-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J+EQvolc/7DTvtHaF4KCNCVjVFnJzrWujAY8Cc0eUgLZDlKUBTwXx93dAX5Hmugr UJQEhN7W0BZWNcSZHaZT1w== 0000048465-98-000008.txt : 19980424 0000048465-98-000008.hdr.sgml : 19980424 ACCESSION NUMBER: 0000048465-98-000008 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19971025 FILED AS OF DATE: 19980423 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HORMEL FOODS CORP /DE/ CENTRAL INDEX KEY: 0000048465 STANDARD INDUSTRIAL CLASSIFICATION: MEAT PACKING PLANTS [2011] IRS NUMBER: 410319970 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 001-02402 FILM NUMBER: 98599141 BUSINESS ADDRESS: STREET 1: 1 HORMEL PL CITY: AUSTIN STATE: MN ZIP: 55912-3680 BUSINESS PHONE: 5074375737 MAIL ADDRESS: STREET 1: 1 HORMEL PLACE CITY: AUSTIN STATE: MN ZIP: 55912-3680 FORMER COMPANY: FORMER CONFORMED NAME: HORMEL GEO A & CO DATE OF NAME CHANGE: 19920703 10-K/A 1 AMENDED HORMEL 10-K -- CORRECTED FOR FORMATTING UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended OCTOBER 25, 1997, Commission File No. 1-2402 HORMEL FOODS CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 41-0319970 (State or other Jurisdiction of (I.R.S. Employer Incorporation or organization) Identification No.) 1 HORMEL PLACE AUSTIN, MINNESOTA 55912-3680 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (507) 437-5611 Securities registered pursuant to Section 12 (b) of the Act: COMMON STOCK, PAR VALUE $.1172 PER SHARE NEW YORK STOCK EXCHANGE TITLE OF EACH CLASS Name of Each Exchange on Which Registered Securities registered pursuant to Section 12 (g) of the Act: NONE (Title of Class) 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, and (2) has been subject to such filing requirements for the past 90 days. Yes+X+ No+++ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrantis knowledge in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. ( ) The aggregate market value of the voting stock held by non-affiliates of the Corporation at December 1, 1997 was $1,294,238,990 based on the closing price of $29.9375 per share. As of December 1, 1997 the number of shares outstanding of each of the Corporationis classes of common stock was as follows: COMMON STOCK, $.1172 PAR VALUE--75,776,510 SHARES COMMON STOCK NON-VOTING, $.01 PAR VALUE--0 SHARES DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Stockholders' Report for the year ended October 25, 1997, are incorporated by reference into Part I and Part II Items 5-9, and included as a separate section in the electronic filing to the SEC. Portions of the proxy statement for the Annual Meeting of the Stockholders to be held January 27, 1998, are incorporated by reference into Part III, Items 10-13 and included as a separate section in the electronic filing to the SEC. -1- PART I ITEM 1. BUSINESS GENERAL DEVELOPMENT OF BUSINESS (a) Hormel Foods Corporation, a Delaware corporation, was founded by George A. Hormel in 1891 in Austin, Minnesota as George A. Hormel & Company. The Company started as a processor of meat and food products and continues in this line of business. The Company name was changed to Hormel Foods Corporation on January 31, 1995. The parent company is primarily engaged in the production of a variety of meat and food products and the marketing of those products throughout the United States. Although pork remains the major raw material for Hormel products, the Company has emphasized for several years the manufacture and distribution of branded, consumer packaged items rather than the commodity fresh meat business. New product introductions the past few years have emphasized a variety of branded turkey products produced and sold under the Jennie-O label and the fast growing ethnic food market with Chi-Chi's line of Mexican foods, House of Tsang oriental sauces and food products, and Mediterranean food products under the Marrakesh Express and Peloponnese labels. In October 1996, the Company purchased Stagg Foods, Inc., a leading West Coast producer of chili and stew products through an exchange of stock. Stagg Foods is operated as part of the main Hormel business. The Company is larger subsidiaries include Jennie-O Foods, Inc.; Dubuque Foods, Inc.; Hormel Foods International Corporation and Vista International Packaging, Inc. Jennie-O, a Willmar, Minnesota based turkey processor, markets its products nationwide through its own sales force and brokers, providing the Company with a significant presence in this important segment of the industry. Dubuque Foods, Inc. formerly named FDL Marketing, Inc. was formed in 1985 to be the exclusive marketer of the production of FDL Foods, Inc., a Dubuque, Iowa, meat packer. In July of 1993, the Company acquired through two subsidiaries, Dubuque Foods, Inc. and Rochelle Foods, Inc., a portion of the assets of FDL Foods. Dubuque Foods acquired the FDL Foods brands and trademarks. Rochelle Foods acquired the FDL Foods manufacturing operations at Rochelle, Illinois. Rochelle Foods is a co-packer for both Hormel and Dubuque Foods. Dubuque Foods has no production facilities and contracts with various co-packers to supply product under its label. The Company markets its products internationally through Hormel Foods International Corporation. Hormel Foods International has been increasing its presence in the international marketplace through joint ventures and placement of personnel in strategic foreign locations. Joint ventures have been established in Mexico, China, and Australia. Hormel International marketing and sales personnel are located in Spain, China and Australia. -2- ITEM 1. BUSINESS--CONTINUED Investment of personnel and capital in the foreign operation of the business is expected to continue for the foreseeable future. During 1996 minority investments were made in food companies in Poland and Spain which resulted in an increased Hormel presence in those area. Vista International Packaging, Inc. imports, customizes, and distributes a variety of natural and artificial casings for the meat and food processing industry. Late in 1996, the Company announced its intention to exit the fish business either through sale or closure of its subsidiary Farm Fresh Catfish Company. The sale of Farm Fresh was negotiated and closed during the first quarter of 1997. During the first quarter of fiscal 1998 the Company announced an agreement to sell its bulk gelatin/specialized protein plant and business located in Davenport, Iowa to Goodman Fielder Limited of Sydney, Australia for $71,400,000. The 125 production and administrative employees in Davenport are included in the sale agreement. The sale is expected to close late in January 1998. The Company has not been involved in any bankruptcy, receivership or similar proceedings during its history. Substantially all of the assets of the Company have been acquired in the ordinary course of business. The Company had no significant change in the type of products produced or services rendered, nor in the markets or methods of distribution since the beginning of the fiscal year. INDUSTRY SEGMENT (B) Hormel Foods Corporation is engaged in a single industry segment "Meat and Food Processing". The meat and food processing industry is very competitive with respect to price, marketing and customer service. In addition to meat processing firms, the Company competes with consumer packaged food manufacturers as well as seafood, poultry and vegetable protein processors. DESCRIPTION OF BUSINESS (C) The principal products of the Company are meat and food products which are sold fresh, frozen, cured, smoked, cooked and canned. The percentage of total revenues contributed by classes of similar products for the last three fiscal years of the Company are as follows: YEAR ENDED ---------------------------- OCTOBER OCTOBER OCTOBER 25, 1997 26, 1996 28, 1995 -------- -------- -------- Meat Products ......... 54.1% 52.6% 54.4% Prepared Foods ........ 26.5% 28.1 28.0 Poultry, Fish, Other .. 19.4% 19.3 17.6 ---- ---- ---- 100.0% 100.0% 100.0% ===== ===== ===== Meat Products includes fresh meats, sausages, hams, wieners and bacon. Prepared Foods products include canned luncheon meats, shelf stable microwaveable entrees, stews, chilies, hash, meat spreads and frozen processed products. Jennie-O turkey and Farm Fresh catfish products are included in the Poultry, Fish and Other category. Hormel Foods has numerous trademarks and patents which are important to the Company's business. Some of the trademarks are registered and some are not. The more significant trademarks are: HORMEL, BLACK LABEL, BY GEORGE, CURE 81, CUREMASTER, DI LUSSO, DINTY MOORE, HOMELAND, LAYOUT PACK, LIGHT & LEAN, LITTLE SIZZLERS, MARY KITCHEN, RANGE BRAND, ROSA GRANDE, SANDWICH MAKER, SPAM, WRANGLERS, JENNIE-O, KID'S KITCHEN, FAST 'N EASY, DUBUQUE, QUICK MEAL, OLD SMOKEHOUSE, and HOUSE OF TSANG. The Company holds 15 foreign and 24 U. S. patents. -3- The Company for the past several years has been concentrating on processed, consumer branded products with year round demand to minimize the seasonal variation experienced with commodity type products. Pork continues to be the primary raw material for Company products. Although, live pork producers are moving toward larger and more efficient year round confinement operations, there is still a seasonal variation in the supply of fresh pork materials. The expanding line of processed items has reduced but not eliminated the sensitivity of Company results to raw material supply and price fluctuations. Quarterly results for fiscal 1997 and 1996 are reported on page 29, Note K to the financial statements in the Annual Report to Stockholders for 1997. On October 25, 1997, the Company had unused lines of credit of $24,475,000. A fee is paid for the availability of fixed credit lines. Long-term debt consists of a private placement of Senior Notes for $110,000,000 maturing October 15, 2002 and October 15, 2006; and $64,400,000 of long-term notes, denominated in Spanish Pesetas, used to purchase a 21.4 percent equity interest in Campofrio Alimentacion, S.A., Madrid, Spain. To provide an almost perfect hedge against currency fluctuations, the investment in Campofrio was also made in Pesetas. Other long-term debt includes $5,700,000 in small issue Industrial Revenue Bonds of varying maturities and $11,046,000 of promissory notes through 2008 secured by limited partnership interests in the Federal Affordable Housing Program. Financial resources and anticipated funds from operations are considered adequate to meet normal operating cash requirements in 1998. The Company has no customers the loss of which would have a significant effect on the Company's business. During fiscal year 1997, no customer accounted for more than 5.3% of sales. Backlog orders are not significant due to the perishable nature of a large portion of the products and orders are accepted and shipped on a current basis. The Company continues to develop and introduce new products each year. No new product in 1997 required a material investment of Company assets. Improving and developing new products is the responsibility of task forces including personnel from operations, marketing, administration, engineering, and research and development. Research and development expenditures for fiscal 1997, 1996 and 1995, respectively, were $8,580,000, $8,022,000, and $7,829,212. There are 29 professional employees engaged in full time research, 18 in the area of improving existing products and 11 in developing new products. As of October 25, 1997, the Company had over 11,000 active employees. Livestock slaughtered by the parent company is purchased by Company buyers, commission dealers, sale barns, terminal markets or under long-term supply contracts at locations principally in Minnesota, Iowa, Nebraska, Colorado and South Dakota. The level of pork production in the United States has an impact on Hormel's operations. Any significant decrease in the supply of pork has an adverse effect because of higher costs and lower margins coupled with an under-utilization of Company facilities. A significant increase in the supply of pork normally results in lower costs and higher margins. To minimize supply variations which impact profitability the live pork industry is rapidly moving to very large, vertically integrated, year-round confinement operations. The Company, as its major competitors, continues to implement options to maximize the benefits of reduced volatility in the supply of fresh pork through long-term contracts and supply agreements. Products under the Hormel label are sold in all 50 states by the parent Company. Products are sold by approximately 575 sales personnel operating in assigned territories coordinated from district sales offices located in most of the larger United States cities, and by approximately 450 brokers and distributors. Distribution of products to customers is by common carrier. -4- The Company has plants at Austin, Minnesota; Fremont, Nebraska and Rochelle, Illinois that slaughter livestock for processing. The slaughter facility at Austin is leased to Quality Pork Processors of Dallas, Texas under a custom slaughter arrangement. Facilities that produce manufactured items are located in Algona, Iowa; Austin, Minnesota; Beloit, Wisconsin; Aurora, Illinois; Osceola, Iowa; Fremont, Nebraska; Knoxville, Iowa; Oklahoma City, Oklahoma; Stockton, California; Tucker, Georgia; and Wichita, Kansas. Custom manufacturing for Hormel is performed by several companies including Owatonna Canning Company, Owatonna, Minnesota; Lakeside Packing Company, Plainview, Minnesota; and Western Steer Mom and Pops of Claremont, North Carolina. Power Logistics, Inc. operates a distribution center for the Company at Osceola, Iowa. JENNIE-O FOODS Jennie-O Foods, Inc., a Willmar, Minnesota, based turkey processor, has turkey raising, slaughter and processing operations at various locations within Minnesota. Jennie-O contracts with turkey growers to supplement the turkeys it raises to meet its raw material requirements for whole birds and processed turkey products. As part of Jennie-O's long term expansion program,the Heartland Food Company plant in Marshall, Minnesota was purchased in October 1997. HORMEL FOODS INTERNATIONAL Hormel Foods International Corporation markets the Company's products in international areas including the Philippines, Japan and various European countries. The Company, through Hormel Foods International, has licensed companies to manufacture SPAM luncheon meat overseas on a royalty basis, principally Tulip International in Denmark. Hormel Foods International owns Hormel FSC, Inc., a foreign sales corporation, which engages in export related activities. Hormel Foods International has offices in Australia, China and Spain to increase the sales and marketing support in the international marketplace. During 1997 a minority investment was made in Campofrio Alimentacion, S.A.,Madrid, Spain. VISTA INTERNATIONAL PACKAGING Vista International Packaging, Inc., previously a subsidiary of Hormel Foods International became a subsidiary of the parent company in 1995. Vista is a food packaging company located in Kenosha, Wisconsin which imports, customizes, and distributes, a variety of natural and artificial casings for the meat and food processing industry. DUBUQUE FOODS Dubuque Foods, Inc., formerly called FDL Marketing, Inc., purchased the brands and trademarks of FDL Foods, Inc., Dubuque, Iowa, in July of 1993. FDL Foods also sold its Rochelle, Illinois slaughter and processing operations to Rochelle Foods, Inc., a sister subsidiary of Dubuque Foods. Dubuque Foods has co-packing arrangements with Rochelle Foods and others to manufacture products under its brand names. -5- EXECUTIVE OFFICERS OF THE REGISTRANT
