<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 1, 1995
OR
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
incorporation or organization) Identification No.)
1225 Hudson Road, Rogers, Arkansas 72756
(Address of principal executive offices) (Zip Code)
(501) 636-1100
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes /X/ No / /
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court. Yes / / No / /
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of July 28, 1995 Hudson Foods, Inc. had 20,290,911 shares of $0.01 par
value Class A Common Stock outstanding and 9,602,672 shares of $0.01 par
value Class B Common Stock outstanding.
<PAGE> 2
PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS
HUDSON FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
July 1, October 1,
1995 1994
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 20,131 $ 1,899
Receivables, net 78,031 65,508
Inventory:
Field inventory 44,901 39,680
Feed, eggs and other 22,602 21,581
Finished products 97,004 74,240
Other 19,580 12,073
_________ _________
Total current assets 282,249 214,981
_________ _________
Property, plant and equipment, net
of accumulated depreciation of
$136,487 and $120,536 263,679 229,050
Excess cost of investment, net 14,822 15,244
Other assets 39,510 13,905
_________ _________
Total assets $600,260 $473,180
========= =========
The accompanying notes are an integral part of the condensed consolidated
financial statements
</TABLE>
<PAGE> 3
PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS
HUDSON FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
July 1, October 1,
1995 1994
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ -- $ 16,800
Current portion of long-term obligations 8,655 5,109
Accounts payable 50,526 41,188
Accrued liabilities 40,183 40,581
Deferred income taxes 11,207 11,207
_________ _________
Total current liabilities 110,571 114,885
_________ _________
Long-term obligations 132,950 75,169
_________ _________
Deferred income taxes and deferred gain 60,788 73,937
_________ _________
Stockholders' equity:
Common stock:
Class A, $.01 par value; 40,000,000
shares authorized; issued
21,203,999 and 9,233,893 shares 212 92
Class B, $.01 par value; 40,000,000
shares authorized; issued and
outstanding 9,602,672 and
8,501,882 shares 96 85
Additional capital 158,239 97,505
Retained earnings 148,638 122,923
Treasury stock, at cost (915,438 and
933,854 Class A shares) (11,234) (11,416)
_________ _________
Total stockholders' equity 295,951 209,189
_________ _________
Total liabilities and stockholders' equity $600,260 $473,180
========= =========
The accompanying notes are an integral part of the condensed consolidated
financial statements
</TABLE>
<PAGE> 4
HUDSON FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 1, July 2, July 1, July 2,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Sales $305,650 $266,773 $857,419 $773,392
Cost of sales 261,825 224,352 727,547 659,282
_________ _________ _________ _________
Gross profit 43,825 42,421 129,872 114,110
Selling 21,393 20,223 59,591 58,319
General and administrative 6,818 6,309 21,472 18,905
_________ _________ _________ _________
Operating income 15,614 15,889 48,809 36,886
_________ _________ _________ _________
Other expense (income):
Interest expense, net 578 1,442 1,054 4,988
Interest on tax settlement -- -- 4,500 --
Other -- -- (2,190) --
_________ _________ _________ _________
Total other expense 578 1,442 3,364 4,988
_________ _________ _________ _________
Income before income taxes 15,036 14,447 45,445 31,898
Income tax expense 5,642 5,616 18,048 12,600
_________ _________ _________ _________
Net income $ 9,394 $ 8,831 $ 27,397 $ 19,298
========= ========= ========= =========
Earnings per share:
Primary $0.31 $0.35 $0.93 $0.78
Fully diluted $0.31 $0.34 $0.93 $0.76
========= ========= ========= =========
Dividends per share:
Class A $.0200 $.0200 $.0600 $.0600
Class B $.0166 $.0166 $.0498 $.0498
========= ========= ========= =========
Weighted average number of
common and common equivalent
shares outstanding:
Primary 30,234 25,046 29,321 24,878
Fully diluted 30,234 26,359 29,321 26,274
========= ========= ========= =========
Sales Growth 14.6% 18.6% 10.9% 14.3%
Margins (Percent of Sales):
Gross Profit 14.3% 15.9% 15.1% 14.8%
Operating Income 5.1% 6.0% 5.7% 4.8%
Income Before Income Taxes 4.9% 5.4% 5.3% 4.1%
Net Income 3.1% 3.3% 3.2% 2.5%
The accompanying notes are an integral part of the condensed consolidated
financial statements
</TABLE>
<PAGE> 5
HUDSON FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
July 1, July 2,
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net income $27,397 $19,298
Items included in net income
not requiring cash:
Depreciation 17,523 15,867
Amortization 688 813
Deferred gain (2,083) (2,083)
