## Notes to Consolidated Financial Statements October 26, 2014 

## 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 elim- ination 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 400.0 million to 800.0 million 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 400.0 million shares and 160.0 million 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. 

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 2014, 2013, and 2012 consisted 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 26, 2014, and October 27, 2013, consisted primarily of bank deposits, money market funds rated AAA, or 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 mea- sures certain assets and liabilities at fair value or discloses 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 valuation. The Company classifies assets and liabilities in their entirety based on the lowest level of input significant to the fair value mea- surement. 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 gains of $2.9 million, $4.6 million, and $4.3 million for fiscal years 2014, 2013, and 2012, respectively. 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 2012 and 2013, the Company also held securities as part of an investment portfolio, which were classified as short-term marketable securities on the Consolidated Statements of Financial Position. These investments were also trading securities. Therefore, unrealized gains and losses were included in the Company’s earnings. The Company recorded gains of $0.2 million and $1.3 million for fiscal years 2013 and 2012, respectively. These securities were liquidated in the first quarter of fiscal 2013. 

