<PAGE>
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 25, 1998 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 25, 1998
- --------------------------------------------------------------------------------
Common Stock - $.1172 par value 73,614,546
Common Stock Non-Voting - $.01 par value - 0 -
Pages:This report contains ten pages numbered sequentially from this cover page.
-1-
<PAGE>
STATEMENTS OF FINANCIAL POSITION Form 10-Q
<TABLE>
HORMEL FOODS CORPORATION
(In Thousands of Dollars)
<CAPTION>
July 25, October 25,
1998 1997
------------ -----------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ................. $ 141,712 $ 146,853
Short-term marketable securities--
at cost which approximates market ....... 34,524 5,533
Accounts receivable ....................... 208,663 233,966
Inventories ............................... 258,726 265,346
Deferred income taxes ..................... 12,627 12,204
Prepaid expenses .......................... 6,250 7,450
----------- -----------
TOTAL CURRENT ASSETS 662,502 671,352
DEFERRED INCOME TAXES ....................... 68,353 68,629
INTANGIBLES ................................. 125,917 131,710
INVESTMENTS IN AFFILIATES ................... 116,183 113,372
OTHER ASSETS ................................ 64,562 54,734
PROPERTY, PLANT AND EQUIPMENT
Land ...................................... 11,926 11,467
Buildings ................................. 250,596 242,124
Equipment ................................. 603,807 594,159
Construction in progress .................. 44,975 72,179
----------- -----------
911,304 919,929
Less allowance for depreciation ........... (440,523) (431,191)
----------- -----------
470,781 488,738
----------- -----------
$ 1,508,298 $ 1,528,535
=========== ===========
</TABLE>
See notes to financial statements
-2-
<PAGE>
STATEMENTS OF FINANCIAL POSITION Form 10-Q
<TABLE>
HORMEL FOODS CORPORATION
(In Thousands of Dollars)
<CAPTION>
July 25, October 25,
1998 1997
---------- -----------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' INVESTMENT
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable ........................... $ 106,574 $ 120,385
Accrued expenses ........................... 32,763 34,564
Accrued marketing .......................... 23,058 21,543
Employee compensation ...................... 49,486 46,275
Taxes, other than federal income taxes ..... 16,051 16,524
Dividends payable .......................... 11,977 11,980
Federal income taxes........................ --- 4,712
Current maturities of long-term debt ....... 2,828 4,595
---------- ----------
TOTAL CURRENT LIABILITIES .................... 242,737 260,578
LONG-TERM DEBT--less current maturities ...... 210,133 198,232
ACCUMULATED POSTRETIREMENT BENEFIT
OBLIGATION ................................... 247,376 243,343
OTHER LONG-TERM LIABILITIES .................. 22,634 24,180
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
73,614,546 shares July 25, 1998
issued 75,776,510 shares Oct. 25, 1997 8,628 8,881
Earnings reinvested in business ............ 776,790 793,321
---------- ----------
785,418 802,202
---------- ----------
$1,508,298 $1,528,535
========== ==========
</TABLE>
See notes to financial statements
-3-
<PAGE>
STATEMENTS OF EARNINGS Form 10-Q
(Unaudited)
<TABLE>
HORMEL FOODS CORPORATION
(In Thousands, Except Per Share Amounts)
<CAPTION>
Three Months Ended Nine Months Ended
July 25, July 26, July 25, July 26,
1998 1997 1998 1997
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales, less returns and
allowances ............... $ 755,769 $ 779,679 $ 2,349,008 $ 2,388,443
Cost of products sold ...... 561,144 609,527 1,744 149 1,845,168
----------- ----------- ----------- -----------
GROSS PROFIT 194,625 170,152 604,859 543,275
Expenses:
Selling and delivery ..... 72,676 69,277 226,022 223,084
Marketing ................ 66,481 57,908 199,594 166,574
Administrative and general 21,804 14,832 61,518 51,044
Gain on plant sale ....... --- --- (28,379) ---
----------- ----------- ----------- -----------
OPERATING INCOME 33,664 28,135 146,104 102,573
Other income and expenses:
Other income--net ........ 3,499 2,039 10,784 7,369
Equity in earnings of
affiliates ............. 615 1,431 3,182 1,949
Interest expense ......... (3,919) (3,415) (10,472) (9,815)
----------- ----------- ----------- -----------
EARNINGS BEFORE INCOME
TAXES ...................... 33,859 28,190 149,598 102,076
Provision for income taxes . 12,865 10,037 55,459 37,253
----------- ----------- ----------- -----------
NET EARNINGS $ 20,994 $ 18,153 $ 94,139 $ 64,823
=========== =========== =========== ===========
Earnings per share:
NET EARNINGS PER SHARE
(DILUTED) .................. $ 0.28 $ 0.24 $ 1.23 $ 0.84
=========== =========== =========== ===========
NET EARNINGS PER SHARE
