Company Quick10K Filing
Quick10K
Hormel Foods
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$40.78 536 $21,840
10-Q 2019-01-27 Quarter: 2019-01-27
10-K 2018-10-28 Annual: 2018-10-28
10-Q 2018-07-29 Quarter: 2018-07-29
10-Q 2018-04-29 Quarter: 2018-04-29
10-Q 2018-01-28 Quarter: 2018-01-28
10-K 2017-10-29 Annual: 2017-10-29
10-Q 2017-07-30 Quarter: 2017-07-30
10-Q 2017-04-30 Quarter: 2017-04-30
10-Q 2017-01-29 Quarter: 2017-01-29
10-K 2016-10-30 Annual: 2016-10-30
10-Q 2016-07-24 Quarter: 2016-07-24
10-Q 2016-04-24 Quarter: 2016-04-24
10-Q 2016-01-24 Quarter: 2016-01-24
10-K 2015-10-25 Annual: 2015-10-25
10-Q 2015-07-26 Quarter: 2015-07-26
10-Q 2015-04-26 Quarter: 2015-04-26
10-Q 2015-01-25 Quarter: 2015-01-25
10-K 2014-10-26 Annual: 2014-10-26
10-Q 2014-07-27 Quarter: 2014-07-27
10-Q 2014-04-27 Quarter: 2014-04-27
10-Q 2014-01-26 Quarter: 2014-01-26
8-K 2019-04-15 Regulation FD, Exhibits
8-K 2019-03-25 Officers, Exhibits
8-K 2019-02-21 Earnings, Exhibits
8-K 2019-02-19 Regulation FD, Exhibits
8-K 2019-01-29 Code of Ethics, Shareholder Vote, Exhibits
8-K 2018-11-20 Earnings, Exhibits
8-K 2018-11-19 Officers, Exhibits
8-K 2018-08-23 Earnings, Exhibits
8-K 2018-05-24 Earnings, Exhibits
8-K 2018-05-21 Amend Bylaw, Exhibits
8-K 2018-02-22 Earnings, Exhibits
8-K 2018-02-06 Officers, Exhibits
8-K 2018-01-30 Officers, Shareholder Vote, Exhibits
ORLY O Reilly Automotive 32,020
SJI South Jersey Industries 2,900
CPK Chesapeake Utilities 1,500
HY Hyster-Yale Materials Handling 1,130
ELVT Elevate Credit 198
IRIX Iridex 64
SDT Sandridge Mississippian Trust I 28
ESNC Ensync 0
LCTC Lifeloc Technologies 0
PRHR Petroshare 0
HRL 2019-01-27
Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 hrl-20190127xex311.htm
EX-31.2 hrl-20190127xex312.htm
EX-32.1 hrl-20190127xex321.htm

Hormel Foods Earnings 2019-01-27

HRL 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[ X ]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 27, 2019
or
[     ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________________________ to ________________________________________
Commission File Number: 1-2402
HORMEL FOODS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
 
41-0319970
(I.R.S. Employer Identification No.)
1 Hormel Place
Austin, Minnesota
(Address of principal executive offices)
 
55912-3680
(Zip Code)
(507) 437-5611
(Registrant’s telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.      X   YES                         NO
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).                                X   YES                         NO
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,”  “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer    X  
 
Accelerated filer    
Non-accelerated filer          
 
Smaller reporting company    
 
 
Emerging growth company    
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.        
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).        Yes  X  No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
 
Outstanding at March 3, 2019
 
Common Stock
 
$.01465 par value      
535,675,778

 
Common Stock Non-Voting
 
$.01 par value                      
–0–

 



Table of Contents

TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1.  Financial Statements

HORMEL FOODS CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in thousands, except share and per share amounts)
 
 
 
 
 
January 27,
2019
 
October 28,
2018
 
(Unaudited)
 
 

ASSETS
 

 
 

CURRENT ASSETS
 

 
 

Cash and cash equivalents
$
512,689

 
$
459,136

Accounts receivable
565,060

 
600,438

Inventories
994,428

 
963,527

Income taxes receivable
147

 
3,995

Prepaid expenses
23,601

 
16,342

Other current assets
4,761

 
6,662

TOTAL CURRENT ASSETS
2,100,686

 
2,050,100

 
 
 
 
GOODWILL
2,716,750

 
2,714,116

 
 
 
 
OTHER INTANGIBLES
1,204,991

 
1,207,219

 
 
 
 
PENSION ASSETS
200,448

 
195,153

 
 
 
 
INVESTMENTS IN AND RECEIVABLES FROM AFFILIATES
277,837

 
273,153

 
 
 
 
OTHER ASSETS
171,005

 
189,951

 
 
 
 
PROPERTY, PLANT AND EQUIPMENT
 
 
 
Land
49,162

 
50,332

Buildings
958,884

 
956,260

Equipment
1,819,284

 
1,863,020

Construction in progress
302,929

 
332,205

Less: Allowance for depreciation
(1,646,578
)
 
(1,689,217
)
Net property, plant and equipment
1,483,681

 
1,512,600

 
 
 
 
TOTAL ASSETS
$
8,155,398

 
$
8,142,292

 
See Notes to Consolidated Financial Statements

3

Table of Contents

HORMEL FOODS CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in thousands, except share and per share amounts)
 
 
 
 
 
January 27,
2019
 
October 28,
2018
 
(Unaudited)
 
 
LIABILITIES AND SHAREHOLDERS’ INVESTMENT
 

 
 

CURRENT LIABILITIES
 

 
 

Accounts payable
$
505,617

 
$
618,830

Accrued expenses
50,361

 
48,298

Accrued workers compensation
25,215

 
24,594

Accrued marketing expenses
139,338

 
118,887

Employee related expenses
160,242

 
224,736

Taxes payable
63,791

 
2,490

Interest and dividends payable
116,370

 
101,079

Current maturities of long-term debt
374,878

 

