SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended July 27,1996 Commission File
Number 1-2402
HORMEL FOODS CORPORATION
Incorporated Under the Laws
of the State of Delaware FEIN #41-0319970
1 Hormel Place
Austin, Minnesota 55912-3680
Telephone - (507) 437-5737
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.
YES XXX NO
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date.
Class Outstanding at July 27, 1996
Common Stock - $.1172 par value 76,243,801
Common Stock Non-Voting - $.01 par value -0-
Pages: This report contains eleven pages numbered sequentially from this
cover page.
FORM 10-Q
PART I - FINANCIAL INFORMATION
STATEMENTS OF FINANCIAL POSITION
HORMEL FOODS CORPORATION
(In Thousands of Dollars)
July 27, October 28,
1996 1995
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 110,141 $ 189,539
Short-term marketable securities--
at cost which approximates market 6,995 8,489
Accounts receivable 181,289 231,407
Inventories 288,170 210,898
Deferred Income Taxes 15,297 13,255
Prepaid expenses 8,893 5,679
TOTAL CURRENT ASSETS 610,785 659,267
DEFERRED INCOME TAXES 64,939 66,204
INTANGIBLES 78,589 81,650
INVESTMENTS AND OTHER ASSETS 88,546 83,655
PROPERTY, PLANT AND EQUIPMENT
Land 8,326 8,009
Buildings 197,100 166,888
Equipment 521,854 495,641
Construction in progress 56,673 51,388
783,953 721,926
Less allowance for depreciation (396,698) (388,842)
387,255 333,084
$1,230,114 $1,223,860
See notes to financial statements
FORM 10-Q
STATEMENTS OF FINANCIAL POSITION
HORMEL FOODS CORPORATION
(In Thousands of Dollars)
July 27, October 28,
1996 1995
(Unaudited)
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES
Accounts payable $ 108,075 $ 97,479
Accrued expenses 33,282 26,246
Accrued marketing expenses 19,599 20,638
Employee compensation 37,772 44,700
Taxes other than federal income taxes 13,356 15,380
Dividends payable 11,490 11,123
Federal income taxes 0 118
Current maturities of long-term debt 2,298 2,131
TOTAL CURRENT LIABILITIES 225,872 217,815
LONG-TERM DEBT - less current maturities 15,213 16,959
ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION 238,539 235,659
ACCRUED PENSION COSTS 0 7,240
OTHER LONG-TERM LIABILITIES 15,976 14,140
STOCKHOLDERS' INVESTMENT
Preferred Stock, par value $.01 a
share--authorized 40,000,000 shares;
issued - none
Common stock, non-voting, par value
$.01 a share--authorized 40,000,000
shares; issued - none
Common Stock, par value $.1172 a share --
authorized 200,000,000 shares; issued
76,300,000 shares and
76,852,128 respectively 8,942 9,007
Additional paid-in capital 3,043 16,624
Shares held in treasury. ( 1,385) ( 3,922)
10,600 21,709
Earnings reinvested in business 723,914 710,338
734,514 732,047
$1,230,114 $1,223,860
See notes to financial statements
FORM 10-Q
STATEMENTS OF EARNINGS (Unaudited)
HORMEL FOODS CORPORATION
(In Thousands of Dollars, Except Per Share Amounts)
Three Months Ended Nine Months Ended
July 27, July 29, July 27, July 29,
1996 1995 1996 1995
Sales, less returns and allowances $749,871 $732,356 $2,220,910 $2,211,122
Cost of products sold 603,899 563,327 1,719,041 1,657,911
GROSS PROFIT 145,972 169,029 501,869 553,211
Expenses:
Selling and delivery 125,690 122,639 378,824 379,445
Administrative and general 15,109 14,840 55,089 49,238
OPERATING INCOME 5,173 31,550 67,956 124,528
Other income and expenses:
Other income-net 1,912 2,689 10,907 9,210
Interest expense ( 391) ( 528) (1,231) (1,277)
EARNINGS BEFORE INCOME TAXES 6,694 33,711 77,632 132,461
Provision for income taxes 2,684 12,692 28,435 50,600
NET EARNINGS $ 4,010 $ 21,019 $ 49,197 $81,861
NET EARNINGS PER SHARE $0.05 $0.28 $0.64 $1.07
See notes to financial statements
FORM 10-Q
STATEMENTS OF CASH FLOWS (Unaudited)
HORMEL FOODS CORPORATION
(In Thousands of Dollars)
Nine Months Ended
July 27, July 29,
1996 1995
OPERATING ACTIVITIES
Net earnings $ 49,197 $ 81,861
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation 27,938 24,851
Amortization of intangibles 3,131 2,830
Provision for deferred income taxes (777) 523
(Gain) loss on property/equipment sales (3,653) (211)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 50,118 39,364
(Increase) decrease in inventories
and prepaid expenses (80,486) (30,689)