(d) YEAR WHICH FIRST ELECTED NAME OFFICE AGE OFFICER ---- ------ --- ------- Joel W. Johnson Chairman of the Board, 54 1991 President and Chief Executive Officer Don J. Hodapp Executive Vice President 59 1969 & Chief Financial Officer Gary J. Ray Executive Vice President 51 1988 Eric A. Brown Group Vice President, 51 1987 Prepared Foods James W. Cole Group Vice President, 63 1990 Foodservice Group David N. Dickson Group Vice President, 54 1989 International and Corporate Development Stanley E. Kerber Group Vice President, 59 1977 Meat Products Michael J. McCoy Vice President and 50 1994 Treasurer Richard W. Schlange Vice President and 62 1969 Controller Mahlon C. Schneider Vice President and 58 1990 General Counsel Richard A. Bross Vice President, 46 1995 Grocery Products Forrest D. Dryden Vice President, Research 54 1987 & Development Ronald W. Fielding Vice President, Hormel 45 1997 and President Hormel Foods International Jerry C. Figenskau Vice President, 57 1994 Specialty Products James A. Jorgenson Vice President, 52 1990 Human Resources Gary C. Paxton Vice President, 52 1992 Manufacturing Kenneth P. Regner Vice President, 60 1989 Engineering James N. Rieth Vice President, Hormel 57 1981 and President and Chief Executive Officer Jennie-O Foods Robert A. Slavik Vice President, 52 1993 Meat Products Sales Thomas J. Leake Corporate Secretary 52 1990
No family relationship exists among the executive officers. -6- All of the above executive officers have been employed by the Registrant in an officer capacity for more than the past five years except Mr. Robert A. Slavik, Director Meat Products Sales until January 26, 1993 when he was elected Vice President, Meat Products Sales; Mr. Jerry C. Figenskau, Director of Marketing Services until December 30, 1991 when he was named Director Specialty Products, on January 24, 1994 he was elected Vice President, Specialty Products; Mr. Richard A. Bross, Director of Grocery Products Marketing until January 3, 1994 when he was named General Manager of Grocery Products, on January 30, 1995 he was elected Vice President, Grocery Products; Mr. Michael J. McCoy Vice President, Treasurer of FDL Foods, Inc. until being employed by the Company on special assignment Treasury Division on October 3, 1994, on November 21, 1994 he was appointed Assistant Treasurer, on January 1, 1996 he was elected Treasurer and on January 27, 1997 he was elected Vice President, Treasurer; Mr. Ronald W. Fielding, Regional Manager, Oscar Mayer Foods Corporation until being employed by the Company as Meat Products Regional Sales Manager-Southwest Region on January 24, 1994; on June 5, 1995 he was elected Vice President, Hormel Foods International Corporation; on January 1, 1996 he was elected President, Hormel Foods International; and on January 27, 1997 he was elected Vice President, Hormel and President, Hormel Foods International. The executive officers are elected annually by the Board of Directors at the first meeting following the Annual Meeting of Stockholders. Vacancies may be filled and additional officers elected at any regular or special meeting. ITEM 2. PROPERTIES
Approximate Floor Space (Square Feet) Owned or Expiration Location Unless Noted Leased Date -------- ------------ ------ ---- Hormel Foods Corporation ------------------------ SLAUGHTERING AND PROCESSING PLANTS Austin, Minnesota Slaughter 217,000 Owned (Leased Out) Processing 1,024,000 Owned Fremont, Nebraska 637,000 Owned Rochelle, Illinois 434,000 Owned (Rochelle Foods, Inc.) PROCESSING PLANTS Algona, Iowa 152,000 Owned Austin, Minnesota Annex 83,000 Owned Beloit, Wisconsin 338,000 Owned Davenport, Iowa 148,000 Owned Sale Closing 1/98 Ft. Dodge, Iowa 17,000 Owned (Leased out) Houston, Texas 93,000 Owned (Closed) Knoxville, Iowa 130,000 Owned Oklahoma City, Oklahoma 57,000 Owned Osceola, Iowa Plant 333,000 Owned Osceola, IA Dist.Center 235,000 Owned Stockton, California 139,000 Owned Tucker, Georgia 259,000 Owned Wichita, Kansas 75,000 Owned (Dold Foods, Inc.)
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Approximate Floor Space (Square Feet) Owned or Expiration Location Unless Noted Leased Date -------- ------------ ------ ---- Aurora, Illinois (Creative Contract Packaging Corp.) 71,000 Owned Aurora, Illinois (Herb-Ox Plant) 70,000 Owned Research and Development Austin, Minnesota 56,000 Owned CORPORATE OFFICES Austin, Minnesota 119,000 Owned STAGG FOODS, INC. Hillsboro, Oregon 100,000 Owned (Closed) DAN'S PRIZE, INC. Long Prairie, 78,999 Owned Minnesota-Plant JENNIE-O FOODS, INC. Willmar, Minnesota Airport Plant location 282,000 Owned Willmar, Minnesota Benson Ave. Plant 79,000 Owned Melrose, Minnesota-Plant 119,000 Owned Turkey farms - acres 9,032 Owned Henning, Minnesota 5,200 Owned Feed Mill Atwater, Minnesota 14,000 Owned Feed Mill Montevideo, Minnesota-Plant 80,000 Owned Pelican Rapids, Minnesota 185,000 Owned West Central Turkeys Plant Marshall, Minnesota Heartland Foods, Minn 140,000 Owned VISTA INTERNATIONAL PACKAGING, INC. Kenosha, Wisconsin Plant 61,000 Owned ALGONA FOOD EQUIPMENT COMPANY (AFECO) Algona, Iowa Plant 45,000 Owned
The Company has expansion or renovation projects in progress at Austin, Minnesota; Osceola, Iowa; Fremont, Nebraska; Rochelle, Illinois and at various Jennie-O locations. The Company believes its operating facilities are well maintained and suitable for current production volumes, and after the completion of the expansion and renovation for all volumes which are anticipated in the foreseeable future. ITEM 3. LEGAL PROCEEDINGS The Company knows of no pending material legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to stockholders during the fourth quarter of the 1997 fiscal year. -8- At the Annual Meeting of Stockholders to be held January 27, 1998 shareholders will vote on the following: Approval of the Company's Operators' Share Incentive Compensation Plan to enable certain compensation paid under the Plan to qualify as deductible performance-based compensation under Section 162(m) of the Internal Revenue Code. Approval of the Company's Long-Term Incentive Plan to enable compensation paid under the Plan to qualify as deductible performance-based compensation under Section 162(m) of the Internal Revenue Code. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The high and low closing price of the Companyis Common Stock and the dividends per share declared for each fiscal quarter of 1997 and 1996, respectively, are shown below:
1997 HIGH LOW DIVIDEND ------------------- --------- -------- -------- First Quarter 27-7/8 23-1/2 $.155 Second Quarter 27 23-7/8 $.155 Third Quarter 28-7/16 23-7/8 $.155 Fourth Quarter 32-1/2 28-1/16 $.155 1996 HIGH LOW DIVIDEND ------------------- --------- -------- -------- First Quarter 25-1/2 22-7/8 $.15 Second Quarter 27-3/4 24 $.15 Third Quarter 27 22-7/8 $.15 Fourth Quarter 24-1/4 20-1/2 $.15
Information about dividends,principal market of trade and and number of stockholders on pages 32 of the Annual Stockholders' Report for the year ended October 25, 1997, is incorporated herein by reference. The Company's Common Stock has been listed on the New York Stock Exchange since January 16, 1990. ITEM 6. SELECTED FINANCIAL DATA Selected Financial Data for the ten years ended October 25, 1997, on pages 18 and 19 of the Annual Stockholders' Report for the year ended October 25, 1997, is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION Management's Discussion and Analysis of Financial Condition and Results of Operations on pages 30 and 31 of the Annual Stockholders' Report for the year ended October 25, 1997, is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Consolidated Financial Statements, including unaudited quarterly data, on pages 20 through 29 and Report of Independent Auditors on page 29 of the Annual Stockholders' Report for the year ended October 25, 1997 is incorporated herein by reference. ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. -9- PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information under "Election of Directors", contained on pages 3 through 5 of the definitive proxy statement for the Annual Meeting of Stockholders to be held January 27, 1998, is incorporated herein by reference. Information concerning Executive Officers is set forth in Item 1(d) of Part I pursuant to Instruction 3, Paragraph (b) of Item 401 of Regulation S-K. ITEM 11. EXECUTIVE COMPENSATION Information for the year ended October 25, 1997, under "Executive Compensation" on pages 8 through 20 and "Compensation of Directors" on page 5 of the definitive proxy statement for the Annual Meeting of Stockholders to be held January 27, 1998, is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Ownership of securities of the Company by certain beneficial owners and management for the year ended October 25, 1997, as set forth on pages 7 and 8 of the definitive proxy statement for the Annual Meeting of Stockholders to be held January 27, 1998, is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information under "Other Information Relating to Directors, Nominees, and Executive Officers" for the year ended October 25, 1997, as set forth on page 13 of the definitive proxy statement for the Annual Meeting of Stockholders to be held January 27, 1998, is incorporated herein by reference. PART IV ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) and (2)--The response to this portion of Item 14 is submitted as a separate section of this report. (3) --List of Exhibits--The response to this portion of Item 14 is submitted as a separate section of this report. (b) 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 Board members Earl B. Olsen and Ray V. Rose. The Company filed a Form 8-K on December 17, 1997 announcing the sale of its Davenport, Iowa gelatin/specialized proteins plant to Goodman Fielder Limited of Sydney, Australia for $71,400,000. The sale is scheduled to close in January 1998. (c) The response to this portion of Item 14 is submitted as separate section of this report. (d) The response to this portion of Item 14 is submitted as separate section of this report. -10- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 By /s/ Joel W. Johnson January 23, 1998 --------------------------------------------------------------- Joel W. Johnson, Chairman of the Board Date President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated:
/s/ Joel W. Johnson 1/23/98 Chairman of the Board, President, --------------------------------------------- Chief Executive Officer and Director Joel W. Johnson Date (Principal Executive Officer) Executive Vice President and Chief Financial Officer /s/ Don J. Hodapp 1/23/98 and Director --------------------------------------------- (Principal Financial and Don J. Hodapp Date Accounting Officer) /s/ Gary J. Ray 1/23/98 --------------------------------------------- Executive Vice President Gary J. Ray Date and Director /s/ Eric A. Brown 1/23/98 Group Vice President --------------------------------------------- Prepared Foods Group Eric A. Brown Date and Director /s/ James W. Cole 1/23/98 --------------------------------------------- Group Vice President James W. Cole Date Foodservice Group and Director /s/ David N. Dickson 1/23/98 Group Vice President --------------------------------------------- International and David N. Dickson Date Corporate Development and Director /s/ Stanley E. Kerber 1/23/98 --------------------------------------------- Group Vice President Meat Stanley E. Kerber Date Products Group and Director
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/s/ John W. Allen 1/23/98 Director --------------------------------------------- John W. Allen Date /s/ John R. Block 1/23/98 Director --------------------------------------------- John R. Block Date /s/ William S. Davila 1/23/98 Director --------------------------------------------- William S. Davila Date /s/ E. Peter Gillette Jr 1/23/98 Director --------------------------------------------- E. Peter Gillette Jr Date /s/ Luella G. Goldberg 1/23/98 Director --------------------------------------------- Luella G. Goldberg Date /s/ Geraldine M. Joseph 1/23/98 Director --------------------------------------------- Geraldine M. Joseph Date /s/ Joseph T. Mallof 1/23/98 Director --------------------------------------------- Joseph T. Mallof Date /s/ Dr. Robert R. Waller 1/23/98 Director --------------------------------------------- Dr. Robert R. Waller Date
-12- F-1 ANNUAL REPORT ON FORM 10-K ITEM 14 (a) (1), (2), AND (3) AND ITEM 14 (c) AND (d) LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE FINANCIAL STATEMENT SCHEDULE LIST OF EXHIBITS YEAR ENDED OCTOBER 25, 1997 HORMEL FOODS CORPORATION Austin, Minnesota -13- F-2 ITEM 14(A) (1), (2) AND (3) AND ITEM 14 (C) AND (D) LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES HORMEL FOODS CORPORATION OCTOBER 25, 1997 The following consolidated financial statements of Hormel Foods Corporation included in the Annual Report of the Registrant to its stockholders for the year ended October 25, 1997, are incorporated herein by reference in Item 8 of Part II of this report: CONSOLIDATED STATEMENTS OF FINANCIAL POSITION--October 25, 1997 and October 26, 1996. CONSOLIDATED STATEMENTS OF OPERATIONS--Years Ended October 25, 1997, October 26, 1996 and October 28, 1995. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' INVESTMENT--Years Ended October 25, 1997, October 26, 1996 and October 28, 1995. CONSOLIDATED STATEMENTS OF CASH FLOWS--Years Ended October 25, 1997, October 26, 1996 and October 28, 1995. NOTES TO FINANCIAL STATEMENTS--October 25, 1997. REPORT OF INDEPENDENT AUDITORS The following consolidated financial statement schedule of Hormel Foods Corporation required pursuant to Item 14(d) is submitted herewith: SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS AND RESERVES .............. F-3 All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. FINANCIAL STATEMENTS AND SCHEDULES OMITTED Condensed parent company financial statements of the registrant are omitted pursuant to Rule 5-04(c) of Article 5 of Regulation S-X. -14- F-3 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES HORMEL FOODS CORPORATION (DOLLARS IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------------------------ COL. A COL. B COL. C COL. D COL. E ADDITIONS - ------------------------------------------------------------------------------------------------------------------------------------ (1) (2) BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING COSTS AND OTHER ACCOUNTS- DEDUCTIONS- END OF CLASSIFICATION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD ==================================================================================================================================== VALUATION RESERVE DEDUCTION FROM ASSETS ACCOUNT: FISCAL YEAR ENDED OCTOBER 25, 1997 Allowance for doubtful accounts receivable ............................ $ 1,413 $ 757 $ (140)(3) $ 822(1) $ 1,273 (65)(2) FISCAL YEAR ENDED OCTOBER 26, 1996 Allowance for doubtful accounts receivable ............................ $ 1,413 $ 453 $ 0 $ 542(1) $ 1,413 (89)(2) FISCAL YEAR ENDED OCTOBER 28, 1995 Allowance for doubtful accounts receivable ............................ $ 1,413 $ 971 $ 0 $ 1,189(1) $ 1,413 (218)(2)
