Hormel Foods 10-K 2008
Documents found in this filing:
ANNUAL REPORT ON FORM 10-K
HORMEL FOODS CORPORATION
OCTOBER 26, 2008
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Commission File Number: 1-2402
HORMEL FOODS CORPORATION
(Exact name of registrant as specified in its charter)
Registrants telephone number, including area code (507) 437-5611
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x
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 o
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 registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant as of April 27, 2008, (the last business day of the registrants most recently completed second fiscal quarter), was $2,803,268,075 based on the closing price of $39.57 per share on that date.
As of December 1, 2008, the number of share outstanding of each of the registrants classes of common stock was as follows:
Common Stock, $.0586 Par Value 134,526,092 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 26, 2008, are incorporated by reference into Part I Items 1 and 1A, and Part II Items 5-8 and 9A, and included as Exhibit 13.1 filed herewith.
Portions of the Proxy Statement for the Annual Meeting of Stockholders to be held January 27, 2009, are incorporated by reference into Part III, Items 10-14.
HORMEL FOODS CORPORATION
(a) General Development of Business
Hormel Foods Corporation, a Delaware corporation (the Company), 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 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 and internationally. Although pork and turkey remain the major raw materials for its products, the Company has emphasized for several years the manufacturing and distribution of branded, value-added consumer items rather than the commodity fresh meat business. The Company has continually expanded its product portfolio through organic growth, new product development, and acquisitions.
In June 2008, the Company acquired Boca Grande Foods, Inc. (Boca Grande). Boca Grande manufactures, sells, and distributes liquid portion products and operates a facility in Duluth, Georgia.
Internationally, the Company markets its products through Hormel Foods International Corporation (HFIC), a wholly owned subsidiary. HFIC has a presence in the international marketplace through joint ventures and placement of personnel in strategic foreign locations such as Australia, Canada, China, Japan, and the Philippines. HFIC also has a global presence with minority positions in food companies in Mexico (Hormel Alimentos, 50% holding) and the Philippines (Purefoods-Hormel, 40% holding), and in a hog production and processing operation in Vietnam (San Miguel Purefoods (Vietnam) Co. Ltd., 49% holding).
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, or in the markets or methods of distribution since the beginning of the 2008 fiscal year.
The Companys business is reported in five segments: Grocery Products, Refrigerated Foods, Jennie-O Turkey Store (JOTS), Specialty Foods, and All Other. Net sales to unaffiliated customers and operating profit, and the presentation of certain other financial information by segment, are reported in Note K of the Notes to Consolidated Financial Statements and in the Managements Discussion and Analysis of Financial Condition and Results of Operations of the Annual Stockholders Report for the year ended October 26, 2008, incorporated herein by reference.
(c) Description of Business
Products and Distribution
The Companys products primarily consist of meat and other food products. The meat products are sold fresh, frozen, cured, smoked, cooked, and canned. The percentages of total revenues contributed by classes of similar products for the last three fiscal years of the Company are as follows:
Reporting of revenues from external customers is based on similarity of products, as the same or similar products are sold across multiple distribution channels such as retail, foodservice, or international. Revenues reported are based on financial information used to produce the Companys general-purpose financial statements.
Perishable meat includes fresh meats, sausages, hams, wieners, and bacon (excluding JOTS products). The Poultry category is composed primarily of JOTS products. Shelf-stable includes canned luncheon meats, shelf-stable microwaveable entrees, stews, chilies, hash, meat spreads, flour and corn tortillas, salsas, tortilla chips, and other items that do not require refrigeration. The Other category primarily consists of nutritional food products and supplements, sugar and sugar substitutes, creamers, salt and pepper products, sauces and salad dressings, dessert and drink mixes, and industrial gelatin products.
During fiscal 2008, the Company expanded its value-added production capacity in several locations, including Browerville, Minnesota; Pelican Rapids, Minnesota; Tucker, Georgia; and Visalia, California. Additionally, construction began on a new production facility in Dubuque, Iowa, which will be used for production of canned items and the Hormel Compleats line of microwave meals. No other new products in fiscal 2008 required a material investment of the Companys assets.
