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ANNUAL REPORT ON FORM 10-K
HORMEL FOODS CORPORATION
OCTOBER 25, 2003
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OFTHE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended OCTOBER 25, 2003 Commission File No. 1-2402
HORMEL FOODS CORPORATION (Exact name of registrant as specified in its charter)
Registrant's telephone number, including area code (507) 437-5611
Securities registered pursuant to Section 12 (b) of the Act:
Securities registered pursuant to Section 12 (g) of the Act:
NONE (Title of Class)
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, and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ý No o
The aggregate market value of the voting stock held by non-affiliates of the registrant as of April 26, 2003 (the last business day of the registrant's most recently completed second fiscal quarter), was $1,592,020,962 based on the closing price of $21.74 per share on that date.
As of December 1, 2003, the number of shares outstanding of each of the Corporation's classes of common stock was as follows:
Common Stock, $.0586 Par Value—138,672,803 shares
Common Stock Non-Voting, $.01 Par Value—0 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Stockholders' Report for the year ended October 25, 2003, are incorporated by reference into Part I and Part II Items 5-8, and included as exhibit 13.1 filed herewith.
Portions of the Proxy Statement for the Annual Meeting of the Stockholders to be held January 27, 2004, are incorporated by reference into Part III, Items 10-14.
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HORMEL FOODS CORPORATION TABLE OF CONTENTS
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PART I
Item 1. BUSINESS
Available Information
The Company makes available, free of charge on its website at www.hormel.com, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. These reports are accessible under the "Investor" caption of the Company's website and are available as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission, which is within 24 hours.
The Company has adopted a Code of Ethical Business Conduct that covers its officers and directors, which is available on the Company's website, free of charge, under the caption "Corporate." The Company also adopted Corporate Governance Guidelines, which are available on the Company's website, free of charge, under the caption "Investor."
(a) General Development of Business
Hormel Foods Corporation, a Delaware corporation, was founded by George A. Hormel in 1891 in Austin, Minnesota, as George A. Hormel & Company. The Company started as a processor of meat and food products and continues in this line of business. The Company name was changed to Hormel Foods Corporation on January 31, 1995. The Company is primarily engaged in the production of a variety of meat and food products and the marketing of those products throughout the United States. Although pork and turkey remain the major raw materials for Hormel products, the Company has emphasized for several years the manufacture and distribution of branded, consumer packaged items rather than the commodity fresh meat business.
The Company's branding strategy led to the development of a joint venture between Hormel Foods Corporation and Excel Corporation, a wholly owned subsidiary of Cargill Incorporated. This joint venture began marketing and selling nationally branded fresh case ready beef and pork under the existing HORMEL ALWAYS TENDER brand name in fiscal year 2003. This 50 percent owned joint venture, named Precept Foods LLC, is based in Austin, Minn.
In fiscal 2001, the Jennie-O Turkey Store (JOTS) business was formed as a result of merging the Company's existing Jennie-O Foods, Inc. business with the operations of The Turkey Store Company, which was acquired in the second quarter of fiscal 2001. The Turkey Store Company was a turkey processing business headquartered in Barron, Wisconsin. The merged JOTS operation is currently the largest turkey processor in the world. JOTS markets its turkey products through its own sales force and independent brokers.
The acquisitions of Diamond Crystal Brands Nutritional Products in fiscal 2001 and the Century Foods International business in July of fiscal 2003 strengthened the Company's presence in the nutritional food products and supplements market. The Company currently operates as one of the largest companies providing nutritional products to the U.S. healthcare industry.
The Company acquired the Diamond Crystal Brands business from Imperial Sugar Co. in December of fiscal 2003. Diamond Crystal Brands packages and sells various sugar, sugar substitute, salt and pepper products, savory products, drink mixes and dessert mixes to retail and foodservice customers.
Internationally, the Company markets its products through Hormel Foods International Corporation (HFIC), a wholly owned subsidiary. HFIC has a presence in the international marketplace through joint ventures and placement of personnel in strategic foreign locations such as China, Spain, and the Philippines. HFIC also has a global presence with minority positions in food companies in Spain (Campofrio Alimentacion S.A., 15% holding) and the Philippines (Purefoods-Hormel, 40% holding).