TOTAL CURRENT LIABILITIES
1,435,812

 
1,138,914

 
 
 
 
LONG-TERM DEBT–less current maturities
250,000

 
624,840

 
 
 
 
PENSION AND POST-RETIREMENT BENEFITS
484,004

 
477,557

 
 
 
 
OTHER LONG-TERM LIABILITIES
100,134

 
99,070

 
 
 
 
DEFERRED INCOME TAXES
179,669

 
197,093

 
 
 
 
SHAREHOLDERS’ INVESTMENT
 
 
 
Preferred stock, par value $.01 a share–
 
 
 
authorized 160,000,000 shares; issued–none
 
 
 
Common stock, non-voting, par value $.01
 
 
 
a share–authorized 400,000,000 shares; issued–none


 


Common stock, par value $.01465 a share–
7,826

 
7,825

authorized 1,600,000,000 shares;
 
 
 
issued 534,169,855 shares January 27, 2019
 
 
 
issued 534,135,484 shares October 28, 2018
 
 
 
Additional paid-in capital
130,196

 
106,528

Accumulated other comprehensive loss
(292,342
)
 
(243,498
)
Retained earnings
5,856,029

 
5,729,956

HORMEL FOODS CORPORATION SHAREHOLDERS’ INVESTMENT
5,701,709

 
5,600,811

NONCONTROLLING INTEREST
4,070

 
4,007

TOTAL SHAREHOLDERS’ INVESTMENT
5,705,779

 
5,604,818

 
 
 
 
TOTAL LIABILITIES AND SHAREHOLDERS’ INVESTMENT
$
8,155,398

 
$
8,142,292

 
See Notes to Consolidated Financial Statements

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Table of Contents

HORMEL FOODS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
 
Three Months Ended
 
January 27,
2019
 
January 28,
2018 *
Net sales
$
2,360,355

 
$
2,331,293

Cost of products sold
1,872,021

 
1,832,997

GROSS PROFIT
488,334

 
498,296

 
 
 
 
Selling, general and administrative
193,544

 
219,872

Equity in earnings of affiliates
11,458

 
23,531

 
 
 
 
OPERATING INCOME
306,248

 
301,955

 
 
 
 
Other income and expense:
 
 
 
Interest and investment income
6,874

 
7,939

Interest expense
(6,147
)
 
(4,729
)
 
 
 
 
EARNINGS BEFORE INCOME TAXES
306,975

 
305,165

 
 
 
 
Provision for income taxes
65,456

 
1,954

 
 
 
 
NET EARNINGS
241,519

 
303,211

Less: Net earnings attributable to noncontrolling interest
94

 
104

NET EARNINGS ATTRIBUTABLE TO HORMEL FOODS CORPORATION
$
241,425

 
$
303,107

 
 
 
 
NET EARNINGS PER SHARE:
 
 
 
BASIC
$
0.45

 
$
0.57

DILUTED
$
0.44

 
$
0.56

 
 
 
 
WEIGHTED-AVERAGE SHARES OUTSTANDING:
 
 
 
BASIC
534,495

 
529,453

DILUTED
547,118

 
543,482

 *Adjusted due to the adoption of Accounting Standards Update (ASU) 2017-07, Compensation - Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (Topic 715). See Note A - General.

See Notes to Consolidated Financial Statements


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HORMEL FOODS CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(Unaudited)
 
 
 
 
 
Three Months Ended
 
January 27,
2019
 
January 28,
2018
NET EARNINGS
$
241,519

 
$
303,211

Other comprehensive income, net of tax:
 
 
 
Foreign currency translation
1,846

 
4,212

Pension and other benefits
3,439

 
2,486

Deferred hedging
(361
)
 
(650
)
TOTAL OTHER COMPREHENSIVE INCOME
4,924

 
6,048

COMPREHENSIVE INCOME
246,443

 
309,259

Less: Comprehensive income attributable to noncontrolling interest
63

 
253

COMPREHENSIVE INCOME ATTRIBUTABLE TO HORMEL FOODS CORPORATION
$
246,380

 
$
309,006

 
See Notes to Consolidated Financial Statements


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HORMEL FOODS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ INVESTMENT
(in thousands, except per share amounts)
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended January 28, 2018
 
 
 
 
 
 
 
 
 
 
 
Hormel Foods Corporation Shareholders
 
 
 
 
 
Common
Stock
 
Treasury
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
(Loss) Income
 
Non-
controlling
Interest
 
Total
Shareholders’
Investment
 
Shares

 
Amount

 
Shares

 
Amount

 
 
 
 
 
Balance at October 29, 2017
528,424

 
$
7,741

 

 
$

 
$
13,670

 
$
5,162,571

 
$
(248,075
)
 
$
3,790

 
$
4,939,697

Net earnings
 
 
 
 
 
 
 
 
 
 
303,107

 
 
 
104

 
303,211

Other comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
5,899

 
149

 
6,048

Purchases of common stock
 
 
 
 
(738
)
 
(25,199
)
 
 
 
 
 
 
 
 
 
(25,199
)
Stock-based compensation expense
 
 
 
 
 
 
 
 
7,339

 
 
 
 
 
 
 
7,339

Exercise of stock options/restricted shares
2,302

 
34

 
 
 
 
 
23,421

 
 
 
 
 
 
 
23,455

Shares retired
(738
)
 
(11
)
 
738

 
25,199

 
(25,188
)
 
 
 
 
 
 
 

Declared cash dividends – $0.1875 per share
 
 
 
 
 
 
 
 
 
 
(99,177
)
 
 
 
 
 
(99,177
)
Balance at January 28, 2018
529,988

 
$
7,764

 

 
$

 
$
19,242

 
$
5,366,501

 
$
(242,176
)
 
$
4,043

 
$
5,155,374

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended January 27, 2019
 
 
 
 
 
 
 
 
 
 
 