(BASIC) .................... $ 0.28 $ 0.24 $ 1.25 $ 0.84
=========== =========== =========== ===========
</TABLE>
See notes to financial statements
-4-
<PAGE>
Form 10-Q
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
HORMEL FOODS CORPORATION
(In Thousands of Dollars)
<CAPTION>
Nine Months Ended
July 25, 1998 July 26, 1997
-------------- --------------
OPERATING ACTIVITIES
<S> <C> <C>
Net earnings ................................. $ 94,139 $ 64,823
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation ............................. 37,896 32,611
Amortization of intangibles .............. 5,344 5,624
Equity in earnings of affiliates ......... (3,182) ---
Provision for deferred income taxes ...... (147) 1,545
Loss on property/equipment sales ......... 1,974 56
Gain on plant sale ....................... (17,592) ---
Changes in operating assets and liabilities:
Decrease in accounts receivable........... 25,303 23,227
Decrease in inventories
and prepaid expenses .................... 7,820 2,710
Decrease in accounts payable
and accrued expenses .................... (13,584) (32,979)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES ...... 137,971 97,617
INVESTING ACTIVITIES
Sale of held-to-maturity securities ......... 54,065 41,241
Purchase of held-to-maturity securities ..... (83,056) (53,081)
Acquisitions of businesses .................. --- (140)
Purchases of property/equipment ............. (43,788) (87,232)
Proceeds from sales of property/equipment ... 39,467 3,459
Increase in investments and other assets .... (10,678) (73,843)
Dividends from affiliate .................... 1,670 ---
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES .......... (42,320) (169,596)
FINANCING ACTIVITIES
Proceeds from long-term borrowings .......... 18,694 69,318
Principal payments on long-term debt ........ (8,560) (2,540)
Dividends paid on Common Stock .............. (35,896) (35,514)
Stock Repurchase ............................ (76,518) (40,350)
Other ....................................... 1,488 201
--------- ---------
NET CASH PROVIDED USED IN
FINANCING ACTIVITIES ........................... (100,792) (8,885)
--------- ---------
DECREASE IN CASH AND
CASH EQUIVALENTS ............................... (5,141) (80,864)
Cash and cash equivalents at beginning of year . 146,853 188,473
--------- ---------
CASH AND CASH EQUIVALENTS
AT END OF QUARTER............................. $ 141,712 $ 107,609
========= =========
</TABLE>
See notes to financial statements
-5-
<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 1997 Hormel Foods Corporation Annual
Report to Shareholders, which is incorporated by reference on Form 10-K.
NOTE B
The results of operations for the three and nine month periods ended July 25,
1998, and July 26, 1997 are not necessarily indicative of the results to be
expected for the full year.
- 6 -
<PAGE>
Form 10-Q
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In Thousands)
HORMEL FOODS CORPORATION
RESULTS OF OPERATIONS
Net earnings in the third quarter increased 15.7 percent to $20,994 from $18,153
during the same quarter of 1997. Sales for the quarter decreased 3.1 percent to
$755,769 from $779,679 last year. Sales tonnage for the period increased 8.6
percent compared to the same period of 1997.
Reduced selling prices for fresh pork and turkey products contributed to the
decline in dollar sales despite the increased tonnage volume. While live spot
market prices paid for hogs continued at levels substantially less than the
third quarter of 1997, procurement contracts limited the overall reduction in
live hog costs. Contract buying is already reducing the historical volatility in
the supply and price of hogs. While Jennie-O's turkey tonnage increased over 20
percent for the quarter, large freezer inventories and low commodity prices
continued to have a negative influence on the Company's third quarter
performance.
Earnings for the first three quarters of fiscal 1998 were $94,139 compared to
$64,823 in 1997. The 1998 results include a gain, net of taxes, of $17,402 on
the sale of the Davenport, Iowa gelatin plant to Goodman Fielder, LTD., of
Sydney, Australia. Excluding the one-time gain from the Davenport sale, sales
and earnings for the first nine months were $2,349,008 and $76,737 respectively,
compared to $2,388,443 and $64,823 for the same period last year. Tonnage volume
for the three quarters increased 7.4 percent over 1997 to 2,026,547 pounds.
Gross margins for the quarter and first nine months as a percentage of sales
were 25.8 percent compared to 21.8 and 22.8 percent for the corresponding
periods of 1997. The effect of lower price levels for finished goods was more
than offset by increased tonnage volume with a significant portion of the volume
increase being higher margin manufactured items.
