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 April 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
April 27, 1996
Common Stock - $.1172 par value 76,517,335
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)
April 27, October 28,
1996 1995
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 153,374
$ 189,539
Short-term marketable securities--
at cost which approximates market 7,473
8,489
Accounts receivable 190,084
231,407
Inventories 242,682
210,898
Deferred Income Taxes 14,796
13,255
Prepaid expenses 6,277
5,679
TOTAL CURRENT ASSETS 614,686 659,267
DEFERRED INCOME TAXES 65,389
66,204
INTANGIBLES 79,583
81,650
INVESTMENTS AND OTHER ASSETS 91,739
83,655
PROPERTY, PLANT AND EQUIPMENT
Land 7,841
8,009
Buildings 184,244 166,888
Equipment 502,897 495,641
Construction in progress 64,723
51,388
759,705
721,926
Less allowance for depreciation (389,494)
(388,842)
370,211
333,084
$1,221,608
$1,223,860
See notes to financial statements
FORM 10-Q
STATEMENTS OF FINANCIAL POSITION
HORMEL FOODS CORPORATION
(In Thousands of Dollars)
April 27, October 28,
1996 1995
(Unaudited)
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES
Accounts payable $ 99,534
$ 97,479
Accrued expenses 31,051 26,246
Accrued marketing expenses 11,546 20,638
Employee compensation 33,696 44,700
Taxes other than federal income taxes 15,143
15,380
Dividends payable 11,513 11,123
Federal income taxes 0 118
Current maturities of long-term debt 2,205
2,131
TOTAL CURRENT LIABILITIES 204,688
217,815
LONG-TERM DEBT - less current maturities 15,562
16,959
ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION 237,825
235,659
ACCRUED PENSION COSTS 0
7,240
OTHER LONG-TERM LIABILITIES 14,820
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
76,600,000 shares 8,978
9,007
Additional paid-in capital 10,344
16,624
Shares held in treasury. ( 2,173)
( 3,922)
17,149
21,709
Earnings reinvested in business 731,564
710,338
748,713
732,047
$1,221,608
$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
Six Months Ended
April 27, April 29,
April 27, April 29,
1996 1995
1996 1995
Sales, less returns and allowances $746,658 $748,046
$1,471,039 $1,478,766
Cost of products sold 568,198 566,009
1,115,143 1,094,584
GROSS PROFIT 178,460 182,037
355,896 384,182
Expenses:
Selling and delivery 125,628 126,953
253,134 256,806
Administrative and general 17,230 16,616
39,980 34,398
OPERATING INCOME 35,602 38,468
62,782 92,978
Other income and expenses:
Other income-net 2,700 3,067
8,995 6,521
Interest expense ( 432) ( 438)
( 840) ( 749)
EARNINGS BEFORE INCOME TAXES 38,870 41,097 70,937
98,750
Provision for income taxes 13,350 15,743
25,751 37,908
NET EARNINGS $24,520 $ 25,354 $
45,186 $60,842
NET EARNINGS PER SHARE $0.32 $0.33
$0.59 $0.79
See notes to financial statements
FORM 10-Q
STATEMENTS OF CASH FLOWS (Unaudited)
HORMEL FOODS CORPORATION
(In Thousands of Dollars)
Six
Months Ended
April 27,
April 29,
1996
1995
OPERATING ACTIVITIES
Net earnings $ 45,186
$ 60,842
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation 18,078
16,473
Amortization of intangibles 2,067
1,853
Provision for deferred income taxes (726)
1,310
(Gain) loss on property/equipment sales (3,599)
(150)
Changes in operating assets and liabilities:
Decrease in accounts receivable 41,323
39,787
(Increase) in inventories
and prepaid expenses (32,382)
(18,435)
(Decrease) in accounts payable and
accrued expenses (17,985)
(72,614)
NET CASH PROVIDED BY OPERATING ACTIVITIES 51,962
29,066
INVESTING ACTIVITIES
Sale of short-term marketable securities 1,016
2,130
Acquisitions of businesses 0
(2,799)
Purchases of property/equipment (56,431)
(41,993)
Proceeds from sales of property/equipment 4,825
1,539
(Increase) decrease in investments
and other assets (8,084) (6,949)
NET CASH USED IN INVESTING ACTIVITIES (58,674)
(48,072)
FINANCING ACTIVITIES
Proceeds from long-term borrowings 0
10,000
Principal payments on long-term debt (1,323)
(1,610)
Dividends paid on Common Stock (22,634)
(20,706)
Other (5,496)
(953)
NET CASH USED IN FINANCING ACTIVITIES (29,453)
(13,269)
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (36,165)
(32,275)
Cash and cash equivalents
at beginning of year 189,539
248,599
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $153,374
$216,324
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 re-
curring 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 six month periods ended
April 27,
1996, and April 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 second quarter decreased $834,000 to
$24,520,000 from
$25,354,000 during the same quarter of 1995. Sales for the
quarter
decreased .2 percent to $746,658,000 from $748,046,000 last
year. Sales
tonnage for the period decreased by 12.8 percent compared to
the same
quarter of 1995.
