<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 September 30, 1995
[ ] 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.
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.
<PAGE>
On December 1, 1995, there were outstanding 20,470,573 shares
of the registrant's Class A common stock, $.01 par value, and
9,602,672 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 19,535,326 shares of Class A
common stock held by non-affiliates of the registrant as of
December 1, 1995 was $312,565,216. The aggregate market value of
the 2,672 shares of Class B common stock held by non-affiliates of
the registrant on December 1, 1995 was $42,752, 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
Hudson Foods, Inc. Annual Report for fiscal year ended September
30, 1995 (certain portions incorporated by reference into part II)
Proxy Statement for Annual Meeting of Stockholders, February
9, 1996 and Adjournments (certain portions incorporated by
reference into Part III)
PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
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. 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. The Company entered the market for beef
products when its newly constructed beef processing plant began
production in February 1995.
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The Company's luncheon meat operation is comprised of three
processing plants. On October 4, 1995, the Company entered into a
letter of intent with Farmland Foods, Inc. to sell its Topeka,
Kansas, luncheon meat plant and also the OhSe(R) and Roegelein(R)
brand names. Additionally, the Company intends to close its Wichita,
Kansas, luncheon meat processing facility no later than January 13,
1996. The two plants that are proposed to be sold or closed
produce ham, bacon and a variety of luncheon meats and were
responsible for about $110.0 million of fiscal 1995 sales. The
Company will keep its plant located in Albert Lea, Minnesota, and
also the Schweigert(R) brand name.
NARRATIVE DESCRIPTION OF BUSINESS
General
The Company is a vertically integrated producer of chicken and
turkey products, controlling the breeding, hatching, growing,
processing and packaging of those product lines. According to 1994
industry statistics, the Company was the seventh largest integrated
broiler company of 52 companies that were surveyed.(1)
Additionally, the Company processes and markets beef and pork
products.
______________
(1) Information contained in the January 1995 issue of "U.S. Broiler
Industry." The rankings were based on average weekly ready-to-
cook production in millions of pounds during the past twelve
months.
The Company was established as a regional poultry producer selling
commodity-type products. Through acquisitions and expansions, the
Company has increased its sales and product lines. In recent years
the Company has implemented a strategy to increase sales of further-
processed products, to increase sales to targeted large customers
under supply and pricing arrangements that yield more stable profit
margins and to diversify its product lines to include non-poultry
products.
On October 12, 1994, Hudson entered into a five-year, cost-plus
supply agreement with Boston Chicken, Inc., a franchiser and
operator of Boston Market foodservice stores specializing in
complete meals featuring rotisserie roasted chicken. That
agreement provided for Boston Chicken to purchase 100% of the
capacity of two Hudson chicken processing plants, one in Dexter,
Missouri, and one being built near Henderson, Kentucky. But
subsequent to the signing of the original supply agreement, Boston
Market broadened its menu, which decreased its anticipated needs
for chicken. In light of this development, the Company plans to
build the Henderson plant for the production of chill-pack and
individually frozen products, as the Company anticipates strong
future demand for those products from customers other than Boston
Chicken. The Dexter plant , however, is expected to remain in
place as a facility producing chicken products for Boston Chicken.
The Company anticipates that the original supply agreement with
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Boston Chicken will be modified and, as a result, the Company will
be afforded opportunities to expand its relationship with Boston
Chicken by supplying turkey, ham and meat loaf in addition to
chicken products. The Dexter plant began producing approximately
650,000 chickens per week for Boston Market in April 1995. The
Henderson plant is expected to begin production in the summer of
1996.
Through most of fiscal 1995, each of the Company's product lines,
i.e. chicken, portioned entrees, luncheon meat, turkey and beef
represented separate divisions with separate management and sales
staffs. In August 1995, the Company created the specialty foods
division by combining the portioned entree, luncheon meat, turkey
and beef divisions under one unified management team. The
specialty foods division will have a more focused structure with
centralized sales and marketing.
Products, Marketing and Customers
The following table sets forth for the periods indicated the net
sales for each of the Company's major product lines and the
respective percentage of total sales.
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------------------------------------
September 30, 1995 October 1, 1994 October 2, 1993
Percentage Percentage Percentage
Net of Total Net of Total Net of Total
Sales Sales Sales Sales Sales Sales
-------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C> <C> <C>
Chicken $ 648.3 54.0% $ 533.4 51.2% $454.9 49.4%
Portioned entrees 171.4 14.3 175.5 16.9 143.5 15.6
Luncheon meats 159.0 13.2 164.7 15.8 159.9 17.4
Turkey 145.1 12.1 113.2 10.9 100.6 10.9
Beef 37.3 3.1 -- -- -- --
Other(1) 39.4 3.3 54.0 5.2 61.6 6.7
-------- ------ -------- ------ ------ ------
Totals $1,200.5 100.0% $1,040.8 100.0% $920.5 100.0%
======== ====== ======== ====== ====== ======
- --------------
(1) Other primarily includes sales of liquid and dried egg products.,
bird, feed mill, transportation and distribution branch sales.
</TABLE>
<PAGE>
The following table sets forth for the periods indicated the net
sales to each of the Company's customer groups and the respective
percentage of total sales.
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------------------------------------
September 30, 1995 October 1, 1994(1) October 2, 1993(1)
Percentage Percentage Percentage
Net of Total Net of Total Net of Total
Sales Sales Sales Sales Sales Sales
----------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C> <C> <C>
Foodservice &
club stores $ 508.9 42.4% $ 474.6 45.6% $446.1 48.5%
Retail 506.2 42.2 440.6 42.3 383.8 41.7
International 139.2 11.6 60.7 5.8 28.0 3.0
Other 46.2 3.8 64.9 6.3 62.6 6.8
-------- ------ -------- ------ ------ ------
Totals $1,200.5 100.0% $1,040.8 100.0% $920.5 100.0%
======== ====== ======== ====== ====== ======
(1) Certain Fiscal 1994 and 1993 customer group amounts have been
reclassified to conform to the 1995 presentation.
</TABLE>
The Company's products are sold domestically in three primary
markets: foodservice, club stores and retail outlets. The
foodservice market is comprised primarily of full-service and fast-
food restaurants, prepared food companies and various institutional
customers such as schools, colleges and health care facilities.
The retail market includes grocery store chains, independent
grocery stores and grocery wholesalers.
The Company sells its products through independent brokers and
sales personnel of the Company. The products are distributed from
the Company's plants or storage facilities to the final customer or
distribution centers via Company-owned trucks or contract carriers.
The primary raw materials used by the Company in its operations
include raw meat, feed ingredients, cooking ingredients and
packaging supplies. The Company grows substantially all the live
chickens and turkeys used by its processing plants but also buys
live birds and processed poultry from outside sources. Beef and
pork raw materials are purchased from outside sources. The Company
believes that its sources of supply for these materials are
adequate for its present needs and does not anticipate any
difficulty in acquiring these materials in the future.
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Chicken. The Company offers a wide variety of further-processed
chicken products for convenient preparation and consumption in
homes, restaurants and institutions. The Company's principal
further-processed products are cooked and uncooked individually
frozen boneless and bone-in chicken pieces, breaded and fried
chicken breast patties, chicken breast tenderloins, chicken
nuggets, buffalo-style wings and barbecued chicken. These products
are sold nationally to club stores, foodservice and retail outlets
under the Hudson(R) and Delightful Farms(R) brand names.
In addition to further-processed products, the Company sells chill-
packed and ice-packed chicken parts and whole birds. The chill-
packed products are marketed under the Hudson(R) brand name to retail
and foodservice outlets. The ice-packed products are sold in bulk
to retail and foodservice outlets and franchisees of fast food
chains.
Portioned Entrees. The Company's portioned entree products are
sold nationally and consist of a full line of portion-controlled
products including many varieties of flame-broiled chicken, beef
and pork patties, microwaveable chicken, beef and pork sandwiches,
sausage patties and links, country-fried steak, chicken nuggets,
chicken patties, unbreaded char-broiled chicken, beef and pork
finger foods, pizza, potato skin kits, chicken fajita kits and
related products. These products are distributed to club store
chains and foodservice customers such as restaurants, employee
cafeterias, schools, colleges, universities and health-care
facilities. The Company is one of the nation's largest processors
of United States 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. The
portioned entree products are marketed under the Pierre(R) and
Hudson(R) brand names.
