8,394 |  |  |  | — |  |  | 8,128 |
Reclassification into Net Earnings |  |  |  |  |  |  |  |  |  |  |
Gross | — |  |  | 8,578 |  | (1) |  | (6,574) |  | (2) |  | — |  |  | 2,004 |
Tax Effect | — |  |  | (2,110) |  |  |  | 1,541 |  |  |  | — |  |  | (570) |
Change Net of Tax | 27,499 |  |  | 7,368 |  |  |  | (31,058) |  |  |  | 10,141 |  |  | 13,950 |
Balance at July 30, 2023 | $ | (62,293) |  |  | $ | (188,256) |  |  |  | $ | (1,202) |  |  |  | $ | 10,141 |  |  | $ | (241,610) |

(1) Included in the computation of net periodic benefit cost. See Note F - Pension and Other Post-Retirement Benefits for additional information.
(2) Included in Cost of Products Sold and Interest Expense in the Consolidated Statements of Operations. See Note E - Derivatives and Hedging for additional information.
NOTE H - FAIR VALUE MEASUREMENTS
Accounting guidance establishes a fair value hierarchy which requires assets and liabilities measured at fair value to be categorized into one of the three levels below based on the inputs used in the valuation.
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.
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The Company’s financial assets and liabilities carried at fair value on a recurring basis and their level within the fair value hierarchy are presented in the tables below.

| Fair Value Measurements at July 30, 2023
in thousands | Total Fair Value |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Assets at Fair Value |  |  |  |  |  |  |
Cash and Cash Equivalents (1) | $ | 669,124 |  |  | $ | 668,157 |  |  | $ | 966 |  |  | $ | — |
Short-term Marketable Securities (2) | 17,423 |  |  | 2,818 |  |  | 14,606 |  |  | — |
Other Trading Securities (3) | 197,065 |  |  | — |  |  | 197,065 |  |  | — |
Commodity Derivatives (4) | 11,381 |  |  | 11,558 |  |  | (176) |  |  | — |
Total Assets at Fair Value | $ | 894,994 |  |  | $ | 682,533 |  |  | $ | 212,461 |  |  | $ | — |
Liabilities at Fair Value |  |  |  |  |  |  |
Deferred Compensation (3) | $ | 60,789 |  |  | $ | — |  |  | $ | 60,789 |  |  | $ | — |
Total Liabilities at Fair Value | $ | 60,789 |  |  | $ | — |  |  | $ | 60,789 |  |  | $ | — |

| Fair Value Measurements at October 30, 2022
in thousands | Total Fair Value |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Assets at Fair Value |  |  |  |  |  |  |
Cash and Cash Equivalents (1) | $ | 982,107 |  |  | $ | 980,730 |  |  | $ | 1,377 |  |  | $ | — |
Short-term Marketable Securities (2) | 16,149 |  |  | 8,763 |  |  | 7,386 |  |  | — |
Other Trading Securities (3) | 186,243 |  |  | — |  |  | 186,243 |  |  | — |
Commodity Derivatives (4) | 12,448 |  |  | 12,228 |  |  | 220 |  |  | — |
Total Assets at Fair Value | $ | 1,196,947 |  |  | $ | 1,001,721 |  |  | $ | 195,226 |  |  | $ | — |
Liabilities at Fair Value |  |  |  |  |  |  |
Deferred Compensation (3) | $ | 57,790 |  |  | $ | — |  |  | $ | 57,790 |  |  | $ | — |
Total Liabilities at Fair Value | $ | 57,790 |  |  | $ | — |  |  | $ | 57,790 |  |  | $ | — |

The following methods and assumptions were used to estimate the fair value of the financial assets and liabilities above:
(1) The Company’s cash equivalents considered Level 1 consist primarily of bank deposits, money market funds rated AAA, or other highly liquid investment accounts, and have a maturity date of three months or less. Cash equivalents considered Level 2 are funds holding agency bonds or securities recognized at amortized cost.
(2) The Company holds securities as part of a portfolio maintained to generate investment income and to provide cash for operations of the Company, if necessary. The portfolio is managed by a third party who is responsible for daily trading activities, and all assets within the portfolio are highly liquid. The cash, U.S. government securities, and money market funds rated AAA held by the portfolio are classified as Level 1. The current investment portfolio also includes corporate bonds and other asset backed securities for which there is an active, quoted market. Market prices are obtained from a variety of industry providers, large financial institutions, and other third-party sources to calculate a representative daily market value, and therefore, these securities are classified as Level 2.
(3) The Company maintains a rabbi trust to fund certain supplemental executive retirement plans and deferred compensation plans. The majority of the funds held in the rabbi trust relate to supplemental executive retirement plans and have been invested primarily in fixed income funds managed by a third party. The declared rate on these funds is set based on a formula using the yield of the general account investment portfolio supporting the fund 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 Company's deferred compensation plans, participants can defer certain types of compensation and elect to receive a return based on the changes in fair value of various investment options which include equity securities, money market accounts, bond funds, or other portfolios for which there is an active quoted market. 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 Internal Revenue Service (IRS) applicable federal rates. These liabilities are classified as Level 2. The Company maintains funding in the rabbi trust generally mirroring the selections within the deferred compensation plans. 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. These policies are classified as Level 2.
The rabbi trust is included in Other Assets and deferred compensation liabilities in Other Long-term Liabilities on the Consolidated Condensed Statements of Financial Position. Securities held by the rabbi trust are classified as trading securities. Unrealized gains and losses associated with these investments are
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included in the Company's earnings. During the quarter and nine months ended July 30, 2023, securities held by the rabbi trust generated gains of $5.1 million and $12.1 million, respectively, compared to losses of $0.1 million and $12.1 million for the quarter and nine months ended July 31, 2022, 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, natural gas, hogs, and pork, and to minimize the price risk assumed when forward priced contracts are offered to the Company’s commodity suppliers. The Company’s futures and options 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. The Company holds natural gas and pork swap contracts that are over-the-counter instruments classified as Level 2. The value of the natural gas swap contracts is calculated using quoted prices from the New York Mercantile Exchange, and the value of the pork swap contracts are calculated using a futures implied USDA estimated pork cut-out value. All derivatives are reviewed for potential credit risk and risk of nonperformance. The net balance for commodity derivatives is included in Other Current Assets or Accounts Payable, as appropriate, in the Consolidated Condensed Statements of Financial Position. As of July 30, 2023, the Company has recognized the right to reclaim net cash collateral of $27.3 million from various counterparties (including cash of $31.1 million less $3.8 million of realized loss). As of October 30, 2022, the Company had recognized the obligation to return net cash collateral of $1.3 million from various counterparties (including cash of $27.5 million less $26.2 million of realized gain).
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 on its Consolidated Condensed Statements of Financial Position. The fair value of long-term debt, utilizing discounted cash flows (Level 2), was $2.8 billion as of July 30, 2023, and $2.7 billion as of October 30, 2022. See Note J - Long-Term Debt and Other Borrowing Arrangements for additional information.
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). There were no material remeasurements of assets or liabilities at fair value on a nonrecurring basis subsequent to their initial recognition during the quarter and nine months ended July 30, 2023, and July 31, 2022.
NOTE I - COMMITMENTS AND CONTINGENCIES
Except as described below, there were no material changes outside the ordinary course of business during the quarter and nine months ended July 30, 2023, to the contractual obligations and other commitments last disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended October 30, 2022.
On August 15, 2023, the Company received an unexpected, unfavorable arbitration ruling involving an isolated commercial dispute with a third party. The estimated liability of $70.0 million is reflected within Selling, General, and Administrative expense in the Consolidated Statements of Operations for the quarter and nine months ended July 30, 2023, and Accrued Expenses on the Consolidated Condensed Statements of Financial Position as of July 30, 2023. The associated one-time payment is expected to be made in the fourth quarter of fiscal 2023 in accordance with the terms of the arbitrator’s ruling. The adverse arbitration ruling is not subject to further appeal or judicial review.
NOTE J - LONG-TERM DEBT AND OTHER BORROWING ARRANGEMENTS
Long-term Debt consists of:

