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 July 31, 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 July 31, 1999
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Common Stock $.1172 par value 72,457,612
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
July 31, October 31,
1999 1998
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(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents ............... $ 189,622 $ 203,934
Short-term marketable securities--
at cost which approximates market ...... 46,411 34,098
Accounts receivable ..................... 221,680 222,919
Inventories ............................. 262,182 239,548
Deferred income taxes ................... 7,360 8,894
Prepaid expenses ........................ 7,091 7,972
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TOTAL CURRENT ASSETS ................. 734,346 717,365
DEFERRED INCOME TAXES ..................... 63,158 65,606
INTANGIBLES ............................... 100,070 105,244
INVESTMENTS IN AFFILIATES ................. 132,457 111,364
OTHER ASSETS .............................. 85,228 69,406
PROPERTY, PLANT AND EQUIPMENT
Land .................................... 13,078 13,080
Buildings ............................... 279,587 275,445
Equipment ............................... 642,296 616,109
Construction in progress ................ 46,912 33,947
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981,873 938,581
Less allowance for depreciation ......... (485,992) (451,674)
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495,881 486,907
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$ 1,611,140 $ 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
July 31, October 31,
1999 1998
----------- -----------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES
Accounts payable ................................. $ 118,041 $ 119,836
Accrued expenses ................................. 40,894 33,699
Accrued marketing ................................ 29,117 26,140
Employee compensation ............................ 60,826 54,314
Taxes, other than federal income taxes ........... 10,441 14,599
Dividends payable ................................ 12,079 11,774
Federal income tax ............................... 4,687 1,172
Current maturities of long-term debt ............. 18,033 6,117
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TOTAL CURRENT LIABILITIES ...................... 294,118 267,651
LONG-TERM DEBT--less current maturities ............ 209,208 204,874
ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION ...... 248,330 248,201
OTHER LONG-TERM LIABILITIES ........................ 20,358 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 $.1172 a share--
authorized 200,000,000 shares;
issued 72,457,612 shares July 31, 1999
issued 73,614,546 shares Oct. 31, 1998 ......... 8,492 8,628
Accumulated other comprehensive income (loss) .... (6,328) (3,910)
Retained earnings ................................ 836,962 812,156
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839,126 816,874
Shares held in treasury .......................... 0 (3,559)
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TOTAL SHAREHOLDERS' INVESTMENT ................. 839,126 813,315
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$ 1,611,140 $ 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 Nine Months Ended
July 31, July 25, July 31, July 25,
1999 1998 1999 1998
--------- --------- ----------- -----------
Sales, less returns and allowances $ 816,818 $ 755,769 $ 2,406,918 $ 2,349,008
Cost of products sold ............ 595,813 561,144 1,717,125 1,744,149
--------- --------- ----------- -----------
GROSS PROFIT ........... 221,005 194,625 689,793 604,859
Expenses:
Selling and delivery ........... 86,599 72,676 260,870 226,022
Marketing ...................... 72,838 66,481 224,602 199,594
Administrative and general ..... 18,169 21,804 52,815 61,518
Gain on plant sale ............. 0 0 0 (28,379)
--------- --------- ----------- -----------
OPERATING INCOME ....... 43,399 33,664 151,506 146,104
Other income and expenses:
Other income--net .............. 4,616 3,499 14,370 10,784
Equity in earnings of affiliates 952 615 3,906 3,182
Interest expense ............... (3,606) (3,919) (10,222) (10,472)
--------- ---------- ----------- -----------
EARNINGS BEFORE INCOME TAXES ..... 45,361 33,859 159,560 149,598
Provision for income taxes ....... 15,811 12,865 55,796 55,459
--------- --------- ----------- -----------
NET EARNINGS ........... $ 29,550 $ 20,994 $ 103,764 $ 94,139
========= ========= =========== ===========
NET EARNINGS PER SHARE (BASIC) ... $ 0.41 $ 0.28 $ 1.42 $ 1.25
========= ========= =========== ===========
NET EARNINGS PER SHARE (DILUTED).. $ 0.40 $ 0.28 $ 1.41 $ 1.23
========= ========= =========== ===========
See notes to financial statements.
