<PAGE>
UNITED STATES
SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934. For the quarterly period ended December 31, 1999
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to ____________
Commission File No. 0-18222
Rica Foods, Inc.
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(Exact name of Company as specified in its charter)
Nevada 87-0432572
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
95 Merrick Way, Suite 507, Coral Gables, Fl, 33134
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(Address of principal executive offices)(Zip Code)
(305) 476-1757 or (305) 476-1758
(Company's telephone number including area code)
Indicate by check mark whether the Company (1) had 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 Company was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
The number of shares outstanding of Company's common stock, par value $0.001 per
share, as of February 18, 2000 was 12,847,921 shares.
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RICA FOODS, INC. AND SUBSIDIARIES
INDEX
Page
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1999 (Unaudited) and
September 30, 1999 ............................................... 3
Consolidated Statements of Income for the three months ended
December 31, 1999 and 1998 (Unaudited)............................ 4
Consolidated Statements of Cash Flows for the three months
ended December 31, 1999 and 1998 (Unaudited)...................... 5
Notes to Consolidated Financial Statements for the three months
ended December 31, 1999 and 1998 (Unaudited)...................... 7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................... 12
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk.......... 17
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings................................................... 18
ITEM 2. Changes in Securities and use of Proceeds .......................... 18
ITEM 6. Exhibits and Reports................................................ 31
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RICA FOODS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, September 30,
1999 1999
------------ -------------
(Unaudited)
Assets
------
Current assets:
Cash and cash equivalents ................. $ 5,185,679 $ 3,913,168
Short-term investments ................... 33,752 32,747
Notes and accounts receivable, net ........ 11,482,734 9,603,282
Due from related parties .................. 2,042,088 2,954,579
Inventories, net .......................... 14,056,314 13,896,517
Prepaid expenses .......................... 387,898 366,221
----------- -----------
Total current assets .................. 33,188,465 30,766,514
----------- -----------
Property, plant and equipment, net ........... 37,955,026 31,923,486
Long-term notes receivables-trade ............ 231,592 114,346
Long-term investments......................... 4,180,605 4,260,663
Other assets ................................. 2,500,883 1,875,888
Cost in excess of net assets of acquired
businesses, net 4,480,638 1,382,226
----------- -----------
Total assets .......................... $82,537,209 $70,323,123
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable .......................... $ 12,086,819 $ 12,084,992
Accrued expenses .......................... 4,033,765 3,604,397
Notes payable ............................. 11,252,829 7,582,890
Current installments of long-term debt .... 1,084,136 1,182,184
Due to stockholders ....................... 75,408 75,108
----------- -----------
Total current liabilities ............. 28,532,957 24,529,571
----------- -----------
Long-term debt, net of current portion ....... 21,773,894 21,443,589
Due to stockholders .......................... 16,394 16,715
Deferred income tax liability ................ 3,148,140 1,764,735
----------- -----------
Total liabilities ..................... 53,471,385 47,754,610
----------- -----------
Minority interest ............................ 1,330,861 9,468,206
Stockholders' equity:
Common stock .............................. 12,848 7,486
Preferred stock ........................... 2,216,071 2,216,072
Additional paid-in capital ................ 25,696,626 12,137,326
Accumulated other comprehensive loss....... (7,581,052) (6,828,500)
Retained earnings ......................... 8,655,718 6,481,305
----------- -----------
29,000,211 14,013,689
----------- -----------
Less:
Due from stockholders ..................... (996,854) (644,988)
Treasury stock, at cost ................... (268,394) (268,394)
----------- -----------
Total stockholders' equity ............ 27,734,963 13,100,307
----------- -----------
Total liabilities and stockholders'
equity .............................. $82,537,209 $70,323,123
=========== ===========
The accompanying notes to consolidated financial statements are an
integral part of these balance sheets.