in thousands | July 30, 2023 |  | October 30, 2022
Senior Unsecured Notes, with Interest at 3.050% Interest Due Semi-annually through June 2051 Maturity Date | $ | 600,000 |  |  | $ | 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 |  |  | 750,000 |
Senior Unsecured Notes, with Interest at 0.650% Interest Due Semi-annually through June 2024 Maturity Date | 950,000 |  |  | 950,000 |
Unamortized Discount on Senior Notes | (7,199) |  |  | (7,750) |
Unamortized Debt Issuance Costs | (17,172) |  |  | (19,856) |
Interest Rate Swap Liabilities (1) | (10,576) |  |  | (19,950) |
Finance Lease Liabilities | 38,211 |  |  | 44,473 |
Other Financing Arrangements | 4,098 |  |  | 2,429 |
Total | 3,307,361 |  |  | 3,299,345 |
Less: Current Maturities of Long-term Debt | 946,981 |  |  | 8,796 |
Long-term Debt Less Current Maturities | $ | 2,360,380 |  |  | $ | 3,290,549 |

(1) See Note E - Derivatives and Hedging for additional information.
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Senior Unsecured Notes: 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). 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. 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 E - Derivatives and Hedging for additional information. 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. During the third quarter of fiscal 2023, the 2024 Notes were reclassified to Current Maturities of Long-term Debt on the Consolidated Condensed Statement of Financial Position.
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.
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. 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.
On April 17, 2023, the Company entered into a first amendment (Amendment) to the Company’s $750.0 million revolving credit agreement. The Amendment provides for, among other things (i) the replacement of London Interbank Offered Rate (LIBOR) with Term Secured Overnight Financing Rate (SOFR) and Daily Simple Singapore Overnight Rate Average (SORA) for the Eurocurrency Rate for Dollars and Singapore Dollars, including applicable credit spread adjustments and relevant SOFR benchmark provisions, (ii) permitting two one-year extension options to be exercised at any anniversary, (iii) removing the change in debt ratings notice requirement, (iv) shortening the notice period requirements for Base Rate Loans to allow for same day notice, and (v) increasing the number of permitted interest periods from 8 to 15.
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 Adjusted Term SOFR, Adjusted Daily Simple Risk-Free Rate (RFR) or 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 July 30, 2023, and October 30, 2022, the Company had no outstanding draws from this facility.
Debt Covenants: The Company is required by certain covenants in its debt agreements to maintain specified levels of financial ratios and financial position. As of July 30, 2023, the Company was in compliance with all of these covenants.
NOTE K - INCOME TAXES
The Company's tax provision is determined using an estimated annual effective tax rate and adjusted for discrete taxable events that may occur during the quarter. The effects of tax legislation are recognized in the period in which the law is enacted. The deferred tax assets and liabilities are remeasured using enacted tax rates expected to apply to taxable income in the years the related temporary differences are anticipated to reverse.
The Company's effective tax rate for the quarter and nine months ended July 30, 2023, was 21.7 percent and 22.2 percent, respectively, compared to 24.5 percent and 21.8 percent, respectively, for the corresponding periods a year ago. The Company benefited in the current quarter from favorable changes in certain U.S. income and deductions in the fiscal 2022 federal tax return filing.
Unrecognized tax benefits, including interest and penalties, are recorded in Other Long-term Liabilities. These benefits, if recognized as of July 30, 2023, would impact the Company’s effective tax rate by $19.6 million compared to $19.5 million as of July 31, 2022. The Company includes accrued interest and penalties related to uncertain tax positions in income tax expense. Interest and penalties included in income tax expense was immaterial for the quarters ended July 30, 2023, and July 31, 2022.
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The amount of accrued interest and penalties associated with unrecognized tax benefits was $3.2 million at July 30, 2023, and $4.8 million at July 31, 2022.
The Company is regularly audited by federal and state taxing authorities. The IRS concluded their examination of fiscal year 2021 in the second quarter. Previously, the IRS placed the Company in the Bridge phase of the Compliance Assurance Process (CAP) for fiscal 2020. In this phase, the IRS will not accept any disclosures, conduct any reviews, or provide any assurances. The Company has elected to participate in CAP for fiscal years through 2023. The objective of CAP is to contemporaneously work with the IRS 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.
The Inflation Reduction Act of 2022 was signed into law on August 16, 2022. The 15% corporate minimum tax will apply to the Company in fiscal year 2024.
NOTE L - EARNINGS PER SHARE DATA
The reported net earnings attributable to the Company were used when computing basic and diluted earnings per share. The following table sets forth the shares used as the denominator for those computations:

| Quarter Ended |  | Nine Months Ended
in thousands | July 30, 2023 |  | July 31, 2022 |  | July 30, 2023 |  | July 31, 2022
Basic Weighted-average Shares Outstanding | 546,358 |  |  | 546,077 |  |  | 546,389 |  |  | 544,486 |
Dilutive Potential Common Shares | 2,279 |  |  | 4,090 |  |  | 2,838 |  |  | 4,891 |
Diluted Weighted-average Shares Outstanding | 548,637 |  |  | 550,167 |  |  | 549,227 |  |  | 549,377 |
Antidilutive Potential Common Shares | 7,589 |  |  | 1,787 |  |  | 5,998 |  |  | 2,026 |

NOTE M - SEGMENT REPORTING
The Company develops, processes, and distributes a wide array of food products in a variety of markets. As discussed in Note A - Summary of Significant Accounting Policies, the Company transitioned to a new operating model in the first quarter of fiscal 2023 and now reports its results in the following three segments: Retail, Foodservice, and International, which is consistent with how the Company's chief operating decision maker (CODM) assesses performance and allocates resources. Prior period segment results have been retrospectively recast to reflect the new reportable segments.
The Retail segment consists primarily of the processing, marketing, and sale of food products sold predominantly in the retail market. This segment also includes the results from the Company’s MegaMex Foods, LLC joint venture.
The Foodservice segment consists primarily of the processing, marketing, and sale of food and nutritional products for foodservice, convenience store, and commercial customers.
The International segment processes, 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 eliminated in consolidation and are not reviewed when evaluating segment performance. 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. 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.
Financial measures for each of the Company’s reportable segments and reconciliation to consolidated Earnings Before Income Taxes are set forth below. The Company's CODM reviews assets at a consolidated level and does not use assets by segment to
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evaluate performance or allocate resources. Therefore, the Company does not disclose assets by segment. 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.

