-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PLiIZh13hVdiedHYL0kHIYXD/WxTAA9W4L8HCiy/sgZ1Md7uwE6u1v/r4H1J5+sp M6SSa2kaMCqgwCbi8puSxw== 0000786617-95-000009.txt : 19951220 0000786617-95-000009.hdr.sgml : 19951220 ACCESSION NUMBER: 0000786617-95-000009 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951219 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HUDSON FOODS INC CENTRAL INDEX KEY: 0000786617 STANDARD INDUSTRIAL CLASSIFICATION: POULTRY SLAUGHTERING AND PROCESSING [2015] IRS NUMBER: 710427616 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09050 FILM NUMBER: 95602708 BUSINESS ADDRESS: STREET 1: 1225 HUDSON RD CITY: ROGERS STATE: AR ZIP: 72757 BUSINESS PHONE: 5016361100 MAIL ADDRESS: STREET 1: P O BOX 777 CITY: ROGER STATE: AR ZIP: 72757 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 1995 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from______________to____________ Commission File Number: 1-9050 Hudson Foods, Inc. (Exact name of registrant as specified in its charter) Delaware 71-0427616 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1225 Hudson Road Rogers, Arkansas 72756 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (501) 636-1100 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Name of Each Exchange on Title of Each Class Which Registered Class A Common Stock, $.01 par value New York Stock Exchange, Inc. SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment of this Form 10-K. On December 1, 1995, there were outstanding 20,470,573 shares of the registrant's Class A common stock, $.01 par value, and 9,602,672 shares of the registrant's Class B common stock, $.01 par value. The Class B common stock is not registered or publicly traded, and its transferability is restricted. The aggregate market value of the 19,535,326 shares of Class A common stock held by non-affiliates of the registrant as of December 1, 1995 was $312,565,216. The aggregate market value of the 2,672 shares of Class B common stock held by non-affiliates of the registrant on December 1, 1995 was $42,752, assuming that each share of Class B common stock has a market value equal to a share of Class A common stock. DOCUMENTS INCORPORATED BY REFERENCE Hudson Foods, Inc. Annual Report for fiscal year ended September 30, 1995 (certain portions incorporated by reference into part II) Proxy Statement for Annual Meeting of Stockholders, February 9, 1996 and Adjournments (certain portions incorporated by reference into Part III) PART I ITEM 1. BUSINESS GENERAL DEVELOPMENT OF BUSINESS Hudson Foods, Inc. ("Hudson" or the "Company") was organized in 1972 by James T. Hudson to purchase a broiler processing plant in Noel, Missouri and other related assets from the Ralston Purina Company. The Company's poultry operations grew in subsequent years through a series of acquisitions including an integrated turkey operation in 1979 and a major poultry company in 1986 which doubled Hudson's size. Between 1987 and 1990 the Company expanded into luncheon meats with the acquisitions of three established regional brands: OhSe(R), Schweigert(R) and Roegelein(R). In 1990, the Company entered the market for frozen portioned entrees through the acquisition of Pierre Frozen Foods, Inc. ("Pierre") and expanded those operations in 1992 with the purchase of an additional manufacturing plant. The Company entered the market for beef products when its newly constructed beef processing plant began production in February 1995. The Company's luncheon meat operation is comprised of three processing plants. On October 4, 1995, the Company entered into a letter of intent with Farmland Foods, Inc. to sell its Topeka, Kansas, luncheon meat plant and also the OhSe(R) and Roegelein(R) brand names. Additionally, the Company intends to close its Wichita, Kansas, luncheon meat processing facility no later than January 13, 1996. The two plants that are proposed to be sold or closed produce ham, bacon and a variety of luncheon meats and were responsible for about $110.0 million of fiscal 1995 sales. The Company will keep its plant located in Albert Lea, Minnesota, and also the Schweigert(R) brand name. NARRATIVE DESCRIPTION OF BUSINESS General The Company is a vertically integrated producer of chicken and turkey products, controlling the breeding, hatching, growing, processing and packaging of those product lines. According to 1994 industry statistics, the Company was the seventh largest integrated broiler company of 52 companies that were surveyed.(1) Additionally, the Company processes and markets beef and pork products. ______________ (1) Information contained in the January 1995 issue of "U.S. Broiler Industry." The rankings were based on average weekly ready-to- cook production in millions of pounds during the past twelve months. The Company was established as a regional poultry producer selling commodity-type products. Through acquisitions and expansions, the Company has increased its sales and product lines. In recent years the Company has implemented a strategy to increase sales of further- processed products, to increase sales to targeted large customers under supply and pricing arrangements that yield more stable profit margins and to diversify its product lines to include non-poultry products. On October 12, 1994, Hudson entered into a five-year, cost-plus supply agreement with Boston Chicken, Inc., a franchiser and operator of Boston Market foodservice stores specializing in complete meals featuring rotisserie roasted chicken. That agreement provided for Boston Chicken to purchase 100% of the capacity of two Hudson chicken processing plants, one in Dexter, Missouri, and one being built near Henderson, Kentucky. But subsequent to the signing of the original supply agreement, Boston Market broadened its menu, which decreased its anticipated needs for chicken. In light of this development, the Company plans to build the Henderson plant for the production of chill-pack and individually frozen products, as the Company anticipates strong future demand for those products from customers other than Boston Chicken. The Dexter plant , however, is expected to remain in place as a facility producing chicken products for Boston Chicken. The Company anticipates that the original supply agreement with Boston Chicken will be modified and, as a result, the Company will be afforded opportunities to expand its relationship with Boston Chicken by supplying turkey, ham and meat loaf in addition to chicken products. The Dexter plant began producing approximately 650,000 chickens per week for Boston Market in April 1995. The Henderson plant is expected to begin production in the summer of 1996. Through most of fiscal 1995, each of the Company's product lines, i.e. chicken, portioned entrees, luncheon meat, turkey and beef represented separate divisions with separate management and sales staffs. In August 1995, the Company created the specialty foods division by combining the portioned entree, luncheon meat, turkey and beef divisions under one unified management team. The specialty foods division will have a more focused structure with centralized sales and marketing. Products, Marketing and Customers The following table sets forth for the periods indicated the net sales for each of the Company's major product lines and the respective percentage of total sales.
Fiscal Year Ended ------------------------------------------------------------- September 30, 1995 October 1, 1994 October 2, 1993 Percentage Percentage Percentage Net of Total Net of Total Net of Total Sales Sales Sales Sales Sales Sales ------------------------------------------------------------- (In millions) Chicken $ 648.3 54.0% $ 533.4 51.2% $454.9 49.4% Portioned entrees 171.4 14.3 175.5 16.9 143.5 15.6 Luncheon meats 159.0 13.2 164.7 15.8 159.9 17.4 Turkey 145.1 12.1 113.2 10.9 100.6 10.9 Beef 37.3 3.1 -- -- -- -- Other(1) 39.4 3.3 54.0 5.2 61.6 6.7 -------- ------ -------- ------ ------ ------ Totals $1,200.5 100.0% $1,040.8 100.0% $920.5 100.0% ======== ====== ======== ====== ====== ====== - -------------- (1) Other primarily includes sales of liquid and dried egg products., bird, feed mill, transportation and distribution branch sales.
The following table sets forth for the periods indicated the net sales to each of the Company's customer groups and the respective percentage of total sales.
Fiscal Year Ended ---------------------------------------------------------------- September 30, 1995 October 1, 1994(1) October 2, 1993(1) Percentage Percentage Percentage Net of Total Net of Total Net of Total Sales Sales Sales Sales Sales Sales ---------------------------------------------------------------- (In millions) Foodservice & club stores $ 508.9 42.4% $ 474.6 45.6% $446.1 48.5% Retail 506.2 42.2 440.6 42.3 383.8 41.7 International 139.2 11.6 60.7 5.8 28.0 3.0 Other 46.2 3.8 64.9 6.3 62.6 6.8 -------- ------ -------- ------ ------ ------ Totals $1,200.5 100.0% $1,040.8 100.0% $920.5 100.0% ======== ====== ======== ====== ====== ====== (1) Certain Fiscal 1994 and 1993 customer group amounts have been reclassified to conform to the 1995 presentation.
