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 29, 2000 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 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 29, 2000
- --------------------------------------------------------------------------------
Common Stock $.0586 par value 139,468,058
Common Stock Non-Voting $.01 par value -0-
Pages: This report contains twelve pages numbered sequentially from this cover
page.
Page 1
FORM 10-Q
STATEMENTS OF FINANCIAL POSITION
(In Thousands of Dollars)
HORMEL FOODS CORPORATION
July 29, October 30,
2000 1999
-------------- --------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 109,690 $ 188,310
Short-term marketable securities--
at cost which approximates market 5,869 60,252
Accounts receivable 252,646 266,059
Inventories 300,179 270,239
Deferred income taxes 10,275 9,526
Prepaid expenses 7,917 5,757
-------------- --------------
TOTAL CURRENT ASSETS 686,576 800,143
DEFERRED INCOME TAXES 60,178 60,051
INTANGIBLES 94,096 98,544
INVESTMENTS IN AND RECEIVABLES FROM AFFILIATES 135,470 142,879
OTHER ASSETS 103,163 78,344
PROPERTY, PLANT AND EQUIPMENT
Land 13,314 13,108
Buildings 289,514 286,662
Equipment 682,174 652,723
Construction in progress 71,404 49,693
-------------- --------------
1,056,406 1,002,186
Less allowance for depreciation (527,019) (496,562)
--------------- --------------
529,387 505,624
$ 1,608,870 $ 1,685,585
============== ==============
See notes to financial statements
Page 2
FORM 10-Q
STATEMENTS OF FINANCIAL POSITION
(In Thousands of Dollars)
HORMEL FOODS CORPORATION
July 29, October 30,
2000 1999
-------------- --------------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES
Accounts payable $ 136,297 $ 162,585
Accrued expenses 24,044 37,255
Accrued marketing 39,573 34,882
Employee compensation 54,273 73,050
Taxes, other than federal income taxes 9,149 12,333
Dividends payable 12,300 11,902
Federal income tax 2,570 12,186
Current maturities of long-term debt 37,743 41,214
-------------- --------------
TOTAL CURRENT LIABILITIES 315,949 385,407
LONG-TERM DEBT--less current maturities 166,279 184,723
ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION 252,625 252,236
OTHER LONG-TERM LIABILITIES 24,273 22,077
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 $.0586 a share--
authorized 400,000,000 shares;
issued and outstanding 139,468,058 shares July 29, 2000
issued and outstanding 142,724,870 shares Oct. 30, 1999 8,053 8,364
Accumulated other comprehensive loss (10,573) (6,305)
Retained earnings 852,264 839,083
-------------- --------------
TOTAL SHAREHOLDERS' INVESTMENT 849,744 841,142
-------------- --------------
$ 1,608,870 $ 1,685,585
============== ==============
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 29, July 31, July 29, July 31
2000 1999 2000 1999
----------- ----------- ----------- -----------
Sales, less returns and allowances $ 886,015 $ 816,818 $ 2,668,951 $ 2,406,918
Cost of products sold 666,629 595,813 1,946,370 1,717,125
----------- ----------- ----------- -----------
GROSS PROFIT 219,386 221,005 722,581 689,793
Expenses:
Selling and delivery 92,998 86,599 280,277 260,870
Marketing 65,536 72,838 223,628 224,602
Administrative and general 14,580 18,169 49,669 52,815
----------- ----------- ----------- -----------
OPERATING INCOME 46,272 43,399 169,007 151,506
Other income and expenses:
Other income--net 3,319 4,616 13,669 14,370
Equity in earnings (losses) of affiliates (704) 952 (700) 3,906
Interest expense (3,384) (3,606) (11,283) (10,222)
----------- ----------- ----------- -----------
EARNINGS BEFORE INCOME TAXES 45,503 45,361 170,693 159,560
Provision for income taxes 16,367 15,811 61,455 55,796
----------- ----------- ----------- -----------
NET EARNINGS $ 29,136 $ 29,550 $ 109,238 $ 103,764
=========== =========== =========== ===========
NET EARNINGS PER SHARE (DILUTED) $ 0.21 $ 0.20 $ 0.77 $ 0.70
=========== =========== =========== ===========
NET EARNINGS PER SHARE (BASIC) $ 0.21 $ 0.20 $ 0.77 $ 0.71
=========== =========== =========== ===========
DIVIDENDS DECLARED PER SHARE $ 0.0875 $ 0.0825 $ 0.2625 $ 0.2475
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 29, July 31,
2000 1999
--------- ---------
OPERATING ACTIVITIES
Net earnings $ 109,238 $ 103,764
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 44,858 42,943
Amortization of intangibles 4,448 5,174
Equity in earnings (losses) of affiliates 700 (3,906)
(Benefit) provision for deferred income taxes (1,607) 2,274
(Gain) loss on property/equipment sales (7) 927
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 13,413 1,239
(Increase) decrease in inventories
and prepaid expenses (32,100) (21,753)
Increase (decrease) in accounts payable
and accrued expenses (63,800) 12,882
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 75,143 143,544
INVESTING ACTIVITIES
Sale of held-to-maturity securities 84,618 60,224
Purchase of held-to-maturity securities (30,235) (72,537)
Purchases of property/equipment (72,310) (53,620)
Proceeds from sales of property/equipment 3,696 776
(Increase) decrease in investments and other assets (25,103) (38,789)
Dividends from affiliate 1,593 0
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (37,741) (103,946)
FINANCING ACTIVITIES
Proceeds from long-term borrowings 3,456 25,952
Principal payments on long-term debt (20,318) (4,745)
Dividends paid on Common Stock (36,525) (35,871)
Stock Repurchase (60,931) (41,577)
Other (1,704) 2,331
--------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (116,022) (53,910)
--------- ---------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (78,620) (14,312)
Cash and cash equivalents at beginning of year 188,310 203,934
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF QUARTER $ 109,690 $ 189,622
========= =========
See notes to financial statements
Page 5
FORM 10-Q
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(In Thousands)
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 1999 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 and nine month periods ended July 29,
2000 and July 31, 1999 are not necessarily indicative of the results to be
expected for the full year.
