Hormel Foods 2010 Annual Report Download

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Balance.
2010 annual report

Table of contents

  • Page 1
    Balance. 2010 annual report

  • Page 2
    ... market forfes. The diversity of these different businesses allow us to be suffessful in a variety of efonomif fonditions. segment operating profit: 2005 - 2010 â- Year-over-Year growth â- Year-over-Year decline total segment grocerY prodUcts refrigerated foods Jennie-o tUrKeY store specialtY...

  • Page 3
    ... pepperoni and party trays and Hormel® Natural Choice® products, all of which posted notable sales growth during the year. Our recently acquired Country Crock® chilled side dishes are a nice complement to our Hormel® refrigerated entree and Lloyd's® barbeque product lines. jeffrey m. ettinger...

  • Page 4
    ... improved sales include Hormel® Natural Choice® meats, Bread Ready® pre-sliced meats, Austin Blues® barbeque meats and Café H® ethnic meats. Improved efficiencies across the entire supply chain and Thomas R. Day was promoted to group vice president of operations by our team at Jennie-O Turkey...

  • Page 5
    ...2008 2009 2010 2006 2007 2008 2009 2010 Financial Highlights (in thousands, except per share amounts) 2010 2009 Change % change Net Sales Net Earnings Attributable to Hormel Foods Percent of Sales Earnings Per Share Basic Diluted Dividends Declared to Shareholders Per Share of Common Stock...

  • Page 6
    ... Foods includes Diamond Crystal Brands, Century Foods International and Hormel Specialty Products and offers high-quality products for restaurants, health care facilities and retail customers. We offer individual restaurant packets, nutritional food products, supplements and contract manufacturing...

  • Page 7
    ...all areas of its business. Their improved performance was aided by growth in value-added sales, higher commodity turkey meat prices and improved supply chain management. toUtING tUrKeY BUrGerS Jennie-O Turkey Store launched their Make The Switchâ„¢ campaign this year to challenge people to balance...

  • Page 8
    ... ways to make high-quality meals without the mess and fuss, we meet their needs by offering our Hormel® refrigerated entrees, Hormel™ Country Crock® side dishes and Hormel® Compleats® microwave meals. Our leadership position in the convenience meals section of the grocery store has allowed us...

  • Page 9
    ...category. In the past year, we launched Hormel® turkey pepperoni minis, pepperoni stix and pepperoni stix and cheese. These items are popular, whether served as an on-the-go snack or included within a family-favorite recipe. Including pepperoni with our Hormel® party trays is another way we create...

  • Page 10
    ...-go salsas and chips are a great snack, and the more traditional mole products offer unique flavors they can add to a favorite dish for an authentic ethnic twist. The combination of leading brands and a diverse product portfolio positions MegaMex Foods for future growth in a rapidly growing category...

  • Page 11
    ...include frozen and refrigerated entrees and appetizers like mini tacos, flautas, taquitos, empanadas, burritos and roller grill items. Adding these leading product categories to the MegaMex Foods portfolio brings it closer to the goal of being a one-stop-shop for Mexican foods for its customers. The...

  • Page 12
    ... at Hormel Foods, employees are encouraged to develop, implement and report about innovative projects through our annual Sustainability Best of the Best competition. Last year, the Diamond Crystal Brands plant in Savannah, Georgia, was named the champion for a Green Team project addressing solid...

  • Page 13
    ... following natural disasters in Minnesota and Haiti. The contributions helped the ARC provide food, clean water and other needed supplies for those in need. Corporate responsibility and sustainability initiatives at Hormel Foods are SUStaINaBIlItY reCoGNItIoN getting noticed. In 2010, Hormel Foods...

  • Page 14
    ... are typically used to benchmark our Company's performance against other companies in our industry. These measures are calculated as follows: 2010 2009 2008 2007 2006 (1) eBit: Net Earnings Attributable to Hormel Foods Corporation Plus: Income Tax Expense Plus: Interest Expense Less: Interest and...

  • Page 15
    ... of new MegaMex joint venture products and sales of Country Crock® side dish items that were acquired in fiscal 2010. We also experienced higher commodity selling prices during the year. Our earnings benefited from our higher sales as well as operational efficiencies and historically high pork...

  • Page 16
    ... Plans: The Company incurs expenses relating to employee benefits, such as noncontributory defined benefit pension plans and post-retirement health care benefits. In accounting for these employment costs, management must make a variety of assumptions and estimates including mortality rates, discount...

