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 April 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 April 27, 1996 Common Stock - $.1172 par value 76,517,335 Common Stock Non-Voting - $.01 par value -0- Pages: This report contains eleven pages numbered sequentially from this cover page. FORM 10-Q PART I - FINANCIAL INFORMATION STATEMENTS OF FINANCIAL POSITION HORMEL FOODS CORPORATION (In Thousands of Dollars) April 27, October 28, 1996 1995 (Unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $ 153,374 $ 189,539 Short-term marketable securities-- at cost which approximates market 7,473 8,489 Accounts receivable 190,084 231,407 Inventories 242,682 210,898 Deferred Income Taxes 14,796 13,255 Prepaid expenses 6,277 5,679 TOTAL CURRENT ASSETS 614,686 659,267 DEFERRED INCOME TAXES 65,389 66,204 INTANGIBLES 79,583 81,650 INVESTMENTS AND OTHER ASSETS 91,739 83,655 PROPERTY, PLANT AND EQUIPMENT Land 7,841 8,009 Buildings 184,244 166,888 Equipment 502,897 495,641 Construction in progress 64,723 51,388 759,705 721,926 Less allowance for depreciation (389,494) (388,842) 370,211 333,084 $1,221,608 $1,223,860 See notes to financial statements FORM 10-Q STATEMENTS OF FINANCIAL POSITION HORMEL FOODS CORPORATION (In Thousands of Dollars) April 27, October 28, 1996 1995 (Unaudited) LIABILITIES AND STOCKHOLDERS' INVESTMENT CURRENT LIABILITIES Accounts payable $ 99,534 $ 97,479 Accrued expenses 31,051 26,246 Accrued marketing expenses 11,546 20,638 Employee compensation 33,696 44,700 Taxes other than federal income taxes 15,143 15,380 Dividends payable 11,513 11,123 Federal income taxes 0 118 Current maturities of long-term debt 2,205 2,131 TOTAL CURRENT LIABILITIES 204,688 217,815 LONG-TERM DEBT - less current maturities 15,562 16,959 ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION 237,825 235,659 ACCRUED PENSION COSTS 0 7,240 OTHER LONG-TERM LIABILITIES 14,820 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 76,600,000 shares 8,978 9,007 Additional paid-in capital 10,344 16,624 Shares held in treasury. ( 2,173) ( 3,922) 17,149 21,709 Earnings reinvested in business 731,564 710,338 748,713 732,047 $1,221,608 $1,223,860 See notes to financial statements FORM 10-Q STATEMENTS OF EARNINGS (Unaudited) HORMEL FOODS CORPORATION (In Thousands of Dollars, Except Per Share Amounts) Three Months Ended Six Months Ended April 27, April 29, April 27, April 29, 1996 1995 1996 1995 Sales, less returns and allowances $746,658 $748,046 $1,471,039 $1,478,766 Cost of products sold 568,198 566,009 1,115,143 1,094,584 GROSS PROFIT 178,460 182,037 355,896 384,182 Expenses: Selling and delivery 125,628 126,953 253,134 256,806 Administrative and general 17,230 16,616 39,980 34,398 OPERATING INCOME 35,602 38,468 62,782 92,978 Other income and expenses: Other income-net 2,700 3,067 8,995 6,521 Interest expense ( 432) ( 438) ( 840) ( 749) EARNINGS BEFORE INCOME TAXES 38,870 41,097 70,937 98,750 Provision for income taxes 13,350 15,743 25,751 37,908 NET EARNINGS $24,520 $ 25,354 $ 45,186 $60,842 NET EARNINGS PER SHARE $0.32 $0.33 $0.59 $0.79 See notes to financial statements FORM 10-Q STATEMENTS OF CASH FLOWS (Unaudited) HORMEL FOODS CORPORATION (In Thousands of Dollars) Six Months Ended April 27, April 29, 1996 1995 OPERATING ACTIVITIES Net earnings $ 45,186 $ 60,842 Adjustments to reconcile to net cash provided by operating activities: Depreciation 18,078 16,473 Amortization of intangibles 2,067 1,853 Provision for deferred income taxes (726) 1,310 (Gain) loss on property/equipment sales (3,599) (150) Changes in operating assets and liabilities: Decrease in accounts receivable 41,323 39,787 (Increase) in inventories and prepaid expenses (32,382) (18,435) (Decrease) in accounts payable and accrued expenses (17,985) (72,614) NET CASH PROVIDED BY OPERATING ACTIVITIES 51,962 29,066 INVESTING ACTIVITIES Sale of short-term marketable securities 1,016 2,130 Acquisitions of businesses 0 (2,799) Purchases of property/equipment (56,431) (41,993) Proceeds from sales of property/equipment 4,825 1,539 (Increase) decrease in investments and other assets (8,084) (6,949) NET CASH USED IN INVESTING ACTIVITIES (58,674) (48,072) FINANCING ACTIVITIES Proceeds from long-term borrowings 0 