XML 22 R13.htm IDEA: XBRL DOCUMENT
v3.23.2

DERIVATIVES AND HEDGING | 9 Months Ended
--- | ---
Jul. 30, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
DERIVATIVES AND HEDGING | 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 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. 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 |
(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.

X
- References No definition available. + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 40 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480237/815-40-50-5 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 5C -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480434/815-10-50-5C Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 815 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//815/tableOfContent + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | dtr-types:textBlockItemType
Balance Type: | na
Period Type: | duration