- ---------- NOTE (1) - Uncollectible accounts written off. NOTE (2) - Recoveries on accounts previously written off. NOTE (3) - Reserve on records of Farm Fresh Catfish Company before the sale occurred during Fiscal 1997. -15- LIST OF EXHIBITS HORMEL FOODS CORPORATION NUMBER DESCRIPTION OF DOCUMENT - ------ ----------------------- **(3) A-1 Certification of Incorporation as amended to date. **(3) B-1 By-laws as amended to date. (4) Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, copies of instruments defining the rights of holders of long-term debt are not filed. The Company agrees to furnish a copy thereof to the Securities and Exchange Commission upon request. (9) None. (10) None. (11) Statement Regarding Computation of Per Share Earnings. (12) None. **(13) Pages 17 through 32 of the Annual Report to Stockholders for fiscal year ended October 25, 1997. (18) None. (19) None. (22) None. **(23) Consent of Independent Auditors. (24) None. (25) None. **(27) Financial Data Schedule **(99) Proxy Statement for the Annual Meeting of Stockholders to be held January 27, 1998. - ---------- ** These Exhibits transmitted via EDGAR. -16- EX-11 2 HORMEL PER SHARE EARNINGS HORMEL FOODS CORPORATION ITEM 14 A (3) OF FORM 10-K EXHIBIT 11 - STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS YEAR ENDED ------------------------------------------ OCTOBER 25, OCTOBER 26, OCTOBER 28, 1997 1996 1995 ------------ ------------ ------------ AS REPORTED: Average Share Outstanding .......... 76,494,846 76,506,427 76,689,386 Income ............................. $109,492,000 $ 79,408,000 $120,436,000 Share Amount ....................... $ 1.43 $ 1.04 $ 1.57 ============ ============ ============ PRIMARY: Average Share Outstanding .......... 76,494,846 76,506,427 76,689,386 Net effect of dilutive stock options based on the treasury stock method using average market price ......... 381,865 178,166 297,276 ------------ ------------ ------------ Total Shares .................. 76,876,711 76,684,593 76,986,662 Net Income ......................... $109,492,000 $ 79,408,000 $120,436,000 Per Share Amount ................... $ 1.42 $ 1.04 $ 1.56 ============ ============ ============ DILUTED: Average Shares Outstanding ......... 76,494,846 76,506,427 76,689,386 Net effect of dilutive stock options based on the treasury stock method using the year-end market price if higher than average price .......... 570,825 178,166 297,276 ------------ ------------ ------------ Total Shares .................. 77,065,671 76,684,593 76,986,662 Income ............................. $109,492,000 $ 79,408,000 $120,436,000 Share Amount ....................... $ 1.42 $ 1.04 $ 1.56 ============ ============ ============ -17- EX-3.(II) 3 HORMEL AMENDED BYLAWS BYLAWS OF HORMEL FOODS CORPORATION NAME 1. The name of the corporation is HORMEL FOODS CORPORATION. (Amended October 26, 1992; Amended December 7, 1995 to conform with Amendment to Articles of Incorporation Effective February 1, 1995) OFFICES 2. The principal office of the corporation in the State of Delaware shall be in the City of Wilmington, County of New Castle, and the name of the resident agent in charge thereof shall be The Corporation Trust Company, whose address is 100 West Tenth Street, Wilmington, Delaware. (Amended April 17, 1930; September 20, 1930; June 13, 1949) In addition to its principal office in the State of Delaware, the corporation may establish and maintain an office or offices at Austin, Minnesota, and at such other places as the Board of Directors may from time to time appoint or the business of the corporation may require. CORPORATE SEAL 3. The corporate seal of the corporation shall be circular in form and shall have inscribed thereon the name of the corporation, the year of its creation (1928) and the words "Seal", "Incorporated", and "Delaware". STOCKHOLDERS' MEETINGS 4. All meetings of the stockholders shall be held at the office of the corporation at Austin, Minnesota, or at such other place as the Board of Directors may previously determine. 5. A. An annual meeting of the stockholders of the corporation shall be held on the last Tuesday of January in each year, at eight o'clock p.m. or at such other time as the Board of Directors may designate, when the stockholders shall elect by plurality vote, by ballot, a Board of Directors, and transact such other business as may properly be brought before the meeting. (Amended November 15, 1938; June 14, 1954; April 18, 1966; October 28, 1968; April 28, 1969; December 20, 1984) B. To be properly brought before the annual meeting of stockholders, business must be (1) specified in the notice of the meeting, (2) directed to be brought before the meeting by the Board of Directors or (3) proposed at the meeting by a stockholder who (i) was a stockholder of record at the time of giving the notice provided for in these Bylaws, (ii) is entitled to vote at the meeting, and (iii) gives prior notice of the matter, which must otherwise be a proper matter for stockholder action, in the manner herein provided. For business to be properly brought before the annual meeting by a stockholder, the stockholder must give written notice to the Secretary of the corporation so as to be received at the principal executive offices of the corporation at least ninety (90) days before the date that is one year after the prior year's annual meeting. Such notice shall set forth (1) the name and record address of the stockholder, (2) the class and number of shares of the corporation owned by the stockholder, (3) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business, and (4) any material interest in such business of the stockholder. The chairman of the meeting may refuse to acknowledge any proposed business not made in compliance with the foregoing procedure. (Added 7-22-96) C. Nominations of persons for election as Directors may be made at the annual meeting of stockholders (a) by or at the direction of the Board of Directors or (b) by any stockholder who (1) was a stockholder of record at the time of giving of the notice provided for in these Bylaws, (2) is entitled to vote at the meeting and (3) gives prior notice of the nomination in the manner herein provided. For a nomination to be properly made by a stockholder, the stockholder must give written notice to the Secretary of the corporation so as to be received at the principal executive offices of the corporation at least ninety (90) days before the date that is one year after the prior year's regular meeting. Such notice shall set forth (a) as to the stockholder giving the notice: (i) the name and record address of the stockholder, and (ii) the class and number of shares of the corporation owned by the stockholder; and (b) as to each person the stockholder proposes to nominate: (i) the name, business address and residence address of the person, (ii) the principal occupation or employment of the person and (iii) the class and number of shares of the corporation's capital stock beneficially owned by the person. The chairman of the meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure. (Added 72296) 6. The holders of a majority of the stock issued and outstanding, present in person, or represented by proxy, shall be requisite and shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by law, by the certificate of incorporation, or by these Bylaws. If, however, such majority shall not be present or represented at any meeting of the stockholders, the stockholders present in person or by proxy shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until the requisite amount of stock shall be present. At such adjourned meeting at which the requisite amount of stock shall be represented, any business may be transacted which might have been transacted at the meeting as originally notified. 7. At each meeting of the stockholders every stockholder shall be entitled to vote in person, or by proxy appointed by an instrument in writing subscribed by such stockholder and bearing a date not more than three years prior to said meeting, unless said instrument provides for a longer period. Each stockholder shall have one vote for each share of stock registered in his name on the books of the corporation. The vote for Directors, and, upon demand of any stockholder, the vote upon any question before the meeting, shall be by ballot. All elections shall be held and all questions decided by a plurality vote. (Amended March 23, 1970) 8. Written notice of the annual meeting shall be mailed to each stockholder at such address as appears on the stock book of the corporation at least ten days prior to the meeting. (Amended October 28, 1975) 9. A complete list of the stockholders entitled to vote at the ensuing election, arranged in alphabetical order, with the residence of each, and the number of shares held by each, shall be prepared by the Secretary and filed at the place where the election is to be held, at least ten days before every election, and shall at all times, during the usual hours for business, and during the whole time of said election, be open to the examination of any stockholder. (Amended February 19, 1968) 10. Special meetings of the stockholders, for any purpose, or purposes, unless otherwise prescribed by the statute, may be called by the Chairman of the Board, or Secretary at the request, in writing, of stockholders owning a majority in amount of the entire capital stock of the corporation issued and outstanding. Such request shall state the purpose or purposes of the proposed meeting. (Amended January 31, 1984; Amended September 27, 1993, Effective October 1, 1993; Amended December 7, 1995) 11. Business transacted at all special meetings shall be confined to the objects stated in the call. 12. Written notice of a special meeting of stockholders, stating the time and place and object thereof, shall be mailed, postage prepaid, at least ten days before such meeting, to each stockholder at such address as appears on the books of the corporation. (Amended October 28, 1975) DIRECTORS 13. The property and business of the corporation shall be managed by its Board of Directors. The number of Directors shall be established from time to time by resolution of the stockholders or the Board of Directors. The Directors of the corporation shall be elected annually at the annual meeting of stockholders and each Director shall be elected to serve until his successor shall be elected and shall qualify. (Amended November 16, 1964; June 21, 1965; November 25, 1968; August 25, 1969; December 22, 1969; February 24, 1970; December 19, 1972; July 22, 1974; September 23, 1974; December 22, 1975; November 29; 1976; December 27, 1978; July 23, 1979; January 29, 1980) 14. In addition to the powers and authorities by these Bylaws expressly conferred upon them, the Board may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by Certificate of Incorporation or by these Bylaws directed or required to be exercised or done by the stockholders. DIRECTORS' MEETINGS 15. (Amended September 27, 1993, Effective October 1, 1993; Deleted December 7, 1995) 15. Regular meetings of the Board, after the organizational meeting, shall be held without notice at the Corporate Office of the corporation at Austin, Minnesota, on the fourth Monday of January, March, May, July, September, October and November at 1:00 p.m. or such other time as the Board shall designate, or, without notice, at such other time or place, within or without the State of Minnesota, as the Board of Directors may from time to time designate. (Amended July 16, 1935; June 14, 1954; May 20, 1957; April 17, 1967; February 19, 1968; March 25, 1980; January 28, 1985) 16. Special meetings of the Board may be called by the Chairman of the Board on one day's notice to each Director, either personally or by mail or by telegram or telephone; special meetings shall be called by the Chairman of the Board, or Secretary in like manner or on like notice on the written request of two Directors. (Amended January 31, 1984; Amended September 27, 1993, Effective October 1, 1993; Amended December 7, 1995) 17. At all meetings of the Board, a majority of the number of Directors authorized by the Bylaws shall be necessary and sufficient to constitute a quorum for the transaction of business, and the act of a majority of the Directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the Certificate of Incorporation or by these Bylaws. (Amended January 18, 1965) COMPENSATION OF DIRECTORS 18. Directors, as such, shall not receive any stated salary for their services, but, by resolution of the Board, a fixed sum and expenses of attendance, if any, may be allowed for attendance at each regular or special meeting of the Board; PROVIDED, That nothing herein contained shall be construed to preclude any Director from serving the corporation in any other capacity and receiving compensation therefor. 19. Members of special or standing committees may be allowed like compensation for attending committee meetings. COMMITTEES 20. The Board of Directors may, by resolution or resolutions, passed by a majority of the whole Board, designate one or more committees, each committee to consist of two or more of the Directors of the corporation, which, to the extent provided in said resolution or resolutions or in these Bylaws, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the corporation and may have power to authorize the seal of the corporation to be affixed to all papers which may require it. Such committee or committees shall have such name or names as may be stated in these Bylaws or as may be determined from time to time by resolution adopted by the Board of Directors. 21. The committees shall keep regular minutes of their proceedings and report the same to the Board at each regular meeting. VACANCIES 22. In case of any vacancy in the Board of Directors by reason of death, resignation, or otherwise, the remaining Directors, by majority vote, may elect a successor to hold office until a successor has been elected by the stockholders. (Amended April 18, 1955; November 25, 1974; October 26, 1992 [Bylaw 33 renumbered to Bylaw 23, and following sections renumbered]) OFFICERS 23. The officers of the corporation shall be elected by the Board of Directors and shall be a Chairman of the Board, a President, one or more Vice Presidents of whatever special designation the Board may determine, a Secretary and a Treasurer. The Board may also elect Assistant Vice Presidents, Assistant Secretaries and Assistant Treasurers, and a Controller and Assistant Controllers. The Chairman of the Board and the President must be Directors, but other officers need not be Directors. The designation and duties of any Vice President may be changed by the Board at any time. (Amended November 19, 1929; July 8, 1946; April 18, 1955; April 21, 1958; July 19, 1965; January 15, 1968; February 19, 1968; August 25, 1969; August 24, 1981; April 25, 1983; January 31, 1984; Amended September 27, 1993, Effective October 1, 1993; Amended December 7, 1995) 24. The Board of Directors, at its first meeting after each Annual Meeting of Stockholders, shall elect a Chairman of the Board, a President, one or more Vice Presidents, a Secretary and a Treasurer, and may elect a Controller, Assistant Vice Presidents, Assistant Secretaries, Assistant Treasurers and Assistant Controllers. Such action may be taken by unanimous written consent in lieu of a meeting. (Amended May 11, 1942; July 8, 1946; April 18, 1955; July 19, 1965; January 15, 1968; February 19, 1968; August 25, 1969; August 24, 1981; April 25, 1983; January 31, 1984; October 26, 1992; Amended September 27, 1993, Effective October 1, 1993; Amended December 7, 1995) 25. The Board may appoint such other officers and agents as it shall deem necessary, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board. 26. The Board of Directors shall have the right to fix the salaries of all officers of the corporation. 