[@@ Harvard Business School 9-281-0t4

Harris Seafoods, lnc.

g
years ol4 was chairman and drief ex€cutive officer of tlarlis s€afoods, Inc'
Charlie Hards,
The company had beer founded by his fath€r in 1935. Mr. Harris, S!., had been in the lhber
rusinessln Sivannah, Georgia. A shrimP boat builder to whom he had sold some lumber had gon€
into banlruptcy. As a result, he ended uP owning two newly constmcted shrimP boats

From that modest b€ginnin& Harris S€afoods had evolved into one of tll€ larSest Producd
of frozer shrimp in ttu Unit€d States. Charlie tlarris II,Ilad talen over resPonsibility Ior oP€nting
the company in 1958 after a serious heart attack disabl€d his father.

By 1979, the company had sales of slightly under $33 milliolv while Prodts afte! tax€s were
$7.8 million. The latter figure represented ats9% atier-tar. lctlim olr stEtdtoldels e$dty The hiSh
rcturn on equity was achieved in spite of th€ fact that th€ comPany tPically had a low Perc€ntate of
debt in ib aapital structute. The comPany llad issued shares Publicly in 1967. Managendt srill
controned 50% of tlle shaes, but there was an active over-thecounter market for the stoclc As ofthe
end of 1979, thele were two milion shar€s outstanding The total market value of the filllr was $g
milion. Data flom the €ompany's historical incom€ stat€hents ajld balance sheets are shown in
Exhibit 1.

The company had a fl€€t o{ over 100 boats which Plied the waters betw€€n Texas and Mexico.
Fach boat had abuilt-in fleezer. Every nrght, as soon as the shliErP wer€ tak€n out of the nets, the
shrimp wer€ dehead€d and flash frozer On a tyPical kiP, a boat stay€d out 45 to 60 days before
returning to po!t.

Haris Sealoods' h-shole facilities included a dock and Packing Plant wh€le the shri-lrrP were
urloaded, gaded by size and quality, and Put into 5 lb. corltamels. In turl! the 5 lb. containers were
placed in 50 lb. carions Ior shipment to a local cold storat€ Plant kom which th€ 6rm leased sPace.

The shimp were distribut€d ttEough a caPtiv€ sales organization. RougNy aO% of sales
were made to whoiesalers along the east coast of th€ United States. The wholesalers sold th€ sldmP
to letail establishments (e€., supermarket chains and letail lish stor€s) atd institutioral oudets (e.9,
lestau.rants, hospiials and industsial caf€t€rias). Another 35% of sales were made to laPanes€ tading
compmies. Tht renraining sales wele to Processors Processors converH the law sllrimP into an
interm€diat€ product such as pre<:ook€d or breaded stEimP. In tuln, the Processors sold th€ir
_ttre
products to same rrix oI outlets a5 itlat dessibed above (i.e., r€tail and institutional

T
his @ ew preporcn 6 ttu btsislot class discassion larhd Is to iJtsttule eithd
'fectioe
ot infintioe handting tan
atlnin isba t ;o e sit ua t iM.
Coplritht O 1981 by the Ptesider$ dd Felo&5 of tlaaard CoUeSe. To oldq .oPi? or tquest-Permissim to
reiri:die materiats, eU ra0G5i5-7681 write Haeld B$in€.s s.h@l Publishin& Bostoa MA 02163, d to to
hiip://w1wJrbspllarvdd.edu. No Part of tltjs pubucation Elay be rePtod@d, stoPd in a reEi4al stsierr
used in a s"rerdsheet, or transhitted in dy ror or by any me$+l(koruc mectaic'j, PhotrcPyin&
rftddi!& or othefliFwjthout the PerErisim of ttaRald Busin6s Sch@l
 241451

Hanis S€afoods sold its prcduct under the SHRMP KING brand nam€. Hanis S€a{oods was
know! for its high-quality ploduct and superb customer service. The SHRIMP KINC brand
commanded a ptice premium of $0.10 to 60.15 per pormd over compeiitive brands. In the pasL it was
ft€quendy the cas€ that demand exc€€ded supplt md sal€s had to be rarioned amonS cusromets.