The Company's products are sold domestically in three primary markets: foodservice, club stores and retail outlets. The foodservice market is comprised primarily of full-service and fast- food restaurants, prepared food companies and various institutional customers such as schools, colleges and health care facilities. The retail market includes grocery store chains, independent grocery stores and grocery wholesalers. The Company sells its products through independent brokers and sales personnel of the Company. The products are distributed from the Company's plants or storage facilities to the final customer or distribution centers via Company-owned trucks or contract carriers. The primary raw materials used by the Company in its operations include raw meat, feed ingredients, cooking ingredients and packaging supplies. The Company grows substantially all the live chickens and turkeys used by its processing plants but also buys live birds and processed poultry from outside sources. Beef and pork raw materials are purchased from outside sources. The Company believes that its sources of supply for these materials are adequate for its present needs and does not anticipate any difficulty in acquiring these materials in the future. Chicken. The Company offers a wide variety of further-processed chicken products for convenient preparation and consumption in homes, restaurants and institutions. The Company's principal further-processed products are cooked and uncooked individually frozen boneless and bone-in chicken pieces, breaded and fried chicken breast patties, chicken breast tenderloins, chicken nuggets, buffalo-style wings and barbecued chicken. These products are sold nationally to club stores, foodservice and retail outlets under the Hudson(R) and Delightful Farms(R) brand names. In addition to further-processed products, the Company sells chill- packed and ice-packed chicken parts and whole birds. The chill- packed products are marketed under the Hudson(R) brand name to retail and foodservice outlets. The ice-packed products are sold in bulk to retail and foodservice outlets and franchisees of fast food chains. Portioned Entrees. The Company's portioned entree products are sold nationally and consist of a full line of portion-controlled products including many varieties of flame-broiled chicken, beef and pork patties, microwaveable chicken, beef and pork sandwiches, sausage patties and links, country-fried steak, chicken nuggets, chicken patties, unbreaded char-broiled chicken, beef and pork finger foods, pizza, potato skin kits, chicken fajita kits and related products. These products are distributed to club store chains and foodservice customers such as restaurants, employee cafeterias, schools, colleges, universities and health-care facilities. The Company is one of the nation's largest processors of United States Department of Agriculture ("USDA") commodity beef and pork into further-processed products for school lunch programs. In addition, the portioned entree division sells to vending machine operators and sandwich makers that service convenience stores. The portioned entree products are marketed under the Pierre(R) and Hudson(R) brand names. Luncheon Meats. The Company's luncheon meat products include a line of further-processed meat products that are sold primarily in the Central United States. Those products include luncheon meats, wieners, sausage, hams, bacon and miscellaneous chicken and turkey products. Its principal customers consist of retail supermarket chains, cooperative supermarket warehouses and club store chains, together with foodservice customers such as restaurants, schools and other vendors. Products are marketed under the OhSe(R), Schweigert(R) and Roegelein(R) brand names as well as various private labels. Turkey. The Company offers a full line of further-processed turkey products which includes smoked turkey, turkey sausage, turkey pastrami, turkey salami, turkey bologna and turkey ham sold under the Hudson(R) brand name. The Company also sells fat-free, flavored turkey breasts under the Gourmet Recipe(R) line. The Company markets individually packaged whole turkeys, both fresh and frozen, during seasonal peaks under the Hudson(R) brand name and private labels. The Company's turkey products are sold nationally primarily to retail delicatessens, foodservice customers, retail grocery chains and club store chains. Beef. The Company's beef operation produces hamburger patties for the Burger King system that are sold in retail outlets primarily in the Midwestern United States. In addition, the Company has agreements to supply patties to national retail and club store outlets. (Also see "Beef" discussion in Item 2. Property.) International Sales The Company's products are sold internationally through sales offices located in Rogers, Arkansas; Miami, Florida; Gdynia, Poland and Moscow, Russia. International sales accounted for 11.6% of the Company's total sales during fiscal 1995. The Company's products were sold primarily in Russia, Eastern Europe, Asia and Latin America. The majority of these sales were leg quarters to wholesalers in Russia and Poland, but the Company also sold other items such as hot dogs and turkey products. The loss of sales to Russia could have a material adverse effect on the Company. Major Customers The Company's sales to Wal-Mart Stores, Inc. ("Wal-Mart") in fiscal 1995 constituted approximately 14.7% of total sales. No other customer accounted for more than 10% of the Company's sales in fiscal 1995. Sales to the Company's second largest customer, the Burger King system, were approximately 6.7% of total sales. The loss of either of these customers may have a material adverse effect on the Company. Competition The primary competitive factors in the poultry industry include price, product quality, product development, brand identification and customer service. Hudson's poultry products compete primarily with other integrated poultry companies. Although poultry is relatively inexpensive in comparison with other meats, the Company also competes indirectly with the producers of other meats and fish and changes in the relative prices of these foods may affect consumer buying patterns. The Company's portioned entree product lines compete with regional and national meat processing companies, some of which are divisions of fully integrated companies. The luncheon meat product lines compete primarily with national and regional meat processing companies. Price and brand name recognition are important factors in the business. Regulation The poultry industry is subject to significant government regulation, particularly in the health and environmental areas by the USDA, the Food and Drug Administration ("FDA") and the Environmental Protection Agency. The Company anticipates increased regulation by the USDA concerning food safety as well as by the FDA regarding the use of medication in feed. The Company's food processing facilities are subject to on-site examination, inspection and regulation by the USDA. The FDA inspects the production of the Company's feed mills. Compliance with applicable regulations has not had a material adverse effect upon the Company's earnings or competitive position in the past, and is not anticipated to have a material adverse effect in the future. Management believes that the Company is in substantial compliance with all applicable laws and regulations relating to the operation of its facilities. The Company takes all reasonable precautions to ensure that its flocks are healthy and that its processing plants and other facilities operate in a sanitary and environmentally sound manner. However, events beyond the control of the Company, such as an outbreak of poultry disease in its flocks or the adoption by the government of more stringent environmental regulations, could adversely affect its operations. Employees and Labor Relations As of September 30, 1995, the Company employed 10,303 persons. Generally, the Company believes that relations with its employees are good. ITEM 2. PROPERTY General The Company regularly engages in construction and other capital improvement projects intended to expand and improve the efficiency of its processing and support facilities. The Company's chicken facilities were generally fully utilized in fiscal 1995. The Company's portioned entree, luncheon meat and turkey facilities were generally 85% to 90% utilized in fiscal 1995. The Company's beef facility is currently producing at approximately 50% of its capacity. (See "Beef" discussion below). The Company believes that its facilities are generally in good condition and suitable for their current purposes. The Company's Hope, Arkansas, Springfield, Missouri and Cincinnati, Ohio facilities are subject to mortgages or deeds of trust. Plants and Facilities Chicken. The Company's chicken operations include breeding, hatching, rearing, ingredient procurement, feed formulation and milling, veterinary and other technical services, processing and related transportation and delivery services. The Company contracts with independent growers to maintain the Company's flocks of breeder chickens which lay eggs. The Company transfers the eggs to its hatcheries. The newly hatched broiler chicks are then delivered to independent contract growers or Company-owned farms where they are raised until they reach processing weight, usually within seven weeks. During the growout period, the Company provides growers with feed and other items, as well as supervisory and technical assistance. The broilers are then transported by Company trucks to its processing plants. The Company operates six chicken processing plants devoted to various phases of slaughtering, dressing, cutting, packaging, deboning and further- processing. These processing plants are located in Hope, Arkansas; Berlin, Maryland; Noel, Missouri; Albertville, Alabama; Dexter, Missouri; and Corydon, Indiana. It operates six feed mills, eight broiler hatcheries and four protein facilities. The Company's current processing volume is approximately 5.3 million chickens per week. During fiscal 1995 the Company processed approximately 4.6 million chickens per week, yielding approximately 863.0 million pounds of chicken products for the year. The Company is currently building an integrated chicken processing complex near Henderson, Kentucky. When completed, the complex will include a feed mill, hatchery, processing plant and protein plant. The Henderson plant is expected to begin production in the summer of 1996, with initial production averaging 325,000 chickens per week. When the Henderson plant reaches full capacity, scheduled for 1997, its production is expected to average 1.3 million chickens per week. Portioned Entrees. The Company produces its portioned entree products at plants in Cincinnati, Ohio and Caryville, Tennessee which have annual production capacity of approximately 100 million pounds. During fiscal 1995, the Company produced approximately 85 million pounds of portioned entree products. Luncheon Meats. The Company produces luncheon meats, wieners, sausage, and miscellaneous cooked chicken and turkey products at two plants, one in Topeka, Kansas, and one in Albert Lea, Minnesota. All ham and bacon products are produced at the Company's plant in Wichita, Kansas. The three plants' annual production capacity for processed meat products is approximately 170 million pounds. During fiscal 1995, the Company produced approximately 152 million pounds of luncheon meat products. The Company has entered into a letter of intent that anticipates the sale of the Topeka plant and has announced plans to close the Wichita plant. See Item 1. Business. General Development of Business. Turkey. The Company is a fully integrated turkey processor. The Company's turkey operations include similar processes as discussed above for chicken. The Company operates two turkey processing facilities in Springfield, Missouri. One is a basic processing plant and the other is a further-processing plant. These facilities have an annual production capacity of 170 million pounds. During fiscal 1995, the Company produced approximately 146 million pounds of turkey products. In addition, the Company operates one feed mill and two hatcheries. Beef. The Company completed the construction of a hamburger processing plant in Columbus, Nebraska in February 1995. The annual plant capacity is approximately 190 million pounds. During the eight months the plant was in production in fiscal 1995, it produced approximately 32 million pounds. The plant was originally designed to process hamburger patties primarily for the Burger King system. However, the plant size was subsequently expanded to allow for additional capacity to serve other customers. The Burger King system has committed to purchase, for a multi-year period, approximately one-third of the capacity of the plant and has an option to buy more. Sales to the Burger King system are made based on a formula price plus raw material costs. The plant also processes patties and chubs for national retail and club store outlets and has recently obtained contracts to produce 40 million pounds in the next twelve to fourteen months. That new business should raise the plant production from its current level of 50% of capacity to approximately 70% by the end of the first quarter of fiscal 1996. In addition, the Company is a minority co-investor with the Burger King Corporation and SBS Processing, Inc. in a similar hamburger processing plant in Petersburg, Virginia. Other. The Company has a feed mill and an egg breaking plant in Social Circle, Georgia that produces liquid and dried egg products. ITEM 3. LEGAL PROCEEDINGS On March 16, 1993, the United States of America, by the Attorney General of the United States acting at the request of the Environmental Protection Agency, filed a civil complaint against the Company in the United States District Court for the South District of Indiana, New Albany Division, as civil action No. NA 93-19-C, alleging violations of the Federal Water Pollution Control Act (the "Act"). Subsequently, this action was moved to the Indianapolis Division and assigned Cause No. IP93-0692-C. The complaint seeks, among other things, a permanent injunction preventing the Company from discharging wastewater in violation of the Act from one of its processing facilities, and a civil penalty of up to $25,000 per day for each violation of the Act. The Company has reached an agreement in principle with the United States Department of Justice to settle the litigation without admission of any violation. The agreement has not been finalized and submitted to the District Court for entry. However, the Company believes that if the final agreement is consistent with the agreement in principle, the outcome will not have a material adverse effect on the Company's consolidated financial position or results of operations. The Company believes that its operations are in substantial compliance with applicable environmental laws and regulations. The Company has, however, in the past paid monetary sanctions for violations of its wastewater discharge permits. There can be no assurance that the Company will not experience future regulatory proceedings and lawsuits relating to the environmental impact of its operations. The Company cannot predict what, if any, effect such future proceedings or lawsuits may have on its operations. The Company is, at any time, involved in ordinary routine litigation incidental to its business. Such litigation is not considered material to the Company's operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. COMMON STOCK The Company's certificate of incorporation permits the issuance of up to 40,000,000 shares each of Class A common stock, $.01 par value, and Class B common stock, $.01 par value. On December 1, 1995, there were 21,346,824 shares of Class A common stock issued (including 876,251 shares held in treasury) and 9,602,672 shares of Class B common stock issued and outstanding. The Transfer Agent and Registrar for both classes of common stock is Chemical Mellon Shareholder Services of Los Angeles, California. The Class A common stock has one vote per share, while the Class B common stock has ten votes per share in all matters submitted to a vote of the Company's stockholders. Except as required by law or the certificate of incorporation, holders of Class A or Class B common stock shall vote together as a single class. Holders of Class A and Class B common stock are entitled to receive such dividends and other distributions as may be determined by the Board of Directors out of any funds of the Company legally available therefor; provided, however, that no dividend may be declared and paid on the Class B common stock unless a dividend is also declared and paid on the Class A common stock, and, in such an event, the dividend per share of Class B common stock may not exceed 90% of the dividend per share of Class A common stock. Certain members of the Hudson family own substantially all of the Class B common stock which concentrates voting control over the Company with James T. Hudson and the Hudson family. The Class B common stock voting power is sufficient to, among other things, approve or prevent extraordinary corporate transactions, such as mergers, consolidations or sales of substantially all of the Company's assets and to elect or remove the members of the Board of Directors. Transfer of the Class B common stock may only be made to a "permitted transferee" as defined in the Company's certificate of incorporation, but shares of Class B common stock may be converted by the holder into an equal number of shares of Class A common stock at any time. The Company may not issue additional shares of Class B common stock without the approval of a majority of the votes of the outstanding shares of Class A common stock and Class B common stock, each voting separately as a class, except in connection with stock splits and stock dividends. The Board of Directors and the holders of a majority of the outstanding shares of Class B common stock may approve the conversion of all of the Class B common stock into shares of Class A common stock. In the event of a liquidation of the Company, all assets available for distribution after payment of all prior claims would be divided among and paid ratably to the holders of Class A common stock and Class B common stock. Subject to any conversion rights of the holders of Class B common stock, holders of Class A and Class B common stock have no preemptive rights to subscribe for or receive any part of the authorized stock of the Company, additional or increased issues of stock of any class or of any obligations convertible into any class or classes of stock. Further, no stockholder has the right to cumulate votes in the election of directors. On December 1, 1995, the 20,470,573 shares of Class A common stock then outstanding were held by approximately 1,405 holders of record (excluding persons holding shares in nominee names). The Company's Class A common stock is currently traded on the New York Stock Exchange ("NYSE") under the symbol "HFI." The following table sets forth the quarterly high and low sales prices for the Class A common stock as reported on the NYSE.