The decline in second quarter earnings and volume from
record levels in
1995 was a result of the difficult business environment that
has affected
much of the food industry. Live pork prices reached their
highest level in
several years limiting the Company's ability to obtain
customary margins in
its pork operations. In addition, Jennie-O's turkey
business began to feel
the impact of extraordinarily high corn and soymeal costs.
Beef herd
liquidation caused by the high feed costs also resulted in
retail beef
prices being at their lowest level in years. This put
additional pressure
on pork and turkey margins as beef presented a very
attractive and
economical protein option. Declines of sales and tonnage
volume from 1995
were primarily caused by Dubuque Foods terminating fresh
pork purchases
from FDL Foods, Inc. of Dubuque, Iowa. Growth in the
tonnage volume of
Hormel branded consumer packaged products lessened the
impact of the
decreased fresh pork business and margin pressures felt on
the commodity
type pork and turkey products.
Sales and earnings for the first half of 1996 were
$1,471,039,000 and
$45,186,000 compared to $1,478,766,000 and $60,842,000,
respectively, last
year. Tonnage volume decreased 13.9 percent for the half
compared to the
same period in 1995. The drop in tonnage volume for the six
months was due
to the discontinuance of fresh pork purchases from FDL Foods
by Dubuque
Foods as discussed above. The 25.7 percent decline in
earnings was
primarily a result of last year's record first quarter which
benefited
from pork raw material costs at their lowest level in two
decades. These
low cost levels could not be maintained and increased
throughout the
remainder of 1995 and through the first six months of this
year resulting
in the continued pressure on margins.
The continuing high pork raw material costs combined with
pressure placed
on the Company's pork and turkey operations by extremely
high price levels
for corn and soymeal in the second quarter were the major
factors in
producing a gross margin as a percentage of sales of 23.9
and 24.2 percent
compared to 24.3 and 26.0 percent for the corresponding
quarter and six
months of 1995. The impact of the higher pork and turkey
raw material
costs on gross profit was mitigated by increased sales
volume throughout
the first half of manufactured consumer branded items which
are not as
sensitive to fresh pork and turkey market fluctuations. In
addition, a
gain of approximately $3,000,000 from the sale of an idle
plant facility
was realized in the first quarter.
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 first half were
$51,307,000 and
$105,991,000, respectively, compared to $52,527,000 and
$108,205,000 for
the same periods of 1995. The Company continues to
emphasize both its well
established products and its newer ethnic product
introductions in its
promotional programs. Selling and delivery expenses
remained virtually
unchanged for both the quarter and six months at 16.9 and
17.2 percent of
sales compared to 17.0 and 17.4 percent last year.