Luncheon Meats. The Company's luncheon meat products include a
line of further-processed meat products that are sold primarily in
the Central United States. Those products include luncheon meats,
wieners, sausage, hams, bacon and miscellaneous chicken and turkey
products. 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(R),
Schweigert(R) and Roegelein(R) brand names as well as various
private labels.
<PAGE>
Turkey. The Company offers a full line of further-processed turkey
products which includes smoked turkey, turkey sausage, turkey
pastrami, turkey salami, turkey bologna and turkey ham sold under
the Hudson(R) brand name. The Company also sells fat-free, flavored
turkey breasts under the Gourmet Recipe(R) line. The Company markets
individually packaged whole turkeys, both fresh and frozen, during
seasonal peaks under the Hudson(R) brand name and private labels.
The Company's turkey products are sold nationally primarily to
retail delicatessens, foodservice customers, retail grocery chains
and club store chains.
Beef. The Company's beef operation produces hamburger patties for
the Burger King system that are sold in retail outlets primarily in
the Midwestern United States. In addition, the Company has
agreements to supply patties to national retail and club store
outlets. (Also see "Beef" discussion in Item 2. Property.)
International Sales
The Company's products are sold internationally through sales
offices located in Rogers, Arkansas; Miami, Florida; Gdynia, Poland
and Moscow, Russia. International sales accounted for 11.6% of the
Company's total sales during fiscal 1995. The Company's products
were sold primarily in Russia, Eastern Europe, Asia and Latin
America. The majority of these sales were leg quarters to
wholesalers in Russia and Poland, but the Company also sold other
items such as hot dogs and turkey products. The loss of sales to
Russia could have a material adverse effect on the Company.
Major Customers
The Company's sales to Wal-Mart Stores, Inc. ("Wal-Mart") in fiscal
1995 constituted approximately 14.7% of total sales. No other
customer accounted for more than 10% of the Company's sales in
fiscal 1995. Sales to the Company's second largest customer, the
Burger King system, were approximately 6.7% of total sales. The
loss of either of these customers may have a material adverse
effect on the Company.
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. Although poultry is
relatively inexpensive in comparison with other meats, the Company
also competes indirectly with the producers of other meats and fish
and changes in the relative prices of these foods may affect
consumer buying patterns.
<PAGE>
The Company's portioned entree product lines compete with regional
and national meat processing companies, some of which are divisions
of fully integrated companies. The luncheon meat product lines
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 September 30, 1995, the Company employed 10,303 persons.
Generally, the Company believes that relations with its employees
are good.
ITEM 2. PROPERTY
General
The Company regularly engages in construction and other capital
improvement projects intended to expand and improve the efficiency
of its processing and support facilities. The Company's chicken
facilities were generally fully utilized in fiscal 1995. The
Company's portioned entree, luncheon meat and turkey facilities
were generally 85% to 90% utilized in fiscal 1995. The Company's
beef facility is currently producing at approximately 50% of its
capacity. (See "Beef" discussion below). The Company believes that
its facilities are generally in good condition and suitable for
their current purposes.
<PAGE>
The Company's Hope, Arkansas, Springfield, Missouri and Cincinnati,
Ohio facilities are subject to mortgages or deeds of trust.
Plants and Facilities
Chicken. The Company's chicken operations include breeding,
hatching, rearing, ingredient procurement, feed formulation and
milling, veterinary and other technical services, processing and
related transportation and delivery services. The Company
contracts with independent growers to maintain the Company's flocks
of breeder chickens which lay 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
Company trucks to its processing plants. 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, eight
broiler hatcheries and four protein facilities.
The Company's current processing volume is approximately 5.3
million chickens per week. During fiscal 1995 the Company
processed approximately 4.6 million chickens per week, yielding
approximately 863.0 million pounds of chicken products for the
year.
The Company is currently building an integrated chicken processing
complex near Henderson, Kentucky. When completed, the complex will
include a feed mill, hatchery, processing plant and protein plant.
The Henderson plant is expected to begin production in the summer
of 1996, with initial production averaging 325,000 chickens per
week. When the Henderson plant reaches full capacity, scheduled
for 1997, its production is expected to average 1.3 million
chickens per week.
Portioned Entrees. The Company produces its portioned entree
products at plants in Cincinnati, Ohio and Caryville, Tennessee
which have annual production capacity of approximately 100 million
pounds. During fiscal 1995, the Company produced approximately 85
million pounds of portioned entree products.
<PAGE>
Luncheon Meats. The Company produces luncheon meats, wieners,
sausage, and miscellaneous cooked chicken and turkey products at
two plants, one in Topeka, Kansas, and one in Albert Lea,
Minnesota. All ham and bacon products 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. During fiscal 1995, the Company produced
approximately 152 million pounds of luncheon meat products. The
Company has entered into a letter of intent that anticipates the
sale of the Topeka plant and has announced plans to close the
Wichita plant. See Item 1. Business. General Development of
Business.
Turkey. The Company is a fully integrated turkey processor. The
Company's turkey operations include similar processes as discussed
above for chicken. The Company operates two turkey processing
facilities in Springfield, Missouri. One is a basic processing
plant and the other is a further-processing plant. These
facilities have an annual production capacity of 170 million
pounds. During fiscal 1995, the Company produced approximately 146
million pounds of turkey products. In addition, the Company
operates one feed mill and two hatcheries.
Beef. The Company completed the construction of a hamburger
processing plant in Columbus, Nebraska in February 1995. The annual
plant capacity is approximately 190 million pounds. During the
eight months the plant was in production in fiscal 1995, it
produced approximately 32 million pounds. The plant was originally
designed to process hamburger patties primarily for the Burger King
system. However, the plant size was subsequently expanded to allow
for additional capacity to serve other customers. The Burger King
system has committed to purchase, for a multi-year period,
approximately one-third of the capacity of the plant and has an
option to buy more. Sales to the Burger King system are made based
on a formula price plus raw material costs. The plant also
processes patties and chubs for national retail and club store
outlets and has recently obtained contracts to produce 40 million
pounds in the next twelve to fourteen months. That new business
should raise the plant production from its current level of 50% of
capacity to approximately 70% by the end of the first quarter of
fiscal 1996. In addition, the Company is a minority co-investor
with the Burger King Corporation and SBS Processing, Inc. in a
similar hamburger processing plant in Petersburg, Virginia.
Other. The Company has a feed mill and an egg breaking plant in
Social Circle, Georgia that produces liquid and dried egg products.
<PAGE>
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, New Albany 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, a permanent 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. The
Company has reached an agreement in principle with the United
States Department of Justice to settle the litigation without
admission of any violation. The agreement has not been finalized
and submitted to the District Court for entry. However, the
Company believes that if the final agreement is consistent with the
agreement in principle, the outcome will not have a material
adverse effect on the Company's consolidated financial position or
results of operations.
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 December 1,
1995, there were 21,346,824 shares of Class A common stock issued
(including 876,251 shares held in treasury) and 9,602,672 shares of
Class B common stock issued and outstanding. The Transfer Agent
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and Registrar for both classes of common stock is Chemical Mellon
Shareholder Services 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 with 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.
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 December 1, 1995, the 20,470,573 shares of Class A common stock
then outstanding were held by approximately 1,405 holders of record
(excluding persons holding shares in nominee names).
<PAGE>
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 1994*
First Quarter 9 7 1/8
Second Quarter 11 1/8 7 3/8
Third Quarter 12 1/4 8 1/2
Fourth Quarter 16 3/4 11 7/8
Fiscal 1995
First Quarter* 17 7/8 13 7/8
Second Quarter* 20 16 3/4
Third Quarter 19 1/4 12 3/4
Fourth Quarter 15 1/2 13 1/4
Fiscal 1996
First Quarter (through December 13, 1995) 17 1/4 13 5/8
*Prices adjusted to reflect a 3-for-2 stock split effective
March 27, 1995.
