<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended October 1, 1994
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number: 1-9050
------------------------------
Hudson Foods, Inc.
(Exact name of registrant as specified in its charter)
Delaware 71-0427616
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1225 Hudson Road
Rogers, Arkansas 72756
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (501) 636-1100
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of Each Exchange on
Title of Each Class Which Registered
------------------- ----------------
Class A Common Stock, $.01 par value New York Stock Exchange, Inc.
8% Convertible Subordinated Debentures Due 2006 New York Stock Exchange, Inc.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
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 registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment of this
Form 10-K. [ ]
On November 7, 1994, there were outstanding 8,599,524 shares of the
registrant's Class A common stock, $.01 par value, and 8,502,834 shares of the
registrant's Class B common stock, $.01 par value. The Class B common stock is
not registered or publicly traded, and its transferability is restricted.
The aggregate market value of the 8,018,450 shares of Class A common stock
held by non-affiliates of the registrant on November 7, 1994 was $182,419,738.
The aggregate market value of the 2,834 shares of Class B common stock held by
non-affiliates of the registrant on November 7, 1994 was $64,474, assuming that
each share of Class B common stock has a market value equal to a share of Class
A common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for Annual Meeting of Stockholders, February 10, 1995 and
Adjournments (certain portions incorporated by reference into Part III)
================================================================================
<PAGE>
PART I
Items 1 and 2. Business and Properties.
-----------------------
THE COMPANY
Background
General. Hudson Foods, Inc. ("Hudson" or the "Company") was organized in
1972 by James T. Hudson to purchase a broiler processing plant in Noel, Missouri
and other related assets from the Ralston Purina Company. The Company's poultry
operations grew in subsequent years through a series of acquisitions including
an integrated turkey operation in 1979 and a major poultry company in 1986 which
doubled Hudson's size and made it one of the nation's ten largest poultry
producers. Between 1987 and 1990 the Company expanded into luncheon meats with
the acquisitions of three established regional brands: Ohse(R), Schweigert(R)
and Roegelein(R). In 1990, the Company entered the market for frozen portioned
entrees through the acquisition of Pierre Frozen Foods, Inc. ("Pierre") and
expanded those operations in 1992 with the purchase of an additional
manufacturing plant.
Executive Offices. The Company's executive offices are located at 1225
Hudson Road, Rogers, Arkansas 72756. The Company's telephone number is (501)
636-1100.
BUSINESS
General
Hudson is a major U.S. producer of further-processed poultry and meat
products. The Company was established in 1972 as a regional poultry company
selling commodity-type products. Through sales growth and product line
expansion, Hudson has grown into one of the country's largest domestic poultry
producers. The Company's product lines and their percentage of total sales for
fiscal 1994 were: chicken, 51.2%; portioned entrees, 16.9%; luncheon meats,
15.8%; turkey, 10.9%; and other products, 5.2%. The Company's products are
marketed nationwide to club store chains, fast-food chains and full-service
restaurants, retail supermarket chains, prepared food companies, and various
institutional customers.
Products, Marketing and Customers
The following table sets forth for the periods indicated the net sales of
each of the Company's major product lines.
1
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------------------
Oct. 3, 1992 Oct. 2, 1993 Oct. 1, 1994
(53 weeks) (52 weeks) (52 weeks)
----------------------------------------------
<S> <C> <C> <C>
(In millions)
Chicken /(1)/...... $412.9 $454.9 $ 533.4
Portioned entrees.. 106.8 143.5 175.5
Luncheon meats..... 151.9 159.9 164.7
Turkey /(1)/....... 78.2 100.6 113.2
Other.............. 59.4 61.6 54.0
------ ------ --------
Total Sales..... $809.2 $920.5 $1,040.8
------ ------ --------
</TABLE>
- --------------------
/(1)/ The sales figures for chicken and turkey do not include poultry products
processed and sold as luncheon meats and portioned entrees.
The following table sets forth for the periods indicated the net sales to
each of the Company's customer groups.
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------------
Oct. 3, 1992 Oct. 2, 1993 Oct. 1, 1994
(53 weeks) (52 weeks) (52 weeks)
--------------------------------------------
<S> <C> <C> <C>
(In millions)
Foodservice and club stores.. $441.8 $538.0 $ 580.5
Retail....................... 290.0 307.3 381.0
Other........................ 77.4 75.2 79.3
------ ------ --------
Total sales............... $809.2 $920.5 $1,040.8
====== ====== ========
</TABLE>
Chicken. The Company offers a wide variety of further-processed chicken
products for convenient preparation and consumption at home and in restaurants.
The Company's principal further-processed products are individually frozen
boneless and bone-in chicken pieces, breaded and fried chicken breast patties,
chicken breast tenderloins, chicken nuggets, buffalo-style wings and chicken
cordon bleu. These products are sold primarily to club stores under the
Hudson(R) brand name.
In addition to further-processed products, Hudson sells ice-packed and
chill-packed fresh chicken parts and whole birds. The Company's chill-packed
products are marketed under the Hudson brand name. Hudson's ice-packed products
are sold in bulk to small and medium-sized food retailers and franchisees of
fast food chains directly and through independent distributors.
Portioned Entrees. The Company's portioned entrees consist of a full line
of portion-controlled products including fried and flame-broiled hamburgers,
sausage patties and links, country-fried steak, chicken nuggets and chicken
patties, meal kits and related products. These products are distributed
nationwide to club store chains and foodservice customers such as restaurants,
employee cafeterias, colleges and universities, and health-care facilities. The
Company is also one of the nation's largest processors of United States
2
<PAGE>
Department of Agriculture ("USDA") commodity beef and pork into further-
processed products for school lunch programs. In addition, the portioned entree
division sells to vending machine operators and sandwich makers that service
convenience stores.
Luncheon Meats. The Company's luncheon meats division produces a line of
further-processed meat products including luncheon meats, wieners, sausage, hams
and bacon. Its principal customers consist of retail supermarket chains,
cooperative supermarket warehouses and club store chains, together with
foodservice customers such as restaurants, schools and other vendors. Products
are marketed under the Ohse, Schweigert and Roegelein brand names as well as
various private labels.
Turkey. Hudson is both a grower and seller of whole turkeys and a supplier
of further-processed turkey products, including smoked turkey, turkey sausage,
turkey pastrami, turkey salami, turkey bologna and turkey ham sold under the
Hudson brand name. The Company markets individually packaged whole turkeys,
both fresh and frozen, during seasonal peaks under the Hudson brand name and
private label. The Company's further-processed turkey products are sold
primarily to retail grocery chains, delicatessens, institutional foodservice
customers and club store chains.
Export Sales. The Company has established a sales office and distribution
center in Gdynia, Poland and a sales office in Moscow, Russia. Exports accounted
for 5.8% of the Company's total sales during fiscal 1994.
Major Customers. The Company's sales to Wal-Mart Stores, Inc. ("Wal-Mart")
in fiscal 1994 constituted approximately 17.7% of total sales. No other customer
accounted for more than 10% of the Company's sales in fiscal 1994. However, due
to recent agreements, the Company believes that sales to the Burger King
system will increase significantly in fiscal 1995. The loss of either of these
customers may have a material adverse effect on the Company.
Production and Facilities
Chicken. The Company's chicken operations include breeding, hatching,
rearing, ingredient procurement, feed formulation and milling, veterinary and
other technical services, and related transportation and delivery services. The
Company contracts with independent growers to maintain the Company's flocks of
breeder chickens which have the capability of laying eggs. The Company
transfers the eggs to its hatcheries. The newly hatched broiler chicks are then
delivered to independent contract growers or Company owned farms where they are
raised until they reach processing weight, usually within seven weeks. During
the growout period, the Company provides growers with feed and other items, as
well as supervisory and technical assistance. The broilers are then transported
by the Company's trucks to its processing plants.
During fiscal 1994 the Company processed approximately 4.3 million chickens
per week, yielding approximately 775 million pounds of dressed chicken for the
year. In addition, from time to time the Company purchases chicken from outside
sources.
The Company operates six chicken processing plants devoted to various phases
of slaughtering, dressing, cutting, packaging, deboning and further-processing.
These processing plants are located in Hope, Arkansas; Berlin, Maryland; Noel,
Missouri; Albertville, Alabama; Dexter, Missouri; and Corydon, Indiana. It
operates six feed mills, seven broiler hatcheries and four protein facilities.
3
<PAGE>
On October 12, 1994, Hudson entered into a five-year, cost-plus supply
agreement with Boston Chicken, a franchisor and operator of food service stores
specializing in complete meals featuring rotisserie roasted chicken. The
agreement provides for Boston Chicken to purchase 100% of the capacity of two
Hudson chicken processing plants. One plant in Dexter, Missouri will be
expanded to process approximately 650,000 chickens per week and is expected to
begin production for Boston Chicken in the spring of 1995. The other plant will
be part of an integrated chicken processing complex to be built near Henderson,
Kentucky. The Henderson plant is expected to begin production for Boston
Chicken in the spring of 1996, with initial production averaging 325,000
chickens per week. When the Henderson plant reaches full capacity, scheduled
for 1998, its production is expected to average 1.3 million chickens per week.
Portioned Entrees. The Company produces its portion controlled products at
plants in Cincinnati, Ohio and Caryville, Tennessee which have annual production
capacity of approximately 100 million pounds. The Company purchases its raw
materials of beef and pork, and some poultry products, from outside sources.
Luncheon Meats. The Company produces luncheon meats, wieners and sausage
products at two plants, one in Topeka, Kansas, and one in Albert Lea, Minnesota.
All hams and bacon for the division are produced at the Company's plant in
Wichita, Kansas. The three plants' annual production capacity for processed meat
products is approximately 170 million pounds. The Company purchases its raw
materials of beef and pork, and some poultry products, from outside sources.
Turkey. The Company operates two turkey processing facilities in
Springfield, Missouri one of which is a further-processing plant. These
facilities have an annual capacity to produce 140 million pounds of turkey
products.
Beef. The Company is nearing completion of a hamburger processing plant in
Columbus, Nebraska. The Burger King system has committed to purchase for a
multi-year period a majority of the capacity of this facility. These sales will
be made to the Burger King system at a formula price plus raw material costs.
In addition, the Company is a minority co-investor with the Burger King
Corporation and SBS Processing, Inc. in a second hamburger plant currently being
constructed in Petersburg, Virginia.
The Company's Hope, Arkansas, Springfield, Missouri and Cincinnati, Ohio
facilities are subject to mortgages or deeds of trust.
Competition
The primary competitive factors in the poultry industry include price,
product quality, product development, brand identification and customer service.
Hudson's poultry products compete primarily with other integrated poultry
companies. Some competitors have greater financial and marketing resources than
the Company. Although poultry is relatively inexpensive in comparison with
other meats, the Company also competes indirectly with the producers of other
meats and fish, as changes in the relative prices of these foods may affect
consumer buying patterns.
The Company's portioned entree division competes with regional and national
meat processing companies, some of which are divisions of fully integrated
companies. The Ohse, Schweigert and Roegelein
4
<PAGE>
brands compete primarily with national and regional meat processing companies.
Price and brand name recognition are important factors in the business.
