UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 28, 1997
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 17, 1997 Hudson Foods, Inc. had 20,664,681 shares of $0.01 par value
Class A Common Stock outstanding and 9,602,372 shares of $0.01 par value Class B
Common Stock outstanding.
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PART 1 FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HUDSON FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(Dollars in thousands)
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June 28, September 28,
1997 1996
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ASSETS
Current assets:
Cash and cash equivalents $ 8,429 $ 6,437
Receivables, net 117,182 108,792
Inventory:
Field inventory 60,376 61,250
Feed, eggs and other 37,278 32,273
Finished products 194,659 133,349
Other 35,529 22,373
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Total current assets 453,453 364,474
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Property, plant and equipment, net of accumulated
depreciation of $165,947 and $150,745 401,430 367,600
Excess cost of investment, net 13,697 14,119
Other assets 35,499 28,549
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Total assets $904,079 $774,742
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 83,200 $ -
Current portion of long-term obligations 25,912 24,714
Accounts payable 59,328 69,552
Accrued liabilities 52,977 49,578
Deferred income taxes 6,741 6,741
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Total current liabilities 228,158 150,585
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Long-term obligations 272,755 224,951
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Deferred income taxes and deferred gain 76,864 73,286
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Stockholders' equity:
Common stock:
Class A, $.01 par value; 40,000,000 shares authorized;
issued 21,503,975 and 21,384,664 shares 215 214
Class B, $.01 par value; 40,000,000 shares authorized;
issued and outstanding 9,602,372 and 9,602,522 shares 96 96
Additional capital 160,191 159,314
Retained earnings 176,398 177,153
Treasury stock, at cost (846,644 and 877,196 Class A shares) (10,598) (10,857)
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Total stockholders' equity 326,302 325,920
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Total liabilities and stockholders' equity $904,079 $774,742
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The accompanying notes are an integral part of the condensed consolidated
financial statements.
</TABLE>
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<TABLE>
<CAPTION>
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)
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Three Months Ended Nine Months Ended
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
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Sales $435,449 $337,234 $1,231,846 $1,008,205
Cost of sales 390,572 296,069 1,089,031 883,195
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Gross profit 44,877 41,165 142,815 125,010
Selling 23,964 23,440 74,883 71,231
General and administrative 8,207 8,542 24,222 23,871
International reorganization (Note 2) 33,336 -- 33,336 --
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Operating income (loss) (20,630) 9,183 10,374 29,908
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Other expense:
Interest, net 4,204 2,472 8,773 5,282
Other -- 1,306 -- 1,306
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Total other expense 4,204 3,778 8,773 6,588
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Income (loss) before income taxes (24,834) 5,405 1,601 23,320
Income tax expense (benefit) (9,933) 2,096 641 9,130
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Net income (loss) $(14,901) $ 3,309 $ 96 $ 14,190
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Earnings (loss) per share $(0.49) $0.11 $0.03 $0.47
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Shares used in earnings per share computations:
Primary and fully diluted 30,251 30,409 30,471 30,404
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Dividends per share:
Class A $0.0200 $0.0200 $0.0600 $0.0600
Class B $0.0167 $0.0167 $0.0501 $0.0501
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Sales Growth 29.1% 10.3% 22.2% 17.6%
Margins (Percent of Sales):
Gross profit 10.3% 12.2% 11.6% 12.4%
Operating income (loss) (4.7)% 2.7% 0.8% 3.0%
Income (loss) before income taxes (5.7)% 1.6% 0.1% 2.3%
Net income (loss) (3.4)% 1.0% 0.1% 1.4%
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The accompanying notes are an integral part of the condensed consolidated
financial statements.