27. The officers of the corporation shall hold office until their successors are elected and qualify in their stead. Any officers elected by the Board of Directors may be removed at any time by the affirmative vote of a majority of the whole Board of Directors. If the office of any officer becomes vacant for any reason, the vacancy shall be filled by the affirmative vote of the majority of the whole Board of Directors. In its discretion, the Board may leave unfilled any office except that of President, Treasurer or Secretary. (Amended April 18, 1955) THE CHAIRMAN OF THE BOARD 28. A. The Chairman of the Board shall preside at all meetings of stockholders and Directors. B. The Chairman of the Board shall be an exofficio member of all standing committees of the Board except those committees which the Board determines will comprise only nonemployee Directors, specifically including the Audit Committee and the Compensation Committee. C. The Chairman of the Board shall be the Chief Executive Officer of the corporation and shall have general and active management of the business of the corporation. (Bylaw 28 added December 7, 1995) THE PRESIDENT 29. A. In the absence of the Chairman of the Board, the President shall preside at meetings of the stockholders and Directors. In the event of a vacancy in the office of the Chairman of the Board, the President shall exercise the powers of the Chairman of the Board until the vacancy in the office of the Chairman of the Board has been filed. B. The President shall be an exofficio member of all standing committees of the Board except those committees which the Board determines will comprise only nonemployee Directors, specifically including the Audit Committee and the Compensation Committee. C. The President shall have powers and duties appropriate to the office of President, taking into account Bylaw 28.C. (Bylaw 29 added December 7, 1995) 30. (Amended April 18, 1955; April 16, 1962; July 19, 1965; February 19, 1968; August 25, 1969; August 24, 1981; January 31, 1984; May 19, 1986; deleted September 27, 1993 to be effective October 1, 1993) VICE PRESIDENTS 30. A. In the absence or disability of the President, the duties and powers of the President will be exercised by the Executive Vice Presidents, if any, in the order of their seniority with the Company; if there is no Executive Vice President, then by such of the Group Vice Presidents as are members of the Board in the order of their seniority on the Board, and if any two Group Vice presidents have the same seniority on the Board, then in the order of their seniority with the corporation until the Board of Directors shall designate one of their number to perform such duties. (Amended July 8, 1946; April 18, 1955; April 21, 1958; July 19, 1965; January 15, 1968; February 19, 1968; August 27, 1979; August 24, 1981; April 25, 1983) B. In the absence or disability of the President, or the Executive Vice Presidents and all of the Group Vice Presidents, the Vice Presidents who are members of the Board of Directors in the order of their seniority on the Board shall perform the duties and exercise the powers of the President until the Board of Directors shall designate one of their number to perform such duties. (Amended July 8, 1946; April 21, 1958; July 19, 1965; January 15, 1968; February 19, 1968; August 25, 1969; August 24, 1981; April 25, 1983) THE SECRETARY AND ASSISTANT SECRETARIES 31. A. The Secretary shall attend all sessions of the Board and all meetings of the stockholders and record all votes and the minutes of all proceedings in a book to be kept for that purpose; and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the stockholders and of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or Chief Executive Officer of the corporation, under whose supervision he shall be. He shall keep in safe custody the seal of the corporation, and when authorized by the Board, affix it to any instrument requiring it, and when so affixed it shall be attested by his signature or by the signature of the Treasurer. (Amended October 26, 1992; Amended September 27, 1993, Effective October 1, 1993) B. The Assistant Secretaries in the order of their seniority shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary, and shall perform such other duties as the Board of Directors shall prescribe. THE TREASURER AND ASSISTANT TREASURERS 32. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation, and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation, in such depositories as may be designated by the Board of Directors. A. He shall disburse the funds of the corporation as may be ordered by the Board, taking the proper vouchers for such disbursement, and shall render to the Chief Executive Officer of the corporation and Directors, at the regular meetings of the Board, or whenever they may require it, an account of all his transactions as Treasurer and of the financial condition of the corporation. (Amended September 27, 1993, Effective October 1, 1993) B. He shall give the corporation a bond if required by the Board of Directors in a sum, and with one or more sureties satisfactory to the Board, for the faithful performance of the duties of his office, and for the restoration of the corporation in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation. C. The Assistant Treasurers in the order of their seniority shall, in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer, and shall perform such other duties as the Board of Directors shall prescribe. DUTIES OF OFFICERS MAY BE DELEGATED 33. In case of the absence of an officer of the corporation, or for any other reason that the Board may deem sufficient, the Board may delegate, for the time being, the powers or duties, or any of them of such officer to any other officer, or to any Director, PROVIDED, a majority of the entire Board concur therein. CERTIFICATES OF STOCK 34. Stock certificates of the corporation shall be numbered consecutively and shall be entered on the books of the corporation as they are issued. They shall exhibit the holders' names and the number of shares and shall be signed by the Chairman of the Board or the President or a Vice President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary. Until such other transfer agent is appointed, the Secretary shall sign as transfer agent. Each certificate shall bear the corporate seal or a facsimile thereof. Each certificate shall recite the kind or class of stock it represents. (Amended September 8, 1947; April 18, 1955; November 24, 1959; October 26, 1992; Amended September 27, 1993, Effective October 1, 1993; Amended December 7, 1995) Where a certificate is countersigned by (i) a transfer agent other than the corporation or its employee, or (ii) a registrar other than the Corporation or its employee, either of which countersignatures may be a facsimile, any other signature on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. (Added by amendment January 12, 1942; September 8, 1947; April 18, 1955; November 24, 1959; October 27, 1969; October 26, 1992; November 23, 1992) TRANSFER OF STOCK 35. All transfer of stock of the corporation shall be made on the books of the corporation only by the person named in the certificate or by an attorney lawfully constituted in writing, and upon the surrender of certificates for the stock so transferred. Unless other transfer agents be designated by the Board of Directors, the Secretary shall be the sole transfer agent. CLOSING OF TRANSFER BOOKS 36. The Board of Directors shall have power to close the stock transfer books of the corporation for a period not exceeding sixty (60) days preceding the date of any meeting of stockholders or the date for payment of any dividend or the date for the allotment of rights or the date when any change or conversion or exchange of capital stock shall go into effect; PROVIDED, however, that in lieu of closing the stock transfer books as aforesaid, the Board of Directors may fix in advance a date, not exceeding sixty (60) days preceding the date of any meeting of stockholders or the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect as a record date for the determination of the stockholders entitled to notice of, and to vote at any such meeting, or entitled to receive payment of any such dividend, or to any such allotment of rights, or to exercise the rights in respect of any such change, conversion or exchange of capital stock, and in such case only such stockholders as shall be stockholders of record on the date so fixed shall be entitled to such notice of, and to vote at, such meeting, or to receive payment of such dividend, or to receive such allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any stock on the books of the corporation after any such record date fixed as aforesaid. (Amended November 21, 1966; March 23, 1970) REGISTERED STOCKHOLDERS 37. The corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and accordingly shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person, whether or not it shall have express or other notice thereof, save expressly provided by the laws of Delaware. LOST CERTIFICATE 38. Any person claiming a certificate of stock to be lost or destroyed shall make an affidavit or affirmation of that fact and advertise the same in such manner as the Board of Directors may require, and the Board of Directors may, in their discretion, before issuing a new certificate, require the owner of the lost or destroyed certificate, or his legal representative, to give the corporation a bond, in such sum as they may direct, not exceeding double the value of the stock, to indemnify the corporation against any claim that may be made against it on account of alleged loss of any such certificate; a new certificate of the same tenor and for the same number of shares as the one alleged to be lost or destroyed may be issued without requiring any bond when, in the judgment of the Directors, it is proper so to do. CHECKS AND NOTES 39. Checks, drafts, orders for the payment of money and promissory notes shall be signed or endorsed in the name of the corporation by such person or persons as the Board of Directors, by resolution, shall from time to time appoint. FISCAL YEAR 40. The fiscal year of the corporation shall end on the last Saturday of October in each year. DIVIDENDS 41. Dividends upon the capital stock of the corporation, subject to the provisions of the certificate of incorporation, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the Directors from time to time, in their absolute discretion, think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purposes as the Directors shall think conducive to the interests of the corporation. INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS 42. The corporation to the fullest extent permitted by the applicable laws of the State of Delaware in effect from time to time shall indemnify each officer against the expenses of any action to which such officer is a party or is threatened to be made a party in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding") by reason of the fact that he is or was an officer of the corporation; and the corporation may purchase and maintain insurance for the purpose of indemnification to the fullest extent permitted by said laws. Notwithstanding any other provision of these Bylaws and except as otherwise specifically provided for herein, the corporation shall be required to indemnify an officer in connection with a proceeding (or part thereof including any counterclaim in any proceeding) commenced by such officer only if the commencement of such proceeding (or part thereof including any counterclaim in any proceeding) by the officer was authorized by the Board of Directors. As used in this Bylaw: (i) the term officer means any person who is, was or may hereafter be a director, officer, employee or agent of this corporation or, at the request of this corporation, of any other corporation or of any partnership, joint venture, trust or other enterprise and the rights of indemnification under this Bylaw shall inure to the benefit of the heirs and legal representatives of any such persons, (ii) the term action means any threatened, pending, or completed action, suit or proceeding, whether civil, criminal, administrative or investigative including those by or in the right of the corporation and whether or not involving an act or omission of an officer in his capacity as such and whether or not he is an officer at the time of such action, and (iii) the term expenses of any action shall include attorneys' fees, judgments, fines, amounts paid in settlement and any other expenses incurred in connection with an action but in the case of actions by or in the right of the corporation the term shall not include judgments or other amounts paid to the corporation. The foregoing terms shall be construed and shall be deemed to be amended from time to time as necessary so as to permit indemnification to the fullest extent permitted under the applicable laws of the State of Delaware then in effect. The corporation's obligation, if any, to indemnify or to advance expenses to any Indemnitee who was or is serving at its request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, or other enterprise shall be reduced by any amount such Indemnitee may collect as indemnification or advancement of expenses from, or insurance related to, such other corporation, partnership, joint venture, trust, or other enterprise. (Bylaw 42 added November 20, 1967; amended May 27, 1980; July 28, 1997) WAIVER OF NOTICES 43. Any stockholder, director or officer may waive any notice required to be given under these Bylaws. AMENDMENTS 44. These Bylaws may be altered or amended by the Board of Directors at any meeting by the affirmative vote of a majority of the whole Board of Directors. The Bylaws may also be altered or amended at any meeting of the stockholders by the affirmative vote of a majority of the stock issued and outstanding. EX-13 4 HORMEL 1997 ANNUAL REPORT
OFFICERS AND DIRECTORS JOEL W. JOHNSON (4*,5,7*) MICHAEL J. MCCOY WILLIAM S. DAVILA (1,2*) Chairman of the Board Vice President Los Angeles, CA President Treasurer President Emeritus Chief Executive Officer The Vons Companies, Inc. Director since June 1991 GARY C. PAXTON Director since January 1993 Vice President DON J. HODAPP (4,6*) Manufacturing E. PETER GILLETTE, JR. (2,6) Executive Vice President Minneapolis, MN Chief Financial Officer KENNETH P. REGNER President Director since April 1986 Vice President Piper Trust Company Engineering Director since July 1996 GARY J. RAY (3*,4) Executive Vice President JAMES N. RIETH, PH.D. LUELLA G. GOLDBERG (5,6) Operations Vice President Minneapolis, MN Director since November 1990 President and Trustee Emerita Chief Executive Officer Wellesley College ERIC A. BROWN (4) Jennie-O Foods Member Board of Overseers Group Vice President University of Minnesota Prepared Foods RICHARD W. SCHLANGE Carlson School of Management Director since January 1997 Vice President Director since September 1993 Controller JAMES W. COLE (3,4) GERALDINE M. JOSEPH (1*,5) Group Vice President MAHLON C. SCHNEIDER Minneapolis, MN Foodservice Vice President Former U.S. Ambassador to Director since November 1990 General Counsel The Netherlands Senior Fellow, Emerita DAVID N. DICKSON (4,6) ROBERT A. SLAVIK Hubert H. Humphrey Institute Group Vice President Vice President Sales of Public Affairs International and Meat Products Director August 1974-July 1978 Corporate Development Reelected April 1981 Director since November 1990 THOMAS J. LEAKE Secretary JOSEPH T. MALLOF (2,7) STANLEY E. KERBER (3,4) Racine, WI Group Vice President JAMES W. CAVANAUGH President Meat Products Assistant Secretary North American Consumer Products Director since November 1990 S.C. Johnson & Son, Inc. KEVIN C. JONES Director since October 1997 RICHARD A. BROSS Assistant Secretary Vice President ROBERT R. WALLER, M.D. (5*,7) Grocery Products JEFFREY M. ETTINGER Rochester, MN Assistant Treasurer President and Chief Executive Officer FORREST D. DRYDEN, PH.D. Mayo Foundation Vice President JOHN W. ALLEN, PH.D. (1,7) Director since January 1993 Research and Development East Lansing, MI Professor and Director ---------------- RONALD W. FIELDING of the Food Industry Alliance (1) Audit Committee Vice President Michigan State University (2) Compensation Committee President of Hormel Foods Director since October 1989 (3) Contributions Committee International (4) Executive Committee JOHN R. BLOCK (1,5) (5) Nominating Committee JERRY C. FIGENSKAU Falls Church, VA (6) Employee Benefits Committee Vice President Former U.S. Secretary (7) Personnel Committee Specialty Products 0f Agriculture * Denotes Chairperson President JAMES A. JORGENSON Food Distributors International Vice President Director since October 1997 Human Resources
