SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended January 24, 1998 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 [ X ] 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 24, 1998
Common Stock - $.1172 par value 75,618,111
Common Stock Non-Voting - $.01 par value - 0 -
Pages: This report contains twelve pages numbered sequentially from this cover
page.
Page 1 of 12
Form 10-Q
STATEMENTS OF FINANCIAL POSITION
HORMEL FOODS CORPORATION
(IN THOUSANDS OF DOLLARS)
January 24, October 25,
1998 1997
----------- -----------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents .................. $ 164,661 $ 146,853
Short-term marketable securities--
at cost which approximates market ........ 20,714 5,533
Accounts receivable ........................ 271,445 233,966
Inventories ................................ 256,175 265,346
Deferred income taxes ...................... 12,345 12,204
Prepaid expenses ........................... 6,308 7,450
----------- -----------
TOTAL CURRENT ASSETS ....... 731,648 671,352
DEFERRED INCOME TAXES ........................ 68,537 68,629
INTANGIBLES .................................. 129,780 131,710
INVESTMENTS IN AFFILIATES .................... 116,347 113,372
OTHER ASSETS ................................. 59,375 54,734
PROPERTY, PLANT AND EQUIPMENT
Land ....................................... 11,793 11,467
Buildings .................................. 237,116 242,124
Equipment .................................. 568,227 594,159
Construction in Progress ................... 72,054 72,179
----------- -----------
889,190 919,929
Less allowance for depreciation ............ (421,755) (431,191)
----------- -----------
467,435 488,738
$ 1,573,122 $ 1,528,535
=========== ===========
See notes to financial statements
Page 2 of 12
Form 10-Q
STATEMENTS OF FINANCIAL POSITION
HORMEL FOODS CORPORATION
(IN THOUSANDS OF DOLLARS)
January 24, October 25,
1998 1997
---------- ----------
LIABILITIES AND SHAREHOLDERS' (Unaudited)
INVESTMENT
CURRENT LIABILITIES
Accounts payable ............................... $ 105,752 $ 120,385
Accrued expenses ............................... 34,862 34,564
Accrued marketing .............................. 26,737 21,543
Employee compensation .......................... 37,533 46,275
Taxes, other than federal income taxes ......... 19,778 16,524
Dividends payable .............................. 12,526 11,980
Federal income tax ............................. 22,664 4,712
Current maturities of long-term debt ........... 7,607 4,595
---------- ----------
TOTAL CURRENT LIABILITIES ............ 267,459 260,578
LONG-TERM DEBT--less current maturities .......... 206,575 198,232
ACCUMULATED POSTRETIREMENT
BENEFIT OBLIGATION ............................. 243,343 243,343
OTHER LONG-TERM LIABILITIES ...................... 23,940 24,180
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:
Issued 75,618,111 shares 01/24/98
Issued 75,776,510 shares 10/25/97 .............. 8,862 8,881
Earnings reinvested in business ................. 822,943 793,321
---------- ----------
831,805 802,202
---------- ----------
$1,573,122 $1,528,535
========== ==========
See notes to financial statements
Page 3 of 12
Form 10-Q
STATEMENTS OF EARNINGS (UNAUDITED)
HORMEL FOODS CORPORATION
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
Three Three
Months Ended Months Ended
January 24, January 25,
1998 1997
--------- ---------
Sales, less returns and
allowances .................................... $ 814,914 $ 810,309
Cost of products sold .......................... 605,196 626,800
--------- ---------
GROSS PROFIT ................. 209,718 183,509
Expenses:
Selling and delivery ......................... 144,218 132,371
Administrative and general ................... 19,343 18,005
Gain on plant sale ........................... (28,379) --
--------- ---------
OPERATING INCOME ............. 74,536 33,133
Other income and expenses:
Other Income--net ............................ 2,753 2,973
Equity in earnings of affiliates ............. 1,200 --