Page 4
FORM 10-Q
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In Thousands of Dollars)
HORMEL FOODS CORPORATION
Nine Months Ended
July 31, July 25,
1999 1998
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OPERATING ACTIVITIES
Net earnings ....................................... $ 103,764 $ 94,139
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation ................................... 42,943 37,896
Amortization of intangibles .................... 5,174 5,344
Equity in earnings of affiliates ............... (3,906) (3,182)
Provision (benefit) for deferred income taxes .. 2,274 (147)
(Gain) loss on property/equipment sales ........ 927 1,974
(Gain) loss on plant sale ...................... 0 (17,592)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable ..... 1,239 25,303
(Increase) decrease in inventories
and prepaid expenses ......................... (21,753) 7,820
Increase (decrease) in accounts payable
and accrued expenses ......................... 12,882 (13,584)
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NET CASH PROVIDED BY OPERATING ACTIVITIES ............ 143,544 137,971
INVESTING ACTIVITIES
Sale of held-to-maturity securities ............... 60,224 54,065
Purchase of held-to-maturity securities ........... (72,537) (83,056)
Purchases of property/equipment ................... (53,620) (43,788)
Proceeds from sales of property/equipment ......... 776 39,467
(Increase) in investments and other assets ........ (38,789) (10,678)
Dividends from affiliate .......................... 0 1,670
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NET CASH USED IN INVESTING ACTIVITIES ................ (103,946) (42,320)
FINANCING ACTIVITIES
Proceeds from long-term borrowings ................ 25,952 18,694
Principal payments on long-term debt .............. (4,745) (8,560)
Dividends paid on Common Stock .................... (35,871) (35,896)
Stock Repurchase .................................. (41,577) (76,518)
Other ............................................. 2,331 1,488
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES .. (53,910) (100,792)
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(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ..... (14,312) (5,141)
Cash and cash equivalents at beginning of year ....... 203,934 146,853
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CASH AND CASH EQUIVALENTS AT END OF QUARTER .......... $ 189,622 $ 141,712
========= =========
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 nine month periods ended July 31,
1999, and July 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 $27,265 and $101,346 for the quarter and nine months,
respectively, compared to $20,994 and $94,139 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 third quarter increased 40.8 percent to $29,550 from $20,994
during the same quarter of 1998. Sales for the quarter increased 8.1 percent to
$816,818 from $755,769 last year. Sales tonnage for the period increased 13.3
percent compared to the same period of 1998.
Net earnings for the first nine months of fiscal 1999 were $103,764 compared to
$94,139 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 nine months of
1999 were $2,406,918 and $99,956, respectively, compared to $2,349,008 and
$76,737 for the same period last year. Tonnage volume for the nine months
increased 9.4 percent.
The increase in earnings, tonnage volume, and sales dollars for both the quarter
and nine months were a result of aggressive promotional programs and a product
mix reflecting volume increases in higher margin, value-added branded tonnage.
The Company also benefited from a continuing large supply of live hogs allowing
Company facilities to be operated at optimum capacity.
The Company's core branded business continues to be the major contributor to
earnings. The Prepared Foods Group tonnage increased 5.2 percent for the quarter
and 5.7% for year-to-date. Sales to mass merchandisers and club stores remain
strong and have doubled in the past three years. Microwave items as a group are
up 8.0 percent for the year. KID'S KITCHEN microwaveable cups led the growth
with an increase of 30.0 percent to-date.
Meat Products tonnage increased 8.0 percent for both the quarter and nine
months. Branded processed meat products continued to grow at a rate of 5.0
percent. Fresh pork sales increased 11.0 percent. During the fourth quarter, the
Company will complete the reopening of the closed Houston facility to handle the
increased demand for microwave and fully cooked bacon products. This will allow
for expansion from regional to national distribution for these products.
The retail ham category continues to experience double-digit growth over 1998.
