Hormel Foods 2011 Annual Report Download

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2011
ANNUAL
REPORT
elevating the everyday

Table of contents

  • Page 1
    elevating the everyday 2 011 ANNUAL REPORT

  • Page 2
    ... 38% â- Jennie-O Turkey Store 26% â- Grocery Products 21% â- Specialty Foods 10% â- All other (International) 5% Table of contents 2 Letter to shareholders 4 At-a-glance 6 Elevating the everyday 12 Financial section 60 Shareholder information 62 Corporate officers 63 Board of directors

  • Page 3
    ... products and foodservice sales teams, Hormel Foods creates opportunities to bring its high-quality products to consumers. The work we are doing to create innovative products to meet consumer needs and raise awareness of our brands and products is paying off. Over the past five years, annual sales...

  • Page 4

  • Page 5
    ... to group vice president at Hormel Foods and president of Jennie-O Turkey Store, Inc. Donald H. Kremin replaced Tolbert as group vice president of Specialty Foods, and Patrick J. Connor assumed Kremin's responsibilities as vice president of Hormel Foods for the Walmart business. In addition, James...

  • Page 6
    ...Hormel® Compleats® microwave meals, Dinty Moore® stews, Don Miguel® authentic Mexican foods and the SPAM® family of products. These products offer portion-controlled meals, bold ingredients and ï¬,avorful toppers. Refrigerated Foods Center-of-the-plate meal solutions, ingredients and side dish...

  • Page 7
    ... to consumers and foodservice operators. Focused on growing value-added sales of turkey products, these products offer delicious, better-for-you options for everyday meals and gatherings. Specialty Foods Individual-serving restaurant packets, nutritional food products, supplements and contract...

  • Page 8
    ... providing high-quality products. For 120 years, Hormel Foods has produced products that consumers have come to know and love. With iconic brands like Hormel®, Jennie-O Turkey Store® and SPAM®, we build consumer loyalty around the world. Make The Switch® Jennie-O Turkey Store is on a mission to...

  • Page 9
    ..., public relations, digital and in-store/promotional elements. The campaign focuses on marquee products like Hormel® Compleats® microwave meals, Hormel® pepperoni and Hormel® Natural Choice® meats, while encompassing other products from 15 available categories. Hormel Foods Corporation 7

  • Page 10
    ... of meal solutions, Hormel Foods is constantly looking for opportunities to develop new products that meet many meal occasions from snacking and social gatherings to fine dining. No matter what the occasion, a common theme across all of these platforms is that consumers and foodservice operators...

  • Page 11
    ... foodservice solutions The foodservice group at Hormel Foods offers high quality and innovative new solutions for restaurant and other foodservice operators such as Austin Blues® products, a complete line of smoked meats that are ready to heat and serve. In addition, Hormel® Natural Choice® meats...

  • Page 12
    ...® microwave meals and Hormel® refrigerated entrees, Hormel Foods offers convenient meals to fit every family's preference. Better-for-you products Consumers today seek simple, wholesome and good-foryou products at a great value. We meet this demand with our Hormel® Natural Choice® products...

  • Page 13
    ... offer a fast, microwave-friendly meal solution. To further develop this category, a new blue segment called Café Creations was added to the existing red and green varieties now called Homestyle and Balanced Selections, respectively. In addition, the packaging has been redesigned to feature fresh...

  • Page 14
    ... are typically used to benchmark our Company's performance against other companies in our industry. These measures are calculated as follows: 2011 2010 2009 2008 2007 (1) EBIT: Net Earnings Attributable to Hormel Foods Corporation Plus: Income Tax Expense Plus: Interest Expense Less: Interest and...

  • Page 15
    ... commodity costs. Despite these pressures, sales of our value-added products continued to perform well. Value-added products under key Hormel and Jennie-O Turkey Store brands also benefitted from an increased investment in advertising campaigns during the year. ® ® Critical Accounting Policies...

  • Page 16
    ... consistent with the assumptions used in determining future profit plans for each reporting unit, which are approved by the Company's Board of Directors. The Company reviews product growth patterns, market share information, industry trends, peer group statistics, changes in distribution channels...