Deferred income taxes (339) (578)
Other 72 (62)
Changes in operating assets and liabilities (50,408) (15,365)
_________ ________
Cash flows provided by (used for) operations (7,150) 17,890
_________ ________
Cash flows from investing activities:
Purchase of property, plant and equipment (51,550) (34,075)
Disposition of property, plant and
equipment, net 571 3,814
Funds held by trustee for capital project (22,031) --
Other (2,978) (233)
_________ ________
Cash flows used for investments (75,988) (30,494)
_________ ________
Cash flows from financing activities:
Addition (reduction) to notes payable (16,800) 13,000
Addition to long-term obligations 75,000 --
Reduction of long-term obligations (8,131) (3,491)
Sale of Class A common stock 51,264 --
Dividends (1,682) (1,335)
Exercise of stock options and other 1,719 1,031
_________ ________
Cash flows provided by financing 101,370 9,205
_________ ________
Increase (decrease) in cash and cash equivalents 18,232 (3,399)
Cash and cash equivalents at beg. of period 1,899 3,891
_________ ________
Cash and cash equivalents at end of period $20,131 $ 492
========= ========
==============================================================================
Supplemental disclosure of cash flow information:
Interest paid $ 6,242 $ 4,904
Income taxes paid $31,814 $11,615
==============================================================================
The accompanying notes are an integral part of the condensed consolidated
financial statements
</TABLE>
<PAGE> 6
HUDSON FOODS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The condensed consolidated financial statements for the periods ended
July 1, 1995 and July 2, 1994 include, in the opinion of management, all
adjustments (none of which were other than normal recurring accruals) necessary
to present fairly the results of operations and cash flows for such periods.
Results for the nine month period ended July 1, 1995 are not necessarily
indicative of the results which will be realized for the year ending September
30, 1995. The annual report for the year ended October 1, 1994 contains
additional information which should be read in conjunction with these financial
statements.
Note 2. On February 10, 1995, the Company's Board of Directors approved a three
- -for-two split of the Company's issued and outstanding Class A and Class B
common stock in the form of a stock dividend for the shareholders of record as
of February 28, 1995. As a result, 6,653,539 shares of Class A common stock
and 3,200,940 shares of Class B common stock were issued. The stated par value
of each share was not changed from $.01. A total of $98,545 was reclassified
from the Company's additional capital account to the Class A and Class B common
stock accounts. Earnings and dividends per share amounts have been restated to
retroactively give effect to the stock split.
Note 3. 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 processing plant, protein
plant, feed mill and hatchery in Henderson, Kentucky. The bond proceeds are
being held by a trustee until construction funds have been expended by the
Company, at which time the trustee reimburses the Company.
The bonds mature on March 1, 2015 but are subject to optional redemption at
the direction of the Company and mandatory redemption after the occurrence of
an event that would cause the bonds to become taxable.
Under the loan agreement, the Company will make payments sufficient to pay the
principal and interest on the bonds and the purchase price of bonds tendered
for purchase. The bonds as initially issued accrue interest at weekly rates.
The rate at issue was 3.80% and is currently 3.95%. The rate of interest may
be changed from time to time to flexible daily or term rates upon notice. The
interest rate on the bonds is determined by the Company's remarketing agent.
<PAGE> 7
HUDSON FOODS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Note 4. 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, during the second quarter of fiscal 1995, recorded
$0.5 million of tax expense and accrued $4.5 million interest expense
attributable to taxes due for the years under audit and the effect of the
audit on all subsequent tax years. Total taxes due under the settlement have
not been finalized, but management believes the liability will be
substantially less than the assessment previously disclosed in the Company's
Form 10-K. 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. The 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. Management anticipates that the final calculation of the liability
will be completed in fiscal 1995.
Note 5. During the first quarter of fiscal 1995, $5.5 million of the
outstanding 8% Convertible Subordinated Debentures due 2006 were converted
into 263,837 shares of common stock at a conversion price of $21 per share.