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The Company has not been involved in any bankruptcy, receivership or similar proceedings during its history. Substantially all of the assets of the Company have been acquired in the ordinary course of business.
The Company had no significant change in the type of products produced or services rendered, nor in the markets or methods of distribution since the beginning of the fiscal year.
(b) Industry Segment
The Company's business is reported in five segments: Grocery Products, Refrigerated Foods, Jennie-O Turkey Store, Specialty Foods, and All Other. The contributions of each segment to net sales to unaffiliated customers and operating profit, and the presentation of certain other financial information by segment are reported in Note K of the Notes to Consolidated Financial Statements and in the Management's Discussion and Analysis of the Annual Stockholder's Report for the year ended October 25, 2003, incorporated herein by reference.
(c) Description of Business
Products and Distribution
The Company's products primarily consist of meat and other food products. The meat products are sold fresh, frozen, cured, smoked, cooked and canned. The percentages of total revenues contributed by classes of similar products for the last three fiscal years of the Company are as follows:
Reporting of revenues from external customers is based on similarity of products, as the same or similar products are sold across multiple distribution channels such as retail, foodservice or international. Revenues reported are based on financial information used to produce the Company's general-purpose financial statements.
Perishable meat includes fresh meats, sausages, hams, wieners and bacon (excluding JOTS products.) Nonperishable meat includes canned luncheon meats, shelf stable microwaveable entrees, stews, chilies, hash, meat spreads and other items that do not require refrigeration as well as frozen processed products. The Poultry category is composed primarily of JOTS products. The Other category primarily consists of nutritional food products and supplements, sugar and sugar substitutes, salt and pepper products, dessert mixes, food packaging (casings for dry sausage), and industrial gelatin products. The Other category has increased over the past two years primarily due to the following acquisitions: Century Foods International (July 2003), Diamond Crystal Brands (December 2002), and Diamond Crystal Brands Nutritional Products (April 2001).
No new product in fiscal 2003 required a material investment of Company assets.
Domestically, the Company sells its products in all 50 states. Hormel products are sold through Company sales personnel, operating in assigned territories coordinated from district sales offices located in most of the larger U.S. cities, as well as independent brokers and distributors. As of October 25, 2003, the Company had approximately 600 sales personnel engaged in selling its products. Distribution of products to customers is by common carrier.
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Through HFIC, the Company markets its products in various locations throughout the world. Some of the larger markets include Australia, Canada, China, England, Japan, Mexico and Micronesia. The distribution of export sales to customers is by common carrier, while the China operations own and operate their own delivery system. The Company, through HFIC, has licensed companies to manufacture various Hormel products internationally on a royalty basis, with the primary licensees being Tulip International of Denmark and CJ Corp. of South Korea.
Raw Materials
The Company has, for the past several years, been concentrating on processed branded products for consumers with year-round demand to minimize the seasonal variation experienced with commodity type products. Pork continues to be the primary raw material for Company products. Although hog producers are moving toward larger, more efficient year-round confinement operations and supply contracts are becoming increasingly prevalent in the industry, there is still a seasonal variation in the supply of fresh pork materials. The Company's expanding line of processed items has reduced but not eliminated the sensitivity of Company results to raw material supply and price fluctuations.
Livestock slaughtered by the Company is purchased by Company buyers and commission dealers at sale barns and terminal markets or under long-term supply contracts at locations principally in Minnesota, Illinois, Iowa, Nebraska, Colorado and South Dakota. The cost of livestock and the utilization of the Company's facilities are affected by both the level and the methods of pork production in the United States. The hog production industry has been rapidly moving to very large, vertically integrated, year-round confinement operations operating under long-term supply agreements. This has resulted in fewer hogs being available on the spot cash market, which decreases the supply of hogs on the open market and can severely diminish the utilization of slaughter facilities and increase the cost of the raw materials they produce. The Company, along with others in the industry, uses long-term supply contracts to manage the effects of this trend and to assure a stable supply of raw materials while minimizing extreme fluctuations in costs over the long-term. This may result in costs for live hogs that are either higher or lower than the spot cash market depending on the relationship of the cash spot market to contract prices. Contract costs are fully reflected in the Company's reported financial results. In fiscal 2003, the Company purchased 79 percent of its hogs under long-term supply contracts.
