SECURITIES AND EXCHANGE COMMISSION
----------------------------------
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended January 30, 1999 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
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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 30, 1999
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Common Stock $.1172 par value 73,431,446
Common Stock Non-Voting $.01 par value -0-
Pages: This report contains eleven pages numbered sequentially from this cover
page.
Page 1
FORM 10-Q
STATEMENTS OF FINANCIAL POSITION
(In Thousands of Dollars)
HORMEL FOODS CORPORATION
January 30, October 31,
1999 1998
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(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents .................. $ 213,042 $ 203,934
Short-term marketable securities--
at cost which approximates market ........ 43,822 34,098
Accounts receivable ........................ 209,136 222,919
Inventories ................................ 245,570 239,548
Deferred income taxes ...................... 9,049 8,894
Prepaid expenses ........................... 24,417 7,972
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TOTAL CURRENT ASSETS ................... 745,036 717,365
DEFERRED INCOME TAXES ........................ 65,873 65,606
INTANGIBLES .................................. 103,507 105,244
INVESTMENTS IN AFFILIATES .................... 138,442 111,364
OTHER ASSETS ................................. 74,938 69,406
PROPERTY, PLANT AND EQUIPMENT
Land ....................................... 13,079 13,080
Buildings .................................. 275,808 275,445
Equipment .................................. 621,489 616,109
Construction in progress ................... 37,561 33,947
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947,937 938,581
Less allowance for depreciation ............ (464,521) (451,674)
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483,416 486,907
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$ 1,611,212 $ 1,555,892
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See notes to financial statements
Page 2
FORM 10-Q
STATEMENTS OF FINANCIAL POSITION
(In Thousands of Dollars)
HORMEL FOODS CORPORATION
January 30, October 31,
1999 1998
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LIABILITIES AND SHAREHOLDERS' INVESTMENT (Unaudited)
CURRENT LIABILITIES
Accounts payable ............................... $ 107,424 $ 119,836
Accrued expenses ............................... 35,107 33,699
Accrued marketing .............................. 33,793 26,140
Employee compensation .......................... 41,892 54,314
Taxes, other than federal income taxes ......... 14,259 14,599
Dividends payable .............................. 12,135 11,774
Federal income tax ............................. 21,308 1,172
Current maturities of long-term debt ........... 12,359 6,117
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TOTAL CURRENT LIABILITIES .................. 278,277 267,651
LONG-TERM DEBT--less current maturities .......... 221,219 204,874
ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION .... 248,330 248,201
OTHER LONG-TERM LIABILITIES ...................... 21,684 21,851
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 $.1172 a share--
authorized 200,000,000 shares;
issued 73,431,446 shares Jan. 30, 1999
issued 73,614,546 shares Oct. 31, 1998 ......... 8,606 8,628
Accumulated other comprehensive income ......... (3,880) (3,910)
Retained earnings .............................. 836,976 812,156
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841,702 816,874
Shares held in treasury ........................ (3,559)
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TOTAL SHAREHOLDERS' INVESTMENT ............. 841,702 813,315
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$ 1,611,212 $ 1,555,892
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See notes to financial statements
Page 3
FORM 10-Q
STATEMENTS OF EARNINGS
(In Thousands, Except Per Share Amounts)
HORMEL FOODS CORPORATION
Three Three
Months Ended Months Ended
January 30, January 24,
1999 1998
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(Unaudited)
Sales, less returns and allowances $ 799,005 $ 814,914
Cost of products sold 557,240 605,196
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GROSS PROFIT 241,765 209,718
Expenses:
Selling and delivery 86,799 77,155
Marketing 78,014 67,063
Administrative and general 18,535 19,343
Gain on plant sale (28,379)
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OPERATING INCOME 58,417 74,536
Other income and expenses:
Other income--net 5,474 2,753
Equity in earnings of affiliates 4,760 1,200
Interest expense (2,933) (3,182)
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EARNINGS BEFORE INCOME TAXES 65,718 75,307
Provision for income taxes 23,338 28,458
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NET EARNINGS $ 42,380 $ 46,849
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NET EARNINGS PER SHARE (BASIC) $ 0.58 $ 0.62
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NET EARNINGS PER SHARE (DILUTED) $ 0.57 $ 0.61
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See notes to financial statements
Page 4
FORM 10-Q
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
HORMEL FOODS CORPORATION
Three Three
Months Ended Months Ended
January 30, January 24,
1999 1998
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(Unaudited)
OPERATING ACTIVITIES
Net earnings .................................. $ 42,380 $ 46,849
Adjustments to reconcile to net
cash provided by operating activities
Depreciation ................................ 14,997 12,332
Amortization of intangibles ................. 1,737 1,780