Interest expense ............................. (3,182) (3,058)
--------- ---------
EARNINGS BEFORE INCOME TAXES ............. 75,307 33,048
Provision for income taxes ..................... 28,458 12,066
--------- ---------
NET EARNINGS ................. $ 46,849 $ 20,982
========= =========
Earnings per share:
NET EARNINGS PER SHARE (DILUTED) ......... $ 0.61 $ 0.27
========= =========
NET EARNINGS PER SHARE (BASIC) ........... $ 0.62 $ 0.27
========= =========
See notes to financial statements
Page 4 of 12
Form 10-Q
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
HORMEL FOODS CORPORATION
(IN THOUSANDS OF DOLLARS)
Three Three
Months Ended Months Ended
January 24, January 25,
1998 1997
--------- ---------
OPERATING ACTIVITIES
Net earnings ..................................... $ 46,849 $ 20,982
Adjustments to reconcile to
net cash provided by
operating activities:
Depreciation ................................... 12,332 10,549
Amortization of intangibles .................... 1,780 1,872
Equity in earnings of affiliates ............... (1,200) --
Provision for deferred income taxes ............ (49) 515
(Gain) loss on property/equipment
sales and idle facility ....................... 88 (22)
(Gain) on Plant sale ........................... (17,592)
Changes in operating assets and liabilities:
Decrease(increase)in accounts
receivable .................................... (37,479) 20,460
(Increase)decrease in inventories
and prepaid expenses .......................... 10,313 5,151
Increase(decrease) in accounts
payable and accrued expenses .................. 3,083 (31,142)
--------- ---------
NET CASH PROVIDED BY OPERATING
ACTIVITIES ....................................... 18,125 28,365
INVESTING ACTIVITIES
Sale of held-to-maturity securities .............. 5,662 --
Purchase of held-to-maturity securities .......... (20,845) (19,357)
Acquisitions of businesses ....................... -- (140)
Purchases of property/equipment .................. (12,353) (17,072)
Proceeds from sales of prop./equip ............... 38,828 2,989
(Increase)in investments
and other assets ................................ (6,266) (73,369)
--------- ---------
NET CASH USED IN INVESTING
ACTIVITIES ....................................... 5,026 (106,949)
FINANCING ACTIVITIES
Proceeds from long-term borrowings ............... 11,647 64,336
Principal payments
on long-term debt ............................... (292) (10)
Dividends paid on Common Stock ................... (11,753) (11,662)
Stock Repurchase ................................. (5,157) (13,035)
Other ............................................ 212 111
--------- ---------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES ............................. (5,343) 39,740
--------- ---------
Page 5 of 12
Form 10-Q
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
HORMEL FOODS CORPORATION
(IN THOUSANDS OF DOLLARS)
Three Three
Months Ended Months Ended
January 24, January 25,
1998 1997
--------- ---------
(DECREASE)INCREASE IN CASH AND
CASH EQUIVALENTS .......................... 17,808 (38,844)
Cash and cash equivalents at
beginning of year ......................... 146,853 188,473
--------- ---------
CASH AND CASH EQUIVALENTS
AT END OF YEAR ............................ $ 164,661 $ 149,629
========= =========
See notes to financial statements
Page 6 of 12
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 1997 Hormel Foods Corporation Annual
Report to Shareholders, which is incorporated by reference on Form 10-K.
NOTE B
The results of operations for the three month period ended January 24, 1998, and
January 25, 1997 are not necessarily indicative of the results to be expected
for the full year.
Page 7 of 12
FORM 10-Q
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(IN THOUSANDS)
HORMEL FOODS CORPORATION
RESULTS OF OPERATIONS
Earnings for the first quarter of Fiscal 1998 were $46,849 compared to $20,982
in 1997. The 1998 results include a gain, net of taxes, of $17,402 on the sale
of the Davenport gelatin plant to Goodman Fielder Ltd., of Sydney, Australia.