The growth should continue throughout the fourth quarter with the planned
advertising and promotional support during the upcoming major holiday season.
Tonnage volume for the Foodservice Group increased 15.0 percent for the quarter
and 13.0 percent for the nine months. Branded volume increased 12.0 percent for
the quarter led by increases of BREAD READY pre-sliced meats of 21.0 percent.
Page 7
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
- ---------------------
Export sales continued to grow across all regions and categories with volume
increases of 50.0 percent for the quarter and 37.0 percent for the nine months.
The SPAM brand continues to do very well in foreign markets with an increase in
the third quarter of 44.0 percent. SPAM has reached an all-time high market
share of 56.0 percent in the U.K. STAGG chili has also experienced a very
successful launch in the U.K. with all major chain accounts having authorized
some or all of the eight variety product line. China operations continue to show
improvement with branded hot dogs showing double-digit increases in both Beijing
and Shanghai.
Jennie-O Foods, Inc., a wholly owned subsidiary, is celebrating its 50th
anniversary this year. Jennie-O results exceeded 1998 for both the quarter and
nine months. The benefits of low feed grain prices and above average commodity
turkey prices experienced in the third quarter appear likely to continue through
the fourth quarter. The number of turkeys to be processed during the fourth
quarter should be similar to last year's levels. Jennie-O continues to focus on
improving its product mix in order to better serve its customers.
Selling and delivery expenses for the quarter and nine months were $86,599 and
$260,870 compared to $72,676 and $226,022 last year. Marketing expenses were
$72,838 for the quarter and $224,602 year-to-date compared to $66,481 and
$199,594 in 1998. The increases for the quarter and year-to-date are due
primarily to the increased sales volume over last year. The Company continues to
emphasize its well-established products including branded fresh pork as well as
its newer ethnic product lines in promotional programs targeted to increase
sales of higher margin items.
Administrative and general expenses decreased to $18,169 and $52,815 for the
quarter and nine months from $21,804 and $61,518 last year generally due to a
decrease in pension charges.
The effective tax rate for the quarter and nine months was 34.9 and 35.0 percent
compared to 38.0 and 37.1 percent for the same periods in 1998. The decrease in
rates reflect 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
(In Thousands except share amounts)
HORMEL FOODS CORPORATION
FINANCIAL CONDITION
- -------------------
Ratio comparisons for the third quarter of 1999 and 1998, which demonstrate the
Company's financial strength, are as follows:
End of Quarter
------------------------------
3rd Quarter 3rd Quarter
1999 1998
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Liquidity Ratios
Current ratio 2.5 2.7
Receivables turnover 14.4 *14.2
Days sales in receivables 25.2 days *24.3 days
Inventory turnover 9.1 8.9
Days sales in inventory 41.8 days 40.6 days
Leverage Ratio
Long-term debt to equity 27.1% 27.1%
Operating Ratios
Pre-tax profit to net worth ***25.7% **25.1%
Pre-tax profit to total assets ***13.4% **13.1%
* 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 nine months in current asset and liability balances
followed normal seasonal patterns. The Company continues to keep surplus cash
invested short-term as it examines business opportunities that meet its
long-term operating goals. Inventory levels are considered adequate for the
traditional promotional activities that occur during the fourth quarter. To-date
in 1999 the Company has invested $53,260 in new plant and equipment. Investment
in plant and equipment continues to focus on the development of better and more
convenient products for our customers as well as enhancing productivity gains
and efficient product flow. The Company through a subsidiary, Park Ten Foods,
LTD., will be re-opening a production facility in Houston, Texas, during the
fourth quarter of 1999.
During the first quarter 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 nine 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 third quarter, 489,900 shares of common stock were repurchased under
the share repurchase program bringing the total since the inception of the
second share repurchase program to 1,265,400 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.
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 over 95 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: September 14, 1999 By: --------------------------------
------------------ D. J. HODAPP
Executive Vice President
& Chief Financial Officer
/s/ J. M. ETTINGER
Date: September 14, 1999 By: --------------------------------
------------------ J. M. ETTINGER
Treasurer
Page 11