The Shdmp lndustry

Hards Seafoods had b€en phenohenaly successful wh€n judged in terms of average
profitability. However, the business was not without its !isk5. Th€rc w€re two principal sources oI
risk fi$t, the supply of shdmp both for Haris S€afoods and Ior the entift indusEy was uncertairy
and, s€cond, the demand Ior shriftp was u.ncertain.

The shrimp consumed in each y€ar came from thre€ sources: domestk ploductioq net
imports, and be$nning inventories. With retard to domestic productior! tIrc shrimp b€ds in the
waters off Texas and Mexico were ovdished. As a r€sdt, it w'3 becoming increaringly dilficult to
Iind shrimp. Also, in any given yea!, the siz€ and valu€ oI the caldr were affected by events beyond
the control of management When there was too much rai& fo! example, the level of Foduction was
adversely aJlected. W€ath€r could also affect the size composition of the catch: since the price
receiv€d lor shimp d€p€nded on tlle siz€ class, but cosr did not, the p€rcent of large shrimp in the
catd was a critical detersinant of profirabili9.

Another corftibutor to uncedainty about th€ supply of shrimp was Olat th€ dlarlatic increas€
in offshore clrilling activity in the 197Os had brought a comnensurate inceas€ in the lisk of oil spils.
Some shrimping Srounds w€re h danger ofbeint destroyed.

Further, Mexico, and ind€€d mo6t of the countdes of the worl4 had established 2oGmitre
telritorial boundari€s. The number of foreign reFstered boats alowed to fish in Mexican waters had
be€n sharply timid. This was most unfortunate sinc€ a high proportion of the shrimp catch came
from wat€rs within Mexiccn territorial limits. Hanis S€afoods had be€n successful in parr because it
had established and maintained good relations with the Mencan governnent. Manag€Grent believ€d
th€y wele less !.ulnemble than some of then comFtito$ to a tiShtening of th€ Mexican fishing
regulations. Nevenheless, the threai existed.

Finauy, the l€vel of inporis into the Unid States fluctuated lrom year to yea!- Foreign
cornpetito$ tended to have lower costs than U.S. Iisherme& and cha€€s of dumping were frcqusrtly
Ireard.l

With regard to coruullrption, the demand for shdmp was strongly affected by cyclical swings
in the e€onomy. One of th€ leasons Hards Seafoods had decided to export to tapan was that doing so
dampened the cydical swings in its business.

The pdc€ of slEimp thus d€pended on D.ny factors, few of which were under th€ control of
ma.na8€m€nt First, there werc pric€ swings broutht about by chang€6 in th€ state of the economy.
Since shrimp were a luxury good, the denand for shrimp was panicularly s€nsitive to swings in tlle
economy. 'Iher! therc w€r€ price changes blought about by chang€s in supply. Rarely were supply
and demand for shrimp Blnchonized. Shrimp could be put into cold storag€ for up to one year with
no damage, but holdi$ shrimp ofi lhe aErket did not elimirlat€ dramatic price swints. And cold

lHanis Seafooas wa rct particula y wtnenble to inpdt.@petitim b€caus€ d|e brdk of idlPolls wEte in the
shall siFlow vdue part of th€ Eurkei Hads Seafods 6sh€d in areas where the average size of the shrimp
€ught was la4€, and l{here acc€ss ws lihiied. these large stEidrp w€le sold in @kets which w@ quite
alifferent ftoh the d.ket fo! sEll slEimp.
 261454

slorage was fatuly exp€Dsive. Daia on the demand, suPPI, and averge Price of shrimP are shown in
Exhibit 2.

On th€ cost side, the largest and most uncertain el€ment of cost was tuel exPense for
operating the boats. Sirce 1973, the cost of tuel had increas€d from 15% of cost of goods sold to 27ol0.
B€tter mgine tuel €fficiency had help€d, but still the prcbleF p€rsisred.