Domestically, the Company sells its products in all 50 states. The Companys products are sold through its sales personnel, operating in assigned territories coordinated from sales offices located in most of the larger U.S. cities, as well as independent brokers and distributors. Dedicated sales teams also serve major retail customers and coordinate sales of both Grocery Products and Refrigerated Foods products. As of October 26, 2008, the Company had approximately 608 sales personnel engaged in selling its products. Distribution of products to customers is primarily by common carrier.
Through HFIC, the Company markets its products in various locations throughout the world. Some of the larger markets include Australia, Canada, China, England, Japan, Mexico, and Micronesia. The distribution of export sales to customers is by common carrier, while the China operations own and operate their own delivery system. The Company, through HFIC, has licensed companies to manufacture various Hormel products internationally on a royalty basis, with the primary licensees being Tulip International of Denmark and CJ Corporation of South Korea.
The Company has, for the past several years, been concentrating on processed branded products for consumers 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 the live pork industry has evolved to large, vertically integrated, year-round confinement operations, and supply contracts have become prevalent in the industry, there is still a seasonal variation in the supply of fresh pork materials. The Companys expanding line of processed items has reduced, but not eliminated, the sensitivity of Company results to raw material supply and price fluctuations.
The majority of the hogs harvested by the Company are purchased under supply contracts from producers located principally in Colorado, Idaho, Illinois, Iowa, Kansas, Minnesota, Nebraska, Oklahoma, South Dakota, Texas, Utah, Wisconsin, and Canada. The cost of hogs and the utilization of the Companys facilities are affected by both the level and the methods of pork production in the United States. The movement toward year-round confinement operations which operate under supply agreements with processors has resulted in fewer hogs being available on the spot cash market. The Company, along with others in the industry, uses supply contracts to manage the effects of this trend and to ensure a stable supply of raw materials. The Company has converted the majority of its contracts to market-based formulas to better match input costs with customer pricing, and all contract costs are fully reflected in the Companys reported financial statements. In fiscal 2008, the Company purchased 91 percent of its hogs under supply contracts. The Company also procures a portion of its hogs through farms that it either owns or operates in Arizona, California, Colorado, Kansas, and Wyoming.
In fiscal 2008, JOTS raised turkeys representing approximately 67 percent of the volume needed to meet its raw material requirements for whole bird and processed turkey products. Turkeys not sourced within the Company are contracted with independent turkey growers. JOTS turkey-raising farms are located throughout Minnesota and Wisconsin.
Production costs in raising hogs and turkeys are subject primarily to fluctuations in feed grain prices and, to a lesser extent, fuel costs. To manage this risk, the Company periodically hedges its anticipated purchases of grain using futures contracts.
The Company has plants in Austin, Minnesota; Fremont, Nebraska; Vernon, California; and Beijing, China that harvest hogs for processing. Quality Pork Processors, Inc. of Dallas, Texas, operates the harvesting facility at Austin under a custom harvesting arrangement.
Facilities that produce and distribute manufactured items are located in Albert Lea, Minnesota; Algona, Iowa; Alma, Kansas; Ames, Iowa; Aurora, Illinois; Austin, Minnesota; Beloit, Wisconsin; Bondurant, Iowa; Bremen, Georgia; Browerville, Minnesota; Chino, California; Dayton, Ohio; Duluth, Georgia; Eldridge, Iowa; Ft. Dodge, Iowa; Fremont, Nebraska; Knoxville, Iowa; Lathrop, California; Long Prairie, Minnesota; Mitchellville, Iowa; Nevada, Iowa; New Berlin, Wisconsin; Osceola, Iowa; Perrysburg, Ohio; Quakertown, Pennsylvania; Rochelle, Illinois; San Leandro, California; Savannah, Georgia; Sparta, Wisconsin; St. Paul, Minnesota; Stockton, California; Tucker, Georgia; Turlock, California; Vernon, California; Visalia, California; Wichita, Kansas; Beijing, China; and Shanghai, China. Albert Lea Select Foods, Inc. of Dallas, Texas, operates the processing facility at Albert Lea under a custom manufacturing agreement. Company products are also custom manufactured by several other companies. The following are the Companys larger custom manufacturers: Steuben Foods, Jamaica, New York; Lakeside Packing Company, Manitowoc, Wisconsin; Schroeder Milk, Maplewood, Minnesota; Reichel Foods, Rochester, Minnesota; Power Packaging, St. Charles, Illinois; and Tony Downs, St. James, Minnesota. Power Logistics, Inc., based in St. Charles, Illinois, operates distribution centers for the Company in Dayton, Ohio, and Osceola, Iowa.