| Quarter Ended |  | Nine Months Ended
in thousands | July 30, 2023 |  | July 31, 2022 |  | July 30, 2023 |  | July 31, 2022
Net Sales |  |  |  |  |  |  |
Retail | $ | 1,891,746 |  |  | $ | 1,924,553 |  |  | $ | 5,765,786 |  |  | $ | 5,921,145 |
Foodservice | 890,949 |  |  | 917,671 |  |  | 2,607,140 |  |  | 2,681,737 |
International | 180,605 |  |  | 192,190 |  |  | 539,005 |  |  | 572,450 |
Total Net Sales | $ | 2,963,299 |  |  | $ | 3,034,414 |  |  | $ | 8,911,930 |  |  | $ | 9,175,331 |
Segment Profit |  |  |  |  |  |  |
Retail | $ | 151,128 |  |  | $ | 163,092 |  |  | $ | 459,031 |  |  | $ | 522,980 |
Foodservice | 146,270 |  |  | 128,798 |  |  | 428,110 |  |  | 399,482 |
International | 12,222 |  |  | 24,464 |  |  | 45,723 |  |  | 78,833 |
Total Segment Profit | 309,619 |  |  | 316,354 |  |  | 932,863 |  |  | 1,001,295 |
Net Unallocated Expense | 101,886 |  |  | 26,429 |  |  | 164,997 |  |  | 80,799 |
Noncontrolling Interest | (108) |  |  | (89) |  |  | (200) |  |  | 112 |
Earnings Before Income Taxes | $ | 207,626 |  |  | $ | 289,836 |  |  | $ | 767,666 |  |  | $ | 920,608 |

The Company’s products consist primarily of meat and other food products. Total revenue contributed by classes of similar products are:

| Quarter Ended |  | Nine Months Ended
in thousands | July 30, 2023 |  | July 31, 2022 |  | July 30, 2023 |  | July 31, 2022
Perishable | $ | 2,068,787 |  |  | $ | 2,123,872 |  |  | $ | 6,222,485 |  |  | $ | 6,445,419 |
Shelf-stable | 894,512 |  |  | 910,542 |  |  | 2,689,445 |  |  | 2,729,911 |
Total Net Sales | $ | 2,963,299 |  |  | $ | 3,034,414 |  |  | $ | 8,911,930 |  |  | $ | 9,175,331 |

Perishable includes fresh meats, frozen items, refrigerated meal solutions, bacon, sausages, hams, guacamole, and other items that require refrigeration. Shelf-stable includes canned luncheon meats, nut butters, snack nuts, chili, shelf-stable microwaveable meals, hash, stews, tortillas, salsas, tortilla chips, nutritional food supplements, and other items that do not require refrigeration.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Overview
The Company is a global manufacturer and marketer of branded food products. The Company’s three reportable segments are described in Note M - Segment Reporting in the Notes to Consolidated Financial Statements in this Quarterly Report on Form 10-Q.
The Company reported diluted net earnings per share of $0.30 for the third quarter of fiscal 2023, down 25 percent compared to last year. Adjusted diluted net earnings per share(1) of $0.40 was in line with last year. Significant factors impacting the quarter were:
•Net sales for the third quarter decreased 2 percent. The benefit from higher volumes in each segment and pricing actions to mitigate inflationary pressures was more than offset by lower net pricing in certain categories, such as bacon, reflecting raw material commodity deflation and the difficult comparison from high levels of demand for Skippy® spreads last year.
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•Segment profit for the third quarter decreased 2 percent. Improved results in the Foodservice segment were more than offset by declines in the Retail and International segments.
•Net sales and segment profit for the Retail and Foodservice segments were negatively impacted to a lesser degree from supply chain disruption caused by a third-party logistics provider shutdown.
•Earnings before income taxes for the third quarter decreased 28 percent compared to the prior year, primarily due to the impact of an adverse arbitration ruling totaling approximately $70 million. Adjusted earnings before income taxes(1), excluding the impact of an adverse arbitration ruling, decreased 4 percent.
•Foodservice segment profit increased due to the contribution from higher volumes and improved mix.
•Retail segment profit declined due to unfavorable mix and increased brand investments, partially offset by the benefit from pricing actions across the portfolio, improved bacon volumes, and higher equity in earnings from MegaMex Foods, LLC (MegaMex Foods).
•International segment profit declined significantly due to unfavorable pork and turkey commodity markets, continued softness in China, and lower branded export demand.
•Year-to-date cash flow from operations was $729 million, down 5 percent compared to the prior year.
•As disclosed in a Form 8-K filed with the U.S. Securities and Exchange Commission on August 22, 2023, the Company received an unexpected, unfavorable arbitration ruling involving an isolated commercial dispute with a third party. The estimated pre-tax impact of $70.0 million is reflected in operating expense and accrued liabilities. The associated one-time payment is expected to be made in the fourth quarter of fiscal 2023.
Consolidated Results
Volume, Net Sales, Earnings, and Diluted Earnings Per Share

| Quarter Ended |  | Nine Months Ended
in thousands, except per share amounts | July 30, 2023 |  | July 31, 2022 |  | % Change |  | July 30, 2023 |  | July 31, 2022 |  | % Change
Volume (lbs.) | 1,094,518 |  |  | 1,074,609 |  |  | 1.9 |  |  | 3,256,292 |  |  | 3,443,679 |  |  | (5.4) |
Net Sales | $ | 2,963,299 |  |  | $ | 3,034,414 |  |  | (2.3) |  |  | $ | 8,911,930 |  |  | $ | 9,175,331 |  |  | (2.9) |
Earnings Before Income Taxes | 207,626 |  |  | 289,836 |  |  | (28.4) |  |  | 767,666 |  |  | 920,608 |  |  | (16.6) |
Net Earnings Attributable to Hormel Foods Corporation | 162,679 |  |  | 218,915 |  |  | (25.7) |  |  | 597,637 |  |  | 720,103 |  |  | (17.0) |
Diluted Earnings Per Share | 0.30 |  |  | 0.40 |  |  | (25.0) |  |  | 1.09 |  |  | 1.31 |  |  | (16.8) |
Adjusted Diluted Earnings Per Share (1) | 0.40 |  |  | 0.40 |  |  | — |  |  | 1.19 |  |  | 1.31 |  |  | (9.2) |

(1) See the “Non-GAAP Financial Measures” section below for a description of the Company's use of measures not defined by United States Generally Accepted Accounting Principles (GAAP).
Net Sales
Net sales for the third quarter decreased. The benefit from higher volumes in each segment and pricing actions to mitigate inflationary pressures was more than offset by lower net pricing in certain categories, such as bacon, reflecting raw material commodity deflation and the difficult comparison from high levels of demand for Skippy® spreads last year.
For the first nine months of fiscal 2023, the benefit from pricing actions to mitigate inflationary pressures was more than offset by the impact of lower volumes in each segment and lower net pricing in certain categories, such as bacon, reflecting raw material commodity deflation. The primary drivers of lower volume were declines in commodity pork availability as a result of the Company's new pork supply agreement and lower turkey supply from the impacts of highly pathogenic avian influenza (HPAI).
Cost of Products Sold

| Quarter Ended |  | Nine Months Ended
in thousands | July 30, 2023 |  | July 31, 2022 |  | % Change |  | July 30, 2023 |  | July 31, 2022 |  | % Change
Cost of Products Sold | $ | 2,465,251 |  |  | $ | 2,528,364 |  |  | (2.5) |  |  | $ | 7,426,514 |  |  | $ | 7,577,062 |  |  | (2.0) |

