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 January 25, 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 January 25, 1997 Common Stock - $.1172 par value 77,015,066 Common Stock Non-Voting - $.01 par value - 0 - Pages: This report contains twelve pages numbered sequentially from this cover page. Form 10-Q STATEMENTS OF FINANCIAL POSITION HORMEL FOODS CORPORATION (In Thousands of Dollars) January 25, October 26, 1997 1996 (Unaudited) ASSETS <TABLE> <CAPTION> <S> <C> <C> CURRENT ASSETS $ 149,629 $ 188,473 Cash and cash equivalents Short-term marketable securities-- at cost which approximates market 33,998 14,642 Accounts receivable 210,409 230,869 Inventories 266,455 271,097 Deferred income taxes 11,756 11,615 Prepaid expenses 6,054 6,563 TOTAL CURRENT ASSETS 678,301 723,259 DEFERRED INCOME TAXES 68,030 69,686 INTANGIBLES 122,461 124,193 INVESTMENTS AND OTHER ASSETS 171,883 98,514 PROPERTY, PLANT AND EQUIPMENT Land 10,095 8,517 Buildings 209,577 210,450 Equipment 535,537 538,562 Construction in Progress 75,611 71,085 830,820 828,614 Less allowance for depreciation (405,778) (407,128) 425,042 421,486 $ 1,465,717 $ 1,436,138 </TABLE> See notes to financial statements Form 10-Q STATEMENTS OF FINANCIAL POSITION HORMEL FOODS CORPORATION (In Thousands of Dollars) <TABLE> <CAPTION> January 25, October 26, 1997 1996 LIABILITIES AND SHAREHOLDERS' (Unaudited) INVESTMENT CURRENT LIABILITIES <S> <C> <C> Accounts payable $ 102,204 $ 121,004 Accrued expenses 43,418 42,190 Accrued marketing 17,015 22,768 Employee compensation 27,918 41,493 Taxes, other than federal income taxes 16,449 14,991 Dividends payable 12,162 11,611 Federal income tax 11,134 9,804 Current maturities of long-term debt 2,557 2,548 TOTAL CURRENT LIABILITIES 232,857 266,409 LONG-TERM DEBT--less current maturities 191,320 127,003 ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION 240,704 239,616 OTHER LONG-TERM LIABILITIES 19,441 17,559 SHAREHOLDERS' INVESTMENT Preferred Stock, par value $.01 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: Issued 77,534,398 shares 10/26/96 Issued 77,034,398 shares 1/25/97 9,028 9,087 Additional paid-in capital 19,324 32,214 Shares held in treasury (501) (535) 27,851 40,766 753,544 744,785 781,395 785,551 $ 1,465,717 $ 1,436,138 </TABLE> See notes to financial statements Form 10-Q STATEMENTS OF EARNINGS (Unaudited) HORMEL FOODS CORPORATION (In Thousands of Dollars, Except Per Share Amounts) <TABLE> <CAPTION> Three Three Months Ended Months Ended January 25, January 27, 1997 1996 Sales, less returns and <S> <C> <C> allowances $ 810,309 $ 724,381 Cost of products sold 626,800 546,944 GROSS PROFIT 183,509 177,437 Expenses: Selling and delivery 132,371 127,506 Administrative and general 18,005 22,750 OPERATING INCOME 33,133 27,181 Other income and expenses: Other Income--net 2,973 6,296 Interest expense (3,058) (409) EARNINGS BEFORE INCOME TAXES 33,048 33,068 Provision for income taxes 12,066 12,401 NET EARNINGS $ 20,982 $ 20,667 Earnings per share: NET EARNINGS PER SHARE $ 0.27 $ 0.27 </TABLE> See notes to financial statements Form 10-Q CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) HORMEL FOODS CORPORATION (In Thousands of Dollars) <TABLE> <CAPTION> Three Three Months Ended Months Ended January 25, January 27, 1997 1996 OPERATING ACTIVITIES <S> <C> <C> Net earnings $ 20,982 $ 20,667 Adjustments to reconcile to net cash provided by operating activities: Depreciation 10,549 8,823 Amoritization of intangibles 1,872 1,034 Provision for deferred income taxes 515 (72) (Gain) loss on property/equipment sales and idle facility (22) (3,593) Changes in operating assets and liabilities: Decrease(increase)in accounts receivable 20,460 41,713 Increase)decrease in inventories and prepaid expenses 5,151 (15,990) Increase(decrease) in accounts payable and accrued expenses (31,142) 736 NET CASH PROVIDED BY OPERATING ACTIVITIES 28,365 53,318 INVESTING ACTIVITIES Sale of available-for-sale securities 0 485 Purchase of held-to-maturity securities (19,357) 0 Acquisitions of businesses (140) 0 Purchases of property/equipment (17,072) (20,358) Proceeds from sales of prop./equip. 