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 July 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 July 27, 1996 Common Stock - $.1172 par value 76,243,801 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) July 27, October 28, 1996 1995 (Unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $ 110,141 $ 189,539 Short-term marketable securities-- at cost which approximates market 6,995 8,489 Accounts receivable 181,289 231,407 Inventories 288,170 210,898 Deferred Income Taxes 15,297 13,255 Prepaid expenses 8,893 5,679 TOTAL CURRENT ASSETS 610,785 659,267 DEFERRED INCOME TAXES 64,939 66,204 INTANGIBLES 78,589 81,650 INVESTMENTS AND OTHER ASSETS 88,546 83,655 PROPERTY, PLANT AND EQUIPMENT Land 8,326 8,009 Buildings 197,100 166,888 Equipment 521,854 495,641 Construction in progress 56,673 51,388 783,953 721,926 Less allowance for depreciation (396,698) (388,842) 387,255 333,084 $1,230,114 $1,223,860 See notes to financial statements FORM 10-Q STATEMENTS OF FINANCIAL POSITION HORMEL FOODS CORPORATION (In Thousands of Dollars) July 27, October 28, 1996 1995 (Unaudited) LIABILITIES AND STOCKHOLDERS' INVESTMENT CURRENT LIABILITIES Accounts payable $ 108,075 $ 97,479 Accrued expenses 33,282 26,246 Accrued marketing expenses 19,599 20,638 Employee compensation 37,772 44,700 Taxes other than federal income taxes 13,356 15,380 Dividends payable 11,490 11,123 Federal income taxes 0 118 Current maturities of long-term debt 2,298 2,131 TOTAL CURRENT LIABILITIES 225,872 217,815 LONG-TERM DEBT - less current maturities 15,213 16,959 ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION 238,539 235,659 ACCRUED PENSION COSTS 0 7,240 OTHER LONG-TERM LIABILITIES 15,976 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 76,300,000 shares and 76,852,128 respectively 8,942 9,007 Additional paid-in capital 3,043 16,624 Shares held in treasury. ( 1,385) ( 3,922) 10,600 21,709 Earnings reinvested in business 723,914 710,338 734,514 732,047 $1,230,114 $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 Nine Months Ended July 27, July 29, July 27, July 29, 1996 1995 1996 1995 Sales, less returns and allowances $749,871 $732,356 $2,220,910 $2,211,122 Cost of products sold 603,899 563,327 1,719,041 1,657,911 GROSS PROFIT 145,972 169,029 501,869 553,211 Expenses: Selling and delivery 125,690 122,639 378,824 379,445 Administrative and general 15,109 14,840 55,089 49,238 OPERATING INCOME 5,173 31,550 67,956 124,528 Other income and expenses: Other income-net 1,912 2,689 10,907 9,210 Interest expense ( 391) ( 528) (1,231) (1,277) EARNINGS BEFORE INCOME TAXES 6,694 33,711 77,632 132,461 Provision for income taxes 2,684 12,692 28,435 50,600 NET EARNINGS $ 4,010 $ 21,019 $ 49,197 $81,861 NET EARNINGS PER SHARE $0.05 $0.28 $0.64 $1.07 See notes to financial statements FORM 10-Q STATEMENTS OF CASH FLOWS (Unaudited) HORMEL FOODS CORPORATION (In Thousands of Dollars) Nine Months Ended July 27, July 29, 1996 1995 OPERATING ACTIVITIES Net earnings $ 49,197 $ 81,861 Adjustments to reconcile to net cash provided by operating activities: Depreciation 27,938 24,851 Amortization of intangibles 3,131 2,830 Provision for deferred income taxes (777) 523 (Gain) loss on property/equipment sales (3,653) (211) Changes in operating assets and liabilities: (Increase) decrease in accounts receivable 50,118 39,364 (Increase) decrease in inventories and prepaid expenses (80,486) (30,689) Increase (decrease) in accounts payable and accrued expenses 4,999 (61,243) NET CASH PROVIDED BY OPERATING ACTIVITIES 50,467 57,295 INVESTING ACTIVITIES Sale of short-term marketable securities 1,494 2,696 Acquisitions of businesses (70) (4,444) Purchases of property/equipment (83,755) (71,532) Proceeds from sales of property/equipment 5,299 1,703 (Increase) decrease in investments and other assets (4,891) (9,836) NET CASH USED IN INVESTING ACTIVITIES (81,923) (81,413) FINANCING ACTIVITIES Proceeds from long-term borrowings 553 10,000 Principal payments on long-term debt (2,131) (1,610) Dividends paid on Common Stock (34,140) (31,828) Stock Repurchase (14,127) 0 Other 1,903 (1,316) NET CASH USED IN FINANCING ACTIVITIES (47,942) (24,754) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (79,398) (48,872) Cash and cash equivalents at beginning of year 189,539 248,599 CASH AND CASH EQUIVALENTS AT END OF PERIOD $110,141 $199,727 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 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 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 nine month periods ended July 27, 1996, and July 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 third quarter decreased 80.9 percent to $4,010,000 from $21,019,000 during the same quarter of 1995. Sales for the quarter increased 2.4 percent to $749,871,000 from $732,356,000 last year. Sales tonnage for the period decreased 13.5 percent compared to the same quarter of 1995. The decline in third quarter earnings compared to 1995 was a result of the continued difficult business environment that has impacted much of the food industry throughout 1996. Live pork prices continued at their highest level in several years limiting the Company's ability to obtain customary margins in its pork operations and on processed items using pork as a primary ingredient. In addition, Jennie-O's turkey business was unable to meet planned profit objectives as the high corn and soymeal costs continued to decrease margins as the cost of live birds increased. The ability of the Company to increase selling prices to relieve the pressure of higher