  • Page 17
    ..., which manufactures, markets, and sells Company products internationally. This segment also includes the results from the Company's international joint ventures and miscellaneous corporate sales. Refrigerated Foods Jennie-O Turkey Store Specialty Foods All Other Hormel Foods Corporation 15

  • Page 18
    ... robust sales of Jennie-O Turkey Store branded items and Hormel Natural Choice deli meats. Strong sales of Hormel pepperoni and party tray items are also anticipated as the Company continues to find innovative options for consumer snacking occasions. The Hormel Compleats line of microwave meals is...

  • Page 19
    .... The Company also made a larger investment in advertising for its key brands during fiscal 2011. Most notably, Hormel branded items continued to be supported through the "Life Better Served" campaign throughout the year, and the "Make the Switch" campaign for Jennie-O Turkey Store turkey burgers...

  • Page 20
    ...results for Grocery Products were mixed in the fourth quarter, reï¬,ecting the impact of pricing initatives taken throughout fiscal 2011. For the year, increased sales of core product lines, including the SPAM family of products, Hormel bacon toppings, Hormel Mary Kitchen hash, and Dinty Moore stew...

  • Page 21
    ... 2011. The Meat Products business unit had solid performance in the fourth quarter on Hormel convenience bacon, Hormel Cure 81 premium hams, and Hormel Natural Choice deli meats. For the fiscal year, sales of Hormel party trays and Hormel retail pepperoni were also strong and the Company continues...

  • Page 22
    ...nutritional and bulk blended products replacing less profitable toll-based contract manufacturing business. Efforts taken in fiscal 2011 to gain new customers and expand distribution for this segment have been successful, and will continue to benefit results for Specialty Foods in future quarters...

  • Page 23
    ... to successful new item introductions, distribution gains on 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 benefitted top-line...

  • Page 24
    ... products within Grocery Products were also strong during fiscal 2010, including Hormel chili and Hormel Mary Kitchen hash. Following declines earlier in the year, sales of the SPAM family of products, Hormel Compleats microwave meals, and bacon toppings also regained momentum in the fourth quarter...

  • Page 25
    ... double-digit sales gains for both the fourth quarter and fiscal year for Hormel party trays and Hormel retail pepperoni. New item introductions for both of these product lines continued to grow the Company's presence in the home occasion and snack categories. Natural Choice deli meats also showed...

  • Page 26
    ... Company's Valley Fresh plant in Turlock, California, and an income tax charge of $7.1 million ($0.03 per diluted share) primarily from the change in tax treatment of Medicare Part D subsidies by new health care laws enacted in 2010. Both charges were incurred in the second quarter of fiscal 2010...

  • Page 27
    ...in the prior year. Significant projects during fiscal 2011 included expansion of the Company's live production operations, an addition to the corporate office facility, and improvements at various plant locations. For fiscal 2012, the Company expects capital expenditures to approximate $140.0 to...

  • Page 28
    ...ensure a steady 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 30, 2011. The Company also utilizes various hedging programs to manage the...

  • Page 29
    ... developments, currency exchange rates, interest and inï¬,ation rates, accounting standards, taxes, and laws and regulations affecting the Company and its markets. Risk Factors The Company's operations are subject to the general risks of the food industry. The food products manufacturing industry...

  • Page 30
    ...: • 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 be...

  • Page 31
    ...hogs under contract accounted for 95 percent and 94 percent of the total hogs purchased by the Company in fiscal years 2011 and 2010, respectively. The majority of these contracts use market-based formulas based on hog futures, hog primal values, or industry reported hog markets. Under normal, long...

  • Page 32
    ... market price for grain would have negatively impacted the fair value of the Company's October 30, 2011, open grain contracts by $13.5 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 33
    ... registered public accounting firm, as stated in their report which is included herein. Jeffrey M. Ettinger Chairman of the Board, President and Chief Executive Officer and Director Jody H. Feragen Executive Vice President and Chief Financial Officer and Director Hormel Foods Corporation 31

  • Page 34
    ... OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders Hormel Foods Corporation Austin, Minnesota We have audited Hormel Foods Corporation's internal control over financial reporting as of October 30, 2011, based on criteria established in Internal Control...