The conversions increased common stock and additional capital by $5.3 million.
Also during the first quarter of fiscal 1995, $3.8 million of the outstanding
8% Convertible Subordinated Debentures were redeemed for cash plus a 1.60%
premium.
Note 6. On May 18, 1994, the Company entered into an unsecured term loan
agreement with a financial institution giving the Company the right to borrow
up to $50.0 million of senior notes fixed at a rate to be determined at
drawdown. On June 13, 1995, the Company borrowed $50.0 million under the
agreement at a fixed interest rate of 6.90% to mature July 1, 2005. The loan
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 Company's $100.0 million credit
agreement to $20.0 million.
<PAGE> 8
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Hudson Foods, Inc.
We have reviewed the condensed consolidated balance sheet of Hudson Foods,
Inc. and subsidiaries as of July 1, 1995 and the related condensed
consolidated statements of operations for the three and nine month periods
ended July 1, 1995 and July 2, 1994, and the condensed consolidated statements
of cash flows for the nine month periods ended July 1, 1995 and July 2, 1994.
These financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the condensed consolidated financial statements referred to
above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of October 1, 1994, and the
related consolidated statements of operations and cash flows for the year then
ended (not presented herein); and in our report dated October 26, 1994, we
expressed an unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of October 1, 1994 is fairly stated in all
material respects in relation to the consolidated balance sheet from which it
has been derived.
Coopers & Lybrand L.L.P.
Tulsa, Oklahoma
July 24, 1995
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Historically, the Company's operating results have been heavily influenced by
two external factors: the cost to the Company of feed grains and the price
received by the Company for its commodity-based finished products. These two
factors have fluctuated significantly and independently. Inflation has not
materially affected results of operations.
In recent years the Company has undertaken a business strategy focused largely
on the following: increased production and sale of further-processed poultry
and other processed food products, and increased sales to larger customers
such as club store and foodservice chains. This strategy decreased the
proportion of feed grain costs in relation to total cost of sales, which
reduced the impact of commodity cost fluctuations. In addition, the sales
prices of further-processed products are less sensitive to commodity poultry
price fluctuations. Another result of this strategy has been increased sales
to large customers under firm-price or cost-plus contracts utilizing dedicated
plant arrangements. Although an increase in feed costs or a decrease in
finished product prices could have an adverse effect on the Company, management
believes that the implementation of this strategy has reduced the Company's
vulnerability to such price fluctuations.
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
THIRD QUARTER OF FISCAL 1995 COMPARED WITH
THIRD QUARTER OF FISCAL 1994
Sales from the Company's operations were $305.7 million for the third quarter
of fiscal 1995, an increase of $38.9 million, or 14.6% over the third quarter
of fiscal 1994. The sales increase primarily resulted from the following:
Chicken sales increased 20.6% to $175.5 million in the third
quarter of fiscal 1995 from $145.5 million in the third quarter
of fiscal 1994 primarily due to a 24.4% increase in volume partially
offset by a 3.1% 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.
The decrease in selling prices was primarily due to increased sales
of dark meat in international markets.
Portioned entree sales decreased 10.4% to $37.1 million in the
third quarter of fiscal 1995 from $41.4 million in the third
quarter of fiscal 1994 primarily due to a 10.1% decrease in
volume and a slight decrease in selling prices. The portioned
entree division has had some changes in its customer base and
product lines that caused total volume and selling prices to
decline. However, the division has partially offset the declines
by adding new products and entering new markets.
Luncheon meat sales decreased 5.0% to $37.7 million in the third
quarter of fiscal 1995 from $39.7 million in the third quarter
of fiscal 1994 primarily due to a 16.4% decrease in selling prices
offset by a 13.6% increase in volume. Recently, the division has
made price and product mix changes to help increase its market
share.
Turkey sales increased 14.5% to $32.1 million in the third quarter
of fiscal 1995 from $28.1 million in the third quarter of fiscal
1994 primarily due to a 12.7% increase in volume and a 1.6%
increase in selling prices. The turkey division has been
successful in selling more further-processed products to both
existing and new customers.
Beef sales were $13.6 million in the third quarter of fiscal 1995.
The Company moved into a new area of food processing when its
hamburger plant in Columbus, Nebraska began production in February
1995. The plant produces beef patties for the Burger King
restaurant chain as well as for club stores and other customers.
