SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended January 27, 1996 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 January 27, 1996 Common Stock - $.1172 par value 76,724,833 Common Stock Non-Voting - $.01 par value -0- Pages: This report contains ten pages numbered sequentially from this cover page. 1 FORM 10-Q PART I - FINANCIAL INFORMATION STATEMENTS OF FINANCIAL POSITION HORMEL FOODS CORPORATION (In Thousands of Dollars) January 27, October 28, 1996 1995 (Unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $ 213,412 $ 189,539 Short-term marketable securities-- at cost which approximates market 8,004 8,489 Accounts receivable 189,694 231,407 Inventories 226,563 210,898 Deferred Income Taxes 13,734 13,255 Prepaid expenses 6,004 5,679 TOTAL CURRENT ASSETS 657,411 659,267 DEFERRED INCOME TAXES 65,797 66,204 INTANGIBLES 80,616 81,650 INVESTMENTS AND OTHER ASSETS 86,867 83,655 PROPERTY, PLANT AND EQUIPMENT Land 7,841 8,009 Buildings 173,429 166,888 Equipment 493,897 495,641 Construction in progress 54,764 51,388 729,931 721,926 Less allowance for depreciation (386,397) (388,842) 343,534 333,084 $1,234,225 $1,223,860 See notes to financial statements 2 FORM 10-Q STATEMENTS OF FINANCIAL POSITION HORMEL FOODS CORPORATION (In Thousands of Dollars) January 27, October 28, 1996 1995 (Unaudited) LIABILITIES AND STOCKHOLDERS' INVESTMENT CURRENT LIABILITIES Accounts payable $ 95,424 $ 97,479 Accrued expenses 29,913 26,246 Accrued marketing expenses 23,577 20,638 Employee compensation 28,366 44,700 Taxes other than federal income taxes 16,311 15,380 Dividends payable 11,511 11,123 Federal income taxes 9,755 118 Current maturities of long-term debt 2,131 2,131 TOTAL CURRENT LIABILITIES 216,988 217,815 LONG-TERM DEBT - less current maturities 16,959 16,959 ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION 235,659 235,659 ACCRUED PENSION COSTS 8,719 7,240 OTHER LONG-TERM LIABILITIES 14,612 14,140 STOCKHOLDERS' 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 76,852,128 shares 9,007 9,007 Additional paid-in capital 16,854 16,624 Shares held in treasury. ( 3,399) ( 3,922) 22,462 21,709 Earnings reinvested in business 718,826 710,338 741,288 732,047 $1,234,225 $1,223,860 See notes to financial statements 3 FORM 10-Q CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) HORMEL FOODS CORPORATION (In Thousands of Dollars, Except Per Share Amounts) Three Months Ended January 27, January 28, 1996 1995 Sales, less returns and allowances $ 724,381 $ 730,720 Cost of products sold 546,944 528,575 GROSS PROFIT 177,437 202,145 Expenses: Selling and delivery 127,506 129,853 Administrative and general 22,750 17,782 OPERATING INCOME 27,181 54,510 Other income and expenses: Other income-net 6,296 3,454 Interest expense ( 409) ( 311)) EARNINGS BEFORE INCOME TAXES 33,068 57,653 Provision for income taxes 12,401 22,165 NET EARNINGS $ 20,667 $ 35,488 EARNINGS PER SHARE $ 0.27 $ 0.46 See notes to financial statements 4 FORM 10-Q STATEMENTS OF CASH FLOWS (Unaudited) HORMEL FOODS CORPORATION (In Thousands of Dollars) Three Months Ended January 27, January 28, 1996 1995 OPERATING ACTIVITIES Net earnings $ 20,667 $ 35,488 Adjustments to reconcile to net cash provided by operating activities: Depreciation 8,823 8,178 Amortization of intangibles 1,034 870 Provision for deferred income taxes ( 72) 2,015 (Gain) loss on property/equipment sales (3,593) (97) Changes in operating assets and liabilities: Decrease in accounts receivable 41,713 37,113 (Increase) in inventories and prepaid expenses (15,990) (19,734) (Decrease) in accounts payable and accrued expenses 736 (37,485) NET CASH PROVIDED BY OPERATING ACTIVITIES 53,318 26,348 INVESTING ACTIVITIES Sale of short-term marketable securities 485 1,835 Acquisitions of businesses 0 (1,159) Purchases of property/equipment (20,358) (17,254) Proceeds from sales of property/equipment 4,678 1,299 (Increase) decrease in investments and other assets (3,211) (10,790) NET CASH USED IN INVESTING ACTIVITIES (18,406) (26,069) FINANCING ACTIVITIES Proceeds from long-term borrowings 0 10,000 Dividends paid on Common Stock (11,123) (9,586) Other 84 ( 831) NET CASH USED IN FINANCING ACTIVITIES (11,039) ( 417) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 23,873 ( 138) Cash and cash equivalents at beginning of year 189,539 248,599 CASH AND CASH EQUIVALENTS AT END OF PERIOD $213,412 $248,461 See notes to financial statements 5 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 re- curring 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 1995 Hormel Foods Corporation Annual Report to Stockholders, which is incorporated by reference on Form 10-K. NOTE B The results of operations for the three month periods ended January 27, 1996, and January 28, 1995 are not necessarily indicative of the results to be expected for the full year. 6 FORM 10-Q MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS HORMEL FOODS CORPORATION RESULTS OF OPERATIONS Quarterly sales and earnings for the first quarter were $724,381,000 and $20,667,000 compared to $730,720,000 and $35,488,000 respectively, last year. Tonnage volume decreased 15.0 percent for the quarter compared to the same period in 1995. The drop in dollar sales and tonnage volume was due primarily to the discontinuance by Dubuque Foods, Inc., a wholly owned subsidiary, of sales of fresh pork produced under the Dubuque brand by FDL Foods, Inc. of