Regulation
The poultry industry is subject to significant government regulation,
particularly in the health and environmental areas by the USDA, the Food and
Drug Administration ("FDA") and the Environmental Protection Agency. The
Company anticipates increased regulation by the USDA concerning food safety as
well as by the FDA regarding the use of medication in feed. The Company's food
processing facilities are subject to on-site examination, inspection and
regulation by the USDA. The FDA inspects the production of the Company's feed
mills. Compliance with applicable regulations has not had a material adverse
effect upon the Company's earnings or competitive position in the past, and is
not anticipated to have a material adverse effect in the future. Management
believes that the Company is in substantial compliance with all applicable laws
and regulations relating to the operation of its facilities.
The Company takes all reasonable precautions to ensure that its flocks are
healthy and that its processing plants and other facilities operate in a
sanitary and environmentally sound manner. However, events beyond the control
of the Company, such as an outbreak of poultry disease in its flocks or the
adoption by the government of more stringent environmental regulations, could
adversely affect its operations.
Employees and Labor Relations
As of October 1, 1994, the Company employed 8,911 persons. Generally, the
Company believes that relations with its employees are good.
Item 3. Legal Proceedings.
-----------------
On March 16, 1993, the United States of America, by the Attorney General of
the United States acting at the request of the Environmental Protection Agency,
filed a civil complaint against the Company in the United States District Court
for the South District of Indiana, Evansville Division, as civil action No. NA
93-19-C, alleging violations of the Federal Water Pollution Control Act (the
"Act"). Subsequently, this action was moved to the Indianapolis Division and
assigned Cause No. IP93-0692-C. The complaint seeks, among other things, an
injunction preventing the Company from discharging wastewater in violation of
the Act from one of its processing facilities, and a civil penalty of up to
$25,000 per day for each violation of the Act. A trial has been scheduled to
commence in July, 1995. In the event this matter results in an unfavorable
outcome, it is not possible to estimate the amount of civil penalties or other
expenditures, if any, that the court may award. The Company continues to
vigorously contest this matter. Management believes that the outcome will not
have a material adverse effect on the Company's consolidated financial position
or results of operations.
5
<PAGE>
The Company believes that its operations are in substantial compliance with
applicable environmental laws and regulations. The Company has, however, in the
past paid monetary sanctions for violations of its wastewater discharge permits.
There can be no assurance that the Company will not experience future
regulatory proceedings and lawsuits relating to the environmental impact of its
operations. The Company cannot predict what, if any, effect such future
proceedings or lawsuits may have on its operations.
The Company is, at any time, involved in ordinary routine litigation
incidental to its business. Such litigation is not considered material to the
Company's operations.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
---------------------------------------------------------------------
COMMON STOCK
The Company's certificate of incorporation permits the issuance of up to
40,000,000 shares each of Class A common stock, $.01 par value, and Class B
common stock, $.01 par value. On November 7, 1994, there were 9,533,378
shares of Class A common stock issued (including 933,854 shares held in
treasury) and 8,502,834 shares of Class B common stock issued and outstanding.
The Transfer Agent and Registrar for both classes of common stock is Chemical
Trust Company of Los Angeles, California.
The Class A common stock has one vote per share, while the Class B common
stock has ten votes per share in all matters submitted to a vote of the
Company's stockholders. Except as required by law or the certificate of
incorporation, holders of Class A or Class B common stock shall vote together as
a single class. Holders of Class A and Class B common stock are entitled to
receive such dividends and other distributions as may be determined by the Board
of Directors out of any funds of the Company legally available therefor;
provided, however, that no dividend may be declared and paid on the Class B
common stock unless a dividend is also declared and paid on the Class A common
stock, and, in such an event, the dividend per share of Class B common stock may
not exceed 90% of the dividend per share of Class A common stock. Certain
members of the Hudson family own substantially all of the Class B common stock
which concentrates voting control over the Company in James T. Hudson and the
Hudson family. The Class B common stock voting power is sufficient to, among
other things, approve or prevent extraordinary corporate transactions, such as
mergers, consolidations or sales of substantially all of the Company's assets
and to elect or remove the members of the Board of Directors.
Transfer of the Class B common stock may only be made to a "permitted
transferee" as defined in the Company's certificate of incorporation, but shares
of Class B common stock may be converted by the holder into an equal number of
shares of Class A common stock at any time. The Company may not issue
additional shares of Class B common stock without the approval of a majority of
the votes of the outstanding shares of Class A common stock and Class B common
stock, each voting separately as a class, except in connection with stock splits
and stock dividends. The board of directors and the holders of a majority of
the outstanding shares of Class B common stock may approve the conversion of all
of the Class B common stock into shares of Class A common stock.
6
<PAGE>
In the event of a liquidation of the Company, all assets available for
distribution after payment of all prior claims would be divided among and paid
ratably to the holders of Class A common stock and Class B common stock.
Subject to any conversion rights of the holders of Class B common stock,
holders of Class A and Class B common stock have no preemptive rights to
subscribe for or receive any part of the authorized stock of the Company,
additional or increased issues of stock of any class or of any obligations
convertible into any class or classes of stock. Further, no stockholder has the
right to cumulate votes in the election of directors.
On November 7, 1994, the 8,599,524 shares of Class A common stock then
outstanding were held by approximately 1,314 holders of record (excluding
persons holding shares in nominee names). The Transfer Agent and Registrar for
the Class A common stock is Chemical Trust Company of California in Los Angeles.
The Company's Class A common stock is currently traded on the New York Stock
Exchange ("NYSE") under the symbol "HFI." The following table sets forth the
quarterly high and low sales prices for the Class A common stock as reported on
the NYSE.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Fiscal 1993
-----------
First Quarter....................... 14 7 1/2
Second Quarter...................... 15 3/8 10 3/8
Third Quarter....................... 13 7/8 10 1/4
Fourth Quarter...................... 11 3/8 10 1/4
Fiscal 1994
-----------
First Quarter....................... 13 1/2 10 5/8
Second Quarter...................... 16 5/8 11 1/8
Third Quarter....................... 18 3/8 12 3/4
Fourth Quarter...................... 25 1/8 17 7/8
Fiscal 1995
-----------
First Quarter (through November 8).. 24 1/2 20 3/4
</TABLE>
The Class B common stock is not traded on the NYSE or any other exchange,
and the Company is not aware of any public market for such shares. On November
7, 1994, 8,502,834 shares of Class B common stock were outstanding; these
shares were held by approximately 21 holders of record. James T. Hudson
beneficially owns 99.9 percent of the outstanding Class B common stock.
On October 13, 1994, the Company filed a registration statement with the
Securities and Exchange Commission to register 4,600,000 shares of Class A
common stock of which 2,500,000 shares are to be newly issued Class A common
stock of the Company and 1,500,000 shares (2,100,000 if the underwriters over-
allotment is exercised in full) are being offered by certain stockholders of the
Company.
7
<PAGE>
DEBENTURES
In October 1986, the Company sold $70,000,000 in principal amount of 8%
convertible subordinated debentures due 2006 (the "Old Debentures"). Each Old
Debenture, as issued, could be converted into shares of the Company's common
stock. Following the reclassification of the Company's common stock in fiscal
1987, the Old Debentures were convertible only into shares of Class A common
stock (herein called "Class A Old Debentures"). During the Company's exchange
offer relating to reclassification of its common stock, holders of Class A Old
Debentures were given the option of making such Debentures convertible into
shares of Class B common stock (herein called "Class B Old Debentures").
During fiscal 1988, the Company offered the holders of its Old Debentures
the option of exchanging those Old Debentures for newly issued 14% convertible
subordinated debentures due 2008 (the "New Debentures"). Under the exchange
offer, each $1,000 in principal amount of Class A Old Debentures could be
exchanged for $650 in principal amount of New Debentures; each $1,000 in
principal amount of Class B Old Debentures could be exchanged for $600 in
principal amount of New Debentures. The exchange offer was concluded on August
31, 1988. As a result of the exchange offer, there were outstanding on that
date $17,410,000 of Class A Old Debentures, $946,000 of Class B Old Debentures
and $32,496,000 of New Debentures. Because New Debentures were not exchanged
for Old Debentures on a dollar-for-dollar basis, the exchange offer resulted in
the retirement of $19,073,000 in principal amount of long-term debt and an
extraordinary after-tax gain to the Company of $10,855,000.
During the second quarter of fiscal 1993, the Company called all of the New
Debentures. Approximately 75 percent of the New Debentures were converted to
Class A common stock at a conversion price of $12.25 per share, with the
remainder exchanged for cash including a 4.8% premium over par. This
conversion resulted in a decrease in long-term debt and corresponding increase
in stockholders' equity.
During the fourth quarter of fiscal 1994, the Company called all of the
Class A Old Debentures and the Class B Old Debentures. Approximately $8.1
million of Class A Old Debentures were converted into shares of Class A common
stock at a conversion price of $21.00 per share during fiscal 1994. By
October 7, 1994, approximately $13.7 million of the Class A Old Debentures were
converted to Class A common stock and all $26,000 of the Class B Old Debentures
were converted to Class B common stock, with the remainder exchanged for cash
including a 1.6% premium over par. This conversion resulted in a decrease in
long-term debt and an increase in stockholders' equity in fiscal 1994, and also
will result in a decrease in long-term debt and an increase in stockholders
equity in fiscal 1995.
DIVIDEND POLICY
The Company's Board of Directors has declared cash dividends every fiscal
quarter since the Company's initial public offering in February 1986. Since
April 1987, the Board has declared quarterly dividends of $.03 per share of
Class A common stock and $.025 per share of Class B common stock. The Company's
certificate of incorporation restricts the per share dividends declared and paid
on Class B common stock to not more than 90 percent of the per share dividends
declared and paid on Class A common stock.
Payment of future dividends will depend upon the Company's financial
condition, results of operations and other factors deemed relevant by the Board
of Directors. Additionally, the Company has entered into certain loan
agreements that restrict its ability to pay dividends. The Company's primary
credit facility restricts dividend payments to a maximum of $2.75 million in any
fiscal year.
8
<PAGE>
Item 6. Selected Financial Data.
-----------------------
The following table sets forth selected consolidated financial data of the
Company for each of the last five fiscal years ended October 1, 1994. The
information has been derived from the consolidated financial statements of the
Company which have been audited by Coopers & Lybrand L.L.P., independent
certified public accountants. This data should be read in conjunction with the
Company's consolidated financial statements and the notes thereto and
"Management's Discussion and Analysis of Results of Operations and Financial
Condition." The Company's fiscal year is a 52- or 53-week period ending each
year on the Saturday closest to September 30.