-19- HORMEL FOODS CORPORATION SELECTED FINANCIAL DATA (In Thousands, Except Per Share Amounts)
1997 1996 1995 1994 ---------- ---------- ---------- ---------- OPERATIONS Net Sales ............................. $3,256,551 $3,098,685 $3,046,195 $3,064,793 Net Earnings Before Cumulative Effect of Accounting Changes ........ 109,492 79,408 120,436 117,975 Percent of Sales .................... 3.36% 2.56% 3.95% 3.85% Cumulative Effect of Accounting Changes Net Earnings (Loss) ................... 109,492 79,408 120,436 117,975 Wage Costs ............................ 435,789 398,824 373,901 351,096 Total Taxes (excluding Payroll Tax) ... 73,115 56,992 84,329 82,915 Depreciation and Amortization ......... 52,925 42,700 37,220 36,611 FINANCIAL POSITION Working Capital ....................... $ 410,774 $ 456,850 $ 441,452 $ 443,298 Properties (net) ...................... 488,738 421,486 333,084 270,886 Total Assets .......................... 1,528,535 1,436,138 1,223,860 1,196,718 Long-Term Debt Less Current Maturities ............. 198,232 127,003 16,959 10,300 Shareholders' Investment .............. 802,202 785,551 732,047 661,089 PER SHARE OF COMMON STOCK Net Earnings Before Cumulative Effect of Accounting Changes ........ $ 1.43 $ 1.04 $ 1.57 $ 1.54 Cumulative Effect of Accounting Changes Net Earnings (Loss) ................... 1.43 1.04 1.57 1.54 Dividends ............................. 0.62 0.60 0.58 0.50 Shareholders' Investment .............. 10.59 10.13 9.54 8.62 * 53 Weeks ** Adoption of SFAS No. 106 and No. 109 END OF PAGE 18
- ---------- * 53 Weeks ** Adoption of SFAS No. 106 and No. 109 HORMEL FOODS CORPORATION SELECTED FINANCIAL DATA (In Thousands, Except Per Share Amounts)
1993 *1992 1991 1990 ----------- ----------- ----------- ----------- OPERATIONS Net Sales ..................... $ 2,853,997 $ 2,813,651 $ 2,836,222 $ 2,681,180 Net Earnings Before Cumulative Effect of Accounting Changes 100,770 95,174 86,393 77,124 Percent of Sales ............ 3.53% 3.38% 3.05% 2.88% Cumulative Effect of Accounting Changes ......................... (127,529)** Net Earnings (Loss) ........... (26,759) 95,174 86,393 77,124 Wage Costs .................... 325,115 304,696 278,537 267,391 Total Taxes (excluding Payroll Tax) ............................ 70,026 64,968 60,035 51,990 Depreciation and Amortization . 32,174 38,972 36,269 35,554 FINANCIAL POSITION Working Capital ............... $ 392,846 $ 401,216 $ 346,164 $ 293,818 Properties (net) .............. 244,987 216,390 231,817 235,026 Total Assets .......................... 1,093,559 913,015 856,835 799,422 Long-Term Debt Less Current Maturities ...................... 5,700 7,624 22,833 24,535 Shareholders' Investment ...................... 570,888 644,284 583,408 513,832 PER SHARE OF COMMON STOCK Net Earnings Before Cumulative Effect of Accounting Changes $ 1.31 $ 1.24 $ 1.13 $ 1.01 Cumulative Effect of Accounting Changes ......................... -1.66 Net Earnings (Loss) ........... (0.35) 1.24 1.13 1.01 Dividends ..................... 0.44 0.36 0.30 0.26 Shareholders' Investment ...................... 7.45 8.41 7.61 6.70
- ---------- * 53 Weeks ** Adoption of SFAS No. 106 and No. 109 HORMEL FOODS CORPORATION SELECTED FINANCIAL DATA (In Thousands, Except Per Share Amounts) 1989 1988 ---------- ---------- OPERATIONS Net Sales ................................ $2,340,513 $2,292,847 Net Earnings Before Cumulative Effect of Accounting Changes ........... 70,114 60,192 Percent of Sales ....................... 3.00% 2.63% Cumulative Effect of Accounting Changes Net Earnings (Loss) ...................... 70,114 60,192 Wage Costs ............................... 254,449 253,937 Total Taxes (excluding Payroll Tax) ....................................... 48,983 44,541 Depreciation and Amortization ............ 36,863 35,517 FINANCIAL POSITION Working Capital .......................... $ 232,941 $ 156,476 Properties (net) ......................... 244,362 263,056 Total Assets ..................................... 727,429 706,548 Long-Term Debt Less Current Maturities ................................. 19,228 20,399 Shareholders' Investment ................................. 470,929 418,716 PER SHARE OF COMMON STOCK Net Earnings Before Cumulative Effect of Accounting Changes ........... $ 0.91 $ 0.79 Cumulative Effect of Accounting Changes Net Earnings (Loss) ...................... 0.91 0.79 Dividends ................................ 0.22 0.18 Shareholders' Investment ................................. 6.14 5.46 - ---------- * 53 Weeks ** Adoption of SFAS No. 106 and No. 109 -20- CONSOLIDATED STATEMENTS OF FINANCIAL POSITION HORMEL FOODS CORPORATION October 25, October 26, 1997 1997 ----------- ----------- (In Thousands) ASSETS CURRENT ASSETS Cash and cash equivalents .................. $ 146,853 $ 188,473 Short-term marketable securities ........... 5,533 14,642 Accounts receivable ........................ 233,966 230,869 Inventories ................................ 265,346 271,097 Deferred income taxes ...................... 12,204 11,615 Prepaid expenses ........................... 7,450 6,563 ----------- ----------- TOTAL CURRENT ASSETS .... 671,352 723,259 DEFERRED INCOME TAXES ........................ 68,629 68,686 INTANGIBLES .................................. 131,710 124,193 INVESTMENTS IN AFFILIATES .................... 113,372 43,667 OTHER ASSETS ................................. 54,734 54,847 PROPERTY, PLANT AND EQUIPMENT Land ....................................... 11,467 8,517 Buildings .................................. 242,124 210,450 Equipment .................................. 594,159 538,562 Construction in progress ................... 72,179 71,085 ----------- ----------- 919,929 828,614 Less allowance for depreciation ............ (431,191) (407,128) ----------- ----------- 488,738 421,486 ----------- ----------- $ 1,528,535 $ 1,436,138 =========== =========== -21-
October 25, October 26, 1997 1996 ----------- ----------- (In Thousands) LIABILITIES AND SHAREHOLDERS' INVESTMENT CURRENT LIABILITIES Accounts payable .................................................... $ 120,385 $ 121,004 Accrued expenses .................................................... 34,564 42,190 Accrued marketing expenses .......................................... 21,543 22,768 Employee compensation ............................................... 46,275 41,493 Taxes, other than federal income taxes .............................. 16,524 14,991 Dividends payable ................................................... 11,980 11,611 Federal income taxes ................................................ 4,712 9,804 Current maturities of long-term debt ................................ 4,595 2,548 ----------- ----------- TOTAL CURRENT LIABILITIES 260,578 266,409 LONG-TERM DEBT--less current maturities ............................... 198,232 127,003 ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION ......................... 243,343 239,616 OTHER LONG-TERM LIABILITIES ........................................... 24,180 17,559 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 $.1172 a share-- authorized 200,000,000 shares; issued 75,776,510 shares Oct. 25, 1997, issued 77,534,398 shares Oct. 26, 1996 ....................... 8,881 9,087 Additional paid-in capital .......................................... 32,214 Shares held in treasury ............................................. (535) ----------- ----------- 8,881 40,766 Earnings reinvested in business ..................................... 793,321 744,785 ----------- ----------- 802,202 785,551 ----------- ----------- $ 1,528,535 $ 1,436,138 =========== ===========
-22- CONSOLIDATED STATEMENTS OF OPERATIONS HORMEL FOODS CORPORATION (In Thousands, Except Per Share Amounts)
Fiscal Year Ended October 25, October 26, October 28, 1997 1996 1995 ------------------ ---------------- ---------------- Sales, less returns and allowances $3,256,551 $3,098,685 $3,046,195 Cost of products sold 2,497,662 2,398,272 2,294,254 ------------------ ---------------- ---------------- GROSS PROFIT 758,889 700,413 751,941 Expenses: Selling and delivery 514,931 503,108 502,729 Administrative and general 75,788 75,659 65,766 Restructuring charges (5,176) 8,659 ------------------ ---------------- ---------------- OPERATING INCOME 173,346 112,987 183,446 Other income and expense: Interest and investment income 9,156 14,106 12,762 Equity in earnings of affiliates 3,402 Interest expense (15,043) (1,619) (1,529) ------------------ ---------------- ---------------- EARNINGS BEFORE INCOME TAXES 170,861 125,474 194,679 Provision for income taxes 61,369 46,066 74,243 ------------------ ---------------- ---------------- NET EARNINGS $ 109,492 $ 79,408 $ 120,436 ================== ================ ================ NET EARNINGS PER SHARE $ 1.43 $ 1.04 $ 1.57 ================== ================ ================
-23- CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' INVESTMENT HORMEL FOODS CORPORATION (In Thousands, Except Per Share Amounts)
COMMON STOCK TREASURY STOCK ------------------ ---------------- SHARES AMOUNT SHARES AMOUNT ------ ------ ------ ------ Balance at October 29, 1994 76,852 9,007 (162) (3,632) ------ ----- ---- ------ Purchases of Common Stock (60) (1,480) Exercise of stock options 72 1,190 Tax benefit of stock options Adjustment in minimum pension liability Net earnings Cash dividends - $.58 per share ------ ----- ---- ------ Balance at October 28, 1995 76,852 9,007 (150) (3,922) Purchases of Common Stock (1,015) (24,334) Exercise of stock options 114 3,013 Shares retired (1,027) (120) 1,027 24,708 Issuance of stock for Stagg Foods, Inc. 1,709 200 Tax benefit of stock options Adjustment in minimum pension liability Net earnings Cash dividends - $.60 per share ------ ----- ---- ------ Balance at October 26, 1996 77,534 9,087 (24) (535) Purchases of Common Stock (1,748) (45,457) Exercise of stock options 15 368 Shares retired (1,757) (206) 1,757 45,624 Tax benefit of stock options Adjustment in minimum pension liability Net earnings Cash dividends - $.62 per share ------ ----- ---- ------ Balance at October 25, 1997 75,777 8,881 0 $ 0
-24- HORMEL FOODS CORPORATION
(In Thousands, Except Per Share Amounts) Additional Earnings Total Paid-in Reinvested Shareholders' Capital in Business Investment ----------- ------------ --------------- Balance at October 29, 1994 $ 15,696 $ 640,018 $ 661,089 Purchases of Common Stock (1,480) Exercise of stock options (1,720) (530) Tax benefit of stock options 928 928 Adjustment in minimum pension liability (3,912) (3,912) Net earnings 120,436 120,436 Cash dividends - $.58 per share (44,484) (44,484) ----------- ------------ --------------- Balance at October 28, 1995 16,624 710,338 732,047 Purchases of Common Stock (24,334) Exercise of stock options (1,114) 1,899 Shares Retired (24,588) 0 Issuance of stock for Stagg Foods, Inc. 39,800 40,000 Tax benefit of stock options 378 378 Adjustment in minimum pension liability 2,254 2,254 Net earnings 79,408 79,408 Cash dividends - $.60 per share (46,101) (46,101) ----------- ------------ --------------- Balance at October 26, 1996 32,214 744,785 785,551 Purchases of Common Stock (45,457) Exercise of stock options (132) 236 Shares Retired (32,281) (13,137) 0 Tax benefit of stock options 67 67 Adjustment in minimum pension liability (140) (140) Net earnings 109,492 109,492 Cash dividends - $.62 per share (47,547) (47,547) ----------- ------------ --------------- Balance at October 25, 1997 $ 0 $ 793,321 $ 802,202 =========== ============ ===============
-25- CONSOLIDATED STATEMENTS OF CASH FLOWS HORMEL FOODS CORPORATION
Fiscal Year Ended ------------------------------------------- October 25, October 26, October 28, (In Thousands) 1997 1996 1995 -------- --------- -------- OPERATING ACTIVITIES Net earnings ....................................................... $ 109,492 $ 79,408 $ 120,436 Adjustments to reconcile to net cash provided by operating activities: Depreciation ................................................... 44,915 38,280 33,367 Amortization of intangibles .................................... 8,010 4,419 3,853 Equity in earnings of affiliates ............................... (3,402) Provision for deferred income taxes ............................ (444) (2,347) 5,164 Gain on investments ............................................ (4,627) (Gain) loss on property/equipment sales and idle facility ...................................... 50 (3,767) (239) Changes in operating assets and liabilities: (Increase) decrease in accounts receivable ..................... (3,097) 2,773 (3,038) Decrease (increase) in inventories and prepaid expenses .......................................... 4,864 (56,771) (10,903) Increase (decrease) in accounts payable and accrued expenses .......................................... 2,101 52,040 (57,266) --------- --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES ............................ 162,489 109,408 91,374 ========= ========= ========= INVESTING ACTIVITIES Sale of held-to-maturity securities ............................... 62,394 Sale of available-for-sale securities ............................. 13,116 2,871 Purchase of held-to-maturity securities ........................... (53,285) (14,642) Acquisitions of businesses ........................................ (140) (12,845) (6,201) Purchases of property/equipment ................................... (116,381) (122,942) (97,181) Proceeds from sales of property/equipment ......................... 4,163 5,410 1,855 Increase in investments, equity in affiliates, and other assets ................................................. (83,011) (18,418) (16,141) Dividends from affiliate .......................................... 1,206 -- -- --------- --------- --------- NET CASH USED IN INVESTING ACTIVITIES ................................ (185,054) (150,321) (114,797)
-26-
FINANCING ACTIVITIES Proceeds from long-term borrowings ................................ 77,625 110,553 10,000 Principal payments on long-term debt .............................. (4,349) (3,393) (1,610) Dividends paid on Common Stock .................................... (47,178) (45,613) (42,946) Stock Repurchase .................................................. (45,457) (23,966) Other ............................................................. 304 2,266 (1,081) --------- --------- --------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES ................................................. (19,055) 39,847 (35,637) --------- --------- --------- DECREASE IN CASH AND CASH EQUIVALENTS ..................................................... (41,620) (1,066) (59,060) Cash and cash equivalents at beginning of year ....................... 188,473 189,539 248,599 --------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR ..................................................... $ 146,853 $ 188,473 $ 189,539 ========= ========= =========