Hormel Foods Corporation Shareholders
 
 
 
 
 
Common
Stock
 
Treasury
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
(Loss) Income
 
Non-
controlling
Interest
 
Total
Shareholders’
Investment
 
Shares

 
Amount

 
Shares

 
Amount

 
 
 
 
 
Balance at October 28, 2018
534,135

 
$
7,825

 

 
$

 
$
106,528

 
$
5,729,956

 
$
(243,498
)
 
$
4,007

 
$
5,604,818

Net earnings
 
 
 
 
 
 
 
 
 
 
241,425

 
 
 
94

 
241,519

Other comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
4,955

 
(31
)
 
4,924

Purchases of common stock
 
 
 
 
(1,065
)
 
(44,809
)
 
 
 
 
 
 
 
 
 
(44,809
)
Stock-based compensation expense
 
 


 
 
 
 
 
7,946

 
 
 
 
 
 
 
7,946

Exercise of stock options/restricted shares
1,100

 
17

 
 
 
 
 
15,981

 
 
 
 
 
 
 
15,998

Shares retired
(1,065
)
 
(16
)
 
1,065

 
44,809

 
(259
)
 
(44,534
)
 
 
 
 
 

Cumulative effect adjustment from adoption of:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


   ASU 2016-16
 
 
 
 
 
 
 
 
 
 
(10,475
)
 
 
 
 
 
(10,475
)
   ASU 2017-12
 
 
 
 
 
 
 
 
 
 
21

 
(21
)
 
 
 

   ASU 2018-02
 
 
 
 
 
 
 
 
 
 
52,342

 
(53,778
)
 
 
 
(1,436
)
Declared cash dividends – $0.21 per share
 
 
 
 
 
 
 
 
 
 
(112,706
)
 
 
 
 
 
(112,706
)
Balance at January 27, 2019
534,170

 
$
7,826

 

 
$

 
$
130,196

 
$
5,856,029

 
$
(292,342
)
 
$
4,070

 
$
5,705,779

 
See Notes to Consolidated Financial Statements


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HORMEL FOODS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
 
Three Months Ended
 
January 27,
2019
 
January 28,
2018
OPERATING ACTIVITIES
 

 
 

Net earnings
$
241,519

 
$
303,211

Adjustments to reconcile to net cash provided by operating activities:
 
 
 
Depreciation
36,848

 
35,867

Amortization of intangibles
3,170

 
3,256

Equity in earnings of affiliates
(11,458
)
 
(23,531
)
Distribution from equity method investees

 
23

Provision (benefit) for deferred income taxes
125

 
(68,856
)
Loss (gain) on property/equipment sales and plant facilities
450

 
(1,131
)
Non-cash investment activities
(9,516
)
 
(10,880
)
Stock-based compensation expense
7,946

 
7,339

Changes in operating assets and liabilities, net of acquisitions:
 
 
 
Decrease (increase) in accounts receivable
36,262

 
69,629

(Increase) decrease in inventories
(30,901
)
 
(21,255
)
(Increase) decrease in prepaid expenses and other current assets
(5,625
)
 
569

Increase (decrease) in pension and post-retirement benefits
4,237

 
2,132

(Decrease) increase in accounts payable and accrued expenses
(147,318
)
 
(58,077
)
Increase (decrease) in net income taxes payable
61,686

 
65,881

NET CASH PROVIDED BY OPERATING ACTIVITIES
187,425

 
304,177

 
 
 
 
INVESTING ACTIVITIES
 
 
 
Acquisitions of businesses/intangibles

 
(858,102
)
Purchases of property/equipment
(39,430
)
 
(53,694
)
Proceeds from sales of property/equipment
30,305

 
751

Decrease (increase) in investments, equity in affiliates, and other assets
7,302

 
2,718

   Proceeds from company-owned life insurance
144

 
3,028

NET CASH USED IN INVESTING ACTIVITIES
(1,679
)
 
(905,299
)
 
 
 
 
FINANCING ACTIVITIES
 
 
 
Net proceeds from short-term debt

 
255,000

Proceeds from long-term debt

 
375,000

Repayments of long-term debt
38

 
(274
)
Dividends paid on common stock
(100,125
)
 
(89,814
)
Share repurchase
(44,809
)
 
(25,199
)
Proceeds from exercise of stock options
15,997

 
23,455

NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
(128,899
)
 
538,168

 
 
 
 
EFFECT OF EXCHANGE RATE CHANGES ON CASH
(3,294
)
 
4,607

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
53,553

 
(58,347
)
Cash and cash equivalents at beginning of year
459,136

 
444,122

CASH AND CASH EQUIVALENTS AT END OF QUARTER
$
512,689

 
$
385,775


See Notes to Consolidated Financial Statements

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HORMEL FOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
NOTE A - GENERAL
 
Basis of Presentation: The accompanying unaudited consolidated financial statements of Hormel Foods Corporation (the Company) have been prepared in accordance with generally accepted accounting principles for interim financial information, and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.  Operating results for the interim period are not necessarily indicative of the results that may be expected for the full year.  The balance sheet at October 28, 2018, has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  For further information, refer to the consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the fiscal year ended October 28, 2018.
 
Investments: The Company maintains a rabbi trust to fund certain supplemental executive retirement plans and deferred income plans.  Under the plans, the participants can defer certain types of compensation and elect to receive a return on the deferred amounts based on the changes in fair value of various investment options, primarily a variety of mutual funds.  The Company has corporate-owned life insurance policies on certain participants in the deferred compensation plans.  The cash surrender value of the policies is included in other assets on the Consolidated Statements of Financial Position.  The securities held by the trust are classified as trading securities.  Therefore, unrealized gains and losses associated with these investments are included in the Company’s earnings.  Securities held by the trust generated gains of $1.4 million for the three months ended January 27, 2019, compared to gains of $3.4 million for the three months ended January 28, 2018.
 