Att in all, then, th€ stuimp business was dsky. Remrkably, however, Hanis S€afoods had
never reported a loss in its 45 years of op€ration. Consid€ring how many of its comPetito$ had been
forced into bankruptcy, that was an enviable rci:ord.

The Processing Plarrt Proposal

Over th€ y€a$, Hanis Sealoods had considered a nuE$er of prcpoaats to exPand into
businesses othe! than shrimp production and sales. In 1975, for example, th€ comPany had entered
the labsier business. Apprcximately 15 boats were Puchased and ou(itd.
The lishing Srouds
wer€ in the Caribbean Sea south oI the Cayman Islands. The return on inv€stment did not live uP to
expectations, and the boats were r€fitt€d to catch shrimP one year alter the exPerim€nt betan.

h late 1979, Mr. Hanjs had unsuccesstully attempt€d to acqule a local, Privately-held
shrimp processing opemtion. The company had sales of $23 million, and net Profits of $r.9 miluorl
The owner of the company tuned down an offe! of $10 million in cash, witn all additionar $10
milion to b€ paid bas€d on tutu.re perfomance.

When the acquisition attempt feU ttuough, Mr. Hanis decided that Haris Seafoods should
consider building its own processing Iacility. The businest E€€med quit€ attractive both in tefms of
growth and in terEls of retum on investm€nt And, thete were some obvious oPPortunities/
esp€cialy in the sal€s 3rea, for th€ comPany to utjlize iis resources more effectively.

The Shrimp Processing lndustry

Shrimp plocessors purchas€d law shimP and convert€d th€m into some ritermediate or
IiMl product For example, Iaw shrimp g€neraly werc puchas€d with thet h€ads off but the sh€ls
intact A typical processinS operation would be to dean (d€ah€lIand devein) the shlihP. The
output would either be repackaged lor sale (e.t., frozen individually and Put into 2 lb. bags) or
{urther processed. Th€ mo6t ftequ€nt processing operation e aied addinS a batter 1o each shdmP
(ca €d brcading). The breaded slllidrP were then froz€rL packaged, ajld distributed.

Sales of proc€ss€d shrimp products had grown at telatively high rat€s over the past 10 years.
By 1979, total sales oI a[ (fresh, ftozen and process€d) shrimp products wer€ $3.5 bilion.2 This
repres€nted almost 50% of total s€afood sales in the Unit€d Stat€s. kdeed, both the share of total
consumer fd putchases reFes€nted by seafood and the share of iotal seafood exPenditures
lepres€nt€d by sllrimP had inaeased dramaticaly during the decade of the 1970s. ShrimP had
become a luxury good, and d€mand had hetd up in spite of plice d!€s w€U in excess of general
inflation. (See Exhibit 3 for yearly fiSures on sales of shrimP.)

Th€rc were no dominant competitors in Are shrimP Prccessint industry. The la4est
company (Siryleton Shridrp ComPany) had 1979 sates of under $80 mfion. There wer€ about five
other processors whose sales €xce€ded $30 million. It was somew]rat difficult to get accurate dara on
sales ard profitab ity of the various comP€titors becaus€ most werc Privat€ly owned. However,

2of ttr€ totat sales of $3.6 bitliorr $471 milion repMted breaded sniis'p sal€s. llZ
 2a145r'l

there were two publicly traded companies-Treasure Iste, lnc. ed Ocean Foods, Inc. SuEmary data
fiom the incom€ stat€ments and balance sh€ets Ior these two companies are shown in Erhibits 4 ,nd
5. According to Dtm and Bladskeet reports, the other large companies in the industry were
r€asonably profitable.