High Low ------ ------ Fiscal 1994* First Quarter 9 7 1/8 Second Quarter 11 1/8 7 3/8 Third Quarter 12 1/4 8 1/2 Fourth Quarter 16 3/4 11 7/8 Fiscal 1995 First Quarter* 17 7/8 13 7/8 Second Quarter* 20 16 3/4 Third Quarter 19 1/4 12 3/4 Fourth Quarter 15 1/2 13 1/4 Fiscal 1996 First Quarter (through December 13, 1995) 17 1/4 13 5/8 *Prices adjusted to reflect a 3-for-2 stock split effective March 27, 1995.
The Class B common stock is not traded on the NYSE or any other exchange, and the Company is not aware of any public market for such shares. On December 1, 1995, 9,602,672 shares of Class B common stock were outstanding; these shares were held by approximately 19 holders of record. James T. Hudson beneficially owns 99.9 percent of the outstanding Class B common stock. On November 21, 1994, the Company sold 2.5 million shares of newly issued Class A common stock at $21.75 per share in a public stock offering. The Company received $20.72 per share, or $51.8 million from the offering. The underwriters' fee accounted for the difference of $1.03 per share. Also, certain stockholders of the Company sold 2.1 million shares of Class A common stock at $21.75 per share. On March 27, 1995, the Company issued 6.7 million shares of Class A common stock and 3.2 million shares of Class B common stock in a three-for-two stock split, effected as a stock dividend. DEBENTURES In October 1986, the Company sold $70,000,000 in principal amount of 8% convertible subordinated debentures due 2006 (the "Old Debentures"). Each Old Debenture, as issued, could be converted into shares of the Company's common stock. Following the reclassification of the Company's common stock in fiscal 1987, the Old Debentures were convertible only into shares of Class A common stock (herein called "Class A Old Debentures"). During the Company's exchange offer relating to reclassification of its common stock, holders of Class A Old Debentures were given the option of making such Debentures convertible into shares of Class B common stock (herein called "Class B Old Debentures"). During fiscal 1988, the Company offered the holders of its Old Debentures the option of exchanging those Old Debentures for newly issued 14% convertible subordinated debentures due 2008 (the "New Debentures"). Under the exchange offer, each $1,000 in principal amount of Class A Old Debentures could be exchanged for $650 in principal amount of New Debentures; each $1,000 in principal amount of Class B Old Debentures could be exchanged for $600 in principal amount of New Debentures. The exchange offer was concluded on August 31, 1988. As a result of the exchange offer, there were outstanding on that date $17,410,000 of Class A Old Debentures, $946,000 of Class B Old Debentures and $32,496,000 of New Debentures. Because New Debentures were not exchanged for Old Debentures on a dollar-for-dollar basis, the exchange offer resulted in the retirement of $19,073,000 in principal amount of long-term debt and an extraordinary after-tax gain to the Company of $10,855,000. During the second quarter of fiscal 1993, the Company called all of the New Debentures. Approximately 75 percent of the New Debentures were converted to Class A common stock at a conversion price of $12.25 per share, with the remainder exchanged for cash including a 4.8% premium over par. This conversion resulted in a decrease in long-term debt and corresponding increase in stockholders' equity. During the fourth quarter of fiscal 1994, the Company called all of the Class A Old Debentures and the Class B Old Debentures. Approximately $8.1 million of the Class A Old Debentures were converted into shares of Class A common stock at a conversion price of $21.00 per share during fiscal 1994. By October 7, 1994, approximately $13.6 million of the Class A Old Debentures were converted to Class A common stock and all $26,000 of the Class B Old Debentures were converted to Class B common stock, with the remainder exchanged for cash including a 1.6% premium over par. The conversions resulted in decreases in long-term debt and increases in stockholders' equity in fiscal 1994 and fiscal 1995. DIVIDEND POLICY The Company's Board of Directors has declared cash dividends every fiscal quarter since the Company's initial public offering in February 1986. Since April 1987, the Board has declared quarterly dividends of $.02 per share of Class A common stock and $.0167 per share of Class B common stock (dividend payments have been adjusted to reflect a 3- for-2 stock split effective March 27, 1995). The Company's certificate of incorporation restricts the per share dividends declared and paid on Class B common stock to not more than 90 percent of the per share dividends declared and paid on Class A common stock. Payment of future dividends will depend upon the Company's financial condition, results of operations and other factors deemed relevant by the Board of Directors. Additionally, the Company has entered into certain loan agreements that restrict its ability to pay dividends. The Company's primary credit facility restricts dividend payments to a maximum of $2.8 million in any fiscal year. ITEM 6. SELECTED FINANCIAL DATA. Incorporated by reference from the section captioned "Eleven-Year Financial Summary," pages 30 and 31 of the Hudson Foods, Inc. 1995 Annual Report (the "1995 Annual Report"). ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Incorporated by reference from the sections captioned "Discussion of Operations," "Discussion of the Balance Sheet" and "Discussion of Cash Flows," pages 16, 17, 19 and 21 of the 1995 Annual Report. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Incorporated by reference from the sections captioned "Consolidated Statement of Operations," "Consolidated Balance Sheet," "Consolidated Statement of Cash Flows," "Notes to Consolidated Financial Statements," "Quarterly Financial Data (Unaudited)," and "Report of Independent Accountants," pages 16, 18, 20, 22-27, 29 and 32 of the 1995 Annual Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Incorporated by reference from the sections captioned "Election of Directors," "Executive Officers" and "Section 16 Requirements" contained in the Company's Proxy Statement for Annual Meeting of Stockholders, February 9, 1996 and Adjournments (the "Proxy Statement"). ITEM 11. EXECUTIVE COMPENSATION. Incorporated by reference from the section captioned "Executive Compensation" contained in the Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Incorporated by reference from the section captioned "Principal Stockholders" contained in the Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Incorporated by reference from the sections captioned "Executive Compensation - Compensation Committee Interlocks and Insider Participation" and "Certain Transactions" contained in the Proxy Statement. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) Documents filed as a part of this report. 1. Financial statements. The following consolidated financial statements of Hudson Foods, Inc. and Subsidiaries have been incorporated by reference from the 1995 Annual Report into Part II, Item 8 of this Report. Description Consolidated Statement of Operations Consolidated Balance Sheet Consolidated Statement of Cash Flows Notes to Consolidated Financial Statements Report of Independent Accountants 2. Financial statement schedules. Schedule No. Description Page II Valuation and Qualifying Accounts 14 N/A Report of Independent Accountants 15 3. Exhibits required by Item 601 of Regulation S-K. Exhibit No. Description 3a Restated certificate of incorporation of Hudson Foods, Inc.(1) 3b Restated by-laws of Hudson Foods, Inc., as amended to date(2) 4a Restated Certificate of Incorporation of Hudson Foods, Inc., Section 4(1) 9 Form of revocable proxy held by James T. Hudson(1) 10a Amended and Restated 1985 Stock Option Plan(3) 10b Form of Hudson Foods Stock Option Agreement(4) 10c Form of Hudson Farms Turkey Growing Contract(4) 10d Form of Hudson Farms Broiler Growing Contract(4) 10e Revolving Credit Agreement by and among Hudson Foods, Inc., Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland," New York Branch, Bank of America National Trust and Savings Association, NationsBank of Texas, National Association, Caisse Nationale De Credit Agricole, "Credit Agricole," Harris Trust and Savings Bank and Cooperatieve Centrale Raiffeisen-Boerenleenbank, B.A., "Rabobank Nederland," New York Branch, as Agent dated as of April 26, 1994(5) 10f Hudson Foods, Inc. Note Purchase Agreement dated as of May 18, 1994, $50,000,000 Fixed Rate Senior Notes, Guaranteed by Hudson Farms, Inc.(5) 10g Purchase and Supply Agreement, dated October 12, 1994 between Hudson Foods, Inc. and Boston Chicken, Inc.(6) 10h Supplier Agreement, dated April 26, 1994, between Hudson Foods, Inc. and Restaurant Services, Inc., as purchasing agent for the Burger King System(6) 11 Computation of Earnings Per Share 13 Annual Report to Shareholders 21 Subsidiaries of Hudson Foods, Inc. 23 Consent of Independent Accountants 27 Financial Data Schedule (b) Reports on Form 8-K. The Company filed no Current Reports on Form 8-K during the fourth quarter of fiscal 1995. (1) Incorporated by reference from Hudson Foods, Inc. Form S-4 Registration Statement No. 33-15274, as amended, filed with the Securities and Exchange Commission on June 23, 1987. (2) Incorporated by reference from Hudson Foods, Inc., Form S-3 Registration Statement No. 33-56019, as amended, filed with the Securities and Exchange Commission on October 13, 1994. (3) Incorporated by reference from Hudson Foods, Inc. Form S-8 Registration Statement No. 33-27738, as amended, filed with the Securities and Exchange Commission on March 23, 1989. (4) Incorporated by reference from Hudson Foods, Inc. Form S-1 Registration Statement No. 33-2505, as amended, filed with the Securities and Exchange Commission on December 31, 1985. (5) Incorporated by reference from Hudson Foods, Inc. Quarterly Report on Form 10-Q for the quarterly period ended July 2, 1994, filed with the Securities and Exchange Commission on August 1, 1994. (6) Incorporated by reference from Hudson Foods, Inc., Form 8-K Current Report dated October 13, 1994, filed with the Securities and Exchange Commission on October 13, 1994. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HUDSON FOODS, INC. December 19, 1995 By /s/ James T. Hudson James T. Hudson Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. December 19, 1995 By /s/ James T. Hudson James T. Hudson Chairman of the Board, Chief Executive Officer and Director December 19, 1995 By /s/ Michael T. Hudson Michael T. Hudson President, Chief Operating Officer and Director December 19, 1995 By /s/ Charles B. Jurgensmeyer Charles B. Jurgensmeyer Principal Financial and Accounting Officer and Director December 19, 1995 By Elmer W. Shannon Director December 19, 1995 By Jerry L. Hitt Director December 19, 1995 By Kenneth N. May Director December 19, 1995 By /s/ James R. Hudson James R. Hudson Director December 19, 1995 By /s/ Jane M. Helmich Jane M. Helmich Director HUDSON FOODS, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS For the Three Years in the Period Ended September 30, 1995 (Dollars in Thousands)
Column A Column B Column C Column D Column E - -------------------------------------------------------------------------------- Additions Balance at Charged to Charged to Balance at beginning costs and other end of Description of period expenses accounts Write Offs period - -------------------------------------------------------------------------------- Allowance for doubtful accounts: Year ended September 30, 1995 $1,463 $707 $16(1) $(411) $1,775 ========================================================= Year ended October 1, 1994 $1,208 $627 $15(1) $(387) $1,463 ========================================================= Year ended October 2, 1993 $1,344 $103 $31(1) $(270) $1,208 ========================================================= (1) Collections of previously charged off amounts.
REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders Hudson Foods, Inc. Our report on the consolidated financial statements of Hudson Foods, Inc. has been incorporated by reference in this Form 10-K from page 29 of the 1995 Annual Report to Shareholders of Hudson Foods, Inc. In connection with our audits of such financial statements, we have also audited the related financial statement schedule on page 14 of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. Coopers & Lybrand L.L.P. Tulsa, Oklahoma October 31, 1995 EX-11 2 EXHIBIT 11 HUDSON FOODS, INC. AND SUBSIDIARIES CALCULATION OF EARNINGS PER SHARE (In thousands except per share data) Twelve Months Ended September 30, October 1, 1995 1994 [S] [C] [C] Net income $35,758 $26,992 ======================================================================= PRIMARY EARNINGS PER SHARE: Weighted average number of common shares outstanding 29,124 24,399 Common stock equivalents: Dilutive options 370 549 ------- ------- Weighted average number of common and common equivalent shares 29,494 24,948 ======= ======= Primary earnings per share $1.21 $1.08 ======================================================================= FULLY DILUTED EARNINGS PER SHARE: Weighted average number of common shares outstanding 29,124 24,399 Common stock equivalents: Dilutive options 370 700 ------- ------ Weighted average number of common and common equivalent shares 29,494 25,099 ======= ====== Fully diluted earnings per share $1.21 $1.08 ======================================================================= EX-13 3 Exhibit 13
CONSOLIDATED STATEMENT OF OPERATIONS For the Years Ended September 30, October 1, October 2, (Dollars in thousands except 1995 1994 1993 per share data) Sales $1,200,512 $1,040,840 $920,545 Cost of sales 1,023,959 885,248 802,002 ----------- ----------- --------- Gross profit 176,553 155,592 118,543 Selling 82,945 78,698 63,926 General and administrative 29,211 25,755 20,695 ----------- ----------- --------- Operating income 64,397 51,139 33,922 ----------- ----------- --------- Other expense (income): Interest, net 1,845 6,152 7,975 Interest on tax settlement 4,500 -- -- Other, net (2,190) -- 530 ----------- ----------- --------- Total other expense 4,155 6,152 8,505 ----------- ----------- --------- Income before income taxes 60,242 44,987 25,417 Income tax expense 24,484 17,995 9,512 ----------- ----------- --------- Net income $ 35,758 $ 26,992 $ 15,905 =========== =========== ========= Earnings per share*: Primary $1.21 $1.08 $0.67 Fully diluted $1.21 $1.08 $0.67 =========== =========== ========= *Reflects 3-for-2 stock split distributed on March 27,1995 The accompanying notes are an integral part of the consolidated financial statements.
DISCUSSION OF OPERATIONS 1995 VS. 1994. Sales from the Company's operations were $1.2 billion for fiscal 1995, an increase of $159.7 million, or 15.3%, over fiscal 1994. The sales increase primarily resulted from the following: * Chicken sales increased 21.5% to $648.3 million in fiscal 1995 from $533.4 million in fiscal 1994 primarily due to a 25.2% increase in volume partially offset by a 2.9% decrease in selling prices. The volume increase was essentially due to increased sales in international markets, especially Russia, and increased domestic consumer demand for chicken products. International sales were 11.6% and 5.8% of fiscal 1995 and 1994 sales, respectively. * Portioned entree sales decreased 2.4% to $171.4 million in fiscal 1995 from $175.5 million in fiscal 1994 primarily due to a 3.8% decrease in selling prices slightly offset by a 1.5% increase in volume. portioned entrees experienced some changes in its customer base and product lines that caused overall selling prices to decline. * Luncheon meat sales decreased 3.5% to $159.0 million in fiscal 1995 from $164.7 million in fiscal 1994 primarily due to a 9.9% decrease in selling prices offset by a 7.1% increase in volume. * Turkey sales increased 28.2% to $145.1 million in fiscal 1995 from $113.2 million in fiscal 1994 primarily due to a 22.0% increase in volume and a 5.1% increase in selling prices. * Beef sales were $37.3 million in fiscal 1995. The Company's hamburger plant in Columbus, Nebraska, began production in February 1995. Cost of sales was $1.0 billion for fiscal 1995, an increase of $138.7 million, or 15.7%, over fiscal 1994. As a percentage of sales, cost of sales increased to 85.3% in fiscal 1995 from 85.1% in fiscal 1994. The increase primarily resulted from higher processing costs due to increased sales of further-processed products and decreases in selling prices discussed earlier. The increase was offset somewhat by an 8.8% decrease in feed costs per ton. Gross profit was $176.6 million in fiscal 1995, an increase of $21.0 million, or 13.5%, over fiscal 1994. Selling and general and administrative expenses were $112.2 million in fiscal 1995, an increase of $7.7 million, or 7.4%, over fiscal 1994. As a percentage of sales, selling and general and administrative expenses decreased to 9.3% in fiscal 1995 from 10.0% in fiscal 1994. Operating income was $64.4 million in fiscal 1995, an increase of $13.3 million, or 25.9%, over fiscal 1994. The increase was primarily due to the improvements in the Company's operations described previously. Interest expense decreased primarily due to the conversion and redemption of the 8% convertible subordinated debentures, increased capitalized interest on construction in progress and increased interest income on the short-term investment of excess cash. During the second quarter of fiscal 1995, based on the Company's best estimate of the final tax and interest due resulting from an Internal Revenue Service examination settlement, the Company recorded $0.5 million of tax expense and $4.5 million of interest expense. Other income for fiscal 1995 was primarily composed of insurance proceeds received in excess of the book value of assets destroyed by fire. 1994 VS. 1993. Sales from the Company's operations were $1.04 billion for fiscal 1994, an increase of $120.3 million, or 13.1%, over fiscal 1993. The sales increase resulted primarily from the following: * Chicken sales increased 17.3% to $533.4 million in fiscal 1994 from $454.9 million in fiscal 1993 due to higher finished product prices, a change in the product mix to include additional further- processed and convenience products and a 13.7% increase in volume. The volume increase was primarily due to increased sales in international markets. * Portioned entree sales increased 22.3% to $175.5 million in fiscal 1994 from $143.5 million in fiscal 1993 primarily due to higher finished product prices and a 15.8% increase in volume which was primarily due to new sales to the Burger King system and sales of meal kit products. * Luncheon meat sales increased 3.0% to $164.7 million in fiscal 1994 from $159.9 million in fiscal 1993 due to higher finished product prices. * Turkey sales increased 12.5% to $113.2 million in fiscal 1994 from $100.6 million in fiscal 1993 due to higher finished product prices and sales of additional further-processed products. Cost of sales was $885.2 million for fiscal 1994, an increase of $83.2 million, or 10.4%, over fiscal 1993. As a percentage of sales, cost of sales decreased to 85.1% in fiscal 1994 from 87.1% in fiscal 1993 primarily due to improved operating efficiencies and product mix changes. This improvement was partially offset by a 6.9% increase in feed costs per ton. Gross profit was $155.6 million for fiscal 1994, an increase of $37.0 million, or 31.3%, over fiscal 1993. Selling and general and administrative expenses were $104.5 million in fiscal 1994, an increase of $19.8 million, or 23.4%, over fiscal 1993. As a percentage of sales, selling and general and administrative expenses increased to 10.0% in fiscal 1994 from 9.2% in fiscal 1993. This increase was due to higher advertising, distribution, demonstration, and product handling expenses primarily related to increased international sales, meal kit products and Sam's Club sales. In addition, there was an increase in incentive compensation accruals. Interest expense was $6.2 million in fiscal 1994, a decrease of $1.8 million, or 22.9%, from fiscal 1993. This decrease was due primarily to the redemption of 14% convertible subordinated debentures in the second quarter of fiscal 1993. GENERAL. Historically, the Company's operating results have been heavily influenced by two factors: the cost of feed grains and commodity-based finished product prices. These two factors have fluctuated significantly and independently. In recent years the Company has undertaken a business strategy to increase the production and sale of further-processed products and increase sales to large customers such as club store and foodservice chains. In 1995, one customer accounted for approximately 14.7% of total sales. This strategy decreased the proportion of feed grain costs to total cost of sales, which reduced the impact of commodity cost fluctuations. In addition, the sales prices of further- processed products are less sensitive to commodity price fluctuations. Even so, a material increase in feed costs or a material decrease in finished product prices could have an adverse effect on the Company, but management believes that the implementation of this strategy has reduced the Company's vulnerability to such price fluctuations. The Company believes that its operations are in substantial compliance with applicable environmental laws and regulations.
