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 March 29, 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 April 22, 1997 Hudson Foods, Inc. had 20,645,581 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.
<PAGE>
PART 1 FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HUDSON FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
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March 29, September 28,
1997 1996
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,768 $ 6,437
Receivables, net 125,671 108,792
Inventory:
Field inventory 59,401 61,250
Feed, eggs and other 41,245 32,273
Finished products 183,897 133,349
Other 21,514 22,373
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Total current assets 438,496 364,474
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Property, plant and equipment, net of accumulated depreciation
of $163,790 and $150,745 391,247 367,600
Excess cost of investment, net 13,838 14,119
Other assets 31,684 28,549
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Total assets $875,265 $774,742
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 45,000 $ -
Current portion of long-term obligations 26,144 24,714
Accounts payable 55,696 69,552
Accrued liabilities 52,646 49,578
Deferred income taxes 6,741 6,741
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Total current liabilities 186,227 150,585
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Long-term obligations 268,998 224,951
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Deferred income taxes and deferred gain 78,277 73,286
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Stockholders' equity:
Common stock:
Class A, $.01 par value; 40,000,000 shares authorized;
issued 21,475,075 and 21,384,664 shares 215 214
Class B, $.01 par value; 40,000,000 shares authorized;
issued and outstanding 9,602,522 shares 96 96
Additional capital 160,037 159,314
Retained earnings 191,871 177,153
Treasury stock, at cost (836,644 and 877,196 Class A shares) (10,456) (10,857)
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Total stockholders' equity 341,763 325,920
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Total liabilities and stockholders' equity $875,265 $774,742
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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>
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Three Months Ended Six Months Ended
March 29, March 30, March 29, March 30,
1997 1996 1997 1996
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<S> <C> <C> <C> <C>
Sales $405,117 $330,297 $796,397 $670,971
Cost of sales 358,052 293,369 698,459 587,126
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Gross profit 47,065 36,928 97,938 83,845
Selling 24,912 24,134 50,919 47,791
General and administrative 7,906 8,208 16,015 15,329
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Operating income 14,247 4,586 31,004 20,725
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Other expense:
Interest, net 3,217 1,540 4,569 2,810
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Total other expense 3,217 1,540 4,569 2,810
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Income before income taxes 11,030 3,046 26,435 17,915
Income tax expense 4,412 1,164 10,574 7,034
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Net income $ 6,618 $ 1,882 $ 15,861 $ 10,881
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Earnings per share $0.22 $0.06 $0.52 $0.36
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Shares used in earnings per share computations:
Primary and fully diluted 30,520 30,426 30,475 30,409
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Dividends per share:
Class A $0.0200 $0.0200 $0.0400 $0.0400
Class B $0.0167 $0.0167 $0.0334 $0.0334
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Sales Growth 22.7% 21.5% 18.7% 21.6%
Margins (Percent of Sales):
Gross Profit 11.6% 11.2% 12.3% 12.5%
Operating Income 3.5% 1.4% 3.9% 3.1%
Income Before Income Taxes 2.7% 0.9% 3.3% 2.7%
Net Income 1.6% 0.6% 2.0% 1.6%
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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>
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Six Months Ended
March 29, March 30,
1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 15,861 $ 10,881
Items included in net income not requiring cash:
Depreciation 13,994 11,962
Amortization 701 689
Deferred gain (1,002) (1,195)
Deferred income taxes 5,356 1,979
Changes in operating assets and liabilities (83,168) (81,838)
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Cash flows used for operating activities (48,258) (57,522)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (37,954) (76,118)
Disposition of property, plant and equipment, net 313 305
Funds received from trustee for capital project - 16,926
Sale of business - 31,912
Other (3,555) (3,238)
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Cash flows used for investing activities (41,196) (30,213)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Addition to (reduction of) notes payable 45,000 (12,300)
Addition to long-term obligations 50,000 120,000
Reduction of long-term obligations (4,523) (4,108)
Dividends (1,143) (1,138)
Exercise of stock options and other 451 163
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Cash flows provided by financing activities 89,785 102,617
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Increase in cash and cash equivalents 331 14,882
Cash and cash equivalents at beginning of period 6,437 2,159
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Cash and cash equivalents at end of period $ 6,768 $ 17,041
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Supplemental disclosure of cash flow information:
Interest paid, net of amount capitalized $ 5,899 $ 3,152
Income taxes paid $ 5,940 $ 7,318
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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 March 29, 1997 and March 30, 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. 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. 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.