OpeEting and Financial lnfomaiion Regarding the Shrimp Processing Plant

Mr. Haris's staff had determin€d that it would do6t dbout $7.0 milllur to bund an efficient-
size processinS plani If construction wer€ b€tun in the first quader of 1980, the plant could be
finish€d by the beFnning of 1981. The plant would b€ located on land which was owned by th€ City
of Brownsville, Texas, and which wourd be leas€d to Harris Sealoods for 99 yeals ar a nominal cost.
However, tlrc company would have to pay p.opelty tr(es at th€ normal commercial rate. th€
company could aiso lease cold stoEge space at GuIf Coast Cold Storate. The latter would have to
€xpud its facfiti€s at a cost of approximaiely 5131,000, but had agr€ed to do so at its own expense iI
the plant were buili

i The raw shrixnp to be proceised at the plant were to be puchased on th€ open rnarket There
I was a posribiljty that some Hmis Seafoods product would b€ sold to the plrnt, but giv€n the fact
' that d€mand exceeded supply for the shdt:lP company,Iew inrelcompany sales were contemplated.
t--
The principal product to be produced was breaded shrimp. There were quite favorabl€
prcjections lor this part of the total shrimp markel particularly dven the fact that bread€d shrimp
were significandy less expensive than 6ozen sllrimp when measu€d on a per?omd basis, The
entire process was automated: machin€s sort€d, peeld, deveined, br€ad€d and pa&ged the shrimp
in a continuous procluction line. Genelaly the breading materials (eggs, milk and $ound crackers)
werc equal in weight to the raw shrimp. However, it the €ost of raw shrimp puchased on the open
narket by Harris SeaJoods i{ere $4.31 p€r polrn4 the cost to purchas€ the bleading materials worid
only averag€ $O.$ p€r pound of mterials puclus€d.

Marketing would be done by the existing Hanis Sealoods sales organization. There werc
trce kinds of dstomers:

1. Food servic€ brckels-th€s€ caued on institutional food sewice companiei,

national fast food chains and lalge s.hools and hospitals.

2. Retail blokers-these sold to retail outlets such as grocery stor€s and

supemarket chains.

3. Direct sales-tlE company felt it could bpass other distriburors and s€[ dir€€tly
to national r€sraurant food chaiis sudr as Anhur Treacher, Long john Silver and
Morrison's Cafeteria. The combined usage of processed shrimp by thes€ tfuee
organizations alone had be€n 8.5 hillion pouds in 1979-

In the eady years. it woutd be necessary to inv€sr heavily in advertising and marketing. The
brand imaSe of the product was an essential contributor to succe€s.

Wh€n op€rating at tuI capacity, th€ plant would b€ capable of pioducing 15 milion pounds
of produci Fr yea!. At firI capacity, the labor forc€ lequircd would total400. The initial production
and sales plan caled foi first-year ma]mint of 300 v/orkers, viltualy a of whom wodd rcceive
minimum wag€. Sal€s in the lilst year were projecr€d to b€ 5.5 minion pounds (37'16 of capacity).
Wfthin ffve years, it was expect€d that sales and th€ labor force would mov€ toward the upp€! limits.
 M!. Hanis had talked to two extremely capable people who rcn processing operatiolrs for
competitors- Boih had express€d a shong int€iest in working for Haris Seafoods if ihe Plant wer€
built.

Pro fonna data for the processing plant are shown in Exhibits 6 and 7. Th€ data in Exhibit 6
are noi innated. The assumpfion is Dad€ in Exhibit 7 tllat the amual inflation Ete wi]l be 11%. The
tust sai€s for th€ processing plant were not expected io begin untit 1981. The tax mt€ on income ftom
the project was expected to be 48'l" (the combined U.S. federal and Texas state tax rate). Any Prodts
or losses from the prcject would be consolidated for tax Pugoses with th€ Parent comPany's income
statement. Atso, in 1981, Hads Seafoods expected io receive a $650,000 rax credit for the investment
in plant and €quipment at the processhg plant.

'Ih€ frmds f,ecessary to finance drc project w€te expected to come &om two soulc€s: (1)
curent liabiiiti€s which were g€nelaied in tlle normat coulse of busirese--..8., accounts Payable, ajlld
(2) inv€6Elertt of Junds by rhe parent coElPa.Ily. Cutrent liabiliti€s of ihe Processing Plant, comPlised
of accourts payable, tarGs payable, and misc€Ianeous cunent liabilides, w€re exPected io b€ 9% of
total sales. This figule was low principally b€caus€ processo.s had to Pay cash for shrimP at most
times during the year.