10,000 Principal payments on long-term debt (1,323) (1,610) Dividends paid on Common Stock (22,634) (20,706) Other (5,496) (953) NET CASH USED IN FINANCING ACTIVITIES (29,453) (13,269) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (36,165) (32,275) Cash and cash equivalents at beginning of year 189,539 248,599 CASH AND CASH EQUIVALENTS AT END OF PERIOD $153,374 $216,324 See notes to financial statements 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 six month periods ended April 27, 1996, and April 29, 1995 are not necessarily indicative of the results to be expected for the full year. FORM 10-Q MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS HORMEL FOODS CORPORATION RESULTS OF OPERATIONS Net earnings in the second quarter decreased $834,000 to $24,520,000 from $25,354,000 during the same quarter of 1995. Sales for the quarter decreased .2 percent to $746,658,000 from $748,046,000 last year. Sales tonnage for the period decreased by 12.8 percent compared to the same quarter of 1995. The decline in second quarter earnings and volume from record levels in 1995 was a result of the difficult business environment that has affected much of the food industry. Live pork prices reached their highest level in several years limiting the Company's ability to obtain customary margins in its pork operations. In addition, Jennie-O's turkey business began to feel the impact of extraordinarily high corn and soymeal costs. Beef herd liquidation caused by the high feed costs also resulted in retail beef prices being at their lowest level in years. This put additional pressure on pork and turkey margins as beef presented a very attractive and economical protein option. Declines of sales and tonnage volume from 1995 were primarily caused by Dubuque Foods terminating fresh pork purchases from FDL Foods, Inc. of Dubuque, Iowa. Growth in the tonnage volume of Hormel branded consumer packaged products lessened the impact of the decreased fresh pork business and margin pressures felt on the commodity type pork and turkey products. Sales and earnings for the first half of 1996 were $1,471,039,000 and $45,186,000 compared to $1,478,766,000 and $60,842,000, respectively, last year. Tonnage volume decreased 13.9 percent for the half compared to the same period in 1995. The drop in tonnage volume for the six months was due to the discontinuance of fresh pork purchases from FDL Foods by Dubuque Foods as discussed above. The 25.7 percent decline in earnings was primarily a result of last year's record first quarter which benefited from pork raw material costs at their lowest level in two decades. These low cost levels could not be maintained and increased throughout the remainder of 1995 and through the first six months of this year resulting in the continued pressure on margins. The continuing high pork raw material costs combined with pressure placed on the Company's pork and turkey operations by extremely high price levels for corn and soymeal in the second quarter were the major factors in producing a gross margin as a percentage of sales of 23.9 and 24.2 percent compared to 24.3 and 26.0 percent for the corresponding quarter and six months of 1995. The impact of the higher pork and turkey raw material costs on gross profit was mitigated by increased sales volume throughout the first half of manufactured consumer branded items which are not as sensitive to fresh pork and turkey market fluctuations. In addition, a gain of approximately $3,000,000 from the sale of an idle plant facility was realized in the first quarter. FORM 10-Q MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS HORMEL FOODS CORPORATION RESULTS OF OPERATIONS Marketing expenses for the quarter and first half were $51,307,000 and $105,991,000, respectively, compared to $52,527,000 and $108,205,000 for the same periods of 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 for both the quarter and six months at 16.9 and 17.2 percent of sales compared to 17.0 and 17.4 percent last year. Administrative and general expenses increased to 2.3 from 2.2 percent of sales comparing the two quarters and increased to 2.7 percent from 2.3 percent on a to-date basis between 1996 and 1995. The increase in