<TABLE>
<CAPTION>
Fiscal Year Ended (as restated)(1)
--------------------------------------------------------------------------------
Sept. 29, 1990 Sept. 28, 1991 Oct. 3, 1992 Oct. 2, 1993 Oct. 1, 1994
(52 weeks) (52 weeks) (53 weeks) (52 weeks) (52 weeks)
--------------- --------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Sales............................... $666,697 $765,292 $809,243 $920,545 $1,040,840
Cost of sales....................... 606,220 690,316 733,028 802,002 885,248
-------- -------- -------- -------- ----------
Gross profit........................ 60,477 74,976 76,215 118,543 155,592
Selling............................. 27,270 37,135 49,907 63,926 78,698
General and administrative.......... 16,377 16,645 18,533 20,695 25,755
-------- -------- -------- -------- ----------
Operating income.................... 16,830 21,196 7,775 33,922 51,139
Interest............................ 7,571 9,073 8,476 7,975 6,152
Other, net.......................... (4,591) (1,406) (4,342) 530 --
-------- -------- -------- -------- ----------
Income before income taxes.......... 13,850 13,529 3,641 25,417 44,987
Income tax expense.................. 5,138 4,987 1,471 9,512 17,995
-------- -------- -------- -------- ----------
Net income.......................... $ 8,712 $ 8,542 $ 2,170 $ 15,905 $ 26,992
======== ======== ======== ======== ==========
Earnings per share:
Primary.......................... $ 0.60 $ 0.58 $ 0.15 $ 1.01 $ 1.62
Fully diluted.................... 0.60 0.58 0.15 1.01 1.61
Weighted average shares outstanding:
Primary.......................... 14,621 14,733 14,303 15,751 16,632
Fully diluted.................... 14,621 14,733 14,303 15,751 16,732
Cash dividends per share:
Class A.......................... $ 0.12 $ 0.12 $ 0.12 $ 0.12 $ 0.12
Class B.......................... 0.10 0.10 0.10 0.10 0.10
Total dividends paid................ 1,537 1,513 1,503 1,706 1,796
Other Financial Data:
Capital expenditures................ $ 32,446 $ 31,326 $ 46,960 $ 21,453 $ 49,161
Depreciation and amortization....... 14,346 16,536 17,911 22,943 22,279
Balance Sheet Data:
Working capital..................... $ 89,822 $ 88,564 $ 81,475 $103,811 $ 100,096
Total assets........................ 342,269 360,191 402,188 416,503 473,180
Long-term obligations,
less current portion.............. 89,675 97,418 125,695 88,985 75,169
Total stockholders' equity.......... 126,005 133,499 134,330 173,902 209,189
</TABLE>
(1) Amounts for fiscal years 1990 through 1993 have been restated for the
adoption of Statement of Financial Accounting Standards No. 109.
9
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations.
-------------
General
Historically, the Company's operating results have been heavily influenced by
two external factors: the cost to the Company of feed grains and the price
received by the Company for its commodity-based finished products. These two
factors have fluctuated significantly and independently. Inflation has not
materially affected results of operations.
In recent years the Company has undertaken a business strategy focused
largely on the following: increased production and sale of further-processed
poultry and other processed food products, and increased sales to larger
customers such as club store and fast food chains. This strategy decreased the
proportion of feed grain costs in relation to total cost of sales, which
reduced the impact of commodity cost fluctuations. In addition, the sales
prices of further-processed products are less sensitive to commodity poultry
price fluctuations. Another result of this strategy has been increased sales to
large customers under firm-price or cost-plus contracts utilizing dedicated
plant arrangements. Although an increase in feed grain costs or a decrease in
finished product prices could have an adverse effect on the Company, management
believes that the implementation of this strategy has reduced the Company's
vulnerability to such price fluctuations.
While the Company believes the above factors will result in more predictable
and stable profit margins, increased sales to large customers and sales of
further-processed products have tended to increase costs relating to
commissions, advertising, distribution, demonstration and storage expenses. For
example, introductions of new products in fiscal 1992 and 1993 into Sam's Club
stores, a division of Wal-Mart ("Sam's Club"), required the Company to sponsor
and pay for in-store product demonstrations, thereby increasing selling
expenses in those years. Although there can be no assurances, the Company
expects that future selling expenses as a percentage of sales will approximate
current levels.
<TABLE>
<CAPTION>
Results of Operations
Percentage of Sales
-----------------------------------------------
Fiscal Year Ended
-----------------------------------------------
Oct. 3,1992 Oct. 2,1993 Oct. 1, 1994
(53 weeks) (52 weeks) (52 weeks)
----------- ----------- ------------
<S> <C> <C> <C>
Sales....................... 100.0% 100.0% 100.0%
Cost of sales............... 90.6 87.1 85.1
----- ----- -----
Gross profit................ 9.4 12.9 14.9
Selling..................... 6.1 6.9 7.5
General and administrative.. 2.3 2.3 2.5
----- ----- -----
Operating income............ 1.0 3.7 4.9
Interest.................... 1.0 0.9 0.6
Other, net.................. (0.5) 0.1 --
----- ----- -----
Income before income taxes.. 0.5 2.7 4.3
Income tax expense.......... 0.2 1.0 1.7
----- ----- -----
Net income.................. 0.3 1.7 2.6
===== ===== =====
</TABLE>
10
<PAGE>
Fiscal 1994 Compared with Fiscal 1993
Sales from the Company's operations were $1,040.8 million for fiscal 1994,
an increase of $120.3 million, or 13.1%, over fiscal 1993. The sales increase
primarily resulted from the following:
. Chicken sales increased 17.3% to $533.4 million in fiscal 1994 from
$454.9 million in fiscal 1993 due to higher finished product prices, a
change in the product mix to include additional further-processed and
convenience products and a 13.7% increase in volume. The volume
increase was primarily due to increased sales in international markets.
. Portioned entree sales increased 22.3% to $175.5 million in fiscal 1994
from $143.5 million in fiscal 1993 primarily due to higher finished
product prices and a 15.8% increase in volume which was primarily due
to new sales to the Burger King system and sales of meal kit products.
. Luncheon meat sales increased 3.0% to $164.7 million in fiscal 1994
from $159.9 million in fiscal 1993 due to higher finished product
prices.
. Turkey sales increased 12.5% to $113.2 million in fiscal 1994 from
$100.6 million in fiscal 1993 due to higher finished product prices and
sales of additional further-processed products.
Cost of sales was $885.2 million for fiscal 1994, an increase of $83.2
million, or 10.4%, over fiscal 1993. As a percentage of sales, cost of sales
decreased to 85.1% in fiscal 1994 from 87.1% in fiscal 1993 primarily due to a
higher percentage of sales of further-processed products and improved operating
efficiencies. This improvement was partially offset by a 6.9% increase in feed
costs per ton.
Gross profit was $155.6 million for fiscal 1994, an increase of $37.0
million, or 31.3%, over fiscal 1993. As a percentage of sales, gross profit
increased to 14.9% in fiscal 1994 from 12.9% in fiscal 1993 largely due to the
improvements described above.
Selling and general and administrative expenses were $104.5 million in
fiscal 1994, an increase of $19.8 million, or 23.4%, over fiscal 1993. As a
percentage of sales, selling and general and administrative expenses increased
to 10.0% in fiscal 1994 from 9.2% in fiscal 1993. This increase was due to
higher advertising, distribution, demonstration, and product handling expenses
primarily related to increased international sales, meal kit products and Sam's
Club sales. In addition, there was an increase in incentive compensation
accruals.
Operating income was $51.1 million in fiscal 1994, an increase of $17.2
million, or 50.8%, over fiscal 1993. This increase was primarily due to the
improvements in the Company's operations as described previously.
Interest expense was $6.2 million in fiscal 1994, a decrease of $1.8
million, or 22.9%, from fiscal 1993. This decrease was due primarily to the
redemption of 14% Convertible Subordinated Debentures in the second quarter of
fiscal 1993.
Fiscal 1993 Compared with Fiscal 1992
Sales from the Company's operations were $920.5 million for fiscal 1993, an
increase of $111.3 million, or 13.8%, over fiscal 1992. The sales increase
primarily resulted from the following:
. Chicken sales increased 10.2% to $454.9 million in fiscal 1993 from
$412.9 million in fiscal 1992 due to higher finished product prices,
changes in product mix to include additional further-processed and
convenience products and a 1.3% increase in volume which was primarily
due to new sales to the Burger King system, increased sales to Sam's
Club and the
11
<PAGE>
Company's entrance into new international markets such as Russia and
Eastern Europe, Mexico and Central America, Southeast Asia and the
Middle East.
. Portioned entree sales increased 34.4% to $143.5 million in fiscal 1993
from $106.8 million in fiscal 1992 due to higher finished product
prices and a 27.8% increase in volume. Volume increased due to
increased sales to Sam's Club and sales of new products such as meal
kits and sandwiches.
. Luncheon meat sales increased 5.3% to $159.9 million in fiscal 1993
from $151.9 million in fiscal 1992 due to increased volume of 5.5%
which was partially offset by a slight decline in finished product
prices.
. Turkey sales increased 28.6% to $100.6 million in fiscal 1993 from
$78.2 million in fiscal 1992 primarily due to a 32.2% increase in
volume resulting from late Thanksgiving and Christmas orders placed
after fiscal 1992 year-end and also increased sales of further-
processed products such as deli turkey breasts. This increase was
partially offset by a slight decline in finished product prices.
Cost of sales was $802.0 million for fiscal 1993, an increase of $69.0
million, or 9.4%, over fiscal 1992. As a percentage of sales, cost of sales
decreased to 87.1% in fiscal 1993 from 90.6% in fiscal 1992 primarily due to a
higher percentage of further-processed product sales, a 4.2% decrease in feed
costs per ton and improved operating efficiencies.
Gross profit increased to $118.5 million for fiscal 1993, an increase of
$42.3 million, or 55.5%, over fiscal 1992. As a percentage of sales, gross
profit increased to 12.9% in fiscal 1993 from 9.4% in fiscal 1992 largely due to
the improvements described above.
Selling and general and administrative expenses were $84.6 million in fiscal
1993, an increase of $16.2 million, or 23.6%, over fiscal 1992. As a percentage
of sales, selling and general and administrative expenses increased to 9.2% in
fiscal 1993 from 8.4% in fiscal 1992. This increase was due to higher
commissions, advertising, distribution, demonstration, rebates, storage and
product handling expenses relating to Sam's Club sales, meal kit and portioned
entree products and increased international sales.
Operating income was $33.9 million in fiscal 1993, an increase of $26.1
million, or 336.3%, over fiscal 1992. This increase was primarily due to the
improvements in the Company's operations discussed above.
Liquidity and Capital Resources
Working capital at October 1, 1994 was $100.1 million compared with $103.8
million at October 2, 1993 and the current ratio was 1.87 to 1 and 2.28 to 1 at
October 1, 1994 and October 2, 1993, respectively. The Company's total
capitalization, as represented by long-term obligations plus stockholders'
equity, was $284.4 million on October 1, 1994, compared with $262.9 million on
October 2, 1993. Long-term obligations represented 26.4% and 33.8% of total
capitalization on October 1, 1994 and October 2, 1993, respectively.
Notes payable due under the Company's unsecured credit agreements were $16.8
million on October 1, 1994 compared with no outstanding balance on October 2,
1993. Notes payable increased due to the higher levels of capital spending
during fiscal 1994. Total long-term obligations decreased $13.8 million as a
result
12
<PAGE>
of $8.1 million of 8% Convertible Subordinated Debentures being converted into
Class A common stock and scheduled long-term debt repayments of $5.7 million.
Class A common stock and additional capital increased $9.9 million to $97.6
million at October 1, 1994 from $87.7 million at October 2, 1993. The increase
was due primarily to $8.1 million of 8% Convertible Subordinated Debentures
converted into common stock, stock options exercised under the Company's Stock
Option Plan and stock issued under the Company's Employee Stock Purchase Plan
(from treasury stock).