Supplemental Cash Flow Information: Non-cash investment activities presented on the Consolidated Statements of Cash Flows primarily consist of unrealized gains or losses on the Company’s rabbi trust.  The noted investments are included in other assets on the Consolidated Statements of Financial Position.  Changes in the value of these investments are included in the Company’s net earnings and are presented in the Consolidated Statements of Operations as either interest and investment income (loss) or interest expense, as appropriate.

Guarantees: The Company enters into various agreements guaranteeing specified obligations of affiliated parties.  The Company’s guarantees either terminate in one year or remain in place until such time as the Company revokes the agreement.  The Company currently provides revocable standby letters of credit totaling $2.4 million to guarantee obligations that may arise under workers compensation claims of an affiliated party.  This potential obligation is not reflected in the Company’s Consolidated Statements of Financial Position.

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 income, other than those related to the adoption of ASU 2017-07 as described within the new accounting pronouncements adopted in the current fiscal year.

Accounting Changes and Recent Accounting Pronouncements:
New Accounting Pronouncements Adopted in Current Fiscal Year 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This topic converges the guidance within U.S. GAAP and international financial reporting standards and supersedes ASC 605, Revenue Recognition. The new standard requires companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. The new standard will also result in enhanced disclosures about revenue, provide guidance for transactions which were not previously addressed comprehensively, and improve guidance for multiple-element arrangements. The new guidance is effective for annual reporting periods beginning after December 15, 2017. The updated guidance is to be applied either retrospectively or by using a cumulative effect adjustment. The Company adopted the provisions of the new standard using the full retrospective method at the beginning of fiscal 2019. The Company made the following policy elections upon adoption: to account for shipping and handling costs as contract fulfillment costs and to exclude taxes imposed on and collected from customers in revenue producing transactions (e.g., sales, use, and value added taxes) from the transaction price. The Company will account for variable consideration using the expected value method. The Company also applied the practical expedient to not capitalize contract costs to obtain contracts with a duration of one year or less, which are expensed and included in the Consolidated Statements of Operations. The Company did not have a cumulative effect adjustment as a result of adoption. Adoption of the

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new standard did not have a material impact on the Company’s results of operations. Additional qualitative disclosures have been provided in Note B - Revenue Recognition and further disaggregation of revenues provided in Note N - Segment Reporting.

In October 2016, the FASB issued ASU 2016-16, Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory (Topic 740). The updated guidance requires the recognition of the income tax consequences of an intra-entity asset transfer, other than transfers of inventory, when the transfer occurs. For intra-entity transfers of inventory, the income tax effects will continue to be deferred until the inventory has been sold to a third party. The updated guidance is effective for reporting periods beginning after December 15, 2017, with early adoption permitted only within the first interim period of a fiscal year. The guidance is required to be applied on a modified retrospective basis through a cumulative effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company adopted the updated provisions at the beginning of fiscal 2019, resulting in a reclassification from prepaid tax assets to deferred tax assets. In addition, due to impact of the lower tax rate on deferred tax balances resulting from the Tax Cuts and Jobs Act (Tax Act), the Company recognized a cumulative effect adjustment to retained earnings of $10.5 million.

In March 2017, the FASB issued ASU 2017-07, Compensation - Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (Topic 715). The updated guidance requires an employer to report the service cost component of net periodic pension cost and net periodic post-retirement benefit cost in the same line item as other compensation costs. Other components of net periodic pension cost and net periodic post-retirement benefit cost must be presented in the income statement separately from the service cost component and outside income from operations. Additionally, only the service cost component is eligible for capitalization. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The updated guidance should be applied retrospectively for the presentation of components of net benefit cost and prospectively, for the capitalization of the service cost component of net benefit cost. The Company adopted the updated provisions at the beginning of fiscal 2019. The Company elected to utilize a practical expedient which allows the Company to use historical amounts disclosed in the Pension and Other Post-retirement Benefits footnote as an estimation basis for retrospectively applying the requirements to separately report the other components in the income statement. Due to the retrospective adoption, the Company reclassified $4.6 million of non-service cost components of net periodic benefit costs out of operating income to interest and investment income on the Consolidated Statements of Operations for the three months ended January 28, 2018.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging - Targeted Improvements to Accounting for Hedging Activities (Topic 815). The updated guidance expands an entity’s ability to hedge nonfinancial and financial risk components and reduce complexity in fair value hedges of interest rate risk. The guidance eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The guidance also eases certain documentation and assessment requirements and modifies the accounting for components excluded from the assessment of hedge effectiveness. Entities will apply the amendments to cash flow and net investment hedge relationships that exist on the date of adoption using a modified retrospective approach. The presentation and disclosure requirements apply prospectively. The updated guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those years. Early adoption is permitted in any interim or annual period. The Company early adopted the updated guidance at the beginning of fiscal 2019, therefore eliminating the requirement to separately measure and report hedge ineffectiveness. The Company applied the amendment to cash flow hedge relationships existing on the date of adoption using a modified retrospective approach.
Presentation and disclosure requirements were applied on a prospective basis. The adoption resulted in an immaterial adjustment from retained earnings to accumulated other comprehensive income.

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220). The updated guidance allows entities to reclassify stranded income tax effects resulting from the Tax Act from accumulated other comprehensive income to retained earnings in their consolidated financial statements. Under the Tax Act, deferred taxes were adjusted to reflect the reduction of the historical corporate income tax rate to the newly enacted corporate income tax rate, which left the tax effects on items within accumulated other comprehensive income stranded at an inappropriate tax rate. The updated guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those years. Early adoption is permitted in any interim period and should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Act is recognized. The Company early adopted the updated provisions at the beginning of fiscal 2019, resulting in a reclassification of $53.8 million to accumulated other comprehensive loss.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (Topic 350). The amendments in the update align the requirements for capitalizing implementation costs incurred in a hosting arrangement

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that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The amendments are effective for fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years and is to be applied either retrospectively or prospectively to all implementation costs incurred after the adoption date. Early adoption is permitted, including adoption in any interim period. The Company early adopted the updated provisions on a prospective basis at the beginning of fiscal 2019. The impact related to adoption was immaterial in the first quarter and the Company will continue to evaluate in future quarters.