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
THIRD QUARTER OF FISCAL 1995 COMPARED WITH
THIRD QUARTER OF FISCAL 1994 (CONTINUED)
Cost of sales was $261.8 million in the third quarter of fiscal 1995, an
increase of $37.5 million, or 16.7%, over the third quarter of fiscal 1994.
As a percentage of sales, cost of sales increased to 85.7% for the third
quarter of fiscal 1995 from 84.1% in the third quarter of 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 11.9% decrease in feed costs
per ton.
Gross profit was $43.8 million in the third quarter of fiscal 1995, an increase
of $1.4 million, or 3.3%, over the third quarter of fiscal 1994. As a
percentage of sales, gross profit decreased to 14.3% in the third quarter of
fiscal 1995 from 15.9% in the third quarter of fiscal 1994 due to the factors
discussed above.
Selling and general and administrative expenses were $28.2 million in the third
quarter of fiscal 1995, an increase of $1.7 million, or 6.3%, over the third
quarter of fiscal 1994. As a percentage of sales, selling and general and
administrative expenses decreased to 9.2% in the third quarter of fiscal 1995
compared with 9.9% in the third quarter of fiscal 1994.
Operating income remained almost constant at $15.6 million for the third
quarter of fiscal 1995 compared with $15.9 million for the third quarter of
fiscal 1994.
Interest expense decreased primarily due to the conversion and redemption of
the 8% Convertible Subordinated Debentures coupled with increased capitalized
interest on construction in progress.
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FIRST NINE MONTHS OF FISCAL 1995 COMPARED WITH
FIRST NINE MONTHS OF FISCAL 1994
Sales from the Company's operations were $857.4 million for the first nine
months of fiscal 1995, an increase of $84.0 million, or 10.9% over the first
nine months of fiscal 1994. The sales increase primarily resulted from the
following:
Chicken sales increased 16.0% to $458.1 million in the first nine
months of fiscal 1995 from $395.1 million in the first nine months
of fiscal 1994 primarily due to a 23.2% increase in volume partially
offset by a 5.9% 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. The decrease in selling prices was primarily due to product
mix changes and increased sales of dark meat in international markets.
Portioned entree sales decreased 3.5% to $125.8 million in the
first nine months of fiscal 1995 from $130.4 million in the first
nine months of fiscal 1994 primarily due to a 2.7% decrease in
selling prices and a slight decrease in volume. The portioned
entree division has had some changes in its customer base and
product lines that caused total volume and selling prices to
decline. However, the division has partially offset the declines
by adding new products and entering new markets.
Luncheon meat sales decreased 4.7% to $119.4 million in the first
nine months of fiscal 1995 from $125.3 million in the first nine
months of fiscal 1994 primarily due to a 10.6% decrease in selling
prices offset by a 6.6% increase in volume. Recently, the division
has made price and product mix changes to help increase its market
share.
Turkey sales increased 26.6% to $104.8 million in the first nine
months of fiscal 1995 from $82.8 million in the first nine months
of fiscal 1994 primarily due to an 18.0% increase in volume and a
7.3% increase in selling prices. The turkey division has been
successful in selling more further-processed products to both
existing and new customers.
Beef sales were $20.3 million in the first nine months of fiscal
1995. The Company moved into a new area of food processing when
its hamburger plant in Columbus, Nebraska began production in
February 1995. The plant produces beef patties for the Burger
King restaurant chain as well as for club stores and other
customers.
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FIRST NINE MONTHS OF FISCAL 1995 COMPARED WITH
FIRST NINE MONTHS OF FISCAL 1994 (CONTINUED)
Cost of sales was $727.5 million in the first nine months of fiscal 1995, an
increase of $68.3 million, or 10.4%, over the first nine months of fiscal 1994.
As a percentage of sales, cost of sales decreased to 84.9% in the first nine
months of fiscal 1995 from 85.2% in the first nine months of fiscal 1994
primarily due to an 11.7% decrease in feed costs per ton.
Gross profit was $129.9 million in the first nine months of fiscal 1995, an
increase of $15.8 million, or 13.8%, over the first nine months of fiscal 1994.
As a percentage of sales, gross profit increased to 15.1% in the first nine
months of fiscal 1995 from 14.8% in the first nine months of fiscal 1994 due to
the factors discussed above.