</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 December 1, 1995, 9,602,672 shares of Class B
common stock were outstanding; these shares were held by
approximately 19 holders of record. James T. Hudson beneficially
owns 99.9 percent of the outstanding Class B common stock.
On November 21, 1994, the Company sold 2.5 million shares of newly
issued Class A common stock at $21.75 per share in a public stock
offering. The Company received $20.72 per share, or $51.8 million
from the offering. The underwriters' fee accounted for the
difference of $1.03 per share. Also, certain stockholders of the
Company sold 2.1 million shares of Class A common stock at $21.75
per share.
On March 27, 1995, the Company issued 6.7 million shares of Class A
common stock and 3.2 million shares of Class B common stock in a
three-for-two stock split, effected as a stock dividend.
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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 the 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 $13.6 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.
The conversions resulted in decreases in long-term debt and
increases in stockholders' equity in fiscal 1994 and fiscal 1995.
<PAGE>
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 $.02 per share of Class A common stock and $.0167 per
share of Class B common stock (dividend payments have been
adjusted to reflect a 3- for-2 stock split effective March 27,
1995). 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 $2.8 million in any fiscal year.
ITEM 6. SELECTED FINANCIAL DATA.
Incorporated by reference from the section captioned "Eleven-Year
Financial Summary," pages 30 and 31 of the Hudson Foods, Inc. 1995
Annual Report (the "1995 Annual Report").
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Incorporated by reference from the sections captioned "Discussion
of Operations," "Discussion of the Balance Sheet" and "Discussion
of Cash Flows," pages 16, 17, 19 and 21 of the 1995 Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Incorporated by reference from the sections captioned "Consolidated
Statement of Operations," "Consolidated Balance Sheet,"
"Consolidated Statement of Cash Flows," "Notes to Consolidated
Financial Statements," "Quarterly Financial Data (Unaudited)," and
"Report of Independent Accountants," pages 16, 18, 20, 22-27, 29
and 32 of the 1995 Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
Not applicable.
<PAGE>
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 9, 1996 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.
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.
The following consolidated financial statements of Hudson
Foods, Inc. and Subsidiaries have been incorporated by
reference from the 1995 Annual Report into Part II, Item
8 of this Report.
Description
Consolidated Statement of Operations
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Accountants
<PAGE>
2. Financial statement schedules.
Schedule No. Description Page
II Valuation and Qualifying Accounts 14
N/A Report of Independent Accountants 15
3. Exhibits required by Item 601 of Regulation S-K.
Exhibit No. Description
3a Restated certificate of incorporation of Hudson
Foods, Inc.(1)
3b Restated by-laws of Hudson Foods, Inc., as
amended to date(2)
4a 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(3)
10b Form of Hudson Foods Stock Option Agreement(4)
10c Form of Hudson Farms Turkey Growing Contract(4)
10d Form of Hudson Farms Broiler Growing Contract(4)
10e 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(5)
10f Hudson Foods, Inc. Note Purchase Agreement dated as of
May 18, 1994, $50,000,000 Fixed Rate Senior Notes,
Guaranteed by Hudson Farms, Inc.(5)
10g Purchase and Supply Agreement, dated October 12, 1994
between Hudson Foods, Inc. and Boston Chicken, Inc.(6)
10h Supplier Agreement, dated April 26, 1994, between
Hudson Foods, Inc. and Restaurant Services, Inc.,
as purchasing agent for the Burger King System(6)
11 Computation of Earnings Per Share
13 Annual Report to Shareholders
<PAGE>
21 Subsidiaries of Hudson Foods, Inc.
23 Consent of Independent Accountants
27 Financial Data Schedule
(b) Reports on Form 8-K.
The Company filed no Current Reports on Form 8-K during the
fourth quarter of fiscal 1995.
(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-8
Registration Statement No. 33-27738, as amended, filed with the
Securities and Exchange Commission on March 23, 1989.
(4) 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.
(5) 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.
(6) Incorporated by reference from Hudson Foods, Inc., Form 8-K
Current Report dated October 13, 1994, filed with the Securities
and Exchange Commission on October 13, 1994.
<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.
December 19, 1995 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.
December 19, 1995 By /s/ James T. Hudson
James T. Hudson
Chairman of the Board,
Chief Executive Officer and Director
December 19, 1995 By /s/ Michael T. Hudson
Michael T. Hudson
President, Chief Operating Officer
and Director
December 19, 1995 By /s/ Charles B. Jurgensmeyer
Charles B. Jurgensmeyer
Principal Financial and
Accounting Officer and Director
December 19, 1995 By
Elmer W. Shannon
Director
December 19, 1995 By
Jerry L. Hitt
Director
December 19, 1995 By
Kenneth N. May
Director
December 19, 1995 By /s/ James R. Hudson
James R. Hudson
Director
December 19, 1995 By /s/ Jane M. Helmich
Jane M. Helmich
Director
<PAGE>
HUDSON FOODS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the Three Years in the Period Ended September 30, 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- --------------------------------------------------------------------------------
Additions
Balance at Charged to Charged to Balance at
beginning costs and other end of
Description of period expenses accounts Write Offs period
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts:
Year ended
September 30, 1995 $1,463 $707 $16(1) $(411) $1,775
=========================================================
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
=========================================================
(1) Collections of previously charged off amounts.
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Hudson Foods, Inc.
Our report on the consolidated financial statements of Hudson
Foods, Inc. has been incorporated by reference in this Form 10-K
from page 29 of the 1995 Annual Report to Shareholders of Hudson
Foods, Inc. In connection with our audits of such financial
statements, we have also audited the related financial statement
schedule on page 14 of this Form 10-K.
In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken
as a whole, presents fairly, in all material respects, the
information required to be included therein.
Coopers & Lybrand L.L.P.
Tulsa, Oklahoma
October 31, 1995
<PAGE>
EXHIBIT 11
HUDSON FOODS, INC. AND SUBSIDIARIES
CALCULATION OF EARNINGS PER SHARE
(In thousands except per share data)
Twelve Months Ended
September 30, October 1,
1995 1994
[S] [C] [C]
Net income $35,758 $26,992
=======================================================================
PRIMARY EARNINGS PER SHARE:
Weighted average number of common
shares outstanding 29,124 24,399
Common stock equivalents:
Dilutive options 370 549
------- -------
Weighted average number of common
and common equivalent shares 29,494 24,948
======= =======
Primary earnings per share $1.21 $1.08
=======================================================================
FULLY DILUTED EARNINGS PER SHARE:
Weighted average number of common
shares outstanding 29,124 24,399
Common stock equivalents:
Dilutive options 370 700
------- ------
Weighted average number of common
and common equivalent shares 29,494 25,099
======= ======
Fully diluted earnings per share $1.21 $1.08
=======================================================================
<PAGE>
Exhibit 13
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF OPERATIONS
For the Years Ended September 30, October 1, October 2,
(Dollars in thousands except 1995 1994 1993
per share data)
<S> <C> <C> <C>
Sales $1,200,512 $1,040,840 $920,545
Cost of sales 1,023,959 885,248 802,002
----------- ----------- ---------
Gross profit 176,553 155,592 118,543
Selling 82,945 78,698 63,926
General and administrative 29,211 25,755 20,695
----------- ----------- ---------
Operating income 64,397 51,139 33,922
----------- ----------- ---------
Other expense (income):
Interest, net 1,845 6,152 7,975
Interest on tax settlement 4,500 -- --
Other, net (2,190) -- 530
----------- ----------- ---------
Total other expense 4,155 6,152 8,505
----------- ----------- ---------
Income before income taxes 60,242 44,987 25,417
Income tax expense 24,484 17,995 9,512
----------- ----------- ---------
Net income $ 35,758 $ 26,992 $ 15,905
=========== =========== =========
Earnings per share*:
Primary $1.21 $1.08 $0.67
Fully diluted $1.21 $1.08 $0.67
=========== =========== =========
*Reflects 3-for-2 stock split distributed on March 27,1995
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
DISCUSSION OF OPERATIONS
1995 VS. 1994.
Sales from the Company's operations were $1.2 billion for fiscal
1995, an increase of $159.7 million, or 15.3%, over fiscal 1994. The
sales increase primarily resulted from the following:
* Chicken sales increased 21.5% to $648.3 million in fiscal 1995 from
$533.4 million in fiscal 1994 primarily due to a 25.2% increase in
volume partially offset by a 2.9% decrease in selling prices. The volume
increase was essentially due to increased sales in international
markets, especially Russia, and increased domestic consumer demand for
chicken products. International sales were 11.6% and 5.8% of fiscal
1995 and 1994 sales, respectively.