In fiscal 2003, JOTS raised approximately 57 percent of the turkeys needed to meet its raw material requirements for whole bird and processed turkey products. Turkeys not sourced within the Company are contracted with independent turkey growers. JOTS' turkey-raising farms are located throughout Minnesota and Wisconsin. Production costs in raising turkeys are primarily subject to fluctuations in feed grain prices and to a lesser extent fuel costs.
Manufacturing
The Company has plants in Austin, Minnesota; Fremont, Nebraska; and Beijing, China that slaughter livestock for processing. Quality Pork Processors of Dallas, Texas, operates the slaughter facility at Austin under a custom slaughter arrangement.
Facilities that produce manufactured items are located in Algona, Iowa; Aurora, Illinois; Austin, Minnesota; Beloit, Wisconsin; Bondurant, Iowa; Ft. Dodge, Iowa; Fremont, Nebraska; Houston, Texas; Knoxville, Iowa; Mitchellville, Iowa; Osceola, Iowa; Perrysburg, Ohio; Quakertown, Pennsylvania; Rochelle, Illinois; Savannah, Georgia; Sparta, Wisconsin; Stockton, California; Tucker, Georgia; Visalia, California; Wichita, Kansas; Beijing, China; and Shanghai, China. Company products are also custom manufactured by several other companies. The following are the Company's larger custom manufacturers: Lakeside Packing Company, Manitowoc, Wisconsin; Schroeder Milk, Maplewood, Minnesota; Steuben Foods, Jamaica, New York; Power Packaging, St. Charles, Illinois; Criders, Stilmore, Georgia; Tony Downs, St. James, Minnesota; and Concept Foods, Alma, Kansas. Power
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Logistics, Inc., based in St. Charles, Illinois, operates distribution centers for the Company in Dayton, Ohio, and Osceola, Iowa.
The Company's turkey slaughter and processing operations are located in Barron, Wisconsin; Faribault, Minnesota; Melrose, Minnesota; Montevideo, Minnesota; Pelican Rapids, Minnesota; and Willmar, Minnesota.
Patents and Trademarks
There are numerous patents and trademarks that are important to the Company's business. The Company holds seven foreign and 47 U.S. issued patents. Some of the trademarks are registered and some are not. In recognition of the importance of these assets, the Company created a subsidiary, Hormel Foods, LLC, in 1998 to create, own, maintain and protect most of the Company's trademarks and patents. Some of the more significant owned or licensed trademarks used in the Company's segments are:
HORMEL, ALWAYS TENDER, AMERICAN CLASSICS, AUSTIN BLUES, BLACK LABEL, CARAPELLI, CHI-CHI'S, CURE 81, CUREMASTER, DAN'S PRIZE, DIAMOND CRYSTAL, DI LUSSO, DINTY MOORE, DUBUQUE, EL TORITO, FAST 'N EASY, HERB-OX, HERDEZ, HOMELAND, HOUSE OF TSANG, JENNIE-O TURKEY STORE, KID'S KITCHEN, LAYOUT, LITTLE SIZZLERS, MARRAKESH EXPRESS, MARY KITCHEN, OLD SMOKEHOUSE, PATAK'S, PELOPONNESE, PILLOW PACK, QUICK MEAL, RANGE BRAND, ROSA GRANDE, SANDWICH MAKER, SPAM, STAGG, SWEET THING, THICK & EASY and WRANGLERS.
Customers and Backlog Orders
During fiscal year 2003, no customer accounted for more than 10 percent of total Company sales. The five largest customers in each segment make up approximately the following percentage of segment sales: 39 percent of Grocery Products, 39 percent of Refrigerated Foods, 35 percent of JOTS, 51 percent of Specialty Foods, and 27 percent of All Other. The loss of one or more of the top customers in any of these segments could have a material adverse effect on the results of such segment. Backlog orders are not significant due to the perishable nature of a large portion of the products. Orders are accepted and shipped on a current basis.
Competition
The production and sale of meat and food products in the United States and internationally are highly competitive. The Company competes with manufacturers of pork and turkey products, as well as national and regional producers of other meat and protein sources, such as beef, chicken and fish. The Company believes that its largest domestic competitors for its Refrigerated Foods segment in 2003 were Tyson Foods, Smithfield Foods and ConAgra Foods; for its Grocery Products segment, ConAgra Foods, Dial Corp. and Campbell Soup Co.; and for JOTS, ConAgra Foods and Cargill, Inc.
