<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
____ SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 1, 1994
--------------------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
____ SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-9050
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HUDSON FOODS, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 71-0427616
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1225 Hudson Road, Rogers, Arkansas 72756
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(Address of principal executive offices) (Zip Code)
(501) 636-1100
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(Registrant's telephone number, including area code)
Not Applicable
- ----------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
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
---- ----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
---- ----
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of February 3, 1994 Hudson Foods, Inc. had 7,715,688 shares of $0.01 par
value Class A Common Stock outstanding and 8,502,052 shares of $0.01 par value
Class B Common Stock outstanding.
<PAGE>
PART 1 FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS
HUDSON FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
January 1, October 2,
1994 1993
As restated.
(See note 2)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $3,607 $3,891
Receivables, net 63,104 57,452
Inventory:
Field inventory 37,243 35,247
Feed, eggs and other 20,973 21,318
Finished products 55,295 59,932
Other 15,177 7,275
---------- ---------
Total current assets 195,399 185,115
---------- ---------
Property, plant and equipment, net of accumulated
depreciation ($105,746 and $101,337) 203,012 205,613
Excess cost of investment, net 15,666 15,807
Other assets 9,379 9,968
--------- ----------
Total assets $423,456 $416,503
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable $5,500 $ --
Current portion of long-term obligations 5,181 5,085
Accounts payable 31,170 31,555
Accrued liabilities 30,919 33,198
Deferred income taxes 11,466 11,466
---------- ---------
Total current liabilities 84,236 81,304
---------- ---------
Long-term obligations 88,451 88,985
---------- ---------
Deferred income taxes and deferred gain 70,902 72,312
---------- ---------
Stockholders' equity:
Common stock:
Class A, $.01 par value, issued8,638,592 and 8,630,407 86 86
Class B, $.01 par value, issued and outstanding, 8,502,052 shares 85 85
Additional capital 87,734 87,638
Retained earnings 103,378 97,727
Treasury stock, at cost (933,854 and 958,358 Class A shares) (11,416) (11,634)
---------- ---------
Total stockholders' equity 179,867 173,902
---------- ---------
Total liabilities & stockholders' equity $423,456 $416,503
========= ==========
The accompanying notes are an integral part of the condensed consolidated financial statements
</TABLE>
2
<PAGE>
HUDSON FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For the Three Months Ended
January 1, January 2,
1994 1993
As restated
(See note 2)
<S> <C> <C>
Sales $250,292 $231,691
----------- -----------
Costs and expenses:
Cost of sales 212,646 203,352
Selling 19,257 14,145
General and administrative 6,474 4,811
----------- -----------
Total costs and expenses 238,377 222,308
----------- -----------
Operating income 11,915 9,383
Other expense 1,829 2,456
----------- -----------
Income before income taxes 10,086 6,927
Income tax expense 3,991 2,654
----------- -----------
Net income $6,095 $4,273
=========== ===========
Earnings per share:
Primary $.37 $.30
=========== ===========
Fully diluted $.36 $.29
=========== ===========
Dividends declared per share:
Class A common $.030 $.030
=========== ===========
Class B common $.025 $.025
=========== ===========
Weighted average number of common and
common equivalent shares outstanding:
Primary 16,534,420 14,345,842
=========== ===========
Fully diluted 17,364,706 17,973,612
=========== ===========
The accompanying notes are an integral part of the condensed consolidated financial statements
3
</TABLE>
<PAGE>
HUDSON FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
For the Three Months Ended
January 1, January 2,
1994 1993
As restated
(See note 2)
<S> <C> <C>
Operations:
Net income $6,095 $4,273
Items reflected in net income