* Portioned entree sales decreased 2.4% to $171.4 million in fiscal
1995 from $175.5 million in fiscal 1994 primarily due to a 3.8% decrease
in selling prices slightly offset by a 1.5% increase in volume.
portioned entrees experienced some changes in its customer base and
product lines that caused overall selling prices to decline.
* Luncheon meat sales decreased 3.5% to $159.0 million in fiscal 1995
from $164.7 million in fiscal 1994 primarily due to a 9.9% decrease in
selling prices offset by a 7.1% increase in volume.
* Turkey sales increased 28.2% to $145.1 million in fiscal 1995 from
$113.2 million in fiscal 1994 primarily due to a 22.0% increase in
volume and a 5.1% increase in selling prices.
* Beef sales were $37.3 million in fiscal 1995. The Company's
hamburger plant in Columbus, Nebraska, began production in February
1995.
Cost of sales was $1.0 billion for fiscal 1995, an increase of
$138.7 million, or 15.7%, over fiscal 1994. As a percentage of sales,
cost of sales increased to 85.3% in fiscal 1995 from 85.1% in fiscal
1994. The increase primarily resulted from higher processing costs due
to increased sales of further-processed products and decreases in
selling prices discussed earlier. The increase was offset somewhat by an
8.8% decrease in feed costs per ton.
Gross profit was $176.6 million in fiscal 1995, an increase of
$21.0 million, or 13.5%, over fiscal 1994.
Selling and general and administrative expenses were $112.2 million
in fiscal 1995, an increase of $7.7 million, or 7.4%, over fiscal 1994.
As a percentage of sales, selling and general and administrative
expenses decreased to 9.3% in fiscal 1995 from 10.0% in fiscal 1994.
Operating income was $64.4 million in fiscal 1995, an increase of
$13.3 million, or 25.9%, over fiscal 1994. The increase was primarily
due to the improvements in the Company's operations described
previously.
Interest expense decreased primarily due to the conversion and
redemption of the 8% convertible subordinated debentures, increased
capitalized interest on construction in progress and increased interest
income on the short-term investment of excess cash.
During the second quarter of fiscal 1995, based on the Company's
best estimate of the final tax and interest due resulting from an
Internal Revenue Service examination settlement, the Company recorded
$0.5 million of tax expense and $4.5 million of interest expense.
<PAGE>
Other income for fiscal 1995 was primarily composed of insurance
proceeds received in excess of the book value of assets destroyed by
fire.
1994 VS. 1993.
Sales from the Company's operations were $1.04 billion for fiscal
1994, an increase of $120.3 million, or 13.1%, over fiscal 1993. The
sales increase resulted primarily 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 improved operating efficiencies and product mix
changes. 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.
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.
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.
<PAGE>
GENERAL.
Historically, the Company's operating results have been heavily
influenced by two factors: the cost of feed grains and commodity-based
finished product prices. These two factors have fluctuated significantly
and independently. In recent years the Company has undertaken a business
strategy to increase the production and sale of further-processed
products and increase sales to large customers such as club store and
foodservice chains. In 1995, one customer accounted for approximately
14.7% of total sales. This strategy decreased the proportion of feed
grain costs 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 price fluctuations.
Even so, a material increase in feed costs or a material decrease in
finished product prices could have an adverse effect on the Company, but
management believes that the implementation of this strategy has reduced
the Company's vulnerability to such price fluctuations.
The Company believes that its operations are in substantial
compliance with applicable environmental laws and regulations.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
September 30, October 1,
(Dollars in thousands) 1995 1994
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,159 $ 1,899
Receivables:
Trade 82,461 66,490
Other 392 481
----------- ---------
82,853 66,971
Less allowance for doubtful accounts 1,775 1,463
----------- ---------
81,078 65,508
Inventories 177,055 135,501
Other 36,313 12,073
----------- ---------
Total current assets 296,605 214,981
Property, plant and equipment, net 275,624 229,050
Excess cost of investment over net
assets acquired, net 14,682 15,244
Other assets 36,630 13,905
----------- ---------
Total assets $623,541 $473,180
=========== =========
<PAGE>
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable $ 12,300 $ 16,800
Current portion of long-term obligations 8,742 5,109
Accounts payable 47,676 41,188
Accrued liabilities 44,590 40,581
Deferred income taxes (Note 7) 2,839 11,207
----------- ---------
Total current liabilities 116,147 114,885
----------- ---------
Long-term obligations 129,973 75,169
----------- ---------
Deferred income taxes and
deferred gain (Notes 7 and 9) 73,072 73,937
----------- ---------
Commitments and contingencies (Note 9)
Stockholders' equity:
Common stock:
Class A, $.01 par value, issued
21,331,374 and 9,233,893 shares 213 92
Class B, $.01 par value, issued
and outstanding 9,602,672 and
8,501,882 shares 96 85
Additional capital 158,842 97,505
Retained earnings 156,432 122,923
----------- ---------
315,583 220,605
Treasury stock, at cost (915,438 and
933,854 Class A shares) (11,234) (11,416)
----------- ---------
Total stockholders' equity 304,349 209,189
----------- ---------
Total liabilities and stockholders' equity $623,541 $473,180
=========== =========
The accompanying notes are an integral part of the consolidated
financial statements.
</TABLE>
<PAGE>
DISCUSSION OF BALANCE SHEET
Working capital at September 30, 1995 was $180.5 million compared
with $100.1 million at October 1, 1994 and the current ratio was 2.55 to
1 and 1.87 to 1 at September 30, 1995 and October 1, 1994, respectively.
Receivables and inventories increased primarily due to increased
sales, especially in international markets. Other current assets
increased primarily due to the recording of an insurance claim
receivable for fire losses and increased prepaid marketing expenses.
Other assets increased primarily due to loan proceeds being held by a
trustee for a capital project. Current deferred income taxes decreased
due to the payment of previously recorded deferred taxes and increases
in current deferred tax assets.
The Company's total capitalization, as represented by long-term
obligations plus stockholders' equity, was $434.3 million on September
30, 1995, compared with $284.4 million on October 1,1994. Long-term
obligations represented 29.9% and 26.4% of total capitalization on
September 30, 1995 and October 1, 1994, respectively.
The Company had $12.3 million of notes payable due under its
unsecured credit agreements at September 30, 1995 compared with $16.8
million on October 1, 1994. Total long-term obligations and current
portion of longterm obligations increased $58.4 million due to the net
effect of the following: 1) proceeds received on a $50.0 million loan
from an insurance company; 2) proceeds received on a $25.0 million loan
from the county of Henderson, Kentucky; 3) $3.8 million of 8%
convertible subordinated debentures that were redeemed and $5.5 million
that were converted into Class A common stock; 4) a $1.1 million debt
prepayment; and 5) normal debt payments.
Common stock and additional capital increased $61.5 million to
$159.2 million at September 30, 1995 from $97.7 million at October 1,
1994. The increase primarily resulted from the issuance of 2.5 million new
shares of Class A common stock sold in a public stock offering on
November 21, 1994, and the conversion of $5.5 million of 8% convertible
subordinated debentures into common stock. Additionally, during the
second quarter of fiscal 1995, the Company issued 6.7 million shares of
Class A common stock and 3.2 million shares of Class B common stock in a
three-for-two stock split, effected as a stock dividend.