Cost of products sold for the third quarter and first nine months of fiscal 2023 decreased due to lower sales. On a volume basis, cost of products sold increased 4 percent for the first nine months of the year driven primarily by inflationary pressures stemming from, among other inputs, packaging, logistics, and labor.
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Costs are expected to remain elevated due to inflation and higher warehousing costs. In general, raw material input costs for protein are expected to be lower for the balance of the year compared to fiscal 2022. Feed costs are anticipated to remain above historical levels through the end of the fiscal year.
Gross Profit

| Quarter Ended |  | Nine Months Ended
in thousands | July 30, 2023 |  | July 31, 2022 |  | % Change |  | July 30, 2023 |  | July 31, 2022 |  | % Change
Gross Profit | $ | 498,048 |  |  | $ | 506,049 |  |  | (1.6) |  |  | $ | 1,485,417 |  |  | $ | 1,598,269 |  |  | (7.1) |
Percent of Net Sales | 16.8 | % |  | 16.7 | % |  |  |  | 16.7 | % |  | 17.4 | % |  |

Gross profit as a percentage of net sales for the third quarter increased marginally due to improvement in the Foodservice segment. For the first nine months of fiscal 2023, gross profit as a percentage of net sales declined, driven primarily by unfavorable mix and the persistent impact of inflationary pressures. Pricing actions helped mitigate some of the impact from inflationary pressures. Gross profit as a percentage of net sales increased for the Foodservice segment but declined for the Retail and International segments during the first nine months of the year.
Looking ahead to the fourth quarter of fiscal 2023, the Company expects gross profit as a percentage of net sales to be comparable to last year. The Company expects gross profit as a percentage of net sales to increase for the Foodservice segment but decline for the Retail and International segments.
Selling, General, and Administrative (SG&A)

| Quarter Ended |  | Nine Months Ended
in thousands | July 30, 2023 |  | July 31, 2022 |  | % Change |  | July 30, 2023 |  | July 31, 2022 |  | % Change
SG&A | $ | 291,073 |  |  | $ | 222,147 |  |  | 31.0 |  |  | $ | 725,621 |  |  | $ | 672,777 |  |  | 7.9 |
Percent of Net Sales | 9.8 | % |  | 7.3 | % |  |  |  | 8.1 | % |  | 7.3 | % |  |
Adjusted SG&A (1) | $ | 221,073 |  |  | $ | 222,147 |  |  | (0.5) |  |  | $ | 655,621 |  |  | $ | 672,777 |  |  | (2.6) |
Adjusted Percent of Net Sales (1) | 7.5 | % |  | 7.3 | % |  |  |  | 7.4 | % |  | 7.3 | % |  |

(1) See the “Non-GAAP Financial Measures” section below for a description of the Company's use of measures not defined by U.S. GAAP.
For the third quarter and first nine months of fiscal 2023, SG&A expenses and SG&A expenses as a percent of net sales increased primarily due to the accrual for an adverse arbitration ruling of $70.0 million. For the first nine months of fiscal 2023, adjusted SG&A expenses as a percent of net sales(1) was marginally higher compared to the prior year.
Advertising investments in the third quarter were $43 million, up 15 percent compared to last year. The Company expects full-year advertising expense to increase compared to the prior year.
Equity in Earnings of Affiliates

| Quarter Ended |  | Nine Months Ended
in thousands | July 30, 2023 |  | July 31, 2022 |  | % Change |  | July 30, 2023 |  | July 31, 2022 |  | % Change
Equity in Earnings of Affiliates | $ | 9,784 |  |  | $ | 7,138 |  |  | 37.1 |  |  | $ | 42,213 |  |  | $ | 19,951 |  |  | 111.6 |

Equity in earnings of affiliates for the third quarter and first nine months of fiscal 2023 increased due to significantly higher results for MegaMex Foods. MegaMex Foods results reflect a benefit from pricing actions and lower avocado input costs.
Effective Tax Rate

| Quarter Ended |  | Nine Months Ended
| July 30, 2023 |  | July 31, 2022 |  | July 30, 2023 |  | July 31, 2022
Effective Tax Rate | 21.7 | % |  | 24.5 | % |  | 22.2 | % |  | 21.8 | %

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The lower effective tax rate in the third quarter is primarily due to favorable changes of certain U.S. income and deductions in the fiscal 2022 federal tax return filing. The higher effective tax rate for the first nine months of fiscal 2023 is primarily due to the decrease in tax benefits from stock option exercises. The effective tax rate for fiscal 2023 is expected to be between 21.0% and 23.0%. For further information, refer to Note K - Income Taxes.
Segment Results
Net sales and segment profit for each of the Company’s reportable segments are set forth below. The Company is an integrated enterprise, characterized by substantial intersegment cooperation, cost allocations, and sharing of assets. Therefore, the Company does not represent that these segments, if operated independently, would report the profit and other financial information shown below.

| Quarter Ended |  | Nine Months Ended
in thousands | July 30, 2023 |  | July 31, 2022 |  | % Change |  | July 30, 2023 |  | July 31, 2022 |  | % Change
Net Sales |  |  |  |  |  |  |  |  |  |  |
Retail | $ | 1,891,746 |  |  | $ | 1,924,553 |  |  | (1.7) |  |  | $ | 5,765,786 |  |  | $ | 5,921,145 |  |  | (2.6) |
Foodservice | 890,949 |  |  | 917,671 |  |  | (2.9) |  |  | 2,607,140 |  |  | 2,681,737 |  |  | (2.8) |
International | 180,605 |  |  | 192,190 |  |  | (6.0) |  |  | 539,005 |  |  | 572,450 |  |  | (5.8) |
Total | $ | 2,963,299 |  |  | $ | 3,034,414 |  |  | (2.3) |  |  | $ | 8,911,930 |  |  | $ | 9,175,331 |  |  | (2.9) |
Segment Profit |  |  |  |  |  |  |  |  |  |  |
Retail | $ | 151,128 |  |  | $ | 163,092 |  |  | (7.3) |  |  | $ | 459,031 |  |  | $ | 522,980 |  |  | (12.2) |
Foodservice | 146,270 |  |  | 128,798 |  |  | 13.6 |  |  | 428,110 |  |  | 399,482 |  |  | 7.2 |
International | 12,222 |  |  | 24,464 |  |  | (50.0) |  |  | 45,723 |  |  | 78,833 |  |  | (42.0) |
Total Segment Profit | 309,619 |  |  | 316,354 |  |  | (2.1) |  |  | 932,863 |  |  | 1,001,295 |  |  | (6.8) |
Net Unallocated Expense | 101,886 |  |  | 26,429 |  |  | 285.5 |  |  | 164,997 |  |  | 80,799 |  |  | 104.2 |
Noncontrolling Interest | (108) |  |  | (89) |  |  | (21.4) |  |  | (200) |  |  | 112 |  |  | (279.1) |
Earnings Before Income Taxes | $ | 207,626 |  |  | $ | 289,836 |  |  | (28.4) |  |  | $ | 767,666 |  |  | $ | 920,608 |  |  | (16.6) |