Excluding the one-time gain from the Davenport sale, sales and earnings for the
quarter were $814,914 and $29,447, respectively, compared to $810,309 and
$20,982 for the same periods last year. Tonnage volume for the quarter increased
5.8 percent over 1997 to 685,180 pounds.
The increase in earnings and tonnage volume, while sales dollars remained almost
flat, was a result of lower finished goods price levels and aggressive
promotional programs. While live prices for hogs declined dramatically during
the quarter, total value of the processed hogs decreased even more limiting the
Company's ability to recover adequate margins. Pressure on margins 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 during the first quarter was up 1 percent compared to last
year. Sales of HORMEL(R) chili, supported by substantial promotional activity,
increased 16 percent for the quarter over 1997. A new promotional campaign for
SPAM(R) luncheon meat with the theme "So Good It's Gone", is scheduled to run
from now through June in the heavier consumption areas.
In January, the Specialty Products Division of Prepared Foods completed the sale
of the Davenport plant mentioned previously. This will result in an annual
reduction of sales volume of approximately $40,000 and 15,000 pounds.
During the first quarter the Meat Products Group continued the favorable trend
of increased branded product sales which started in 1997. Sales volume of key
branded products as well as the mix of branded versus commodity items both
improved substantially. ALWAYS TENDER(R) marinated fresh pork experienced a
strong double-digit increase in volume and distribution with major retail
customers purchasing and featuring these products.
The retail ham category had record sales during the Christmas and New Years
holidays due to a favorable supply and price level of raw materials. The deli
products category also performed extremely well during the quarter with ham
products contributing the largest increase in sales volume.
Page 8 of 12
FORM 10-Q
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(IN THOUSANDS)
Consumer packaged pepperoni also continued to grow. A major promotional campaign
supports both original pepperoni and the new reduced fat turkey pepperoni. Early
indications are that sales and national distribution of both product categories
are benefiting from the program.
The strong sales momentum experienced by the Foodservice Group throughout 1997
accelerated in the first quarter of 1998. For the quarter total tonnage
increased in excess of 19 percent with branded tonnage up in excess of 17
percent. STAGG(R) chili tonnage for Foodservice distribution increased 22
percent compared to last year.
Jennie-O sales dollar and tonnage volume for the first quarter increased 18 and
29 percent, respectively, over the same period last year. In late October
Jennie-O acquired Heartland Foods Company to help meet growing demand. TURKEY
WORLD MAGAZINE projects that Jennie-O will become the largest turkey processor
in the US in 1998. Product margins have deteriorated since November as turkey
prices have decreased while corn and soy meal have stayed at levels higher than
expected. These conditions will impact Jennie-O's ability to meet its 1998
profit plan.
Export sales by Hormel Foods International Corporation were down 34 percent for
the first quarter compared to 1997. The sales decrease was a result of weak
currencies in relation to the US dollar in the Philippines, Australia and South
Korea. The joint ventures in both Shanghai and Beijing continue to expand
production and develop distribution. Promotional programs at both companies are
scheduled for the March-April period to assist this start-up phase of their
businesses.
STAGG(R) chili continues to do well in Canada and will be introduced in England,
Spain and Germany in the summer of 1998.
Marketing expenses increased 18.6 percent during the quarter to $67,063 from
$56,537 in 1997. The Company continues to emphasize both its well established
products along with newer ethnic products in its promotional programs.
Selling and delivery expenses which include promotional expenses, and
administrative and general expenses for the quarter increased to 17.7 and 2.4
percent of sales, respectively, from 16.3 and 2.2 percent in 1997. The increase
is the result of the generally flat dollar sales experienced in 1998 coupled
with the aggressive increase in promotional expenses.
The effective tax rate for the first quarter of 1998 was 37.8 percent compared
to 36.5 percent last year. This increase is due in part to non-deductible
goodwill resulting from the Stagg and Campofrio transactions and foreign taxes
resulting from various foreign license agreements.
