SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)OF THE SECURITIES EXCHANGE ACT OF 1934
HORMEL FOODS CORPORATION
1 Hormel PlaceAustin, Minnesota 55912-3680Telephone—(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 /x/ No / /
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date.
Pages: This report contains thirteen pages numbered sequentially from this cover page.
FORM 10-Q
STATEMENTS OF FINANCIAL POSITION (In Thousands of Dollars) HORMEL FOODS CORPORATION
See notes to financial statements
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STATEMENTS OF EARNINGS (In Thousands, Except Per Share Amounts) (Unaudited) HORMEL FOODS CORPORATION
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CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands of Dollars) (Unaudited) HORMEL FOODS CORPORATION
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NOTES TO FINANCIAL STATEMENTS (In Thousands, Except Per Share Amounts) (Unaudited) HORMEL FOODS CORPORATION
NOTE A Basis of Presentation
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 2000 Hormel Foods Corporation Annual Report to Shareholders, which is incorporated by reference on Form 10-K.
The results of operations for the three and six month periods ended April 28, 2001 and April 29, 2000 are not necessarily indicative of the results to be expected for the full year.
NOTE B Purchase of Jerome Foods, Inc. (d/b/a The Turkey Store Company)
On February 24, 2001, the Company purchased all of the issued and outstanding capital stock of Jerome Foods, Inc. (d/b/a The Turkey Store Company), a Wisconsin corporation headquartered in Barron, Wisconsin, through the merger of a wholly owned, special-purchase subsidiary of Hormel with and into Jerome Foods. The purchase price for the capital stock was $334.4 million in cash subject to adjustments for outstanding indebtedness and changes in working capital as of February 24, 2001.
Pro forma unaudited results of operations for the six months ended April 28, 2001 and April 29, 2000, assuming consummation of the purchase as of October 31, 1999 are as follows:
The allocation of purchase price reflected in the April 28, 2001 condensed consolidated statement of financial position is preliminary. An independent valuation of The Turkey Store Company's property, plant and equipment and intangible assets is being performed. The Company expects to receive the completed report during the third quarter of fiscal 2001.
NOTE C Comprehensive Income
Total comprehensive income was $40,301 and $76,500 for the three and six-month periods ended April 28, 2001 compared to $34,646 and $77,568 for the three and six-month periods ended April 29, 2000.
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NOTE D Earnings Per Share Data
The following table sets forth the denominator for the computation of basic and diluted earnings per share:
NOTE E Inventories
Principle components of inventories are:
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MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (In Thousands, Except Share Amounts) HORMEL FOODS CORPORATION
RESULTS OF OPERATIONS
Net earnings in the second quarter increased 7.3 percent to $38,894 from $36,254 during the same quarter of 2000. Sales for the quarter increased 15.9 percent to $1,018,406 compared to last year. Sales for the quarter were up even before the addition of the acquired volume from the Turkey Store acquisition completed during the quarter. Tonnage for the period increased 9.8 percent to 824,419 pounds compared to 2000. The record sales and earnings were achieved in spite of the expense related to a three-week labor strike in Rochelle, Illinois.
Net earnings for the first six months of fiscal 2001 were $80,426 compared to $80,102 last year. Sales for the half-year increased 10.3 percent to $1,965,899 from 2000. Tonnage volume increased 4.4 percent to 1,604,594 pounds from the same period last year.
The Company's core Hormel business continued to be the major contributor to earnings. Increases in sales dollars and tonnage volume were both driven by growth in branded, value added products which continued to outpace commodity product lines within the Company's overall portfolio. Pork processing levels declined slightly during the quarter with a slaughter of 1,958 hogs compared to 1,980 last year. The average live hog cost for the quarter was 2.3 percent higher than the same period in 2000. Hog contracts were profitable in the second quarter.
Refrigerated Foods, which includes the Meat Products and Food Service groups, was one of the top performers for the quarter despite a slowing economy and softening in discretionary spending. In the Meat Products Group, branded consumer products increased to 67 percent of total tonnage, which in total increased 6 percent over last year. An especially strong Easter season resulted in a 10 percent increase in CURE 81® ham volume over the previous year.
Other notable volume gains over the same period in 2000 were: bacon up 28 percent; deli dry sausage up 7 percent; and the flavored line of ALWAYS TENDER® fresh pork up 45 percent.
In the Food Service Group sales and margins were up only slightly over last year. Overall, branded tonnage rose 5 percent for the Group. Particularly successful products for the quarter included recently introduced AUSTIN BLUES BBQ® with a 75 percent increase in volume from the first quarter of 2001 and BREAD READY® sliced meats with a 33 percent increase in tonnage volume over 2000. Other products with significant volume gains included OLD SMOKEHOUSE® bacon, APPLEWOOD® smoked bacon and FAST 'N EASY® precooked breakfast meats.
Sales in the Grocery Products business unit increased 1 percent over the same period in 2000 while tonnage volume decreased by 3 percent. Despite the decrease in tonnage volume, the Company continues to maintain its leadership position in this category with increases in such brands as SPAM®, Hormel chili, DINTY MOORE® and STAGG® chili. Turkey SPAM®, which was introduced last year, is being well accepted by consumers and has achieved a national all-commodity volume, or ACV, distribution of 92 percent.