not requiring cash:
Depreciation 5,175 5,301
Amortization 272 347
Deferred gain (694) (159)
Deferred income taxes (193) 69
Other (36) --
Changes in operating assets and liabilities (13,755) 8,613
----------- ----------
Cash flows provided by (used for) operations (3,136) 18,444
----------- ----------
Investments:
Purchase of property, plant and equipment (6,469) (9,195)
Disposition of property, plant and equipment, net 3,895 318
Proceeds from sale-leaseback agreements -- 19,167
Other 457 1,526
----------- ----------
Cash flows provided by (used for) investments (2,117) 11,816
----------- ----------
Financing:
Addition (reduction) to notes payable 5,500 (15,000)
Reduction of long-term obligations (437) (792)
Dividends (444) (379)
Exercise of stock options and other 350 (101)
----------- ----------
Cash flows provided by (used for) financing 4,969 (16,272)
----------- ----------
Increase (Decrease) in cash (284) 13,988
Cash and cash equivalents at beg. of period 3,891 3,949
----------- ----------
Cash and cash equivalents at end of period $3,607 $17,937
=========== ==========
Supplemental cash flow information:
Interest paid $1,381 $1,039
Income taxes paid $6,747 $2,128
The accompanying notes are an integral part of the condensed consolidated financial statements
</TABLE>
4
<PAGE>
HUDSON FOODS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The financial statements for the periods ended January 1, 1994 and January 2,
1993 include, in the opinion of management, all adjustments (none of which were
other than normal recurring accruals) necessary to present fairly the results of
operations and cash flows for such periods. Results for the three-month period
ended January 1, 1994 are not necessarily indicative of the results which will
be realized for the year ending October 1, 1994. The annual report for the year
ended October 2, 1993 contains additional information which should be read in
conjunction with these financial statements.
2. Accounting Change-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 since
increases in depreciation expense, due to adjustments for prior business
combinations, were offset by the amortization of the deferred income taxes. Net
property, plant and equipment and deferred income taxes as of October 2, 1993
were each increased by $8,234,000 from the amounts previously reported to give
effect to the retroactive adoption of SFAS 109. Additionally, the statement of
operations for the three-month period ended January 2, 1993 has been restated to
increase cost of sales and decrease income tax expense by $206,000.
5
<PAGE>
HUDSON FOODS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Consolidated income tax expense (benefit) for the three-month periods ended
January 1, 1994 and January 2, 1993 consists of the following (in thousands of
dollars):
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Current:
Federal $3,804 $2,303
State 380 282
Deferred:
Federal (175) 86
State (18) (17)
------- -------
Total $3,991 $2,654
======= =======
</TABLE>
A reconciliation of the statutory federal income tax rate with the effective
income tax rate for the three-month periods ended January 1, 1994 and January 2,
1993 is as follows:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Federal income tax rate 35.0% 34.0%
State income taxes, net
of federal tax benefit 3.5 3.6
Nondeductible items
related to business
combinations, net .5 1.6
Jobs/research tax credits (.2) (2.1)
Other .8 1.2
------ ------
Effective income tax rate 39.6% 38.3%
====== ======
</TABLE>
6
<PAGE>
HUDSON FOODS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
An analysis of the Company's net current and long-term deferred tax assets and
liabilities at October 2, 1993 is as follows (in thousand of dollars):
<TABLE>
<CAPTION>
Asset
(Liability)
<S> <C>
Current:
Inventory $(13,346)
Allowance for doubtful
accounts 530
Accrued liabilities 1,026
Other 324
--------
Total current deferred
income taxes $(11,466)
=========
Long-term:
Property, plant and
equipment $(22,806)
Change from the cash basis
to the accrual basis of
accounting in 1988 for the
"Family Farm" subsidiaries (38,159)
Other (1,616)
---------
Total long-term deferred
income taxes $(62,581)
=========
</TABLE>
7
<PAGE>
To the Board of Directors and Stockholders
Hudson Foods, Inc.
