Hormel Foods 2011 Annual Report Download - page 31

29
Hormel Foods Corporation
T
he Company’s foreign operations pose additional risks to
t
he Com
p
an
y
’s business. The Com
p
any o
p
erates its business
and markets its products internationally. The Company’s
f
orei
g
n operations are subject to the risks described above,
as well as risks related to
fl
uctuations in currenc
y
values,
f
orei
g
n currency exchan
g
e controls, compliance with for
-
ei
g
n laws, and other economic or political uncertainties.
I
nternational sales are subject to risks related to general
economic conditions, im
p
osition of tariffs,
q
uotas, trade barri
-
ers and other restrictions, enforcement of remedies in foreign
j
urisdictions and compliance with applicable
f
oreign laws, and
other economic and
p
olitical uncertainties. All o
f
these risks
could result
i
n
i
ncreased costs or decreased revenues
,
wh
i
ch
could adversely affect the Company’s financial results
.
D
eterioration of labor relations or increases in labor costs
c
ould harm the
C
om
p
an
y
’s business. The
C
ompany has
approximately 1
9
,5
00
domestic and forei
g
n employees, of
w
hich approximately 5,5
00
are represented by labor unions,
p
rinci
p
ally the United Food and
C
ommercial Workers’ Union.
A significant increase in labor costs or a deterioration of
labor relations at any of the Com
p
any’s facilities that results
in work slowdowns or stoppages could harm the Company’s
financial results. Union contracts at the Com
p
any’s facilities
in Knoxville, Iowa; Perrysburg, Ohio; and Stockton, California
w
ill expire durin
g
fiscal 2012, coverin
g
a combined total of
approximately 340 employees. Ne
g
otiations at the Perrysbur
g
,
O
hio facility are in process. Ne
g
otiations at the other two
f
acilities have not
y
et been initiated.
Q
uantitative and
Q
ualitative Disclosure
Abou
t
Ma
r
ke
t
Risks
H
og
M
ar
k
ets:
T
he Company’s earnings are affected by
fl
uctuations in the live ho
g
market. To minimize the impact
on earnin
g
s, and to ensure a steady supply o
f
quality ho
g
s,
the
C
ompany has entered into contracts with producers for
the purchase o
f
ho
g
s at
f
ormula-based prices over periods
of up to 1
0
years. Purchased ho
g
s under contract accounted
f
or
9
5 percent and
9
4 percent of the total ho
g
s purchased
by the
C
om
p
any in fiscal years
20
11 and
20
1
0
, res
p
ectively.
T
he ma
j
ority of these contracts use market-based formulas
based on hog futures, hog primal values, or industry reported
hog markets. Under normal, long-term market cond
i
t
i
ons,
changes in the cash hog market are o
ff
set by proportional
changes in primal values. Therefore, a hypothetical 10 percent
chan
g
e
i
n the cash ho
g
market would have had an
i
mmater
i
al
effect on the
C
ompany’s results of operations.
C
ertain procurement contracts allow for future ho
g
deliver-
ies (firm commitments) to be forward priced. The Company
g
enerally hed
g
es these firm commitments by usin
g
ho
g
f
utures contracts. These futures contracts are designated and
accounted for as fair value hedges. The change in the market
v
alue of such futures contracts is highly effective at offset
-
ting changes in price movements o
f
the hedged item, and the
Com
p
any evaluates the effectiveness of the contracts on a
regular basis. Changes in the fair value of the futures con
-
tracts, alon
g
with the
g
ain or loss on the
fi
rm commitment,
The Company’s operations are subject to the
g
eneral risks
o
f liti
g
ation. The Company is involved on an ongoing basis in
l
itigation arising in the ordinary course o
f
business. Trends
i
n l
i
t
ig
at
i
on may
i
nclude class act
i
ons
i
nvolv
i
n
g
employees,
c
onsumers, compet
i
tors, suppl
i
ers, shareholders, or
i
n
j
ured
persons, and cla
i
ms relat
i
n
g
to product l
i
ab
i
l
i
ty, contract d
is
-
putes, patent infrin
g
ement, wa
g
e and hour laws, employment
practices, or environmental matters. Liti
g
ation trends and the
o
utcome of liti
g
ation cannot be predicted with certainty and
a
dverse litigation trends and outcomes could adversely affect
t
he
C
om
p
any’s financial results.
Government re
g
ulation, present and future, exposes the
Company to potential sanctions and compliance costs
that could adversel
y
affect the Com
p
an
y
’s business.
The
C
ompany’s operations are subject to extensive re
g
ul
a
-
t
ion by the U.
S
. Department of Homeland
S
ecurity, the
U.
S
. Department of A
g
riculture, the U.
S
. Food and Dru
g
Administration, federal and state taxin
g
authorities, and
o
th
e
r
s
t
a
t
e
a
n
d
l
oca
l
au
th
o
riti
es
th
a
t
o
v
e
r
see
w
o
rkf
o
r
ce
i
mmi
g
ration laws, tax re
g
ulations, animal welfare, food safety
standards, and the processing, packaging, storage, distribu
-
t
ion, advertising, and labeling of the Company’s products. The
C
ompany’s manufacturing facilities and products are subject
t
o constant ins
p
ection by
f
ederal, state, and local authorities.
C
laims or enforcement proceedings could be brought against
t
he Com
p
any in the future. Additionally, the Com
p
any is
subject to new or modi
fi
ed laws, re
g
ulations, and accountin
g
standards. The
C
ompany’s failure or inability to comply with
such requirements could subject the
C
ompany to civil re
m
-
e
dies, includin
g
fines, injunctions, recalls, or seizures, as well
a
s potential criminal sanctions
.
The
C
ompany is subject to strin
g
ent environmental re
g
ula
-
tion and potentially subject to environmental liti
g
ation,
p
roceedin
g
s, and investi
g
ations.
T
he Com
p
any’s
p
ast and
p
resent bus
i
ness o
p
erat
i
ons and ownersh
ip
and o
p
erat
i
on
of
real property are subject to stringent
f
ederal, state, and
l
ocal env
i
ronmental laws and re
g
ulat
i
ons perta
i
n
i
n
g
to the
d
ischar
g
e o
f
materials into the environment, and the handlin
g
a
nd disposition of wastes (includin
g
solid and hazardous
wastes) or otherwise relatin
g
to protection of the environ
-
ment.
C
ompliance with these laws and re
g
ulations, and the
a
bility to comply with any modifications to these laws and
regulations, is material to the
C
ompany’s business. New mat
-
t
ers or sites may be identified in the future that will re
q
uire
a
dditional investigation, assessment, or expenditures. In
a
ddition, some of the Com
p
any’s facilities have been in o
p
era
-
t
ion for many years and, over time, the Com
p
any and other
prior operators o
f
these
f
acilities may have generated and
d
is
p
osed o
f
wastes that now may be considered hazardous.
Future discovery o
f
contamination o
f
property underlyin
g
or
i
n the vicinity of the
C
ompany’s present or former properties
o
r manufacturin
g
facilities and
/
or waste disposal sites could
require the
C
ompany to incur additional expenses. The occu
r
-
rence of any of these events, the implementation of new laws
a
nd regulations, or stricter interpretation of existing laws or
regulations, could adversely affect the
C
ompany’s financial
r
esul
t
s
.