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 March 29, 1997 and the related
condensed consolidated statements of operations for the three and six
months ended March 29, 1997 and March 30, 1996, and cash flows for the
six months ended March 29, 1997 and March 30, 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
April 22, 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 six
months of fiscal 1997, that same customer accounted for approximately
18.6% 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 18.9% for the first six 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)
SECOND QUARTER OF FISCAL 1997 COMPARED WITH
SECOND QUARTER OF FISCAL 1996
Sales from the Company's operations were $405.1 million for the second
quarter of fiscal 1997, an increase of $74.8 million, or 22.7%, over
the second quarter of fiscal 1996. International sales increased by
$12.3 million and were 20.3% and 21.2% of sales for the second 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 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 25.4% to $246.6 million in the second
quarter of fiscal 1997 from $196.6 million in the second quarter of
fiscal 1996 primarily due to a 15.3% increase in volume and an 8.8%
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 25.3% to $56.5 million in the
second quarter of fiscal 1997 from $45.0 million in the second
quarter of fiscal 1996 due to a 32.2% increase in volume, offset by
a 5.2% decrease in selling prices. The volume increase was primarily
due to expanded sales in all four customer groups, especially
foodservice sales to schools. In fiscal 1996, the Company added a
new line of sandwiches and a line of main entrees for vending and
convenience store customers, both of which are beginning to have
significant sales. Selling prices were down due to volume discounts
and introductory pricing for some products.
Turkey sales increased 7.3% to $41.6 million in the second quarter
of fiscal 1997 from $38.8 million in the second quarter of fiscal
1996 mainly due to a 13.0% increase in selling prices, offset by a
5.1% decrease in volume. The Company has changed its production
emphasis from whole birds to further-processed products. That change
in product mix was the primary cause of the large increase in
selling prices and the decrease in volume.
Beef sales increased 26.6% to $28.7 million in the second quarter of
fiscal 1997 from $22.7 million in the second quarter of fiscal 1996
due to a 20.9% increase in volume and a 4.7% increase in selling
prices. The volume increase was primarily due to increased sales to
retail customers. Selling prices increased due to increased raw
material costs. The Company is beginning to see increased sales from
its efforts to expand its customer base, especially to large grocery
store chains.
Luncheon meat sales increased 5.0% to $17.6 million in the second
quarter of fiscal 1997 from $16.7 million in the second quarter of
fiscal 1996 primarily due to a 7.0% increase in selling prices which
was offset by a 1.9% decrease in volume. After the sale in December
1995 of the Company's Topeka, Kansas luncheon meat plant and the
subsequent closing of its Wichita, Kansas luncheon meat plant, the
Company continued to reorganize its operations and change its focus
for luncheon meat. The Company is now selling more premium products
that command higher selling prices.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
SECOND QUARTER OF FISCAL 1997 COMPARED WITH
SECOND QUARTER OF FISCAL 1996 (CONTINUED)
Cost of sales was $358.1 million for the second quarter of fiscal 1997,
an increase of $64.7 million, or 22.0%, over the second quarter of
fiscal 1996. As a percentage of sales, cost of sales was 88.4% and
88.8% in the second quarter of fiscal 1997 and fiscal 1996,
respectively. The stability of the percentages primarily resulted from
the net effect of lower feed and ingredient costs, an increase in
outside purchases (both discussed below) and higher selling prices
discussed above.
Feed and ingredient costs per ton for the second quarter of fiscal 1997
were down 1% from the same period of fiscal 1996. Feed and ingredient
costs, as a percentage of sales, were 23.8% for the second quarter of
fiscal 1997 and 26.2% for the second quarter of fiscal 1996. 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 $47.1 million in the second quarter of fiscal 1997, an
increase of $10.1 million, or 27.5%, from the second quarter of fiscal
1996. As a percentage of sales, gross profit increased to 11.6% in the
second quarter of fiscal 1997 from 11.2% in the second quarter of
fiscal 1996 due to the factors discussed above.
Selling and general and administrative expenses were $32.8 million in
the second quarter of fiscal 1997, an increase of $0.5 million, or
1.5%, over the second quarter of fiscal 1996. As a percentage of sales,
selling and general and administrative expenses decreased to 8.1% in
the second quarter of fiscal 1997 from 9.8% in the second quarter of
fiscal 1996. During the second quarter of fiscal 1997, the Company
decreased certain selling expenses such as demonstrations, product
handling, promotion and product storage expenses.
Operating income was $14.2 million for the second quarter of fiscal
1997, an increase of $9.7 million, or 210.7%, from the second quarter
of fiscal 1996. The increase was primarily due to the improvements in
the Company's operations described previously.