  • Page 17
    ... products, dessert mixes, ready-to-drink products, sports nutrition products, gelatin products, and private label canned meats to retail and foodservice customers. This segment also includes the processing, marketing, and sale of nutritional food products and supplements to hospitals, nursing homes...

  • Page 18
    ...key product lines, and substantial investments in advertising to support both the Hormel® and Jennie-O Turkey Store® brands. Sales from the Company's MegaMex joint venture and the Country Crock® side dish acquisition also benefited top-line results compared to the prior year. Entering fiscal 2011...

  • Page 19
    ... segment financial information can be found in Note N "Segment Reporting.") Fourth Quarter Ended (in thousands) October 31, 2010 October 25, 2009 % Change October 31, 2010 Year Ended October 25, 2009 % Change Net Sales Grocery Products Refrigerated Foods Jennie-O Turkey Store Specialty Foods All...

  • Page 20
    ... fiscal 2010, and were particularly strong during the fourth quarter. The Company's Hormel® branded products have been supported by the "Life Better Served" advertising campaign, which began in the second quarter and continues to benefit top-line results. Segment profit for Refrigerated Foods...

  • Page 21
    ...prior year. Value-added net sales for JOTS have benefited from substantial investments in media campaigns to support the Jennie-O Turkey Store® brand, particularly in the latter half of fiscal 2010. These campaigns contributed to double-digit sales growth over the prior year across the retail, deli...

  • Page 22
    ... in the latter half of fiscal 2008 had decreased margins in the Company's value-added business units. Lower feed costs at Jennie-O Turkey Store also contributed to the margin improvement, resulting from a planned reduction in turkey production and a decreased cost per ton in fiscal 2009 compared to...

  • Page 23
    ...would report the operating profit and other financial information shown below. Fourth Quarter Ended (in thousands) October 25, 2009 October 26, 2008 % Change October 25, 2009 Year Ended October 26, 2008 % Change Net Sales Grocery Products Refrigerated Foods Jennie-O Turkey Store Specialty Foods All...

  • Page 24
    ... was achieved for Hormel® retail pepperoni, Di Lusso® products, and prepared deli foods. Sales of Hormel® Natural Choice® lunchmeats and Hormel® party trays also showed notable gains for 2009 compared to the prior year. The Foodservice business unit reported an overall sales decline for the...

  • Page 25
    ... within Specialty Foods were mixed. The strong results for the fourth quarter and year were driven by improved sales and margins on HSP private label canned meats, which offset reductions in contract packaging sales. An overall reduction in freight and warehousing expenses also provided a benefit to...

  • Page 26
    ...® chilled side dish line. Expenditures on fixed assets in fiscal 2010 decreased to $89.8 million from $97.0 million in the prior year. The most significant project during 2010 was the completion of the Company's new production facility in Dubuque, Iowa. For fiscal 2011, the Company expects capital...

  • Page 27
    ... supply of production inputs. Certain of these contracts are based on market prices at the time of delivery, for which the Company has estimated the purchase commitment using current market prices as of October 31, 2010. The Company also utilizes various hedging programs to manage the price risk...

  • Page 28
    ... fund supplemental executive retirement plans and deferred income plans, and the Company's assets held in pension plans. The Company also utilizes hedging programs to reduce its exposure to various commodity market risks, which qualify for hedge accounting for financial reporting purposes. Volatile...

  • Page 29
    ...include: • price; • product quality; • brand identification; • breadth of product line; and • customer service. Demand for the Company's products is also affected by competitors' promotional spending and the effectiveness of the Company's advertising and marketing programs. The Company may...

  • Page 30
    ... 10 years. Purchased hogs under contract accounted for 94 percent and 93 percent of the total hogs purchased by the Company in fiscal years 2010 and 2009, respectively. The majority of these contracts use market-based formulas based on hog futures, hog primal values, or industry reported hog markets...

  • Page 31
    ... market price for grain would have negatively impacted the fair value of the Company's October 31, 2010, open grain contracts by $18.4 million, which in turn would lower the Company's future cost on purchased grain by a similar amount. Natural Gas: Production costs at the Company's plants and feed...

  • Page 32
    ... of internal controls and the quality of financial reporting. Management's Report on Internal Control Over Financial Reporting Management of Hormel Foods Corporation is responsible for establishing and maintaining adequate internal control over financial reporting for the Company, as such term is...