New Accounting Pronouncements Not Yet Adopted
  
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The updated guidance requires lessees to recognize a right-of-use asset and lease liability for all leases with terms of more than 12 months. Recognition, measurement, and presentation of expenses will depend on the classification as a finance or operating lease. The update also requires certain quantitative and qualitative disclosures. Accounting guidance for lessors is largely unchanged. In July 2018, the FASB issued ASU 2018-11, which provides an optional transition method in addition to the existing modified retrospective transition method allowing entities to recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption rather than in the earliest period presented. The requirements of the new standard are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company will adopt the provisions of this new accounting standard at the beginning of fiscal 2020 and is in the process of evaluating the impact of adoption on its consolidated financial statements and related disclosures.
 
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 958). The update provides guidance on the measurement of credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The amendment replaces the current incurred loss impairment methodology with a methodology to reflect expected credit losses and requires consideration of a broader range of reasonable and supportable information to explain credit loss estimates. The updated guidance is to be applied on a modified retrospective approach and is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for all entities for fiscal years beginning after December 15, 2018, and interim periods therein. The Company is currently assessing the timing and impact of adopting the updated provisions.
 
In July 2018, the FASB issued ASU 2018-09, Codification Improvements. This amendment makes changes to a variety of topics to clarify, correct errors in, or make minor improvements to the Accounting Standards Codification (ASC). The transition and effective date guidance is based on the facts and circumstances of each amendment. Some of the amendments do not require transition guidance and will be effective upon issuance of ASU 2018-09. However, many of the amendments do have transition guidance with effective dates for annual periods beginning after December 15, 2018. The Company is currently assessing the impact of adoption on its consolidated financial statements, results of operations, and cash flows.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement - Disclosure Framework (Topic 820). The updated guidance improves the disclosure requirements on fair value measurements. The updated guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for any removed or modified disclosures. The Company is currently assessing the timing and impact of adopting the updated provisions.
In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans (Topic 715). The updated guidance improves disclosure requirements for employers who sponsor defined benefit pension or other postretirement plans. The amendments are effective for fiscal years ending after December 15, 2020, with early adoption permitted. The Company is currently assessing the timing and impact of adopting the updated provisions.
Any other recently issued accounting standards or pronouncements not disclosed above have been excluded as they either are not relevant to the Company, or they are not expected to have a material effect on its business practices, financial condition, results of operations, or disclosures.



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NOTE B - REVENUE RECOGNITION

Revenue from Contracts with Customers: Effective October 29, 2018, the Company adopted ASC 606, Revenue from Contracts with Customers using the full retrospective adoption method. The impact of adopting this guidance was immaterial to the Company’s financial statements and related disclosures. Under ASC 606, a contract with a customer is an agreement which both parties have approved, that creates enforceable rights and obligations, has commercial substance, where payment terms are identified, and collectability is probable. The Company’s customer contracts predominantly contain a single performance obligation to fulfill customer orders for the purchase of specified products. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. Revenue from product sales is primarily identified by purchase orders (“contracts”) which in some cases are governed by a master sales agreement. The purchase orders in combination with the invoice typically specify quantity and product(s) ordered, shipping terms, and certain aspects of the transaction price including discounts. Contracts are at standalone pricing or governed by pricing lists or brackets. Revenue is recognized as control of the promised good transfers to the customer in an amount reflective of the consideration the Company expects to receive in exchange for those goods. The Company’s revenue is recognized at a point in time when obligations under the terms of the agreement are satisfied once the shipped product is received or picked up by the customer. Revenues are recognized at the net consideration the Company expects to receive in exchange for the goods. The amount of net consideration recognized includes estimates of variable consideration, including costs for trade promotion programs, consumer incentives, and allowances and discounts associated with distressed or potentially unsaleable products.

A majority of the Company’s revenue is short-term in nature with shipments within one year from order date. The Company's payment terms generally range between 7 to 45 days and vary by sales channel and other factors.

The Company promotes products through advertising, consumer incentives, and trade promotions. These programs include discounts, slotting fees, coupons, rebates, and in-store display incentives. Customer trade promotion and consumer incentive activities are recorded as a reduction to the sale price based on amounts estimated as variable consideration. The Company estimates variable consideration at the expected value method to determine the total consideration which the Company expects to be entitled. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The Company’s estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of anticipated performance and all information (historical, current and forecasted) that is reasonably available.
 
The Company elected to account for shipping and handling costs as contract fulfillment costs, and exclude taxes imposed on and collected from customers in revenue producing transactions (e.g., sales, use, and value added taxes) from the transaction price.

Disaggregation of Revenue: The Company discloses revenue by reportable segment. A reconciliation of these disaggregated revenues is provided in Note N - Segment Reporting.

Contract Balances: The Company does not have significant deferred revenue or unbilled receivable balances as a result of transactions with customers.

Contract Costs: The Company elected to apply the practical expedient to not capitalize contract costs to obtain contracts with duration of one year or less, which are expensed and included in the Consolidated Statements of Operations.





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NOTE C - ACQUISITIONS
 
On November 27, 2017, the Company acquired Columbus Manufacturing, Inc. (Columbus), an authentic premium deli meat and salami company, from Chicago-based Arbor Investments for a final purchase price of $857.4 million. The transaction was funded with cash on hand and by borrowing $375.0 million under a term loan facility and $375.0 million under a revolving credit facility.

Columbus specializes in authentic premium deli meat and salami. This acquisition allows the Company to enhance its scale in the deli by broadening its portfolio of products, customers, and consumers.