NOTE C
Total comprehensive income (net income plus other comprehensive income) was
$27,402 and $104,970 for the three and nine-month periods ended July 29, 2000
compared to $27,265 and $101,346 for the three and nine-month periods ended July
31, 1999. Other comprehensive income consists of minimum pension liability
adjustments and foreign currency translation adjustments.
NOTE D
The following table sets forth the denominator for the computation of basic and
diluted earnings per share:
Three Months Ended Nine Months Ended
------------------ -----------------
July 29, 2000 July 31, 1999 July 29, 2000 July 31, 1999
------------- ------------- ------------- -------------
Denominator for basic earnings per share
- weighted-average shares 139,907 145,548 141,006 146,322
Dilutive potential common shares 922 1,337 1,072 1,142
--- ----- ----- -----
Denominator for diluted earnings per
share - adjusted weighted-average shares
and assumed conversions 140,829 146,885 142,078 147,464
======= ======= ======= =======
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
Net earnings in the third quarter were $29,136 compared to $29,550 during the
same quarter of 1999. Third quarter earnings per share increased to 21 cents
from 20 cents last year. Sales for the quarter increased 8.5 percent to $886,015
from $816,818 in 1999. Tonnage for the period decreased 3.7 percent to 708,533
pounds compared to 1999. Gross margins decreased in the quarter due to a higher
mix of refrigerated food products that provide a lower gross margin and an
increase in live hog costs that could not be passed through sales.
Net reported earnings for the first nine months of fiscal 2000 were $109,238
compared to $103,764 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. Excluding the
one-time gain, net operating earnings for the first nine months of 2000 were
$109,238 compared to $99,956 last year, an increase of 9.3 percent. Reported
operating earnings per share to-date increased to 77 cents from 70 cents last
year. Tonnage volume for three quarters increased 1.3 percent over 1999 to
2,244,792 pounds.
All share information reflects the 2 for 1 split of Hormel Foods Common Stock
approved by shareholders in January of 2000.
As mentioned above, Refrigerated Foods Group margins for the quarter were
significantly impacted by live hog prices that were 45.0 percent higher than the
third quarter last year and approximately 10 percent higher than our estimates
for the third quarter 2000. Although hog contracts were a benefit to the Company
for the quarter, they were not capable of offsetting the higher hog prices.
Because of the negative margins in hog processing, the Company reduced
processing levels by 2.4 percent in the quarter compared to 1999.
Sales in the Foodservice unit of Refrigerated Foods increased 33.5 and 32.0
percent for the quarter and nine months respectively compared to the same
periods last year. Tonnage volume increased 17.0 and 17.6 for the same periods
when compared to 1999. Branded tonnage increased 13.0 percent for the quarter
with the largest category gain being in premium pork, which increased 66.0
percent over the same quarter last year. The premium pork category includes
ALWAYS TENDER-Registered Trademark- pork, BREAD READY-Registered Trademark-
meats and AUSTIN BLUES BBQ-Registered Trademark-.
The Meat Products Unit of Refrigerated Foods experienced a 20.9 percent increase
in sales for the quarter and a 20.0 percent increase in sales to-date compared
to the same periods in 1999. Tonnage volume for the quarter continued to reflect
the goal of moving away from commodity type products as tonnage increased 3.6
and 5.8 percent for the quarter and to-date respectively when compared to last
year. This was accomplished even as processing levels of fresh pork were reduced
by the Company due to negative margins in hog processing. Branded sales tonnage,
included in the total numbers above was up 7.0 and 8.0 percent for the quarter
and to-date compared to last year.
Page 7
FORM 10-Q
Sales for the Grocery Products Division increased 1.0 and 3.1 percent for the
quarter and nine months respectively compared to 1999. Tonnage volume for the
quarter was even with last year while year to-date tonnage volume was up 3.0
percent. During the quarter, Grocery Products successfully implemented a 5.0
percent price increase. While implementation was difficult the benefit should be
realized beginning in the fourth quarter.