We have reviewed the condensed consolidated balance sheet of Hudson Foods, Inc.
and subsidiaries as of January 1, 1994, and the related condensed consolidated
statements of operations for the three month periods ended January 1, 1994, and
January 2, 1993, and the condensed consolidated statements of cash flows for the
three month periods ended January 1, 1994 and January 2, 1993. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of October 2, 1993, and the related
consolidated statements of operations and cash flows for the year then ended
(not presented herein); and in our report dated November 2, 1993, we expressed
an unqualified opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying condensed consolidated
balance sheet as of October 2, 1993 is fairly stated in all material respects in
relation to the consolidated balance sheet from which it has been derived.
As described in note 2, in fiscal 1994 the Company changed its method of
accounting for income taxes.
Coopers & Lybrand
Tulsa, Oklahoma
January 23, 1994
8
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Hudson Foods, Inc. is a poultry producer and food processor. The Company's
profitability is affected by finished product prices, the price of feed grains
and other factors.
The Company's selling prices for some chicken and turkey products are influenced
by industry commodity market prices. However, since many factors are involved in
pricing, commodity market prices should only be used as a general indicator of
the Company's selling prices.
For the first three months of fiscal 1994, average commodity broiler and turkey
market prices were up 3 cents per pound and 5 cents per pound, respectively,
from the averages for the first three months of fiscal 1993.
Inflation has not materially affected sales or cost of sales during the current
and prior year.
9
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FIRST QUARTER OF FISCAL 1994 COMPARED WITH
FIRST QUARTER OF FISCAL 1993.
Sales increased $18.6 million for the first quarter of fiscal 1994 from the same
period of fiscal 1993. The sales increase was primarily due to higher volumes of
chicken and portioned entree products and higher selling prices for some chicken
products.
Chicken volume increased primarily due to the Company's
entrance into new international markets.
Portioned entree volume increased primarily due to new
product lines and new customers.
Total poultry sales volume increased to 201.4 million dressed
pounds, representing 60.8% of total sales dollars. This compares with the
fiscal 1993 first quarter total of 193.1 million dressed pounds, which was 62.5%
of total sales dollars.
Processed meat sales volume, some of which included poultry raw
materials, was 57.0 million and 52.8 million pounds for the first quarter of
fiscal 1994 and fiscal 1993, respectively.
Cost of sales increased $9.3 million for the first quarter of
fiscal 1994 from the same period of fiscal 1993. The cost of
sales increase was primarily due to increased volume and higher feed and
ingredient costs.
The Company's gross profit percentage increased 2.8% for the first quarter of
fiscal 1994 from the same period of fiscal 1993 primarily due to increased
selling prices for some chicken products and increased operating efficiencies.
Selling and general and administrative expenses as a percentage
of sales were 10.3% and 8.2% for the first quarter of fiscal 1994 and fiscal
1993, respectively. Selling expenses increased in the areas of commissions,
rebates, advertising, distribution, demonstration, new product development and
storage expenses primarily related to new products and increased international
sales. General and administrative expenses were up as a result of incentive
compensation accruals.
Other expense is composed of interest expense and interest income.
10
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
At January 1, 1994, working capital was $111.2 million compared with $103.8
million at October 2, 1993 and the current ratio was 2.32 to 1 and 2.28 to 1 at
January 1, 1994 and October 2, 1993, respectively. Working capital increased, in
part, due to: 1) increased accounts receivable as a result of sales to new
customers and sales of new products and 2) increased other current assets due to
insurance claim receivables resulting from fire losses. These increases were
somewhat offset by a decrease in total inventories.
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 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. As a result, the Company restated the October 2, 1993 balance sheet
as follows: 1) property, plant and equipment cost increased $13.5 million, 2)
accumulated depreciation increased $5.3 million and 3) deferred income taxes
increased $8.2 million. (See note 2 of the condensed consolidated financial
statements.)
The Company's capital budget for fiscal 1994 contemplates aggregate capital
expenditures of approximately $50 million to upgrade and/or expand current
production facilities and related equipment. The capital expenditures have been
and will be financed by operations, borrowings under the Company's credit
agreement and/or lease arrangements. Additionally, the Company also plans to
build a new chicken complex and is now researching alternative sites.
