<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 29, 1996
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 22, 1996 Hudson Foods, Inc. had 20,502,893 shares of $0.01 par
value Class A Common Stock outstanding and 9,602,522 shares of $0.01 par value
Class B Common Stock outstanding.
<PAGE>
PART 1 FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HUDSON FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
June 29, September 30,
1996 1995
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,904 $ 2,159
Receivables, net 88,897 81,078
Inventory:
Field inventory 59,930 45,103
Feed, eggs and other 36,539 30,441
Finished products 132,269 101,511
Other 29,528 36,313
----------- ------------
Total current assets 352,067 296,605
----------- ------------
Property, plant and equipment, net of
accumulated depreciation of
$145,232 and $137,579 349,665 275,624
Excess cost of investment, net 14,260 14,682
Other assets 25,996 36,630
----------- ------------
Total assets $741,988 $623,541
=========== ============
</TABLE>
<PAGE>
PART 1 FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HUDSON FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) (CONTINUED)
(Dollars in thousands)
<TABLE>
<CAPTION>
June 29, September 30,
1996 1995
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ -- $ 12,300
Current portion of long-term obligations 24,610 8,742
Accounts payable 50,755 47,676
Accrued liabilities 44,811 44,590
Deferred income taxes 3,741 2,839
----------- ------------
Total current liabilities 123,917 116,147
----------- ------------
Long-term obligations 228,626 129,973
----------- ------------
Deferred income taxes and deferred gain 71,810 73,072
----------- ------------
Stockholders' equity:
Common stock:
Class A, $.01 par value; 40,000,000
shares authorized; issued 21,374,939
and 21,331,374 shares 214 213
Class B, $.01 par value; 40,000,000
shares authorized; issued and outstanding
9,602,672 shares 96 96
Additional capital 159,267 158,842
Retained earnings 168,914 156,432
Treasury stock, at cost (877,196 and
915,438 Class A shares) (10,856) (11,234)
----------- ------------
Total stockholders' equity 317,635 304,349
----------- ------------
Total liabilities and stockholders' equity $741,988 $623,541
=========== ============
The accompanying notes are an integral part of the condensed consolidated
financial statements.
</TABLE>
<PAGE>
PART 1 FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
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
June 29, July 1, June 29, July 1,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Sales $337,234 $305,650 $1,008,205 $857,419
Cost of sales 296,069 261,825 883,195 727,547
---------- ---------- ------------ ----------
Gross profit 41,165 43,825 125,010 129,872
Selling 23,440 21,393 71,231 59,591
General and administrative 8,542 6,818 23,871 21,472
---------- ---------- ------------ ----------
Operating income 9,183 15,614 29,908 48,809
---------- ---------- ------------ ----------
Other expense (income):
Interest, net 2,472 578 5,282 1,054
Interest on tax settlement -- -- -- 4,500
Other 1,306 -- 1,306 (2,190)
---------- ---------- ------------ ----------
Total other expense 3,778 578 6,588 3,364
---------- ---------- ------------ ----------
Income before income taxes 5,405 15,036 23,320 45,445
Income tax expense 2,096 5,642 9,130 18,048
---------- ---------- ------------ ----------
Net income $ 3,309 $ 9,394 $ 14,190 $ 27,397
========== ========== ============ ==========
Earnings per share:
Primary $0.11 $0.31 $0.47 $0.93
Fully diluted $0.11 $0.31 $0.47 $0.93
========== ========== ============ ==========
Shares used in earnings per share computations:
Primary 30,409 30,234 30,404 29,321
Fully diluted 30,415 30,234 30,404 29,321
========== ========== ============ ==========
Dividends per share:
Class A $0.0200 $0.0200 $0.0600 $0.0600
Class B $0.0167 $0.0166 $0.0501 $0.0498
========== ========== ============ ==========
Sales Growth 10.3% 14.6% 17.6% 10.9%
Margins (Percent of Sales):
Gross Profit 12.2% 14.3% 12.4% 15.1%
Operating Income 2.7% 5.1% 3.0% 5.7%
Income Before Income Taxes 1.6% 4.9% 2.3% 5.3%
Net Income 1.0% 3.1% 1.4% 3.2%
========== ========== ============ ==========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
</TABLE>
<PAGE>
PART 1 FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
HUDSON FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
June 29, July 1,
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 14,190 $ 27,397
Items included in net income not requiring cash:
Depreciation 18,731 17,523
Amortization 1,035 688
Deferred gain (1,696) (2,083)
Deferred income taxes 2,882 (339)
Loss on sale of business (Note 2) 1,306 --
Other -- 72
Changes in operating assets and liabilities (59,291) (50,408)
----------- -----------
Cash flows used for operating activities (22,843) (7,150)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (115,094) (51,550)
Disposition of property, plant and equipment, net 987 571
Funds received from (held by) trustee for