Volume declined for each segment for the first nine months of fiscal 2023 primarily due to lower fresh pork availability resulting from the Company's new pork supply agreement and lower turkey volumes due to the impacts of HPAI in the Company's vertically integrated turkey supply chain.
Retail

| Quarter Ended |  | Nine Months Ended
in thousands | July 30, 2023 |  | July 31, 2022 |  | % Change |  | July 30, 2023 |  | July 31, 2022 |  | % Change
Volume (lbs.) | 748,146 |  |  | 742,103 |  |  | 0.8 |  |  | 2,267,363 |  |  | 2,435,581 |  |  | (6.9) |
Net Sales | $ | 1,891,746 |  |  | $ | 1,924,553 |  |  | (1.7) |  |  | $ | 5,765,786 |  |  | $ | 5,921,145 |  |  | (2.6) |
Segment Profit | 151,128 |  |  | 163,092 |  |  | (7.3) |  |  | 459,031 |  |  | 522,980 |  |  | (12.2) |

For the third quarter, volume growth was driven by the value-added meats, bacon, snacking and entertaining, and emerging brands verticals. In addition to a recovery across the turkey portfolio, volume and net sales grew for many leading items, including our SPAM® family of products, Hormel® Gatherings® party trays, Hormel® pepperoni, and Applegate® natural and organic meats. Net sales declined due to the difficult comparison from high levels of demand for Skippy® spreads last year and lower market-driven pricing on raw bacon items. Net sales declined for the first nine months of fiscal 2023 primarily due to lower fresh pork and turkey volumes, and lower market-driven pricing on raw bacon items.
Segment profit declined for the third quarter due to the impact of unfavorable mix and increased brand investments, partially offset by the benefit from pricing actions across the portfolio, improved bacon volumes, and higher equity in earnings from MegaMex Foods. For the first nine months of fiscal 2023, segment profit declined due to unfavorable mix and higher operating expenses, partially offset by the benefit from pricing actions across the portfolio, higher equity in earnings from MegaMex Foods, and improved bacon volumes.
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Looking to the fourth quarter, the Retail segment expects lower segment profit compared to last year. The impact of higher volumes from the snacking and entertaining vertical is expected to be more than offset by lower volume in the convenient meals and proteins vertical, which benefited from strong Skippy® spreads demand in the prior year. Unfavorable mix, partially due to lower turkey markets, is also anticipated to negatively impact results. Further risks to the outlook include higher-than-expected elasticities and lower sales volumes as a result of softer consumer demand.
Foodservice

| Quarter Ended |  | Nine Months Ended
in thousands | July 30, 2023 |  | July 31, 2022 |  | % Change |  | July 30, 2023 |  | July 31, 2022 |  | % Change
Volume (lbs.) | 255,822 |  |  | 250,513 |  |  | 2.1 |  |  | 747,484 |  |  | 760,677 |  |  | (1.7) |
Net Sales | $ | 890,949 |  |  | $ | 917,671 |  |  | (2.9) |  |  | $ | 2,607,140 |  |  | $ | 2,681,737 |  |  | (2.8) |
Segment Profit | 146,270 |  |  | 128,798 |  |  | 13.6 |  |  | 428,110 |  |  | 399,482 |  |  | 7.2 |

Volume for the third quarter increased, driven by growth in our affiliated businesses and strong demand in many branded categories, including pizza toppings, premium bacon and breakfast sausage, and premium prepared proteins. Brands such as Cafe H®, Hormel® Fire Braised TM, Fontanini®, Old Smokehouse® and Hormel® Bacon 1 TM delivered volume gains compared to the prior year. Net sales declined, primarily due to lower net pricing in certain categories, such as bacon, reflecting raw material commodity deflation. Net sales declined for the first nine months of fiscal 2023 primarily due to lower net pricing in certain categories reflecting raw material commodity deflation, and lower fresh pork and turkey volumes.
Segment profit increased during the third quarter due to the contribution from higher volumes and improved mix. Segment profit increased during the first nine months of fiscal 2023 due to improved mix across the portfolio.
For the fourth quarter, the Foodservice segment expects higher segment profit compared to the prior year. Growth is expected to be driven by higher volumes and lower freight expenses. Risks to the outlook include a softening of foodservice industry demand and higher-than-expected operating costs.
International

| Quarter Ended |  | Nine Months Ended
in thousands | July 30, 2023 |  | July 31, 2022 |  | % Change |  | July 30, 2023 |  | July 31, 2022 |  | % Change
Volume (lbs.) | 90,550 |  |  | 81,993 |  |  | 10.4 |  |  | 241,445 |  |  | 247,421 |  |  | (2.4) |
Net Sales | $ | 180,605 |  |  | $ | 192,190 |  |  | (6.0) |  |  | $ | 539,005 |  |  | $ | 572,450 |  |  | (5.8) |
Segment Profit | 12,222 |  |  | 24,464 |  |  | (50.0) |  |  | 45,723 |  |  | 78,833 |  |  | (42.0) |

During the third quarter, net sales declined as a result of lower branded export sales and lower results in China. Foodservice sales in China improved sequentially throughout the third quarter, partially offsetting the difficult net sales comparison from sales to food-security programs last year. In addition to growth from the Skippy® and Planters® brands, strong volume growth was driven by low-margin commodity fresh pork and turkey exports. Net sales declined for the first nine months of fiscal 2023 primarily due to lower turkey volumes and lower sales in China.
Segment profit declined significantly in the third quarter due to unfavorable pork and turkey commodity markets, continued softness in China, and lower branded export demand. Segment profit for the first nine months of fiscal 2023 declined significantly due to lower sales in China and lower turkey export volumes.
In the fourth quarter, the International segment anticipates segment profit to decline significantly compared to last year. Similar to the drivers in the third quarter, continued softness in China, lower branded export demand, and unfavorable pork and turkey commodity markets are expected to persist.
Unallocated Income and Expenses
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 unallocated expenses at the corporate level.
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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 in the segment table for the purpose of reconciling segment results to earnings before income taxes.

| Quarter Ended |  | Nine Months Ended
in thousands | July 30, 2023 |  | July 31, 2022 |  | July 30, 2023 |  | July 31, 2022
Net Unallocated Expense | $ | 101,886 |  |  | $ | 26,429 |  |  | $ | 164,997 |  |  | $ | 80,799 |
Noncontrolling Interest | (108) |  |  | (89) |  |  | (200) |  |  | 112 |

For the third quarter and first nine months of fiscal 2023, net unallocated expense increased resulting from the accrual for an adverse arbitration ruling of $70.0 million and higher pension costs, which were partially offset by improved interest and investment income.
Related Party Transactions
There has been no material change in the information regarding Related Party Transactions as disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended October 30, 2022.
Non-GAAP Financial Measures
The non-GAAP adjusted financial measures of adjusted SG&A expense, adjusted SG&A as a percent of net sales, adjusted earnings before income taxes, and adjusted diluted net earnings per share are presented to provide investors with additional information to facilitate the comparison of past and present operations. Adjusted SG&A, adjusted SG&A as a percent of net sales, adjusted earnings before income taxes and adjusted diluted net earnings per share exclude the impact of an adverse arbitration ruling. The tax impact was calculated using the effective tax rate for the quarter in which the expense was incurred.
The Company believes these non-GAAP financial measures provide useful information to investors because they are the measures used to evaluate performance on a comparable year-over-year basis. Non-GAAP measures are not intended to be a substitute for GAAP measures in analyzing financial performance. These non-GAAP measures are not in accordance with generally accepted accounting principles and may be different from non-GAAP measures used by other companies.
The tables below show the calculations to reconcile from the GAAP measures to the non-GAAP adjusted measures.