</TABLE>
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<TABLE>
<CAPTION>
PART 1 FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
HUDSON FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
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Nine Months Ended
June 28, June 29,
1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 960 $ 14,190
Items included in net income not requiring cash:
Depreciation 22,007 18,731
Amortization 1,028 1,035
Deferred gain (1,503) (1,696)
Deferred income taxes 3,966 2,882
International reorganization (Note 2) 33,336 --
Loss on sale of business -- 1,306
Changes in operating assets and liabilities (125,359) (59,291)
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Cash flows used for operating activities (65,565) (22,843)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (56,256) (115,094)
Disposition of property, plant and equipment, net 419 987
Funds received from trustee for capital project -- 16,926
Sale of business -- 28,885
Other (7,556) (6,852)
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Cash flows used for investing activities (63,393) (75,148)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Addition to (reduction of) notes payable 83,200 (12,300)
Addition to long-term obligations 55,000 120,000
Reduction of long-term obligations (5,998) (5,479)
Dividends (1,716) (1,707)
Exercise of stock options and other 464 222
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Cash flows provided by financing activities 130,950 100,736
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Increase in cash and cash equivalents 1,992 2,745
Cash and cash equivalents at beginning of period 6,437 2,159
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Cash and cash equivalents at end of period $ 8,429 $ 4,904
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Supplemental disclosure of cash flow information:
Interest paid, net of amount capitalized $ 10,194 $ 5,744
Income taxes paid $ 11,604 $ 8,523
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The accompanying notes are an integral part of the condensed consolidated
financial statements.
</TABLE>
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HUDSON FOODS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The condensed consolidated financial statements for the periods ended
June 28, 1997 and June 29, 1996 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 28, 1996, and
the Company's Form 10-K contain additional information which should be read in
conjunction with these financial statements.
Note 2. During the third quarter of fiscal 1997, the Company recorded a charge
associated with a comprehensive reorganization of its International Division,
with particular emphasis placed on structural changes to its business in Russia,
including reorganizing the Company's Russian market distribution system and
restructuring the Company's relationship with certain Russian customers.
Associated with these changes, the Company recognized that certain receivables,
inventory and related costs would not be recoverable.
Note 3. In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share ("FAS
128"). FAS 128 will change the computation, presentation and disclosure
requirements for earnings per share. FAS 128 requires the presentation of
"basic" and "diluted" earnings per share, as defined, for all entities with
complex capital structures. FAS 128 is effective for financial statements issued
for periods ending after December 15, 1997, and requires restatement of all
prior period earnings per share amounts. The Company has not yet determined the
impact that FAS 128 will have on its earnings per share when adopted.
<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 28, 1997 and the related condensed consolidated
statements of operations for the three and nine months ended June 28, 1997 and
June 29, 1996, and cash flows for the nine months ended June 28, 1997 and June
29, 1996. 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 28, 1996, and the
related consolidated statements of operations and cash flows for the year then
ended (not presented herein); and in our report dated October 29, 1996, 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 28, 1996 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, 1997
<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 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 1996, one such
customer accounted for approximately 18.7% of total sales. For the first nine
months of fiscal 1997, that same customer accounted for approximately 18.8% of
total sales. This strategy helps decrease 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 17.5% of the Company's total sales during
fiscal 1996 and 19.1% for the first nine months of fiscal 1997. The Company's
primary international markets are Russia, Eastern Europe, Asia and Central
America. The main products sold are chicken leg quarters, chicken paws and
turkey thigh meat.
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 1997 COMPARED WITH
THIRD QUARTER OF FISCAL 1996
Sales from the Company's operations were $435.4 million for the third quarter of
fiscal 1997, an increase of $98.2 million, or 29.1%, over the third quarter of
fiscal 1996. International sales increased by $28.4 million and were 19.6% and
16.9% of sales for the third quarter of fiscal 1997 and 1996, respectively. The
Company's primary international markets are Russia, Eastern Europe, Asia and
Central America. The main products sold into international markets were chicken
leg quarters, chicken paws and turkey thigh meat. The Company's four main
customer groups are: foodservice, club stores, retail and international. The
sales increase primarily resulted from the following:
Chicken sales increased 28.1% to $264.9 million in the third quarter
of fiscal 1997 from $206.9 million in the third quarter of fiscal
1996 primarily due to an 18.9% increase in volume and a 7.8%
increase in selling prices. Sales in all four customer groups
increased due to continuing consumer demand for chicken products.
Selling prices were strong due to high customer demand.
Portioned entree sales increased 50.2% to $55.3 million in the third
quarter of fiscal 1997 from $36.8 million in the third quarter of
fiscal 1996 due to a 52.7% increase in volume, offset by a 1.6%
decrease in selling prices. The volume increase was primarily due to
expanded sales in all four customer groups, especially foodservice
customers.