The Companys turkey harvest and processing operations are located in Barron, Wisconsin; Faribault, Minnesota; Melrose, Minnesota; Montevideo, Minnesota; Pelican Rapids, Minnesota; and Willmar, Minnesota.
Patents and Trademarks
There are numerous patents and trademarks that are important to the Companys business. The Company holds 9 foreign and 49 U.S.-issued patents. Some of the trademarks are registered and some are not. Some of the more significant owned or licensed trademarks used in the Companys segments are:
HORMEL, ALWAYS TENDER, AMERICAN CLASSICS, AUSTIN BLUES, BANGKOK PADANG, BLACK LABEL, BREAD READY, BÚFALO, CAFÉ H, CALIFORNIA NATURAL, CARAPELLI, CHI-CHIS, COMPLEATS, CURE 81, CUREMASTER, DANS PRIZE, DI LUSSO, DINTY MOORE, DODGER DOGS, DOÑA MARIA, DUBUQUE, FARMER JOHN, FAST N EASY, GRANDE GOURMET, HERB-OX, HERDEZ, HIBACHI GRILL, HOMELAND, HOUSE OF TSANG, JENNIE-O TURKEY STORE, KIDS KITCHEN, LAYOUT, LITTLE SIZZLERS, LLOYDS, MAGNIFOODS, MANNYS, MARRAKESH EXPRESS, MARY KITCHEN, NATURAL CHOICE, NATURASELECT, OLD SMOKEHOUSE, PELOPONNESE, PILLOW PACK, POCO PAC, PREP CHEF, PREMORO, RANGE BRAND, RICO OLE, ROSA GRANDE, SAAGS, SANDWICH MAKER, SAUCY BLUES, SPAM, SPAMTASTIC, STAGG, TEZZATA, THICK & EASY, VALLEY FRESH, and WRANGLERS.
The Companys patents expire after a term that is typically 20 years from the date of filing, with earlier expiration possible based on the Companys decision to pay required maintenance fees. As long as the Company intends to continue using its trademarks, they are renewed indefinitely.
Customers and Backlog Orders
During fiscal year 2008, sales to Wal-Mart Stores, Inc. (Wal-Mart) represented approximately 12 percent of the Companys revenues (measured as gross sales less returns and allowances). Wal-Mart is a customer for all five segments of the Company. The five largest customers in each segment make up approximately the following percentage of segment sales: 47 percent of Grocery Products, 37 percent of Refrigerated Foods, 41 percent of JOTS, 38 percent of Specialty Foods, and 25 percent of All Other. The loss of one or more of the top customers in any of these segments could have a material adverse effect on the results of such segment. Backlog orders are not significant due to the perishable nature of a large portion of the products. Orders are accepted and shipped on a current basis.
The production and sale of meat and food products in the United States and internationally are highly competitive. The Company competes with manufacturers of pork and turkey products, as well as national and regional producers of other meat and protein sources, such as beef, chicken, and fish. The Company believes that its largest domestic competitors for its Refrigerated Foods segment in 2008 were Tyson Foods, Smithfield Foods, and Sara Lee Corporation; for its Grocery Products segment, ConAgra Foods, Pinnacle Foods, and Campbell Soup Co.; and for JOTS, Cargill, Inc. and Butterball, LLC.
All segments compete on the basis of price, product quality, brand identification, and customer service. Through aggressive marketing and strong quality assurance programs, the Companys strategy is to provide higher quality products that possess strong brand recognition, which would then support higher value perceptions from customers.