In February 1995, the Company reached an agreement with the
Internal Revenue Service regarding the examination of the 1989 and 1990
Federal income tax returns. Based on management's best estimate of the
final outcome of the examination, the Company recorded $0.5 million of
tax expense and accrued $4.5 million of interest expense attributable to
taxes due for the years under audit and the effect of the audit on all
subsequent tax years. During the third quarter of fiscal 1995, the
Company made a $15.0 million advance payment of the estimated tax and
interest due under the settlement and the effect of the settlement on
all subsequent years. The advance payment was applied as follows: $4.5
million to the interest accrued in the second quarter and $10.5 million
to deferred income taxes payable. Total taxes due under the settlement
have not been finalized, but management believes the liability will be
substantially less than the IRS assessment. Management anticipates that
the final calculation of the liability will be completed in fiscal 1996.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Years Ended September 30, October 1, October 2,
(Dollars in thousands) 1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating
activities:
Net income $ 35,758 $ 26,992 $15,905
Non-cash items included in net income:
Depreciation 24,084 21,246 21,629
Amortization 1,053 1,033 1,314
Deferred income taxes 4,637 209 171
Other (2,777) (2,777) (1,004)
Changes in assets and liabilities:
Trade and other receivables (15,570) (8,056) (10,667)
Inventories (41,554) (19,004) (8,461)
Accounts payable 6,488 9,633 1,430
Accrued liabilities 4,423 11,814 12,021
Other (35,261) (4,798) (3,331)
---------- --------- --------
Cash flows provided by (used for)
operating activities (18,719) 36,292 29,007
---------- --------- --------
Cash flows from investing activities:
Purchase of property, plant
and equipment (73,314) (49,161) (21,453)
Disposition of property, plant and
equipment, net 3,828 4,271 1,262
Funds held by trustee for capital
project (16,926) -- --
Proceeds from sale-leaseback
agreements (Note 9) -- -- 19,167
Acquisitions of businesses -- -- (825)
Other (5,427) (4,407) 523
---------- --------- --------
Cash flows used for investing
activities (91,839) (49,297) (1,326)
---------- --------- --------
<PAGE>
Cash flows from financing activities:
Additions (reductions) to
notes payable (4,500) 16,800 (15,000)
Additions to long-term obligations 75,000 -- 3,370
Reductions of long-term obligations (11,021) (5,635) (15,769)
Sale of Class A common stock 51,264 -- --
Dividends (2,249) (1,796) (1,706)
Exercise of stock options and other 2,324 1,644 1,366
---------- --------- --------
Cash flows provided by (used for)
financing activities 110,818 11,013 (27,739)
---------- --------- --------
Increase (decrease) in cash and
cash equivalents 260 (1,992) (58)
Cash and cash equivalents at
beginning of period 1,899 3,891 3,949
---------- --------- --------
Cash and cash equivalents at
end of period $ 2,159 $ 1,899 $ 3,891
========== ========= ========
Supplemental disclosure of cash
flow information:
Cash paid during the year for:
Interest, net of amounts
capitalized $ 7,111 $ 6,321 $ 7,090
Income taxes $ 32,210 $ 13,300 $ 7,299
========== ========= ========
The accompanying notes are an integral part of the consolidated
financial statements.
</TABLE>
<PAGE>
DISCUSSION OF CASH FLOWS
The Company's cash flows used for operating activities was $18.7
million for fiscal 1995 compared with cash flows provided by operations
of $36.3 million for fiscal 1994. The decrease was primarily due to
increases in operating assets and a $10.5 million decrease in deferred
income taxes resulting from the payment of taxes due as a result of an
Internal Revenue Service examination.
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
$100.0 million unsecured credit agreement that expires June 30, 1998. At
September 30, 1995, the Company had $91.6 million available under this
agreement. The Company did not have any notes payable outstanding under
the agreement but had $8.4 million in outstanding letters of credit. 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 requires
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 occur if the aggregate outstanding voting power of James T.
Hudson and his immediate family is reduced below 51%.
Also, the Company has entered into four separate unsecured short-
term credit agreements with financial institutions giving the Company
the right to borrow up to $10.0 million each from three institutions and
$15.0 million from one institution. At September 30, 1995, the Company
had $12.3 million of notes payable outstanding under these agreements.
On March 2, 1995, the county of Henderson, Kentucky, issued solid
waste disposal tax-exempt revenue bonds and loaned the $25.0 million
proceeds to the Company. The proceeds are to be used to finance the
construction of solid waste disposal and sewage facilities at the
Company's new chicken complex being built near Henderson, Kentucky. The
bonds, as initially issued, accrue interest at weekly rates and mature
on March 1, 2015. The rate at issue was 3.80% and is currently 4.10%.
On June 13, 1995, the Company borrowed $50.0 million under an
unsecured term loan agreement from an insurance company at a fixed
interest rate of 6.90% to mature June 1, 2005. Covenants under the loan
agreement are consistent with those required by the $100.0 million
unsecured credit agreement.
For fiscal 1995 and 1994, the Company had capital expenditures of
$73.3 million and $49.2 million, respectively. Due to the level of
capital expenditures for fiscal 1995, the Company was required to obtain
waivers of debt covenants from certain lenders. Capital expenditures,
for fiscal 1995, were for the construction of a beef processing plant in
Columbus, Nebraska, the beginning of construction of a chicken complex
near Henderson, Kentucky, and the expansion and/or upgrading of existing
production facilities and related equipment. The beef processing plant
began production in February 1995 and the Kentucky chicken complex is
expected to begin production in 1996.
<PAGE>
The Company's capital budget for fiscal 1996 contemplates aggregate
capital expenditures of approximately $100.0 million for the completion
of the chicken complex in Kentucky and upgrading and/or expanding
current production facilities and related equipment. The capital
expenditures have been and will continue to be financed by operations,
borrowings, lease arrangements and the issuance of common stock.
On October 4, 1995, the Company entered into a letter of intent to
sell its Topeka, Kansas, luncheon meats processing facility along with
the related Ohse and Roegelein brand names. Additionally, the Company
intends to close its Wichita, Kansas, luncheon meats processing facility
no later than January 13, 1996. The plants being sold or closed are
responsible for about $110.0 million in sales. The Company does not
expect that these transactions will materially impact its financial
position or results of operations.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 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 September
30, 1995 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
$18,944,000 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 and Major Customers.
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 1995, 1994 and 1993, one customer accounted for
approximately 14.7%, 17.7% and 17.9% of consolidated sales,
respectively. The Company sells certain of its products in foreign
markets, primarily Russia, eastern Europe, Asia, and Central America.
The Company's foreign sales for fiscal 1995, 1994 and 1993 were 11.6%,
5.8% and 3.0% of total sales, respectively.
<PAGE>
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 $4,487,000, $1,702,000 and $1,467,000 were capitalized
during 1995, 1994 and 1993, 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.
Excess Cost of Investment Over Net Assets Acquired.
The excess cost of investment over net assets acquired is being
amortized over periods ranging from 33 to 40 years and is evaluated
annually for impairment based on estimated undiscounted cash flows of
the acquired entities. Accumulated amortization was $4,758,000 and
$4,244,000 at September 30, 1995 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. Under SFAS 109, deferred income tax assets and liabilities
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.
Stock Split.
On March 27, 1995, the Company distributed a three-for-two stock
split in the form of a stock dividend. All shares outstanding and per
share data have been adjusted to reflect the stock split.
Fiscal Year.
The Company utilizes a 52-53 week accounting period which ends on
the Saturday closest to September 30.