Increase (decrease) in accounts payable and
accrued expenses 4,999 (61,243)
NET CASH PROVIDED BY OPERATING ACTIVITIES 50,467 57,295
INVESTING ACTIVITIES
Sale of short-term marketable securities 1,494 2,696
Acquisitions of businesses (70) (4,444)
Purchases of property/equipment (83,755) (71,532)
Proceeds from sales of property/equipment 5,299 1,703
(Increase) decrease in investments
and other assets (4,891) (9,836)
NET CASH USED IN INVESTING ACTIVITIES (81,923) (81,413)
FINANCING ACTIVITIES
Proceeds from long-term borrowings 553 10,000
Principal payments on long-term debt (2,131) (1,610)
Dividends paid on Common Stock (34,140) (31,828)
Stock Repurchase (14,127) 0
Other 1,903 (1,316)
NET CASH USED IN FINANCING ACTIVITIES (47,942) (24,754)
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (79,398) (48,872)
Cash and cash equivalents
at beginning of year 189,539 248,599
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $110,141 $199,727
See notes to financial statements
FORM 10-Q
NOTES TO FINANCIAL STATEMENTS (Unaudited)
HORMEL FOODS CORPORATION
NOTE A
In the opinion of the Company, the accompanying unaudited financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary for a fair presentation.
The accounting policies followed by the Company are set forth in
Note A to the Company's Financial Statements in the 1995 Hormel Foods
Corporation Annual Report to Stockholders, which is incorporated
by reference on Form 10-K.
NOTE B
The results of operations for the nine month periods ended July 27,
1996, and July 29, 1995 are not necessarily indicative of the results
to be expected for the full year.
FORM 10-Q
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
HORMEL FOODS CORPORATION
RESULTS OF OPERATIONS
Net earnings in the third quarter decreased 80.9 percent to $4,010,000 from
$21,019,000 during the same quarter of 1995. Sales for the quarter
increased 2.4 percent to $749,871,000 from $732,356,000 last year. Sales
tonnage for the period decreased 13.5 percent compared to the same quarter
of 1995.
The decline in third quarter earnings compared to 1995 was a result of the
continued difficult business environment that has impacted much of the food
industry throughout 1996. Live pork prices continued at their highest
level in several years limiting the Company's ability to obtain customary
margins in its pork operations and on processed items using pork as a
primary ingredient. In addition, Jennie-O's turkey business was unable to
meet planned profit objectives as the high corn and soymeal costs continued
to decrease margins as the cost of live birds increased. The ability of
the Company to increase selling prices to relieve the pressure of higher
raw material costs was also impacted by beef herd liquidation caused by the
high feed costs. Retail beef prices at their lowest level in years also
limited pork and turkey margins as beef presented a very attractive and
economical protein option.
Declines in tonnage volume from 1995 were primarily caused by Dubuque Foods
terminating fresh pork purchases from FDL Foods, Inc. of Dubuque, Iowa, in
the fourth quarter of 1995. Tonnage volume of higher value Hormel branded
consumer packaged products increased which lessened the impact of the
decreased fresh pork business on dollar sales volume.
Sales and earnings for the first three quarters of 1996 were $2,220,910,000
and $49,197,000 compared to $2,211,122,000 and $81,861,000, respectively,
last year. Tonnage volume decreased 13.8 percent to-date compared to the
same period in 1995. The drop in tonnage volume, the increase in sales
dollars and the pressure on pork and turkey margins were a result of
economic conditions discussed above getting worse throughout the year.
The continuing high pork raw material costs combined with pressure placed
on the Company's pork and turkey operations by high price levels for corn
and soymeal throughout the year were the major factors in producing a gross
margin as a percentage of sales of 19.8 and 22.6 percent compared to 23.1
and 25.0 percent for the corresponding quarter and three quarters to-date
of 1995. A gain of approximately $3,000,000 from the sale of an idle plant
facility was realized in the first quarter of 1996.