During the third quarter market share gains were realized in SPAM-Registered
Trademark- luncheon meat, HORMEL-Registered Trademark- chili, DINTY
MOORE-Registered Trademark- beef stew, MARY KITCHEN-Registered Trademark- hash,
HORMEL-Registered Trademark- chunk meat, HORMEL-Registered Trademark- real bacon
bits and CARAPELLI-Registered Trademark- olive oil.
The CARAPELLI-Registered Trademark- olive oil launch remains on plan with both
to-date sales and distribution ahead of plan. The national introduction of
SPAM-Registered Trademark- oven roasted turkey will begin in August.
SPAM-Registered Trademark- hot & spicy luncheon meat will be introduced in 10
markets during the fourth quarter.
Jennie-O sales decreased 7.9 percent for the quarter compared to the same
quarter last year. Sales for the nine months increased 1.0 percent when compared
to 1999. Sales tonnage decreased 13.4 and 2.8 percent for the quarter and year
to-date respectively when compared to the same periods last year. Jennie-O's
sales decline for the quarter was a result of management's decision to convert
traditional summer cut-up breast and commodity part sales into branded whole
bird inventory to sell this fall. The whole bird market looks strong with
industry freezer inventories low. This should allow Jennie-O to profit from this
strategy in the fourth quarter.
Jennie-O's value-added business increased to 74.0 percent in the third quarter
compared to 66.0 percent for the same period in 1999. This is an example of
Jennie-O's strategy to convert commodity volume into value-added business to
obtain more value from the existing capital base. Sales within the Foodservice
Division grew at a 20.0 percent rate for the third quarter in a row. Foodservice
sales should continue to grow with new contracts signed with Sodexho Marriott
and Subway during the quarter.
Export sales at Hormel Foods International increased 13.3 and 17.5 percent for
the quarter and nine months compared to 1999. Tonnage volume for these periods
was ahead of last year by 25.6 and 26.5 percent. Through three quarters China
tonnage volume was up 112.6 percent.
Selling and delivery expenses for the quarter and nine months were $92,998 and
$280,277 compared to $86,599 and $260,870 last year. Marketing expenses were
$65,536 for the quarter and $223,628 to-date compared to $72,838 and $224,602 in
1999. 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 high margin processed items.
Administrative and general expenses decreased to $14,580 and $49,669 for the
quarter and nine months from $18,169 and $52,815 last year.
The effective tax rate for the quarter and nine months was 35.97 and 36.00
percent compared to 34.86 and 34.97 percent for the respective periods in 1999.
Page 8
FORM 10-Q
LIQUIDITY AND CAPITAL RESOURCES
Ratio comparisons at the end of the third quarter of 2000 and 1999, which
demonstrate the Company's financial strength, are as follows:
End of Quarter
--------------------------------------
3rd Quarter 3rd Quarter
2000 1999
----------------- ---------------
Liquidity Ratios
Current ratio 2.2 2.5
Receivables turnover 13.7 14.4
Days sales in receivables 25.9 days 25.2 days
Inventory turnover 9.1 9.1
Days sales in inventory 42.2 days 41.8 days
Leverage Ratio
Long-term debt to equity 24.0 % 27.1%
Operating Ratios
Pre-tax profit to net worth 26.9% *25.7%
Pre-tax profit to total assets 13.8% *13.1%
* Includes $3,808 in pre-tax profit from sale of land by Campofrio.
Changes during the first nine months in current asset and liability balances
followed normal seasonal patterns except for inventories which increased due to
Jennie-O's product mix changes discussed earlier. Accounts receivable and
inventory balances are consistent with the price levels for pork and turkey and
past and future sales volumes.
During the first nine months, the Company invested $72,310 in new plant and
equipment primarily in Houston, Texas; Austin, Minnesota; Rochelle, Illinois 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 continues to keep excess funds invested short-term. 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 the Company purchased 903,300 shares under its share
repurchase program at an average cost of $16.76 per share. To-date in fiscal
2000, 3,406,300 shares have been repurchased at a cost of $17.89 per share.
Total shares repurchased, under the currently approved plan is 8,141,300 shares
with an average cost of $18.69 per share.
Page 9
FORM 10-Q
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 30, 1999
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 Litigations Reform Act of 1995.
Page 10
FORM 10-Q
PART II - OTHER INFORMATION
HORMEL FOODS CORPORATION
Item 4. Results of Votes of Security Holders.
None.
Item 6. Exhibits and Reports on Form 8-K
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
(Registrant)
Date: September 12, 2000 By /s/ M. J. McCOY
------------------- ----------------------------------
M. J. McCOY
Senior Vice President
and Chief Financial Officer
Date: September 12, 2000 By /s/ F. D. HALVIN
------------------- ----------------------------------
F. D. HALVIN
Treasurer
Page 11