Mr. Han'is had b€en i.Jorrned by the cornpany's investrnent banlcrs that the comPany's
effe.tive interest cost on newly issued long-term d€bt would be 13-5%.3 The debt would b€ retircd in
equal installmmts over a l2-year period from the time of issue.

Over the long run, Mr. Hanis believed total debt (notes Payable Plus cunenr maturities of
long-term debt plus long-teEn debt) slEuld not exceed 307. oI total inv€sd caPii:] (total debt Plus
shareholders' equity) of $€ fim.

There was a possibility that Hanis Seafoods would be abte to issue $70 milion of l2-year
maturity Indushial Revenue Bonds4 to fund lhe invesErcnt in ProP€rty, Plant, and equiPment in th€
processing plant. These bonds would b€ dortized h €qual installments over th€ l2-year life of the
bond. Th€ int€r€st rate was expected to b€ 9.5%. Income on this kind of bond was not taxabl€ to the
buyer of the bond, bur was tax deductible by the jssuer. Thouth the bond would technicalty be
issued by tll€ hunicipality of Brownsville, Texas, the payment of intercst and ttle rePayment of
principal wodd b€ made and guaranteed by Harris S€afoods.

The lssues

Mr. Harb thought the proiect looked attractiv€, but was €oncem€d that accePting it miSht
reduce the company's high rate of retum on invested caPital. H€ also wondeed how imPortant the
ability to issue the Indusirial Revenue Bonds was to ihe value of tlte Project

3As of laie February 1980, the plirc Ete wB 15.5%. lf Hdis Seafooab bon@ed from the ba*s, tte effective
cost of fr:nds would be 15%. (See Exhibil 8 for some data on reent trends in the etuohy dd GPiial tukets )
4tn ode to aomge conpdies to inv6t in a local commity, the muiciPality soFelmes alowed filfu to
issue taxaxdpt muicipal bonds in d d(Mt equal !o the value of the inv6tnat in Property, Plant ad
equipment. Ihe firns wodd pay interes! at the rate aPPrcPriate for tax<xempt bonals rathd than at the higher
rate ;ppropriale for bonds paying interest that rePregted taxable incotu to the buyd. The tax+xemPt mture
of the interest paymots otr Indlstrial Revaue Bonds produced a sitnifi@t lo6s of revdue for the US
Treasu.y. Fo! this reasn the Treasury ws attemPting to lisit the use of this film.ing vehicle. Ptes.ure from
the U.S. Treasury rnade it unlikely that lhG financing altemtive wodd continue to be available in tuhre yed
 1 -}larlis Seafoods, Lrc.-S€lect€d hcome Statem€nt, Balance
Exhibit Sheer and Share Perfomae
D^ta, 197 4-'t979 (W00s)