capital project 16,926 (22,031)
Sale of business (Note 2) 28,885 --
Other (6,852) (2,978)
----------- -----------
Cash flows used for investing activities (75,148) (75,988)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction to notes payable (12,300) (16,800)
Additions to long-term obligations (Note 3) 120,000 75,000
Reduction of long-term obligations (5,479) (8,131)
Sale of Class A common stock -- 51,264
Dividends (1,707) (1,682)
Exercise of stock options and other 222 1,719
----------- -----------
Cash flows provided by financing activities 100,736 101,370
----------- -----------
Increase in cash and cash equivalents 2,745 18,232
Cash and cash equivalents at beginning of period 2,159 1,899
----------- -----------
Cash and cash equivalents at end of period $ 4,904 $ 20,131
=========== ===========
===============================================================================
Supplemental disclosure of cash flow information:
Interest paid, net of amount capitalized $ 5,744 $ 6,242
Income taxes paid $ 8,523 $ 31,814
===============================================================================
The accompanying notes are an integral part of the condensed consolidated
financial statements.
</TABLE>
<PAGE>
HUDSON FOODS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The condensed consolidated financial statements for the periods ended
June 29, 1996 and July 1, 1995 include, in the opinion of management, all
adjustments necessary to present fairly the results of operations and cash flows
for such periods. The Annual Report for the year ended September 30, 1995, and
the Company's Form 10-K contain additional information which should be read in
conjunction with these financial statements.
Note 2. On December 29, 1995, the Company sold its Topeka, Kansas, luncheon meat
plant and its Ohse and Roegelein brand names. The initial sales price of $32.3
million was reduced by certain post-closing adjustments (which were finalized in
the third quarter of fiscal 1996) and the expenses of the sale resulting in a
final sales price of approximately $28.9 million. Additionally, the Company
closed its Wichita, Kansas, luncheon meat processing facility on January 13,
1996. The Company has recorded the sale of the Topeka assets, the Ohse and
Roegelein brand names, and the write-down of the Wichita assets to estimated
realizable value in its Condensed Consolidated Financial Statements as of and
for the periods ended June 29, 1996. These transactions resulted in a $1.3
million loss.
Note 3. On December 28, 1995, the Company borrowed $55.0 million under six
unsecured term loan agreements from two insurance companies at 6.69% due
December 28, 2005. Interest payments only will be due in the first three years.
Beginning in the fourth year, one-seventh of the principal balance will be due
each year. On January 31, 1996, the Company borrowed $15.0 million under an
unsecured loan agreement from a bank at 6.45% due January 31, 2006. Interest and
principal payments are due each month. A balloon payment of $6.8 million will be
due on January 31, 2006. On March 22, 1996, the Company borrowed $50.0 million
under two unsecured loans from an insurance company at 6.63% due March 22, 2006.
Interest payments only will be due in the first four years. Beginning on March
22, 2000, and continuing through March 22, 2006, one-seventh of the principal
balance will be due annually. The loan agreements, among other things, limit the
payment of dividends to approximately $2.8 million in any fiscal year and limit
annual capital expenditures and lease obligations. They require the maintenance
of minimum levels of working capital and tangible net worth and require that the
current ratio, leverage ratio and cash flow coverage ratio be maintained at
certain levels. They also limit the creation of new secured debt to $25.0
million and new unsecured short-term debt with parties outside the Company's
$200.0 million credit agreement to $20.0 million.
<PAGE>
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 June 29, 1996 and the related condensed consolidated
statements of operations for the three and nine month periods ended June 29,
1996 and July 1, 1995, and cash flows for the nine month periods ended June 29,
1996 and July 1, 1995. 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 September 30, 1995, and the
related consolidated statements of operations and cash flows for the year then
ended (not presented herein); and in our report dated October 31, 1995, 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 September 30, 1995 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 23, 1996
<PAGE>
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 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 fiscal
1995, one such customer accounted for approximately 14.7% of total sales. This
strategy decreases the proportion of feed grain costs to total cost of sales,
which reduces 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.