The Company's cash flow provided by operating activities was $36.3 million
for fiscal 1994 compared with $29.0 million for fiscal 1993. The increase was
due primarily to higher net income.
For fiscal 1994 and 1993, the Company had capital expenditures of $49.2
million and $21.5 million, respectively. Those expenditures were primarily for
upgrading and expanding production facilities and related equipment. The
capital expenditures have been financed by operations, borrowings under the
Company's credit agreement and/or lease arrangements.
The Company recently announced plans to build a new chicken complex near
Henderson, Kentucky the capacity of which will be dedicated to Boston Chicken.
Additionally, during the third quarter of fiscal 1994, the Company began
construction of a beef processing plant in Columbus, Nebraska that will supply
hamburger patties to the Burger King system. It is expected that during fiscal
1995 capital expenditures for these and other projects will be approximately
$94.0 million. To achieve this level of capital expenditures, the Company will
be required to obtain waivers from certain lenders. Management believes that
such waivers will be obtained. However, there can be no assurance that such
waivers will be granted. The capital expenditures will be financed by
operations, borrowings under the Company's credit agreements, lease arrangements
and proceeds of a proposed offering of Class A common stock announced by the
Company following the end of fiscal 1994.
Historically, the Company's operations have been financed through internally
generated funds, borrowings, lease arrangements and the issuance of common
stock. On April 26, 1994, the Company entered into a $100 million unsecured
revolving credit agreement that expires June 30, 1997. At October 1, 1994, the
Company had available under this agreement $85.0 million. The credit agreement,
among other things, limits the payment of dividends to approximately $2.8
million in any fiscal year and limits annual capital expenditures and lease
obligations. It requires the maintenance of minimum levels of working capital
and tangible net worth and that the current ratio, leverage ratio and cash flow
coverage ratio be maintained at certain levels. It also limits the creation of
new secured debt to $25.0 million and new unsecured short-term debt with parties
outside the credit agreement to $20.0 million. Additionally, an event of
default will exist if the aggregate outstanding voting power of James T. Hudson
and his immediate family in the Company is reduced below 51%.
On May 18, 1994, the Company entered into an unsecured term loan agreement
with a financial institution giving the Company the right to borrow up to $50.0
million of senior notes fixed at a rate to be determined at drawdown. The
Company had not borrowed under the agreement at October 1, 1994. The agreement
expires February 24, 1996.
On July 8, 1994, the Company entered into an unsecured short-term line of
credit agreement with a financial institution giving the Company the right to
borrow up to $10.0 million. The agreement expires June 1, 1995. At October 1,
1994, the Company had $10.0 million, payable on demand, outstanding under this
agreement. Additionally, on August 10, 1994, the Company entered into an
unsecured short-term line of credit agreement with a financial institution
giving the Company the right to borrow up to $10.0 million. Borrowings under
this agreement, if any, are due and payable within 30 days. The Company had not
borrowed under this agreement at October 1, 1994.
Tax Matters
The Internal Revenue Service has examined the Company's 1989 and 1990
federal income tax returns and has issued a notice of deficiency asserting
additional taxes of $22.4 million and penalties of $5.8 million. If an
assessment is ultimately upheld, it will result in the acceleration of
previously recorded deferred income taxes. However, since most of the items in
dispute relate to the timing of the recognition of income or deductions, a
portion of the income taxes for years subsequent to 1990 would be refundable.
Management is contesting the notice of deficiency and the case has been docketed
for a hearing in early 1995 in federal tax court. Management believes that
ultimate resolution of these matters will not have a material impact on the
Company's financial position or results of operations.
Accounting Policies
Beginning in fiscal 1994, the Company adopted Statement of Financial
Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes," which
requires that deferred tax liabilities and assets be recognized for any
difference between the tax basis of assets and liabilities and their financial
reporting amounts measured by using presently enacted tax laws and rates. The
Company elected to apply the provisions of SFAS 109 retroactively to September
28, 1986.
The Company uses the farm price method of inventory valuation for income tax
reporting which results in current deferred income taxes for financial
reporting. The Company anticipates that it will be able to maintain its
inventory at current levels and, accordingly, does not expect a significant
portion of the current deferred income tax to be paid in the near future.
13
<PAGE>
Item 8. Financial Statements and Supplementary Data.
-------------------------------------------
To the Board of Directors and Stockholders
Hudson Foods, Inc.
We have audited the consolidated financial statements and the financial
statement schedules of Hudson Foods, Inc. and subsidiaries as listed in the
index on page 28 of this Form 10-K. These financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Hudson
Foods, Inc. and subsidiaries as of October 2, 1993, and October 1, 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended October 1, 1994, in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedules referred to above, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all material respects,
the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Tulsa, Oklahoma
October 26, 1994
14
<PAGE>
HUDSON FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
OCTOBER 2,
1993
(AS RESTATED, OCTOBER 1,
SEE NOTE 7) 1994
------------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 3,891 $ 1,899
Receivables:
Trade............................................... 58,441 66,490
Other............................................... 219 481
-------- --------
58,660 66,971
Less allowance for doubtful accounts................. 1,208 1,463
-------- --------
57,452 65,508
Inventories.......................................... 116,497 135,501
Other................................................ 7,275 12,073
-------- --------
Total current assets................................. 185,115 214,981
Property, plant and equipment, net.................... 205,613 229,050
Excess cost of investment over net assets acquired,
net.................................................. 15,807 15,244
Other assets.......................................... 9,968 13,905
-------- --------
Total assets.......................................... $416,503 $473,180
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable........................................ $ -- $ 16,800
Current portion of long-term obligations............. 5,085 5,109
Accounts payable..................................... 31,555 41,188
Accrued liabilities.................................. 33,198 40,581
Deferred income taxes (Note 7)....................... 11,466 11,207
-------- --------
Total current liabilities............................ 81,304 114,885
-------- --------
Long-term obligations................................. 88,985 75,169
-------- --------
Deferred income taxes and deferred gain (Notes 7 and
9)................................................... 72,312 73,937
-------- --------
Commitments and contingencies (Note 9)
Stockholders' equity:
Common stock:
Class A, $.01 par value, issued 8,630,407 and
9,233,893 shares................................... 86 92
Class B, $.01 par value, issued and outstanding
8,502,052 and 8,501,882 shares..................... 85 85
Additional capital................................... 87,638 97,505
Retained earnings.................................... 97,727 122,923
-------- --------
185,536 220,605
Treasury stock, at cost (958,358 and 933,854 Class A
shares)............................................. (11,634) (11,416)
-------- --------
Total stockholders' equity........................... 173,902 209,189
-------- --------
Total liabilities and stockholders' equity............ $416,503 $473,180
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
15
<PAGE>
HUDSON FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
--------------------------------
OCTOBER 3, OCTOBER 2, OCTOBER 1,
1992 1993 1994
(AS RESTATED,
SEE NOTE 7)
---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C> <C>
Sales...................................... $809,243 $920,545 $1,040,840
Cost of sales.............................. 733,028 802,002 885,248
-------- -------- ----------
Gross profit............................... 76,215 118,543 155,592
Selling expenses........................... 49,907 63,926 78,698
General and administrative expenses........ 18,533 20,695 25,755
-------- -------- ----------
Operating income........................... 7,775 33,922 51,139
-------- -------- ----------
Other expense (income):
Interest expense......................... 8,476 7,975 6,152
Other.................................... (4,342) 530 --
-------- -------- ----------
Total other expense...................... 4,134 8,505 6,152
-------- -------- ----------
Income before income taxes................. 3,641 25,417 44,987
Income tax expense......................... 1,471 9,512 17,995
-------- -------- ----------
Net income................................. $ 2,170 $ 15,905 $ 26,992
======== ======== ==========
Earnings per share:
Primary.................................. $0.15 $1.01 $1.62
Fully diluted............................ 0.15 1.01 1.61
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
16
<PAGE>
HUDSON FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
------------------------------------------
OCTOBER 3, OCTOBER 2, OCTOBER 1,
1992 1993 1994
(AS RESTATED, SEE NOTE 7)
------------ ------------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income...................... $ 2,170 $ 15,905 $26,992
Non-cash items included in net
income:
Depreciation.................. 16,701 21,629 21,246
Amortization.................. 1,210 1,314 1,033
Deferred income taxes......... 794 171 209
Other......................... -- (1,004) (2,777)
Changes in assets and
liabilities:
Trade and other receivables... (3,566) (10,667) (8,056)
Inventories................... (5,748) (8,461) (19,004)
Other......................... 1,452 (3,331) (4,798)
Accounts payable.............. 452 1,430 9,633
Accrued liabilities........... (5,709) 12,021 11,814
------------ ------------ -------
Cash flows provided by operating
activities..................... 7,756 29,007 36,292
------------ ------------ -------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property, plant and
equipment...................... (46,960) (21,453) (49,161)
Disposition of property, plant
and equipment, net............. 3,830 1,262 4,271
Proceeds from sale-leaseback
agreements (Note 9)............ -- 19,167 --
Acquisitions of businesses...... (4,701) (825) --
Other........................... (3,462) 523 (4,407)
------------ ------------ -------
Cash flows used for investing
activities..................... (51,293) (1,326) (49,297)
------------ ------------ -------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Additions (reductions) to notes
payable........................ 15,000 (15,000) 16,800
Additions to long-term
obligations.................... 34,631 3,370 --
Reductions of long-term
obligations.................... (4,002) (15,769) (5,635)
Dividends....................... (1,503) (1,706) (1,796)
Exercise of stock options and
other.......................... 164 1,366 1,644
------------ ------------ -------
Cash flows provided by (used
for) financing activities...... 44,290 (27,739) 11,013
------------ ------------ -------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................. 753 (58) (1,992)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD.............. 3,196 3,949 3,891
------------ ------------ -------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD........................ $ 3,949 $ 3,891 $ 1,899
============ ============ =======
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the year for:
Interest, net of amounts
capitalized.................... $ 11,623 $ 7,090 $ 6,321
Income taxes.................... 2,815 7,299 13,300
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
17
<PAGE>
HUDSON FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Following is a summary of significant accounting policies employed by Hudson
Foods, Inc. and subsidiaries ("the Company") in the preparation of the
consolidated financial statements.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries.
CASH AND CASH EQUIVALENTS. The Company considers all highly liquid
investments purchased with a maturity of three months or less to be cash
equivalents. At October 2, 1993 and October 1, 1994, cash and cash equivalents
included temporary cash investments in certificates of deposit, U.S. treasury
bills, repurchase agreements and U.S. government agency securities of
$12,960,000 and $12,500,000, respectively. Cash equivalents are stated at cost,
which approximates market value, and have been used to offset book overdrafts.
CONCENTRATIONS OF CREDIT RISK. Financial instruments which potentially
subject the Company to concentrations of credit risk consist primarily of trade
receivables from large domestic companies. The Company generally does not
require collateral from its customers. Such credit risk is considered by
management to be limited due to the Company's broad customer base. In fiscal
years 1992, 1993 and 1994, one customer accounted for approximately 15.7%,
17.9% and 17.7% of consolidated sales, respectively.