Dubuque, Iowa. The 41.8 percent decline in earnings had been expected since the record 1995 first quarter had benefited from pork raw material costs which were at their lowest level in two decades. These low cost levels could not be maintained and they increased throughout the remainder of 1995 and into the first quarter of 1996. The substantially higher pork raw material costs were the major factor in producing a gross profit as a percentage of sales of 24.5 percent compared to 27.7 percent last year. The impact of the increase in pork raw material costs on gross profit was mitigated by increased sales volume of manufactured consumer branded items, which are not as sensitive to the fluctuations of the pork market and a gain recorded of approximately $3,000,000 from the sale of an idle plant facility. Marketing expenses decreased slightly during the first quarter to $54,684,000 from $55,678,000 in 1995. The Company continues to emphasize both its well established products and its newer ethnic product introductions in its promotional programs. Selling and delivery expenses remained virtually unchanged at 17.6 percent and 17.8 percent of sales for 1996 and 1995 respectively. Administra- tive and general expenses increased to 3.1 percent of sales in the quarter compared to 2.4 percent for the same period last year. The increase reflected a settlement of an antitrust class action lawsuit in the amount of $7,500,000. Farm Fresh Catfish and Hormel Foods Corporation were two of several defendants in an alleged conspiracy to fix prices among processors of catfish. Although the Company considered the plaintiff's claims to be without merit since many of the events in question happened more than two years before Hormel formed Farm Fresh in 1983, the Company decided to settle the lawsuits since continued defense of the case subjected the Company and its shareholders to unnecessary risks due to the potential size of the claim and the inherent uncertainty of commercial litigation. 7 FORM 10-Q MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS HORMEL FOODS CORPORATION RESULTS OF OPERATIONS The Company's core Hormel business continues to be the major contributor to earnings. Jennie-O Foods was a strong performer despite lower margins experienced in the first quarter due to large cost increases for feedstuffs. Jennie-O's new turkey processing plant under construction at Montevideo, Minnesota is on schedule with a projected start up in May. Results for the quarter at Dubuque Foods were less than planned as the higher pork raw material costs had a greater impact on Dubuque Foods than the primary Hormel business. The effective tax rate for the first three months of 1996 was 37.5 percent compared to 38.5 percent last year due to a lower overall effective state tax rate. Other income-net for the first quarter of 1996 was $6,296,000 compared to $3,454,000 in 1995. The increase was primarily the result of a realized gain on the sale of oil and gas stock that had been classified as available for sale. 8 FORM 10-Q MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS HORMEL FOODS CORPORATION FINANCIAL CONDITION Ratio comparisons for the first quarter of 1996 and 1995, which demonstrate the Company's financial strength, are as follows: End of Quarter 1st Quarter 1st Quarter 1996 1995 Liquidity Ratios Current ratio 3.0 2.8 Receivables turnover 13.8 13.9 Days sales in receivables 23.9 days 23.8 days Inventory turnover 10.1 10.1 Days sales in inventory 37.8 days 38.0 days Leverage Ratio Long-term debt to equity 2.6% 3.0% Operating Ratios Pre-tax profit to net worth 18.0% 34.3% Pre-tax profit to total assets 10.8% 19.3% Changes during the first quarter in current asset and liability balances followed normal seasonal patterns. During the first quarter, the Company invested $20,358,000 in new plant and equipment. The Company has major renovation or expansion projects in progress at its Fremont, Nebraska, Austin, Minnesota and Osceola, Iowa locations. Jennie-O Foods is building a new plant in Montevideo, Minnesota which is scheduled to be completed in May of this year. Investment in plant and equipment continues to emphasize productivity gains while improving ergonomics and safety conditions for employees. During the quarter the Company recognized the gain on the sale of an idle plant facility at Ottumwa, Iowa and realized a gain on the sale of oil and gas stocks held as an investment available for sale. 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 and debt used for investment in the federal government affordable housing program. The leverage ratio indicates the significant amount of borrowing capacity available to take advantage of any business opportunities that may arise through acquisition or internal expansion. 9 FORM 10-Q PART II - OTHER INFORMATION Item 4. Results of Votes of Security Holders. None. Item 6. Exhibits and Reports on Form 8-K The Company filed a Form 8-K on December 13, 1995 announcing the retirement of Richard L. Knowlton from the Hormel Foods Corporation Board of Directors. Company President Joel W. Johnson, who succeeded Mr. Knowlton as Chief Executive Officer in September 1993, was elected to the additional position of Chairman of the Board. 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: By: D. J. HODAPP Executive Vice President & Chief Financial Officer Date: By: M. J. McCOY Treasurer 10