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RICA FOODS, INC. AND SUBSIDIARIES
Consolidated Statements of Income
For the three months ended December 31, 1999 and 1998
Unaudited
---------
1999 1998
---- ----
Sales $ 33,116,512 $ 31,651,795
Cost of sales 21,126,466 20,006,822
------------ ------------
Gross profit 11,990,046 11,644,973
------------ ------------
Operating expenses:
General and administrative 3,179,586 2,608,442
Selling 4,616,200 4,065,755
Amortization of cost in excess
of net assets of acquired business 155,386 90,482
------------ ------------
Total operating expenses 7,951,172 6,764,679
Income from Operations 4,038,874 4,880,294
------------ ------------
Other expenses (income):
Interest expense 933,665 1,080,919
Interest income (178,461) (181,370)
Foreign Exchange losses, net 372,559 534,525
Miscellaneous, net (206,217) (138,873)
------------ ------------
Other expenses, net 921,546 1,295,201
------------ ------------
Income before income taxes and
minority interest 3,117,328 3,585,093
Provision for income taxes 393,397 338,288
------------ ------------
Income before minority interest 2,723,931 3,246,805
Minority interest 507,367 1,612,220
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Net income 2,216,564 1,634,585
Preferred stock dividends 60,025 133,058
------------ ------------
Net income applicable to common
stockholders $ 2,156,539 $ 1,501,527
============ ============
Earnings per share:
Basic earnings per share $ 0.24 $ 0.20
============ ============
Diluted earnings per share $ 0.24 $ 0.20
============ ============
Weighted average number of common shares
outstanding:
Basic 9,133,123 7,418,818
============ ============
Diluted 9,136,631 7,489,824
============ ============
The accompanying notes to consolidated financial statements are an
integral part of these statements.
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RICA FOODS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the three months ended December 31, 1999 and 1998
Unaudited
---------
1999 1998
---- ----
Cash flows from operating activities:
Net income $ 2,216,564 $ 1,634,585
----------- -----------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 839,455 775,154
Production poultry 504,571 516,160
Stock options and grants issued to employees 95,668 --
Allowance for inventory obsolescence 6,768 7,467
Increase in provision for vacation accrual 111,656 52,505
Amortization of cost in excess
of net assets of acquired businesses 155,386 90,482
Amortization of software development costs 52,955 22,296
Loss on sale of productive assets (150,018) (83,342)
Deferred income tax benefit (63,831) (52,418)
Provision for doubtful accounts 160,591 158,354
Minority interest 507,367 1,612,220
Changes in operating assets and liabilities:
Notes and accounts receivable (2,196,625) (1,540,528)
Due from related parties (639,446) (130,452)
Inventories (651,895) 124,028
Prepaid expenses (26,946) (218,723)
Accounts payable 85,204 1,759,871
Accrued expenses 317,714 295,801
Long-term receivable-trade (13,742) (134,805)
----------- -----------
Cash provided by operating activities 1,311,396 4,888,655
----------- -----------
Investing activities:
Short-term investments (1,005) 61,709
Additions to property, plant and equipment (3,847,850) (803,176)
Proceeds from sale of productive assets
and long-term investments 644,393 119,854
Increase in other assets (222,421) 216,611
----------- -----------
Cash used for investing activities (3,426,883) (405,002)
----------- -----------
(Continued on next page)
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RICA FOODS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the three months ended December 31, 1999 and 1998
(Continued)
1999 1998
---- ----
Financing activities:
Increase in notes payable 3,660,172 (542,458)
Preferred stock cash dividends (83,164) (133,058)
Long-term financing:
Payments (262,299) (1,350,662)
New loans 496,581 --
Due to related parties (351,568) (43,196)
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Cash provided by (used for)
financing activities 3,459,722 (2,069,374)
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Effect of exchange rate changes on cash and
cash equivalents (71,724) 305,594
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Increase in cash and cash equivalents 1,272,511 2,719,873
Cash and cash equivalents at beginning
of year 3,913,168 3,290,758
--------- -----------
Cash and cash equivalents at end of year $ 5,185,679 $ 6,010,631
========== ===========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 407,613 $ 275,836
=========== ==========
Income taxes $ 103,359 $ 182,109
=========== ===========
Supplemental schedule of non-cash investing
activities:
Dividends paid as preferred shares:
From Pipasa $ 2,143,626 $ -
=========== ===========
From As de Oros $ 1,983,327 $ -
=========== ===========
Pipasa's preferred stock repurchased in
exchange for outstanding receivables $ 2,143,626 $ -
=========== ===========
As de Oros' preferred stock repurchased in
exchange for outstanding receivables $ 881,273 $ -
=========== ===========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
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RICA FOODS, INC AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the three months ended December 31, 1999 and 1998
NOTE 1 - GENERAL
Management is responsible for the preparation of the financial statements and
related information of Rica Foods, Inc. and its 100% owned subsidiaries:
Corporacion Pipasa, S.A. and Subsidiaries ("Pipasa") and Corporacion As de Oros,
S.A. and Subsidiaries ("As de Oros") (collectively the "Company") that appear in
this Form 10-Q report. Management believes that the financial statements fairly
reflect the form and substance of transactions and reasonably present the
Company's financial condition and results of operations in conformity with
generally accepted accounting principles in the United States of America
("United States" or "U.S."). The accompanying interim financial statements have
been prepared in accordance with the instructions to the Quarterly Report on
Form 10-Q and, therefore, omit or condense certain footnotes and other
information normally included in the financial statements prepared in accordance
with generally accepted accounting principles. The accounting policies followed
for interim financial reporting are the same as those disclosed in Note 1 of the
Notes to Consolidated Financial Statements included in the Company's audited
financial statements for the fiscal year ended September 30, 1999, which are
included in the Annual Report on Form 10-K. Management has included in the
Company's financial statements amounts that are based on estimates and
judgements, which it believes are reasonable under the circumstances. In the
opinion of Management, all adjustments necessary for the fair presentation of
the financial information for the interim periods reported have been made.
