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 May 1, 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 May 1, 1999
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Common Stock $.1172 par value 72,869,133
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
May 1, October 31,
1999 1998
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(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 193,273 $ 203,934
Short-term marketable securities--
at cost which approximates market 49,033 34,098
Accounts receivable 199,516 222,919
Inventories 257,589 239,548
Deferred income taxes 9,063 8,894
Prepaid expenses 15,335 7,972
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TOTAL CURRENT ASSETS 723,809 717,365
DEFERRED INCOME TAXES 63,392 65,606
INTANGIBLES 101,781 105,244
INVESTMENTS IN AFFILIATES 138,443 111,364
OTHER ASSETS 74,856 69,406
PROPERTY, PLANT AND EQUIPMENT
Land 13,078 13,080
Buildings 279,192 275,445
Equipment 635,593 616,109
Construction in progress 33,176 33,947
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961,039 938,581
Less allowance for depreciation (475,112) (451,674)
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485,927 486,907
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$ 1,588,208 $ 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
May 1, October 31,
1999 1998
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(Unaudited)
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES
Accounts payable ................................. $ 102,890 $ 119,836
Accrued expenses ................................. 33,774 33,699
Accrued marketing ................................ 20,764 26,140
Employee compensation ............................ 50,603 54,314
Taxes, other than federal income taxes ........... 10,540 14,599
Dividends payable ................................ 12,142 11,774
Federal income tax ............................... 13,459 1,172
Current maturities of long-term debt ............. 13,711 6,117
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TOTAL CURRENT LIABILITIES .................. 257,883 267,651
LONG-TERM DEBT--less current maturities ............ 218,839 204,874
ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION ...... 248,330 248,201
OTHER LONG-TERM LIABILITIES ........................ 21,762 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 $.1172 a share---
authorized 200,000,000 shares;
issued 72,869,133 shares May 1, 1999
issued 73,614,546 shares Oct. 31, 1998 ........ 8,540 8,628
Accumulated other comprehensive income (loss)..... (4,043) (3,910)
Retained earnings ................................ 836,897 812,156
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841,394 816,874
Shares held in treasury .......................... 0 (3,559)
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TOTAL SHAREHOLDERS' INVESTMENT ............. 841,394 813,315
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$ 1,588,208 $ 1,555,892
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See notes to financial statements
Page 3
FORM 10-Q
STATEMENTS OF EARNINGS (Unaudited)
(In Thousands, Except Per Share Amounts)
HORMEL FOODS CORPORATION
Three Months Ended Six Months Ended
May 1, April 25, May 1, April 25,
1999 1998 1999 1998
--------- --------- ----------- -----------
Sales, less returns and allowances $ 791,095 $ 778,325 $ 1,590,100 $ 1,593,239
Cost of products sold ............ 564,072 577,809 1,121,312 1,183,005
--------- --------- ----------- -----------
GROSS PROFIT ............. 227,023 200,516 468,788
410,234
Expenses:
Selling and delivery ........... 87,472 76,191 174,271 153,346
Marketing ...................... 73,750 66,050 151,764 133,113
Administrative and general ..... 16,111 20,371 34,646 39,714
Gain on plant sale ............. 0 0 0 (28,379)
--------- --------- ----------- -----------
OPERATING INCOME ......... 49,690 37,904 108,107 112,440
Other income and expenses:
Other income--net .............. 4,280 4,532 9,754 7,285
Equity in earnings (loss) of
affiliates ................... (1,806) 1,367 2,954 2,567
Interest expense ............... (3,683) (3,371) (6,616) (6,553)
--------- --------- ----------- -----------
EARNINGS BEFORE INCOME TAXES ..... 48,481 40,432 114,199 115,739
Provision for income taxes ....... 16,647 14,136 39,985 42,594
--------- --------- ----------- -----------
NET EARNINGS
$ 31,834 $ 26,296 $ 74,214 $ 73,145
========= ========= =========== ===========
NET EARNINGS PER SHARE (BASIC) ... $ 0.43 $ 0.35 $ 1.01 $ 0.97
========= ========= =========== ===========
NET EARNINGS PER SHARE (DILUTED).. $ 0.43 $ 0.34 $ 1.00 $ 0.95
========= ========= =========== ===========
See notes to financial statements
Page 4
FORM 10-Q
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In Thousands of Dollars)
HORMEL FOODS CORPORATION
Six Months Ended
May 1, April 25,
1999 1998
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OPERATING ACTIVITIES
Net earnings ..................................... $ 74,214 $ 73,145
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation ................................. 28,753 24,725
Amortization of intangibles .................. 3,463 3,562
Equity in earnings of affiliates ............. (2,954) (2,567)
Provision for deferred income taxes .......... 2,005 (98)
(Gain) loss on property/equipment sales ...... 610 230