Turkey sales increased 11.7% to $46.8 million in the third quarter
of fiscal 1997 from $41.9 million in the third quarter of fiscal
1996 mainly due to a 22.3% increase in volume, offset by an 8.7%
decrease in selling prices. The Company has changed its production
emphasis from whole birds to further-processed products, but the
Company does sell some whole birds on a limited basis. For example,
whole birds were sold in the third quarter of fiscal 1997 but in the
second quarter of fiscal 1996. That timing difference partially
explains the volume increase and selling price decrease. Volume also
increased due to increased international sales.
Beef sales increased 58.7% to $36.0 million in the third quarter of
fiscal 1997 from $22.7 million in the third quarter of fiscal 1996
due to a 42.8% increase in volume and an 11.1% increase in selling
prices. The volume increase was due to increased sales to club
store, international and retail customers. Selling prices increased
due to increased raw material costs.
Luncheon meat sales increased 12.7% to $18.9 million in the third
quarter of fiscal 1997 from $16.7 million in the third quarter of
fiscal 1996 primarily due to an 11.2% increase in volume and a 1.3%
increase in selling prices. The volume increase was primarily due to
increased sales to club store customers.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
THIRD QUARTER OF FISCAL 1997 COMPARED WITH
THIRD QUARTER OF FISCAL 1996 (CONTINUED)
Cost of sales was $390.6 million for the third quarter of fiscal 1997, an
increase of $94.5 million, or 31.9%, over the third quarter of fiscal 1996. As a
percentage of sales, cost of sales was 89.7% and 87.8% in the third quarter of
fiscal 1997 and fiscal 1996, respectively. The increase was primarily due to an
increase in outside purchases (discussed below) and increased processing costs.
Feed and ingredient costs, as a percentage of sales, were 24.4% for the third
quarter of fiscal 1997 and 29.3% for the third quarter of fiscal 1996. Feed and
ingredient costs per ton for the third quarter of fiscal 1997 were down 6.0%
from the same period of fiscal 1996. Also, due to a lack of birds for processing
at the Company's new Kentucky plant, additional birds were purchased from
outside sources which caused costs to shift from feed and ingredients to outside
purchases.
Gross profit was $44.9 million in the third quarter of fiscal 1997, an increase
of $3.7 million, or 9.0%, from the third quarter of fiscal 1996. As a percentage
of sales, gross profit decreased to 10.3% in the third quarter of fiscal 1997
from 12.2% in the third quarter of fiscal 1996 due to the factors discussed
above.
Selling and general and administrative expenses were almost unchanged at $32.2
million in the third quarter of fiscal 1997 and $32.0 million for the third
quarter of fiscal 1996. As a percentage of sales, selling and general and
administrative expenses decreased to 7.4% in the third quarter of fiscal 1997
from 9.5% in the third quarter of fiscal 1996. During the third quarter of
fiscal 1997, the Company decreased certain selling expenses such as product
handling and advertising.
During the third quarter of fiscal 1997, the Company recorded a charge
associated with a comprehensive reorganization of its International Division.
The reorganization placed particular emphasis on changes to the Company's
Russian market distribution system and the Company's relationship with certain
Russian customers. The Company believes that the reorganization will allow it to
grow its customer base by distributing its products into the widespread
geographic markets of Russia. The Company also believes that there are business
opportunities in Russia and feels confident, under existing tariff laws, that
the restructuring will allow its International Division to effectively compete
in the Russian marketplace. Associated with these changes, the Company
recognized that certain receivables, inventory and related costs totaling $33.3
million would not be recoverable.
As a result of the charge recorded in the international reorganization, the
Company had an operating loss of $20.6 million for the third quarter of fiscal
1997 compared to operating income of $9.2 million for the third quarter of
fiscal 1996.