INVENTORIES. Inventories are stated at the lower of cost (first-in, first-out
method) or market. Inventory cost includes the cost of raw materials and all
applicable costs of processing.
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment are stated at
cost. When assets are sold or retired, the costs of the assets and the related
accumulated depreciation are removed from the accounts and the resulting gains
or losses are recognized. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets. Interest costs of
approximately $2,874,000, $1,467,000 and $1,702,000 were capitalized during
1992, 1993 and 1994, respectively.
EARNINGS PER SHARE. Earnings per share are based on the weighted average
number of shares outstanding. The primary earnings per share computation
assumes that outstanding dilutive stock options were exercised and the proceeds
used to purchase common shares. Earnings per share, assuming full dilution,
gives effect to the conversion of outstanding convertible debentures and the
exercise of dilutive stock options. In addition, 1992 earnings per share
include the effect of the contingently issuable shares associated with the
acquisition of Pierre Frozen Foods, Inc.
EXCESS COST OF INVESTMENT OVER NET ASSETS ACQUIRED. The excess cost of
investment over net assets acquired is being amortized using the straight-line
method over periods ranging from 33 to 40 years. Accumulated amortization was
$3,729,000 and $4,244,000 at October 2, 1993 and October 1, 1994, respectively.
INCOME TAXES. The Company utilizes the asset and liability approach for
financial accounting and reporting for income taxes as set forth in Statement of
Financial Accounting Standards No. 109 ("SFAS 109"): Accounting for Income
Taxes. SFAS 109 utilizes the liability method and deferred income taxes are
recorded to reflect the expected tax consequences in future years of
differences between the tax basis of assets and liabilities and their financial
reporting amounts at each year-end.
FISCAL YEAR. The Company utilizes a 52-53 week accounting period which ends
on the Saturday closest to September 30.
18
<PAGE>
HUDSON FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVENTORIES
<TABLE>
<CAPTION>
OCT. 2, OCT. 1,
1993 1994
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Field inventory--broilers and breeder stock............... $ 26,333 $ 29,248
Field inventory--turkeys and breeder stock................ 8,914 10,432
Feed, eggs and other...................................... 21,318 21,581
Finished products......................................... 59,932 74,240
-------- --------
Total................................................... $116,497 $135,501
======== ========
</TABLE>
3. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
OCT. 2, OCT. 1,
1993 1994
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Land...................................................... $ 10,620 $ 10,644
Buildings and improvements................................ 162,606 165,482
Machinery and equipment................................... 126,505 131,433
Construction in progress.................................. 7,219 42,027
-------- --------
306,950 349,586
Less accumulated depreciation............................. 101,337 120,536
-------- --------
Total................................................... $205,613 $229,050
======== ========
</TABLE>
4. FINANCING ARRANGEMENTS
The Company's line of credit agreement (the "Agreement"), which expires June
30, 1997, provides for aggregate borrowings or letters of credit up to $100
million. At October 2, 1993, the Company had issued $7.2 million in letters of
credit, and at October 1, 1994, had $6.8 million of short-term debt
outstanding and had issued $8.2 million in letters of credit. The Agreement,
among other things, limits the payment of dividends to approximately $2.8
million in any fiscal year and limits annual capital expenditures and lease
obligations. It requires the maintenance of minimum levels of working capital
and tangible net worth and that the current ratio, leverage ratio and cash flow
coverage ratio be maintained at certain levels. It also limits the creation of
new secured debt to $25.0 million and new unsecured short-term debt with
parties outside the credit agreement to $20.0 million. At October 2, 1993 and
October 1, 1994, $92.8 million and $85.0 million, respectively, was unused
under the Agreement.
On May 18, 1994, the Company entered into an unsecured term loan agreement
with a financial institution giving the Company the right to borrow up to $50.0
million of senior notes with a fixed interest rate determined at the date of
initial borrowing. The Company had not borrowed under the agreement at October
1, 1994. The agreement expires February 24, 1996.
On July 8, 1994, the Company entered into an unsecured short-term line of
credit agreement with a financial institution giving the Company the right to
borrow up to $10.0 million. The agreement expires June 1, 1995. At October 1,
1994, the Company had $10.0 million, payable on demand, outstanding under this
agreement. Additionally, on August 10, 1994, the Company entered into an
unsecured short-term line of credit agreement with a financial institution
giving the Company the right to borrow up to $10.0 million. Borrowings under
this agreement, if any, are due and payable within 30 days. The Company had not
borrowed under this agreement at October 1, 1994.
5. ACCRUED LIABILITIES
<TABLE>
<CAPTION>
OCT. 2, OCT. 1,
1993 1994
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Payroll and benefits........................................ $18,098 $25,173
Income, property and other taxes............................ 4,963 2,455
Interest.................................................... 195 339
Other....................................................... 9,942 12,614
------- -------
Total..................................................... $33,198 $40,581
======= =======
</TABLE>
19
<PAGE>
HUDSON FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. LONG-TERM OBLIGATIONS
<TABLE>
<CAPTION>
OCT. 2, OCT. 1,
1993 1994
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
8% Convertible Subordinated Debentures due 2006............. $17,436 $ 9,279
8.99% Notes payable to an insurance company due March 15,
1998....................................................... 16,031 15,302
9.99% Notes payable to an insurance company due April 12,
1997....................................................... 15,000 15,000
7.62% Notes payable to an insurance company due Sept. 1,
2002....................................................... 14,709 13,084
9.95% Note payable to a bank due June 30, 1999.............. 7,800 7,250
7.20%-7.64% Notes payable to a bank due Sept. 1, 2002....... 9,084 8,084
7.68% Notes payable to an insurance company due Sept. 1,
2002....................................................... 5,625 5,000
8.14% Notes payable to an insurance company due March 15,
1998....................................................... 5,201 4,980
Other--6%-9% payable in various maturities through 2002..... 3,184 2,299
------- -------
Total....................................................... 94,070 80,278
Less current portion of long-term obligations............... 5,085 5,109
------- -------
Long-term obligations....................................... $88,985 $75,169
======= =======
</TABLE>
On September 6, 1994, the Company called the 8% convertible subordinated
debentures. Bondholders had the option of redeeming their debentures at 101.6%
of the stated principle amount plus accrued interest, or converting their
debentures into Class A common stock at $21 per share. As of October 1, 1994,
the Company had converted $8.1 million of the debentures into 388,388 shares of
common stock. Subsequent to October 1, 1994, the Company converted an
additional $5.5 million of the debentures into 264,789 shares of common stock
and redeemed the remaining $3.8 million, recognizing a $132,000 loss on the
extinguishment.
Certain of the Company's loan agreements require the maintenance of minimum
working capital, and that net tangible asset, debt-to-equity and working
capital ratios be maintained at specified levels. Also, such loan agreements
contain limitations on capital expenditures, additional indebtedness and
payment of dividends.
The fair value of the Company's long-term obligations is based on discounted
future cash flows using current interest rates. The fair value of the Company's
long-term obligations at October 1, 1994, including current portion, is
estimated to be approximately $80.4 million.
At October 1, 1994, the aggregate amount of long-term obligations which will
become due during each of the next five fiscal years is as follows: $5,109,000
in 1995; $5,216,000 in 1996; $20,301,000 in 1997; $22,259,000 in 1998; and
$9,898,000 in 1999.
20
<PAGE>
HUDSON FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. INCOME TAXES
Beginning in fiscal year 1994, the Company adopted Statement of Financial
Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes," which
requires that deferred income tax liabilities and assets be recognized for
differences between the tax basis of assets and liabilities and their financial
reporting amounts, measured by using presently enacted tax laws and rates. The
Company elected to apply the provisions of SFAS 109 retroactively to September
28, 1986. As a result, a deferred tax liability and a corresponding increase in
property, plant and equipment of $13,535,000 was recognized for the difference
between the assigned values and the tax basis of assets and liabilities
previously acquired in 1986 (Corbett Enterprises, Inc.), 1987 (Thies Companies,
Inc.) and 1990 (Pierre Frozen Foods, Inc.). The adoption of SFAS 109 did not
effect net income or earnings per share since increases in depreciation
expense, due to adjustments for prior business combinations, were offset by the
amortization of the deferred income taxes.
Consolidated income tax expense for each of the three years in the period
ended October 1, 1994 consists of the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
----------------------
OCT. 3, OCT. 2, OCT. 1,
1992 1993 1994
------ ------ -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C> <C>
Current provision:
Federal............................................... $ 606 $8,323 $16,067
State................................................. 71 1,019 1,719
Deferred provision:
Federal............................................... 707 168 306
State................................................. 87 2 (97)
------ ------ -------
Total income tax expense................................ $1,471 $9,512 $17,995
====== ====== =======
</TABLE>
Reconciliations of the statutory federal income tax rate with the effective
income tax rate for each of the three years in the period ended October 1, 1994
are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
-----------------------
OCT. 3, OCT. 2, OCT. 1,
1992 1993 1994
------- ------- -------
<S> <C> <C> <C>
Federal income tax rate................................ 34.0% 34.8% 35.0%
State income taxes, net of federal benefit............. 4.0 3.6 2.7
Nondeductible items related to business acquisitions,
net................................................... .9 .1 .1
Jobs/research tax credit............................... -- (2.1) (.7)
Other.................................................. 1.5 1.0 2.9
---- ---- ----
Effective income tax rate.............................. 40.4% 37.4% 40.0%
==== ==== ====
</TABLE>
21
<PAGE>
HUDSON FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
An analysis of the Company's net current and long-term deferred tax
liabilities (assets) at October 2, 1993 and October 1, 1994 is as follows:
<TABLE>
<CAPTION>
OCT. 2, OCT. 1,
1993 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Current:
Inventory.................................................. $13,346 $15,057
Allowance for doubtful accounts............................ (530) (563)
Accrued liabilities........................................ (1,026) (3,037)
Other...................................................... (324) (250)
------- -------
Total current deferred income taxes...................... $11,466 $11,207
======= =======
Long-term:
Property, plant and equipment.............................. $22,806 $27,124
Change from the cash basis to the accrual basis of
accounting in 1988 for the "Family Farm" subsidiaries..... 38,159 38,159
Other...................................................... 1,616 1,700
------- -------
Total long-term deferred income taxes.................... $62,581 $66,983
======= =======
</TABLE>
The Internal Revenue Service has examined the Company's 1989 and 1990 Federal
income tax returns and has issued a notice of deficiency assessing additional
taxes of $22.4 million and penalties of $5.8 million. If an assessment is
ultimately upheld, it will result in the acceleration of previously recorded
deferred income taxes. However, since most of the items in dispute relate to
the timing of the recognition of income or deductions, a portion of the income
taxes for years subsequent to 1990 would be refundable. Management is
contesting the notice of deficiency and the case has been docketed for a
hearing in early 1995 in federal tax court. Management believes that ultimate
resolution of these matters will not have a material impact on the Company's
financial position or results of operations.
22
<PAGE>
HUDSON FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. EMPLOYEE BENEFIT AND COMPENSATION PLANS
STOCK OPTION PLAN. The 1985 Stock Option Plan (the "Option Plan"), as
amended, reserves 1,200,000 and 300,000 shares of the Company's Class A common
stock for issuance as incentive stock options and nonqualified stock options,
respectively. The Option Plan provides for the grant of options to key
employees upon terms and conditions determined by a committee of the Board of
Directors.