Results of the three months ended December 31, 1999 are not necessarily
indicative of the results to be expected for the entire fiscal year ending
September 30, 2000. The Company maintains a system of internal accounting
policies, procedures and controls intended to provide reasonable assurance, at
appropriate cost, that transactions are executed in accordance with Management's
authorization and are properly recorded and reported in the financial
statements, and that assets are adequately safeguarded.
Although Management believes that the disclosures are adequate to make the
information presented not misleading, these unaudited consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1999.
NOTE 2 - Reclassifications
Certain prior period balances have been reclassified to conform to the current
year presentation.
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RICA FOODS, INC AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(Continued)
NOTE 3 - ACQUISITIONS
On November 22, 1999 and December 7, 1999, the Company acquired the remaining
43.62% and 40.44% minority interest of As de Oros and Pipasa, respectively, in
exchange for the issuance of 1,670,921 and 3,683,595 restricted shares of common
stock of the Company. The Company designated November 30, 1999 as the date of
acquisition for accounting purposes and as such, has consolidated 100% of
earnings for the month of December, 1999. The acquisition of Pipasa was
accounted for at the value of the minority interest as of the acquisition date,
on the basis that the owner of the minority interest of Pipasa is a major
shareholder of the Company. The acquisition of As de Oros was accounted for
under the purchase method of accounting. The excess of the purchase price of the
minority interest of As de Oros over the fair market value of net assets
acquired was approximately $3.3 million which is being amortized over 5 years.
Financial statements include results of operations for Pipasa and As de Oros for
the three months ended December 31, 1999.
During October 1999, Pipasa merged with "Karpatos, S.A.," ("Karpatos"), a Costa
Rican corporation, which is the business of converting waste material from the
slaughtering poultry plants into fertilizers. The transaction was accounted for
under the purchase method, and accordingly recorded all assets with a fair
market value with approximately $700,000 and assumed liabilities for an
equivalent amount. The Company did not issue any shares of Company stock for
this transaction. The acquisition of Karpatos is not material to these financial
statements.
NOTE 4 - INVENTORIES AND PRODUCTION POULTRY
Inventories are stated at the lower of cost or market. Cost is determined using
the weighted-average method, except for inventories in transit, which are valued
at specific cost. Costs pertaining to the growth period of reproductive hens are
capitalized and are subsequently amortized over the expected reproductive lives
of the hens. Production poultry or amortization of the hens, is determined based
on the estimated poultry reproductive period.
Inventories consist of the following:
December 31, 1999 September 30, 1999
----------------- ------------------
Finished products $ 3,178,510 $ 3,029,269
Poultry 3,465,762 3,035,678
Production poultry 3,163,417 3,329,784
Materials and supplies 2,061,260 2,165,074
Raw materials 2,026,795 1,757,125
In transit 1,259,514 1,469,056
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15,155,258 14,785,986
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Production poultry (1,040,630) (836,849)
Allowance for obsolescence (58,314) (52,620)
----------- -----------
Inventories, net $14,056,314 $13,896,517
=========== ===========
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RICA FOODS, INC AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(Continued)
NOTE 5 - COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No. 130 ("SFAS
130"), "Reporting Comprehensive Income", effective January 1, 1998. SFAS 130
establishes standards for reporting and display of comprehensive income and its
components in financial statements. The components of the Company's
comprehensive income are as follows:
Three months ended December 31,
------------------------------------
1999 1998
---- ----
Net income $ 2,216,564 $ 1,634,585
Foreign currency translation adjustment (752,552) (230,375)
----------- -----------
Total comprehensive income $ 1,464,012 $ 1,404,210
=========== ===========
NOTE 6 - EARNINGS PER SHARE
Earnings per share are computed on the basis of the weighted average number of
common shares outstanding plus the effect of outstanding warrants and stock
options using the treasury stock method in accordance with Statement of
Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share". SFAS
128 provides guidance for the computation, presentation and disclosure of
earnings per share. The minority interest in the income of subsidiaries and
dividends on preferred stock have been excluded from income available to common
stockholders.