Selling and general and administrative expenses were $81.1 million in the first
nine months of fiscal 1995, an increase of $3.8 million, or 5.0%, over the
first nine months of fiscal 1994. General and administrative expenses rose
primarily as a result of increased wages and incentive compensation accruals.
As a percentage of sales, selling and general and administrative expenses
decreased to 9.5% in the first nine months of fiscal 1995 from 10.0% in the
first nine months of fiscal 1994.
Operating income was $48.8 million in the first nine months of fiscal 1995, an
increase of $11.9 million, or 32.3%, over the first nine months of fiscal 1994.
This 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 coupled with increased capitalized
interest on construction in progress.
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 (see Note 4.).
Other income for the first nine months of fiscal 1995 was primarily composed
of insurance proceeds received in excess of the book value of assets destroyed
by fire.
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
Working capital at July 1, 1995 was $171.7 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
July 1, 1995 and October 1, 1994, respectively. Accounts receivable and
finished product inventory increased primarily due to increased sales,
especially in international markets and inventory build-up to meet those sales.
Other current assets increased primarily due to the recording of an insurance
claim receivable for fire losses. Other assets increased primarily due to loan
proceeds received from the county of Henderson, Kentucky (see Note 3). The
Company's total capitalization, as represented by long-term obligations plus
stockholders' equity, was $428.9 million on July 1, 1995, compared with $284.4
million on October 1, 1994. Long-term obligations represented 31.0% and 26.4%
of total capitalization on July 1, 1995 and October 1, 1994, respectively.
The Company did not have any notes payable due under its unsecured credit
agreements at July 1, 1995 compared with $16.8 million on October 1, 1994.
Total long-term obligations and current portion of long-term obligations
increased $61.3 million due to the net effect of the following: 1) proceeds
received on a $50.0 million loan from a financial institution; 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 of 8% Convertible Subordinated Debentures 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 $60.9 million to $158.5 million
at July 1, 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
(see Note 5). 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.
The Company's cash flow used for operating activities was $7.2 million in the
first nine months of fiscal 1995 compared with cash flow provided by operations
of $17.9 million in the first nine months of fiscal 1994. The decrease was
primarily due to increases in operating assets (especially accounts receivable
and inventory) 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 of 1989 and 1990 Federal income tax returns.
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
For the first nine months of fiscal 1995 and 1994, the Company had capital
expenditures of $51.6 million and $34.1 million, respectively. Capital
expenditures, in the first nine months of 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. The capital
expenditures have been and will continue to be financed by operations,
borrowings, lease arrangements and the issuance of common stock.
The $25.0 million loan proceeds received from the county of Henderson, Kentucky
(see Note 3) are being held by a trustee, earning interest, until the Company
expends construction funds, at which time the trustee reimburses the Company.
At July 1, 1995, the Company had been reimbursed for $3.3 million of
construction expenditures.
The Company's capital budget for fiscal 1995 contemplates aggregate capital
expenditures of approximately $94.0 million for the building of the new beef
processing plant and chicken complex and upgrading and/or expanding current
production facilities and related equipment. To achieve this level of capital
expenditures, the Company will be required to obtain waivers of debt covenants
from certain lenders. Management believes that such waivers will be obtained.
However, there can be no assurance that such waivers will be granted.
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, 1997. At July 1, 1995, the Company had
$91.8 million available under this agreement. The Company did not have any
notes payable outstanding under the agreement but had $8.2 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%.
The Company has entered into four separate unsecured short-term credit
agreements with financial institutions (outside the $100.0 million revolving
credit agreement) giving the Company the right to borrow up to $10.0 million
each from three institutions and $15.0 million from one institution. At
July 1, 1995, the Company did not have any notes payable outstanding under
these agreements.
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
On May 18, 1994, the Company entered into an unsecured term loan agreement with
a financial institution giving the Company the right to borrow up to $50.0
million of senior notes fixed at a rate to be determined at drawdown. On June
13, 1995, the Company borrowed $50.0 million under the agreement at a fixed
interest rate of 6.90% to mature July 1, 2005. The loan 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 Company's $100.0 million credit agreement to $20.0 million
(see Note 6).