<PAGE>
NOTE 2. INVENTORIES
<TABLE>
<CAPTION>
Sept. 30, Oct. 1,
(Dollars in thousands) 1995 1994
<S> <C> <C>
Field inventory - broilers
and breeder stock $ 33,493 $ 29,248
Field inventory - turkeys
and breeder stock 11,610 10,432
Feed, eggs and other 30,441 21,581
Finished products 101,511 74,240
-------- --------
Total $177,055 $135,501
======== ========
</TABLE>
<TABLE>
<CAPTION>
NOTE 3. PROPERTY, PLANT AND EQUIPMENT
Sept. 30, Oct. 1,
(Dollars in thousands) 1995 1994
<S> <C> <C>
Land $ 13,579 $ 10,644
Buildings and improvements 190,945 165,482
Machinery and equipment 145,550 131,433
Construction in progress 63,129 42,027
-------- --------
413,203 349,586
Less accumulated depreciation 137,579 120,536
-------- --------
Total $275,624 $229,050
======== ========
</TABLE>
NOTE 4. FINANCING ARRANGEMENTS
The Company's line of credit agreement (the "Agreement"), which
expires June 30, 1998, provides for aggregate borrowings or letters of
credit up to $100 million. At September 30, 1995, the Company had issued
$8.4 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 requires 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 Agreement to $20.0 million. At
September 30, 1995, $91.6 million was unused under the Agreement.
<PAGE>
In addition, the Company has entered into four separate unsecured
short-term credit agreements with financial institutions giving the
Company the right to borrow up to $10.0 million each from three
institutions and $15.0 million from one institution. At September 30,
1995, the Company had $12.3 million of notes payable outstanding under
these agreements.
NOTE 5. ACCRUED LIABILITIES
<TABLE>
<CAPTION>
Sept. 30, Oct. 1,
(Dollars in thousands) 1995 1994
<S> <C> <C>
Payroll and benefits $28,223 $25,173
Income, property and other taxes 2,605 2,455
Interest 625 339
Other 13,137 12,614
------- -------
Total $44,590 $40,581
======= =======
</TABLE>
NOTE 6. LONG-TERM OBLIGATIONS
<TABLE>
<CAPTION>
Sept. 30, Oct. 1,
(Dollars in thousands) 1995 1994
<C> <S> <C>
6.90% Notes payable to an insurance
company due June 1, 2005 $ 49,124 $ --
Tax-exempt floating rate bonds
(4.10% at Sept. 30, 1995) due
March 1, 2015 25,000 --
8.99% Note payable to an insurance
company due March 15, 1998 14,504 15,302
9.99% Notes payable to an insurance
company due April 12, 1997 15,000 15,000
7.62% Note payable to an insurance
company due Sept. 1, 2002 11,459 13,084
9.95% Note payable to a bank
due June 30, 1999 6,700 7,250
7.20%-7.64% Notes payable to
a bank due Sept. 1, 2002 7,084 8,084
7.68% Note payable to an insurance
company due Sept. 1, 2002 4,375 5,000
8.14% Note payable to an insurance
company due March 15, 1998 4,740 4,980
8% Convertible Subordinated
Debentures due 2006 -- 9,279
Other - 7%-9% Notes payable in
various maturities through 2002 729 2,299
-------- -------
Total 138,715 80,278
======== =======
<PAGE>
Less current portion of
long-term obligations 8,742 5,109
-------- -------
Long-term obligations $129,973 $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. In fiscal
1995, the Company converted an additional $5.5 million of the debentures
into 263,837 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 September 30, 1995,
including current portion, is estimated to be approximately $141.2
million.
At September 30, 1995, the aggregate amount of long-term
obligations which will become due during each of the next five fiscal
years is as follows: $8,742,000 in 1996; $24,077,000 in 1997;
$24,996,000 in 1998; $12,920,000 in 1999; and $8,190,000 in 2000.
NOTE 7. INCOME TAXES
Consolidated income tax expense for each of the three years in the
period ended September 30, 1995 consists of the following:
<TABLE>
<CAPTION>
For the Years Ended Sept. 30, Oct. 1, Oct. 2,
(Dollars in thousands) 1995 1994 1993
<S> <C> <C> <C>
Current provision:
Federal $17,620 $16,067 $8,323
State 2,227 1,719 1,019
Deferred provision:
Federal 4,250 306 168
State 387 (97) 2
------- -------- ------
Total income tax expense $24,484 $17,995 $9,512
======= ======== ======
</TABLE>
<PAGE>
Reconciliations of the statutory federal income tax rate with the
effective income tax rate for each of the three years in the period
ended September 30, 1995 are as follows:
<TABLE>
<CAPTION>
For the Years Ended Sept. 30, Oct. 1, Oct. 2,
1995 1994 1993
<S> <C> <C> <C>
Federal income tax rate 35.0% 35.0% 34.8%
State income taxes,
net of federal benefit 3.1 2.7 3.6
Jobs/research tax credit (0.7) (0.7) (2.1)
Other 3.2 3.0 1.1
------ ------ -----
Effective income tax rate 40.6% 40.0% 37.4%
====== ====== =====
</TABLE>
An analysis of the Company's net current and long-term deferred
tax liabilities (assets) at September 30, 1995 and October 1, 1994 is
as follows:
<TABLE>
<CAPTION>
Sept. 30, Oct. 1,
(Dollars in thousands) 1995 1994
<S> <C> <C>
Current:
Inventory $ 9,568 $15,057
Allowance for doubtful accounts (682) (563)
Accrued liabilities (6,297) (3,037)
Other 250 (250)
-------- --------
Total current deferred
income taxes $ 2,839 $11,207
======== ========
Long-term:
Property, plant and equipment $27,963 $27,124
Change from the cash basis
to the accrual basis of
accounting in 1988 for the
"Family Farm" subsidiaries 38,315 38,159
Other 2,617 1,700
-------- -------
Total long-term deferred
income taxes $68,895 $66,983
======== =======
</TABLE>
<PAGE>
In February 1995, the Company reached an agreement with the Internal
Revenue Service regarding the examination of the 1989 and 1990
Federal income tax returns. Based on management's best estimate of the
final outcome of the examination, the Company recorded $0.5 million of
tax expense and accrued $4.5 million of interest expense attributable to
taxes due for the years under audit and the effect of the audit on all
subsequent tax years. During the third quarter of fiscal 1995, the
Company made a $15.0 million advance payment of the estimated tax and
interest due under the settlement and the effect of the settlement on
all subsequent years. The advance payment was applied as follows: $4.5
million to the interest accrued in the second quarter and $10.5 million
to deferred income taxes payable. Total taxes due under the settlement
have not been finalized, but management believes the liability will be
substantially less than the IRS assessment. Management anticipates that
the final calculation of the liability will be completed in fiscal 1996.
NOTE 8. EMPLOYEE BENEFIT AND COMPENSATION PLANS
Stock Option Plan.
The 1985 Stock Option Plan (the "Option Plan"), as amended,
reserves 1,800,000 and 450,000 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 September 30, 1995,
reflecting the 3-for-2 stock split which was distributed on March 27,
1995, is as follows:
<TABLE>
<CAPTION>
Number of
Number Option price shares
of shares per share exercisable
<S> <C> <C> <C>
Outstanding at
10/3/92 1,162,032 $3.37-$8.21 889,658
==========
Granted 516,975 $5.04-$7.13
Exercised (253,209) $3.37-$7.00
Cancelled (64,425) $4.63-$6.67
----------
Outstanding at
10/2/93 1,361,373 $4.63-$8.21 854,091
==========
<PAGE>
Granted -- --
Exercised (322,394) $4.67-$8.21
Cancelled (6,525) $4.75-$7.00
----------
Outstanding at
10/1/94 1,032,454 $4.63-$7.13 723,464
==========
Granted -- --
Exercised (484,980) $4.63-$6.67
Cancelled (9,000) $4.75-$5.04
----------
Outstanding at
9/30/95 538,474 $4.63-$7.13 344,284
========== ==========
</TABLE>
Employee Stock Purchase Plan.
The Company's 1990 Employee Stock Purchase Plan (the "Purchase
Plan") makes available to eligible employees a means of purchasing up to
1,500,000 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 $1,393,000 in 1995; $1,168,000 in 1994; and $919,000 in 1993.
NOTE 9. COMMITMENTS AND CONTINGENCIES
The Company leases transportation and delivery equipment, poultry
farms, processing equipment and distribution facilities under operating
leases expiring during the next seven 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 September 30, 1995 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" ($4,177,000 and $6,954,000,
respectively).