1974 1975 1976 19Tl 1978 1979

llncornc StaL.n.Irt
Sales $9,232 $ 10,245 $ 14,653 $ 15,613 $20,136 $ 32,619
Cost of goods sold _EN31 _!,C41 ,!299 _€p50 -1!J91 11534
Grcss profit $ 4,045 $ 3,404 $ 6,355 $6,657 $ 5,975 I 15,085
Selling, general and adminislralive __!60 __-0@ __€09 _111! __-9@ _$S1
Op€raling jncome $3,585 $2,754 $ 5,747 $ 5,4{J3 S 5,069 $ 13,584
409 373 314 124 401 649
Otier income __& __-353 _-415 __599 __!00 _l3A
$ 3,464 $2,734 s5,908 $ 5,658 $5,134 $ 13,455
_1,€92 _1119 2& 2319 ?J!0 _5S55
$ 1,767 S r,558 $ 3,486 $ 3,282 $ 2,978 $7,810
Dividends 00 697 a20 953 2,733
Bahl|ca Shaat
Cash ard ma*etable secudlies 240 123 308 468 604 623
563 799 908 952 1,297 1,W7
1,985 3,242 2,612 5,386 4,213 6,332
Other curent assets ___c5 11! l@ __14 ___302 , 9SA
s z,arc $ 4,322 $ 4,008 $ 6.950 $ 6.421 $ 9.24A
Nel propedy, plant and equipmenl 7,407 6,106 11,019 12,115 12,566 15,6&l
Odrer loneterm assels ___4!9 _!!1 _1& _--cca !.a1 292
$j@ $a390! $l.'1!-!9 $19,945 $20-088 $A.g
I2,662 S 3,007 $ 2,743 $2,0t3 $ r,007 $ 3,084
Cunent matuitiesjong-tem debt a7 145 2U 1,414 1,364 1,246
311 4r8 440 543 416 A29
42 35 59 55 59 42
olh€r c.unenl liabilities _=1€3 __te __42 -_& __l€9 __g
Tolal cunenl liaulilies $ 3,285 S 3,867 $ 3,788 94.318 $ 3.034 $5.788
Oher loog{erm liabilitjss 29 34 56 71 27 2A
Long-term debl 1,345 1,438 1,fi7 2,636 2,082 1,567
_-0J19 _z-€za _12l4o -14316 Ap7
Total liabiliths and equity sl@ $j@ $ lsl1o $19,945 S 20.088 $ 27-404

Shar€ Data
Hish $ 13.3a $ 12-13 $ 18.8E $26.75 124.63 $ 32.38
s7.25 $ 6.75 s 12.00 $'t5.50 $15.88 S 21.88
Cl06€ $ 12.13 $ 10.75 $ 18.75 $ 18.38 $22.sO $27.00
Shar€s (000s) 1,831 1,931 1,940 1,963 \942 2,005
Eamings per share $ 0.96 $0.81 $ 1.80 $ 1.67 $ 1.50 $ 3.90
$ 0.00 $ 0.00 $ 0.36 $ 0.42 $ 0.48 $ 1.36
Pdce to eamings ralio 12.6 13 3 104 11.0 15.0 6.9
Beta 1.25
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 241454

Exhibit4 Sel€cted Income Statement, Balance Sheet and Share Performance Data totha ftlsle,
Inc.-197+19n $IXns,

1971 1975 1976 1977 1978 1979

Sales $ 38,587 I32,212 $ 41,588 $ 50.132 $ 58,704 $ 71.457

!4,Ce1 4,@ 34,lE !0t3c -q-$! cs.E?s
Gross profit I3,783 $ 5,384 $ 6,909 s 9,794 $11,090 $10,587
Selling, generaland administElive 2,697 2,Ut 3,379 4,356 5,352 6,702
421 383 34€ 345 372 866
___994 __4 __Lg __-1@ 44 ___9.1-0

$ (229) $ 1,909 $ 3,035 I4,919 $ 5,092 $ 2,203.

_11t1) 899 _t 4q1
$ 08) $ 1,01'1 $ 1,571 $2,514 $2,734 $1264
Dividends 0 057 80 72 70

Balaica Shaet
Cash and markelable securities 62 293 198 457 429 620
2,m7 2,2U 2,752 3,772 3,707 3,636
2,572 2,104 2,559 4,124 4,251 5,058
__!5C ___q 100 ,_-1?3 -,112 ___929