Administrative and
general expenses increased to 2.3 from 2.2 percent of sales
comparing the
two quarters and increased to 2.7 percent from 2.3 percent
on a to-date
basis between 1996 and 1995. The increase in administrative
costs for the
six months reflects the settlement of an antitrust class
action lawsuit in
the amount of $7,500,000. Farm Fresh Catfish and Hormel
Foods Corporations
were two of several defendants in an alleged conspiracy to
fix prices among
processors of catfish. Although the Company considered the
plaintiff's
claims to be without merit, it decided to settle the
lawsuits since
continued defense of the case subjected the Company and its
shareholders to
unnecessary risks due to the potential size of the claim and
the inherent
uncertainty of commercial litigation.
The Company's core Hormel business continues to be the major
contributor to
earnings. High feedstuff costs put increasing pressure on
Jennie-O's
results for the quarter. Jennie-O's new turkey processing
plant in
Montevideo, Minnesota began operations in late April and is
operating
satisfactorily.
Jennie-O purchased a major interest in Viking Hatchery of
Detroit Lakes,
Minnesota. The hatchery, which will be capable of providing
Jennie-O
growers with ten million poults per year, is Jennie-O's
first entry into
the hatchery business.
Results for the second quarter at Dubuque Foods continued to
be less than
plan as the high pork raw material costs have a greater
impact on the
Dubuque product line than the primary Hormel business.
The effective tax rate for the quarter and six months to-
date was 35.3 and
36.3 percent compared to 38.3 and 38.4 percent for the
respective periods
in 1995. The drop was a result of a lower overall state tax
rate and
realization of tax credits from investments in affordable
housing programs.
Other Income-Net for the first half was $8,995,000 compared
to $6,521,000
last year. The increase was primarily the result of a
realized gain on the
sale of oil and gas stock that had been classified as
available for sale.
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
second quarter
reflect the continued strong financial condition of the
Company.
End of Quarter
2nd Quarter 2nd Quarter
1996 1995
Liquidity Ratios
Current ratio 3.0 3.1
Receivables turnover 14.0 14.2
Days sales in receivables 23.6 days 23.3 days
Inventory turnover 9.8 10.5
Days sales in inventory 39.7 days 36.1 days
Leverage Ratio
Long-term debt to equity 2.4% 2.7%
Operating Ratios
Pre-tax profit to net worth 19.2% 29.0%
Pre-tax profit to total assets 11.6% 16.7%
Changes during the first six months in current asset and
liability balances
followed normal seasonal patterns. Inventory levels are
adequate for the
traditional promotional activities that occur during the
third and fourth
quarter. During the second quarter, the Company repurchased
and retired
252,128 shares under a repurchase plan announced March 25,
1996. The plan
authorizes repurchase of up to 5,000,000 shares of Hormel
Foods Corporation
common stock. The Company will use its excess cash to fund
the buy back of
shares which may then be retired or retained as treasury
stock.
During the first half, the Company invested $56,431,000 in
new plant and
equipment. The company has major renovation or expansion
projects in
progress at it Fremont, Nebraska; Austin, Minnesota; and
Osceola, Iowa
locations. Jennie-O Foods began operations in late April of
a new turkey
processing plant in Montevideo, Minnesota. Investments in
plant and
equipment continues to emphasize productivity gains while
improving
ergonomics and safety conditions for employees.
Early in the first half, the Company recognized the gain on
the sale of an
idle plant facility in Ottumwa, Iowa. In addition, in 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.
In the second quarter the Company paid $7,500,000 accrued in
the first
quarter to settle the antitrust class action lawsuit
discussed in the
Results of Operations.
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
any 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 March 25, 1996
announcing the
approval by the Company's Board of Directors of a stock
repurchase program. The program authorizes the repurchase
of
up to five million shares of Hormel Foods Corporation common
stock at prevailing prices on the open market.
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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<PERIOD-END> APR-27-1996
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<SECURITIES> 7,473
<RECEIVABLES> 190,084
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<INVENTORY> 242,682
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<PP&E> 759,705
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<BONDS> 15,562
<COMMON> 8,978
0
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<OTHER-SE> 8,171
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