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 26,1997 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 26, 1997
Common Stock - $.1172 par value 75,946,946
Common Stock Non-Voting - $.01 par value -0-
Pages: This report contains eleven pages numbered sequentially from this
cover page.
<PAGE>
FORM 10-Q
PART I - FINANCIAL INFORMATION
STATEMENTS OF FINANCIAL POSITION
HORMEL FOODS CORPORATION
(In Thousands of Dollars)
July 26 October 26,
1997 1996
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 107,609 $ 188,473
Short-term marketable securities--
at cost which approximates market 26,482 14,642
Accounts receivable 207,642 230,869
Inventories 269,339 271,097
Deferred Income Taxes 12,115 11,615
Prepaid expenses 5,611 6,563
TOTAL CURRENT ASSETS 628,798 723,259
DEFERRED INCOME TAXES 66,641 68,686
INTANGIBLES 134,245 124,193
INVESTMENTS AND OTHER ASSETS 156,821 98,514
PROPERTY, PLANT AND EQUIPMENT
Land 11,836 8,517
Buildings 241,158 210,450
Equipment 570,284 538,562
Construction in progress 70,963 71,085
894,241 828,614
Less allowance for depreciation (421,649) (407,128)
472,592 421,486
$1,459,097 $1,436,138
</TABLE>
See notes to financial statements
<PAGE>
FORM 10-Q
PART I - FINANCIAL INFORMATION
STATEMENTS OF FINANCIAL POSITION
HORMEL FOODS CORPORATION
(In Thousands of Dollars)
July 26, October 26,
1997 1996
(Unaudited)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable $ 96,402 $ 121,004
Accrued expenses 40,153 42,190
Accrued marketing expenses 19,162 22,768
Employee compensation 40,890 41,493
Taxes other than federal income taxes 14,476 14,991
Dividends payable 11,973 11,611
Federal income taxes 544 9,804
Current maturities of long-term debt 4,260 2,548
TOTAL CURRENT LIABILITIES 227,860 266,409
LONG-TERM DEBT - less current maturities 192,069 127,003
ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION 241,382 239,616
ACCRUED PENSION COSTS 0 0
OTHER LONG-TERM LIABILITIES 23,437 17,559
SHAREHOLDERS' 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 75,946,946 shares 7/26/97
issued 77,534,398 shares 10/26/96 8,901 9,087
Additional paid-in capital 0 32,214
Shares held in treasury. 0 (535)
8,901 40,766
Earnings reinvested in business 765,448 744,785
774,349 785,551
$1,459,097 $1,436,138
</TABLE>
See notes to financial statements
<PAGE>
FORM 10-Q
PART I - FINANCIAL INFORMATION
STATEMENTS OF FINANCIAL POSITION
HORMEL FOODS CORPORATION
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 26, July 27, July 26, July 27,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Sales, less returns and allowances $779,679 $749,871 $2,388,443 $2,220,910
Cost of products sold 609,527 603,899 1,845,168 1,719,041
GROSS PROFIT 170,152 145,972 543,275 501,869
Expenses:
Selling and delivery 127,185 125,690 389,658 378,824
Administrative and general 14,832 15,109 51,044 55,089
OPERATING INCOME 28,135 5,173 102,573 67,956
Other income and expenses:
Other income-net 3,470 1,912 9,318 10,907
Interest expense (3,415) (391) (9,815) (1,231)
EARNINGS BEFORE INCOME TAXES 28,190 6,694 102,076 77,632
Provision for income taxes 10,037 2,684 37,253 28,435
NET EARNINGS $18,153 $ 4,010 $64,823 $49,197
NET EARNINGS PER SHARE $0.24 $0.05 $0.84 $ .64
</TABLE>
See notes to financial statements
<PAGE>
FORM 10-Q
STATEMENTS OF CASH FLOWS (Unaudited)
HORMEL FOODS CORPORATION
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Nine Months Ended
July 26, July 27,
1997 1996
OPERATING ACTIVITIES
<S> <C> <C>
Net earnings $ 64,823 $ 49,197
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation 32,611 27,938
Amortization of intangibles 5,624 3,131
Provision for deferred income taxes 1,545 (777)
(Gain) loss on property/equipment sales
and idle facility 56 (3,653)
Changes in operating assets and liabilities:
(Decrease) Increase in accounts receivable 23,227 50,118
(Increase) decrease in inventories
and prepaid expenses 2,710 (80,486)
Increase(decrease) in accounts payable and
accrued expenses (32,979) 4,999
NET CASH PROVIDED BY OPERATING ACTIVITIES 97,617 50,467
INVESTING ACTIVITIES
Sale of short-term marketable securities 41,241 1,494
Purchase of marketable securities (53,081) 0
Acquisitions of businesses (140) (70)
Purchases of property/equipment (87,232) (83,755)
Proceeds from sales of property/equipment 3,459 5,299
(Increase) in investments and other assets (73,843) (4,891)
NET CASH USED IN INVESTING ACTIVITIES (169,596) (81,923)
FINANCING ACTIVITIES
Proceeds from long-term borrowings 69,318 553
Principal payments on long-term debt (2,540) (2,131)
Dividends paid on Common Stock (35,514) (34,140)
Stock Repurchase (40,350) (14,127)
Other 201 1,903
NET CASH USED IN FINANCING ACTIVITIES (8,885) (47,942)
(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (80,864) (79,398)
Cash and cash equivalents
at beginning of year 188,473 189,539
CASH AND CASH EQUIVALENTS
AT END OF YEAR $107,609 $110,141
</TABLE>
See notes to financial statements
<PAGE>
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 1996 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 26,
1997, and July 27, 1996 are not necessarily indicative of the results
to be expected for the full year.
