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 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 April 26, 1997 Common Stock - $.1172 par value 76,481,146 Common Stock Non-Voting - $.01 par value - 0 - Pages: This report contains eleven pages numbered sequentially from this cover page.
Form 10-Q STATEMENTS OF FINANCIAL POSITION HORMEL FOODS CORPORATION (In Thousands of Dollars) <TABLE> <CAPTION> April 26, October 26, 1997 1996 (Unaudited) ASSETS <S> <C> <C> CURRENT ASSETS $ 105,542 $ 188,473 Cash and cash equivalents Short-term marketable securities-- at cost which approximates market 33,442 14,642 Accounts receivable 198,068 230,869 Inventories 275,321 271,097 Deferred income taxes 11,897 11,615 Prepaid expenses 6,287 6,563 TOTAL CURRENT ASSETS 630,557 723,259 DEFERRED INCOME TAXES 67,374 68,686 INTANGIBLES 136,302 124,193 INVESTMENTS AND OTHER ASSETS 153,954 98,514 PROPERTY, PLANT AND EQUIPMENT Land 11,747 8,517 Buildings 228,301 210,450 Equipment 555,589 538,562 Construction in Progress 66,572 71,085 862,209 828,614 Less allowance for depreciation (413,324) (407,128) 448,885 421,486 $ 1,437,072 $ 1,436,138 </TABLE> See notes to financial statements
Form 10-Q STATEMENTS OF FINANCIAL POSITION HORMEL FOODS CORPORATION (In Thousands of Dollars) April 26, October 26, 1997 1996 LIABILITIES AND SHAREHOLDERS' (Unaudited) INVESTMENT <TABLE> <CAPTION> CURRENT LIABILITIES <S> <C> <C> Accounts payable $ 92,925 $ 121,004 Accrued expenses 35,854 42,190 Accrued marketing 5,772 22,768 Employee compensation 35,507 41,493 Taxes, other than federal income taxes 14,982 14,991 Dividends payable 12,090 11,611 Federal income tax 1,368 9,804 Current maturities of long-term debt 2,645 2,548 TOTAL CURRENT LIABILITIES 201,143 266,409 LONG-TERM DEBT--less current maturities 189,575 127,003 ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION 241,382 239,616 OTHER LONG-TERM LIABILITIES 23,450 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 shares; Issued 77,534,398 10/26/96 Issued 76,481,146 4/26/97 8,964 9,087 Additional paid-in capital 5,204 32,214 Shares held in treasury 0 (535) 14,168 40,766 Earnings reinvested in business 767,354 744,785 781,522 _785,551 $ 1,437,072 $ 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) Three Months Ended Six Months Ended April 26, April 27, April 26, April 27, 1997 1996 1997 1996 <TABLE> <CAPTION> Sales, less returns and <S> <C> <C> <C> <C> allowances $798,455 $746,658 $1,608,764 $1,471,039 Cost of products sold 608,841 568,198 $1,235,641 $1,115,143 GROSS PROFIT 189,614 178,460 373,123 355,896 Expenses: Selling and delivery 130,101 125,628 262,473 253,134 Administrative and general 18,207 17,230 36,212 39,980 OPERATING INCOME 41,306 35,602 74,438 62,782 Other income and expenses: Other Income--net 2,874 2,700 5,848 8,995 Interest expense (3,342) (432) (6,400) (840) EARNINGS BEFORE INCOME TAXES 40,838 37,870 73,886 70,937 Provision for income taxes 15,150 13,350 27,216 25,751 NET EARNINGS $ 25,688 $ 24,520 $ 46,670 $ 45,186 Earnings per share: NET EARNINGS PER SHARE $0.33 $0.32 $0.61 $0.59 </TABLE> See notes to financial statements
Form 10-Q CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) HORMEL FOODS CORPORATION (In Thousands of Dollars) <TABLE> <CAPTION> Six Six Months Ended Months Ended April 26, April 27, 1997 1996 OPERATING ACTIVITIES <S> <C> <C> Net earnings $ 46,670 $ 45,186 Adjustments to reconcile to net cash provided by operating activities: Depreciation 21,261 18,078 Amoritization of intangibles 3,959 2,067 Provision for deferred income taxes 1,030 (726) (Gain) loss on property/equipment sales and idle facility (446) (3,599) Changes in operating assets and liabilities: Decrease(increase)in accounts receivable 2,801 41,323 (Increase)decrease in inventories and prepaid expenses (3,948) (32,382) Increase(decrease) in accounts payable and accrued expenses (58,185) (17,985) NET CASH PROVIDED BY OPERATING ACTIVITIES 43,142 51,962 INVESTING ACTIVITIES Sale of marketable securities 26,300 1,016 Purchase of marketable securities (45,100) 0 Acquisitions of businesses (140) 0 Purchases of property/equipment (52,022) (56,431) Proceeds from sales of prop./equip. 3,807 4,825 (Increase)decrease in investments and other assets (71,368) (8,084) NET CASH USED IN INVESTING ACTIVITIES (138,523) (58,674) FINANCING ACTIVITIES Proceeds from long-term borrowings 64,337 0 Principal payments on long-term debt (1,668) (1,323) Dividends paid on Common Stock (23,612) (22,634) Stock Repurchase (26,759) 0 Other 152 (5,496) NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 12,450 (29,453) (DECREASE)INCREASE IN CASH AND CASH EQUIVALENTS (82,931) (36,165) Cash and cash equivalents at beginning of year 188,473 189,539 CASH AND CASH EQUIVALENTS AT END OF YEAR $105,542 $153,374 </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 and six month periods ended April 26, 1997, and April 27, 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 Net earnings in the second quarter increased $1,168,000 to $25,688,000 from $24,520,000 during the same quarter of 1996. Sales for the quarter increased 6.9 percent to $798,455,000 from $746,658,000 last year. Sales tonnage for the period increased .66 percent compared to the same quarter of 1996. During the second quarter continued high pork prices limited the Company's ability to obtain customary margins in its pork operations. Slaughter levels for the quarter and first half continued the trend from the first quarter with industry slaughter