(Gain) on plant sale ......................... 0 (17,592)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable ... 23,403 43,349
(Increase) decrease in inventories
and prepaid expenses ........................ (25,404) 18,337
Increase (decrease) in accounts payable
and accrued expenses ........................ (17,690) (21,640)
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NET CASH PROVIDED BY OPERATING ACTIVITIES .......... 86,400 121,451
INVESTING ACTIVITIES
Sale of held-to-maturity securities ............. 34,409 7,680
Purchase of held-to-maturity securities ......... (49,344) (58,740)
Purchases of property/equipment ................. (28,915) (29,785)
Proceeds from sales of property/equipment ....... 532 39,063
(Increase) in investments and other assets ...... (29,959) (7,735)
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NET CASH USED IN INVESTING ACTIVITIES .............. (73,277) (49,517)
FINANCING ACTIVITIES
Proceeds from long-term borrowings .............. 24,620 15,038
Principal payments on long-term debt ............ (2,802) (4,715)
Dividends paid on Common Stock .................. (23,865) (23,884)
Stock Repurchase ................................ (22,559) (36,703)
Other ........................................... 822 1,477
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES. (23,784) (48,787)
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(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ... (10,661) 23,147
Cash and cash equivalents at beginning of year ..... 203,934 146,853
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CASH AND CASH EQUIVALENTS AT END OF QUARTER ........ $ 193,273 $ 170,000
========= =========
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 and six month periods ended May 1, 1999,
and April 25, 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 $74,081,000 and $31,671,000 for the quarter and six
months, respectively, compared to $73,145,000 and $26,296,000 for the same
periods in 1998.
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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Net earnings in the second quarter increased 21.1 percent to $31,834 from
$26,296 during the same quarter of 1998. Sales for the quarter increased 1.6
percent to $791,095 from $778,325 last year. Tonnage for the period increased
6.4 percent to 736,766 pounds compared to 1998.
Net earnings for the first six months of fiscal 1999 were $74,214 compared to
$73,145 last year. The 1999 results include a gain, net of taxes, of $3,808 on
the sale of land by Campofrio Alimentacion, S.A., a Spanish 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 half of 1999,
were $1,590,100 and $70,406, respectively, compared to $1,593,239 and $55,743
for the same period last year. Tonnage volume for the six months increased 7.6
percent over 1998 to 1,481,512 pounds.
The increase in earnings and tonnage volume, while sales dollars showed only a
modest increase for the quarter and a slight decrease for the first half, was a
result of lower pork prices and aggressive promotional programs. The Company
also benefited from 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 floor price level guaranteed by the
Company's hog procurement contracts with producers continued to result in prices
being paid which were higher than the quoted spot cash market through much of
the quarter and six months.
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 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 increased 6.0 percent
for the six months despite a 2.0 percent decrease during the quarter compared to
like periods of 1998. Part of the second quarter shortfall was a result of
certain retail programs that moved to the third quarter in 1999 from the second
quarter last year. In spite of this movement, in most cases, market shares
continue to trend stronger.
The Meat Products Group continued to expand its sales of higher margin branded
items with volume increases of 6.0 percent for the quarter and first half when
comparing 1999 periods to last year. Significant increases were experienced in
the ALWAYS TENDER pork lines, and the retail ham and breakfast meats categories.
During the second quarter, sales of consumer pack, fully-cooked sliced bacon
were limited by production capacity. Increased capacity will become available
later this year enabling sales expansion of this new product line.
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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The Foodservice Group experienced overall tonnage growth exceeding 13 percent
for the quarter compared to 1998. Volume on branded products increased 11.0
percent for the quarter with 14 of 15 categories showing gains over last year.
BREAD READY presliced meats, cooked beef and portion-controlled pork all had
volume growth exceeding 25 percent compared to last year.
Twin benefits of low feed grain prices, both corn and soy, and above average
commodity turkey prices continued through the second quarter and appear likely
to continue through the third and possibly fourth quarters. Jennie-O results
exceeded last year for both the quarter and six months. Continued improvement is
expected throughout the remainder of the year as turkey egg sets in hatcheries
and turkey poults placed from hatcheries approach 1998 volumes and U.S. turkey
freezer stocks are 30 percent below last year's levels.