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The acquisition and integration of The Turkey Store by Jennie-O has gone well. The combined business gives the Company an 18.5 percent share of the U.S. turkey market. For the quarter, post-acquisition tonnage volume was up 36 percent with sales dollars up 50 percent. Jennie-O Turkey Store continues to expand its product line of convenience turkey products with the introduction of THANKSGIVING TONIGHT® premium boneless turkey breast in the retail market and JENNIE-O TWO BIB RIBZ® in its Prep Chef foodservice line.
The Diamond Crystal Brands Nutritional Products acquisition into Hormel Health Labs was the second acquisition completed during the quarter. This group is now positioned as number two in their market with favorable growth prospects given the aging population not only in the United States but overseas as well.
Hormel Foods International experienced a tonnage volume gain of 45 percent from the prior-year quarter. However, margins were dampened by international raw material costs and a strong dollar.
Selling and delivery expenses for the quarter and six months were $103,404 and $202,251 compared to $92,390 and $187,279 last year. Marketing expenses were $78,189 for the quarter and $161,883 to-date compared to $73,115 and $158,092 in 2000. The increases generally reflect the increased volume over last year. The Company continues to emphasize its well-established products as well as its newer product lines in promotional programs targeted to increase sales of higher margin processed items.
Administrative and general expenses increased to $19,546 and $38,425 for the quarter and six months from $18,595 and $35,089 last year primarily reflecting the acquisition of The Turkey Store.
The effective tax rate for the quarter and first half was 36.3 compared to 36.0 for the same periods in 2000. The increase reflects the changing proportion of permanent tax differences to total income.
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LIQUIDITY AND CAPITAL RESOURCES
Ratio comparisons for the second quarter of 2001 and 2000, which demonstrate the Company's financial position, are as follows:
Changes during the first six months in current assets and liability balances followed normal seasonal patterns. Accounts receivable and inventory balances are consistent with the price levels for pork and turkey and future sales volume.
During the first six months, the Company invested $40,046 in new plant and equipment primarily in Austin, Minnesota and at various Jennie-O locations in Minnesota. Investment in plant and equipment continues to emphasize productivity gains and efficient product flow while improving ergonomics and safety conditions for employees.
The Company is building a new distribution center in Dayton, Ohio under a synthetic lease agreement. The facility will be operated by Power Logistics, Inc. and is scheduled to begin operations in the third quarter.
As mentioned earlier, the Company completed the acquisition of the common stock of The Turkey Store on February 24, 2001 for a purchase price of $334,400 in cash subject to adjustments for outstanding indebtedness and changes in working capital, and the acquisition of the assets of Diamond Crystal Brand Nutritional Products on April 27, 2001 for approximately $65,000 in cash.
On October 31, 2000, the Company entered into an unsecured 364 day revolving credit facility in the amount of $425,000. The credit facility was used during the second quarter in acquiring The Turkey Store Company and Diamond Crystal Brand Nutritional Products. The Company issued $350,000 of
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65/8% Notes due 2011 on June 7, 2001. The proceeds will be used to repay a portion of the outstanding borrowings under the credit facility.
During the second quarter, the Company purchased 25,161 shares under the share repurchase program at a cost of $19.44 per share. To-date in fiscal 2001, 132,691 shares have been repurchased at a cost of $18.89 per share. Total shares repurchased under the currently approved plan are 9,174,261 shares at a cost of $18.42 per share.
FORWARD-LOOKING STATEMENTS
The Company and its representatives may from time to time make written or oral statements with respect to annual or long-term goals and expectations of the Company. These statements include but are not limited to the Company's filings with the Securities and Exchange Commission and in its reports to shareholders. The Company cautions readers not to place undue reliance on forward-looking statements, which represent current views as of the date made.
Exhibit 99 to the Annual Report on Form 10-K for year ended October 28, 2000 provides the full text of the Company's cautionary statement relevant to forward-looking statements and information for the purpose of "Safe Harbor" provisions of the Private Securities Litigation Reform Act of 1995.
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PART II—OTHER INFORMATION HORMEL FOODS CORPORATION
Item 4. Results of Votes of Security Holders.
Item 6. Exhibits and Reports on Form 8-K.
March 9, 2001—The Company filed a Form 8-K announcing completion of the acquisition of The Turkey Store Company on February 24, 2001.
March 13, 2001—The Company filed an Amendment to Form 8-K dated March 9, 2001 supplementing financial statements and providing pro-forma financial statements for the acquisition of The Turkey Store Company.
May 11, 2001—The Company filed a Form 8-K announcing completion of the acquisition of the assets of Diamond Crystal Brand Nutritional Foods on April 27, 2001.
May 30, 2001—The Company filed an Amendment to Form 8-K dated March 9, 2001 supplementing financial statements and pro-forma financial statements for the acquisition of The Turkey Store Company.
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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.
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