International sales accounted for 11.6% of the Company's total sales during
fiscal 1995. For the first nine months of fiscal 1996, international sales
accounted for 16.8% of total sales.
The Company believes that its operations are in substantial compliance with
applicable environmental laws and regulations.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
THIRD QUARTER OF FISCAL 1996 COMPARED WITH
THIRD QUARTER OF FISCAL 1995
Sales from the Company's operations were $337.2 million for the third quarter of
fiscal 1996, an increase of $31.6 million, or 10.3%, over the third quarter of
fiscal 1995. The sales increase primarily resulted from the following:
Chicken sales increased 17.8% to $206.9 million in the third quarter of
fiscal 1996 from $175.5 million in the third quarter of fiscal 1995 due to
a 17.8% increase in volume. The volume increase was due to increased sales
in both international and domestic markets. International sales were
primarily to Russia and Eastern Europe.
Portioned entree sales decreased slightly to $36.8 million in the third
quarter of fiscal 1996 from $37.1 million in the third quarter of fiscal
1995 primarily due to a 4.2% decrease in selling prices which was partially
offset by a 3.7% increase in volume. Portioned entree sales have suffered
somewhat due to changes in customer base and product lines, but new product
sales and new markets are expected to have a favorable impact.
Luncheon meat sales decreased 55.6% to $16.7 million in the third quarter
of fiscal 1996 from $37.7 million in the third quarter of fiscal 1995
primarily due to a 64.2% decrease in volume which was partially offset by a
24.2% increase in selling prices. The Company sold its luncheon meat plant
in Topeka, Kansas, and the Ohse and Roegelein brand names on December 29,
1995. Also, the Company closed its Wichita, Kansas, luncheon meat plant on
January 13, 1996. Those two plants accounted for approximately 70% of
fiscal 1995 luncheon meat sales. The Company continues to produce a full
line of Schweigert luncheon meat products at its plant in Albert Lea,
Minnesota. The sale of the Topeka plant and closing of the Wichita plant
accounted for the large volume decrease. The increase in selling prices was
primarily due to the fact that the high-quality Schweigert brand name
commands higher selling prices than the Ohse and Roegelein brand names.
Turkey sales increased 30.4% to $41.9 million in the third quarter of
fiscal 1996 from $32.1 million in the third quarter of fiscal 1995 due to a
26.9% increase in volume and a 2.7% increase in selling prices. The volume
increase was primarily due to increased sales to Boston Market and
increased sales in international markets, especially in Russia, Latin
America and Eastern Europe.
Beef sales increased 67.1% to $22.7 million in the third quarter of fiscal
1996 from $13.6 million in the third quarter of fiscal 1995 due to an 86.8%
increase in volume offset somewhat by a 10.5% decrease in selling prices.
The volume increase was primarily due to increased sales to the Burger King
restaurant chain, club stores and other customers. The decrease in selling
prices was primarily due to a large supply of beef in the marketplace.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
THIRD QUARTER OF FISCAL 1996 COMPARED WITH
THIRD QUARTER OF FISCAL 1995 (CONTINUED)
Cost of sales was $296.1 million in the third quarter of fiscal 1996, an
increase of $34.2 million, or 13.1%, over the third quarter of fiscal 1995. As a
percentage of sales, cost of sales increased to 87.8% for the third quarter of
fiscal 1996 from 85.7% in the third quarter of fiscal 1995. The increase in cost
of sales primarily resulted from a 58.0% increase in feed and ingredient costs
and higher processing costs due to increased sales of further-processed
products.
Gross profit was $41.2 million in the third quarter of fiscal 1996, a decrease
of $2.7 million, or 6.1%, from the third quarter of fiscal 1995. As a percentage
of sales, gross profit decreased to 12.2% in the third quarter of fiscal 1996
from 14.3% in the third quarter of fiscal 1995 due to the factors discussed
above.
Selling and general and administrative expenses were $32.0 million in the third
quarter of fiscal 1996, an increase of $3.8 million, or 13.4%, over the third
quarter of fiscal 1995. General and administrative expenses increased primarily
due to increased compensation accruals and lease expense. As a percentage of
sales, selling and general and administrative expenses were 9.5% in the third
quarter of fiscal 1996 and 9.2% in the third quarter of fiscal 1995.