  • Page 33
    ...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 31, 2010, and our report dated December 21, 2010, expressed an unqualified opinion thereon. Minneapolis, Minnesota December 21, 2010 31

  • Page 34
    Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders Hormel Foods Corporation Austin, Minnesota We have audited the accompanying consolidated statements of financial position of Hormel Foods Corporation as of October 31, 2010, and October 25, 2009, and...

  • Page 35
    ...issued - none Common stock, par value $.0586 a share - authorized 400,000,000 shares; issued 132,981,540 shares October 31, 2010 issued 133,593,719 shares October 25, 2009 Accumulated other comprehensive loss Retained earnings Hormel Foods Corporation Shareholders' Investment Noncontrolling Interest...

  • Page 36
    Consolidated Statements of Operations Fiscal Year Ended (in thousands, except per share amounts) October 31, 2010 October 25, 2009 October 26, 2008 Net sales Cost of products sold Gross Profit Selling, general and administrative Equity in earnings of affiliates Operating Income Other income and ...

  • Page 37
    ... adjustment Pension and other benefits Comprehensive income Adoption of ASC 740 accounting for uncertain tax positions Purchases of common stock Stock-based compensation expense Exercise of stock options/ nonvested shares 754 Shares retired (1,910) Declared cash dividends - $.74 per share Balance...

  • Page 38
    Consolidated Statements of Cash (in thousands) Flows Fiscal Year Ended October 31, 2010 October 25, 2009 October 26, 2008 Operating ...sales and plant facilities Gain on dissolution of joint venture Non-cash investment activities Stock-based compensation expense Excess tax benefit from stock...

  • Page 39
    ... that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Fiscal Year: The Company's fiscal year ends on the last Sunday in October. Fiscal year 2010 consisted of 53 weeks and fiscal years 2009 and 2008 consisted of...

  • Page 40
    ... October 26, 2009, the Company completed the formation of MegaMex Foods, LLC, a 50 percent owned joint venture which markets Mexican Foods in the United States. MegaMex Foods, LLC had a book value of $122.4 million at October 31, 2010. This investment is included in the Grocery Products segment for...

  • Page 41
    ... million shares of common stock with no expiration date. During fiscal 2010, 585,500 shares at an average price of $42.86 were purchased under this new authorization. Supplemental Statement of Operations Information: Net earnings for the fiscal year ended October 31, 2010, include two non-recurring...

  • Page 42
    ... related to supplier contracts for the fiscal year ended October 25, 2009. The noted investments are included in other assets or short-term marketable securities on the Consolidated Statements of Financial Position. Changes in the value of these investments are included in the Company's net earnings...

  • Page 43
    ... 2009 2008 Effective February 1, 2010, the Company completed the acquisition of the Country Crock® chilled side dish business from Unilever United States Inc. This line of microwaveable, refrigerated side dishes complements the Company's Hormel® refrigerated entrees and Lloyd's® barbeque product...

  • Page 44
    ... acquisition of Saag's Products, Inc. (in thousands) Grocery Products Refrigerated Foods JOTS Specialty Foods All Other Total Balance as of October 26, 2008 Goodwill acquired Purchase adjustments Balance as of October 25, 2009 Goodwill acquired Balance as of October 31, 2010 $ 123,316 $ 85...

  • Page 45
    ... depending on respective retirement dates and applicable plan coverage in effect. Contribution requirements for retired employees are governed by the Retiree Health Care Payment Program and may change each year as the cost to provide coverage is determined. Eligible employees hired after January...

  • Page 46
    ...be recognized in net periodic post-retirement benefit cost during the fiscal year ending October 30, 2011, are $4.3 million and $0.0 million, respectively. The following is a reconciliation of the beginning and ending balances of the benefit obligation, the fair value of plan assets, and the funded...

  • Page 47
    ...a healthy funded status for the plans. As of the 2010 measurement date, plan assets included 1.7 million shares of common stock of the Company having a market value of $76.1 million or 9% of total plan assets. Dividends paid during the year on shares held by the plan were $1.4 million. In 2009, plan...

  • Page 48
    ... by the pension plans at year-end. Collective trusts: The pension plans holds investments in various collective investment funds, which are managed by a third party, that invest in a well-diversified portfolio of investment contracts from highly rated financial institutions and high-quality, fixed...

  • Page 49
    ... gains Realized gains (losses) Ending Balance, October 31, 2010 $ 3,108 5,506 717 - $ 9,331 The Company has commitments totaling $85.0 million for the private equity investments within the pension plans, of which $77.0 million remains unfunded at fiscal year end 2010. These commitments include $53...