Interest expense increased as a result of increased long-term
borrowings.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FIRST SIX MONTHS OF FISCAL 1997 COMPARED WITH
FIRST SIX MONTHS OF FISCAL 1996
Sales from the Company's operations were $796.4 million for the first
six months of fiscal 1997, an increase of $125.4 million, or 18.7%,
over the first six months of fiscal 1996. International sales increased
$26.4 million and were 18.9% and 18.5% of sales for the first six
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 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 29.6% to $473.2 million in the first six
months of fiscal 1997 from $365.2 million in the first six months of
fiscal 1996 primarily due to an 18.3% increase in volume and a 9.5%
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 20.4% to $106.6 million in the
first six months of fiscal 1997 from $88.6 million in the first six
months of fiscal 1996 due to a 22.2% increase in volume, offset by a
1.5% decrease in selling prices. The volume increase was primarily
due to expanded sales in all four customer groups, especially
foodservice sales to schools. In fiscal 1996, the Company added a
new line of sandwiches and a line of main entrees for vending and
convenience store customers, both of which are beginning to have
significant sales. Selling prices were down due to volume discounts
and introductory pricing for some products.
Turkey sales increased 5.0% to $96.3 million in the first six months
of fiscal 1997 from $91.7 million in the first six months of fiscal
1996 mainly due to a 16.1% increase in selling prices, offset by a
9.5% decrease in volume. The Company has changed its production
emphasis from whole birds to further-processed products. That change
in product mix was the primary cause of the large increase in
selling prices and the decrease in volume.
Beef sales increased 29.9% to $56.4 million in the first six months
of fiscal 1997 from $43.4 million in the first six months of fiscal
1996 due to a 23.8% increase in volume and a 4.9% increase in
selling prices. The volume increase was primarily due to increased
sales to retail customers. Selling prices increased due to increased
raw material costs. The Company is beginning to see increased sales
from its efforts to expand its customer base, especially to large
grocery store chains.
Luncheon meat sales decreased 38.4% to $37.1 million in the first
six months of fiscal 1997 from $60.3 million in the first six months
of fiscal 1996 primarily due to a 41.4% decrease in volume offset by
a 5.1% 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 SIX MONTHS OF FISCAL 1997 COMPARED WITH
FIRST SIX MONTHS OF FISCAL 1996 (CONTINUED)
Cost of sales was $698.5 million for the first six months of fiscal
1997, an increase of $111.3 million, or 19.0%, over the first six
months of fiscal 1996. As a percentage of sales, cost of sales was
87.7% and 87.5% for the first six 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) and higher selling prices
discussed above.
Feed and ingredient costs per ton for the first six months of fiscal
1997 were up approximately 6% over the same period of fiscal 1996, but
feed and ingredient costs, as a percentage of sales, were almost
unchanged at 23.7% and 23.8% for the first six 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 $97.9 million in the first six months of fiscal 1997,
an increase of $14.1 million, or 16.8%, from the first six months of
fiscal 1996. As a percentage of sales, gross profit decreased to 12.3%
in the first six months of fiscal 1997 from 12.5% in the first six
months of fiscal 1996 due to the factors discussed above.
Selling and general and administrative expenses were $66.9 million in
the first six months of fiscal 1997, an increase of $3.8 million, or
6.0%, over the first six months of fiscal 1996. As a percentage of
sales, selling and general and administrative expenses decreased to
8.4% in the first six months of fiscal 1997 from 9.4% in the first six
months of fiscal 1996. During the first six months of fiscal 1997, the
Company decreased certain selling expenses such as product handling,
demonstrations and brokerage expenses.
Operating income was $31.0 million for the first six months of fiscal
1997, an increase of $10.3 million, or 49.6%, from the first six months
of fiscal 1996. The increase was primarily due to the improvements in
the Company's operations described previously.
Interest expense increased as a result of increased 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 March 29, 1997 was $252.3 million compared with
$213.9 million at September 28, 1996. The current ratio was 2.35 to 1
and 2.42 to 1 at March 29, 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. The Company
has increased its presence in Russia, and at March 29, 1997, had
several shipments of inventory enroute to Russia. Also in March 1997,
Russia began to collect full custom duties on poultry entering the
country. The enforcement of the tariffs has slowed the distribution of
U.S. poultry and also caused price increases to Russian consumers.
The Company's total capitalization, as represented by long-term
obligations plus stockholders' equity, was $610.8 million on March 29,
1997, compared with $550.9 million on September 28, 1996. Long-term
obligations represented 44.0% and 40.8% of total capitalization on
March 29, 1997 and September 28, 1996, respectively.