See notes to consolidated financial statements -27- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS HORMEL FOODS CORPORATION October 25, 1997 NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of Hormel Foods Corporation and all of its majority-owned subsidiaries after elimination of all significant intercompany accounts, transactions and profits. BUSINESS OVERVIEW: Hormel is engaged in a single business segment designated as "meat and food processing." As a federally inspected food processor, Hormel is engaged in the processing of meat and poultry products, production of prepared foods, and the marketing of those products to food wholesalers, retailers, and food service distributors in the United States. The principal raw materials for the Company's products are pork and turkey. The Company's earnings are influenced by the cyclical nature of these raw material costs. USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. PRESENTATION: Certain prior year amounts have been reclassified to conform to the fiscal 1997 presentation. INVENTORIES: Inventories are valued at the lower of cost or market. Livestock and the materials portion of products are valued on the first-in, first-out method, with the exception of the materials portion of turkey products which are valued on the last-in, first-out method. Substantially all inventoriable expenses, packages and supplies are valued by the last-in, first-out method. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are carried at cost less accumulated depreciation. Depreciation is provided over the estimated useful lives of the related assets, primarily on a straight-line basis. The carrying value of property, plant and equipment is assessed annually and/or when factors indicating an impairment are present. The Company determines such impairment by measuring undiscounted future cash flows. If an impairment is present, the assets are reported at the lower of carrying value or fair value. Beginning in 1996, the Company capitalized certain software development and implementation costs. Prior to 1996, such costs were not significant. Development and implementation costs are expensed until the Company has determined that the software will result in probable future economic benefits and management has committed to funding the project. Thereafter, all direct, external implementation costs and purchased software costs are capitalized and amortized using the straight-line method over the remaining estimated useful lives, not exceeding five years. AMORTIZATION OF INTANGIBLES: Goodwill and other intangibles are being amortized over periods up to 40 years. The carrying value of intangible assets is assessed annually and/or when factors indicating impairment are present. The Company employs an undiscounted cash flow method of assessment for these assets. Accumulated amortization at October 25, 1997 and October 26, 1996 was $28,248,000 and $20,238,000, respectively. FOREIGN CURRENCY TRANSLATION: Assets and liabilities denominated in foreign currency are translated at the current exchange rate as of the balance sheet date, and income statement amounts are translated at the average monthly exchange rate. Translation adjustments resulting from fluctuations in exchange rates are recorded in a separate component of shareholders' investment. Periodic and cumulative gains or losses resulting from foreign currency translation are not material. EQUITY METHOD INVESTMENTS: The Company has a number of investments in joint ventures and other entities where its voting interests are in excess of twenty percent but no greater than fifty percent. The Company accounts for such investments under the equity method of accounting, and its underlying share of each investee's equity is reported in the consolidated balance sheet as part of investments in affiliates. The difference between the price paid for each equity investment and the Company's underlying share of each investee's equity is accounted for as goodwill and reported in the consolidated balance sheet as part of intangibles. The Company's only material equity investment is in the common stock of a Spanish company, Campofrio Alimentacion, S.A. (Campofrio). The Company purchased a 21.36 % interest in Campofrio in 1997 for $64.3 million, which resulted in the recording of $17.9 million of goodwill. The fair value of such publicly traded securities was $112.6 million at October 25, 1997. ACQUISITIONS: The Company acquired Stagg Foods, Inc., a manufacturer of chili products, in October of 1996 for $40,000,000 of the Company's stock. Additionally, the Company paid $10,000,000 in cash to the former owners under a five year non-compete agreement. The acquisition resulted in the recording of $32,056,000 of goodwill which is being amortized over 30 years. The Company also acquired several other businesses during each of the three fiscal years ended October 25, 1997 which are included in the Company's results of operations since the respective acquisition dates. The results of these acquired businesses, either individually or in the aggregate, were not significant to the Company's results of operations. ADVERTISING EXPENSES: Advertising costs are expensed when incurred. Advertising expenses includes all media advertising, but excludes the costs associated with coupons, samples, and market research. Advertising costs for fiscal years 1997, 1996, and 1995 were $190.1 million, $177.2 million and $176.2 million, respectively. RESEARCH AND DEVELOPMENT EXPENSES: Research and development expenses incurred for fiscal years 1997, 1996, and 1995 were $8,580,000, $8,022,000, and $7,829,000, respectively. INCOME TAXES: The Company records income taxes in accordance with the asset and liability method of accounting. Deferred taxes are recognized for the estimated taxes ultimately payable or recoverable based on enacted tax law. Changes in enacted tax rates are reflected in the tax provision as they occur. EARNINGS PER SHARE: Earnings per share of Common Stock are based on the weighted average number of shares outstanding during the year. The dilutive effects of Common Stock equivalents were not significant in any year presented. FISCAL YEAR: The Company's fiscal year ends on the last Saturday in October. Fiscal years 1997, 1996, and 1995 consisted of 52 weeks. ACCOUNTING CHANGES AND RECENT ACCOUNTING PRONOUNCEMENTS: The Company adopted Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities" in 1995. The implementation of this statement did not have a material impact on results of operations. In February 1997, the Financial Accounting Standards Board (FASB) issued SFAS No. 128, "Earnings Per Share," which is required to be adopted in the first quarter of fiscal 1998. At that time, the Company will be required to change the method currently used to compute earnings per share and restate all prior periods. Under the new requirements for calculating basic earnings per share, the dilutive effect of stock options will be excluded. Management does not expect the adoption of SFAS No. 128 will have a material impact on its future computations of earnings per share. -28- In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income." Statement No. 130 establishes standards for the reporting of comprehensive income and its components in a full set of general-purpose financial statements. The Company will be required to adopt Statement No. 130 in fiscal 1999, and does not expect the measure of comprehensive income to be materially different from the measure of net income. In June 1997, the FASB also issued SFAS No. 131, "Disclosures About Segments of An Enterprise and Related Information." Statement No. 131 revises information regarding the reporting of operating segments. It also establishes standards for related disclosures about products and services, geographic areas and major customers. The Company will be required to adopt Statement No. 131 in fiscal 1999. The Company does not believe that the adoption of this standard will result in segment disclosures that are materially different than those provided under the current accounting standards. NOTE B--CASH AND CASH EQUIVALENTS AND SHORT-TERM MARKETABLE SECURITIES The Company considers all investments with an original maturity of three months or less on their acquisition date to be cash equivalents. The Company classifies investments with an original maturity of more than three months on their acquisition date as short-term marketable securities. The Company's cash and cash equivalents and short-term marketable securities at October 25, 1997 and October 26, 1996, consisted of the following (cost approximates fair value, in thousands):
OCTOBER 25, 1997 OCTOBER 26, 1996 ---------------- ---------------- Short-term Short-term Cash and Cash MARKETABLE Cash and Cash MARKETABLE EQUIVALENTS SECURITIES EQUIVALENTS SECURITIES ----------- ---------- ----------- ---------- Held-to-maturity securities: Commercial paper .......... $ 15,780 $ 5,533 $ 49,862 $ 14,642 Municipal securities ...... 80,064 -- 85,900 -- Preferred securities ...... 10,000 -- 14,000 -- Other ..................... 4,700 -- 8,496 -- Cash ....................... 36,309 -- 30,215 -- -------- -------- -------- -------- Total ...................... $146,853 $ 5,533 $188,473 $ 14,642 ======== ======== ======== ========
The Company recognized a gain on the sale of short-term marketable securities in fiscal 1996 of $4.6 million. NOTE C--INVENTORIES Principal components of inventories are:
OCTOBER 25, 1997 OCTOBER 26, 1996 ---------------- ---------------- (In Thousands) Finished products ............................ $ 145,897 $ 158,106 Raw materials & work-in-process .............. 86,762 85,847 Materials and supplies ....................... 59,846 56,266 LIFO reserve ................................. (27,159) (29,122) --------- --------- Total ........................................ $ 265,346 $ 271,097 ========= =========
Inventoriable expenses, packages and supplies, and turkey products amounting to approximately $84.5 million at October 25, 1997 and $81.5 million at October 26, 1996 are stated at cost determined by the last-in, first-out method, and are $27.2 million and $29.1 million lower in the respective years than such inventories determined under the first-in, first-out method. NOTE D--LONG-TERM DEBT AND OTHER BORROWING ARRANGEMENTS Long-term debt consists of:
October 25, October 26, 1997 1996 -------- -------- (In Thousands) Industrial revenue bonds with variable interest rates, due 1999 to 2005 ......................................... $ 5,700 $ 7,750 Promissory notes, principal and interest due annually through 2001, interest at 6.5% and 8.9%, secured by limited partnership interests in affordable housing .......................... 11,046 11,259 Medium term unsecured notes, $35,000,000 maturing in 2002 and $75,000,000 maturing in 2006, with interest at 7.16% and 7.35%, respectively ................ 110,000 110,000 Medium term unsecured notes, principal and interest due annually through 2003, interest at 6.5% ......................................... 64,337 Medium term secured notes with variable rates, principal and interest due annually through 2005, secured by various equipment ....................... 8,468 Variable Rate - Revolving Credit Agreements .............. 2,776 Other .................................................... 500 542 -------- -------- 202,827 129,551 Less current maturities .................................. 4,595 2,548 -------- -------- $198,232 $127,003 ======== ========
The Company has various lines of credit which have a maximum available commitment of $27,251,000. As of October 25, 1997, the Company has unused lines of credit of $24,475,000 which bear interest at variable rates below prime. A fixed fee is paid for the availability of credit lines. Aggregate annual maturities of long term debt for the five fiscal years after October 25, 1997 are as follows ---------------------------------------------- (In Thousands) 1998 $ 4,595 1999 6,410 2000 42,589 2001 41,217 2002 and thereafter 108,016 ============================================== Total interest paid during fiscal 1997, 1996, and 1995 was $14,908,000, $1,629,000, and $1,582,000, respectively. NOTE E--BENEFIT PLANS The Company and its subsidiaries have several noncontributory defined benefit plans and defined contribution plans covering most employees. Total costs associated with the Company's defined contribution benefit plans in 1997, 1996, and 1995 were $ 9,025,000, $8,128,000, and $8,147,000, respectively. Benefits for defined benefit pension plans covering hourly employees are provided based on stated amounts for each year of service while plan benefits covering salaried employees are based on final average compensation. The Company's funding policy is to make annual contributions of not less than the minimum required by applicable regulations. A summary of the components of net periodic pension cost for defined benefit plans is as follows: 1997 1996 1995 --------- --------- --------- (IN THOUSANDS) Service cost--benefits earned during the year ................. $ 8,737 $ 8,631 $ 7,656 Interest cost on projected benefit obligation ..................... 32,780 32,158 31,670 Actual return on plan assets ................................. (138,023) (35,569) (62,186) Net amortization and deferral ............................... 101,068 143 29,312 --------- --------- --------- Net pension costs ...................... $ 4,562 $ 5,363 $ 6,452 ========= ========= ========= Assumptions used in accounting for the defined benefit plans were: 1997 1996 1995 --------- --------- --------- Weighted average discount rates .................................. 7.25% 7.75% 7.75% Rates of increase in compensation levels .................... 5.00 5.00 5.00 Expected long-term rate of return on assets ....................... 9.50 9.50 9.50 -29- The following table sets forth the plans' funded status and amounts recognized in the statements of financial position: OCTOBER 25, 1997 OCTOBER 26, 1996 --------------------- ---------------------- Plans Plans Plans Plans Whose Whose Whose Whose Assets Accrued Assets Accrued Exceed Benefits Exceed Benefits Accrued Exceed Accrued Exceed BENEFITS ASSETS BENEFITS ASSETS --------- --------- --------- --------- (In Thousands) Actuarial present value of benefit obligations: Vested benefit obligation ... $ 352,991 $ 32,911 $ 335,796 $ 28,051 Non-vested benefit obligation .................. 27,389 7,748 23,239 7,598 --------- --------- --------- --------- Accrued benefits ............ 380,380 40,659 359,035 35,649 Effects of estimated future pay increase ....... 41,624 4,110 37,036 7,798 --------- --------- --------- --------- Projected benefit obligations ............... 422,004 44,769 396,071 43,447 Plan assets at fair value ... 543,344 -- 435,033 -- --------- --------- --------- --------- Projected benefit obligations in excess of (less than) benefit plan assets ....... (121,340) 44,769 (38,962) 43,447 Unrecognized prior service cost .............. (8,475) (1,820) (9,337) (2,111) Unrecognized net gain (loss) .................... 87,603 (6,371) 7,954 (9,729) Remaining net asset (obligation) at transition .. (242) (4,310) (348) (5,007) Adjustment required to recognize minimum liability -- 8,400 -- 9,050 --------- --------- --------- --------- Net pension liability (asset) in statements of financial position ..... $ (42,454) $ 40,668 $ (40,693) $ 35,650 ========= ========= ========= ========= As of the 1997 valuation date, plan assets included Common Stock of the Company having a market value of $76,273,000. NOTE F--POSTRETIREMENT BENEFITS OTHER THAN PENSIONS The Company provides medical and life insurance benefits to certain retired employees. Eligible employees who retired prior to January 1, 1987, remain on the medical plan in effect when they retired. The medical plan for eligible employees who retired after January 1, 1987, is automatically modified to incorporate plan benefit and plan provision changes whenever they are made to the active employee plan. Employees hired after January 1, 1990, are eligible for postretirement medical coverage, but must pay the full cost of the coverage. A summary of the components of postretirement benefit costs is as follows: 1997 1996 1995 --------- --------- --------- (In Thousands) Postretirement benefit cost - Service cost of benefits earned ....... $ 2,639 $ 2,533 $ 1,933 Interest cost of benefit obligation .......................... 