Hormel Foods 2011 Annual Report Download - page 19

1
7
Hormel Foods Corporation
T
he Company accounts for its ma
j
ority-owned operations
u
n
de
r th
e
co
n
so
l
ida
t
io
n m
e
th
od
. Inv
es
tm
e
nt
s
i
n wh
ic
h th
e
Com
p
any owns a minority interest, and for which there are
no other indicators o
f
control
,
are accounted
f
or under the
equ
i
ty or cost method. These
i
nvestments, alon
g
w
i
th rece
i
v
-
ables from other affiliates
,
are included in the
C
onsolidated
S
tatement of Financial Position as investments in and recei
v
-
ables
f
rom a
ffi
liates. The composition o
f
this line item at
October
3
0, 2011, was as follows:
(
in thousands
)
Country
I
nvestments
/
Receivables
U
nit
ed
S
t
a
t
es
$
20
5
,
5
94
P
h
i
l
i
pp
i
nes 65
,
14
0
V
ie
tn
am
1
7
,
44
2
Me
x
ico
4
,
7
96
J
apan
2,
7
26
To
t
al
$
29
5
,
6
98
I
ncome
T
axes: The Company’s effective tax rate for the
f
ourth quarter and year was 34.3 percent and 33.3 percent,
respectively, in fiscal 2011 compared to 34.8 percent and 36.0
percent, respectively, for the quarter and year in fiscal
20
1
0
.
T
he lower fiscal
20
11 rate compared to the prior year prima
r
-
ily reflects favorable discrete items resultin
g
from prior year
tax ad
j
ustments and settlements with federal and various
s
tate tax jurisdictions. Additionally, the higher rate in the prior
y
ear reflected a change in the tax treatment of Medicare Part
D
subsidies, resulting
f
rom new health care laws enacted
in 2010. The Com
p
any ex
p
ects the effective tax rate in fiscal
2
012 to be between 34.5
p
ercent and 35.5
p
ercent.
S
egment Result
s
N
et sales and operatin
g
profits for each of the
C
ompany’s
reportable se
g
ments are set forth below. The
C
ompany
is an inte
g
rated enterprise, characterized by substantial
intersegment cooperation, cost allocations, and sharing of
assets. Therefore, the
C
om
p
any does not re
p
resent that
these segments, if operated independently, would report the
operating pro
fi
t and other
fi
nancial in
f
ormation shown below.
(
Additional segment financial information can be found in
N
ote O “Segment Reporting.”
)
balanced business model is still ex
p
ected to deliver im
p
roved
profits in the upcoming year, with growth driven by the
G
rocery Products, Specialty Foods, and All Other segments.
Sellin
g
, General and Administrative:
S
elling, general and
a
dministrative ex
p
enses
f
or the
f
ourth
q
uarter and year were
$156.7 million and $618.6 million, respectively, compared to
$166.5 million and $605.3 million last year. Due to si
g
nificant
sales
g
rowth in the current year, sellin
g
,
g
eneral and admin
-
i
strative expenses as a percenta
g
e of net sales for the fourth
q
uarter decreased to 7.4 percent, compared to
8
.1 percent of
net sales in the prior year. For the fiscal year, these expenses
d
ecreased to 7.
8
p
ercent from
8
.4
p
ercent in fiscal
20
1
0
.
Higher expense was incurred in fiscal
20
11 due to the vesting
o
f options under the Universal Stock Option award granted to
a
ll employees in 2007, which occurred during the first qua
r
-
t
er. Brokerage, travel, and compensat
i
on related expenses
a
lso increased for the year com
p
ared to fiscal 2010, but were
partially o
ff
set by reductions in pro
f
essional service related
e
xpenses. The
C
ompany also made a lar
g
er investment in
a
dvertisin
g
for its key brands durin
g
fiscal
20
11. Most notably,
Ho
rm
e
l
®
branded items continued to be supported through the
“Life Better Served” campaign throughout the year, and the
“Make the Switch” campaign for
J
ennie-O Turkey Store
®
t
ur
k
e
y
burgers was resumed in the summer and
f
all months. As a
percentage of net sales, the Company expects selling, general
a
nd adm
i
n
i
strat
i
ve ex
p
enses to be between 7.5
p
ercent and
8
.0 percent in fiscal 2012.
Research and development expenses were $8.2 million and
$29.4 million for the fiscal 2011 fourth quarter and year,
respectively, compared to $7.7 million and $27.6 million
i
n
20
1
0
. Research and development expenses are a
g
ain
e
xpected to increase during fiscal
20
1
2
, as product innovation
a
nd ongoing expansion of value-added product lines will con
-
t
inue to be priorities for the Company going forward
.
E
quity in Earnin
g
s of Affiliates:
E
quity in earnings o
f
a
ffi
liates
w
as
$
7.6 million and
$
26.8 million for the fiscal 2011 fourth
quarter and year, respectively, compared to $4.1 million and
$13.1 million last year. Stron
g
results from the Company’s 50
percent owned Me
g
aMex
j
o
i
nt venture were the pr
i
mary dr
i
ver
of the increase for both the fourth quarter and fiscal year, off
-
settin
g
lower overall results for the
C
ompany’s international
j
oint ventures compared to fiscal
20
1
0.
During the fourth quarter of fiscal 2010, MegaMex acquired
Don Miguel Foods, a leading provider of branded frozen and
f
resh authentic Mexican a
pp
etizers, snacks, and handheld
i
tems. During the fourth quarter of fiscal 2011, MegaMex also
c
om
p
leted the ac
q
uisition o
f
Fresherized Foods. Fresherized
F
oo
d
s pro
d
uces
W
holly Guacamol
e
®
,
Wholl
y
Salsa
®
, an
d
Wh
o
lly
Q
ueso
®
p
roducts. As the Com
p
any continues to ex
p
and its
port
f
olio o
f
Mexican
f
oods, it anticipates that this
j
oint venture
w
ill generate additional growth in equity in earnings o
f
a
ffi
l
i
-
ates for fiscal 2012
.