Interest expense increased as a result of increased short and long-term
borrowings.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FIRST NINE MONTHS OF FISCAL 1997 COMPARED WITH
FIRST NINE MONTHS OF FISCAL 1996
Sales from the Company's operations were $1,231.8 million for the first nine
months of fiscal 1997, an increase of $223.6 million, or 22.2%, over the first
nine months of fiscal 1996. International sales increased $54.8 million and were
19.1% and 17.9% of sales for the first nine months of fiscal 1997 and 1996,
respectively. The Company's primary international markets are Russia, Eastern
Europe, Asia and Central America. The main products sold into international
markets were chicken leg quarters, chicken paws and turkey thigh meat. The
Company's four main customer groups are: foodservice, club stores, retail and
international. The sales increase primarily resulted from the following:
Chicken sales increased 29.0% to $738.1 million in the first nine
months of fiscal 1997 from $572.1 million in the first nine months
of fiscal 1996 primarily due to an 18.5% increase in volume and an
8.9% increase in selling prices. Sales in all four customer groups
increased due to continuing consumer demand for chicken products.
Selling prices were strong due to high customer demand.
Portioned entree sales increased 29.1% to $162.0 million in the
first nine months of fiscal 1997 from $125.4 million in the first
nine months of fiscal 1996 due to a 30.6% increase in volume, offset
by a 1.1% decrease in selling prices. The volume increase was
primarily due to expanded sales in all four customer groups,
especially foodservice customers.
Turkey sales increased 7.1% to $143.1 million in the first nine
months of fiscal 1997 from $133.6 million in the first nine months
of fiscal 1996 mainly due to a 7.3% increase in selling prices. The
Company has changed its production emphasis from whole birds to
further-processed products. The change in product mix was the
primary cause of the large increase in selling prices.
Beef sales increased 39.8% to $92.3 million in the first nine months
of fiscal 1997 from $66.0 million in the first nine months of fiscal
1996 due to a 30.3% increase in volume and a 7.3% increase in
selling prices. The volume increase was primarily due to increased
sales to retail and club store customers. Selling prices increased
due to increased raw material costs.
Luncheon meat sales decreased 27.3% to $56.0 million in the first
nine months of fiscal 1997 from $77.0 million in the first nine
months of fiscal 1996 primarily due to a 30.7% decrease in volume
offset by a 4.9% increase in selling prices. The volume decrease was
primarily due to the December 1995 sale of the Company's Topeka,
Kansas luncheon meat plant and its related brand names and the
closing and subsequent sale of its Wichita, Kansas luncheon meat
plant. The increase in selling prices was primarily due to product
mix changes that resulted from the sale.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FIRST NINE MONTHS OF FISCAL 1997 COMPARED WITH
FIRST NINE MONTHS OF FISCAL 1996 (CONTINUED)
Cost of sales was $1,089.0 million for the first nine months of fiscal 1997, an
increase of $205.8 million, or 23.3%, over the first nine months of fiscal 1996.
As a percentage of sales, cost of sales was 88.4% and 87.6% for the first nine
months of fiscal 1997 and fiscal 1996, respectively. The stability of the
percentages primarily resulted from the net effect of higher feed and ingredient
costs, an increase in outside purchases (both discussed below), higher
processing costs and higher selling prices discussed above.
Feed and ingredient costs per ton for the first nine months of fiscal 1997 were
up approximately 2.3% over the same period of fiscal 1996, but feed and
ingredient costs, as a percentage of sales, were 23.9% and 25.6% for the first
nine months of fiscal 1997 and fiscal 1996, respectively. Due to a lack of birds
for processing at the Company's new Kentucky plant, additional birds were
purchased from outside sources which caused costs to shift from feed and
ingredients to outside purchases.
Gross profit was $142.8 million in the first nine months of fiscal 1997, an
increase of $17.8 million, or 14.2%, from the first nine months of fiscal 1996.
As a percentage of sales, gross profit decreased to 11.6% in the first nine
months of fiscal 1997 from 12.4% in the first nine months of fiscal 1996 due to
the factors discussed above.
Selling and general and administrative expenses were $99.1 million in the first
nine months of fiscal 1997, an increase of $4.0 million, or 4.2%, over the first
nine months of fiscal 1996. As a percentage of sales, selling and general and
administrative expenses decreased to 8.0% in the first nine months of fiscal
1997 from 9.4% in the first nine months of fiscal 1996. During the first nine
months of fiscal 1997, the Company decreased certain selling expenses such as
product handling, demonstrations and advertising.