CONSOLIDATED BALANCE SHEET September 30, October 1, (Dollars in thousands) 1995 1994 Assets Current assets: Cash and cash equivalents $ 2,159 $ 1,899 Receivables: Trade 82,461 66,490 Other 392 481 ----------- --------- 82,853 66,971 Less allowance for doubtful accounts 1,775 1,463 ----------- --------- 81,078 65,508 Inventories 177,055 135,501 Other 36,313 12,073 ----------- --------- Total current assets 296,605 214,981 Property, plant and equipment, net 275,624 229,050 Excess cost of investment over net assets acquired, net 14,682 15,244 Other assets 36,630 13,905 ----------- --------- Total assets $623,541 $473,180 =========== ========= Liabilities and Stockholders' Equity Current liabilities: Notes payable $ 12,300 $ 16,800 Current portion of long-term obligations 8,742 5,109 Accounts payable 47,676 41,188 Accrued liabilities 44,590 40,581 Deferred income taxes (Note 7) 2,839 11,207 ----------- --------- Total current liabilities 116,147 114,885 ----------- --------- Long-term obligations 129,973 75,169 ----------- --------- Deferred income taxes and deferred gain (Notes 7 and 9) 73,072 73,937 ----------- --------- Commitments and contingencies (Note 9) Stockholders' equity: Common stock: Class A, $.01 par value, issued 21,331,374 and 9,233,893 shares 213 92 Class B, $.01 par value, issued and outstanding 9,602,672 and 8,501,882 shares 96 85 Additional capital 158,842 97,505 Retained earnings 156,432 122,923 ----------- --------- 315,583 220,605 Treasury stock, at cost (915,438 and 933,854 Class A shares) (11,234) (11,416) ----------- --------- Total stockholders' equity 304,349 209,189 ----------- --------- Total liabilities and stockholders' equity $623,541 $473,180 =========== ========= The accompanying notes are an integral part of the consolidated financial statements.
DISCUSSION OF BALANCE SHEET Working capital at September 30, 1995 was $180.5 million compared with $100.1 million at October 1, 1994 and the current ratio was 2.55 to 1 and 1.87 to 1 at September 30, 1995 and October 1, 1994, respectively. Receivables and inventories increased primarily due to increased sales, especially in international markets. Other current assets increased primarily due to the recording of an insurance claim receivable for fire losses and increased prepaid marketing expenses. Other assets increased primarily due to loan proceeds being held by a trustee for a capital project. Current deferred income taxes decreased due to the payment of previously recorded deferred taxes and increases in current deferred tax assets. The Company's total capitalization, as represented by long-term obligations plus stockholders' equity, was $434.3 million on September 30, 1995, compared with $284.4 million on October 1,1994. Long-term obligations represented 29.9% and 26.4% of total capitalization on September 30, 1995 and October 1, 1994, respectively. The Company had $12.3 million of notes payable due under its unsecured credit agreements at September 30, 1995 compared with $16.8 million on October 1, 1994. Total long-term obligations and current portion of longterm obligations increased $58.4 million due to the net effect of the following: 1) proceeds received on a $50.0 million loan from an insurance company; 2) proceeds received on a $25.0 million loan from the county of Henderson, Kentucky; 3) $3.8 million of 8% convertible subordinated debentures that were redeemed and $5.5 million that were converted into Class A common stock; 4) a $1.1 million debt prepayment; and 5) normal debt payments. Common stock and additional capital increased $61.5 million to $159.2 million at September 30, 1995 from $97.7 million at October 1, 1994. The increase primarily resulted from the issuance of 2.5 million new shares of Class A common stock sold in a public stock offering on November 21, 1994, and the conversion of $5.5 million of 8% convertible subordinated debentures into common stock. Additionally, during the second quarter of fiscal 1995, the Company issued 6.7 million shares of Class A common stock and 3.2 million shares of Class B common stock in a three-for-two stock split, effected as a stock dividend. In February 1995, the Company reached an agreement with the Internal Revenue Service regarding the examination of the 1989 and 1990 Federal income tax returns. Based on management's best estimate of the final outcome of the examination, the Company recorded $0.5 million of tax expense and accrued $4.5 million of interest expense attributable to taxes due for the years under audit and the effect of the audit on all subsequent tax years. During the third quarter of fiscal 1995, the Company made a $15.0 million advance payment of the estimated tax and interest due under the settlement and the effect of the settlement on all subsequent years. The advance payment was applied as follows: $4.5 million to the interest accrued in the second quarter and $10.5 million to deferred income taxes payable. Total taxes due under the settlement have not been finalized, but management believes the liability will be substantially less than the IRS assessment. Management anticipates that the final calculation of the liability will be completed in fiscal 1996.
CONSOLIDATED STATEMENT OF CASH FLOWS For the Years Ended September 30, October 1, October 2, (Dollars in thousands) 1995 1994 1993 Cash flows from operating activities: Net income $ 35,758 $ 26,992 $15,905 Non-cash items included in net income: Depreciation 24,084 21,246 21,629 Amortization 1,053 1,033 1,314 Deferred income taxes 4,637 209 171 Other (2,777) (2,777) (1,004) Changes in assets and liabilities: Trade and other receivables (15,570) (8,056) (10,667) Inventories (41,554) (19,004) (8,461) Accounts payable 6,488 9,633 1,430 Accrued liabilities 4,423 11,814 12,021 Other (35,261) (4,798) (3,331) ---------- --------- -------- Cash flows provided by (used for) operating activities (18,719) 36,292 29,007 ---------- --------- -------- Cash flows from investing activities: Purchase of property, plant and equipment (73,314) (49,161) (21,453) Disposition of property, plant and equipment, net 3,828 4,271 1,262 Funds held by trustee for capital project (16,926) -- -- Proceeds from sale-leaseback agreements (Note 9) -- -- 19,167 Acquisitions of businesses -- -- (825) Other (5,427) (4,407) 523 ---------- --------- -------- Cash flows used for investing activities (91,839) (49,297) (1,326) ---------- --------- -------- Cash flows from financing activities: Additions (reductions) to notes payable (4,500) 16,800 (15,000) Additions to long-term obligations 75,000 -- 3,370 Reductions of long-term obligations (11,021) (5,635) (15,769) Sale of Class A common stock 51,264 -- -- Dividends (2,249) (1,796) (1,706) Exercise of stock options and other 2,324 1,644 1,366 ---------- --------- -------- Cash flows provided by (used for) financing activities 110,818 11,013 (27,739) ---------- --------- -------- Increase (decrease) in cash and cash equivalents 260 (1,992) (58) Cash and cash equivalents at beginning of period 1,899 3,891 3,949 ---------- --------- -------- Cash and cash equivalents at end of period $ 2,159 $ 1,899 $ 3,891 ========== ========= ======== Supplemental disclosure of cash flow information: Cash paid during the year for: Interest, net of amounts capitalized $ 7,111 $ 6,321 $ 7,090 Income taxes $ 32,210 $ 13,300 $ 7,299 ========== ========= ======== The accompanying notes are an integral part of the consolidated financial statements.