$ 5,299 $4,738 s 5,609 $ 8,476 $ 8,499 $10,292

Nel property, phnt and eqlipnient 2,851 2,n7 2,744 2,990 4,197 8,7nb
Oher lonsFterm assels 4t6 403 444 883 1,581 1,660
____0 _! ____s ----0 1E1b
$9-@ -9
92q19 $iJ9? $12-W V4Af $2 134
Noles payable s 2,827 $ 1,m3 $ 570 1475 $ 209 g 2,787
Clrent maturitiee--longterm debt 214 30 62 144 164 695
863 '|,061 457 1,676 1,396 2,338
0 845 703 972 100 0
Olher cunent liabililies -!@ -_lc5 ___0@ __l@ -1lg 1@
Tolal curent liabilities $ 4,368 $3,514 $ 2,801 $ 4,029 $2,973 s 7,023
Olher long-term liabilities 206 64 91 124 196 275
Long-term debt 385 175 266 367 705 3,302
_-3i02 _4J-05 _5639 1,@ l-s103 lll30
Toral liabilities and equity @!aq 94919 $ 8,2sf, $i2@ $)az $??J.30
Share Data
High $ 7-25 $23.25 136.75 $ 45.88 $ 37.88 $ 22sa
$ 3.25 $ 12.13 $ 27.63 $ 28.88 $ 26.75 $ 8.75
$ 6.38 $ 15.53 134.25 $ 39.12 S 33.75 $ 10.88
shares (000s) 640 662 556 532 512 507
Eamings per share $ (0.11) 't.53 2.83 4-73 2.49
Dividends per sh€re $ 0.00 $ 0.00 $ o.1o $ 0.40 'U
$ 0.40 S 0.40
Price to eahings ralio 10.2 12.1 8.3 6.3 4.4
Beta 1.62

tPrcfts h 1979 re€ depEssd by ext'aordnBry hgal dpens6 of $500,000 betoB tares-
bRefe.ts acquisilid made in 1979.
 Exhibit 5 S€lected Incom€ Statement, Balance Sh€et and Share Performance Data fot OceonFoo&,
Inc.-197 4-1979 l$0oos)

1971 1975 't976 19n 1974 rs79

lncome Stat m.nt
Sales $12,045 $12,461 $17,U7 $18,463 $22,549 527,451
Cost of goods sold lgJs5 -9€59 t4,!g 14J50 lls6! 4p11
Gross profl $ 2,020 $ 2,602 $ 3,354 $ 4.407 $ 4.884 $ 5.540
Selling, general and administrative '1,272 1,n2 1,762 2,053 2,205 2,394
Deprecialion 300 336 320 419 324 388
299 368 360 274 362 337
_t4 _11 ___e _(33) 56 ____0
s 163 $ 614 $ 974 $ 1,624 $2,050 I2,421
_z! __-902 ,-4€S __lgl __-962 _1,J14
986 $ 312 $ 514 $ 842 $ 1,082 $ 1,307
Dividends 16 28 51 211 271 405
B.l.nc. Sh.ct
Cash and martetable securiltes 148 123 182 349 277 275
1,189 1,247 1,449 2,073 1,7a1 2,361
1,427 1,457 1,616 2,267 2.321 3,019
__!a _p __& - 2\1 __91 ___305
s 2,912 $ 3,020 $3,542 $ 4,937 $ 4,727 $ 6,020
Net poperly, plant and equipment 3.245 2,57 3,455 3,129 3,459 3,856
Other long{erm ass€ts _14 _& ___352 __255 __@ __!91
$€-1Zl E-0.?4 $2.!q 9i.9?1 t=q,!!€ q4zq
$ 1,28 s1,271 $ 1,692 S 1,991 $ 1,395 $ 2,OO2
Cunenl maludties--long-tem debr 100 100 1o() 100 100 100
788 677 865 1,016 1,081 1,315
1:r8 177 220 247 230 327
Olher curent liabilities ___19 _,14 ___l-8 l3 29 2t
Tolal cunenl liabililies $ 2.2A3 s2,239 12,895 $3.367 $2.826 $3.r/1
375 u3 400 362 359 400
1,500 1,400 1,300 1,200 1,100 1,000
2p13 2g 2f@ !392 _4& _5J.05
Tolal liabilities and €quily $=L1tJ $ 6.?29 $a54 9_8=q21 qa-448 9l!,?20
Share Data
Hish $ 4.25 $ 5.00 $ 6.25 $13.25 $ 11.13 $ 12.75
$ 1.88 $ 2.50 $ $ 6.88 $ 6.75 $ 9.25
$ 3.25 $ 4.88 $ s 9.38 I 7.38 $ 11.
Shares {000s) 834 845 474 881
Eamings per share $ 0.10 $ 0.37 $ 0.61 $ 0.96 $ 1.23 $ 1.47
$ o.o2 $ 0.03 $ 0.06 $ 0.24 $ 0.31 $ 0.46
Price to earnings lato 31 I 13.0 8.4 9.7 6.0 7.6
Bela 0.86