  • Page 35
    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 30, 2011 and October 31, 2010, and ...

  • Page 36
    ... Accounts payable Accrued expenses Accrued workers compensation Accrued marketing expenses Employee related expenses Taxes payable Interest and dividends payable Current maturities of long-term debt Total Current Liabilities Long-Term Debt - less current maturities Pension and Post-Retirement...

  • Page 37
    ...amounts) October 30, 2011 October 31, 2010* October 25, 2009* Net sales Cost of products sold Gross Profit Selling, general and administrative Equity... to reï¬,ect the two-for-one stock split effected February 1, 2011. See Notes to Consolidated Financial Statements. Hormel Foods Corporation 35

  • Page 38
    ...715 measurement date adjustment (net of $912 tax effect) Purchases of common stock Stock-based compensation expense Exercise of stock options/ nonvested shares 452 Shares retired (2,306) Distribution to noncontrolling interest Declared cash dividends - $.38 per share* Balance at October 25, 2009 267...

  • Page 39
    ... in pension and post-retirement benefits Increase in accounts payable and accrued expenses Net ...long-term debt, net Principal payments on long-term debt Dividends paid on common stock Share repurchase Proceeds from exercise of stock options Excess tax benefit from stock...Hormel Foods Corporation 37

  • Page 40
    ... cash ï¬,ows as previously reported. Stock Split: On November 22, 2010, the Company's Board of Directors authorized a two-for-one split of the Company's common stock, which was subsequently approved by shareholders at the Company's Annual Meeting on January 31, 2011, and effected on February...

  • Page 41
    ... proceedings typically involve claims related to product liability, contract disputes, wage and hour laws, employment practices, or other actions brought by employees, consumers, competitors, or suppliers. The Company establishes accruals for its potential exposure, as Hormel Foods Corporation 39

  • Page 42
    ... in those markets. The contracts are recorded at fair value on the Consolidated Statements of Financial Position within other current assets or accounts payable. Additional information on hedging activities is presented in Note M. Equity Method Investments: The Company has a number of investments...

  • Page 43
    ... its Valley Fresh plant in Turlock, California. Valley Fresh canned meats were produced at this facility. A write-down of fixed assets and the recording of employee related costs resulted in a charge of $6.3 million after tax ($0.02 per diluted share). Health care laws enacted in fiscal 2010 also...

  • Page 44
    ...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 entrées and Lloyd's barbeque product lines within the Refrigerated Foods...

  • Page 45
    ...years 2011 and 2010, the Company completed the required annual impairment tests of indefinite-lived intangible assets and goodwill, with no material impairment indicated. Useful lives of intangible assets were also reviewed during this process, with no changes identified. Hormel Foods Corporation...

  • Page 46
    ...214,389 Equity in earnings of affiliates consists of the following: (in thousands) Segment 2011 2010 2009 MegaMex Foods, LLC Purefoods-Hormel Company San Miguel Purefoods (Vietnam) Co. Ltd. Other Total Grocery Products All Other All Other Various $24,532 5,182 (3,059) 102 $26,757 $11,996 3,523...

  • Page 47
    ... or welfare benefits. Benefits for retired employees vary for each group 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...

  • Page 48
    ... fair value of plan assets, and the funded status of the plans as of the October 30, 2011 and the October 31, 2010 measurement dates: Pension Benefits (in thousands) 2011 2010 Post-retirement Benefits 2011 2010 Change in benefit obligation: Benefit obligation at beginning of year Service cost...

  • Page 49
    ... allocations for the Company's pension plan assets as of the plan measurement date are as follows: 2011 Asset Category Actual Target Range Actual 2010 Target Range Large Capitalization Equity Hormel Foods Corporation Stock Small Capitalization Equity International Equity Private Equity Total Equity...

  • Page 50
    ... of the defined benefit pension plan investments as of October 30, 2011, by asset category and fair value hierarchy level, are as follows: Fair Value Measurements at October 30, 2011 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Signi...

