Segment Reporting

12 Months Ended

Oct. 25, 2015

Segment Reporting

Segment Reporting

NOTE P

Segment Reporting

The Company develops, processes, and distributes a wide array of food products in a variety of markets. The Company reports its results in the following five segments: Grocery Products, Refrigerated Foods, Jennie-O Turkey Store, Specialty Foods, and International & Other.

The Grocery Products segment consists primarily of the processing, marketing, and sale of shelf-stable food products sold predominantly in the retail market. This segment also includes the results from the Company’s MegaMex joint venture.

The Refrigerated Foods segment consists primarily of the processing, marketing, and sale of branded and unbranded pork and beef products for retail, foodservice, and fresh product customers. This segment includes the results of Applegate and Affiliated Foods (Farmer John, Burke, and Dan’s Prize).

The Jennie-O Turkey Store segment consists primarily of the processing, marketing, and sale of branded and unbranded turkey products for retail, foodservice, and fresh product customers.

The Specialty Foods segment consists of the packaging and sale of private label shelf stable products, nutritional products, sugar, and condiments to industrial, retail, and foodservice customers including the results of Diamond Crystal Brands (DCB), CytoSport/Century Foods International, and Hormel Specialty Products (HSP). As of the end of fiscal year 2015, a portion of DCB is held for sale. The segment operating results for fiscal year 2015 include the related goodwill impairment charge of $21.5 million. See additional discussion regarding the Company’s assets held for sale in Note E.

The International & Other segment includes Hormel Foods International which manufactures, markets, and sells Company products internationally. This segment also includes the results from the Company’s international joint ventures.

Intersegment sales are recorded at prices that approximate cost and are eliminated in the Consolidated Statements of Operations. The Company does not allocate investment income, interest expense, and interest income to its segments when measuring performance. The Company also retains various other income and unallocated expenses at corporate. Equity in earnings of affiliates is included in segment operating profit; however, earnings attributable to the Company’s noncontrolling interests are excluded. These items are included in the following table as net interest and investment expense (income), general corporate expense, and noncontrolling interest when reconciling to earnings before income taxes.

Sales and operating profits for each of the Company’s reportable segments and reconciliation to earnings before income taxes 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 operating profit and other financial information shown below.

(in thousands)	2015		2014		2013
Net Sales (to unaffiliated
customers)
Grocery Products		$ 1,617,680		$ 1,558,265		$ 1,517,557
Refrigerated Foods		4,372,347		4,644,179		4,251,515
Jennie-O Turkey Store		1,635,776		1,672,452		1,601,868
Specialty Foods		1,103,359		907,120		932,533
International & Other		534,701		534,240		448,181
Total		$ 9,263,863		$ 9,316,256		$ 8,751,654
Intersegment Sales
Grocery Products		$               –		$              –		$              –
Refrigerated Foods		13,058		23,163		17,359
Jennie-O Turkey Store		128,195		144,137		123,420
Specialty Foods		64		122		108
International & Other		–		–		–
Total		141,317		167,422		140,887
Intersegment
elimination		(141,317)		(167,422)		(140,887)
Total		$               –		$              –		$              –
Segment Net Sales
Grocery Products		$ 1,617,680		$ 1,558,265		$ 1,517,557
Refrigerated Foods		4,385,405		4,667,342		4,268,874
Jennie-O Turkey Store		1,763,971		1,816,589		1,725,288
Specialty Foods		1,103,423		907,242		932,641
International & Other		534,701		534,240		448,181
Intersegment
elimination		(141,317)		(167,422)		(140,887)
Total		$ 9,263,863		$ 9,316,256		$ 8,751,654
Segment Operating Profit
Grocery Products		$    228,582		$   195,064		$   213,646
Refrigerated Foods		424,968		338,020		232,692
Jennie-O Turkey Store		276,217		272,362		222,117
Specialty Foods		93,258		71,514		88,873
International & Other		78,318		84,745		71,490
Total segment
operating profit		$ 1,101,343		$   961,705		$   828,818
Net interest and
investment expense
(income)		10,177		9,468		7,482
General corporate
expense		35,199		33,434		26,694
Noncontrolling interest		1,176		3,349		3,865
Earnings Before
Income Taxes		$ 1,057,143		$   922,152		$   798,507

(in thousands)	2015		2014		2013
Assets
Grocery Products		$ 1,214,988		$ 1,249,631		$ 1,237,405
Refrigerated Foods		1,973,424		1,215,694		1,218,418
Jennie-O Turkey Store		811,693		857,697		819,343
Specialty Foods		988,455		1,013,420		469,599
International & Other		446,164		406,249		361,038
Corporate		705,107		712,928		810,077
Total		$ 6,139,831		$ 5,455,619		$ 4,915,880
Additions to Property,
Plant and Equipment
Grocery Products		$     18,104		$     31,741		$     10,100
Refrigerated Foods		54,074		61,183		58,523
Jennie-O Turkey Store		32,250		25,761		22,863
Specialty Foods		5,309		3,266		3,606
International & Other		18,576		4,896		2,973
Corporate		15,750		32,291		8,697
Total		$   144,063		$   159,138		$   106,762
Depreciation and
Amortization
Grocery Products		$     26,972		$     25,883		$     22,912
Refrigerated Foods		53,325		57,709		57,879
Jennie-O Turkey Store		28,262		27,091		26,921
Specialty Foods		11,075		8,999		9,232
International & Other		3,372		3,541		1,906
Corporate		10,428		6,821		6,000
Total		$   133,434		$   130,044		$   124,850

The Company’s products primarily consist of meat and other food products. The Perishable category includes fresh meats, frozen items, refrigerated meal solutions, sausages, hams, wieners, guacamole, and bacon (excluding JOTS products). The Poultry category is composed primarily of JOTS products. Shelf-stable includes canned luncheon meats, shelf-stable microwaveable meals, stews, chilies, hash, meat spreads, flour and corn tortillas, salsas, tortilla chips, peanut butter, and other items that do not require refrigeration. The Miscellaneous category primarily consists of nutritional food products and supplements, sugar and sugar substitutes,

dessert and drink mixes, and industrial gelatin products. The percentages of total revenues contributed by classes of similar products for the last three fiscal years are as follows:

	Fiscal Year Ended
	October 25,	October 26,	October 27,
	2015	2014	2013
Perishable	53.0%	54.5%	53.3%
Poultry	18.6	18.4	18.8
Shelf-stable	18.4	19.0	19.0
Miscellaneous	10.0	8.1	8.9
	100.0%	100.0%	100.0%

Revenues from external customers are classified as domestic or foreign based on the destination where title passes. No individual foreign country is material to the consolidated results. Additionally, the Company’s long-lived assets located

in foreign countries are not significant. Total revenues attributed to the U.S. and all foreign countries in total for the last three fiscal years are as follows:

	Fiscal Year Ended
	October 25,	October 26,	October 27,
(in thousands)	2015	2014	2013
United States	$ 8,721,722	$ 8,708,042	$ 8,193,730
Foreign	542,141	608,214	557,924
	$ 9,263,863	$ 9,316,256	$ 8,751,654

In fiscal 2015, sales to Wal-Mart Stores, Inc. (Wal-Mart) represented $1.43 billion or 13.9 percent of the Company’s consolidated revenues (measured as gross sales less returns and allowances). In fiscal 2014, sales to Wal-Mart represented $1.43 billion or 14.1 percent of the Company’s consolidated revenues. Wal-Mart is a customer for all five segments of the Company.