The Company competes using this same strategy in international markets around the world.
Research and Development
Research and development continues to be a vital part of the Companys strategy to extend existing brands and expand into new branded items. The expenditures for research and development for fiscal 2008, 2007, and 2006, were approximately $22,689,000, $21,475,000, and $18,631,000, respectively. There are 91 employees engaged in full time research and development, 46 in the area of improving existing products and 45 in developing new products.
As of October 26, 2008, the Company had approximately 19,100 active employees.
(d) Geographic Areas
Financial information about geographic areas, including total revenues attributed to the U.S. and all foreign countries in total for the last three fiscal years of the Company, is reported in Note K of the Notes to Consolidated Financial Statements of the Annual Stockholders Report for the year ended October 26, 2008, incorporated herein by reference.
(e) Available Information
The Company makes available, free of charge on its Web site at www.hormelfoods.com, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. These reports are accessible under the Investors caption of the Companys Web site and are available as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission.
The documents noted above are also available in print, free of charge, to any stockholder who requests them.
(f) Executive Officers of the Registrant
(f) Executive Officers of the Registrant-Continued
No family relationship exists among the executive officers.
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.
Information on the Companys risk factors included in the Managements Discussion and Analysis of Financial Condition and Results of Operations on pages 31 through 33 of the Annual Stockholders Report for the year ended October 26, 2008, is incorporated herein by reference.
Item 2. PROPERTIES - Continued
Item 2. PROPERTIES - Continued
(1) Many of the Companys properties are not exclusive to any one segment, and a few of the properties are utilized in all five segments. For locations that support multiple segments, but with a substantial percentage of activity attributable to certain segments, only the principal segments have been listed.
(2) Plant currently under construction
The Company has renovation or building projects in progress at Albert Lea, Minnesota; Austin, Minnesota; Dubuque, Iowa; and Las Animas, Colorado. The Company believes its operating facilities are well maintained and suitable for current production volumes, and expansion plans are in process to accommodate all volumes anticipated in the foreseeable future.
The Company is a party to various legal proceedings related to the on-going operation of its business. The resolution of any currently known matters is not expected to have a material effect on the Companys financial condition, results of operations, or liquidity.
No matters were submitted to stockholders during the fourth quarter of the 2008 fiscal year.
The high and low sales prices of the Companys common stock and the dividends per share declared for each fiscal quarter of 2008 and 2007, respectively, are shown below:
Additional information about dividends, principal market of trade, and number of stockholders on page 57 of the Annual Stockholders Report for the year ended October 26, 2008, is incorporated herein by reference. The Companys common stock has been listed on the New York Stock Exchange since January 16, 1990.
Issuer purchases of equity securities in the fourth quarter of fiscal year 2008 are shown below:
(1) The 163 shares repurchased during the quarter, other than through publicly announced plans or programs, represent purchases for the Companys employee awards program.
(2) On October 2, 2002, the Company announced that its Board of Directors had authorized the Company to repurchase up to 10,000,000 shares of common stock with no expiration date.
Selected Financial Data for the five years ended October 26, 2008, on page 17 of the Annual Stockholders Report for the year ended October 26, 2008, is incorporated herein by reference.
Information in the Managements Discussion and Analysis of Financial Condition and Results of Operations on pages 18 through 35 of the Annual Stockholders Report for the year ended October 26, 2008, is incorporated herein by reference.
Information on the Companys exposure to market risk included in the Managements Discussion and Analysis of Financial Condition and Results of Operations on pages 34 and 35 of the Annual Stockholders Report for the year ended October 26, 2008, is incorporated herein by reference.
Consolidated Financial Statements, including unaudited quarterly data, on pages 39 through 56 and the Report of Independent Registered Public Accounting Firm on page 38 of the Annual Stockholders Report for the year ended October 26, 2008, are incorporated herein by reference.