The acquisition was accounted for as a business combination using the acquisition method. The Company obtained an independent appraisal and completed purchase accounting for the acquisition in the fourth quarter of fiscal 2018. A final allocation of the purchase price to the acquired assets, liabilities, and goodwill is presented in the table below.
(in thousands)
 
Accounts receivable
$
21,199

Inventory
32,817

Prepaid and other assets
881

Other assets
936

Property, plant and equipment
83,662

Intangible assets
223,704

Goodwill
610,602

Current liabilities
(21,366
)
Deferred taxes
(95,077
)
   Purchase price
$
857,358



Goodwill is calculated as the excess of the purchase price over the fair value of the net assets recognized. The goodwill recorded as part of the acquisition primarily reflects the value of the potential to expand presence in the deli channel and serve as the catalyst for uniting all of the Company's deli businesses into one customer-facing organization. The goodwill balance is not expected to be deductible for income tax purposes. The goodwill and intangible assets have been allocated to the Refrigerated Foods segment.

Operating results for this acquisition have been included in the Company’s Consolidated Statements of Operations from the date of acquisition and are reflected in the Refrigerated Foods segment.


NOTE D - INVENTORIES
 
Principal components of inventories are:
(in thousands)
January 27,
2019
 
October 28,
2018
Finished products
$
551,487

 
$
525,628

Raw materials and work-in-process
245,422

 
247,495

Operating supplies
134,912

 
126,644

Maintenance materials and parts
62,607

 
63,760

Total
$
994,428

 
$
963,527





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NOTE E - GOODWILL AND INTANGIBLE ASSETS
 
The changes in the carrying amounts of goodwill for the three months ended January 27, 2019, are presented in the table below. Beginning balances have been reclassified to conform to the current year presentation between segments. See Note N - Segment Reporting for additional information.
(in thousands)
Grocery
Products
 
Refrigerated
Foods
 
JOTS
 
International
& Other
 
Total
Reported balance at October 28, 2018
$
882,582

 
$
1,406,897

 
$
203,214

 
$
221,423

 
$
2,714,116

Segment reclassification
(25,209
)
 
51,795

 
(26,586
)
 

 

Adjusted balance at October 28, 2018
857,373

 
1,458,692

 
176,628

 
221,423

 
2,714,116

Foreign currency translation

 

 

 
2,634

 
2,634

Balance at January 27, 2019
$
857,373

 
$
1,458,692

 
$
176,628

 
$
224,057

 
$
2,716,750



The carrying amounts for indefinite-lived intangible assets are presented in the table below.
(in thousands)
January 27,
2019
 
October 28,
2018
Brands/tradenames/trademarks
$
1,107,651

 
$
1,108,122

Other intangibles
184

 
184

Foreign currency translation
(2,937
)
 
(3,484
)
Total
$
1,104,898

 
$
1,104,822



The gross carrying amount and accumulated amortization for definite-lived intangible assets are presented in the table below.
 
January 27, 2019
 
October 28, 2018
(in thousands)
Gross Carrying
Amount
 
Accumulated
Amortization
 
Gross Carrying
Amount
 
Accumulated
Amortization
Customer lists/relationships
$
137,039

 
$
(39,236
)
 
$
137,039

 
$
(36,367
)
Other intangibles
6,626

 
(1,848
)
 
6,155

 
(1,547
)
Foreign currency translation

 
(2,488
)
 

 
(2,883
)
Total
$
143,665

 
$
(43,572
)
 
$
143,194

 
$
(40,797
)

 
Amortization expense was $3.2 million and $3.3 million for the quarters ended January 27, 2019 and January 28, 2018, respectively.
 
Estimated annual amortization expense for the five fiscal years after October 28, 2018, is as follows:
(in millions)
 
2019
$12.7
2020
12.7
2021
12.8
2022
12.5
2023
11.6



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NOTE F - PENSION AND OTHER POST-RETIREMENT BENEFITS
 
Net periodic benefit cost for pension and other post-retirement benefit plans consists of the following:
 
Pension Benefits
 
Post-retirement Benefits
 
Three Months Ended
 
Three Months Ended
(in thousands)
January 27,
2019
 
January 28,
2018
 
January 27,
2019
 
January 28,
2018
Service cost
$
6,510

 
$
7,903

 
$
174

 
$
320

Interest cost
15,097

 
14,049

 
3,165

 
2,832

Expected return on plan assets
(23,125
)
 
(24,770
)
 

 

Amortization of prior service cost
(698
)
 
(617
)
 
(669
)
 
(710
)
Recognized actuarial loss
3,701

 
4,539

 

 
44

Curtailment loss (gain)
2,825

 

 
(620
)
 

Net periodic cost
$
4,310

 
$
1,104

 
$
2,050

 
$
2,486


Non-service cost components of net pension and postretirement benefit cost are presented within interest and investment income on the Consolidated Statements of Operations.

Curtailments were recognized in the first quarter of fiscal 2019 due to the sale of the Fremont facility.


NOTE G - DERIVATIVES AND HEDGING
 
The Company uses hedging programs to manage price risk associated with commodity purchases.  These programs utilize futures and options contracts to manage the Company’s exposure to price fluctuations in the commodities markets.  The Company has determined its designated hedging programs to be highly effective in offsetting the changes in fair value or cash flows generated by the items hedged. Effectiveness testing is performed on a quarterly basis to ascertain a high level of effectiveness for cash flow and fair value hedging programs.

Cash Flow Hedges:  The Company designates corn and lean hog futures and options used to offset price fluctuations in the Company’s future direct grain and hog purchases as cash flow hedges. Effective gains or losses related to these cash flow hedges are reported in accumulated other comprehensive loss (AOCL) and reclassified into earnings, through cost of products sold, in the period or periods in which the hedged transactions affect earnings.  The Company typically does not hedge its grain exposure beyond the next two upcoming fiscal years and its hog exposure beyond the next fiscal year. 

