Hormel Foods 2013 Annual Report Download - page 40

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NOTE A
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial state-
ments include the accounts of Hormel Foods Corporation
(the Company) and all of its majority-owned subsidiaries
after elimination of intercompany accounts, transactions,
and profits.
Reclassifications: Certain reclassifications of previously
reported amounts have been made to conform to the current
year presentation. The reclassifications had no impact on net
earnings or operating cash flows as previously reported.
Stock Split: On November 22, 2010, the Company’s Board of
Directors authorized a two-for-one split of the Company’s
common stock, which was subsequently approved by
shareholders at the Company’s Annual Meeting on January
31, 2011, and effected on February 1, 2011. The Company’s
common stock was reclassified by reducing the par value
from $0.0586 per share to $0.0293 per share and the number
of authorized shares was increased from 400,000,000 to
800,000,000 shares, in order to effect a two-for-one stock
split. The number of authorized shares of nonvoting common
stock and preferred stock were also increased to 400,000,000
shares and 160,000,000 shares, respectively, with no change
in the par value of those shares.
Unless otherwise noted, all prior year share amounts and per
share calculations throughout this Annual Report have been
restated to reflect the impact of this split, and to provide data
on a comparable basis. Such restatements include calcu-
lations regarding the Company’s weighted-average shares,
earnings per share, and dividends per share, as well as dis-
closures regarding the Company’s stock-based compensation
plans and share repurchase activity.
Use of Estimates: The preparation of financial statements in
conformity with U.S. generally accepted accounting principles
requires management to make estimates and assumptions
that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from
those estimates.
Fiscal Year: The Company’s fiscal year ends on the last
Sunday in October. Fiscal years 2013, 2012, and 2011 con-
sisted of 52 weeks.
Cash and Cash Equivalents: The Company considers all
investments with an original maturity of three months or
less on their acquisition date to be cash equivalents. The
Company’s cash equivalents as of October 27, 2013, and
October 28, 2012, consisted primarily of money market funds
rated AAA, and other highly liquid investment accounts.
Fair Value Measurements: Pursuant to the provisions of
Accounting Standards Codification (ASC) 820, Fair Value
Measurements and Disclosures (ASC 820), the Company
measures certain assets and liabilities at fair value or dis-
closes the fair value of certain assets and liabilities recorded
at cost in the consolidated financial statements. Fair value is
calculated as the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date (an exit price).
ASC 820 establishes a fair value hierarchy which requires
assets and liabilities measured at fair value to be categorized
into one of three levels based on the inputs used in the val-
uation. The Company classifies assets and liabilities in their
entirety based on the lowest level of input significant to the
fair value measurement. The three levels are defined
as follows:
Level 1: Observable inputs based on quoted prices (unad-
justed) 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 infor-
mation available in the circumstances.
See additional discussion regarding the Company’s fair value
measurements in Notes I, M, and N.
Investments: The Company maintains a rabbi trust to
fund certain supplemental executive retirement plans and
deferred income plans, which is included in other assets
on the Consolidated Statements of Financial Position. The
securities held by the trust are classified as trading securi-
ties. Therefore, unrealized gains and losses associated with
these investments are included in the Company’s earnings.
Securities held by the trust generated a gain of $4.6 million
for the fiscal year ended October 27, 2013, a gain of $4.3
million for the fiscal year ended October 28, 2012, and a gain
of $1.2 million for the fiscal year ended October 30, 2011.
The Company has transitioned the majority of this portfolio
to more fixed return investments to reduce the exposure to
volatility in equity markets.
During fiscal 2011, 2012, and 2013, the Company also held
securities as part of an investment portfolio, which are classi-
fied as short-term marketable securities on the Consolidated
Statements of Financial Position. These investments are also
trading securities. Therefore, unrealized gains and losses are
included in the Company’s earnings. The Company recorded
a gain of $0.2 million related to these investments during
the first quarter of the fiscal year ended October 27, 2013,
compared to a gain of $1.3 million for the fiscal year ended
October 28, 2012, and a gain of $0.5 million for the fiscal year
ended October 30, 2011. These securities were liquidated in
the first quarter of fiscal 2013.
Notes to Consolidated Financial Statements October 27, 2013