Disclosure Controls and Procedures
As of the end of the period covered by this report (the Evaluation Date), the Company carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act)). In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective to provide reasonable assurance that information we are required to disclose in reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Internal Control over Financial Reporting
(a) The report entitled Managements Report on Internal Control Over Financial Reporting on page 36 of the Annual Stockholders Report for the year ended October 26, 2008, is incorporated herein by reference.
(b) The report entitled Report of Independent Registered Public Accounting Firm on page 37 of the Annual Stockholders Report for the year ended October 26, 2008, is incorporated herein by reference.
(c) During the fourth quarter of fiscal year 2008, there has been no change in the Companys internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.
Information under Item 1 - Election of Directors on pages 2 through 4, information under Board Independence on page 5, and information under Board of Director and Committee Meetings on page 6 of the definitive proxy statement for the Annual Meeting of Stockholders to be held January 27, 2009, is incorporated herein by reference.
Information concerning Executive Officers is set forth in Item 1(f) of Part I pursuant to Instruction 3, Paragraph (b) of Item 401 of Regulation S-K.
Information under Section 16(a) Beneficial Ownership Reporting Compliance, on page 30 of the definitive proxy statement for the Annual Meeting of Stockholders to be held January 27, 2009, is incorporated herein by reference.
The Company has adopted a Code of Ethical Business Conduct in compliance with applicable rules of the Securities and Exchange Commission that applies to its principal executive officer, its principal financial officer, and its principal accounting officer or controller, or persons performing similar functions. A copy of the Code of Ethical Business Conduct is available on the Companys Web site at www.hormelfoods.com, free of charge, under the caption, Investors Corporate Governance. The Company intends to satisfy any disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision of this Code of Ethical Business Conduct by posting such information on the Companys Web site at the address and location specified above.
Information commencing with Executive Compensation on page 13 through Potential Payments Upon Termination at Fiscal 2008 Year End on pages 29 and 30, and information under Compensation of Directors on pages 8 through 10 of the definitive proxy statement for the Annual Meeting of Stockholders to be held January 27, 2009, is incorporated herein by reference.
Information under Equity Compensation Plan Information on pages 35 and 36, and information under Security Ownership of Certain Beneficial Owners and Security Ownership of Management on pages 11 through 13 of the definitive proxy statement for the Annual Meeting of Stockholders to be held January 27, 2009, is incorporated herein by reference.
Information under Related Party Transactions on page 30 and Board Independence on page 5 of the definitive proxy statement for the Annual Meeting of Stockholders to be held January 27, 2009, is incorporated herein by reference.
Information under Independent Registered Public Accounting Firm Fees through Audit Committee Preapproval Policies and Procedures on pages 10 and 11 of the Companys definitive proxy statement for the Annual Meeting of Stockholders to be held January 27, 2009, is incorporated herein by reference.
The response to Item 15 is submitted as a separate section of this report.
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.
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 dates indicated.
ANNUAL REPORT ON FORM 10-K
LIST OF FINANCIAL STATEMENTS
FINANCIAL STATEMENT SCHEDULE
LIST OF EXHIBITS
YEAR ENDED OCTOBER 26, 2008
HORMEL FOODS CORPORATION
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
HORMEL FOODS CORPORATION
The following consolidated financial statements of Hormel Foods Corporation included in the Annual Stockholders Report for the year ended October 26, 2008, are incorporated herein by reference in Item 8 of Part II of this report:
Consolidated Statements of Financial PositionOctober 26, 2008, and October 28, 2007.
Consolidated Statements of OperationsYears Ended October 26, 2008, October 28, 2007, and October 29, 2006.
Consolidated Statements of Changes in Shareholders InvestmentYears Ended October 26, 2008, October 28, 2007, and October 29, 2006.
Consolidated Statements of Cash FlowsYears Ended October 26, 2008, October 28, 2007, and October 29, 2006.
Notes to Financial StatementsOctober 26, 2008.
Report of Independent Registered Public Accounting Firm
FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statement schedule of Hormel Foods Corporation required pursuant to Item 15(c) is submitted herewith:
Schedule II - Valuation and Qualifying Accounts and Reserves...F-3
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.
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.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
HORMEL FOODS CORPORATION