Fair Value Hedges:  The Company designates the futures it uses to minimize the price risk assumed when fixed forward priced contracts are offered to the Company’s commodity suppliers as fair value hedges.  The intent of the program is to make the forward priced commodities cost nearly the same as cash market purchases at the date of delivery.  Changes in the fair value of the futures contracts, along with the gain or loss on the hedged purchase commitment, are marked-to-market through earnings and are recorded on the Consolidated Statements of Financial Position as a current asset and liability, respectively.  Effective gains or losses related to these fair value hedges are recognized through cost of products sold in the period or periods in which the hedged transactions affect earnings. 

Other Derivatives:  The Company holds certain futures and options contract positions as part of a merchandising program and to manage the Company’s exposure to fluctuations in commodity markets.  The Company has not applied hedge accounting to these positions. Activity related to derivatives not designated as hedges is immaterial to the consolidated financial statements.

Volume: As of January 27, 2019, and October 28, 2018, the Company had the following outstanding commodity futures and options contracts related to its hedging programs:
 
 
Volume
Commodity Contracts
 
January 27, 2019
 
October 28, 2018
Corn
 
20.8 million bushels
 
23.0 million bushels
Lean hogs
 
4.0 million cwt
 
0.6 million cwt

 

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Fair Value of Derivatives:  The fair values of the Company’s derivative instruments (in thousands) as of January 27, 2019,
and October 28, 2018, were as follows:
 
 
 
 
Fair Value (1)
Derivatives Designated as Hedges:
 
Location on Consolidated Statements of Financial Position
 
January 27,
2019
 
October 28,
2018
Commodity contracts
 
Other current assets
 
$
1,730

 
$
(30
)

(1)  Amounts represent the gross fair value of derivative assets and liabilities.  The Company nets the derivative assets and liabilities for each of its hedging programs, including cash collateral, when a master netting arrangement exists between the Company and the counterparty to the derivative contract.  The amount or timing of cash collateral balances may impact the classification of the derivative in the Consolidated Statements of Financial Position.  See Note L - Fair Value Measurements for a discussion of these net amounts as reported in the Consolidated Statements of Financial Position.
 
Fair Value Hedge - Assets(Liabilities): The carrying amount of the Company's fair value hedge liabilities (in thousands) as of January 27, 2019, and October 28, 2018, were as follows:
Location on Consolidated Statements of
Financial Position
 
Carrying Amount of the Hedged
Assets/(Liabilities)
 
 
January 27, 2019
 
October 28, 2018
Accounts Payable
 
(1,362
)
 
(594
)


AOCL Impact: In fiscal 2019, the Company adopted the amended guidance of Topic 815. As a result, hedge ineffectiveness related to effective relationships is now deferred in AOCL until the hedged item impacts earnings. Prior to fiscal 2019, gains or losses on the derivative instrument in excess of the cumulative change in the cash flows of the hedged item, if any (i.e, the ineffective portion) were recognized in the Consolidated Statements of Operations during the current period. As of January 27, 2019, the Company has included in AOCL, hedging losses of $1.0 million (before tax) relating to its positions. The Company expects to recognize the majority of these losses over the next 12 months.

The effect of AOCL for gains or losses (before tax, in thousands) related to the Company's derivative instruments for the three months ended January 27, 2019, and January 28, 2018, were as follows:
 
 
Gain/(Loss)
Recognized
 in AOCL (1)
 
Location on
Consolidated
Statements
of Operations
 
Gain/(Loss)
Reclassified from
AOCL into Earnings (1)
 
Gain/(Loss)
Recognized in
Earnings
 (Ineffective Portion)
 
 
Three Months Ended
 
 
Three Months Ended
 
Three Months Ended
Cash Flow Hedges:
 
January 27, 2019
 
January 28, 2018
 
 
January 27, 2019
 
January 28, 2018
 
January 27, 2019
 
January 28, 2018
Commodity Contracts (2)
 
$
(843
)
 
$
(387
)
 
Cost of products sold
 
$
(1,243
)
 
$
608

 
$

 
$
(90
)
Excluded Component (3)
 
$
(687
)
 
 
 
 
 
 
 
 
 
 
 
 

(1) See Note I - Accumulated Other Comprehensive Loss for the after-tax impact of these gains or losses on net earnings.
(2) Loss recognized in AOCL for three month ended January 27, 2019, includes an immaterial adjustment due to early adoption of ASU 2017-12.
(3) Represents the time value amount of lean hog options excluded from the assessment of effectiveness for which the difference between changes in fair value and periodic amortization is recorded in AOCL.


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Consolidated Statement of Operations Impact: The effect on the Consolidated Statements of Operations for gains or losses (before tax, in thousands) related to the Company's derivative instruments for the three months ended January 27, 2019, and January 28, 2018, were as follows:

 
 
Cost of Products Sold
 
 
Three Months Ended
 
 
January 27, 2019
 
January 28, 2018
Consolidated Statements of Operations
 
$
1,872,021

 
$
1,832,997

 
 
 
 
 
 
 
 
 
 
Cash Flow Hedges - Commodity Contracts
 
 
 
 
   Gain (loss) reclassified from AOCL
 
$
(1,243
)
 
$
608

   Amortization of excluded component from options
 
(1,358
)
 

   Gain (loss) due to ineffectiveness
 

 
(90
)
 
 
 
 
 
Fair Value Hedges - Commodity Contracts
 
 
 
 
   Gain (loss) on commodity futures (1)
 
932

 
557

   Gain (loss) due to ineffectiveness
 

 
(249
)
 
 
 
 
 
Total gain (loss) recognized in earnings
 
$
(1,669
)
 
$
826


(1) Amounts represent losses on commodity contracts designated as fair value hedges that were closed during the quarter, which were offset by a corresponding gain on the underlying hedged purchase commitment. Additional gains or losses related to changes in the fair value of open commodity contract, along with the offsetting gain or loss on the hedged purchase commitment, are also marked-to-market through earnings with no impact on a net basis.