| Quarter Ended
| July 30, 2023 |  | July 31, 2022 |  |  |  |
in thousands, except per share amounts | Reported GAAP | Arbitration Ruling | Non-GAAP |  | Reported GAAP |  |  |  | Non-GAAP % Change
Net Sales | $ | 2,963,299 |  | $ | — |  | $ | 2,963,299 |  |  | $ | 3,034,414 |  |  |  |  | (2.3) |
Cost of Products Sold | 2,465,251 |  | — |  | 2,465,251 |  |  | 2,528,364 |  |  |  |  | (2.5) |
Gross Profit | 498,048 |  | — |  | 498,048 |  |  | 506,049 |  |  |  |  | (1.6) |
Selling, General, and Administrative | 291,073 |  | (70,000) |  | 221,073 |  |  | 222,147 |  |  |  |  | (0.5) |
Equity in Earnings of Affiliates | 9,784 |  | — |  | 9,784 |  |  | 7,138 |  |  |  |  | 37.1 |
Operating Income | 216,759 |  | 70,000 |  | 286,759 |  |  | 291,040 |  |  |  |  | (1.5) |
Interest and Investment Income | 9,239 |  | — |  | 9,239 |  |  | 14,411 |  |  |  |  | (35.9) |
Interest Expense | 18,372 |  | — |  | 18,372 |  |  | 15,615 |  |  |  |  | 17.7 |
Earnings Before Income Taxes | 207,626 |  | 70,000 |  | 277,626 |  |  | 289,836 |  |  |  |  | (4.2) |
Provision for Income Taxes | 45,055 |  | 15,190 |  | 60,245 |  |  | 71,010 |  |  |  |  | (15.2) |
Net Earnings | 162,571 |  | 54,810 |  | 217,381 |  |  | 218,826 |  |  |  |  | (0.7) |
Less: Net Earnings (Loss) Attributable to Noncontrolling Interest | (108) |  | — |  | (108) |  |  | (89) |  |  |  |  | (21.4) |
Net Earnings Attributable to Hormel Foods Corporation | $ | 162,679 |  | $ | 54,810 |  | $ | 217,489 |  |  | $ | 218,915 |  |  |  |  | (0.7) |
Diluted Net Earnings Per Share | $ | 0.30 |  | $ | 0.10 |  | $ | 0.40 |  |  | $ | 0.40 |  |  |  |  | — |
SG&A Percent of Net Sales | 9.8 |  |  | 7.5 |  |  | 7.3 |  |  |  |  |

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| Nine Months Ended
| July 30, 2023 |  | July 31, 2022 |  |  |  |
in thousands, except per share amounts | Reported GAAP | Arbitration Ruling | Non-GAAP |  | Reported GAAP |  |  |  | Non-GAAP % Change
Net Sales | $ | 8,911,930 |  | $ | — |  | $ | 8,911,930 |  |  | $ | 9,175,331 |  |  |  |  | (2.9) |
Cost of Products Sold | 7,426,514 |  | — |  | 7,426,514 |  |  | 7,577,062 |  |  |  |  | (2.0) |
Gross Profit | 1,485,417 |  | — |  | 1,485,417 |  |  | 1,598,269 |  |  |  |  | (7.1) |
Selling, General, and Administrative | 725,621 |  | (70,000) |  | 655,621 |  |  | 672,777 |  |  |  |  | (2.6) |
Equity in Earnings of Affiliates | 42,213 |  | — |  | 42,213 |  |  | 19,951 |  |  |  |  | 111.6 |
Operating Income | 802,009 |  | 70,000 |  | 872,009 |  |  | 945,443 |  |  |  |  | (7.8) |
Interest and Investment Income | 20,700 |  | — |  | 20,700 |  |  | 20,078 |  |  |  |  | 3.1 |
Interest Expense | 55,042 |  | — |  | 55,042 |  |  | 44,913 |  |  |  |  | 22.6 |
Earnings Before Income Taxes | 767,666 |  | 70,000 |  | 837,666 |  |  | 920,608 |  |  |  |  | (9.0) |
Provision for Income Taxes | 170,230 |  | 15,190 |  | 185,420 |  |  | 200,393 |  |  |  |  | (7.5) |
Net Earnings | 597,437 |  | 54,810 |  | 652,247 |  |  | 720,215 |  |  |  |  | (9.4) |
Less: Net Earnings (Loss) Attributable to Noncontrolling Interest | (200) |  | — |  | (200) |  |  | 112 |  |  |  |  | (279.1) |
Net Earnings Attributable to Hormel Foods Corporation | $ | 597,637 |  | $ | 54,810 |  | $ | 652,447 |  |  | $ | 720,103 |  |  |  |  | (9.4) |
Diluted Net Earnings Per Share | $ | 1.09 |  | $ | 0.10 |  | $ | 1.19 |  |  | $ | 1.31 |  |  |  |  | (9.2) |
SG&A Percent of Net Sales | 8.1 |  |  | 7.4 |  |  | 7.3 |  |  |  |  |

LIQUIDITY AND CAPITAL RESOURCES
When assessing liquidity and capital resources, the Company evaluates cash and cash equivalents, short-term and long-term investments, income from operations, and borrowing capacity.
Cash Flow Highlights

| Nine Months Ended
in thousands | July 30, 2023 |  | July 31, 2022
Cash and Cash Equivalents | $ | 669,124 |  |  | $ | 850,344 |
Cash Provided by (Used in) Operating Activities | 728,756 |  |  | 763,157 |
Cash Provided by (Used in) Investing Activities | (588,489) |  |  | (171,827) |
Cash Provided by (Used in) Financing Activities | (450,977) |  |  | (344,463) |