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
TAX MATTERS
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, during the second quarter of fiscal 1995, recorded
$0.5 million of tax expense and accrued $4.5 million interest expense
attributable to taxes due for the years under audit and the effect of the audit
on all subsequent tax years. Total taxes due under the settlement have not
been finalized, but management believes the liability will be substantially
less than the assessment previously disclosed in the Company's Form 10-K.
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.
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. Management anticipates that the final calculation of the liability
will be completed in fiscal 1995.
<PAGE> 18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Description of Exhibit Sequentially
Number Numbered Page
-----------------------------------------------------------------
4a Restated Certificate of Incorporated by
Incorporation of Hudson reference from
Foods, Inc., Section 4 Registration
Statement No.
33-15274
11 Calculation of earnings
per share Page 20
15 Letter regarding unaudited
interim financial information Page 21
27 Financial Data Schedule
(b) Reports on Form 8-K
Not applicable
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Hudson Foods, Inc.
Date August 4, 1995 Michael T. Hudson
President
Date August 4, 1995 Charles B. Jurgensmeyer
Chief Financial Officer
<PAGE> 20
Exhibit 11 - HUDSON FOODS INC. AND SUBSIDIARIES
EARNINGS PER SHARE CALCULATION
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 1, July 2, July 1, July 2,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net income $9,394 $8,831 $27,397 $19,298
Interest on convertible
subordinated debentures
net of income taxes -- 217 -- 646
__________ __________ __________ __________
Adjusted net income $9,394 $9,048 $27,397 $19,944
========== ========== ========== ==========
Primary earnings per share:
- ---------------------------
Weighted average number of
common shares outstanding 29,776 24,403 28,854 24,318
Common stock equivalents:
Dilutive options 458 643 467 560
__________ __________ __________ __________
Weighted average number of
common and common equivalent
shares 30,234 25,046 29,321 24,878
========== ========== ========== ==========
Primary earnings per share $0.31 $0.35 $0.93 $0.78
========== ========== ========== ==========
Fully diluted earnings
per share:
- ---------------------------
Weighted average number of
common shares outstanding 29,776 24,403 28,854 24,318
Common stock equivalents:
Dilutive options 458 711 467 711
Convertible subordinated
debentures -- 1,245 -- 1,245
__________ __________ __________ __________
Weighted average number of
common and common equivalent
shares 30,234 26,359 29,321 26,274
========== ========== ========== ==========
Fully diluted earnings per
share $0.31 $0.34 $0.93 $0.76
========== ========== ========== ==========
</TABLE>
<PAGE> 21
EXHIBIT 15
HUDSON FOODS, INC. AND SUBSIDIARIES
LETTER REGARDING UNAUDITED INTERIM FINANCIAL INFORMATION
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Hudson Foods, Inc.
Registration on Forms S-8
We are aware that our report dated July 24, 1995 on our review of the interim
financial information of Hudson Foods, Inc. for the periods ended July 1, 1995
and July 2, 1994, and included in this Form 10-Q is incorporated by reference
in the Company's registration statements on Form S-8 (File nos. 33-36690 and
33-41839). Pursuant to Rule 436(c) under the Securities Act of 1933, this
report should not be considered a part of the registration statement prepared
or certified by us within the meaning of Sections 7 and 11 of that Act.
Coopers & Lybrand L.L.P.
Tulsa, Oklahoma
August 2, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> JUL-01-1995
<CASH> 20,131
<SECURITIES> 0
<RECEIVABLES> 79,475
<ALLOWANCES> 1,444
<INVENTORY> 164,507
<CURRENT-ASSETS> 282,249
<PP&E> 400,166
<DEPRECIATION> 136,487
<TOTAL-ASSETS> 600,260
<CURRENT-LIABILITIES> 110,571
<BONDS> 0
<COMMON> 308
0
0
<OTHER-SE> 295,643
<TOTAL-LIABILITY-AND-EQUITY> 600,260
<SALES> 857,419
<TOTAL-REVENUES> 857,419
<CGS> 727,547
<TOTAL-COSTS> 808,610
<OTHER-EXPENSES> 2,310
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,054
<INCOME-PRETAX> 45,445
<INCOME-TAX> 18,048
<INCOME-CONTINUING> 27,397
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,397
<EPS-PRIMARY> .93
<EPS-DILUTED> .93
</TABLE>