Operating income was $9.2 million for the third quarter of fiscal 1996 compared
with $15.6 million for the third quarter of fiscal 1995. The decrease was
primarily due to the higher feed costs described previously.
Interest expense increased primarily due to interest expense on new unsecured
term loans.
Other expense for the third quarter of fiscal 1996 of $1.3 million resulted from
the recording of a loss on the sale of the Topeka assets, the Ohse and Roegelein
brand names and the write-down of the Wichita assets to estimated realizable
value.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FIRST NINE MONTHS OF FISCAL 1996 COMPARED WITH
FIRST NINE MONTHS OF FISCAL 1995
Sales from the Company's operations were $1.0 billion for the first nine months
of fiscal 1996, an increase of $150.8 million, or 17.6%, over the first nine
months of fiscal 1995. The sales increase primarily resulted from the following:
Chicken sales increased 24.9% to $572.1 million in the first nine months of
fiscal 1996 from $458.1 million in the first nine months of fiscal 1995 due
to a 21.2% increase in volume and a 3.1% increase in selling prices. The
volume increase was due to increased sales in both international and
domestic markets. International sales were primarily to Russia and Eastern
Europe. The increase in selling prices was primarily due to stronger market
prices.
Portioned entree sales decreased slightly to $125.4 million in the first
nine months of fiscal 1996 from $125.8 million in the first nine months of
fiscal 1995 primarily due to a slight decrease in selling prices partially
offset by a small increase in volume. Portioned entree sales have suffered
somewhat due to changes in customer base and product lines, but new product
sales and new markets are expected to have a favorable impact.
Luncheon meat sales decreased 35.5% to $77.0 million in the first nine
months of fiscal 1996 from $119.4 million in the first nine months of
fiscal 1995 primarily due to a 39.1% decrease in volume partially offset by
a 5.8% increase in selling prices. The Company sold its luncheon meat plant
in Topeka, Kansas, and the Ohse and Roegelein brand names on December 29,
1995. Also, the Company closed its Wichita, Kansas, luncheon meat plant on
January 13, 1996. Those two plants accounted for approximately 70% of
fiscal 1995 luncheon meat sales. The Company continues to produce a full
line of Schweigert luncheon meat products at its plant in Albert Lea,
Minnesota. The sale of the Topeka plant and closing of the Wichita plant
accounted for the large volume decrease. The increase in selling prices was
primarily due to the fact that the high-quality Schweigert brand name
commands higher selling prices than the Ohse and Roegelein brand names.
Turkey sales increased 27.5% to $133.6 million in the first nine months of
fiscal 1996 from $104.8 million in the first nine months of fiscal 1995 due
to a 25.0% increase in volume and a 2.0% increase in selling prices. The
volume increase was primarily due to increased sales in international
markets, especially in Russia, Latin America and Eastern Europe, and
increased sales to Boston Market.
Beef sales increased to $66.0 million in the first nine months of fiscal
1996 from $20.3 million in the first nine months of fiscal 1995. The
Company moved into this new area of food processing when its hamburger
plant in Columbus, Nebraska began production in February 1995. The plant
produces beef patties primarily for the Burger King restaurant chain but
also produces frozen patties and chub packages for club stores and other
customers.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FIRST NINE MONTHS OF FISCAL 1996 COMPARED WITH
FIRST NINE MONTHS OF FISCAL 1995 (CONTINUED)
Cost of sales was $883.2 million in the first nine months of fiscal 1996, an
increase of $155.6 million, or 21.4%, over the first nine months of fiscal 1995.
As a percentage of sales, cost of sales increased to 87.6% for the first nine
months of fiscal 1996 from 84.9% in the first nine months of fiscal 1995. The
increase in cost of sales primarily resulted from a 53.6% increase in feed and
ingredient costs and higher processing costs due to increased sales of
further-processed products.
Gross profit was $125.0 million in the first nine months of fiscal 1996, a
decrease of $4.9 million, or 3.7%, from the first nine months of fiscal 1995. As
a percentage of sales, gross profit decreased to 12.4% in the first nine months
of fiscal 1996 from 15.1% in the first nine months of fiscal 1995 due to the
factors discussed above.