18,237 17,571 15,769 Net amortization of deferred gains ............................... 129 (176) (1,642) --------- --------- --------- $ 21,005 $ 19,928 $ 16,060 ========= ========= ========= The actuarial present value of postretirement benefit obligations and the amount reported in the Consolidated Statements of Financial Position as of October 25, 1997 and October 26, 1996 are as follows: Accumulated postretirement benefit obligations as of the August 1 measurement date (in thousands): 1997 1996 --------- ------- Retirees ............................... $165,077 $170,765 Fully eligible active participants ..... 29,809 22,463 Other active participants .............. 67,554 50,491 --------- ------- 262,440 243,719 Unrecognized net losses ................ (16,371) (3,406) Unrecognized prior service cost ........ 3,436 3,787 Benefit payments subsequent to measurement date ...................... (6,162) (4,484) --------- ------- Accrued postretirement benefit cost .... $243,343 $239,616 ======== ======== Assumptions used in determining the accumulated postretirement benefit obligation: 1997 1996 1995 ---------- ---------- --------- Medical plan cost 6.0% 6.5% 7.0% declining declining declining trend rate to 5.5% to 5.5% to 5.5% in year in year in year 2004 2004 1998 Weighted average discount rate 7.25% 7.75% 7.75% ==== ==== ==== -30- The health care cost trend rate assumption has a significant effect on the amount reported. For example, a 1% increase in the health care cost trend rate would increase the accumulated postretirement benefit obligation by $13.1 million at October 25, 1997 and the net periodic cost by $1.7 million for the year. NOTE G--INCOME TAXES The components of the provision for income taxes are as follows: 1997 1996 1995 --------- --------- --------- (In Thousands) Current: U. S. Federal ..................... $ 52,198 $ 39,124 $ 57,899 State ............................. 9,538 9,311 11,180 --------- --------- --------- 61,736 48,435 69,079 Deferred: U. S. Federal ..................... (329) (2,136) 4,645 State ............................. (38) (233) 519 --------- --------- --------- (367) (2,369) 5,164 --------- --------- --------- $ 61,369 $ 46,066 $ 74,243 ========= ========= ========= Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company believes that, based upon its lengthy and consistent history of profitable operations, it is probable that the net deferred tax assets of $80.8 million will be realized on future tax returns, primarily from the generation of future taxable income. Significant components of the deferred income tax liabilities and assets were as follows: October 25, October 26, 1997 1996 ------- ------- (In Thousands) Deferred tax liabilities - Tax over book depreciation $(32,513) $(28,427) Prepaid pension (16,389) (15,706) Other, net (9,714) (7,599) Deferred tax assets - Vacation accrual 4,171 3,983 Insurance accruals 4,489 4,711 Deferred compensation 6,586 6,056 Postretirement benefits 94,344 92,899 Pension accrual 12,484 10,284 Other, net 17,376 14,100 ------- ------- Net deferred tax assets $80,834 $80,301 ======= ======= Reconciliation of the statutory federal income tax rate to the Company's effective tax rate is as follows: 1997 1996 1995 --------- --------- --------- U. S. statutory rate ................... 35.0% 35.0% 35.0% State taxes on income, net of federal tax benefit ............... 3.6 4.7 3.9 All other, net ......................... (2.7) (3.0) (.8) --------- --------- --------- Effective tax rate ..................... 35.9% 36.7% 38.1% ========= ========= ========= Total income taxes paid during fiscal 1997, 1996, and 1995 were $66.5 million, $38.3 million, and $89.6 million, respectively. NOTE H: Commitment In order to ensure a steady supply of hogs and turkeys and to keep the cost of products stable, the Company and its subsidiary, Jennie-O Foods, Inc., have entered into contracts with producers for the purchase of hogs and turkeys at formula based prices over periods of up to 15 years. Under these contracts, the Company and Jennie-O are committed at October 25, 1997, to purchase hogs and turkeys, assuming current price levels, as follows (in thousands) : 1998 $ 610,356 1999 509,099 2000 423,007 2001 416,431 2002 356,937 Later years 1,388,526 ------------- Total $ 3,704,356 ============= Estimated purchases under these contracts for fiscal 1997, 1996, and 1995 were $422.1 million, $367.4 million, and $200.4 million, respectively. The Company has commitments to expend approximately $65.2 million to complete construction in progress at various locations at October 25, 1997. The Company also has noncancellable operating lease commitments on facilities and equipment totaling $17.5 million at October 25, 1997. The terms of the leases extend to ten years. The Company has also pledged $23.7 million of government securities as collateral guaranteeing a loan at October 25, 1997. NOTE I--STOCK OPTIONS The Company has stock option plans for employees and nonemployee directors. The Company's policy is to grant options with the exercise price equal to the market price of the common stock on the date of grant. The Company follows APB opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations in accounting for its employee stock options. Under APB Opinion No. 25, when the exercisable price of employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recorded. Options are exercisable upon grant and expire at various dates ranging from fiscal 2001 to 2007. Following is a summary of stock option activity: WEIGHTED-AVG SHARES OPTION PRICE -------- ----------- Balance October 29, 1994 1,853,000 $20.89 Granted 383,000 24.76 Exercised (275,000) 17.97 -------- ----- Balance October 28, 1995 1,961,000 22.05 Granted 764,000 23.88 Exercised (165,000) 19.30 -------- ----- Balance October 26, 1996 2,560,000 22.78 Granted 8,000 23.88 Exercised (22,000) 21.57 Balance October 25, 1997 2,546,000 $22.79 ========= ====== The weighted-average fair value of options granted during 1997 and 1996 is $8.17. The fair value of each option grant is estimated as of the date of grant using the Black-Scholes single option-pricing model assuming a weighted average risk-free interest rate of 5.95%, an expected dividend yield rate of 2.0%, expected lives of 10 years and volatility of 22.2%. Exercise prices ranged from $19.75 to $25.13, with a remaining average contractual life of 7 years at October 25, 1997. Had compensation expense for stock options been determined based on the fair value method (instead of the intrinsic value method) at the grant dates for awards, the Company's 1997 and 1996 net income and earnings per share would have decreased by less than 1%. The effects of applying the fair value method of measuring compensation expense for 1997 is likely not representative of the effects for future years in part because the fair value method was applied only to stock options granted after October 28, 1995. NOTE J--RESTRUCTURING CHARGE RESTRUCTURING CHARGE: The Company recorded an $8.7 million restructuring charge ($5.4 million after tax or $.07 per share) in the fourth quarter of 1996 related to the exit from its catfish business. The restructuring charge included accruals related to the estimated costs associated with closing the fish farms and processing plants and liquidating the business. The amount accrued included $3.6 million to close the farms and fish processing plants; $2.7 million and $1.7 million of write-downs to estimated net realizable value related to fixed assets and live fish inventory, respectively; and $600,000 of employee related costs. Although the accruals that were established in 1996 were based upon a complete business liquidation which was likely at the time, the Company was ultimately able to sell the catfish business in 1997. The sale of the catfish business resulted in a change in estimate of the restructuring accrual to $3.5 million, requiring the reversal of $5.2 million ($3.2 million after tax or $.04 per share) of the reserve in 1997. The Company has retained an accrual of approximately $650,000 at October 25, 1997, related to the costs estimated to be incurred on employee related and final settlement costs. -31- NOTE K--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following tabulations reflect the unaudited quarterly results of operations for the years ended October 25, 1997 and October 26, 1996: Gross Net Earnings Net Sales Profit Earnings Per Share ---------- ---------- ---------- -------- (In Thousands, (Except Per Share Data) 1997 First quarter ........ $ 810,309 $ 183,509 $ 20,982 $ 0.27 Second quarter ....... 798,455 189,614 25,688 0.33 Third quarter ........ 779,679 170,153 18,153 0.24 Fourth quarter ....... 868,108 215,613 44,669 0.59 ---------- ---------- ---------- -------- $3,256,551 758,889 109,492 $ 1.43 ========== ========== ========== ======== 1996 First quarter ........ $ 724,381 $ 177,437 $ 20,667 $ 0.27 Second quarter ....... 746,658 178,460 24,520 0.32 Third quarter ........ 749,871 145,972 4,010 0.05 Fourth quarter ....... 877,775 198,544 30,211 0.40 ---------- ---------- ---------- -------- $3,098,685 $ 700,413 79,408 $ 1.04 ========== ========== ========== ======== REPORT OF INDEPENDENT AUDITORS To the Shareholders and Board of Directors Hormel Foods Corporation Austin, Minnesota We have audited the accompanying consolidated statements of financial position of Hormel Foods Corporation as of October 25, 1997 and October 26, 1996, and the related consolidated statements of operations, changes in shareholders' investment and cash flows for each of the three years in the period ended October 25, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Hormel Foods Corporation at October 25, 1997 and October 26, 1996, and the consolidated results of its operations and its cash flows for each of the three years in the period ended October 25, 1997 in conformity with generally accepted accounting principles. Minneapolis, Minnesota November 24, 1997 END OF PAGE 29 -32- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FISCAL YEARS 1997 AND 1996: A major goal of the company for a number of years has been to expand its line of consumer-branded products. One result of increased sales of branded products is reduced exposure to fluctuating commodity prices. Progress has been made in reaching this objective through the introduction of numerous products using turkey, chicken and beef. Pork, however, remains the company's major raw material and fluctuations in pork raw material prices had a significant impact on company results in 1997 and 1996. The record high feed grain costs experienced in 1996 moderated somewhat in 1997 but remained above historic levels. Although the company was able to improve margins in 1997, the high raw material costs did not allow the return to pre-1996 margin levels. Earnings for the year increased 37.9 percent to $109,492,000 from $79,408,000 in 1996. Net sales in 1997 increased 5.1 percent to $3,256,551,000 from $3,098,685,000 last year. Tonnage for the year decreased 0.5 percent compared to 1996. Earnings for the fourth quarter of 1997 were $44,669,000, an increase of 47.9 percent over earnings of $30,211,000 for the same period last year. Sales for the quarter were $868,108,000, a 1.1 percent decrease from $877,775,000 in 1996. Tonnage declined 1.2 percent in 1997 compared to last year. The drop in tonnage for both the quarter and year was a result of reduced commodity pork sales and the sale of Farm Fresh Catfish Company during the year. The increase in earnings, while sales dollars and tonnage either improved marginally or declined, is due to a product mix which included a larger proportion of higher margin consumer-processed items. The company's core branded business continues to be the major contributor to earnings. Tonnage volume in the Grocery Products Division was up 4.5 percent for the year, due primarily to the Stagg Foods acquisition. The combination of HORMEL(R) chili and STAGG(R) chili continues to be favorable. All ethnic brands, with the exception of the CHI-CHI's(R) product line, achieved double-digit growth. Sales to mass-merchandisers continue strong and volume is expected to grow. The Meat Products Group completed the year with tonnage growth exceeding 12.0 percent while continuing a favorable trend of increased sales of value-added product versus commodity product. The Foodservice Group, strong all year, picked up momentum in the fourth quarter with tonnage of branded products up over 18.0 percent during the quarter and 14.0 percent for the year. Total tonnage was also up 18.0 percent for the quarter and 12.0 percent for the year. In the international area, the Company purchased a 21.4 percent equity interest in Campofrio Alimentacion, S.A. in Spain. Construction projects of the China joint ventures continued as scheduled. The venture in Shanghai began production in October and acceptance of product has been good. The Beijing venture is presently scheduled for January 1998 start up. International tonnage for the year increased 26.9 percent over 1996. Major growth areas included fresh pork and Jennie-O Foods turkey products. Margins on export sales were also under pressure throughout the year due to high raw material costs. Jennie-O Foods, Inc. tonnage increased 12.0 percent over last year with sales dollar growth exceeding 14.0 percent compared to 1996. While tonnage and sales dollars were up, high feed costs for the year continued the squeeze on historical margins that began in 1996. During October 1997, Jennie-O acquired the assets of Heartland Foods in Marshall, Minn. This acquisition makes Jennie-O Foods the second largest turkey processor in the country. The absorption of Heartland Foods into Jennie-O is proceeding very well. In the fourth quarter of 1996, the company announced it would exit the fish business. A $5,400,000 after tax restructuring reserve was established to recognize potential losses from the sale or liquidation of Farm Fresh Catfish Company. The sale of Farm Fresh assets in 1997 resulted in a favorable after tax reduction of the reserve in the amount of $3,200,000. Selling and delivery expenses for the quarter and year were $125,273,000 and $514,931,000, respectively, as compared to $124,285,000 and $503,108,000 last year. As a percentage of sales, selling and delivery expenses decreased slightly to 15.8 percent from 16.2 percent in 1996. Marketing expenses, which are included in selling and delivery expenses, increased to $51,063,000 for the quarter and $217,637,000 for the year compared to $49,079,000 and $209,021,000 last year. These expenditures emphasize the company's continued commitment to expanding its base of branded consumer products. Both the parent company and Jennie-O Foods are planning aggressive advertising and promotional activities in 1998 which will emphasize both established products as well as the newer ethnic and easy preparation items. Administrative and general expenses were $24,744,000 and $75,788,000 for the quarter and year, respectively, compared to $20,570,000 and $75,659,000 in 1996. As a percentage of sales, administrative and general expenses for the year decreased slightly to 2.3 percent from 2.4 percent last year. These expenses are expected to remain at this level for the next few years as a result of two ongoing data processing initiatives started in 1996 and the amortization of intangibles from the Stagg Foods and Campofrio acquisitions. Research and development continues to be an important part of the company's strategy to extend existing brands and expand its offerings of new consumer-branded items in both existing and fast-growing ethnic food market segments. A significant part of the research and development effort is directed to development of environmentally friendly packaging that protects the