Cash and cash equivalents decreased $313 million for the nine months ended July 30, 2023, primarily due to the purchase of a minority interest in Garudafood for $426 million. Additional details related to significant drivers of cash flows are provided below.
Cash Provided by (Used in) Operating Activities
•Cash flows from operating activities were largely impacted by changes in operating assets and liabilities.
–Accounts receivable decreased $81 million during the nine months ended July 30, 2023, and decreased $97 million during the nine months ended July 31, 2022, as a result of the timing of sales and collections.
–Accounts payable and accrued expenses decreased $131 million and $84 million in the nine months ended July 30, 2023, and July 31, 2022, respectively, due to general timing of invoice payments and annual incentive payments.
–Inventory increased $21 million for the first nine months of fiscal 2023 compared to $311 million in the prior year. The increase in inventory during fiscal 2023 was due to production outpacing sales and the higher inventory value in fiscal 2022 was primarily due to a recovery of inventory volumes and sustained higher raw material costs.
Cash Provided by (Used in) Investing Activities
•During the nine months ended July 30, 2023, the Company purchased a minority interest in Garudafood for $426 million.
•Capital expenditures were $169 million and $189 million in the nine months ended July 30, 2023, and July 31, 2022, respectively. The largest spend in both years was related to capacity expansion for pepperoni and the SPAM® family of products.
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Cash Provided by (Used in) Financing Activities
•Cash dividends paid to the Company’s shareholders continue to be an ongoing financing activity for the Company with payments totaling $443 million during the nine months ended July 30, 2023, compared to $416 million in the comparable period of fiscal 2022.
•Share repurchases were $12 million during the nine months ended July 30, 2023, compared with no share repurchases during the comparable period of fiscal 2022.
•Proceeds from exercise of stock options was $8 million in the nine months ended July 30, 2023, compared to $78 million in the comparable period of fiscal 2022. The decrease in proceeds was due to fewer options exercised during fiscal 2023 compared to fiscal 2022.
Sources and Uses of Cash
The Company's balanced business model, with diversification across raw material inputs, channels, and categories, provides stability in ever changing economic environments. The Company maintains a disciplined capital allocation strategy by applying a waterfall approach, which focuses first on required uses of cash such as capital expenditures to maintain facilities, dividend returns to investors, mandatory debt repayments, and pension obligations. Next, the Company looks to strategic items in support of growth initiatives such as capital projects, acquisitions, additional dividend increases, and working capital investments. Finally, the Company evaluates opportunistic uses including incremental debt repayment and share repurchases.
The Company believes its anticipated income from operations, cash on hand, borrowing capacity under the current credit facility, and access to capital markets will be adequate to meet all short-term and long-term commitments. The Company continues to look for opportunities to make investments and acquisitions that align with its strategic priorities. The Company's ability to leverage its balance sheet through the issuance of debt provides the flexibility to pursue strategic opportunities which may require additional funding.
Dividend Payments
The Company remains committed to providing returns to investors through cash dividends. The Company has paid 380 consecutive quarterly dividends since becoming a public company in 1928. The annual dividend rate for fiscal 2023 increased to $1.10 per share, representing the 57th consecutive annual dividend increase.
Capital Expenditures
Capital expenditures are first allocated to required maintenance and then growth opportunities based on the needs of the business. Capital expenditures supporting growth opportunities in fiscal 2023 will focus on projects for capacity, innovation, automation, and new technology. Capital expenditures for fiscal 2023 are estimated to be $280 million.
Debt
As of July 30, 2023, the Company’s outstanding debt included $3.3 billion of fixed rate unsecured senior notes due in fiscal 2024, 2028, 2030, and 2051 with interest payable semi-annually. During fiscal 2023, the Company made $55 million of interest payments on these notes. In the third quarter of fiscal 2023, $950 million of the notes was reclassified as Current Maturities of Long-term Debt on the Consolidated Condensed Statements of Financial Position as it is payable within one year. See Note J - Long-Term Debt and Other Borrowing Arrangements for additional information.
Borrowing Capacity
As a source of short-term financing, the Company maintains a $750 million unsecured revolving credit facility. The maximum commitment under this credit facility may be further increased by $375 million, generally by mutual agreement of the lenders and the Company, subject to certain customary conditions. Funds drawn from this facility may be used by the Company to refinance existing debt, for working capital or other general corporate purposes, and for funding acquisitions. The lending commitments under the facility are scheduled to expire on May 6, 2026, at which time the Company will be required to pay in full all obligations then outstanding. As of July 30, 2023, the Company had no outstanding draws from this facility.
Debt Covenants
The Company’s debt and credit agreements contain customary terms and conditions including representations, warranties, and covenants. These debt covenants limit the ability of the Company to, among other things, incur debt for borrowed money secured by certain liens and engage in certain sale and leaseback transactions, and require maintenance of certain consolidated leverage ratios. As of July 30, 2023, the Company was in compliance with all covenants and expects to maintain compliance in the future.
Cash Held by International Subsidiaries
As of July 30, 2023, the Company had $208 million of cash and cash equivalents held by international subsidiaries. The Company maintains all undistributed earnings as permanently reinvested. The Company evaluates the balance and uses of cash held internationally based on the needs of the business.
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Share Repurchases
The Company is authorized to repurchase 3,677,494 shares of common stock as part of an existing plan approved by the Company’s Board of Directors. During fiscal 2023, the Company repurchased 310,000 shares for $12 million.
Commitments
There have been no material changes to the information regarding the Company’s future contractual financial obligations previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended October 30, 2022, other than the matter described below.
In the fourth quarter of fiscal 2023, the Company expects to utilize cash on hand to pay an estimated $70 million due to an adverse arbitration ruling. Refer to Note I - Commitments and Contingencies for additional information.
TRADEMARKS
References to the Company’s brands or products in italics within this report represent valuable trademarks owned or licensed by Hormel Foods, LLC or other subsidiaries of Hormel Foods Corporation.
CRITICAL ACCOUNTING ESTIMATES
This discussion and analysis of financial condition and results of operations is based upon the Company's consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires the Company to make estimates, judgments, and assumptions that can have a meaningful effect on the reporting of consolidated financial statements. The significant accounting policies used in preparing these Consolidated Financial Statements are consistent with those described in Note A - Summary of Significant Accounting Policies to the Consolidated Financial Statements in the Form 10-K.
Critical accounting estimates are defined as those reflective of significant judgments, estimates, and uncertainties, which may result in materially different results under different assumptions and conditions. There have been no material changes in the Company’s Critical Accounting Estimates as disclosed in its Annual Report on Form 10-K for the fiscal year ended October 30, 2022.
FORWARD-LOOKING STATEMENTS
This report contains “forward-looking” information within the meaning of the federal securities laws. The “forward-looking” information may include statements concerning the Company’s outlook for the future as well as other statements of beliefs, future plans, strategies, or anticipated events and similar expressions concerning matters that are not historical facts.
The Private Securities Litigation Reform Act of 1995 (the Reform Act) provides a “safe harbor” for forward-looking statements to encourage companies to provide prospective information. The Company is filing this cautionary statement in connection with the Reform Act. When used in this Quarterly Report on Form 10-Q, the Company’s Annual Report to Stockholders, other filings by the Company with the Securities and Exchange Commission, the Company’s press releases, and oral statements made by the Company’s representatives, the words or phrases “should result,” “believe,” “intend,” “plan,” “are expected to,” “targeted,” “will continue,” “will approximate,” “is anticipated,” “estimate,” “project,” or similar expressions are intended to identify forward-looking statements within the meaning of the Reform Act. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those anticipated or projected.
In connection with the “safe harbor” provisions of the Reform Act, the Company is identifying risk factors that could affect financial performance and cause the Company’s actual results to differ materially from opinions or statements expressed with respect to future periods. The discussions of risk factors in the Company's most recent Annual Report on Form 10-K and in Part II, Item 1A of this Quarterly Report on Form 10-Q contain certain cautionary statements regarding the Company’s business, which should be considered by investors and others. Such risk factors should be considered in conjunction with any discussions of operations or results by the Company or its representatives, including any forward-looking discussion, as well as comments contained in press releases, presentations to securities analysts or investors, or other communications by the Company.
In making these statements, the Company is not undertaking, and specifically declines to undertake, any obligation to address or update each or any factor in future filings or communications regarding the Company’s business or results, and is not undertaking to address how any of these factors may have caused changes to discussions or information contained in previous filings or communications. Though the Company has attempted to list comprehensively these important cautionary risk factors,