All Hormel segments compete on the basis of price, product quality, brand identification and customer service. Through aggressive marketing and strong quality assurance programs, the Company's strategy is to provide higher quality products that possess strong brand recognition, which would then support higher value perceptions from customers.
The Company competes using this same strategy in international markets around the world.
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Research and Development
Research and development continues to be a vital part of the Company's strategy to extend existing brands and expand into new branded items. The expenditures for research and development for fiscal 2003, 2002 and 2001, respectively, were $13,165,000, $12,097,000 and $11,478,000. There are 42 professional employees engaged in full time research, 19 in the area of improving existing products and 23 in developing new products.
Employees
As of October 25, 2003, the Company had over 16,000 active employees.
(d) Executive Officers of the Registrant
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No family relationship exists among the executive officers.
Executive officers are elected annually by the Board of Directors at the first meeting following the Annual Meeting of Stockholders. Vacancies may be filled and additional officers elected at any regular or special meeting.
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Item 2. PROPERTIES
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Many of these properties are not exclusive to any one of the Company's segments and a few of the properties are utilized in all five segments of the Company. The Company has renovation or building projects in progress at Austin, Minnesota; Fremont, Nebraska; Rochelle, Illinois; Osceola, Iowa; Los Animas, Colorado; and at various JOTS locations. The Company believes its operating facilities are well maintained and suitable for current production volumes and all volumes anticipated in the foreseeable future.
Item 3. LEGAL PROCEEDINGS
The Company knows of no pending material legal proceedings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to shareholders during the fourth quarter of the 2003 fiscal year.
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PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The high and low closing price of the Company's Common Stock and the dividends per share declared for each fiscal quarter of 2003 and 2002, respectively, are shown below:
Additional information about dividends, principal market of trade and number of stockholders on page 45 of the Annual Stockholders' Report for the year ended October 25, 2003, is incorporated herein by reference. The Company's Common Stock has been listed on the New York Stock Exchange since January 16, 1990.
Item 6. SELECTED FINANCIAL DATA
Selected Financial Data for the five years ended October 25, 2003, on page 16 of the Annual Stockholders' Report for the year ended October 25, 2003, is incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of Operations on pages 17 through 27 of the Annual Stockholders' Report for the year ended October 25, 2003, is incorporated herein by reference.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information on the Company's exposure to market risk is included in the Management's Discussion and Analysis of Financial Condition and Results of Operations on pages 27 and 28 of the Annual Stockholders' Report for the year ended October 25, 2003, is incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Financial Statements, including unaudited quarterly data, on pages 29 through 43 and the Report of Independent Auditors on page 43 of the Annual Stockholders' Report for the year ended October 25, 2003, are incorporated herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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Item 9A. CONTROLS AND PROCEDURES
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information under "Election of Directors," contained on pages 3 and 4 and under "Committees of the Board of Directors and Meetings," on page 5, and the second sentence of the second paragraph under "Audit Committee Report and Ratification of Appointment of Auditors," contained on page 6 of the definitive proxy statement for the Annual Meeting of Stockholders to be held January 27, 2004, is incorporated herein by reference.
Information concerning Executive Officers is set forth in Item 1(d) of Part I pursuant to Instruction 3, Paragraph (b) of Item 401 of Regulation S-K.
Information under "Section 16(a) Beneficial Ownership Reporting Compliance," on page 17 of the definitive proxy statement for the Annual Meeting of Stockholders to be held January 27, 2004, is incorporated herein by reference.
The Company has adopted a Code of Ethical Business Conduct in compliance with applicable rules of the Securities and Exchange Commission that applies to its principal executive officer, its principal financial officer and its principal accounting officer or controller, or persons performing similar functions. A copy of the Code of Ethical Business Conduct is available on the Company's website at, www.hormel.com, free of charge, under the caption, "Corporate."