For the first three months of fiscal 1994 and 1993, the Company had capital
expenditures of $6.5 million and $9.2 million, respectively. Those expenditures
were primarily for upgrading and expanding production facilities and related
equipment.
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. At
January 1, 1994, current deferred income taxes relating to the farm price method
were $13.3 million.
11
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION (CONTINUED)
Historically, the Company's operations have been financed through internally
generated funds, borrowings, lease arrangements and the issuance of common
stock. The Company's line of credit, which expires September 30, 1996, provides
for aggregate borrowings or letters of credit up to $100 million. The credit
agreement, among other things, limits the payment of dividends to $2.5 million
in any fiscal year and limits annual capital expenditures. It also requires the
maintenance of minimum working capital and tangible net worth, and requires that
working capital and debt-to-equity ratios be maintained at certain levels. At
January 1, 1994, the Company had available credit lines of $87.3 million. The
Company had short-term debt borrowed under the line of $5.5 million and had
outstanding letters of credit of $7.2 million.
12
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not Applicable.
Item 2. Changes in Securities
Not Applicable.
Item 3. Defaults Upon Senior Securities
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable.
Item 5. Other Information
Not Applicable.
13
<PAGE>
PART II - OTHER INFORMATION (CONTINUED)
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit Description of Exhibit Sequentially
Number Numbered Page
4a Trust indenture 8% Incorporated by
convertible subordin- reference from
ated debentures due Registration
2006 Statement No.
33-8889
4c Restated Certificate Incorporated by
of Incorporation of reference from
Hudson Foods, Inc., Registration
Section 4 Statement No.
33-15274
11 Calculation of earnings Document 2
per share Page 1
15 Letter regarding unaudited 16
interim financial
information
(b) Reports on Form 8-K.
Not applicable.
14
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
Date 2-8-94
Michael T. Hudson
President
Date 2-8-94 Charles B. Jurgensmeyer
Chief Financial Officer
15
<PAGE>
Schedule 15
February 8, 1994
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Hudson Foods, Inc.
Registration on Forms S-8
We are aware that our report dated January 23, 1994 on our review of the interim
financial information of Hudson Foods, Inc. for the period ended January 1,
1994, and included in this Form 10-Q is incorporated by reference in the
Company's registration statement on Form S-8 (File nos. 33-7261, 33-27738 and
33-36690). Pursuant to Rule 436(c) under the Securities Act of 1933, this
report should not be considered a part of the registration statement prepared or
certified by us within the meaning of Sections 7 and 11 of that Act.
Coopers & Lybrand
<PAGE>
Exhibit 11 - EARNINGS PER SHARE CALCULATION
HUDSON FOODS INC. AND SUBSIDIARIES
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JANUARY 1, JANUARY 2,
1994 1993
<S> <C> <C>
Net income $6,095 $4,273
Interest on convertible
subordinated debentures
net of income taxes 217 930
---------- ----------
Adjusted net income $6,312 $5,203
========== ==========
Primary earnings per share:
Weighted average number of
common shares outstanding 16,191,741 13,988,414
Weighted average number of
common shares contingently
issuable -- 35,603
Common stock equivalents:
Dilutive options 342,679 321,825
---------- ----------
Weighted average number of
common and common equivalent
shares 16,534,420 14,345,842
========== ==========
Primary earnings per share $.37 $.30
========== ==========
Fully diluted earnings
per share:
Weighted average number of
common shares outstanding 16,191,741 13,988,414
Weighted average number of
common shares contingently
issuable -- 35,603
Common stock equivalents:
Dilutive options 342,679 470,493
Convertible subordinated
debentures 830,286 3,479,102
---------- ----------
Weighted average number of
common and common equivalent
shares 17,364,706 17,973,612
========== ==========
Fully diluted earnings per
share $.36 $ .29
========== ==========
</TABLE>