Selling and general and administrative expenses were $95.1 million in the first
nine months of fiscal 1996, an increase of $14.0 million, or 17.3%, over the
first nine months of fiscal 1995. General and administrative expenses increased
primarily due to increased lease expense. As a percentage of sales, selling and
general and administrative expenses decreased to 9.4% in the first nine months
of fiscal 1996 from 9.5% in the first nine months of fiscal 1995.
Operating income was $29.9 million for the first nine months of fiscal 1996
compared with $48.8 million for the first nine months of fiscal 1995. The
decrease was primarily due to the higher feed costs described previously.
Interest expense increased primarily due to interest expense on new unsecured
term loans.
Other expense for the first nine months of fiscal 1996 of $1.3 million resulted
from the recording of a loss on the sale of the Topeka assets, the Ohse and
Roegelein brand names and the write-down of the Wichita assets to estimated
realizable value. Other income for the first nine months of fiscal 1995 of $2.2
million resulted from gains on assets destroyed by fire.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
Working capital at June 29, 1996 was $228.2 million compared with $180.5 million
at September 30, 1995 and the current ratio was 2.84 to 1 and 2.55 to 1 at June
29, 1996 and September 30, 1995, respectively. Accounts receivable increased
primarily due to increased domestic and international sales. Inventory increased
primarily due to inventory build-up to meet increased sales, especially in
international markets. Other current assets decreased primarily due to the
receipt of $15.0 million on an insurance claim receivable for fire losses which
was offset by the recording of miscellaneous prepaid expenses, notes receivable
and other current assets. Other assets decreased primarily due to the receipt of
funds of $16.9 million from the trustee for a capital project partially offset
by start-up costs capitalized for the new Kentucky chicken complex. The
Company's total capitalization, as represented by long-term obligations plus
stockholders' equity, was $546.3 million on June 29, 1996, compared with $434.3
million on September 30, 1995. Long-term obligations represented 41.9% and 29.9%
of total capitalization on June 29, 1996 and September 30, 1995, respectively.
The Company did not have any notes payable due under its unsecured credit
agreements at June 29, 1996 compared with $12.3 million on September 30, 1995.
Total long-term obligations and current portion of long-term obligations
increased $114.5 million due to the net effect of the following: 1) proceeds
received on loans from insurance companies totaling $105.0 million; 2) proceeds
received on a loan from a bank totaling $15.0 million and 3) normal debt
payments. (See discussion of loans that follows).
The Company's cash flows used for operations was $22.8 million in the first nine
months of fiscal 1996 compared with $7.2 million in the first nine months of
fiscal 1995. The increase was primarily due to increases in operating assets,
especially accounts receivable and finished product inventory, and lower net
income.
For the first nine months of fiscal 1996 and 1995, the Company had capital
expenditures of $115.1 million and $51.6 million, respectively. Capital
expenditures, in the first nine months of fiscal 1996, were for the construction
of a chicken complex near Henderson, Kentucky, the expansion and/or upgrading of
existing production facilities and related equipment and lease buyouts for
equipment included in the sale of the Topeka, Kansas, luncheon meat facility.
The Kentucky processing plant began production at low levels in July 1996 even
though construction continues on the plant. The capital expenditures have been
and will continue to be financed by operations, borrowings, lease arrangements
and the issuance of common stock.
Loan proceeds of $25.0 million received on March 2, 1995, from the county of
Henderson, Kentucky, were placed with a trustee, earning interest, until the
Company expended construction funds, at which time the trustee reimbursed the
Company. The proceeds were used to finance the construction of solid waste
disposal and sewage facilities at the Company's new chicken complex being built
near Henderson, Kentucky. During the first nine months of fiscal 1996, the
Company was reimbursed for $16.9 million of construction expenditures. At June
29, 1996, all of the $25.0 million loan proceeds had been transferred to the
Company.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
On December 29, 1995, the Company sold its Topeka, Kansas, luncheon meat plant
and its Ohse and Roegelein brand names. The initial sales price of $32.3 million
was reduced by certain post-closing adjustments (which were finalized in the
third quarter of fiscal 1996) and the expenses of the sale resulting in a final
sales price of approximately $28.9 million. Additionally, the Company closed its
Wichita, Kansas, luncheon meat processing facility on January 13, 1996. The
Company has recorded the sale of the Topeka assets, the Ohse and Roegelein brand
names, and the write-down of the Wichita assets to estimated realizable value,
resulting in a $1.3 million loss in the third quarter of fiscal 1996.