being 5.8 percent less than the first six months of 1996. Lower slaughter levels which produce corresponding reductions in fresh pork sales for the Company are expected to continue through the third quarter. While corn prices have stabilized, soybean meal prices are higher than a year ago continuing the pressure on turkey margins at Jennie-O. Growth in the tonnage volume of branded consumer packaged products mitigated the impact of the margin pressures felt on the commodity type pork and turkey products. Sales and earnings for the first half of 1997 were $1,608,764,000 and $46,670,000 compared to $1,471,039,000 and $45,186,00, respectively, last year. Tonnage volume increased .6 percent for the half compared to the same period in 1996. Gross margins for the quarter and first six months as a percentage of sales was 23.7 and 23.2 percent compared to 23.9 and 24.2 percent for the corresponding periods of 1996. The effect of the continuing high price levels of live pork and soymeal on the Company's gross margin was partially offset by growth in higher margin manufactured consumer branded products which are not as sensitive to fresh pork and turkey market fluctuations. Marketing expenses for the quarter and first half were $52,129,000 and $108,666,000, respectively, compared to $51,307,000 and $105,991,000 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 six months compared to 16.9 and 17.2 percent for the same periods last year as a result of increased sales volume. Administrative and general expenses for the second quarter of 1997 were comparable with last year at 2.3 percent of sales. For the half year, administrative and general expenses decreased to 2.3 percent from 2.7 percent in 1996.
FORM 10-Q MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS HORMEL FOODS CORPORATION RESULTS OF OPERATIONS The Company's core Hormel 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 Food acquisition. The canned chili business for both Hormel and Stagg brands experienced growth in sales tonnage, market share and in the overall category during the first six months. The Meat Products and Foodservice groups also experienced significant gains for the quarter and year to date in sales of branded products helping to mitigate the effect of the high pork raw material prices. Jennie-O sales and tonnage volume for the first half both increased more than 20 percent over the same period in 1996. High feed costs continued to squeeze historical margins. The high feed costs are expected to continue until the size of the 1997 corn and soybean crops can be predicted with more certainty. Jennie-O has introduced new marinated turkey breast tenders which have been accepted very well in the marketplace. Hormel Foods International tonnage volume for the first six months of 1997 increased substantially over last year. Major export growth areas included fresh pork and Jennie-O turkey products. The introduction of Stagg canned chili in Canada continues with excellent consumer demand. The construction projects of the joint ventures in China continue on schedule. The venture in Shanghai will begin production and sale of their Hormel product line in the third quarter while the Beijing 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. Interest expense for the quarter and first half was $3,342,000 and $6,400,000 compared to $432,000 and $840,000 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 first half was 37.1 and 36.8 percent compared to 35.3 and 36.3 for the same periods last year. The increase was a result of reductions in deductible permanent differences between tax and financial income primarily related to tax exempt interest and dividend received deduction.
FORM 10-Q MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS HORMEL FOODS CORPORATION RESULTS OF OPERATIONS FINANCIAL CONDITION Ratio comparisons presented below as of the end of the second quarter relfect the continued strong financial condition of the Company.: End of Quarter 2nd Quarter 2nd Quarter 1997 1996 <TABLE> <CAPTION> Liquidity Ratios <S> <C> <C> Current ratio 3.1 3.0 Receivables turnover 15.0 14.0 Days sales in receivables 22.5 days 23.6 days Inventory turnover 9.1 9.8 Days sales in inventory 40.7 days 39.7 days Leverage Ratio Long-term debt to equity 24.6% 2.4% Operating Ratios Pre-tax profit to net worth 18.9% 19.2% Pre-tax profit to total assets 10.3% 11.6% </TABLE> 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 quarters. During the first half the Company paid $26,759,000 to purchase and retire 1,035,600 shares under a repurchase plan announced March 25, 1996. Since inception, 2,035,600 shares have been purchased under the plan. During the first half, the Company invested $52,022,000 in new plant and equipment. The Company is building a new manufacturing plant and distribution center at Osceola, Iowa. The distribution center became fully operational in the first quarter and the manufacturing plant will be staffing for full operations during the third quarter. 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 The Company continues to keep excess funds invested short term as it continues to examine 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, 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.
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: 6/10/97 By: s/s D. J. HODAPP Executive Vice President & Chief Financial Officer Date: 6/10/97 By: s/s M. J. McCOY Vice President and Treasurer c:\wp\doc\10q\new.doc 11 11