Following is a reconciliation of the weighted average number of shares currently
outstanding with the number of shares used in the computations of fully diluted
earnings per share:
Three months ended December 31,
-------------------------------
1999 1998
---- ----
Numerator:
Net income applicable to common stockholders $ 2,156,539 $ 1,501,527
=========== ===========
Denominator:
Denominator for basic income per share 9,133,123 7,418,818
Effect of dilutive securities:
Options to purchase common stock 3,508 71,006
----------- -----------
Denominator for diluted earnings per share 9,136,631 7,489,824
=========== ===========
Earnings per share from continuing operations:
Basic $ 0.24 $ 0.20
=========== ===========
Diluted $ 0.24 $ 0.20
=========== ===========
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RICA FOODS, INC AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(Continued)
The Company did not have any anti-dilutive securities outstanding as of December
31, 1999 and 1998.
NOTE 7 - STOCK OPTION PLAN
The Company has a Stock Option Plan (the "Plan"), under which certain directors,
officers, employees and entities who provide services to the Company and
Subsidiaries are participants. In October 1999, the Company granted to
seventy-four (74) officers and employees 7,400 shares of the Company's common
stock, which vested upon issuance. Officers and employees are restricted from
selling the shares granted for a period of one year. In addition, 7,400 options
to purchase shares of common stock of the Company were issued on the same date
to those same officers and employees, at an exercise price of $6.00 with a
vesting period of one year, after which, the officers and employees are
restricted from selling such shares of common stock for one additional year.
Market price per share on the date of the grant and issuance of the stock
options was $11.20,
The Company applied Accounting Principal Board ("APB") Opinion No. 25 in
accounting for its stock options, and accordingly, compensation costs for the
shares and stock options have been expensed during the three months ended
December 31, 1999.
NOTE 8 - SEGMENT INFORMATION (IN MILLIONS):
For the three months ended
------------------------------------------------------
December 31, 1999 December 31, 1998
------------------------ ------------------------
Income from Income from
Business Segments Net Sales Operations Net Sales Operations
- ----------------- --------- ----------- --------- -----------
Broiler $20.08 $ 2.43 $18.60 $ 3.13
Animal Feed 5.39 0.10 5.88 0.44
By Products 2.95 0.92 2.45 0.53
Restaurants 2.77 0.82 2.85 0.72
Exports 1.22 (0.01) 0.99 0.08
Other 0.71 0.15 0.88 0.07
Corporate - (0.37) - (0.09)
-------- ------ ------ ------
Total $ 33.12 $ 4.04 $31.65 $ 4.88
======== ====== ====== ======
The Company operates in the production and marketing of poultry products, animal
feed and quick service chicken restaurants. The Company's subsidiaries
distribute these products primarily through out Costa Rica and in El Salvador
and Honduras, through subsidiaries whose activities are included in the
"Exports" segment. The Company also makes some exports to other countries in
Central America and the Caribbean. The basis for determining the Company's
operating segments is the manner in which Management uses financial information
in its
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RICA FOODS, INC AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(Continued)
operations. Management operates and organizes the financial information
according to the types of products offered to its customers.
NOTE 9 - COMMON STOCK DIVIDENDS
On December 23, 1999, the Board of Directors of Pipasa declared a dividend of
637,000 series "TCA" shares of preferred stock of Pipasa valued at $2,143,626 to
common stockholders of record as of September 30, 1999. Pipasa distributed
379,397 shares to the Company and 257,602 to Inversiones La Ribera, S.A. in
accordance with common stock ownership as of September 30, 1999. The dividends
distributed correspond to earnings pertaining to fiscal period 1999.
Immediately after the issuance of the preferred shares, Pipasa repurchased these
shares for an equivalent amount, using the proceeds to cancel outstanding debts.
Accordingly, Pipasa paid off outstanding debts from Inversiones La Ribera, S.A.
and the Company for a total of $1,276,743 and $866,882, respectively.
On December 23, 1999, the Board of Directors of As de Oros declared a dividend
of 590,000 series "TCA" shares of preferred stock of As de Oros valued at
$1,983,327 to common stockholders of record as of September 30, 1999. As de Oros
distributed 332,642 shares to the Company and 257,358 shares to Commercial
Angui, S.A. in accordance with common stock ownership as of September 30, 1999.
The dividends distributed correspond to earnings pertaining to fiscal period
1999.
Immediately after the issuance of the preferred shares, As de Oros repurchased
part of these shares for an equivalent amount, using the proceeds to cancel
outstanding debts. As de Oros paid off outstanding debts from Inversiones La
Ribera, S.A. and the Company for a total of $537,896 and $343,377, respectively.