Total rental expense (net of amortized gain) was $28,378,000 in
1995; $23,042,000 in 1994; and $20,603,000 in 1993.
<PAGE>
At September 30, 1995, future minimum rental payments required
under leases that have initial or remaining noncancellable terms in
excess of one year are as follows: $26,996,000 in 1996; $24,900,000 in
1997; $19,710,000 in 1998; $15,135,000 in 1999; and $10,553,000 in 2000.
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.
The Company is involved in litigation incidental to its business.
Such litigation is not considered by management to be significant.
NOTE 10. RELATED PARTY TRANSACTIONS
Lease payments for transportation equipment made to the Company's
chairman amounted to $1,708,000 in 1995; $956,000 in 1994; and $936,000
in 1993.
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
$803,000 in 1995; $689,000 in 1994; and $651,000 in 1993.
At September 30, 1995 and October 1, 1994, other current assets
include $216,000 and $217,000, respectively, and other assets include
$6,084,000 and $3,933,000, respectively, of accounts and notes
receivable from an officer and director and entities controlled by this
person.
NOTE 11. SUBSEQUENT EVENT
On October 4, 1995, the Company entered into a letter of intent to
sell its Topeka, Kansas, luncheon meats processing facility along with
the related Ohse and Roegelein brand names. Additionally, the Company
intends to close its Wichita, Kansas, luncheon meats processing facility
no later than January 13, 1996.
<PAGE>
NOTE 12. STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Dollars in thousands) Common stock
------------------------------------
Class A Class B
------------------------------------
Shares Amount Shares Amount
------------------------------------
<S> <C> <C> <C> <C>
Balance at October 3, 1992 6,428,947 $ 64 8,503,052 $85
Net income -- -- -- --
Stock exchange 1,000 -- (1,000) --
Exercise of stock options 168,805 2 -- --
Contingent payment
for 1990 acquisition 35,603 -- -- --
Conversion of 14% debentures 1,996,052 20 -- --
Issuance of stock under the
Employee Stock Purchase Plan -- -- -- --
Cash dividends*:
Class A $.080 per share -- -- -- --
Class B $.067 per share -- -- -- --
------------------------------------
Balance at October 2, 1993 8,630,407 86 8,502,052 85
Net income -- -- -- --
Stock exchange 170 -- (170) --
Exercise of stock options 214,928 2 -- --
Conversion of 8% debentures 388,388 4 -- --
Issuance of stock under the
Employee Stock Purchase Plan -- -- -- --
Cash dividends*:
Class A $.080 per share -- -- -- --
Class B $.067 per share -- -- -- --
------------------------------------
Balance at October 1, 1994 9,233,893 92 8,501,882 85
Net income -- -- -- --
Stock exchange 2,101,102 21 (2,101,102) (21)
Exercise of stock options 422,455 4 -- --
Conversion of 8% debentures 262,885 3 952 --
Stock offering 2,500,000 25 -- --
3-for-2 stock split 6,653,539 66 3,200,940 32
Purchase of land 157,500 2 -- --
Issuance of stock under the
Employee Stock Purchase Plan -- -- -- --
Cash dividends*:
Class A $.080 per share -- -- -- --
Class B $.067 per share -- -- -- --
------------------------------------
Balance at September 30, 1995 21,331,374 $213 9,602,672 $96
====================================
*Reflects 3-for-2 stock split distributed on March 27, 1995
<PAGE>
Additional Retained Treasury
capital earnings stock
- -----------------------------
<C> <C> <C>
$ 62,478 $83,528 $(11,825)
-- 15,905 --
-- -- --
1,193 -- --
(825) -- --
24,777 -- --
15 -- 191
-- (856) --
-- (850) --
- -----------------------------
87,638 97,727 (11,634)
-- 26,992 --
-- -- --
1,641 -- --
8,154 -- --
72 -- 218
-- (946) --
-- (850) --
- -----------------------------
97,505 122,923 (11,416)
-- 35,758 --
-- -- --
2,333 -- --
5,262 -- --
51,239 -- --
(101) -- --
2,371 -- --
233 -- 182
-- (1,611) --
-- (638) --
- -----------------------------
$158,842 $156,432 $(11,234)
=============================
</TABLE>
<PAGE>
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 September 30, 1995 and October 1, 1994 were 20,415,936 and 8,300,039,
respectively.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Hudson Foods, Inc.
We have audited the accompanying consolidated balance sheet of
Hudson Foods, Inc. and subsidiaries as of September 30, 1995 and October
1, 1994, and the related consolidated statements of operations and cash
flows for each of the three years in the period ended September 30,
1995. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit.
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 (included on pages 16, 18, 20 and 22 to 27 of the annual report to
stockholders) present fairly, in all material respects, the consolidated
financial position of Hudson Foods, Inc. and subsidiaries as of
September 30, 1995 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 September 30, 1995, in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
Tulsa, Oklahoma
October 31, 1995
<PAGE>
<TABLE>
<CAPTION>
ELEVEN-YEAR FINANCIAL SUMMARY
(Dollars in thousands
except per share data) 1995 1994
<S> <C> <C>
Operating data:
Sales $1,200,512 $1,040,840
Cost of sales 1,023,959 885,248
Gross profit 176,553 155,592
Selling 82,945 78,698
General and administrative 29,211 25,755
Operating income 64,397 51,139
Interest, net 1,845 6,152
Interest on tax settlement 4,500 --
Other, net (2,190) --
Income (loss) before income taxes
and extraordinary item 60,242 44,987
Income tax expense (benefit) 24,484 17,995
Income before extraordinary item 35,758 26,992
Net income 35,758 26,992
Per share data*:
Primary earnings per share
before extraordinary item $1.21 $1.08
Primary earnings per share 1.21 1.08
Fully diluted earnings per share
before extraordinary item 1.21 1.08
Fully diluted earnings per share 1.21 1.08
Dividends declared per Class A common share .080 .080
Dividends declared per Class B common share .067 .067
Stockholders' equity per share 10.14 8.30
Financial data:
Working capital $ 180,458 $ 100,096
Capital expenditures 73,314 49,161
Property, plant and equipment, net 275,624 229,050
Total assets 623,541 473,180
Long-term obligations less current portion 129,973 75,169
Total debt 151,015 97,078
Stockholders' equity 304,349 209,189
Depreciation and amortization 25,137 22,279
Statistical data:
Sales growth 15.3% 13.1%
Return on sales (net margin) 3.0 2.6
Return on average stockholders' equity 13.9 14.1
Current ratio 2.55:1 1.87:1
Long-term obligations to total capitalization 29.9% 26.4%
Shares used in primary earnings
per share computation (000's)* 29,494 24,948
Shares used in fully diluted earnings
per share computation (000's)* 29,494 25,099
Shares outstanding at year-end (000's)* 30,019 25,203
Stockholders of record 1,433 1,316
Number of employees 10,303 8,911
Class A common stock price (high-low)* $20:12 3/4 $16 3/4:7 1/8
<PAGE>
1993 1992 1991 1990 1989 1988