10
 ?,1451

Exhibit5 Processing Plant Prcposal-Pro Fortrla Income Statement dd Ass€t Requirem€nts

Projections-198G1986-{% Innation ($000s)

t!)ao 1981 19A2 lS83 198/t 1985 1986

Sales
Pounds (00os) 0 5,500 12,025 14,265 14.500 14.750 15.000
Price per po0nd (S) $ 4.75 $ 4.75 s 4.75 $ 4.75 s 4.75 14.75 $ 4.75

$0 $25,125 $ 57,119 0 67,759 $ 68.875 $ 70.063 I71.25O

Cost of soods sold
(exclrdins deprccl{ion} ___..s -2,@ !6€37 t9.562 l03zc 51rc7 -@M
G.oss profit $ 0 $ 3,297 $ 10,281 t 12,197 $ 12,398 $ 12,611 $ 12,825
Selling. g€neral and
o 2,474 6,283 6,437 6,5{' 6,656 6,769
Depreciation ____s -,@ __213 __1! ,_-099 _-€€1 ,,!34
Prelax op€rating proft s o $ (410) i3,220 $ 5,029 $ 5,162 $ 5,294 S 5,42.

Cash $450 s 261 $ 571 $ 678 $ 689 701 $ 713

$
o 2,176 4,7* 5,644 5,737 5,836 5,935
2,485 4,561 7,52 9.446 9,601 9,767 9,932
*_a __8 lle 1355 _rlz8 _lJq! 1&
$ 2,935 $ 7,521 814,4U $ 17,123 317,405 $ 17,705 $ 18,005
Net plant ald equipm€nt 7,000 6,857 6,789 6,757 6,765 6,8& 6,870
Other lonelem ass€F __l-00 --392 __@ _1,!110 1 033 _L051 -l-009
$ 10.035 $ 14,780 $ 22,080 $ 24,E96 $ 25,203 $ 25,560 S 25,944

aDouHeclhnE balaic€ nr€ihod.

11
 Edribit 7 Plocessing Plant Pioposal-Pro Forma Income Statem€nt and Asser Reguiiements
Proiections-1980-1986-11% Infl ation (gtx)os)

1981) 196t 1982 1983 1984 1985 1946

Sales
Pounds (000s) 0 5,500 12,e5 14,265 14,500 14,7..fi 15,000
Price per pound ($) $ 4.75 $ 5.27 $ 5.85 $ 6.50 $7.21 $ 8.00 $8.8a
$0 $ 28,999 $ 70.376 $ 92,669 S 19,557 $ 118.059 $133,267
Cost of goods sold
(exduding deprccaalion) ____a 25339 lzJoc 15€89 _€5J32 _!03@ '1o9.279
Gmss proft $0 $ 3,660 s 12,668 $ 16,680 $ 18,E20 s21,251 $ 23,988
Selling, general and
o 3,190 7,741 8,804 9,933 11,216 12,660
____s ,lg __J4 744 __J@
Retax opel'iing plbfit $0 t*" $4,139 $; $8,141 $ s,2a7 $ 10,564

Cash 450 2W 7U 1,046 1,181 1,333

0 2,416 5,862 7,719 8,710 9,834 11,10.1
2,445 5,063 9,810 12,914 14,575 16,457 18,577
__a ,-!@ _!pc _tp!3 _2J91 29 2.655
$ 2,935 $ 8,348 $ 17,784 $ 23,417 $ 26,422 $ 29,834 $ 33,67/
Nat plant and equiprnent 7,000 6,9:14 7,0 t9 7,21A 7,535 7,S66 8.5i1
Ofier longFlerm assets 435 L050
-1as - -1399 -IJT1
$ 10,035 $ 15,727 $ 5.859 $ 32,025 $ 35,535 g 39,570 $ 44n87

'Ddbl€{€dining bdaE rEthod.

12
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