DISCUSSION OF CASH FLOWS The Company's cash flows used for operating activities was $18.7 million for fiscal 1995 compared with cash flows provided by operations of $36.3 million for fiscal 1994. The decrease was primarily due to increases in operating assets and a $10.5 million decrease in deferred income taxes resulting from the payment of taxes due as a result of an Internal Revenue Service examination. Historically, the Company's operations have been financed through internally generated funds, borrowings, lease arrangements and the issuance of common stock. On April 26, 1994, the Company entered into a $100.0 million unsecured credit agreement that expires June 30, 1998. At September 30, 1995, the Company had $91.6 million available under this agreement. The Company did not have any notes payable outstanding under the agreement but had $8.4 million in outstanding letters of credit. The credit agreement, among other things, limits the payment of dividends to approximately $2.8 million in any fiscal year and limits annual capital expenditures and lease obligations. It requires the maintenance of minimum levels of working capital and tangible net worth, and requires that the current ratio, leverage ratio and cash flow coverage ratio be maintained at certain levels. It also limits the creation of new secured debt to $25.0 million and new unsecured short-term debt with parties outside the credit agreement to $20.0 million. Additionally, an event of default will occur if the aggregate outstanding voting power of James T. Hudson and his immediate family is reduced below 51%. Also, the Company has entered into four separate unsecured short- term credit agreements with financial institutions giving the Company the right to borrow up to $10.0 million each from three institutions and $15.0 million from one institution. At September 30, 1995, the Company had $12.3 million of notes payable outstanding under these agreements. On March 2, 1995, the county of Henderson, Kentucky, issued solid waste disposal tax-exempt revenue bonds and loaned the $25.0 million proceeds to the Company. The proceeds are to be used to finance the construction of solid waste disposal and sewage facilities at the Company's new chicken complex being built near Henderson, Kentucky. The bonds, as initially issued, accrue interest at weekly rates and mature on March 1, 2015. The rate at issue was 3.80% and is currently 4.10%. On June 13, 1995, the Company borrowed $50.0 million under an unsecured term loan agreement from an insurance company at a fixed interest rate of 6.90% to mature June 1, 2005. Covenants under the loan agreement are consistent with those required by the $100.0 million unsecured credit agreement. For fiscal 1995 and 1994, the Company had capital expenditures of $73.3 million and $49.2 million, respectively. Due to the level of capital expenditures for fiscal 1995, the Company was required to obtain waivers of debt covenants from certain lenders. Capital expenditures, for fiscal 1995, were for the construction of a beef processing plant in Columbus, Nebraska, the beginning of construction of a chicken complex near Henderson, Kentucky, and the expansion and/or upgrading of existing production facilities and related equipment. The beef processing plant began production in February 1995 and the Kentucky chicken complex is expected to begin production in 1996. The Company's capital budget for fiscal 1996 contemplates aggregate capital expenditures of approximately $100.0 million for the completion of the chicken complex in Kentucky and upgrading and/or expanding current production facilities and related equipment. The capital expenditures have been and will continue to be financed by operations, borrowings, lease arrangements and the issuance of common stock. On October 4, 1995, the Company entered into a letter of intent to sell its Topeka, Kansas, luncheon meats processing facility along with the related Ohse and Roegelein brand names. Additionally, the Company intends to close its Wichita, Kansas, luncheon meats processing facility no later than January 13, 1996. The plants being sold or closed are responsible for about $110.0 million in sales. The Company does not expect that these transactions will materially impact its financial position or results of operations. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Following is a summary of significant accounting policies employed by Hudson Foods, Inc. and subsidiaries ("the Company") in the preparation of the consolidated financial statements. Principles of Consolidation. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Cash and Cash Equivalents. The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. At September 30, 1995 and October 1, 1994, cash and cash equivalents included temporary cash investments in certificates of deposit, U.S. treasury bills, repurchase agreements and U.S. government agency securities of $18,944,000 and $12,500,000, respectively. Cash equivalents are stated at cost, which approximates market value, and have been used to offset book overdrafts. Concentrations of Credit Risk and Major Customers. Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of trade receivables from large domestic companies. The Company generally does not require collateral from its customers. Such credit risk is considered by management to be limited due to the Company's broad customer base. In fiscal years 1995, 1994 and 1993, one customer accounted for approximately 14.7%, 17.7% and 17.9% of consolidated sales, respectively. The Company sells certain of its products in foreign markets, primarily Russia, eastern Europe, Asia, and Central America. The Company's foreign sales for fiscal 1995, 1994 and 1993 were 11.6%, 5.8% and 3.0% of total sales, respectively. Inventories. Inventories are stated at the lower of cost (first-in, first-out method) or market. Inventory cost includes the cost of raw materials and all applicable costs of processing. Property, Plant and Equipment. Property, plant and equipment are stated at cost. When assets are sold or retired, the costs of the assets and the related accumulated depreciation are removed from the accounts and the resulting gains or losses are recognized. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Interest costs of approximately $4,487,000, $1,702,000 and $1,467,000 were capitalized during 1995, 1994 and 1993, respectively. Earnings per Share. Earnings per share are based on the weighted average number of shares outstanding. The primary earnings per share computation assumes that outstanding dilutive stock options were exercised and the proceeds used to purchase common shares. Earnings per share, assuming full dilution, gives effect to the conversion of outstanding convertible debentures and the exercise of dilutive stock options. Excess Cost of Investment Over Net Assets Acquired. The excess cost of investment over net assets acquired is being amortized over periods ranging from 33 to 40 years and is evaluated annually for impairment based on estimated undiscounted cash flows of the acquired entities. Accumulated amortization was $4,758,000 and $4,244,000 at September 30, 1995 and October 1, 1994, respectively. Income Taxes. The Company utilizes the asset and liability approach for financial accounting and reporting for income taxes as set forth in Statement of Financial Accounting Standards No. 109 ("SFAS 109"): Accounting for Income Taxes. Under SFAS 109, deferred income tax assets and liabilities are recorded to reflect the expected tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end. Stock Split. On March 27, 1995, the Company distributed a three-for-two stock split in the form of a stock dividend. All shares outstanding and per share data have been adjusted to reflect the stock split. Fiscal Year. The Company utilizes a 52-53 week accounting period which ends on the Saturday closest to September 30. NOTE 2. INVENTORIES
Sept. 30, Oct. 1, (Dollars in thousands) 1995 1994 Field inventory - broilers and breeder stock $ 33,493 $ 29,248 Field inventory - turkeys and breeder stock 11,610 10,432 Feed, eggs and other 30,441 21,581 Finished products 101,511 74,240 -------- -------- Total $177,055 $135,501 ======== ========
NOTE 3. PROPERTY, PLANT AND EQUIPMENT Sept. 30, Oct. 1, (Dollars in thousands) 1995 1994 Land $ 13,579 $ 10,644 Buildings and improvements 190,945 165,482 Machinery and equipment 145,550 131,433 Construction in progress 63,129 42,027 -------- -------- 413,203 349,586 Less accumulated depreciation 137,579 120,536 -------- -------- Total $275,624 $229,050 ======== ========
NOTE 4. FINANCING ARRANGEMENTS The Company's line of credit agreement (the "Agreement"), which expires June 30, 1998, provides for aggregate borrowings or letters of credit up to $100 million. At September 30, 1995, the Company had issued $8.4 million in letters of credit, and at October 1, 1994, had $6.8 million of short-term debt outstanding and had issued $8.2 million in letters of credit. The Agreement, among other things, limits the payment of dividends to approximately $2.8 million in any fiscal year and limits annual capital expenditures and lease obligations. It requires the maintenance of minimum levels of working capital and tangible net worth, and requires that the current ratio, leverage ratio and cash flow coverage ratio be maintained at certain levels. It also limits the creation of new secured debt to $25.0 million and new unsecured short- term debt with parties outside the Agreement to $20.0 million. At September 30, 1995, $91.6 million was unused under the Agreement. In addition, the Company has entered into four separate unsecured short-term credit agreements with financial institutions giving the Company the right to borrow up to $10.0 million each from three institutions and $15.0 million from one institution. At September 30, 1995, the Company had $12.3 million of notes payable outstanding under these agreements. NOTE 5. ACCRUED LIABILITIES
Sept. 30, Oct. 1, (Dollars in thousands) 1995 1994 Payroll and benefits $28,223 $25,173 Income, property and other taxes 2,605 2,455 Interest 625 339 Other 13,137 12,614 ------- ------- Total $44,590 $40,581 ======= =======
NOTE 6. LONG-TERM OBLIGATIONS
Sept. 30, Oct. 1, (Dollars in thousands) 1995 1994 6.90% Notes payable to an insurance company due June 1, 2005 $ 49,124 $ -- Tax-exempt floating rate bonds (4.10% at Sept. 30, 1995) due March 1, 2015 25,000 -- 8.99% Note payable to an insurance company due March 15, 1998 14,504 15,302 9.99% Notes payable to an insurance company due April 12, 1997 15,000 15,000 7.62% Note payable to an insurance company due Sept. 1, 2002 11,459 13,084 9.95% Note payable to a bank due June 30, 1999 6,700 7,250 7.20%-7.64% Notes payable to a bank due Sept. 1, 2002 7,084 8,084 7.68% Note payable to an insurance company due Sept. 1, 2002 4,375 5,000 8.14% Note payable to an insurance company due March 15, 1998 4,740 4,980 8% Convertible Subordinated Debentures due 2006 -- 9,279 Other - 7%-9% Notes payable in various maturities through 2002 729 2,299 -------- ------- Total 138,715 80,278 ======== ======= Less current portion of long-term obligations 8,742 5,109 -------- ------- Long-term obligations $129,973 $75,169 ======== =======