<C> <C> <C> <C> <C> <C>
$920,545 $809,243 $765,292 $666,697 $620,485 $549,032
802,002 733,028 690,316 606,220 547,929 521,745
118,543 76,215 74,976 60,477 72,556 27,287
63,926 49,907 37,135 27,270 13,400 12,989
20,695 18,533 16,645 16,377 15,735 10,155
33,922 7,775 21,196 16,830 43,421 4,143
7,975 8,476 9,073 7,571 9,462 10,843
-- -- -- -- -- --
530 (4,342) (1,406) (4,591) (2,606) (228)
25,417 3,641 13,529 13,850 36,565 (6,472)
9,512 1,471 4,987 5,138 13,798 (10,410)
15,905 2,170 8,542 8,712 22,767 3,938
15,905 2,170 8,542 8,712 22,767 14,793
$.67 $.10 $.39 $.40 $1.13 $.20
.67 .10 .39 .40 1.13 .75
.67 .10 .39 .40 1.04 .30
.67 .10 .39 .40 1.04 .73
.080 .080 .080 .080 .080 .080
.067 .067 .067 .067 .067 .067
7.17 6.42 6.39 5.85 5.51 4.21
$103,811 $ 81,475 $ 88,564 $ 89,822 $ 86,813 $ 66,679
21,453 46,960 31,326 32,446 19,501 20,522
205,613 207,097 178,753 164,357 133,495 128,096
416,503 402,188 360,191 342,269 299,054 290,493
88,985 125,695 97,418 89,675 78,509 73,747
94,070 145,924 100,295 97,032 83,886 118,641
173,902 134,330 133,499 126,005 110,637 82,315
22,943 17,911 16,536 14,346 12,406 10,608
13.8% 5.7% 14.8% 7.4% 13.0% 28.0%
1.7 0.3 1.1 1.3 3.7 2.7
10.3 1.6 6.6 7.4 23.6 18.9
2.28:1 2.00:1 2.35:1 2.48:1 2.60:1 1.91:1
33.8% 48.3% 42.2% 41.6% 41.5% 47.3%
23,627 21,455 22,100 21,932 20,096 19,787
23,627 21,455 22,100 21,932 25,427 24,867
24,261 20,922 20,880 21,539 20,075 19,533
1,402 1,483 1,514 1,657 1,668 1,911
8,554 8,229 7,659 7,370 6,262 5,474
$10 1/4:5 $6 1/2:4 5/8 $7 3/4:4 3/8 $9 5/8:4 3/8 $11 1/4:6 1/8 $8 3/4:3 1/4
<PAGE>
1987 1986 1985
<C> <C> <C>
$428,880 $223,963 $184,596
384,045 184,915 156,563
44,835 39,048 28,033
7,253 4,401 3,440
8,879 6,915 5,468
28,703 27,732 19,125
8,734 2,349 3,286
-- -- --
(2,382) (1,096) (356)
22,351 26,479 16,195
9,432 13,001 7,737
12,919 13,478 8,458
12,919 13,478 8,458
$.69 $.78 $.57
.69 .78 .57
.67 .78 .57
.67 .78 .57
.070 .05 --
.033 -- --
3.74 2.71 .81
$ 41,072 $ 39,308 $ 7,168
26,050 9,359 2,504
120,774 87,428 26,136
293,594 235,495 60,002
93,652 83,842 21,472
125,625 104,614 27,100
74,031 50,458 12,146
8,258 3,022 3,025
91.5% 21.3% (10.8)%
3.0 6.0 4.6
20.8 43.1 63.7
1.37:1 1.45:1 1.31:1
55.9% 62.4% 63.9%
18,848 17,324 15,000
23,436 17,337 15,000
19,781 18,653 15,000
1,913 1,571 --
6,027 2,758 1,999
$13 7/8:8 5/8 $14 1/8:7 1/8 --
*Reflects 3-for-2 stock split distributed on March 27, 1995
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
QUARTERLY FINANCIAL DATA (UNAUDITED)
(Dollars in thousands except per share data)
Quarter Ended 1995 December 31 April 1 July 1
<S> <C> <C> <C>
Sales $279,955 $271,814 $305,650
Cost of sales 238,202 227,520 261,825
---------- --------- ---------
Gross profit 41,753 44,294 43,825
Selling 19,048 19,150 21,393
General and administrative 7,252 7,402 6,818
---------- --------- ---------
Operating income 15,453 17,742 15,614
Other expense, net (932) 3,718 578
---------- --------- ---------
Income before income taxes 16,385 14,024 15,036
Income tax expense 6,550 5,856 5,642
---------- --------- ---------
Net income $ 9,835 $ 8,168 $ 9,394
========== ========= =========
Earnings per share(1):
Primary $.35 $.27 $.31
Fully diluted .35 .27 .31
Dividends(1):
Class A .0200 .0200 .0200
Class B .0167 .0167 .0167
Market price (high-low)(1) $17 7/8:13 7/8 $20:16 3/4 $19 1/4:12 3/4
=========================================
Quarter Ended 1994 January 1 April 2 July 2
Sales $250,292 $256,327 $266,773
Cost of sales 212,646 222,284 224,352
---------- --------- ---------
Gross profit 37,646 34,043 42,421
Selling 19,257 18,839 20,223
General and administrative 6,474 6,122 6,309
---------- --------- ---------
Operating income 11,915 9,082 15,889
Other expense, net 1,829 1,717 1,442
---------- --------- ---------
Income before income taxes 10,086 7,365 14,447
Income tax expense 3,991 2,993 5,616
---------- --------- ---------
Net income $ 6,095 $ 4,372 $ 8,831
========== ========= =========
Earnings per share(1):
Primary $.25 $.18 $.35
Fully diluted(2) .24 .18 .34
Dividends(1):
Class A .0200 .0200 .0200
Class B .0167 .0167 .0167
Market price (high-low)(1) $9:7 1/8 $11 1/8:7 3/8 $12 1/4:8 1/2
<PAGE>
September 30 Fiscal 1995
<C> <C>
$343,093 $1,200,512
296,412 1,023,959
--------- ----------
46,681 176,553
23,354 82,945
7,739 29,211
--------- -----------
15,588 64,397
791 4,155
--------- -----------
14,797 60,242
6,436 24,484
--------- -----------
$ 8,361 $ 35,758
========= ===========
$.28 $1.21
.28 1.21
.0200 .080
.0167 .067
$15 1/2:13 1/4 $20:12 3/4
=============================
October 1 Fiscal 1994
$267,448 $1,040,840
225,966 885,248
--------- -----------
41,482 155,592
20,379 78,698
6,850 25,755
--------- -----------
14,253 51,139
1,164 6,152
--------- -----------
13,089 44,987
5,395 17,995
--------- -----------
$ 7,694 $ 26,992
========= ===========
$.30 $1.08
.30 1.08
.0200 .080
.0167 .067
$16 3/4:11 7/8 $16 3/4:7 1/8
(1) Reflects 3-for-2 stock split distributed on March 27, 1995.
(2) As a result of shares issued during the year, earnings per share for
the year's four quarters, which is based on average shares outstanding
during each quarter, does not equal the annual earnings per share, which
is based on the average shares outstanding during the year.
</TABLE>
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF HUDSON FOODS, INC.
1. Ohse Transportation, Inc., a Kansas corporation.
2. Hudson Development Company, an Arkansas corporation.
3. Hudson Foreign Sales, Inc., incorporated under the laws of the U.S.
Virgin Islands.
4. Hudson Foods Poland, S.P. Z O.O., a Polish limited liability
company.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT 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 reports
dated October 31, 1995, on our audits of the
consolidated financial statements and financial
statement schedule of Hudson Foods, Inc. as of
September 30, 1995, and October 1, 1994, and for each
of the three years in the period ended September 30,
1995, which reports are incorporated by reference and
included in this Annual Report on Form 10-K.
Coopers & Lybrand L.L.P.
Tulsa, Oklahoma
December 13, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-02-1994
<PERIOD-END> SEP-30-1995
<EXCHANGE-RATE> 1
<CASH> 2,159
<SECURITIES> 0
<RECEIVABLES> 82,853
<ALLOWANCES> 1,775
<INVENTORY> 177,055
<CURRENT-ASSETS> 296,605
<PP&E> 413,203
<DEPRECIATION> 137,579
<TOTAL-ASSETS> 623,541
<CURRENT-LIABILITIES> 116,147
<BONDS> 0
<COMMON> 309
0
0
<OTHER-SE> 304,040
<TOTAL-LIABILITY-AND-EQUITY> 623,541
<SALES> 1,200,512
<TOTAL-REVENUES> 1,200,512
<CGS> 1,023,959
<TOTAL-COSTS> 1,136,115
<OTHER-EXPENSES> (2,190)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,345
<INCOME-PRETAX> 60,242
<INCOME-TAX> 24,484
<INCOME-CONTINUING> 35,758
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,758
<EPS-PRIMARY> 1.21
<EPS-DILUTED> 1.21
</TABLE>