Options expire no later than the tenth anniversary of the date of grant, and
are exercisable at a price which is at least 100% of the fair market value of
such shares on the date of grant (110% in the case of individuals holding at
least 10% of the Company's Class A common stock).
A summary of stock option activity related to the Option Plan for each of the
three years in the period ended October 1, 1994 is as follows:
<TABLE>
<CAPTION>
NUMBER NUMBER OF
OF OPTION PRICE SHARES
SHARES PER SHARE EXERCISABLE
------ ------------ -----------
<S> <C> <C> <C>
Outstanding at September 28, 1991............ 797,782 $5.06-$12.31 384,759
=======
Granted...................................... 21,000 $6.94
Exercised.................................... (31,200) $5.06-$ 7.13
Cancelled.................................... (13,900) $7.00-$10.00
--------
Outstanding at October 3, 1992............... 773,682 $5.06-$12.31 593,105
=======
Granted...................................... 344,650 $7.56-$10.69
Exercised.................................... (168,805) $5.06-$10.50
Cancelled.................................... (38,600) $6.94-$10.00
--------
Outstanding at October 2, 1993............... 910,927 $6.94-$12.31 569,394
=======
Granted...................................... -- --
Exercised.................................... (214,928) $7.00-$12.31
Cancelled.................................... (4,450) $7.13-$10.50
--------
Outstanding at October 1, 1994............... 691,549 $6.94-$10.69 482,309
======== =======
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN. The Company has reserved 1,000,000 shares of
common stock for purchase under the 1990 Employee Stock Purchase Plan (the
"Purchase Plan"), the purpose of which is to make available to eligible
employees a means of purchasing shares of the Company's common stock at current
market prices. Under the terms of the Purchase Plan, the Company contributes an
amount annually, in cash or Class A stock, equal to 15% of the undistributed
total of participants' contributions for the past ten years. All full-time
employees of the Company (except those owning 10% or more of the Company's
Class A stock) are eligible to participate in the Purchase Plan.
RETIREMENT PLAN. In November 1985, the Company adopted a 401(k) Plan which,
as amended, provides for Company matching of 50% of employee contributions not
exceeding 4% of the participants' salary. The Company's contribution was
$723,000 in 1992; $919,000 in 1993; and $1,168,000 in 1994.
23
<PAGE>
HUDSON FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. COMMITMENTS AND CONTINGENCIES
The Company leases distribution facilities, transportation and delivery
equipment, poultry farms, and other equipment under operating leases expiring
during the next five to ten years. Management expects that in the normal course
of business the leases will be renewed or replaced by other leases.
In November and December 1992, under sale-leaseback agreements, the Company
sold certain equipment with a net book value of $4.5 million for $19.2 million
cash. Annual payments under the operating lease agreements are $3.5 million.
The gain of $14.7 million is being amortized over the terms of the leases. At
October 2, 1993 and October 1, 1994, the unamortized portion of the deferred
gain is included in the balance sheet captions "accrued liabilities"
($2,777,000 for both years) and "deferred income taxes and deferred gain"
($9,731,000 and $6,954,000, respectively).
Total rental expense (net of amortized gain) was $21,158,000 in 1992;
$20,603,000 in 1993; and $23,042,000 in 1994.
At October 1, 1994, future minimum rental payments required under leases that
have initial or remaining noncancellable terms in excess of one year are as
follows: $18,727,000 in 1995; $16,762,000 in 1996; $13,619,000 in 1997;
$8,303,000 in 1998; and $4,347,000 in 1999.
The Company maintains a self-insurance program for employee health care and
workman's compensation costs. Self-insurance costs are accrued based upon the
aggregate of the liability for reported claims and an estimated liability for
claims incurred but not yet reported.
On March 16, 1993, the United States of America, by the Attorney General of
the United States acting at the request of the Environmental Protection Agency,
filed a civil complaint against the Company alleging violations of the Federal
Water Pollution Control Act (the "Act"). The complaint seeks, among other
things, an injunction preventing the Company from discharging wastewater in
violation of the Act from one of its processing facilities, and a civil penalty
of up to $25,000 per day for each violation of the Act. A trial has been
scheduled to commence in July 1995. In the event this matter results in an
unfavorable outcome, it is not possible to estimate the amount of civil
penalties or other expenditures, if any, that the court may award. The Company
continues to vigorously contest this matter. Management believes that the
outcome will not have a material adverse effect on the Company's consolidated
financial position or results of operations.
The Company is involved in litigation incidental to its business. Such
litigation is not considered by management to be significant.
10. RELATED PARTY TRANSACTIONS
Lease payments for transportation equipment made to the Company's chairman
amounted to $907,000 in 1992; $936,000 in 1993; and $956,000 in 1994.
Certain officers and employees of the Company own turkey and broiler farms
and enter into grower contracts with the Company which provide for the payment
of grower fees. The Company's arrangements with these officers and employees
are similar to contracts with unrelated growers and, as such, do not include an
ongoing commitment by the Company. Grower fees paid to these officers and
employees amounted to $891,000 in 1992; $651,000 in 1993; and $689,000 in 1994.
At October 2, 1993 and October 1, 1994, other current assets include $215,000
and $217,000, respectively, and other assets include $3,356,000 and $3,933,000,
respectively, of accounts and notes receivable from an officer and director and
entities controlled by this person.
11. SUBSEQUENT EVENT
On October 12, 1994, the Company announced plans for a public offering of up
to 2,500,000 shares of Class A common stock. The Company's proceeds from the
offering are intended to be used for capital expenditures, including the
construction of an integrated chicken processing complex near Henderson,
Kentucky. Also, the Company announced that certain of its major stockholders
will offer up to an additional 2,100,000 shares of Class A common stock. The
Company will not receive any proceeds from the sale of the shares by such major
stockholders.
24
<PAGE>
HUDSON FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12.STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------------
CLASS A CLASS B
---------------- -----------------
NUMBER OF NUMBER OF ADDITIONAL RETAINED TREASURY
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS STOCK
--------- ------ --------- ------ ---------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 28,
1991................... 6,397,041 $64 8,503,758 $85 $62,277 $82,861 $(11,788)
Net income............. -- -- -- -- -- 2,170 --
Stock exchange......... 706 -- (706) -- -- -- --
Exercise of stock
options............... 31,200 -- -- -- 180 -- --
Purchase of common
stock................. -- -- -- -- -- -- (124)
Issuance of stock under
the Employee Stock
Purchase Plan......... -- -- -- -- 21 -- 87
Cash dividends:
Class A $.12 per
share................ -- -- -- -- -- (652) --
Class B $.10 per
share................ -- -- -- -- -- (851) --
--------- --- --------- --- ------- -------- --------
Balance at October 3,
1992................... 6,428,947 64 8,503,052 85 62,478 83,528 (11,825)
Net income............. -- -- -- -- -- 15,905 --
Stock exchange......... 1,000 -- (1,000) -- -- -- --
Exercise of stock
options............... 168,805 2 -- -- 1,193 -- --
Contingent payment for
1990 acquisition...... 35,603 -- -- -- (825) -- --
Conversion of 14%
debentures............ 1,996,052 20 -- -- 24,777 -- --
Issuance of stock under
the Employee Stock
Purchase Plan......... -- -- -- -- 15 -- 191
Cash dividends:
Class A $.12 per
share................ -- -- -- -- -- (856) --
Class B $.10 per
share................ -- -- -- -- -- (850) --
--------- --- --------- --- ------- -------- --------
Balance at October 2,
1993................... 8,630,407 86 8,502,052 85 87,638 97,727 (11,634)
Net income............. -- -- -- -- -- 26,992 --
Stock exchange......... 170 -- (170) -- -- -- --
Exercise of stock
options............... 214,928 2 -- -- 1,641 -- --
Conversion of 8%
debentures............ 388,388 4 -- -- 8,154 -- --
Issuance of stock under
the Employee Stock
Purchase Plan......... -- -- -- -- 72 -- 218
Cash Dividends:
Class A $.12 per
share................ -- -- -- -- -- (946) --
Class B $.10 per
share................ -- -- -- -- -- (850) --
--------- --- --------- --- ------- -------- --------
Balance at October 1,
1994................... 9,233,893 $92 8,501,882 $85 $97,505 $122,923 $(11,416)
========= === ========= === ======= ======== ========
</TABLE>
On February 6, 1987, the Company's Restated Certificate of Incorporation was
amended to create two classes of common stock. The amendment authorized the
issuance of up to 40,000,000 shares of Class A common stock, par value $.01 per
share, and 40,000,000 shares of Class B common stock, par value $.01 per share.
Upon adoption of the amendment, each outstanding share of common stock
converted automatically into a share of Class A common stock. During fiscal
1987, the Company concluded a one-time-only exchange offer in which holders of
Class A common stock were given the opportunity to exchange their shares for an
equivalent number of shares of Class B common stock. The Class B common stock
has ten votes per share in most matters submitted to a vote of the Company's
stockholders, while the Class A common stock has one vote per share. As a
result of the exchange offer, voting control of the Company rests with the
holders of Class B common stock. In addition, the dividend per share of Class B
common stock may not exceed 90 percent of the dividend per share of Class A
common stock. The number of outstanding Class A shares at October 2, 1993 and
October 1, 1994 were 7,672,049 and 8,300,039, respectively.
25
<PAGE>
HUDSON FOODS, INC. AND SUBSIDIARIES
SUPPLEMENTAL QUARTERLY FINANCIAL DATA (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED 1993
--------------------------------------------------------------------------
(AS RESTATED, SEE NOTE 7)
JANUARY 2 APRIL 3 JULY 3 OCTOBER 2 FISCAL 1993
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Sales .................. $ 231,691 $ 220,148 $ 224,887 $ 243,819 $ 920,545
Cost of sales........... 203,352 192,589 192,794 213,267 802,002
---------- ---------- ---------- ---------- ----------
Gross Profit............ 28,339 27,559 32,093 30,552 118,543
Selling................. 14,145 16,701 16,912 16,168 63,926
General and
administrative......... 4,811 5,132 5,320 5,432 20,695
---------- ---------- ---------- ---------- ----------
Operating income........ 9,383 5,726 9,861 8,952 33,922
Other expense, net...... 2,456 2,576 1,719 1,754 8,505
---------- ---------- ---------- ---------- ----------
Income before income
taxes.................. 6,927 3,150 8,142 7,198 25,417
Income tax expense...... 2,654 1,289 3,151 2,418 9,512
---------- ---------- ---------- ---------- ----------
Net income.............. $ 4,273 $ 1,861 $ 4,991 $ 4,780 $ 15,905
========== ========== ========== ========== ==========
Earnings per share:
Primary................ $ .30 $ .12 $ .30 $ .29 $1.01
Fully diluted.......... .29 .13 .30 .29 1.01
Dividends:
Class A................ .030 .030 .030 .030 .12
Class B................ .025 .025 .025 .025 .10
Market price (high-low). $14-7 1/2 $15 3/8-10 3/8 $13 7/8-10 1/4 $11 3/8-10 1/4 $15 3/8-7 1/2
<CAPTION>
QUARTER ENDED 1994
--------------------------------------------------------------------------
JANUARY 1 APRIL 2 JULY 2 OCTOBER 1 FISCAL 1994
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Sales .................. $ 250,292 $ 256,327 $ 266,773 $ 267,448 $1,040,840
Cost of sales........... 212,646 222,284 224,352 225,966 885,248
---------- ---------- ---------- ---------- ----------
Gross Profit............ 37,646 34,043 42,421 41,482 155,592
Selling................. 19,257 18,839 20,223 20,379 78,698
General and
administrative......... 6,474 6,122 6,309 6,850 25,755
---------- ---------- ---------- ---------- ----------
Operating income........ 11,915 9,082 15,889 14,253 51,139
Other expense, net...... 1,829 1,717 1,442 1,164 6,152
---------- ---------- ---------- ---------- ----------
Income before income
taxes.................. 10,086 7,365 14,447 13,089 44,987
Income tax expense...... 3,991 2,993 5,616 5,395 17,995
---------- ---------- ---------- ---------- ----------
Net income.............. $ 6,095 $ 4,372 $ 8,831 $ 7,694 $ 26,992
========== ========== ========== ========== ==========
Earnings per share:
Primary................ $ .37 $ .26 $ .53 $ .46 $1.62
Fully diluted.......... .36 .26 .52 .46 1.61
Dividends:
Class A................ .030 .030 .030 .030 .12
Class B................ .025 .025 .025 .025 .10
Market price (high-low). $13 1/2-10 5/8 $16 5/8-11 1/8 $18 3/8-12 3/4 $25 1/8-17 7/8 $25 1/8-10 5/8
</TABLE>
26
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure.