administrative costs for the six months reflects the settlement of an antitrust class action lawsuit in the amount of $7,500,000. Farm Fresh Catfish and Hormel Foods Corporations 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, it 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. The Company's core Hormel business continues to be the major contributor to earnings. High feedstuff costs put increasing pressure on Jennie-O's results for the quarter. Jennie-O's new turkey processing plant in Montevideo, Minnesota began operations in late April and is operating satisfactorily. Jennie-O purchased a major interest in Viking Hatchery of Detroit Lakes, Minnesota. The hatchery, which will be capable of providing Jennie-O growers with ten million poults per year, is Jennie-O's first entry into the hatchery business. Results for the second quarter at Dubuque Foods continued to be less than plan as the high pork raw material costs have a greater impact on the Dubuque product line than the primary Hormel business. The effective tax rate for the quarter and six months to- date was 35.3 and 36.3 percent compared to 38.3 and 38.4 percent for the respective periods in 1995. The drop was a result of a lower overall state tax rate and realization of tax credits from investments in affordable housing programs. Other Income-Net for the first half was $8,995,000 compared to $6,521,000 last year. 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. FORM 10-Q MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS HORMEL FOODS CORPORATION FINANCIAL CONDITION Ratio comparisons presented below as of the end of the second quarter reflect the continued strong financial condition of the Company. End of Quarter 2nd Quarter 2nd Quarter 1996 1995 Liquidity Ratios Current ratio 3.0 3.1 Receivables turnover 14.0 14.2 Days sales in receivables 23.6 days 23.3 days Inventory turnover 9.8 10.5 Days sales in inventory 39.7 days 36.1 days Leverage Ratio Long-term debt to equity 2.4% 2.7% Operating Ratios Pre-tax profit to net worth 19.2% 29.0% Pre-tax profit to total assets 11.6% 16.7% Changes during the first six months in current asset and liability balances followed normal seasonal patterns. Inventory levels are adequate for the traditional promotional activities that occur during the third and fourth quarter. During the second quarter, the Company repurchased and retired 252,128 shares under a repurchase plan announced March 25, 1996. The plan authorizes repurchase of up to 5,000,000 shares of Hormel Foods Corporation common stock. The Company will use its excess cash to fund the buy back of shares which may then be retired or retained as treasury stock. During the first half, the Company invested $56,431,000 in new plant and equipment. The company has major renovation or expansion projects in progress at it Fremont, Nebraska; Austin, Minnesota; and Osceola, Iowa locations. Jennie-O Foods began operations in late April of a new turkey processing plant in Montevideo, Minnesota. Investments in plant and equipment continues to emphasize productivity gains while improving ergonomics and safety conditions for employees. Early in the first half, the Company recognized the gain on the sale of an idle plant facility in Ottumwa, Iowa. In addition, in the first quarter the Company realized gains on the sale of oil and gas stocks held as an investment available for sale. FORM 10-Q MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS HORMEL FOODS CORPORATION FINANCIAL CONDITION The Company continues to keep excess funds invested short term as it examines business opportunities that meet its long term operating goals. In the second quarter the Company paid $7,500,000 accrued in the first quarter to settle the antitrust class action lawsuit discussed in the Results of Operations. 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. 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 March 25, 1996 announcing the approval by the Company's Board of Directors of a stock repurchase program. The program authorizes the repurchase of up to five million shares of Hormel Foods Corporation common stock at prevailing prices on the open market. 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