Hormel Foods 2010 Annual Report Download - page 50

48
Note J
COMMITMENTS AND CONTINGENCIES
In order to ensure a steady supply of hogs and turkeys, and
to keep the cost of products stable, the Company has entered
into contracts with producers for the purchase of hogs and
turkeys at formula-based prices over periods up to 10 years.
The Company has also entered into grow-out contracts
with independent farmers to raise turkeys for the Company
for periods up to 25 years. Under these arrangements, the
Company owns the livestock, feed, and other supplies while
the independent farmers provide facilities and labor. Some
of the facilities are sub-leased by the Company to the inde-
pendent farmers. The Company has also contracted for the
purchase of corn, soybean meal, and other feed ingredients
from independent suppliers for periods up to three years.
Under these contracts, the Company is committed at October
31, 2010, to make purchases, assuming current price levels,
as follows:
(in thousands)
2011 $ 1,105,275
2012 663,203
2013 391,645
2014 302,167
2015 290,146
Later years 1,091,025
Total $ 3,843,461
Purchases under these contracts for fiscal 2010, 2009, and 2008
were $1.9 billion, $1.6 billion, and $1.8 billion, respectively.
The Company has noncancelable operating lease commitments
on facilities and equipment at October 31, 2010, as follows:
(in thousands)
2011 $ 13,205
2012 8,994
2013 6,069
2014 4,042
2015 2,600
Later years 7,316
Total $ 42,226
The Company expensed $25.1 million, $23.0 million, and $21.9
million for rent in fiscal 2010, 2009, and 2008, respectively.
The Company has commitments to expend approximately
$54.9 million to complete construction in progress at various
locations as of October 31, 2010.
The following table sets forth changes in the unrecognized
tax benefits, excluding interest and penalties, for fiscal years
2009 and 2010.
(in thousands)
Balance as of October 26, 2008 $ 32,684
Tax positions related to the current period:
Increases 3,237
Decreases –
Tax positions related to prior periods:
Increases 9,101
Decreases –
Settlements (2,003)
Decreases related to a lapse of applicable
statute of limitations: (257)
Balance as of October 25, 2009 $ 42,762
Tax positions related to the current period:
Increases 3,102
Decreases –
Tax positions related to prior periods:
Increases 4,194
Decreases (18,313)
Settlements (2,650)
Decreases related to a lapse of applicable
statute of limitations: (3,022)
Balance as of October 31, 2010 $ 26,073
The amount of unrecognized tax benefits, including interest
and penalties, at October 31, 2010, recorded in other long-
term liabilities was $38.5 million, of which $28.6 million would
impact the Company’s effective tax rate if recognized. The
Company includes accrued interest and penalties related
to uncertain tax positions in income tax expense, with $1.6
million included in expense for fiscal 2010. The amount of
accrued interest and penalties at October 31, 2010, associated
with unrecognized tax benefits was $12.4 million.
The Company is regularly audited by federal and state taxing
authorities. During fiscal year 2010, the United States Internal
Revenue Service (I.R.S.) concluded its examination of the
Company’s consolidated federal income tax returns for the
fiscal years through 2007. During the fourth quarter of fiscal
year 2010 the I.R.S. opened an examination of the Company’s
consolidated federal income tax returns for fiscal years 2008
and 2009. The Company is in various stages of audit by several
state taxing authorities on a variety of fiscal years, as far back
as 1996. While it is reasonably possible that one or more of
these audits may be completed within the next 12 months
and that 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.