2,989 4,678 (Increase)decrease in investments and other assets (73,369) (3,211) NET CASH USED IN INVESTING ACTIVITIES (106,949) (18,406) FINANCING ACTIVITIES Proceeds from long-term borrowings 64,336 0 Principal payments on long-term debt (10) 0 Dividends paid on Common Stock (11,662) (11,123) Stock Repurchase (13,035) 0 Other 111 84 NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 39,740 (11,039) (DECREASE)INCREASE IN CASH AND CASH EQUIVALENTS (38,844) 23,873 Cash and cash equivalents at beginning of year 188,473 189,539 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 149,629 $ 213,412 </TABLE> 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 1996 Hormel Foods Corporation Annual Report to Shareholders, which is incorported by reference on Form 10-K. NOTE B The results of operations for the three month period ended January 25, 1997, and January 26, 1996 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 Sales and earnings for the first quarter were $810,309,000 and $20,982,000 compared to $724,381,000 and $20,667,000 respectively last year. Tonnage volume for the quarter increased .5 percent over 1996 to 647,406,000 pounds. The increase in sales dollars, while earnings and tonnage volume remained flat, was a result of higher pork raw material costs and changes in the product mix between fresh pork and manufactured items. Although corn and soymeal prices have stabilized from record levels in 1996, live hog numbers continued to decline and produced pork raw material prices 29 percent higher than last year. The high raw material prices continued to place pressure on the Company's ability to maintain comparable gross margins during the first quarter. Slaughter levels for the quarter were 5.4 percent less than for the first quarter of 1996 which produced corresponding reductions in commodity fresh pork sales. Increases in the Company's mix of branded, consumer-packaged items more than offset the reduction in commodity fresh pork sales. The pressure on margins was mitigated to some extent by the increased volume of higher margin manufactured items in the product mix. The Company's core Hormel business continues to be the major contributor to earnings. Within the Prepared Foods Group, tonnage volume for the Grocery Products Division during the first quarter was up 12 percent compared to last year primarily due to the acquisition of Stagg Foods in October of 1996. Market share gains were also realized in DINTY MOORE stew, HORMEL bacon bits and microwave meals. The Specialty Products Division is behind a year ago in tonnage volume but ahead of their 1997 plan. The Meat Products Group experienced a volume increase of 10 percent primarily related to consumer packaged fresh pork. Increases in boneless ham categories were also a significant factor in the increased volume. The consumer group of sliced pepperoni, including turkey pepperoni, also grew in volume and feature activity. The Foodservice Group had a strong first quarter with tonnage volume up 4 percent over the first quarter of 1996. There was a significant shift in the food service product mix as volume gains in branded products more than offset the double digit decline in commodity fresh pork tonnage. These volume gains were significant as extreme weather conditions, while not as severe as the situations last year in the northeast, still impacted the Foodservice business during the quarter particularly in the Midwest. FORM 10-Q MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS HORMEL FOODS CORPORATION RESULTS OF OPERATIONS Hormel Foods International completed the first quarter with a tonnage volume gain of 105 percent over last year. However the volume increase was tempered by the same inability to recover appropriate margins experienced in the U.S. During the quarter Hormel Foods International purchased 21 percent of Campofrio in Spain and 13 percent of Pozmeat in Poland. These acquisitions, along with joint ventures in China and other parts of the world, provide a growing presence in the international marketplace. Jennie-O Foods, Inc. experienced a 20 percent increase in sales volume over the first quarter of 1996. While corn and soymeal prices have fallen from the record levels experienced in 1996, the lower feed costs have not yet worked completely through the production cycle. This has prevented Jennie-O from realizing their customary margins. Results for the first quarter were also affected by higher than normal winter storm expenses during December and January. Late in the quarter, Jennie-O introduced a new fat free bacon wrapped turkey filet similar to bacon