  • Page 50
    ...022) $ 26,073 In order to ensure a steady supply of hogs and turkeys, and to keep the cost of products stable, the Company has entered into contracts with producers for the purchase of hogs and turkeys at formula-based prices over periods up to 10 years. The Company has also entered into grow-out...

  • Page 51
    ... Contractual Term Risk-free interest rate Dividend yield Stock price volatility Expected option life 3.4% 2.2% 22.0% 8 years 3.2% 2.5% 22.0% 8 years 4.0% 1.8% 21.0% 8 years Shares Aggregate Intrinsic Value As part of the annual valuation process, the Company reassesses the appropriateness...

  • Page 52
    ... priced contracts are offered to the Company's commodity suppliers. The intent of the program is to make the forward priced commodities cost nearly the same as cash market purchases at the date of delivery. The futures contracts are designated and accounted for as fair value hedges, and the Company...

  • Page 53
    ... value hedges: Volume Commodity October 31, 2010 October 25, 2009 Other Derivatives: During fiscal years 2010 and 2009, the Company has held certain futures and options contract positions as part of a merchandising program and to manage the Company's exposure to fluctuations in commodity markets...

  • Page 54
    ... Fiscal Year Ended Derivatives Not Designated as Hedges: Location on Consolidated Statement of Operations October 31, 2010 October 25, 2009 Commodity contracts Foreign exchange contracts Option contracts (1) (2) (3) (4) (5) Cost of products sold Net sales Interest and investment income Cost...

  • Page 55
    ...for lean hogs and bellies are traded on the Chicago Mercantile Exchange. These are active markets with quoted prices available and therefore the futures contracts are classified as Level 1. The Company's corn and soybean meal swaps settle based on quoted prices from the CBOT, while natural gas swaps...

  • Page 56
    ...-O Turkey Store segment consists primarily of the processing, marketing, and sale of branded and unbranded turkey products for retail, foodservice, and fresh product customers. The Specialty Foods segment includes the Diamond Crystal Brands, Century Foods International, and Hormel Specialty Products...

  • Page 57
    ... Company does not represent that these segments, if operated independently, would report the operating profit and other financial information shown below. (in thousands) 2010 2009 2008 (in thousands) 2010 2009 2008 Assets Grocery Products Refrigerated Foods Jennie-O Turkey Store Specialty Foods...

  • Page 58
    ... Year Ended (in thousands) October 31, 2010 October 25, 2009 October 26, 2008 In fiscal 2010, sales to Wal-Mart Stores, Inc. (Wal-Mart) represented $1.03 billion or 13.0 percent of the Company's consolidated revenues (measured as gross sales less returns and allowances). Wal-Mart is a customer...

  • Page 59
    ... 5 -Y E A R C UMUL ATI V E TOTA L RE T URN * Hormel Foods Corporation $200 S&P 500 S&P Packaged Foods & Meats $158.82 150 $140.73 $108.97 100 50 0 10/28/05 10/27/06 10/26/07 10/24/08 10/23/09 10/29/10 *$100 invested on 10/28/05 in stock or index-including reinvestment of dividends. 57

  • Page 60
    ... 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 Wells Fargo Bank, N.A., using the address or telephone number provided 58

  • Page 61
    ... Commission (SEC), proxy statement, all news releases and other corporate literature are available free upon request by calling (507) 437-5345 or by accessing the information on the Internet at www.hormelfoods.com. Notice and access to the Company's Annual Report is mailed approximately one month...

  • Page 62
    ... Binder Executive Vice President Ronald W. Fielding Executive Vice President Richard A. Bross Group Vice President President, Hormel Foods International Thomas R. Day Group Vice President James M. Splinter Group Vice President Robert A. Tegt Group Vice President President, Jennie-O Turkey Store, Inc...

  • Page 63
    Board of Direftors terrell K. crews Retired as Executive Vice President, Chief Financial Officer and Vegetable Business CEO of Monsanto Company in November 2009 Director since October 2007 John l. morrison Managing Director, Goldner Hawn Johnson & Morrison Incorporated Director since November 2003...

  • Page 64
    ...any eating occasion. Mission: Hormel Foods is a leading branded food company with a focus on profitable growth. Inspired by our founder's charge to "originate, don't imitate," we market a balanced portfolio of highly differentiated quality products. We engage our employees by creating an environment...