<PAGE>
FORM 10-Q
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION RESULTS OF OPERATIONS
HORMEL FOODS CORPORATION
RESULTS OF OPERATIONS
Net earnings in the third quarter increased $14,143,000 to $18,153,000
from $4,010,000 during the same quarter of 1996. Sales for the quarter
increased 4.0 percent to $779,679,000 from $749,871,000 last year.
Sales tonnage for the period decreased 2.1 percent compared to the same
quarter of 1996.
Market conditions in the industry have improved from 1996 allowing the
Company to return to more normal levels of profitability. However,
unfavorable pork and turkey commodity conditions continue to have a
negative impact on results. Excess slaughter capacity and reduced live
hog numbers available for slaughter have resulted in higher prices for
pork raw materials which limits the Company's ability to recover
customary margins. While corn prices have moderated, soybean meal
prices have remained relatively high continuing the pressure on turkey
margins at Jennie-O. Growth in the tonnage volume of branded consumer
packaged fresh pork and turkey products limited the impact of the
margin pressures. The tonnage decrease experienced during the quarter
resulted primarily from reduced slaughter levels and the sale of Farm
Fresh Catfish Company which was finalized earlier in the year.
Sales and earnings for the first nine months of 1997 were
$2,388,443,000 and $64,823,000 compared to $2,220,910,000 and
$49,197,000 respectively, last year. Tonnage volume decreased 0.3
percent for three quarters to date compared to 1996.
Gross margins for the quarter and to date as a percentage of sales were
21.8 and 22.8 percent compared to 19.5 and 22.6 percent for the
corresponding periods last year. The improvement in gross margin
levels reflects the increased volume of higher margin consumer branded
products in the Company's product mix.
Marketing expenses for the quarter and first nine months were
$57,908,000 and $166,574,000 respectively, compared to $53,951,000 and
$159,942,000 for the same periods of 1996. The Company continues to
emphasize both its well established products and its newer ethnic
product introductions in its promotional programs. Selling and
delivery expenses as a percentage of sales declined to 16.3 percent for
the quarter and nine months compared to 16.8 and 17.1 percent for the
same periods last year reflecting a sales mix with a larger percentage
of higher value manufactured products. Administrative and general
expenses for the third quarter and to date decreased both in absolute
amount and as a percentage of sales.
The Company's core branded business continues to be the major
contributor to earnings. Tonnage in the Grocery Products Division was
up 7 percent compared to last year primarily due to the Stagg Foods
acquisition.
<PAGE>
FORM 10-Q
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
HORMEL FOODS CORPORATION
RESULTS OF OPERATIONS
The canned chili business for both Hormel and Stagg brands experienced
growth in sales tonnage and market share during the quarter.
StaggTMChili is being introduced into new markets in Iowa, Kansas,
Oklahoma and West Texas. The Meat Products and Foodservice groups also
experienced significant gains for the quarter and year to date in sales
of branded products helping to reduce the effect of the high pork raw
material prices and reduced slaughter levels.
Jennie-O sales and tonnage volume both increased for the first nine
months more than 15 percent over the same period in 1996. While volume
was up significantly and corn prices have moderated below year ago
levels, soybean meal prices are higher than a year ago continuing the
squeeze on historical margin levels that began last year.