FORM 10-Q
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
HORMEL FOODS CORPORATION
RESULTS OF OPERATIONS
Marketing expenses for the quarter and three quarters to-date were
$53,951,000 and $159,942,000, respectively, compared to $50,397,000 and
$158,602,000 for the same periods of 1995. Market share increases in both
its mature core products and newer ethnic product introductions emphasize
the Company's objective of improving margins through increased branding and
co-ordinated promotional programs.
Administrative and general expenses for the quarter were unchanged at 2.0
percent of sales comparing 1996 to 1995. For three quarters to-date, the
administrative and general expenses were 2.5 percent of sales compared to
2.2 percent last year. The increase in administrative costs on a to-date
basis reflects the settlement of an antitrust class action lawsuit in the
amount of $7,500,000 at the Company's Farm Fresh Catfish subsidiary.
The Company's core Hormel business continues to be the major contributor to
earnings. Results at Jennie-O and Dubuque Foods continued to be less than
planned as a result of margin pressure from high raw material costs and
price levels of competing protein sources.
The effective tax rate for the quarter and nine months to-date was 40.1 and
36.7 percent compared to 37.7 and 38.2 percent for the respective periods
in 1995. The increase for the quarter was due to normal permanent taxable
income additions against the sharp drop in taxable income.
FORM 10-Q
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
HORMEL FOODS CORPORATION
FINANCIAL CONDITION
Ratio comparisons presented below as of the end of the third quarter
reflect the Company's continued strong financial condition.
End of Quarter
3nd Quarter 3nd Quarter
1996 1995
Liquidity Ratios
Current ratio 2.7 3.0
Receivables turnover 14.4 14.1
Days sales in receivables 22.4 days 23.4 days
Inventory turnover 9.2 10.3
Days sales in inventory 45.9 days 38.1 days
Leverage Ratio
Long-term debt to equity 2.4% 2.7%
Operating Ratios
Pre-tax profit to net worth 14.1% 25.8%
Pre-tax profit to total assets 8.4% 14.8%
Changes during the first three quarters in current asset and liability
balances followed normal seasonal patterns except for cash and inventories.
Cash balances declined as a result of the decline in profits and the
requirement to fund construction projects, normal operations and the
Company stock repurchase plan. During the third quarter, the Company
repurchased and retired 300,000 shares under a repurchase plan announced
March 25, 1996. The Company has repurchased and retired 552,128 shares to-
date under the plan. Inventories increased substantially over customary
levels due to the increased price levels of raw materials. Inventory
levels are adequate for the traditional promotional activities that occur
during the fourth quarter.
During the first nine months, the Company invested $83,755,000 in new plant
and equipment. The Company has major renovation or expansion projects in
progress at its Fremont, Nebraska, and Austin, Minnesota, locations and is
building a new distribution center and smoke meats manufacturing facility
in Osceola, Iowa. Jennie-O Foods began operations in late April of a new
turkey processing plant in Montevideo, Minnesota.
Early in the year, the Company recognized the gain on the sale of an idle
plant facility in Ottumwa, Iowa. During the first quarter the Company
realized gains on the sale of oil and gas stocks held as an investment
available for sale.
FORM 10-Q
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
HORMEL FOODS CORPORATION
FINANCIAL CONDITION
The Company continues to keep excess funds invested short term as it
examines business opportunities that meet its long term operating goals.
Long term debt consists of small issue Industrial Revenue Bonds of varying
maturities and debt used for investment in the Federal Government
Affordable Housing Program.
The leverage ratio indicates the significant amount of borrowing capacity
available to take advantage of business opportunities that may arise
through acquisition or internal expansion.
FORM 10-Q
PART II - OTHER INFORMATION
Item 4. Results of Votes of Security Holders.
None.
Item 6. Exhibits and Reports on Form 8-K
The Company filed a Form 8-K on July 22, 1996 announcing the
election of E. Peter Gillette, Jr., president of Piper Trust
Company, to the Board of Directors of Hormel Foods
Corporation.
The Company filed a Form 8-K on August 6, 1996 announcing that
third quarter earnings were expected to be in the range of
$0.04 - $0.06 per share. The anticipated results were below
Wall Street estimates and the $0.28 per share for the third
quarter of 1995.
Company filed a Form 8-K on September 5, 1996 announcing a
change in Company Bylaws concerning the procedure for bringing
business and nominating individuals for election as Directors
at the Company's Annual Meeting.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
HORMEL FOODS CORPORATION
Date: By:
D. J. HODAPP
Executive Vice President
& Chief Financial Officer
Date: By:
M. J. McCOY
Treasurer
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