- --------------------
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
--------------------------------------------------
Incorporated by reference from the sections captioned "Election of
Directors," "Executive Officers" and "Section 16 Requirements" contained in the
Company's Proxy Statement for Annual Meeting of Stockholders, February 10, 1995
and Adjournments (the "Proxy Statement").
Item 11. Executive Compensation.
----------------------
Incorporated by reference from the section captioned "Executive
Compensation" contained in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
--------------------------------------------------------------
Incorporated by reference from the section captioned "Principal
Stockholders" contained in the Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
----------------------------------------------
Incorporated by reference from the sections captioned "Executive
Compensation--Compensation Committee Interlocks and Insider Participation" and
"Certain Transactions" contained in the Proxy Statement.
27
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
----------------------------------------------------------------
(a) Documents filed as a part of this report.
1. Financial statements.
--------------------
<TABLE>
<CAPTION>
Description Page
----------- ----
<S> <C>
Report of Independent Accountants............................ 14
Consolidated Balance Sheet................................... 15
Consolidated Statement of Operations......................... 16
Consolidated Statement of Cash Flows......................... 17
Notes to Consolidated Financial Statements................... 18
</TABLE>
2. Financial statement schedules.
-----------------------------
<TABLE>
<CAPTION>
Schedule No. Description
------------ -----------
<C> <S> <C>
II Amounts Receivable from Related Parties and
Underwriters, Promoters and Employees.......... 33
V Property, Plant and Equipment.................. 34
VI Accumulated Depreciation....................... 35
VIII Valuation and Qualifying Accounts.............. 36
IX Short-term Borrowings.......................... 37
X Supplementary Income Statement Information..... 38
</TABLE>
3. Exhibits required by Item 601 of Regulation S-K.
-----------------------------------------------
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
3a Restated certificate of incorporation of Hudson Foods,
Inc./1/
3b Restated by-laws of Hudson Foods, Inc., as amended to date/2/
4a Indenture, dated as of October 1, 1986, between
Hudson Foods, Inc. and the First National Bank of
Boston (formerly Bank of America National Trust and
Savings Association)/3/
4b Restated Certificate of Incorporation of Hudson Foods,
Inc., Section 4/1/
9 Form of revocable proxy held by James T. Hudson/1/
10a Amended and Restated 1985 Stock Option Plan/4/
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10b Form of Hudson Foods Stock Option Agreement/5/
10c Form of Hudson Farms Turkey Growing Contract/5/
10d Form of Hudson Farms Broiler Growing Contract/5/
10e Airplane lease (Cessna 421)/5/
10f Airplane lease (Citation III)/1/
10g Revolving Credit Agreement by and among Hudson
Foods, Inc., Cooperatieve Centrale Raiffeisen-
Boerenleenbank B.A., "Rabobank Nederland," New
York Branch, Bank of America National Trust and
Savings Association, Nationsbank of Texas, National
Association, Caisse Nationale De Credit Agricole,
"Credit Agricole," Harris Trust and Savings Bank and
Cooperatieve Centrale Raiffeisen-Boerenleenbank, B.A.,
"Rabobank Nederland," New York Branch, as Agent
dated as of April 26, 1994/6/
10h Hudson Foods, Inc. Note Purchase Agreement dated as
of May 18, 1994, $50,000,000 Fixed Rate Senior
Notes, Guaranteed by Hudson Farms, Inc./6/
10i Purchase and Supply Agreement, dated October 12,
1994 between Hudson Foods, Inc. and Boston Chicken,
Inc./7/
10j Supplier Agreement, dated April 26, 1994, between
Hudson Foods, Inc. and Restaurant Services, Inc., as
purchasing agent for the Burger King System/7/
11 Computation of earnings per share
21 Subsidiaries of Hudson Foods, Inc./8/
23 Consent of independent public accountants
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K.
The Company filed no Current Reports on Form 8-K during fiscal 1994.
- -----------------------
/1/ Incorporated by reference from Hudson Foods, Inc. Form S-4 Registration
Statement No. 33-15274, as amended, filed with the Securities and Exchange
Commission on June 23, 1987.
/2/ Incorporated by reference from Hudson Foods, Inc., Form S-3 Registration
Statement No. 33-56019, as amended, filed with the Securities and Exchange
Commission on October 13, 1994.
29
<PAGE>
/3/ Incorporated by reference from Hudson Foods, Inc. Form S-1 Registration
Statement No. 33-8889, as amended, filed with the Securities and Exchange
Commission on September 19, 1986.
/4/ Incorporated by reference from Hudson Foods, Inc. Form S-8 Registration
Statement No. 33-27738, as amended, filed with the Securities and Exchange
Commission on March 23, 1989.
/5/ Incorporated by reference from Hudson Foods, Inc. Form S-1 Registration
Statement No. 33-2505, as amended, filed with the Securities and Exchange
Commission on December 31, 1985.
/6/ Incorporated by reference from Hudson Foods, Inc. Quarterly Report on Form
10-Q for the quarterly period ended July 2, 1994, filed with the Securities and
Exchange Commission on August 1, 1994.
/7/ Incorporated by reference from Hudson Foods, Inc., Form 8-K Current Report
dated October 13, 1994, filed with the Securities Exchange Commission on October
13, 1994.
/8/ Incorporated by reference from Hudson Foods, Inc., Form 10-K for the fiscal
year ended October 2, 1993, filed with the Securities and Exchange Commission on
December 30, 1993.
30
<PAGE>
SIGNATURES
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.
HUDSON FOODS, INC.
November 9, 1994 By /s/ James T. Hudson
---------------------
James T. Hudson
Chairman of the Board and
Chief Executive Officer
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.
November 9, 1994 By /s/ James T. Hudson
--------------------
James T. Hudson
Chairman of the Board, Chief Executive
Officer and Director
November 9, 1994 By /s/ Michael T. Hudson
-----------------------
Michael T. Hudson
President, Chief Operating Officer and
Director
November 9, 1994 By /s/ Charles B. Jurgensmeyer
-----------------------------
Charles B. Jurgensmeyer
Principal Financial and Accounting
Officer and Director
November 9, 1994 By
-----------------------------
Elmer W. Shannon
Director
31
<PAGE>
November 9, 1994 By /s/ Jerry L. Hitt
-----------------------------
Jerry L. Hitt
Director
November 9, 1994 By
-----------------------------
Kenneth N. May
Director
November 9, 1994 By /s/ James R. Hudson
-----------------------------
James R. Hudson
Director
November 9, 1994 By
-----------------------------
Jane M. Helmich
Director
32
<PAGE>
HUDSON FOODS, INC. AND SUBSIDIARIES
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES AND
UNDERWRITERS, PROMOTERS AND EMPLOYEES
(Other than related parties)
For the Three Years in the Period Ended October 1, 1994
(Dollars in Thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- ----------------------------------------------------------------------------------------------------------------------
Balance at Balance at
beginning end of
Name of Debtor of period Additions Deductions period
(amounts collected) Current/(1)/ Noncurrent/(2)/
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended October 1, 1994:
Accounts receivable:
James T. Hudson $3,571 $864 $(285) $217 $3,933
========================================================================
Year ended October 2, 1993:
Accounts receivable:
James T. Hudson $2,993 $614 $ (36) $215 $3,356
========================================================================
Year ended October 3, 1992:
Accounts receivable:
James T. Hudson $2,417 $599 $ (23) $215 $2,778
========================================================================
</TABLE>
- ------------------------------
/(1)/ Interest charged on the outstanding balance at a rate based on the
Company's short-term borrowing rate plus 0.5%.
/(2)/ The Company has a collateral assignment agreement providing for the
payment of the receivable with the proceeds of certain insurance policies.
33
<PAGE>
HUDSON FOODS, INC. AND SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
For the Three Years in the Period Ended October 1, 1994
(Dollars in Thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
- ---------------------------------------------------------------------------------------------------------
Balance at Balance
beginning Additions at end
Classification of period at cost/(1)/ Retirements Other/(2)/ of period
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended October 1, 1994:
Land $ 10,620 $ 24 $ -- $ -- $ 10,644
Buildings and improvements 162,606 4,817 (452) (1,489) 165,482
Machinery and equipment 126,505 9,501 (1,482) (3,091) 131,433
Construction in progress 7,219 34,819 -- (11) 42,027
----------------------------------------------------------------------
$306,950 $ 49,161 $(1,934) $(4,591) $349,586
======================================================================
Year ended October 2, 1993:/(3)/
Land $ 10,565 $ 11 $ -- $ 44 $ 10,620
Buildings and improvements 149,362 13,242 (1,156) 1,158 162,606
Machinery and equipment 109,125 25,594 (6,861) (1,353) 126,505
Construction in progress 25,262 (17,394) -- (649) 7,219
----------------------------------------------------------------------
$294,314 $ 21,453 $(8,017) $ (800) $306,950
======================================================================
Year ended October 3, 1992:/(3)/
Land $ 9,183 $ 1,455 $ (7) $ (66) $ 10,565
Buildings and improvements 130,956 21,692 (1,047) (2,239) 149,362
Machinery and equipment 90,630 22,794 (2,921) (1,378) 109,125
Construction in progress 22,328 2,934 -- -- 25,262
----------------------------------------------------------------------
$253,097 $ 48,875/(4)/ $(3,975) $(3,683) $294,314
======================================================================
</TABLE>
- -------------------------------------
/(1)/ Represents additions to construction in progress less inter-account
transfers.
/(2)/ Includes additions to and retirements from property, plant and equipment
for idle assets, assets destroyed by fire and/or miscellaneous.