On September 6, 1994, the Company called the 8% convertible subordinated debentures. Bondholders had the option of redeeming their debentures at 101.6% of the stated principle amount plus accrued interest, or converting their debentures into Class A common stock at $21 per share. As of October 1, 1994, the Company had converted $8.1 million of the debentures into 388,388 shares of common stock. In fiscal 1995, the Company converted an additional $5.5 million of the debentures into 263,837 shares of common stock and redeemed the remaining $3.8 million, recognizing a $132,000 loss on the extinguishment. Certain of the Company's loan agreements require the maintenance of minimum working capital, and that net tangible asset, debt-to-equity and working capital ratios be maintained at specified levels. Also, such loan agreements contain limitations on capital expenditures, additional indebtedness and payment of dividends. The fair value of the Company's long-term obligations is based on discounted future cash flows using current interest rates. The fair value of the Company's long-term obligations at September 30, 1995, including current portion, is estimated to be approximately $141.2 million. At September 30, 1995, the aggregate amount of long-term obligations which will become due during each of the next five fiscal years is as follows: $8,742,000 in 1996; $24,077,000 in 1997; $24,996,000 in 1998; $12,920,000 in 1999; and $8,190,000 in 2000. NOTE 7. INCOME TAXES Consolidated income tax expense for each of the three years in the period ended September 30, 1995 consists of the following:
For the Years Ended Sept. 30, Oct. 1, Oct. 2, (Dollars in thousands) 1995 1994 1993 Current provision: Federal $17,620 $16,067 $8,323 State 2,227 1,719 1,019 Deferred provision: Federal 4,250 306 168 State 387 (97) 2 ------- -------- ------ Total income tax expense $24,484 $17,995 $9,512 ======= ======== ======
Reconciliations of the statutory federal income tax rate with the effective income tax rate for each of the three years in the period ended September 30, 1995 are as follows:
For the Years Ended Sept. 30, Oct. 1, Oct. 2, 1995 1994 1993 Federal income tax rate 35.0% 35.0% 34.8% State income taxes, net of federal benefit 3.1 2.7 3.6 Jobs/research tax credit (0.7) (0.7) (2.1) Other 3.2 3.0 1.1 ------ ------ ----- Effective income tax rate 40.6% 40.0% 37.4% ====== ====== =====
An analysis of the Company's net current and long-term deferred tax liabilities (assets) at September 30, 1995 and October 1, 1994 is as follows:
Sept. 30, Oct. 1, (Dollars in thousands) 1995 1994 Current: Inventory $ 9,568 $15,057 Allowance for doubtful accounts (682) (563) Accrued liabilities (6,297) (3,037) Other 250 (250) -------- -------- Total current deferred income taxes $ 2,839 $11,207 ======== ======== Long-term: Property, plant and equipment $27,963 $27,124 Change from the cash basis to the accrual basis of accounting in 1988 for the "Family Farm" subsidiaries 38,315 38,159 Other 2,617 1,700 -------- ------- Total long-term deferred income taxes $68,895 $66,983 ======== =======
In February 1995, the Company reached an agreement with the Internal Revenue Service regarding the examination of the 1989 and 1990 Federal income tax returns. Based on management's best estimate of the final outcome of the examination, the Company recorded $0.5 million of tax expense and accrued $4.5 million of interest expense attributable to taxes due for the years under audit and the effect of the audit on all subsequent tax years. During the third quarter of fiscal 1995, the Company made a $15.0 million advance payment of the estimated tax and interest due under the settlement and the effect of the settlement on all subsequent years. The advance payment was applied as follows: $4.5 million to the interest accrued in the second quarter and $10.5 million to deferred income taxes payable. Total taxes due under the settlement have not been finalized, but management believes the liability will be substantially less than the IRS assessment. Management anticipates that the final calculation of the liability will be completed in fiscal 1996. NOTE 8. EMPLOYEE BENEFIT AND COMPENSATION PLANS Stock Option Plan. The 1985 Stock Option Plan (the "Option Plan"), as amended, reserves 1,800,000 and 450,000 shares of the Company's Class A common stock for issuance as incentive stock options and nonqualified stock options, respectively. The Option Plan provides for the grant of options to key employees upon terms and conditions determined by a committee of the Board of Directors. Options expire no later than the tenth anniversary of the date of grant, and are exercisable at a price which is at least 100% of the fair market value of such shares on the date of grant (110% in the case of individuals holding at least 10% of the Company's Class A common stock). A summary of stock option activity related to the Option Plan for each of the three years in the period ended September 30, 1995, reflecting the 3-for-2 stock split which was distributed on March 27, 1995, is as follows:
Number of Number Option price shares of shares per share exercisable Outstanding at 10/3/92 1,162,032 $3.37-$8.21 889,658 ========== Granted 516,975 $5.04-$7.13 Exercised (253,209) $3.37-$7.00 Cancelled (64,425) $4.63-$6.67 ---------- Outstanding at 10/2/93 1,361,373 $4.63-$8.21 854,091 ========== Granted -- -- Exercised (322,394) $4.67-$8.21 Cancelled (6,525) $4.75-$7.00 ---------- Outstanding at 10/1/94 1,032,454 $4.63-$7.13 723,464 ========== Granted -- -- Exercised (484,980) $4.63-$6.67 Cancelled (9,000) $4.75-$5.04 ---------- Outstanding at 9/30/95 538,474 $4.63-$7.13 344,284 ========== ==========
Employee Stock Purchase Plan. The Company's 1990 Employee Stock Purchase Plan (the "Purchase Plan") makes available to eligible employees a means of purchasing up to 1,500,000 shares of the Company's common stock at current market prices. Under the terms of the Purchase Plan, the Company contributes an amount annually, in cash or Class A stock, equal to 15% of the undistributed total of participants' contributions for the past ten years. All full- time employees of the Company (except those owning 10% or more of the Company's Class A stock) are eligible to participate in the Purchase Plan. Retirement Plan. In November 1985, the Company adopted a 401(k) Plan which, as amended, provides for Company matching of 50% of employee contributions not exceeding 4% of the participants' salary. The Company's contribution was $1,393,000 in 1995; $1,168,000 in 1994; and $919,000 in 1993. NOTE 9. COMMITMENTS AND CONTINGENCIES The Company leases transportation and delivery equipment, poultry farms, processing equipment and distribution facilities under operating leases expiring during the next seven years. Management expects that in the normal course of business the leases will be renewed or replaced by other leases. In November and December 1992, under sale-leaseback agreements, the Company sold certain equipment with a net book value of $4.5 million for $19.2 million cash. Annual payments under the operating lease agreements are $3.5 million. The gain of $14.7 million is being amortized over the terms of the leases. At September 30, 1995 and October 1, 1994, the unamortized portion of the deferred gain is included in the balance sheet captions "accrued liabilities" ($2,777,000 for both years) and "deferred income taxes and deferred gain" ($4,177,000 and $6,954,000, respectively). Total rental expense (net of amortized gain) was $28,378,000 in 1995; $23,042,000 in 1994; and $20,603,000 in 1993. At September 30, 1995, future minimum rental payments required under leases that have initial or remaining noncancellable terms in excess of one year are as follows: $26,996,000 in 1996; $24,900,000 in 1997; $19,710,000 in 1998; $15,135,000 in 1999; and $10,553,000 in 2000. The Company maintains a self-insurance program for employee health care and workman's compensation costs. Self-insurance costs are accrued based upon the aggregate of the liability for reported claims and an estimated liability for claims incurred but not yet reported. The Company is involved in litigation incidental to its business. Such litigation is not considered by management to be significant. NOTE 10. RELATED PARTY TRANSACTIONS Lease payments for transportation equipment made to the Company's chairman amounted to $1,708,000 in 1995; $956,000 in 1994; and $936,000 in 1993. Certain officers and employees of the Company own turkey and broiler farms and enter into grower contracts with the Company which provide for the payment of grower fees. The Company's arrangements with these officers and employees are similar to contracts with unrelated growers and, as such, do not include an ongoing commitment by the Company. Grower fees paid to these officers and employees amounted to $803,000 in 1995; $689,000 in 1994; and $651,000 in 1993. At September 30, 1995 and October 1, 1994, other current assets include $216,000 and $217,000, respectively, and other assets include $6,084,000 and $3,933,000, respectively, of accounts and notes receivable from an officer and director and entities controlled by this person. NOTE 11. SUBSEQUENT EVENT On October 4, 1995, the Company entered into a letter of intent to sell its Topeka, Kansas, luncheon meats processing facility along with the related Ohse and Roegelein brand names. Additionally, the Company intends to close its Wichita, Kansas, luncheon meats processing facility no later than January 13, 1996. NOTE 12. STOCKHOLDERS' EQUITY
(Dollars in thousands) Common stock ------------------------------------ Class A Class B ------------------------------------ Shares Amount Shares Amount ------------------------------------ Balance at October 3, 1992 6,428,947 $ 64 8,503,052 $85 Net income -- -- -- -- Stock exchange 1,000 -- (1,000) -- Exercise of stock options 168,805 2 -- -- Contingent payment for 1990 acquisition 35,603 -- -- -- Conversion of 14% debentures 1,996,052 20 -- -- Issuance of stock under the Employee Stock Purchase Plan -- -- -- -- Cash dividends*: Class A $.080 per share -- -- -- -- Class B $.067 per share -- -- -- -- ------------------------------------ Balance at October 2, 1993 8,630,407 86 8,502,052 85 Net income -- -- -- -- Stock exchange 170 -- (170) -- Exercise of stock options 214,928 2 -- -- Conversion of 8% debentures 388,388 4 -- -- Issuance of stock under the Employee Stock Purchase Plan -- -- -- -- Cash dividends*: Class A $.080 per share -- -- -- -- Class B $.067 per share -- -- -- -- ------------------------------------ Balance at October 1, 1994 9,233,893 92 8,501,882 85 Net income -- -- -- -- Stock exchange 2,101,102 21 (2,101,102) (21) Exercise of stock options 422,455 4 -- -- Conversion of 8% debentures 262,885 3 952 -- Stock offering 2,500,000 25 -- -- 3-for-2 stock split 6,653,539 66 3,200,940 32 Purchase of land 157,500 2 -- -- Issuance of stock under the Employee Stock Purchase Plan -- -- -- -- Cash dividends*: Class A $.080 per share -- -- -- -- Class B $.067 per share -- -- -- -- ------------------------------------ Balance at September 30, 1995 21,331,374 $213 9,602,672 $96 ==================================== *Reflects 3-for-2 stock split distributed on March 27, 1995 Additional Retained Treasury capital earnings stock - ----------------------------- $ 62,478 $83,528 $(11,825) -- 15,905 -- -- -- -- 1,193 -- -- (825) -- -- 24,777 -- -- 15 -- 191 -- (856) -- -- (850) -- - ----------------------------- 87,638 97,727 (11,634) -- 26,992 -- -- -- -- 1,641 -- -- 8,154 -- -- 72 -- 218 -- (946) -- -- (850) -- - ----------------------------- 97,505 122,923 (11,416) -- 35,758 -- -- -- -- 2,333 -- -- 5,262 -- -- 51,239 -- -- (101) -- -- 2,371 -- -- 233 -- 182 -- (1,611) -- -- (638) -- - ----------------------------- $158,842 $156,432 $(11,234) =============================