Page 9 of 12
FORM 10-Q
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(IN THOUSANDS)
FINANCIAL CONDITION
Ratio comparisons for the first quarter of 1998 and 1997, which demonstrate the
Company's financial strength, are as follows:
END OF QUARTER
1ST QUARTER 1ST QUARTER
1998 1997
----------- -----------
LIQUIDITY RATIOS
Current ratio 2.7 2.9
Receivables turnover * 12.9 14.7
Days sales in receivables * 30.4 days 23.7 days
Inventory turnover 9.3 9.3
Days sales in inventory 38.6 days 38.8 days
LEVERAGE RATIO
Long-term debt to equity 25.8% 24.8%
OPERATING RATIOS
Pre-tax profit to net worth ** 36.9% 16.9%
Pre-tax profit to total assets ** 19.4% 9.1%
* Includes $71,400 in receivables from sale of Davenport plant.
** Includes $28,379 in pre-tax profit from sale of Davenport plant.
Changes during the first quarter in current asset and liability balances
followed normal seasonal patterns except for accounts receivable which included
$71,400 for the sale of the Davenport plant. The sale closed as of Saturday,
January 24, 1998 the end of the first quarter with the cash actually being
received on Monday, January 26, 1998.
During the first quarter, the Company invested $12,353 in new plant and
equipment. In November the leased dessert gelatin packaging plant in Aurora,
Illinois was purchased for $3,275. In addition investment in computer hardware
and software for ongoing initiatives to improve data processing services in the
accounting and distribution areas was approximately $4,000 for the quarter.
Investment in plant and equipment continues to emphasize productivity gains and
efficient product flow while improving ergonomics and safety conditions for
employees.
The Company continues to keep excess funds invested short-term as it examines
business opportunities that meet its long-term operating goals.
Long-term debt consists of small issue Industrial Revenue Bonds of varying
maturities used for investment in the Federal Affordable Housing Program,
Page 10 of 12
FORM 10-Q
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(IN THOUSANDS)
$110,000 in Senior Notes and $64,400 of long-term notes denominated in Spanish
Pesetas used to purchase the equity interest in Campofrio. The leverage ratio
indicates that significant borrowing capacity remains to take advantage of any
business opportunities that may arise through acquisition or internal expansion.
During the first quarter of fiscal 1998, 158,399 shares of Hormel Common Stock
were purchased and retired under the share repurchase program at an average
price per share of $31.00.
Page 11 of 12
FORM 10-Q
PART II - OTHER INFORMATION
ITEM 4. RESULTS OF VOTES OF SECURITY HOLDERS.
At the Annual Meeting of Shareholders on January 27, 1998 the
proposal to approve the Company's Operators' Share Incentive
Compensation Plan was approved.
For: 64,886,661 Against: 1,079,672 Abstain: 438,195
At the Annual Meeting of Shareholders on January 27, 1998 the
proposal to approve the Company's Long-Term Incentive Plan was
approved.
For: 64,826,969 Against: 1,157,121 Abstain: 420,778
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The Company filed a Form 8-K on October 26, 1997 announcing the
election of John R. Block and Joseph T. Mallof as directors of the
Company replacing retiring directors, Earl B. Olsen and Ray V. Rose.
The Company filed a Form 8-K on December 17, 1997 announcing the
sale of the Davenport, Iowa gelatin/specialized proteins plant to
Goodman Fielder Limited of Sydney, Australia for $71,400,000.
Page 12 of 12
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: March 10, 1998 BY: D. J. HODAPP
- ------------------------ ---------------------
D. J. HODAPP
EXECUTIVE VICE PRESIDENT
& CHIEF FINANCIAL OFFICER
DATE: March 10, 1998 BY: M. J. MCCOY
- ------------------------ ---------------------
M. J. MCCOY
VICE PRESIDENT AND TREASURER