International volume for the quarter and six months rebounded from an off year
in 1998 with increases exceeding 40 percent. All categories showed improvement
with STAGG chili sales up 112 percent reflecting the continued strength of the
product in Australia and Canada. Earnings from Purefoods-Hormel, a newly formed
joint venture in the Philippines, have exceeded the original plan and continue
to increase. China operations, while somewhat disrupted by recent political
issues, continue to grow.
Selling and delivery expenses for the quarter and six months were $87,472 and
$174,271 compared to $76,191 and $153,346 last year. Marketing expenses were
$73,750 for the quarter and $151,764 to-date compared to $66,050 and $133,113 in
1998. The increases for the quarter and to-date reflect the increased volume
over last year. The Company continues to emphasize its well-established products
as well as its newer ethnic product lines in promotional programs targeted to
increase sales of higher margin processed items.
Administrative and general expenses decreased to $16,111 and $34,646 for the
quarter and six months from $20,371 and $39,714 last year generally due to a
decrease in pension charges.
The effective tax rate for the quarter and first half was 34.3 and 35.0 percent
compared to 35.0 and 36.8 percent for the same periods in 1998. The decrease in
the rates reflects the effect of tax credits from the federal affordable housing
program and research and development operations, a decrease in state taxes, and
an increase in foreign earnings not taxable in the U. S.
Page 8
FORM 10-Q
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
HORMEL FOODS CORPORATION
FINANCIAL CONDITION
- -------------------
Ratio comparisons for the second quarter of 1999 and 1998, which demonstrate the
Company's financial strength, are as follows:
End of Quarter
------------------------------
2nd Quarter 2nd Quarter
1999 1998
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Liquidity Ratios
Current ratio 2.8 2.9
Receivables turnover 15.1 *15.0
Days sales in receivables 22.9 days *21.8 days
Inventory turnover 9.0 9.3
Days sales in inventory 41.9 days 37.4 days
Leverage Ratio
Long-term debt to equity 27.6% 26.1%
Operating Ratios
Pre-tax profit to net worth ***27.6% **18.1%
Pre-tax profit to total assets ***14.5% **9.6%
* Includes $71,400 in receivables from the sale of the Davenport plant.
** Includes $28,379 from the sale of the Davenport plant.
*** Includes $3,808 from the sale of land by Campofrio.
Changes during the first six months 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 balances are consistent with the
lower price levels for pork. Inventory levels are considered adequate for the
traditional promotional activities that occur during the third and fourth
quarters. To date in 1999 the Company has invested $28,915 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. The Company through a subsidiary, Park Ten Foods,
Ltd., will be re-opening a production facility in Houston, Texas, during the
second half of 1999.
During the first half of the year, the Company made an equity investment of
$22,000 in a joint venture, Purefoods-Hormel, in the Philippines. The increase
in long-term debt during the first six months of 1999 was primarily due to the
investment in the Philippines. 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 second quarter, 587,400 shares of common stock were repurchased under
the share repurchase program bringing the total since the inception of the
second second program to 775,500 shares.
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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For many years, the company's internally developed software has been designed in
ways that largely eliminate the need for major revisions for the Year 2000. As
of the end of the quarter, the review of major computer systems has been
completed, and any known required changes have been made. The company's
operating system software is also Year 2000 compliant. Additional system testing
is now being performed. Management does not anticipate any problems in this area
on January 1, 2000.
The company continues to review the impact of the Year 2000 on its software
purchased from third-party vendors. All systems have been evaluated, and needed
upgrades have been identified and either implemented or scheduled. Revisions are
currently at 90 percent complete, and will be finished before October 1, 1999.
The company has queried its significant customers and suppliers regarding their
exposure to potential Year 2000 problems. Based upon this investigation, the
Company is not aware of any supplier or customer with significant Year 2000
issues. However, the Company has no means of ensuring that customers and
suppliers will be Year 2000 ready.
The company does not anticipate any delays in completing Year 2000 revisions by
October 1, 1999. The company has a contingency plan in place to prevent problems
related to the Year 2000, and to deal with unforeseen problems which may arise.
The contingency plan includes:
Special operational schedules for plant operations at year end to ensure
smooth transition.
Provisions for manual methods of order fulfillment in the event of problems
with automated systems or external network providers.
Establishment of target year-end inventory levels for key products and
manufacturing supplies to help maintain a high level of order fulfillment
in the event that disruptions in the supply chain occur in places outside
the company's control.
Total historical and anticipated remaining costs to remedy 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: June 15, 1999 By: --------------------------------
------------------ D. J. HODAPP
Executive Vice President
& Chief Financial Officer
/s/ J. M. ETTINGER
Date: June 15, 1999 By: --------------------------------
-------------------- J. M. ETTINGER
Treasurer
Page 11