Cash flows used for operating activities were $48.3 million in the
first six months of fiscal 1997 compared with $57.5 million in the
first six months of fiscal 1996. The change was primarily due to the
increase in net income adjusted for non-cash charges, reduced by
increases in operating assets and liabilities.
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 six months of fiscal 1997 and 1996, the Company had
capital expenditures of $38.0 million and $76.1 million, respectively.
Capital expenditures, in the first six months of fiscal 1997, included
the addition of cooking facilities to 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 430,000
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 400,000 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,
1999. At March 29, 1997, the Company had $30.0 million and $17.0
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 March 29, 1997, the Company had $15.0 million outstanding
under these agreements.
Total long-term obligations and current portion of long-term
obligations increased $45.5 million due to the net effect of the
following: 1) proceeds received on a loan from an insurance company
totaling $50.0 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. 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. The unsecured loan agreement contains
restrictions and covenants that are substantially the same as those
included in the $200.0 million unsecured 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
At the February 14, 1997 Annual Meeting of Stockholders
of Hudson Foods, Inc., the stockholders passed two proposals.
Proposal I. The following persons were elected to the
Company's Board of Directors by the votes indicated below:
Name For Withheld
James T. Hudson 113,457,079 1,104,629
Michael T. Hudson 113,460,701 1,101,007
Charles B. Jurgensmeyer 113,459,007 1,102,701
Elmer W. Shannon 113,452,977 1,108,731
Jerry L. Hitt 113,485,243 1,076,465
Kenneth N. May 113,492,429 1,069,279
James R. Hudson 113,459,192 1,102,516
Jane M. Helmich 113,456,128 1,105,580
Proposal II. By 109,714,956 votes "For," 1,353,851 votes "Against,"
144,439 votes "Abstaining" and 3,348,732 broker non-votes, the
stockholders ratified the Company's 1996 Stock Option Plan. Item 5.
Other Information
<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 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 May 5, 1997 Michael T. Hudson
President and Chief Executive Officer
Date May 5, 1997 Charles B. Jurgensmeyer
Chief Financial Officer
EXHIBIT 11
HUDSON FOODS, INC. AND SUBSIDIARIES
CALCULATION OF EARNINGS PER SHARE
(In thousands except per share data)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
March 29, March 30, March 29, March 30,
1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $6,618 $1,882 $15,861 $10,881
- ---------------------------------------------------------------------------------------------
PRIMARY EARNINGS PER SHARE:
Weighted average number of common
shares outstanding 30,227 30,083 30,187 30,065
Common stock equivalents:
Dilutive options 293 343 288 344
- ---------------------------------------------------------------------------------------------
Weighted average number of common
and common equivalent shares 30,520 30,426 30,475 30,409
- ---------------------------------------------------------------------------------------------
Primary earnings per share $0.22 $0.06 $0.52 $0.36
- ---------------------------------------------------------------------------------------------
FULLY DILUTED EARNINGS PER SHARE:
Weighted average number of common
shares outstanding 30,227 30,083 30,187 30,065
Common stock equivalents:
Dilutive options 293 343 288 344
- ---------------------------------------------------------------------------------------------
Weighted average number of common
and common equivalent shares 30,520 30,426 30,475 30,409
- ---------------------------------------------------------------------------------------------
Fully diluted earnings per share $0.22 $0.06 $0.52 $0.36
- ---------------------------------------------------------------------------------------------
</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 April 22, 1997 on our review of the
interim financial information of Hudson Foods, Inc. for the periods ended
March 29, 1997 and March 30, 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
May 1, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-27-1997
<PERIOD-END> MAR-29-1997
<CASH> 6,768
<SECURITIES> 0
<RECEIVABLES> 127,719
<ALLOWANCES> 2,048
<INVENTORY> 284,543
<CURRENT-ASSETS> 438,496
<PP&E> 555,037
<DEPRECIATION> 163,790
<TOTAL-ASSETS> 875,265
<CURRENT-LIABILITIES> 186,227
<BONDS> 0
0
0
<COMMON> 311
<OTHER-SE> 341,452
<TOTAL-LIABILITY-AND-EQUITY> 875,265
<SALES> 796,397
<TOTAL-REVENUES> 796,397
<CGS> 698,459
<TOTAL-COSTS> 765,393
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,569
<INCOME-PRETAX> 26,435
<INCOME-TAX> 10,574
<INCOME-CONTINUING> 15,861
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,861
<EPS-PRIMARY> .52
<EPS-DILUTED> 0
</TABLE>