product, is convenient for the consumer and minimizes packaging costs. Research and development expenses for the quarter and year were $2,212,000 and $8,580,000, respectively, compared to $1,801,000 and $8,022,000 for the same periods last year. The company's effective tax rate decreased to 35.9 percent from 36.7 percent in 1996. The reduction is due in part to increased affordable housing tax credits, foreign equity earnings which are net of tax, a favorable completion of a federal tax audit and a decrease in state and local taxes. Further moderation of feed grain and raw material prices, combined with aggressive marketing programs, should allow the company to return to pre-1996 margin levels and meet 1998 profit plans. For many years internally developed software has been developed so as to eliminate the need for revision in the year 2000. The company has an ongoing program to review outside developed software for year 2000 problems. Costs to correct year 2000 issues are expected to be immaterial. FISCAL YEARS 1996 AND 1995 Record high feed grain costs throughout most of 1996 resulted in substantially higher raw material prices. The company was unable to maintain normal margin levels during this protracted period of high raw material prices. The pressure on margins began to ease somewhat late in the year as feed grain prices began to moderate and excess quantities of competing proteins, primarily beef, declined. Earnings for the year were $79,408,000, a decrease of 34.1 percent from 1995 earnings of $120,436,000. Net sales in 1996 increased 1.7 percent to $3,098,685,000 from $3,046,195,000 the previous year. Tonnage for the year decreased 12.1 percent compared to 1995. Earnings for the fourth quarter of 1996 declined 21.7 percent to $30,211,000 from $38,575,000 for the same period in 1995. Sales for the quarter were $877,775,000, a 5.1 percent increase from 1995 sales of $835,073,000. Tonnage for the quarter declined 7.1 percent compared to 1995. The drop in tonnage for both the quaarter and year resulted from reduced fresh pork sales following the discontinuance of a pork supply agreement with FDL Foods, Inc., late in 1995. The increase in sales dollars, while tonange declined, was due to moderately higher price levels and a product mix which included a significantly larger proportion of higher priced consumer processed items. levels and a product mix which included a significantly larger proportion of higher priced consumer-processed items. Selling and delivery expenses for the quarter and year were $124,285,000 and $503,108,000, respectively, as compared to $123,283,000 and $502,729,000 for the same periods in 1995. As a percentage of sales, selling and delivery expenses decreased slightly in 1996 to 16.2 percent from 16.5 percent the previous year. Marketing expenses increased to $49,079,000 for the quarter and $209,021,000 for the year compared to $47,802,000 and $206,404,000 in 1995. Administrative and general expenses were $20,570,000 and $75,659,000 for the quarter and year compared to $16,528,000 and $65,766,000, respectively, in 1995. These expenses increased for the quarter and year as a result of two initiatives undertaken as part of a strategic review of distribution and data processing systems. In addition, year-to-date expenses reflected a $7,500,000 settlement of antitrust suits involving Farm Fresh Catfish Company. During the fourth quarter of 1996, an after tax $5,400,000 restructuring reserve was established to recognize potential losses from the sale or liquidation of Farm Fresh as the company proceeded with its announced intention of exiting the fish business. -33- The company's effective tax rate in 1996 decreased to 36.7 percent from 38.1 percent the previous year. This reflected the disproportionately larger effect that deductible permanent differences between tax and financial income have on lower levels of financial income from operations and continued returns from investments in the Federal Affordable Housing Program. LIQUIDITY The company continues to have an exceptionally strong balance sheet. Cash and cash equivalents and short-term marketable securities were $152,386,000 at the end of 1997 compared to $203,115,000 last year. Long-term debt consists of small issue Industrial Revenue Bonds of varying maturities, debt used for investment in the Federal Affordable Housing program, $110,000,000 in Senior Notes maturing in 2002 and 2006 and $64,400,000 of long-term notes, denominated in Spanish pesetas , used to purchase a 21.4 percent equity interest in Campofrio in Spain. The strong balance sheet provides the company with the ability to take advantage of expansion or acquisition opportunities that may arise. During 1997, cash provided by operating activities was $162,489,000 compared to $109,408,000 last year. The increase in cash and cash provided by operating activities was primarily the result of the increase in net earnings and changes in working capital items which were in the normal course of business. Cash required for investing activities in 1997 increased to $185,054,000 from $150,321,000 in 1996. The cash was used to continue an aggressive program to maintain facilities and expand production capacities primarily at Hormel Foods and Jennie-O Foods, purchase the equity interest in Campofrio in Spain and investments in foreign joint ventures in China and Poland. In addition to completing construction of the new production plant and distribution facility at Osceola, Iowa, in 1997, construction projects continue at Osceola; Austin, Minn.; Fremont, Neb. and at various Jennie-O locations. At the end of the year, the company had commitments to expend approximately $65,000,000 to complete construction in progress at various locations. During the year, the company retired 1,757,000 shares of its Common Stock at a cost of $45,624,000 under a repurchase plan authorized in 1996. Financial ratios for 1997 and 1996 are presented below: 1997 1996 ---- ---- LIQUIDITY RATIOS Current ratio ............................ 2.6 2.7 Receivables turnover ..................... 14.0 13.4 Days sales in receivables ................ 26.2 27.2 Inventory turnover ....................... 9.3 10.0 Days sales in inventory .................. 38.8 41.3 LEVERAGE RATIO Long-term debt to equity ................. 25.3% 16.5% OPERATING RATIOS Pretax profit to net worth ............... 21.5% 16.5% Pretax profit to total assets ............ 11.5% 9.4% RESPONSIBILITIES FOR FINANCIAL STATEMENTS The accompanying financial statements were prepared by the management of Hormel Foods Corporation which is responsible for their integrity and objectivity. These statements have been prepared in accordance with generally accepted accounting principles appropriate in the circumstances and, as such, include amounts that are based on our best estimates and judgments. Hormel Foods Corporation has developed a system of internal controls designed to assure that the records reflect the transactions of the company and that the established policies and procedures are adhered to. This system is augmented by well-communicated written policies and procedures, a strong program of internal audit and well-qualified personnel. These financial statements have been audited by Ernst & Young LLP, independent auditors, and their report appears on page 29. Their audit is conducted in accordance with generally accepted auditing standards and includes a review of the company's accounting and financial controls and tests of transactions. The Audit Committee of the Board of Directors, composed solely of outside directors, meets periodically with the independent auditors, management and the internal auditors to assure that each is carrying out its responsibilities. Both Ernst & Young LLP and our internal auditors have full and free access to the Audit Committee, with or without the presence of management, to discuss the results of their audit work and their opinions on the adequacy of internal controls and the quality of financial reporting. /s/ Joel W. Johnson /s/ R.W. Schlange - ------------------------------------ ------------------------------- Joel W. Johnson R.W. Schlange Chairman of the Board Vice President and Controller President and Chief Executive Officer -34-
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Ending Jan. 24 Ending Apr. 25 Ending July 25 Ending Oct. 31 -------------- -------------- -------------- -------------- DIVIDENDS (EST. DATES): Declaration Date Nov. 24, 1997 March 23, 1998 May 18, 1998 Sept. 28, 1998 Ex-Dividend Date Jan. 14, 1998 April 15, 1998 July 15, 1998 Oct. 14, 1998 Record Date Jan. 24, 1998 April 18, 1998 July 18, 1998 Oct. 24, 1998 Payable Date Feb. 15, 1998 April 18, 1998 Aug. 15, 1998 Nov. 15, 1998 QUARTERLY EARNINGS RELEASES/ QUARTERLY REPORTS (EST. DATE) Feb. 12, 1998 May 14, 1998 Aug. 13, 1998 *Nov. 25, 1998 *See Reports and Publications
- -------------------------------------------------------------------------------- BUSINESS DESCRIPTION Hormel Foods Corporation is a multinational manufacturer and marketer of consumer-branded meat and food products, many of which are among the best known and trusted in the food industry. It enjoys a strong reputation among consumers, retail grocers and foodservice and industrial customers for products highly regarded for quality, taste, nutrition, convenience and value. Hormel Foods Corporation is owned by approximately 11,500 shareholders and comprised of more than 11,000 employees, including subsidiaries. CORPORATE HEADQUARTERS Hormel Foods Corporation 1 Hormel Place Austin, MN 55912-3680 INDEPENDENT AUDITORS Ernst & Young LLP 1400 Pillsbury Center Minneapolis, MN 55402-1491 STOCK LISTING New York Stock Exchange The corporation's daily trading activity, stock price and dividend information can be found in the financial section of most newspapers in the New York Stock Exchange listing. TRANSFER AGENT AND REGISTRAR Norwest Bank Minnesota, N.A. 161 North Concord Exchange P.O. Box 64854 South St. Paul, MN 55164-0854 For the convenience of shareholders, a toll-free number (1-800-468-9716) can be used whenever questions arise regarding changes in registered ownership, lost or stolen certificates, address changes or other matters pertaining to the transfer of stock or shareholder records. When requesting information, shareholders must provide their tax identification number, the name(s) in which their stock is registered and their record address. If you hold stock in more than one account, duplicate mailings of financial information may result. You can help eliminate the added expense by requesting that only one copy be sent. Please supply the transfer agent with the names in which all accounts are registered and the name of the account for which you wish to receive mailings. This will not in any way affect dividend check mailings. Hormel Foods Corporation's DIVIDEND REINVESTMENT PLAN, available to record shareholders, allows for full dividend reinvestment and voluntary cash purchases with brokerage commissions or other service fees paid by the company. AUTOMATIC DEBIT FOR CASH CONTRIBUTION is also available. This is a convenient method to have money automatically withdrawn each month from a checking or savings account and invested in your DIVIDEND REINVESTMENT PLAN account. To enroll in the plan or obtain additional information, contact Norwest Bank Minnesota, N.A., using the address or telephone number provided with its listing in this section as company transfer agent and registrar. An optional DIRECT DIVIDEND DEPOSIT service offers shareholders a convenient method of having quarterly dividend payments electronically deposited into their personal checking or savings account. The dividend payment is made in the account each payment date, providing shareholders with immediate use of their money. For information about the service and how to participate, contact Norwest Bank Minnesota, N.A., transfer agent. DIVIDENDS The declaration of dividends and all dates related to the declaration of dividends are subject to the judgment and discretion of the Board of Directors of Hormel Foods Corporation. Therefore, there can be no assurance that the events indicated in the table above will occur or occur on the indicated dates. The Declaration Date is the day on which the Board of Directors votes to declare the dividend. The Ex-Dividend Date is the date which the New York Stock Exchange sets to quote the price of the stock without the dividend. The Record Date is the date on which you must be a shareholder of record on the company's books to receive the dividend. The Payable Date closely follows the day of mailing of the checks. If a check is not received on this date, please wait at least one week to allow for possible postal delays before contacting the company. REPORTS AND PUBLICATIONS Copies of the company's Form 10-K annual report to the Securities and Exchange Commission (SEC), the Form 10-Q quarterly reports to the SEC, proxy statement, quarterly earnings releases, the Annual Meeting of Shareholders brochure or other printed corporate literature are available free of charge upon request. Telephone (507) 437-5164. *As part of our ongoing effort to reduce costs, and recognizing the company's Annual Report to Shareholders is mailed approximately one month following the fourth quarter earnings release date, no quarterly report will be produced and mailed to shareholders. If desired, shareholders may contact (507) 437-5164 to obtain a copy of the fourth quarter earnings release made available to both the media and security analysts. QUESTIONS ABOUT HORMEL FOODS Shareholder Inquiries (507) 437-5669 Analyst/Investor Inquiries (507) 437-5950 Media Inquiries (507) 437-5345 ANNUAL MEETING The Annual Meeting of Shareholders will be held Tuesday, January 27, 1998, in the Richard L. Knowlton Auditorium at Austin (Minn.) High School. The meeting will convene at 8:00 p.m. TRADEMARKS Throughout this Annual Report to Shareholders, references in italic represent valuable trademarks licensed or owned by Hormel Foods Corporation or its subsidiaries. CONSUMER AFFAIRS Inquiries regarding products of Hormel Foods Corporation should be addressed : Consumer Affairs Department Hormel Foods Corporation 1 Hormel Place Austin, MN 55912-3680 or call 1-800-523-4635 -35- EX-23 5 AUDITOR'S CONSENT EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10K) of Hormel Foods Corporation of our report dated November 24, 1997, included in the 1997 Annual Report to Stockholders of Hormel Foods Corporation. Our audits also included the financial statement schedule of Hormel Foods Corporation listed in Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in Registration Statement Number 333-17327 on Form S-3 dated December 5, 1996, in Post-Effective Amendment Number 2 to Registration Statement Number 33-14614 on Form S-8 dated December 6, 1988, in Registration Statement Number 33-14615 on Form S-8 dated May 27, 1987, in Post-Effective Amendment Number 1 to Registration Number 33-29053 dated January 26, 1990, in Registration Statement Number 33-43246 on Form S-8 dated October 10, 1991, and in Registration Statement Number 33-45408 on Form S-8 dated January 31, 1992 of our report dated November 24, 1997, with respect to the consolidated financial statements incorporated herein by reference, and our report included in the preceding paragraph with respect to the financial statement schedule included in this annual Report (Form 10-K) of Hormel Foods Corporation. /S/ ERNST & YOUNG LLP Minneapolis, Minnesota January 23, 1998 EX-27 6 FDS --
5 1,000 YEAR OCT-25-1997 NOV-01-1996 OCT-25-1997 146,853 5,533 233,966 0 265,346 671,352 919,929 431,191 1,528,535 260,578 198,232 0 0 8,881 0 1,528,535 3,256,551 3,258,551 2,497,662 2,497,662 0 0 15,043 170,861 61,369 109,492 0 0 0 109,492 1.43 1.43
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