Item 11. EXECUTIVE COMPENSATION
Information for the year ended October 25, 2003, commencing with "Summary Compensation Table" on page 12 through page 15 and "Compensation of Directors" on page 5 of the definitive proxy statement for the Annual Meeting of Stockholders to be held January 27, 2004, is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information for the year ended October 25, 2003, under "Principal Stockholders" and "Security Ownership of Management" on pages 7 through 9 and information under "Equity Compensation Plan Information" on page 15 of the definitive proxy statement for the Annual Meeting of Stockholders to be held January 27, 2004, is incorporated herein by reference.
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Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information under "Other Information Relating to Directors, Nominees, and Executive Officers" for the year ended October 25, 2003, as set forth on page 17 of the definitive proxy statement for the Annual Meeting of Stockholders to be held January 27, 2004, is incorporated herein by reference.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information under the "Audit Committee Report and Ratification of Appointment of Auditors—Audit Fees" through "—Audit Committee Preapproval Policies and Procedures" on page 7 of the Company's definitive proxy statement for the Annual Meeting of Stockholders to be held January 27, 2004, is incorporated herein by reference.
PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Form 8-K was filed on August 1, 2003, announcing a January 24, 2004 retirement of Eric Brown, Group Vice President of Prepared Foods and member of the Board of Directors.
Form 8-K was furnished on August 21, 2003, disclosing the issuance of the Company's earnings release for the third quarter ended July 26, 2003.
Form 8-K was filed on October 7, 2003, announcing union workers from five of the Company's production facilities voted to ratify a new four-year labor contract.
Form 8-K was filed on October 23, 2003, announcing the Company entered into an unsecured 3-year revolving credit facility in the amount of $150,000,000, which replaced an existing $150,000,000 credit facility entered into on October 25, 2001.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Each person whose signature to this report on Form 10-K appears below hereby constitutes and appoints each of Michael J. McCoy, Jody H. Feragen and Mark P. Kalvoda as his or her true and lawful attorney-in-fact and agent, with full power of substitution, to sign on his or her behalf individually and in the capacity stated below and to perform any acts necessary to be done in order to file the Annual Report on Form 10-K and all amendments to this report on Form 10-K, and any and all instruments or documents filed as part of or in connection with this report on Form 10-K or the amendments hereto, and each of the undersigned does hereby ratify and confirm all that said attorney-in-fact and agent, or his substitutes, shall do or cause to be done by virtue hereof.
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ITEM 15 (a) (1), (2), AND (3) AND ITEM 15 (c) AND (d)
LIST OF FINANCIAL STATEMENTS
FINANCIAL STATEMENT SCHEDULE
LIST OF EXHIBITS
YEAR ENDED OCTOBER 25, 2003
Austin, Minnesota
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Item 15(a) (1), (2) and (3) and Item 15 (c) and (d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES HORMEL FOODS CORPORATION
FINANCIAL STATEMENTS
The following consolidated financial statements of Hormel Foods Corporation included in the Annual Stockholders' Report for the Registrant to its stockholders for the year ended October 25, 2003, are incorporated herein by reference in Item 8 of Part II of this report:
Consolidated Statements of Financial Position—October 25, 2003, and October 26, 2002.
Consolidated Statements of Operations—Years Ended October 25, 2003, October 26, 2002 and October 27, 2001.
Consolidated Statements of Changes in Shareholders' Investment—Years Ended October 25, 2003, October 26, 2002, and October 27, 2001.
Consolidated Statements of Cash Flows—Years Ended October 25, 2003, October 26, 2002, and October 27, 2001.
Notes to Financial Statements—October 25, 2003.
Report of Independent Auditors
FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statement schedule of Hormel Foods Corporation required pursuant to Item 15(d) is submitted herewith:
Schedule II—Valuation and Qualifying Accounts and Reserves...F-3
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.
FINANCIAL STATEMENTS AND SCHEDULES OMITTED
Condensed parent company financial statements of the registrant are omitted pursuant to Rule 5-04(c) of Article 5 of Regulation S-X.
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SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS AND RESERVES HORMEL FINANCIAL SERVICES CORPORATION (In Thousands)
Note (1)—Uncollectible accounts written off.
Note (2)—Recoveries on accounts previously written off.
Note (3)—Increase in the reserve due to the inclusion of The Turkey Store Company accounts receivable.
Note (4)—Increase in the reserve due to the inclusion of Diamond Crystal Brands accounts receivable.
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LIST OF EXHIBITS HORMEL FOODS CORPORATION
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