NOTE H - INVESTMENTS IN AND RECEIVABLES FROM AFFILIATES
 
The Company accounts for its majority-owned operations under the consolidation method.  Investments in which the Company owns a minority interest, and for which there are no other indicators of control, are accounted for under the equity or cost method.  These investments, along with any related receivables from affiliates, are included in the Consolidated Statements of Financial Position as investments in and receivables from affiliates.
 
Investments in and receivables from affiliates consists of the following:
 
(in thousands)
Segment
 
% Owned
 
January 27,
2019
 
October 28,
2018
MegaMex Foods, LLC
Grocery Products
 
50%
 
$
207,589

 
$
205,148

Foreign Joint Ventures
International & Other
 
Various (26-40%)
 
70,248

 
68,005

Total
 
 
 
 
$
277,837

 
$
273,153



Equity in earnings of affiliates consists of the following:
 
 
 
Three Months Ended
(in thousands)
 
Segment
 
January 27,
2019
 
January 28,
2018
MegaMex Foods, LLC
Grocery Products
 
$
10,502

 
$
19,588

Foreign Joint Ventures
International & Other
 
956

 
3,943

Total
 
 
$
11,458

 
$
23,531


 
For the three months ended January 27, 2019, no dividends were received from affiliates, compared to $0.023 million of dividends received for the three months ended January 28, 2018.
 

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The Company recognized a basis difference of $21.3 million associated with the formation of MegaMex Foods, LLC, of which $13.4 million is remaining as of January 27, 2019.  This difference is being amortized through equity in earnings of affiliates.
 

NOTE I - ACCUMULATED OTHER COMPREHENSIVE LOSS
 
Components of accumulated other comprehensive loss are as follows:
(in thousands)
Foreign
Currency
Translation
 
Pension &
Other
Benefits
 
Deferred
Gain (Loss) -
Hedging
 
Accumulated
Other
Comprehensive
Loss
Reported balance at October 28, 2018
$
(44,854
)
 
$
(197,613
)
 
 
$
(1,031
)
 
 
$
(243,498
)
Impact of adoption of ASU
 
 
 
 
 
 
 
 
 
        ASU 2017-12
 
 
 
 
 
(21
)
(1)
 
(21
)
        ASU 2018-02
 
 
(53,778
)
(1)
 
 
 
 
(53,778
)
Adjusted balance at October 28, 2018
(44,854
)
 
(251,391
)
 
 
(1,052
)
 
 
(297,297
)
Unrecognized gains (losses)
 
 
 
 
 
 
 
 
 
Gross
1,877

 
2,203

 
 
(1,509
)
 
 
2,571

Tax effect


 
(533
)
 
 
204

 
 
(329
)
Reclassification into net earnings
 
 
 
 
 
 
 
 
 
Gross


 
2,334

(2)
 
1,243

(3)
 
3,577

Tax effect


 
(565
)
 
 
(299
)
 
 
(864
)
Net of tax amount
1,877

 
3,439

 
 
(361
)
 
 
4,955

Balance at January 27, 2019
$
(42,977
)
 
$
(247,952
)
 
 
$
(1,413
)
 
 
$
(292,342
)
(1) Cumulative effect from the adoption of Accounting Standards Update. See Note A - General for additional details.
(2) Included in the computation of net periodic cost. See Note F - Pension and Other Post-Retirement Benefits for additional details.
(3)    Included in cost of products sold in the Consolidated Statements of Operations.


NOTE J - INCOME TAXES
 
The Company's tax provision is determined using an estimated annual effective tax rate and adjusted for discrete taxable events that may occur during the quarter. The effects of tax legislation are recognized in the period in which the law is enacted. The deferred tax assets and liabilities are remeasured using enacted tax rates expected to apply to taxable income in the years the related temporary differences are anticipated to reverse.

On December 22, 2017, the United States (U.S.) enacted comprehensive tax legislation into law, H.R. 1, commonly referred to as the Tax Act. Except for certain provisions, the Tax Act is effective for tax years beginning on or after January 1, 2018. As a fiscal year U.S. taxpayer, the majority of the provisions, such as eliminating the domestic manufacturing deduction, creating new taxes on certain foreign sourced income, and introducing new limitations on certain business deductions, will now apply to the Company in fiscal 2019. In addition, for fiscal 2019 and effective in the first quarter, the U.S. federal corporate income tax rate was reduced from a blended rate of 23.4 percent for fiscal 2018, to 21.0 percent in fiscal 2019 and beyond.

The Company's effective tax rate for the first three months of fiscal 2019 was 21.3 percent compared to 0.6 percent for the respective period last year. The lower effective tax rate in the prior year is primarily related to deferred tax remeasurements in fiscal 2018 as a result of the Tax Act. The Company expects a full-year effective tax rate between 20.5 percent and 23.0 percent for fiscal 2019.

In March 2018, the FASB issued ASU 2018-05, which provides guidance for companies related to the Tax Act. ASU 2018-05 allows for a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impacts. Based on current interpretation of the Tax Act, the Company made reasonable estimates to record provisional adjustments during fiscal 2018, as described above. The Company continued to evaluate such amounts within the first quarter of fiscal 2019 and determined no adjustments were required within the remaining portion of the measurement period. As of January 27, 2019, the Company has completed the accounting for the tax effects of the Tax Act.


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During fiscal 2018, the Company provisionally recorded the transition tax on its foreign earnings. Those foreign earnings have been deemed repatriated for U.S. federal tax purposes. The Company maintains all earnings are permanently reinvested. Accordingly, no additional income taxes have been provided for withholding tax, state tax, or other taxes.

The amount of unrecognized tax benefits, including interest and penalties, is recorded in other long-term liabilities.  If recognized as of