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the Company wishes to caution investors and others that other factors may in the future prove to be important in affecting the Company’s business or results of operations.
The Company cautions readers not to place undue reliance on forward-looking statements, which represent current views as of the date made. Forward-looking statements are inherently at risk to changes in the national and worldwide economic environment, which could include, among other things, risks related to the deterioration of economic conditions; the COVID-19 pandemic; risks associated with acquisitions and divestitures; potential disruption of operations including at co-manufacturers, suppliers, logistics providers, customers, or other third-party service providers; risk of loss of a material contract; the Company’s inability to protect information technology systems against, or effectively respond to, cyber attacks or security breaches; deterioration of labor relations, labor availability or increases to labor costs; general risks of the food industry, including food contamination; outbreaks of disease among livestock and poultry flocks; fluctuations in commodity prices and availability of raw materials and other inputs; fluctuations in market demand for the Company’s products; damage to the Company's reputation or brand image; climate change, or legal, regulatory, or market measures to address climate change; risks of litigation; potential sanctions and compliance costs arising from government regulation; compliance with stringent environmental regulations and potential environmental litigation; and risks arising from the Company’s foreign operations.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to various forms of market risk as a part of its ongoing business practices. The Company utilizes derivative instruments to mitigate earnings fluctuations due to market volatility.
Commodity Price Risk: The Company is subject to commodity price risk primarily through the grain, lean hog, and natural gas markets. To reduce these exposures and offset the fluctuations caused by changes in market conditions, the Company employs hedging programs. These programs utilize futures, swaps, and options contracts and are accounted for as cash flow hedges. The fair value of the Company’s cash flow commodity contracts as of July 30, 2023, was $(9.1) million compared to $21.6 million as of October 30, 2022. The Company measures its market risk exposure on its cash flow commodity contracts using a sensitivity analysis, which considers a hypothetical 10 percent change in the market prices. A 10 percent decrease in the market price would have negatively impacted the fair value of the Company's cash flow commodity contracts as of July 30, 2023, by $27.2 million, which in turn would lower the Company's future cost on purchased commodities by a similar amount.
Interest Rate Risk: The Company is subject to interest rate risk primarily from changes in fair value of long-term fixed rate debt. As of July 30, 2023, the Company’s long-term debt had a fair value of $2.8 billion compared to $2.7 billion as of October 30, 2022. The Company measures its market risk exposure of long-term fixed rate debt using a sensitivity analysis, which considers a 10 percent change in interest rates. A 10 percent decrease in interest rates would have positively impacted the fair value of the Company’s long-term debt as of July 30, 2023, by $82.8 million. A 10 percent increase would have negatively impacted the long-term debt by $77.4 million.
Foreign Currency Exchange Rate Risk: The fair values of certain assets are subject to fluctuations in foreign currency exchange rates. The Company's net asset position in foreign currencies as of July 30, 2023, was $1,108.5 million, compared to $652.4 million as of October 30, 2022, with most of the exposure existing in Indonesian rupiah, Chinese yuan, and Brazilian real. The Company currently does not use market risk sensitive instruments to manage this risk.
Investment Risk: The Company has corporate-owned life insurance policies classified as trading securities as part of a rabbi trust to fund certain supplemental executive retirement plans and deferred income plans. As of July 30, 2023, the balance of these securities totaled $197.1 million compared to $186.2 million as of October 30, 2022. The rabbi trust is invested primarily in fixed income funds. The Company is subject to market risk due to fluctuations in the value of the remaining investments as unrealized gains and losses associated with these securities are included in the Company’s net earnings on a mark-to-market basis. A 10 percent decline in the value of the investments not held in fixed income funds would have negatively impacted the Company’s pretax earnings by approximately $8.7 million, while a 10 percent increase in value would have a positive impact of the same amount.
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Item 4. CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures.
As of the end of the period covered by this report (the Evaluation Date), the Company carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act)). In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures were effective to provide reasonable assurance that information the Company is required to disclose in reports it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
(b) Internal Controls.
There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the third quarter of fiscal 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is a party to various legal proceedings related to the ongoing operation of its business, including claims both by and against the Company. At any time, such proceedings typically involve claims related to product liability, labeling, contracts, antitrust regulations, intellectual property, competition laws, employment practices, or other actions brought by employees, customers, consumers, competitors, or suppliers. The Company establishes accruals for its potential exposure, as appropriate, for claims against the Company when losses become probable and reasonably estimable. However, future developments or settlements are uncertain and may require the Company to change such accruals as proceedings progress. Resolution of any currently known matters, either individually or in the aggregate, is not expected to have a material effect on the Company’s financial condition, results of operations, or liquidity.
The Company is a defendant in four sets of antitrust lawsuits broadly targeting the pork and turkey industries. None of these cases involve allegations of bid rigging or other criminal conduct. The Company has not established reserves as it does not believe it will have liability in any of these cases.
On August 15, 2023, the Company received an unexpected, unfavorable arbitration ruling involving an isolated commercial dispute with a third party. Pursuant to the ruling, the arbitrator awarded $59.6 million in damages, plus prejudgment interest of $5.3 million and attorneys’ fees, to the counterparty payable by the Company. The estimated pre-tax impact of the adverse arbitration ruling of $70.0 million is reflected in operating expense and accrued liabilities in the fiscal 2023 third quarter financial statements. The adverse arbitration ruling is not subject to further appeal or judicial review. Standard confidentiality provisions in the arbitration rules prohibit the Company from commenting on the substance of the ruling. Refer to Note I - Commitments and Contingencies for additional information.
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Item 1A. RISK FACTORS
The Company's business, operations, and financial condition are subject to various risks and uncertainties. There have been no material changes to the risk factors previously disclosed in Part I, Item 1A. Risk Factors in the Company's Annual Report on Form 10-K for the fiscal year ended October 30, 2022, except as follows:
Business and Operational Risks
Deterioration of labor relations, labor availability or increases in labor costs could harm the Company’s business. As of July 30, 2023, the Company employed approximately 20,000 people worldwide, of which approximately 20 percent were represented by labor unions, principally the United Food and Commercial Workers Union. Union contracts at four of the Company's manufacturing facilities, covering approximately 2,400 employees, will expire during fiscal 2023. Negotiations are currently ongoing for new contracts at all four facilities. A significant increase in labor costs or a deterioration of labor relations at any of the Company’s facilities or co-manufacturing facilities resulting in work slowdowns or stoppages could harm the Company’s financial results. Labor and skilled labor availability challenges could continue to have an adverse effect on the Company's business.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
There were no issuer purchases of equity securities in the quarter ended July 30, 2023. On January 29, 2013, the Company's Board of Directors authorized the repurchase of 10,000,000 shares of its common stock with no expiration date. On January 26, 2016, the Board of Directors approved a two-for-one split of the Company’s common stock to be effective January 27, 2016. As part of the stock split resolution, the number of shares remaining to be repurchased was adjusted proportionately. The maximum number of shares that may yet be purchased under the plans or programs as of July 30, 2023, is 3,677,494.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. MINE SAFETY DISCLOSURES
None.
Item 5. OTHER INFORMATION
During the fiscal quarter ended July 30, 2023, no director or officer of the Company adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as the terms are defined in Item 408(a) of Regulation S-K.
Item 6. EXHIBITS

31.1 | Certification Required Under Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 | Certification Required Under Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 | Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101 | The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended July 30, 2023, formatted in Inline XBRL: (i) Consolidated Statements of Operations, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Condensed Statements of Financial Position, (iv) Consolidated Statements of Changes in Shareholders' Investment, (v) Consolidated Condensed Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements.
104 | The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended July 30, 2023, formatted in Inline XBRL (included as Exhibit 101).

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

|  | HORMEL FOODS CORPORATION
|  | (Registrant)
Date: August 31, 2023 | By | /s/ JACINTH C. SMILEY
|  | JACINTH C. SMILEY
|  | Executive Vice President and Chief Financial Officer
|  | (Principal Financial Officer)
Date: August 31, 2023 | By | /s/ PAUL R. KUEHNEMAN
|  | PAUL R. KUEHNEMAN
|  | Vice President and Controller
|  | (Principal Accounting Officer)

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