raw material costs was also impacted by beef herd liquidation caused by the high feed costs. Retail beef prices at their lowest level in years also limited pork and turkey margins as beef presented a very attractive and economical protein option. Declines in tonnage volume from 1995 were primarily caused by Dubuque Foods terminating fresh pork purchases from FDL Foods, Inc. of Dubuque, Iowa, in the fourth quarter of 1995. Tonnage volume of higher value Hormel branded consumer packaged products increased which lessened the impact of the decreased fresh pork business on dollar sales volume. Sales and earnings for the first three quarters of 1996 were $2,220,910,000 and $49,197,000 compared to $2,211,122,000 and $81,861,000, respectively, last year. Tonnage volume decreased 13.8 percent to-date compared to the same period in 1995. The drop in tonnage volume, the increase in sales dollars and the pressure on pork and turkey margins were a result of economic conditions discussed above getting worse throughout the year. The continuing high pork raw material costs combined with pressure placed on the Company's pork and turkey operations by high price levels for corn and soymeal throughout the year were the major factors in producing a gross margin as a percentage of sales of 19.8 and 22.6 percent compared to 23.1 and 25.0 percent for the corresponding quarter and three quarters to-date of 1995. A gain of approximately $3,000,000 from the sale of an idle plant facility was realized in the first quarter of 1996. 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 three quarters to-date were $53,951,000 and $159,942,000, respectively, compared to $50,397,000 and $158,602,000 for the same periods of 1995. Market share increases in both its mature core products and newer ethnic product introductions emphasize the Company's objective of improving margins through increased branding and co-ordinated promotional programs. Administrative and general expenses for the quarter were unchanged at 2.0 percent of sales comparing 1996 to 1995. For three quarters to-date, the administrative and general expenses were 2.5 percent of sales compared to 2.2 percent last year. The increase in administrative costs on a to-date basis reflects the settlement of an antitrust class action lawsuit in the amount of $7,500,000 at the Company's Farm Fresh Catfish subsidiary. The Company's core Hormel business continues to be the major contributor to earnings. Results at Jennie-O and Dubuque Foods continued to be less than planned as a result of margin pressure from high raw material costs and price levels of competing protein sources. The effective tax rate for the quarter and nine months to-date was 40.1 and 36.7 percent compared to 37.7 and 38.2 percent for the respective periods in 1995. The increase for the quarter was due to normal permanent taxable income additions against the sharp drop in taxable income. 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 third quarter reflect the Company's continued strong financial condition. End of Quarter 3nd Quarter 3nd Quarter 1996 1995 Liquidity Ratios Current ratio 2.7 3.0 Receivables turnover 14.4 14.1 Days sales in receivables 22.4 days 23.4 days Inventory turnover 9.2 10.3 Days sales in inventory 45.9 days 38.1 days Leverage Ratio Long-term debt to equity 2.4% 2.7% Operating Ratios Pre-tax profit to net worth 14.1% 25.8% Pre-tax profit to total assets 8.4% 14.8% Changes during the first three quarters in current asset and liability balances followed normal seasonal patterns except for cash and inventories. Cash balances declined as a result of the decline in profits and the requirement to fund construction projects, normal operations and the Company stock repurchase plan. During the third quarter, the Company repurchased and retired 300,000 shares under a repurchase plan announced March 25, 1996. The Company has repurchased and retired 552,128 shares to- date under the plan. Inventories increased substantially over customary levels due to the increased price levels of raw materials. Inventory levels are adequate for the traditional promotional activities that occur during the fourth quarter. During the first nine months, the Company invested $83,755,000 in new plant and equipment. The Company has major renovation or expansion projects in progress at its Fremont, Nebraska, and Austin, Minnesota, locations and is building a new distribution center and smoke meats manufacturing facility in Osceola, Iowa. Jennie-O Foods began operations in late April of a new turkey processing plant in Montevideo, Minnesota. Early in the year, the Company recognized the gain on the sale of an idle plant facility in Ottumwa, Iowa. During 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. 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 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 July 22, 1996 announcing the election of E. Peter Gillette, Jr., president of Piper Trust Company, to the Board of Directors of Hormel Foods Corporation. The Company filed a Form 8-K on August 6, 1996 announcing that third quarter earnings were expected to be in the range of $0.04 - $0.06 per share. The anticipated results were below Wall Street estimates and the $0.28 per share for the third quarter of 1995. Company filed a Form 8-K on September 5, 1996 announcing a change in Company Bylaws concerning the procedure for bringing business and nominating individuals for election as Directors at the Company's Annual Meeting. 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