Hormel Foods 2013 Annual Report Download - page 55

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53
NOTE M
DERIVATIVES AND HEDGING
The Company uses hedging programs to manage price risk
associated with commodity purchases. These programs utilize
futures contracts and swaps to manage the Company’s expo-
sure to price fluctuations in the commodities markets. The
Company has determined that its programs which are desig-
nated as hedges are highly effective in offsetting the changes
in fair value or cash flows generated by the items hedged.
Cash Flow Hedges: The Company currently utilizes corn
futures to offset the price fluctuation in the Company’s future
direct grain purchases, and has historically entered into
various swaps to hedge the purchases of grain and natural
gas at certain plant locations. The financial instruments are
designated and accounted for as cash flow hedges, and the
Company measures the effectiveness of the hedges on a
regular basis. Effective gains or losses related to these cash
flow hedges are reported in accumulated other compre-
hensive loss (AOCL) and reclassified into earnings, through
cost of products sold, in the period or periods in which the
hedged transactions affect earnings. Any gains or losses
related to hedge ineffectiveness are recognized in the current
period cost of products sold. The Company typically does not
hedge its grain or natural gas exposure beyond the next two
upcoming fiscal years. As of October 27, 2013, and October 28,
2012, the Company had the following outstanding commodity
futures contracts that were entered into to hedge forecasted
purchases:
Volume
Commodity October 27, 2013 October 28, 2012
Corn 14.7 million bushels 12.0 million bushels
As of October 27, 2013, the Company has included in AOCL,
hedging loss of $9.0 million (before tax) relating to its
positions, compared to gains of $15.2 million (before tax)
as of October 28, 2012. The Company expects to recognize
the majority of these losses over the next 12 months. The
balance as of October 27, 2013, includes a loss of $1.1 million
related to corn futures contracts held for the Company’s hog
operations. These contracts were dedesignated as cash flow
hedges during fiscal year 2013, as they were no longer highly
effective. These losses will remain in AOCL until the hedged
transactions occur or it is probable the hedged transactions
will not occur. Gains or losses related to these contracts after
the date of dedesignation have been recognized in earnings
as incurred.
The weighted-average grant date fair value of nonvested
shares granted, the total fair value (in thousands) of non-
vested shares granted, and the fair value (in thousands) of
shares that have vested during each of the past three fiscal
years is as follows:
Fiscal Year Ended
October 27, October 28, October 30,
2013 2012 2011
Weighted-average grant
date fair value $ 35.42 $ 28.98 $ 25.11
Fair value of nonvested
shares granted $ 1,600 $ 1,369 $ 1,299
Fair value of shares vested $ 1,824 $ 2,476 $ 751
Stock-based compensation expense, along with the related
income tax benefit, for each of the past three fiscal years is
presented in the table below:
Fiscal Year Ended
October 27, October 28, October 30,
(in thousands) 2013 2012 2011
Stock-based compensation
expense recognized $ 17,596 $ 16,710 $ 17,229
Income tax benefit
recognized (6,655) (6,334) (6,542)
After-tax stock-based
compensation expense $ 10,941 $ 10,376 $ 10,687
At October 27, 2013, there was $7.4 million of total unrecog-
nized compensation expense from stock-based compensation
arrangements granted under the plans. This compensation is
expected to be recognized over a weighted-average period of
approximately 4.4 years. During fiscal years 2013, 2012, and
2011, cash received from stock option exercises was $30.2
million, $14.7 million, and $53.8 million, respectively. The
total tax benefit to be realized for tax deductions from these
option exercises was $29.4 million, $11.4 million, and $20.8
million, respectively.
Shares issued for option exercises and nonvested shares
may be either authorized but unissued shares, or shares of
treasury stock acquired in the open market or otherwise. The
number of shares available for future grants was 27.9 million
at October 27, 2013, 30.0 million at October 28, 2012, and 32.6
million at October 30, 2011.