Equity in earnings of affiliates ............ (4,760) (1,200)
Provision for deferred income taxes ......... (422) (49)
(Gain) loss on property/equipment sales ..... 275 88
(Gain) on plant sale ........................ (17,592)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable .. 13,783 (37,479)
(Increase) decrease in inventories
and prepaid expenses ....................... (22,467) 10,313
Increase (decrease) in accounts payable and
accrued expenses ........................... 3,985 3,083
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NET CASH PROVIDED BY OPERATING ACTIVITIES ....... 49,508 18,125
INVESTING ACTIVITIES
Sale of held-to-maturity securities .......... 11,720 5,662
Purchase of held-to-maturity securities ...... (21,444) (20,845)
Purchases of property/equipment .............. (12,062) (12,353)
Proceeds from sales of property/equipment .... 281 38,828
(Increase) in investments, equity in
affiliates, and other assets ................ (27,850) (6,266)
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NET CASH USED IN INVESTING ACTIVITIES ........... (49,355) 5,026
FINANCING ACTIVITIES
Proceeds from long-term borrowings ........... 22,616 11,647
Principal payments on long-term debt ......... (29) (292)
Dividends paid on Common Stock ............... (11,756) (11,753)
Stock Repurchase ............................. (2,046) (5,157)
Other ........................................ 170 212
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 8,955 (5,343)
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INCREASE IN CASH AND CASH EQUIVALENTS ........... 9,108 17,808
Cash and cash equivalents
at beginning of year ........................ 203,934 146,853
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CASH AND CASH EQUIVALENTS
AT THE END OF QUARTER . ....................... $ 213,042 $ 164,661
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See notes to financial statements
Page 5
FORM 10-Q
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
HORMEL FOODS CORPORATION
NOTE A
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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 1998 Hormel Foods Corporation Annual
Report to Shareholders, which is incorporated by reference on Form 10-K.
NOTE B
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The results of operations for the three month period ended January 30, 1999, and
January 24, 1998 are not necessarily indicative of the results to be expected
for the full year.
NOTE C
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Beginning in 1999, the Company is required to report comprehensive income as
defined by Statement of Financial Accounting Standards No. 130 ("SFAS 130"),
"Reporting Comprehensive Income". SFAS 130 requires minimum pension liability
adjustments and foreign currency translation adjustments, which prior to
adoption were reported separately in common stockholders' equity, to be included
in "Other Comprehensive Income". Comprehensive income (net income plus other
comprehensive income) was $42,350 and $46,849 for the three month period ended
January 30, 1999, and January 24, 1998, respectively.
Page 6
FORM 10-Q
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In Thousands except share amounts)
HORMEL FOODS CORPORATION
RESULTS OF OPERATIONS
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Earnings for the first quarter of Fiscal 1999 were $42,380 compared to $46,849
in 1998. The 1999 results include a gain, net of taxes, of $3,808 on the sale of
land by Campofrio Alimentacion, S.A., a Spanish food company in which Hormel has
a 21.4 percent ownership interest. The 1998 results include a gain, net of
taxes, of $17,402 on the sale of the Davenport gelatin plant and business to
Goodman Fielder Limited, of Sydney, Australia.
Excluding the one time gains, sales and earnings for the first quarter of 1999
were $799,005 and $38,572, respectively, compared to $814,914 and $29,447 for
the same period last year. Tonnage volume for the quarter increased 8.7 percent
over 1998 to 744,746 pounds.
The increase in earnings and tonnage volume, while sales dollars declined, was a
result of lower pork prices and aggressive promotional programs. The Company
also benefited from pork producers bringing to market a record supply of live
hogs allowing Company facilities to be operated at optimum capacity.
While benefiting from lower prices for live hogs, the Company continued to pay
higher prices for hogs purchased under procurement contracts compared to the
lower prices paid on the quoted spot market. Procurement contracts are used by
the Company to protect the quality and availability of its pork raw material
needs. The Company expects to show improved margins under the procurement
contracts when live pork prices on the spot market rise above the cost of
production. Pressure on margins resulting from the procurement contracts was
mitigated by promotional programs that increased the 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 increased 13.9 percent during the quarter compared to last
year. The volume increases were across all key Grocery Products categories and
all geographic areas.
During the first quarter, the Meat Products Group continued the favorable trend
of increased branded product sales which began in 1997. Volume increases of
Always Tender(R) pork and flavored fresh pork along with continued success with
microwave bacon products has led to the improved results for the group. A new
fully-cooked shelf stable, consumer branded sliced bacon is doing extremely well
in test markets and is expected to be in national distribution this year.
Tonnage volume in the Foodservice Group continued to grow in the first quarter
with branded tonnage up 10.7 percent over 1998. Foodservice growth was across
all major product categories.