wrapped beef filet mignon, a line of uncooked spiced marinated turkey filets and a line of high temperature breast products that provide a real roast turkey flavor. Results for the quarter at Dubuque Foods were less than planned as high pork raw material costs have a greater impact on Dubuque than the primary Hormel business. Marketing expenses increased 3.4 percent during the quarter to $56,537,000 from $54,684,000 in 1996. The Company continues to emphasize both its well established products along with newer ethnic products in its promotional programs. Selling and delivery expenses and administrative and general expenses for the quarter declined to 16.3 and 22 percent of sales from 17.6 and 31 percent of sales in 1996. The decrease is the result of the higher price level experienced this year. In addition, 1996 administrative and general expenses included a settlement of a class action lawsuit in the amount of $7,500,000. The effective tax rate for the first three months of 1997 was 36.5 percent compared to 37.5 percent last year. The decrease was a result of increases in deductible permanent differences between tax and financial income and the tax credits realized from investments in the Federal Affordable Housing Program. FORM 10-Q MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS HORMEL FOODS CORPORATION RESULTS OF OPERATIONS Other income-net for the first quarter of 1997 was $2,973,000 compared to $6,296,000 in 1996. The decrease was primarily the result of a gain recognized in 1996 on the sale of oil and gas stock that had been classified as available for sale. FINANCIAL CONDITION Ratio comparisons for the first quarter of 1997 and 1996, which demonstrate the Company's financial strength, are as follows: End of Quarter 1st Quarter 1st Quarter 1997 1996 <TABLE> <CAPTION> Liquidity Ratios <S> <C> <C> Current ratio 2.9 3.0 Receivables turnover 14.7 13.8 Days sales in receivables 23.7 days 23.9 days Inventory turnover 9.3 10.1 Days sales in inventory 38.8 days 37.8 days Leverage Ratio Long-term debt to equity 24.8% 2.6% Operating Ratios Pre-tax profit to net worth 16.9% 18.0% Pre-tax profit to total assets 9.1% 10.8% </TABLE> Changes during the first quarter in current asset and liability balances followed normal seasonal patterns except for accounts receivable and inventories. Accounts receivables and inventories reflect larger balances due to the increased price levels resulting from high pork raw material costs. During the first quarter, the Company invested $17,072,000 in new plant and equipment. The Company is building a new manufacturing plant and distribution center at Osceola, Iowa. The distribution center was opened in the first quarter and the manufacturing plant is scheduled to be fully operational in May. Investment in plant and equipment continues to emphasize productivity gains, and efficient product flow while improving ergonomics and safety conditions for employees. FORM 10-Q MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS HORMEL FOODS CORPORATION RESULTS OF OPERATIONS During the first quarter the Company through Hormel Foods International Corporation purchased a 21.6 percent equity interest in Campofrio in Spain for approximately $64,400,000. The investment was financed through long- term notes denominated in Spanish Pesetas. 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, debt used for investment in the federal affordable housing program, $110,000,000 in Senior Notes and $64,400,000 of long-term notes used to purchase the equity interest in Campofrio. The leverage ratio indicates that significant borrowing capacity remains to take advantage of any business opportunities that may arise through acquisition or internal expansion. During the first quarter of fiscal 1997, 500,000 shares of Hormel Common Stock were purchased and retired under the share repurchase program approved in 1996. FORM 10-Q PART II - OTHER INFORMATION Item 4. Results of Votes of Security Holders. At the Annual Meeting of Shareholders on January 28, 1997 the proposal to amend the Hormel Foods Corporation 1991 Key Employee Stock Option and Award Plan was approved. For: 62,483,525 Against: 1,267,241 Abstain: 614,224 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: s/s D. J. HODAPP Executive Vice President & Chief Financial Officer Date: By: s/s M. J. McCOY Treasurer c:\wp\doc\10q\97-1.doc 12 12