/(3)/ Amounts have been restated for the adoption of Statement of Financial
Accounting Standards No. 109. See Note 7 of the Notes to Consolidated
Financial Statements at page 21.
/(4)/ Includes land and buildings acquired in the Company's purchase of a
manufacturing plant in Caryville, Tennessee.
Depreciation is computed using the straight-line method over the following
useful lives:
Building and improvements 20 - 30 years
Machinery and equipment 7 - 10 years
34
<PAGE>
HUDSON FOODS, INC. AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION
For the Three Years in the Period Ended October 1, 1994
(Dollars in Thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
- -----------------------------------------------------------------------------------------------
Balance at Additions Balance
beginning charged to costs at end
Description of period and expenses Retirements Other/(1)/ of period
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended October 1, 1994:
Buildings and improvements $ 38,171 $ 6,827 $ (98) $ 69 $ 44,969
Machinery and equipment 63,166 14,419 (1,178) (840) 75,567
----------------------------------------------------------------
$101,337 $21,246 $(1,276) $ (771) $120,536
================================================================
Year ended October 2, 1993:/(2)/
Buildings and improvements $ 31,496 $ 6,906 $ (422) $ 191 $ 38,171
Machinery and equipment 55,721 14,723 (6,333) (945) 63,166
----------------------------------------------------------------
$ 87,217 $21,629 $(6,755) $ (754) $101,337
================================================================
Year ended October 3, 1992:/(2)/
Buildings and improvements $ 26,162 $ 6,180 $ (217) $ (629) $ 31,496
Machinery and equipment 48,182 10,521 (1,971) (1,011) 55,721
----------------------------------------------------------------
$ 74,344 $16,701 $(2,188) $(1,640) $ 87,217
================================================================
</TABLE>
- -----------------------------
/(1)/ Includes additions to and retirements from accumulated depreciation for
idle assets, assets destroyed in fire and/or miscellaneous.
/(2)/ Amounts have been restated for the adoption of Statement of Financial
Accounting Standards No. 109. See Note 7 of the Notes to Consolidated
Financial Statements at page 21.
35
<PAGE>
HUDSON FOODS, INC. AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
For the Three Years in the Period Ended October 1, 1994
(Dollars in Thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- -------------------------------------------------------------------------------------------------------
Balance at Charged to Charged to Balance at
beginning costs and other end of
Classification of period expenses accounts Deductions period
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended October 1, 1994 $1,208 $627 $15/(1)/ $(387) $1,463
==============================================================
Year ended October 2, 1993 $1,344 $103 $31/(1)/ $(270) $1,208
==============================================================
Year ended October 3, 1992 $1,063 $704 $ 7/(1)/ $(430) $1,344
==============================================================
</TABLE>
- ------------------------------
/(1)/ Collections of previously charged off amounts.
36
<PAGE>
HUDSON FOODS, INC. AND SUBSIDIARIES
SCHEDULE IX - SHORT-TERM BORROWINGS
For the Three Years in the Period Ended October 1, 1994
(Dollars in Thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
- ----------------------------------------------------------------------------------------------------
Average Weighted
Weighted Maximum amount average
Category of aggregate Balance at average outstanding outstanding interest rate
short-term borrowings end of interest during during during
period rate period period /(1)/ period /(2)/
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the year ended
October 1, 1994:
Notes payable to banks issued under
various credit arrangements $16,800 5.78% $22,300 $ 7,850 2.29%
=========================================================
For the year ended
October 2, 1993:
Notes payable to banks issued under
various credit arrangements -- -- $15,000 $ 1,550 2.18%
========================================================
For the year ended
October 3, 1992:
Notes payable to banks issued under
various credit arrangements $15,000 3.71% $27,000 $10,167 3.44%
=========================================================
</TABLE>
- ------------------------------
/(1)/ Computed by determining the average amount outstanding on a monthly basis
for all applicable notes.
/(2)/ Computed by dividing short-term interest expense by the average short-term
debt outstanding.
37
<PAGE>
HUDSON FOODS, INC. AND SUBSIDIARIES
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
For the Three Years in the Period Ended October 1, 1994
(Dollars in Thousands)
<TABLE>
<CAPTION>
Column A Column B
- ------------------------------- -------------------------------
Charged to costs
Item and expenses
- ------------------------------- -------------------------------
<S> <C>
Maintenance and repairs:
Year ended October 1, 1994 $19,865
=======
Year ended October 2, 1993 $19,996
=======
Year ended October 3, 1992 $18,462
=======
</TABLE>
38
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ---------- ----------- ----
<S> <C> <C>
3a Restated certificate of incorporation of
Hudson Foods, Inc./1/.................................... N/A
3b Restated by-laws of Hudson Foods, Inc., as
amended to date/2/....................................... N/A
4a Indenture, dated as of October 1, 1986,
between Hudson Foods, Inc. and Bank of America
National Trust and Savings Association/3/................ N/A
4b Restated Certificate of Incorporation of
Hudson Foods, Inc., Section 4/1/......................... N/A
9 Form of revocable proxy held by James T.
Hudson/1/................................................ N/A
10a Amended and Restated 1985 Stock Option
Plan/4/.................................................. N/A
10b Form of Hudson Foods Stock Option
Agreement/5/............................................. N/A
10c Form of Hudson Farms Turkey Growing
Contract/5/.............................................. N/A
10d Form of Hudson Farms Broiler Growing
Contract/5/.............................................. N/A
10e Airplane lease (Cessna 421)/5/............................ N/A
10f Airplane lease (Citation III)/1/.......................... N/A
10g Revolving Credit Agreement by and among Hudson Foods,
Inc., Cooperatieve Centrale Raiffeisen-Boerenleenbank
B.A., "Rabobank Nederland," New York Branch, Bank of
America National Trust and Savings Association,
Nationsbank of Texas, National Association, Caisse
Nationale De Credit Agricole, "Credit Agricole," Harris
Trust and Savings Bank and Cooperatieve Centrale
Raiffeisen-Boerenleenbank, B.A., "Rabobank Nederland,"
New York Branch, as Agent dated as of April 26, 1994/6/... N/A
10h Hudson Foods, Inc. Note Purchase Agreement dated as
of May 18, 1994, $50,000,000 Fixed Rate Senior Notes,
Guaranteed by Hudson Farms, Inc./6/....................... N/A
10i Purchase and Supply Agreement, dated October 12, 1994
between Hudson Foods, Inc. and Boston Chicken, Inc./7/.... N/A
10j Supplier Agreement, dated April 26, 1994, between
Hudson Foods, Inc. and Restaurant Services, Inc., as
purchasing agent for the Burger King System/7/............ N/A
11 Computation of earnings per share.........................
21 Subsidiaries of Hudson Foods, Inc./8/..................... N/A
23 Consent of independent public accountants.................
27 Financial Data Schedule...................................
</TABLE>
<PAGE>
- -----------------
/1/ Incorporated by reference from Hudson Foods, Inc. Form S-4 Registration
Statement No. 33-15274, as amended, filed with the Securities and Exchange
Commission on June 23, 1987.
/2/ Incorporated by reference from Hudson Foods, Inc., Form S-3 Registration
Statement No. 33-56019, as amended, filed with the Securities and Exchange
Commission on October 13, 1994.
/3/ Incorporated by reference from Hudson Foods, Inc. Form S-1 Registration
Statement No. 33-8889, as amended, filed with the Securities and Exchange
Commission on September 19, 1986.
/4/ Incorporated by reference from Hudson Foods, Inc. Form S-8 Registration
Statement No. 33-27738, as amended, filed with the Securities and Exchange
Commission on March 23, 1989.
/5/ Incorporated by reference from Hudson Foods, Inc. Form S-1 Registration
Statement No. 33-2505, as amended, filed with the Securities and Exchange
Commission on December 31, 1985.
/6/ Incorporated by reference from Hudson Foods, Inc. Quarterly Report on Form
10-Q for the quarterly period ended July 2, 1994, filed with the Securities
and Exchange Commission on August 1, 1994.
/7/ Incorporated by reference from Hudson Foods, Inc., Form 8-K Current Report
dated October 13, 1994, filed with the Securities Exchange Commission on
October 13, 1994.
/8/ Incorporated by reference from Hudson Foods, Inc., Form 10-K for the fiscal
year ended October 2, 1993, filed with the Securities Exchange Commission on
December 30, 1993.
<PAGE>
EXHIBIT 11
HUDSON FOODS, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Fiscal Year 1994 1993 1992
- ----------- ------------------------------------
Computation for statement of income
- -----------------------------------
<S> <C> <C> <C>
Net income $26,992 $15,905 $2,170
====================================
Primary earnings per share
- --------------------------
Reconciliation of weighted average number
of shares outstanding to amount used in
primary earnings per share computation:
Weighted average number of shares
outstanding 16,265,818 15,411,057 13,935,931
Contingently issuable shares -- -- 275,316
Dilutive effect of assumed exercise of
options 366,427 339,814 91,970
------------------------------------
Weighted average number of common and
common equivalent shares outstanding 16,632,245 15,750,871 14,303,217
====================================
Primary earnings per share $1.62 $1.01 $0.15
====================================
Fully diluted earnings per share
- --------------------------------
Reconciliation of weighted average number
of shares outstanding to amount used in
fully diluted earnings per share
computation:
Weighted average number of shares
outstanding 16,265,818 15,411,057 13,935,931
Common stock contingently issuable:
Contingently issuable shares -- -- 275,316
Dilutive effect of assumed
exercise of options 466,650 339,814 91,970
-------------------------------------
Weighted average number of common and
common equivalent shares outstanding 16,732,468 15,750,871 14,303,217
=====================================
Fully diluted earnings per share $1.61 $1.01 $0.15
=====================================
</TABLE>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Hudson Foods, Inc. on Form S-8 (File Nos. 33-36690 and 33-41839) of our
report dated October 26, 1994, on our audits of the consolidated financial
statements and financial statement schedules of Hudson Foods, Inc. as of October
2, 1993, as restated, and October 1, 1994, and for the years ended October 3,
1992, as restated, October 2, 1993, as restated, and October 1, 1994, which
report is included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Tulsa, Oklahoma
November 9, 1994
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-01-1994
<PERIOD-START> OCT-03-1994
<PERIOD-END> OCT-01-1994
<EXCHANGE-RATE> 1
<CASH> 1,899
<SECURITIES> 0
<RECEIVABLES> 66,971
<ALLOWANCES> 1,463
<INVENTORY> 135,501
<CURRENT-ASSETS> 214,981
<PP&E> 349,586
<DEPRECIATION> 120,536
<TOTAL-ASSETS> 473,180
<CURRENT-LIABILITIES> 114,885
<BONDS> 75,169
<COMMON> 177
0
0
<OTHER-SE> 209,012
<TOTAL-LIABILITY-AND-EQUITY> 473,180
<SALES> 1,040,840
<TOTAL-REVENUES> 1,040,840
<CGS> 885,248
<TOTAL-COSTS> 989,701
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,152
<INCOME-PRETAX> 44,987
<INCOME-TAX> 17,995
<INCOME-CONTINUING> 17,995
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,992
<EPS-PRIMARY> 1.62
<EPS-DILUTED> 1.61
</TABLE>