During the third quarter of fiscal 1997, the Company recorded a charge
associated with a comprehensive reorganization of its International Division.
The reorganization placed particular emphasis on changes to the Company's
Russian market distribution system and the Company's relationship with certain
Russian customers. The Company believes that the reorganization will allow it to
grow its customer base by distributing its products into the widespread
geographic markets of Russia. The Company also believes that there are business
opportunities in Russia and feels confident, under existing tariff laws, that
the restructuring will allow its International Division to effectively compete
in the Russian marketplace. Associated with these changes, the Company
recognized that certain receivables, inventory and related costs totaling $33.3
million would not be recoverable.
Operating income was $10.4 million for the first nine months of fiscal 1997, a
decrease of $19.5 million, or 65.3%, from the first nine months of fiscal 1996.
The decrease was primarily due to the restructuring charge described previously.
Interest expense increased as a result of increased short and long-term
borrowings.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
Working capital at June 28, 1997 was $225.3 million compared with $213.9 million
at September 28, 1996. The current ratio was 1.99 to 1 and 2.42 to 1 at June 28,
1997 and September 28, 1996, respectively.
Accounts receivable increased mainly due to expanded sales in both domestic and
international markets. Inventory increased primarily due to increasing sales,
especially in international markets. Other current assets increased primarily
due to the recording of a $10.5 million income tax receivable due to the
overpayment of estimated taxes. Other assets increased primarily due to
miscellaneous investments and capitalized costs.
The Company's total capitalization, as represented by long-term obligations plus
stockholders' equity, was $599.1 million on June 28, 1997, compared with $550.9
million on September 28, 1996. Long-term obligations represented 45.5% and 40.8%
of total capitalization on June 28, 1997 and September 28, 1996, respectively.
Cash flows used for operating activities were $65.6 million in the first nine
months of fiscal 1997 compared with $22.8 million in the first nine months of
fiscal 1996. The change was primarily due to increases in operating assets.
The Company's capital budget for fiscal 1997 contemplates aggregate capital
expenditures of approximately $65 million for the addition of cooking facilities
at the Company's Indiana broiler complex, completion of the broiler complex near
Henderson, Kentucky and upgrading and/or expansion of current production
facilities and related equipment.
For the first nine months of fiscal 1997 and 1996, the Company had capital
expenditures of $56.3 million and $115.1 million, respectively. Capital
expenditures, in the first nine months of fiscal 1997, included the addition of
cooking facilities at the Company's Indiana broiler complex, the continuing
construction of a broiler complex near Henderson, Kentucky, the expansion and/or
upgrading of other production facilities and related equipment and the expansion
and/or upgrading of poultry grow-out facilities. The expansion of the Indiana
facility to a more specialized plant was completed on April 1, 1997. The plant
historically produced fresh cut-up chicken but is now marinating, breading and
cooking chicken. The plant currently is processing 460,000 birds per week and is
scheduled to produce 620,000 birds per week by November 1997. The Kentucky
processing plant produces individually quick frozen, tray packed, deboned and
marinated chicken products. The Kentucky complex is currently processing 650,000
birds per week and is scheduled to produce 1.3 million birds per week by
November 1997. The Company experienced delays in the construction of grow-out
houses in Kentucky due to bad weather which resulted in a lack of birds for
processing. With improved weather and site conditions, construction has started
again, and the Company is making progress in securing contract growers.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
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, 2000. At June 28, 1997, the Company
had $63.2 million and $14.2 million outstanding in notes payable and letters of
credit, respectively. 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 three separate unsecured short-term credit agreements with
financial institutions giving the Company the right to borrow up to $15.0
million each from two institutions and $10.0 million from the other. At June 28,
1997, the Company had $20.0 million outstanding under these agreements.
Total long-term obligations and current portion of long-term obligations
increased $49.0 million due to the net effect of the following: 1) proceeds
received on loans from insurance companies totaling $55.0 million and 2) normal
debt payments.