Marketing expenses for the quarter and to-date were $66,481 and $199,594,
respectively, compared to $57,908 and $166,574 for 1997. Company promotional
programs continue to focus on increasing sales of higher margin processed items.
Selling and delivery expenses for the quarter and nine months as a percentage of
sales were 9.6 percent compared to 8.9 and 9.3 percent last year. Administrative
and general expenses increased to 2.9 percent for the quarter and 2.6 percent
to-date compared to 1.9 and 2.1 percent for the same periods in 1997 due to
adjustments in 1997 to the accruals for selling Farm Fresh Catfish and reduced
dollar sales in 1998.
The Company's core Hormel business continues to be the major contributor to
earnings with Prepared Foods, Meat Products and Foodservice Groups all
experiencing significant gains in sales of branded product lines.
Export sales were up 31.4 percent in the third quarter compared to last year.
Significant tonnage increases were accomplished in both Japan and the
Philippines. Results in Canada, Australia and the U.K. continue to exceed
expectations. Joint ventures in Shanghai and Beijing continue to expand their
product offerings and distribution.
-7-
<PAGE>
Form 10-Q
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In Thousands)
HORMEL FOODS CORPORATION
RESULTS OF OPERATIONS
The effective tax rate for the quarter and three quarters to-date was 38.0 and
37.1 percent compared to 35.6 and 36.5 percent for the same periods last year.
The increase is due primarily to a reduction in 1998 of non-U.S. taxed income of
a foreign affiliate.
<TABLE>
FINANCIAL CONDITION
<CAPTION>
Ratio comparisons presented below as of the end of the third quarter reflect the
continued strong financial condition of the Company.
End of Quarter
3rd Quarter 3rd Quarter
1998 1997
------------ -----------
<S> <C> <C>
Liquidity Ratios
Current ratio 2.7 2.8
Receivables turnover 14.2 14.5
Days sales in receivables 24.3 days 23.8 days
Inventory turnover 8.9 9.1
Days sales in inventory 40.6 days 40.0 days
Leverage Ratio
Long-term debt to equity 27.1% 25.4%
Operating Ratios
Pre-tax profit to net worth 25.1% 17.5%
Pre-tax profit to total assets 13.1% 9.4%
</TABLE>
Changes during the first nine months in current asset and liability balances
followed normal seasonal patterns. Inventory levels are considered adequate for
traditional promotional activities that occur during the fourth quarter.
During the first three quarters, the Company invested $43,788 in new plant and
equipment. Investment in plant and equipment emphasizes productivity gains and
efficient product flow while improving ergonomics and safety conditions for
employees. The Company completed a new manufacturing plant and distribution
center in Osceola, Iowa in 1997 which accounts for the increased investment
level last year. As mentioned previously, the Company sold the Davenport gelatin
plant late in the first quarter.
-8-
<PAGE>
Form 10-Q
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In Thousands)
HORMEL FOODS CORPORATION
FINANCIAL CONDITION
Long-term debt primarily consists of small issue Industrial Revenue Bonds of
varying maturities, debt used for investment in the Federal Affordable Housing
Program, $110,000 in Senior Notes and $64,400 of long-term notes denominated in
Spanish Pesetas used to purchase the equity interest in Campofrio. The leverage
ratio indicates significant borrowing capacity remains to take advantage of any
business opportunities that may arise through acquisitions or internal
expansion.
During the first nine months of fiscal 1998, 2,251,600 shares of Hormel Common
Stock were purchased under the share repurchase program at an average price per
share of $33.98. This completes the five million share repurchase program
announced in March of 1996.
.
-9-
<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:-------------------------
J. M. ETTINGER
Treasurer
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000048465
<NAME> HORMEL FOODS CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Oct-31-1998
<PERIOD-START> Nov-01-1997
<PERIOD-END> Jul-25-1998
<CASH> 141,712
<SECURITIES> 34,524
<RECEIVABLES> 208,663
<ALLOWANCES> 0
<INVENTORY> 258,726
<CURRENT-ASSETS> 662,502
<PP&E> 911,304
<DEPRECIATION> (440,523)
<TOTAL-ASSETS> 1,508,298
<CURRENT-LIABILITIES> 242,737
<BONDS> 210,133
0
0
<COMMON> 8,628
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,508,298
<SALES> 2,349,008
<TOTAL-REVENUES> 2,349,008
<CGS> 1,744,149
<TOTAL-COSTS> 1,744,149
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,472
<INCOME-PRETAX> 149,598
<INCOME-TAX> 55,459
<INCOME-CONTINUING> 94,139
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 94,139
<EPS-PRIMARY> 1.25
<EPS-DILUTED> 1.23
</TABLE>