Page 7
FORM 10-Q
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
HORMEL FOODS CORPORATION
RESULTS OF OPERATIONS
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Turkey volume for Jennie-O in the first quarter decreased 4.3 percent compared
to last year. Reduced volume through turkey hatcheries during the quarter will
result in a small production decrease for the year. Jennie-O's promotional
programs will recognize the 50th anniversary of Jennie-O during 1999.
International volume rebounded from an off year in 1998 with a 54 percent
increase in the first quarter of 1999. Volume increases were in both fresh and
frozen pork and in consumer-branded products. Excluding the land sale,
Campofrio's operating results continued slightly ahead of plan for the first
quarter.
Selling and delivery expenses for the quarter were 10.9 percent of sales
compared to 9.5 percent in 1998. The change reflects the increased tonnage
volume at lower price levels in 1999.
Marketing expenses for the quarter were $78,014 or 14.0 percent of sales
compared to $67,063 or 11.1 percent of sales last year. The Company continues to
emphasize both its well established products along with newer ethnic products in
its promotional programs.
Administrative and general expenses declined slightly for the quarter to $18,535
from $19,343 in 1998 due to a decrease in pension charges.
The effective tax rate for the first quarter of 1999 was 35.5 percent compared
to 37.8 percent last year. The decrease reflects a return to more normal levels
of deductible permanent differences between tax and financial income.
Page 8
FORM 10-Q
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
HORMEL FOODS CORPORATION
FINANCIAL CONDITION
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Ratio comparisons for the first quarter of 1999 and 1998, which demonstrate the
Company's financial strength, are as follows:
End of Quarter
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1st Quarter 1st Quarter
1999 1998
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Liquidity Ratios
Current ratio 2.7 2.9
Receivables turnover 14.8 *12.9
Days sales in receivables 23.9 days *30.4 days
Inventory turnover 9.2 9.3
Days sales in inventory 40.2 days 38.6 days
Leverage Ratio
Long-term debt to equity 27.8% 25.8%
Operating Ratios
Pre-tax profit to net worth ***31.8% **36.9%
Pre-tax profit to total assets ***16.6% **19.4%
* Includes $71,400 in receivables from sale of Davenport plant.
** Includes $17,402 in pre-tax profit from sale of Davenport plant.
*** Includes $3,808 in pre-tax profit from sale of land by Campofrio.
Changes during the first quarter in current asset and liability balances
followed normal seasonal patterns. The Company continues to keep excess funds
invested short-term as it examines business opportunities that meet its
long-term operating goals. Accounts receivable and inventory balances are
consistent with the lower price levels for pork and the increased sales volume.
During the quarter, the Company invested $12,062 in new plant and equipment.
Investment in plant and equipment continues to emphasize productivity gains and
efficient product flow while improving ergonomics and safety conditions for
employees.
During the quarter, the Company made an equity investment of $22,000 in a joint
venture, Pure Foods-Hormel Company, in the Philippines.
Long-term debt increased in the quarter as an outgrowth of the investmentin Pure
Foods-Hormel. The leverage ratio indicates that significant borrowing capacity
remains to take advantage of business opportunities that may arise through
acquisition or internal expansion.
During the first quarter of fiscal 1999, 183,100 shares were retired under the
share repurchase program at an average price per share of $29.79.
Page 9
FORM 10-Q
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
HORMEL FOODS CORPORATION
YEAR 2000
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Internally developed software has been developed for many years to eliminate the
need for revision in the year 2000. Less than 5.0 percent of this category of
software remains to be updated and will be completed by January 1, 2000.
The Company continues to review the impact of Year 2000 on outside developed
software that runs on Company computers or is contained within processing
equipment. Changes required to correct potential problems identified in this
review are 80.0 percent complete. All necessary changes will be completed by
January 1, 2000.
The Company has queried its significant suppliers and customers regarding their
exposure to Year 2000 problems. The Company is not aware of any outside supplier
or customer with a Year 2000 issue. However, the Company has no means of
ensuring that outside suppliers and customers will be Year 2000 ready.
The Company does not anticipate a delay in completing Year 2000 revisions by
January 1, 2000 and does not have a contingency plan for such a possibility.
Total historical and anticipated remaining costs to remediate Year 2000 problems
are not material.
Page 10
FORM 10-Q
PART II - OTHER INFORMATION
HORMEL FOODS CORPORATION
Item 4. Results of Votes of Security Holders.
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None.
Item 6. Exhibits and Reports on Form 8-K
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None
SIGNATURES
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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
/s/ D. J. HODAPP
Date: March 16, 1999 By: --------------------------------
------------------ D. J. HODAPP
Executive Vice President
& Chief Financial Officer
/s/ J. M. ETTINGER
Date: March 16, 1999 By: --------------------------------
-------------------- J. M. ETTINGER
Treasurer
Page 11