Current expectations are for an excellent crop of both corn and
soybeans this fall. While export demand for these grains is strong,
total feed costs are expected to moderate as the year progresses
providing substantial help to the Companys input costs.
Hormel Foods International tonnage volume for the third quarter
increased 38.8 percent over the third quarter of 1996. Hormel
International also experienced pressure on margins due to the high cost
of raw materials. Major export growth areas include fresh pork and
Jennie-O turkey products. Construction projects of the China joint
ventures continue as scheduled. The venture in Shanghai is currently
scheduled to begin production and sale of their Hormel product line in
September while the Beijing joint venture is scheduled to be
operational in the first quarter of 1998.
Other income is primarily interest and dividends from the investment of
excess funds and earnings of non-consolidated subsidiaries. Interest
expense for the quarter and first nine months was $3,415,000 and
$9,815,000 compared to $391,000 and $1,231,000 for the same periods
last year. The increases are a result of $110,000,000 in Senior Notes
issued in the fourth quarter of 1996 and $64,400,000 in long term notes
to finance the acquisition of 21.6 percent of Campofrio in Spain issued
in the first quarter of 1997.
The effective tax rate for the quarter and to date was 35.6 and 36.5
percent compared to 40.1 and 36.6 percent for the same periods last
year. The decrease reflects a return to more normal levels of
deductible permanent differences between tax and financial income
primarily related to tax exempt interest and dividend received
deduction.
<PAGE>
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.
<TABLE>
<CAPTION>
End of Quarter
3rd Quarter 3rd Quarter
1997 1996
Liquidity Ratios
<S> <C> <C>
Current ratio 2.8 2.7
Receivables turnover 14.5 14.4
Days sales in receivables 23.8 days 22.4 days
Inventory turnover 9.1 9.2
Days sales in inventory 40.0 days 45.9 days
Leverage Ratio
Long-term debt to equity 25.4% 2.4%
Operating Ratios
Pre-tax profit to net worth 17.5% 14.1%
Pre-tax profit to total assets 9.4% 8.4%
</TABLE>
Changes during the first nine months in current asset and liability
balances followed normal seasonal patterns. Inventory levels are
adequate for the traditional promotional activities that occur in the
fourth quarter.
During the first three quarters the Company paid $64,315,637 to
purchase and retire 1,571,800 shares of its Common Stock under a
repurchase plan announced March 25, 1996. Since inception 2,571,800
shares have been purchased under the plan.
Through nine periods in 1997, the Company invested $40,350,000 in new
plant and equipment. The Company's largest project is a new
manufacturing plant and distribution center being built at Osceola,
Iowa. The distribution center became fully operational in the first
quarter and the manufacturing plant is currently staffing up for full
operations. Investment in plant and equipment continues to emphasize
productivity gains and efficient product flow while improving
ergonomics and safety conditions for employees.
The Company continues to keep excess funds invested short term as it
continues to examine business opportunities that meet its long-term
operating goals.
<PAGE>
FORM 10-Q
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
HORMEL FOODS CORPORATION
FINANCIAL CONDITION
Long-term debt consists of small issue Industrial Revenue Bonds of
varying maturities, debt used for investment in the federal affordable
housing program, $110,000,000 in Senior Notes and $64,400,000 of long-
term notes, denominated in Spanish Pesetas, used to purchase a 21.6
percent equity interest in Campofrio in Spain. The leverage ratio
indicates that significant borrowing capacity remains to take advantage
of any business opportunities that may arise through acquisition or
internal expansion.
<PAGE>
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
None
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
Vice President and Treasurer
<PAGE>
11
6
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-25-1997
<PERIOD-END> JUL-26-1997
<CASH> 107,609
<SECURITIES> 26,482
<RECEIVABLES> 207,642
<ALLOWANCES> 0
<INVENTORY> 269,339
<CURRENT-ASSETS> 628,798
<PP&E> 894,241
<DEPRECIATION> 421,649
<TOTAL-ASSETS> 1,459,097
<CURRENT-LIABILITIES> 227,860
<BONDS> 192,069
<COMMON> 8,901
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,459,097
<SALES> 2,388,443
<TOTAL-REVENUES> 2,388,443
<CGS> 1,845,168
<TOTAL-COSTS> 1,845,168
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,815
<INCOME-PRETAX> 102,076
<INCOME-TAX> 37,253
<INCOME-CONTINUING> 64,823
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 64,823
<EPS-PRIMARY> 0.84
<EPS-DILUTED> 0.84
</TABLE>