  • Page 51
    ... market in which the individual securities are traded. The Level 2 investments consist primarily of mutual funds invested in long duration corporate bonds that are valued at the publicly available NAV of shares held by the pension plans at year end. (3) (4) (5) (6) Hormel Foods Corporation...

  • Page 52
    ... from additional cash contributions into the Company's pension plans. Deferred tax liabilities: Tax over book depreciation Pension assets Book/tax basis difference from acquisitions Commodity hedging contracts Other, net Deferred tax assets: Post-retirement benefits Pension benefits Stock options...

  • Page 53
    ...372) $ 21,398 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 54
    ...the risk-free interest rate using stripped U.S. Treasury yields as of the grant date where the remaining term is approximately the expected life of the option. The dividend yield is set based on the dividend rate approved by the Company's Board of Directors and the stock price on the grant date. The...

  • Page 55
    ... utilizes corn and soybean meal futures to offset the price fluctuation in the Company's future direct -rain purchases, and has entered into various swaps to hed-e the purchases of -rain and natural -as at certain plant locations. The financial instruments are desi-nated and accounted for as cash...

  • Page 56
    ...incurred. As of October 30, 2011, and October 31, 2010, the Company had the following outstanding futures and options contracts related to other programs: Volume Commodity October 30, 2011 October 31, 2010 Corn Soybean meal - 4,300 tons 1.5 million bushels 1,200 tons 54 Hormel Foods Corporation

  • Page 57
    ... Derivatives Not Designated as Hedges: Location on Consolidated Statement of Operations October 30, 2011 October 31, 2010 Commodity contracts Foreign exchange contracts Option contracts (1) (2) (3) Cost of products sold Net sales Cost of products sold $(1,981) $ (129) $ - $ (86) $ (1) $1,883...

  • Page 58
    ... are offered to the Company's commodity suppliers. the Company's futures and options contracts for corn and soybean meal are traded on the Chicago Board of trade (CBOt), while futures contracts for lean hogs are traded on the Chicago Mercantile exchange. these are active markets with quoted prices...

  • Page 59
    ... food products in a variety of markets. The Company reports its results in the following five segments: Grocery Products, Refrigerated Foods, Jennie-O Turkey Store, Specialty Foods, and All Other. The Grocery Products segment consists primarily of the processing, marketing, and sale of shelf-stable...

  • Page 60
    ... information shown below. (in thousands) 2011 2010 2009 (in thousands) 2011 2010 2009 Sales to Unaffiliated Customers Grocery Products Refrigerated Foods Jennie-O Turkey Store Specialty Foods All Other Total Intersegment Sales Grocery Products Refrigerated Foods Jennie-O Turkey Store Specialty...

  • Page 61
    ... related to the closing of the Company's Valley Fresh Plant in Turlock, California, and an income tax charge of $7.1 million ($0.03 per share) primarily due to the change in tax treatment of Medicare Part D reimbursements by health care laws enacted during fiscal 2010. Hormel Foods Corporation 59

  • Page 62
    ... in which their stock is registered, and their record address. 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...

  • Page 63
    ... copy will be available free upon request via email, mail or by calling (507) 437-5571. ANNUAL MEETING Inquiries regarding products of Hormel Foods Corporation should be addressed to: Consumer Response Hormel Foods Corporation 1 Hormel Place Austin, MN 55912-3680 or call 1-800-523-4635 TRADEMARKS...

  • Page 64
    ...Vice President Senior Vice President, Sales Consumer Products Sales Vice President, Meat Products Marketing Refrigerated Foods Michael D. Tolbert Group Vice President, Specialty Foods (retires effective 1/27/2012) Brian D. Johnson Vice President and Corporate Secretary *Director Larry L. Vorpahl...

  • Page 65

  • Page 66
    ..., training and career development Performance Achieve financial objectives • Revenue growth of 5% per year • Operating income growth of 10% per year • $2 billion of new product sales by 2012 • Enhance our balanced model Mission: Hormel Foods is a leading branded food company with a focus...