On December 6, 1996, the Company borrowed $50.0 million under an unsecured term
loan agreement from an insurance company at 6.97% due December 6, 2006. On April
11, 1997, $15.0 million in unsecured loans at 6.99% from insurance companies
matured. These loans were rolled into new unsecured loans totaling $20.0 million
from the same insurance companies at 6.99% due April 11, 2007. For the new
loans, interest payments only will be due in the first three years. Beginning in
the fourth year, quarterly principal and monthly interest payments will be due.
Restrictions and covenants are substantially the same as those included in the
$200.0 million unsecured credit agreement.
FORWARD LOOKING STATEMENT
Certain statements in this document constitute forward looking statements and
involve risks, uncertainties and other factors which may cause the actual
performance of the Company to be materially different from the performance
expressed or implied by such statements. Such factors include, among others,
market conditions and weather patterns that may affect the cost of grain,
consumer demand for poultry products, the completion on schedule of capital
projects planned or under construction, adverse publicity involving the Company
or the poultry industry, the possibility of tariff law changes or other
marketplace changes and restrictions directly affecting export sales,
difficulties in assessing credit risks in sales to Russian customers and in
collecting amounts owed, fluctuations in foreign exchange rates, and other risks
commonly encountered in international trade.
<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
<PAGE>
PART II - OTHER INFORMATION (CONTINUED)
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 (loss)
per share Page 17
15 Letter regarding unaudited
interim financial information Page 18
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Form 8-K with the Securities and Exchange
Commission on July 11, 1997. The report included "Item 5.
Other events". The other event was a press release issued by
the Company on July 11, 1997 regarding a restructuring charge
resulting from a reorganization of the Company's international
division.
<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 30, 1997 Michael T. Hudson
President and Chief Executive Officer
Date July 30, 1997 Charles B. Jurgensmeyer
Chief Financial Officer
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11
HUDSON FOODS, INC. AND SUBSIDIARIES
CALCULATION OF EARNINGS (LOSS) PER SHARE
(In thousands except per share data)
- -------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income (loss) $(14,901) $3,309 $960 $14,190
- -------------------------------------------------------------------------------------------
PRIMARY EARNINGS (LOSS) PER SHARE:
Weighted average number of common
shares outstanding 30,251 30,099 30,208 30,076
Common stock equivalents:
Dilutive options -- 310 263 328
- -------------------------------------------------------------------------------------------
Weighted average number of common
and common equivalent shares 30,251 30,409 30,471 30,404
- -------------------------------------------------------------------------------------------
Primary earnings (loss) per share $(0.49) $0.11 $0.03 $0.47
- -------------------------------------------------------------------------------------------
FULLY DILUTED EARNINGS (LOSS) PER SHARE:
Weighted average number of common
shares outstanding 30,251 30,099 30,208 30,076
Common stock equivalents:
Dilutive options -- 316 263 328
- -------------------------------------------------------------------------------------------
Weighted average number of common
and common equivalent shares 30,251 30,415 30,471 30,404
- -------------------------------------------------------------------------------------------
Fully diluted earnings (loss) per share $(0.49) $0.11 $0.03 $0.47
- -------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
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, 1997 on our review of the
interim financial information of Hudson Foods, Inc. for the periods ended
June 28, 1997 and June 29, 1996, 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 29, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-27-1997
<PERIOD-END> JUN-28-1997
<CASH> 8,429
<SECURITIES> 0
<RECEIVABLES> 122,462
<ALLOWANCES> 5,280
<INVENTORY> 292,313
<CURRENT-ASSETS> 453,453
<PP&E> 567,377
<DEPRECIATION> 165,947
<TOTAL-ASSETS> 904,079
<CURRENT-LIABILITIES> 228,158
<BONDS> 0
0
0
<COMMON> 311
<OTHER-SE> 325,991
<TOTAL-LIABILITY-AND-EQUITY> 904,079
<SALES> 1,231,846
<TOTAL-REVENUES> 1,231,846
<CGS> 1,089,031
<TOTAL-COSTS> 1,221,472
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,773
<INCOME-PRETAX> 1,601
<INCOME-TAX> 641
<INCOME-CONTINUING> 960
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 960
<EPS-PRIMARY> .03
<EPS-DILUTED> 0
</TABLE>