The Company's capital budget for fiscal 1996 contemplates aggregate capital
expenditures of approximately $130.0 million for the completion of the chicken
complex in Kentucky 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 30, 1996, the Company entered into a $200.0 million unsecured
credit agreement that expires on June 30, 1999. At June 29, 1996, the Company
did not have any notes payable outstanding under the agreement but had $9.7
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 two separate unsecured short-term credit
agreements with financial institutions (outside the $200.0 million credit
agreement) giving the Company the right to borrow up to $15.0 million from one
institution and $10.0 million from the other. At June 29, 1996, the Company did
not have any notes payable outstanding under these agreements.
On December 28, 1995, the Company borrowed $55.0 million under six unsecured
term loan agreements from two insurance companies at 6.69% due December 28,
2005. Interest payments only will be due in the first three years. Beginning in
the fourth year, one-seventh of the principal balance will be due each year.
On January 31, 1996, the Company borrowed $15.0 million under an unsecured loan
agreement from a bank at 6.45% due January 31, 2006. Interest and principal
payments are due each month. A balloon payment of $6.8 million will be due on
January 31, 2006.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
On March 22, 1996, the Company borrowed $50.0 million under two unsecured loans
from an insurance company at 6.63% due March 22, 2006. Interest payments only
will be due in the first four years. Beginning on March 22, 2000, and continuing
through March 22, 2006, one-seventh of the principal balance will be due
annually.
The unsecured loan agreements discussed above contain restrictions and covenants
which are substantially the same as those included in the $200.0 million credit
agreement.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Sequentially
Number Description of Exhibit 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 17
15 Letter regarding unaudited
interim financial information Page 18
27 Financial Data Schedule
(b) Reports on Form 8-K
Not Applicable
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Hudson Foods, Inc.
Date July 31, 1996 Michael T. Hudson
President
Date July 31, 1996 Charles B. Jurgensmeyer
Chief Financial Officer
<PAGE>
EXHIBIT 11
HUDSON FOODS, INC. AND SUBSIDIARIES
CALCULATION OF EARNINGS PER SHARE
(In thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 29, July 1, June 29, July 1,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net income $3,309 $9,394 $14,190 $27,397
===============================================================================
PRIMARY EARNINGS PER SHARE:
Weighted average number of common
shares outstanding 30,099 29,776 30,076 28,854
Common stock equivalents:
Dilutive options 310 458 328 467
-------- -------- -------- --------
Weighted average number of common
and common equivalent shares 30,409 30,234 30,404 29,321
======== ======== ======== ========
Primary earnings per share $0.11 $0.31 $0.47 $0.93
===============================================================================
FULLY DILUTED EARNINGS PER SHARE:
Weighted average number of common
shares outstanding 30,099 29,776 30,076 28,854
Common stock equivalents:
Dilutive options 316 458 328 467
-------- -------- -------- --------
Weighted average number of common
and common equivalent shares 30,415 30,234 30,404 29,321
======== ======== ======== ========
Fully diluted earnings per share $0.11 $0.31 $0.47 $0.93
===============================================================================
</TABLE>
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 23, 1996 on our review of the interim
financial information of Hudson Foods, Inc. for the periods ended June 29, 1996
and July 1, 1995, 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
July 26, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-28-1996
<PERIOD-END> JUN-29-1996
<CASH> 4,904
<SECURITIES> 0
<RECEIVABLES> 90,602
<ALLOWANCES> 1,705
<INVENTORY> 228,738
<CURRENT-ASSETS> 352,067
<PP&E> 494,897
<DEPRECIATION> 145,232
<TOTAL-ASSETS> 741,988
<CURRENT-LIABILITIES> 123,917
<BONDS> 0
0
0
<COMMON> 310
<OTHER-SE> 317,325
<TOTAL-LIABILITY-AND-EQUITY> 741,988
<SALES> 1,008,205
<TOTAL-REVENUES> 1,008,205
<CGS> 883,195
<TOTAL-COSTS> 978,297
<OTHER-EXPENSES> 1,306
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,282
<INCOME-PRETAX> 23,320
<INCOME-TAX> 9,130
<INCOME-CONTINUING> 14,190
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,190
<EPS-PRIMARY> .47
<EPS-DILUTED> .47
</TABLE>