On February 6, 1987, the Company's Restated Certificate of Incorporation was amended to create two classes of common stock. The amendment authorized the issuance of up to 40,000,000 shares of Class A common stock, par value $.01 per share, and 40,000,000 shares of Class B common stock, par value $.01 per share. Upon adoption of the amendment, each outstanding share of common stock converted automatically into a share of Class A common stock. During fiscal 1987, the Company concluded a one-time-only exchange offer in which holders of Class A common stock were given the opportunity to exchange their shares for an equivalent number of shares of Class B common stock. The Class B common stock has ten votes per share in most matters submitted to a vote of the Company's stockholders, while the Class A common stock has one vote per share. As a result of the exchange offer, voting control of the Company rests with the holders of Class B common stock. In addition, the dividend per share of Class B common stock may not exceed 90 percent of the dividend per share of Class A common stock. The number of outstanding Class A shares at September 30, 1995 and October 1, 1994 were 20,415,936 and 8,300,039, respectively. REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders Hudson Foods, Inc. We have audited the accompanying consolidated balance sheet of Hudson Foods, Inc. and subsidiaries as of September 30, 1995 and October 1, 1994, and the related consolidated statements of operations and cash flows for each of the three years in the period ended September 30, 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above (included on pages 16, 18, 20 and 22 to 27 of the annual report to stockholders) present fairly, in all material respects, the consolidated financial position of Hudson Foods, Inc. and subsidiaries as of September 30, 1995 and October 1, 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended September 30, 1995, in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P. Tulsa, Oklahoma October 31, 1995
ELEVEN-YEAR FINANCIAL SUMMARY (Dollars in thousands except per share data) 1995 1994 Operating data: Sales $1,200,512 $1,040,840 Cost of sales 1,023,959 885,248 Gross profit 176,553 155,592 Selling 82,945 78,698 General and administrative 29,211 25,755 Operating income 64,397 51,139 Interest, net 1,845 6,152 Interest on tax settlement 4,500 -- Other, net (2,190) -- Income (loss) before income taxes and extraordinary item 60,242 44,987 Income tax expense (benefit) 24,484 17,995 Income before extraordinary item 35,758 26,992 Net income 35,758 26,992 Per share data*: Primary earnings per share before extraordinary item $1.21 $1.08 Primary earnings per share 1.21 1.08 Fully diluted earnings per share before extraordinary item 1.21 1.08 Fully diluted earnings per share 1.21 1.08 Dividends declared per Class A common share .080 .080 Dividends declared per Class B common share .067 .067 Stockholders' equity per share 10.14 8.30 Financial data: Working capital $ 180,458 $ 100,096 Capital expenditures 73,314 49,161 Property, plant and equipment, net 275,624 229,050 Total assets 623,541 473,180 Long-term obligations less current portion 129,973 75,169 Total debt 151,015 97,078 Stockholders' equity 304,349 209,189 Depreciation and amortization 25,137 22,279 Statistical data: Sales growth 15.3% 13.1% Return on sales (net margin) 3.0 2.6 Return on average stockholders' equity 13.9 14.1 Current ratio 2.55:1 1.87:1 Long-term obligations to total capitalization 29.9% 26.4% Shares used in primary earnings per share computation (000's)* 29,494 24,948 Shares used in fully diluted earnings per share computation (000's)* 29,494 25,099 Shares outstanding at year-end (000's)* 30,019 25,203 Stockholders of record 1,433 1,316 Number of employees 10,303 8,911 Class A common stock price (high-low)* $20:12 3/4 $16 3/4:7 1/8 1993 1992 1991 1990 1989 1988 $920,545 $809,243 $765,292 $666,697 $620,485 $549,032 802,002 733,028 690,316 606,220 547,929 521,745 118,543 76,215 74,976 60,477 72,556 27,287 63,926 49,907 37,135 27,270 13,400 12,989 20,695 18,533 16,645 16,377 15,735 10,155 33,922 7,775 21,196 16,830 43,421 4,143 7,975 8,476 9,073 7,571 9,462 10,843 -- -- -- -- -- -- 530 (4,342) (1,406) (4,591) (2,606) (228) 25,417 3,641 13,529 13,850 36,565 (6,472) 9,512 1,471 4,987 5,138 13,798 (10,410) 15,905 2,170 8,542 8,712 22,767 3,938 15,905 2,170 8,542 8,712 22,767 14,793 $.67 $.10 $.39 $.40 $1.13 $.20 .67 .10 .39 .40 1.13 .75 .67 .10 .39 .40 1.04 .30 .67 .10 .39 .40 1.04 .73 .080 .080 .080 .080 .080 .080 .067 .067 .067 .067 .067 .067 7.17 6.42 6.39 5.85 5.51 4.21 $103,811 $ 81,475 $ 88,564 $ 89,822 $ 86,813 $ 66,679 21,453 46,960 31,326 32,446 19,501 20,522 205,613 207,097 178,753 164,357 133,495 128,096 416,503 402,188 360,191 342,269 299,054 290,493 88,985 125,695 97,418 89,675 78,509 73,747 94,070 145,924 100,295 97,032 83,886 118,641 173,902 134,330 133,499 126,005 110,637 82,315 22,943 17,911 16,536 14,346 12,406 10,608 13.8% 5.7% 14.8% 7.4% 13.0% 28.0% 1.7 0.3 1.1 1.3 3.7 2.7 10.3 1.6 6.6 7.4 23.6 18.9 2.28:1 2.00:1 2.35:1 2.48:1 2.60:1 1.91:1 33.8% 48.3% 42.2% 41.6% 41.5% 47.3% 23,627 21,455 22,100 21,932 20,096 19,787 23,627 21,455 22,100 21,932 25,427 24,867 24,261 20,922 20,880 21,539 20,075 19,533 1,402 1,483 1,514 1,657 1,668 1,911 8,554 8,229 7,659 7,370 6,262 5,474 $10 1/4:5 $6 1/2:4 5/8 $7 3/4:4 3/8 $9 5/8:4 3/8 $11 1/4:6 1/8 $8 3/4:3 1/4 1987 1986 1985 $428,880 $223,963 $184,596 384,045 184,915 156,563 44,835 39,048 28,033 7,253 4,401 3,440 8,879 6,915 5,468 28,703 27,732 19,125 8,734 2,349 3,286 -- -- -- (2,382) (1,096) (356) 22,351 26,479 16,195 9,432 13,001 7,737 12,919 13,478 8,458 12,919 13,478 8,458 $.69 $.78 $.57 .69 .78 .57 .67 .78 .57 .67 .78 .57 .070 .05 -- .033 -- -- 3.74 2.71 .81 $ 41,072 $ 39,308 $ 7,168 26,050 9,359 2,504 120,774 87,428 26,136 293,594 235,495 60,002 93,652 83,842 21,472 125,625 104,614 27,100 74,031 50,458 12,146 8,258 3,022 3,025 91.5% 21.3% (10.8)% 3.0 6.0 4.6 20.8 43.1 63.7 1.37:1 1.45:1 1.31:1 55.9% 62.4% 63.9% 18,848 17,324 15,000 23,436 17,337 15,000 19,781 18,653 15,000 1,913 1,571 -- 6,027 2,758 1,999 $13 7/8:8 5/8 $14 1/8:7 1/8 -- *Reflects 3-for-2 stock split distributed on March 27, 1995
QUARTERLY FINANCIAL DATA (UNAUDITED) (Dollars in thousands except per share data) Quarter Ended 1995 December 31 April 1 July 1 Sales $279,955 $271,814 $305,650 Cost of sales 238,202 227,520 261,825 ---------- --------- --------- Gross profit 41,753 44,294 43,825 Selling 19,048 19,150 21,393 General and administrative 7,252 7,402 6,818 ---------- --------- --------- Operating income 15,453 17,742 15,614 Other expense, net (932) 3,718 578 ---------- --------- --------- Income before income taxes 16,385 14,024 15,036 Income tax expense 6,550 5,856 5,642 ---------- --------- --------- Net income $ 9,835 $ 8,168 $ 9,394 ========== ========= ========= Earnings per share(1): Primary $.35 $.27 $.31 Fully diluted .35 .27 .31 Dividends(1): Class A .0200 .0200 .0200 Class B .0167 .0167 .0167 Market price (high-low)(1) $17 7/8:13 7/8 $20:16 3/4 $19 1/4:12 3/4 ========================================= Quarter Ended 1994 January 1 April 2 July 2 Sales $250,292 $256,327 $266,773 Cost of sales 212,646 222,284 224,352 ---------- --------- --------- Gross profit 37,646 34,043 42,421 Selling 19,257 18,839 20,223 General and administrative 6,474 6,122 6,309 ---------- --------- --------- Operating income 11,915 9,082 15,889 Other expense, net 1,829 1,717 1,442 ---------- --------- --------- Income before income taxes 10,086 7,365 14,447 Income tax expense 3,991 2,993 5,616 ---------- --------- --------- Net income $ 6,095 $ 4,372 $ 8,831 ========== ========= ========= Earnings per share(1): Primary $.25 $.18 $.35 Fully diluted(2) .24 .18 .34 Dividends(1): Class A .0200 .0200 .0200 Class B .0167 .0167 .0167 Market price (high-low)(1) $9:7 1/8 $11 1/8:7 3/8 $12 1/4:8 1/2 September 30 Fiscal 1995 $343,093 $1,200,512 296,412 1,023,959 --------- ---------- 46,681 176,553 23,354 82,945 7,739 29,211 --------- ----------- 15,588 64,397 791 4,155 --------- ----------- 14,797 60,242 6,436 24,484 --------- ----------- $ 8,361 $ 35,758 ========= =========== $.28 $1.21 .28 1.21 .0200 .080 .0167 .067 $15 1/2:13 1/4 $20:12 3/4 ============================= October 1 Fiscal 1994 $267,448 $1,040,840 225,966 885,248 --------- ----------- 41,482 155,592 20,379 78,698 6,850 25,755 --------- ----------- 14,253 51,139 1,164 6,152 --------- ----------- 13,089 44,987 5,395 17,995 --------- ----------- $ 7,694 $ 26,992 ========= =========== $.30 $1.08 .30 1.08 .0200 .080 .0167 .067 $16 3/4:11 7/8 $16 3/4:7 1/8 (1) Reflects 3-for-2 stock split distributed on March 27, 1995. (2) As a result of shares issued during the year, earnings per share for the year's four quarters, which is based on average shares outstanding during each quarter, does not equal the annual earnings per share, which is based on the average shares outstanding during the year.
EX-21 4 EXHIBIT 21 SUBSIDIARIES OF HUDSON FOODS, INC. 1. Ohse Transportation, Inc., a Kansas corporation. 2. Hudson Development Company, an Arkansas corporation. 3. Hudson Foreign Sales, Inc., incorporated under the laws of the U.S. Virgin Islands. 4. Hudson Foods Poland, S.P. Z O.O., a Polish limited liability company. EX-23 5 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Hudson Foods, Inc. on Form S- 8 (File Nos. 33-36690 and 33-41839) of our reports dated October 31, 1995, on our audits of the consolidated financial statements and financial statement schedule of Hudson Foods, Inc. as of September 30, 1995, and October 1, 1994, and for each of the three years in the period ended September 30, 1995, which reports are incorporated by reference and included in this Annual Report on Form 10-K. Coopers & Lybrand L.L.P. Tulsa, Oklahoma December 13, 1995 EX-27 6
5 1,000 U.S. DOLLARS 12-MOS SEP-30-1995 OCT-02-1994 SEP-30-1995 1 2,159 0 82,853 1,775 177,055 296,605 413,203 137,579 623,541 116,147 0 309 0 0 304,040 623,541 1,200,512 1,200,512 1,023,959 1,136,115 (2,190) 0 6,345 60,242 24,484 35,758 0 0 0 35,758 1.21 1.21
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