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RICA FOODS, INC AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(Continued)
NOTE 10 - LITIGATION
Pipasa is a defendant in a lawsuit brought in Costa Rica in which, as a result
of this lawsuit, the plaintiff seeks $3.6 million, Pipasa was served with
prejudgment liens for $1.5 million. These liens were placed on some of Pipasa's
cash accounts which were substituted for land owned by Pipasa with the approval
of a Costa Rican court. Such approval was subsequently appealed by the
plaintiff, however, the Superior Court ratified such substitution of collateral
on November 11, 1999. As a result, the prejudgment liens on cash accounts have
been released and Pipasa has received all of the funds originally attached. The
same Plaintiff, relying on the same cause(s) of action, has sued Pipasa in the
United States of America in the State of California and the State of Florida,
respectively. Pipasa has moved to dismiss the lawsuit in the State of Florida by
filing a motion for lack of personal jurisdiction in the State of Florida.
Subsequently, the California lawsuit has been suspended until the Florida court
rules on such motion. A hearing on these proceedings has been scheduled for May
1, 2000 in the State of Florida. While Pipasa still has time to answer the
complaints, the basis of the claim or the relief sought cannot be ascertained.
Pipasa believes the lawsuits are without merit and intends to assert a vigorous
defense. At the present time, neither the Company nor Pipasa can evaluate the
potential impact of this lawsuit on the financial results of the Company.
No other legal proceedings of a material nature exist to which the Company or
the Subsidiaries are a party, or were pending during the three months ended
December 31, 1999. The Company knows of no legal proceedings of a material
nature pending or threatened or judgments entered against any director or
officer of the Company in his capacity as such.
The Company is involved in various other claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position, results of operations or liquidity.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company's operations are largely conducted through its 100% owned
subsidiaries, Corporacion Pipasa, S.A. and Subsidiaries ("Pipasa") and
Corporacion As de Oros, S.A. and Subsidiaries ("As de Oros"). The Company,
though its subsidiaries, represents the largest poultry company in Costa Rica
with a market share of approximately 70% of the chicken meat market. The
Company's subsidiaries' primary business is derived from the production and sale
of broiler chickens, processed chicken by-products, commercial eggs, and
premixed feed and concentrate for livestock and domestic animals. Pipasa,
founded in 1969, is the largest poultry Company in Costa Rica with a market
share of approximately 50% of the chicken meat market in Costa Rica. As de Oros,
founded in 1954, is Costa Rica's second largest poultry producer with a market
share of approximately 20% of the country's chicken meat market and is one of
the leaders in the Costa Rican animal feed market with a 27% market share. The
Company's subsidiaries own 58 urban and rural outlets throughout Costa Rica,
three modern processing plants and three animal feed plants. Due to similar
business activities, the combined operations of the subsidiaries permit the
Company to achieve operational efficiencies. As de Oros also owns and operates a
chain of 36 quick service restaurants in Costa Rica called "Restaurantes As de
Oros."
On November 22, 1999 and December 7, 1999, the Company acquired the remaining
43.62% and 40.44% minority interest of As de Oros and Pipasa, respectively, in
exchange for the issuance of 1,670,921 and 3,683,595 restricted shares of common
stock of the Company. The Company designated November 30, 1999 as the date of
acquisition for accounting purposes and as such, has consolidated 100% of
earnings for the month of December. The acquisition of Pipasa was accounted for
at the value of the minority interest as of the acquisition date, on the basis
that the owner of the minority interest of Pipasa is a major shareholder of the
Company. The acquisition of As de Oros was accounted for under the purchase
method of accounting.
Although Management believes that the disclosures contained herein are adequate
to make the information presented not misleading, these consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's latest Form 10K for the
fiscal year ended September 30, 1999.
Seasonality
The Company's subsidiaries have historically experienced and have come to expect
seasonal fluctuations in net sales and results of
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<PAGE>
operations. The Company's subsidiaries have generally experienced higher sales
and operating results in the first and second quarters of the fiscal period.
This variation is primarily the result of holiday celebrations during this time
of year, in which Costa Ricans prepare traditional meals, which include dishes
with chicken as the main ingredient. The Company expects this seasonal trend to
continue for the foreseeable future.
Year 2000 Update
As described in the Annual Report on Form 10-K for the year ended September 30,
1999, the Company had developed plans to address the possible exposures related
to the impact on its computer systems of the Year 2000. Since entering the year
2000, the Company has not experienced any major disruptions to its business nor
is it aware of any significant Year 2000 related disruptions impacting its
customers and suppliers. Furthermore, the Company did not experience any
material impact on inventories as of December 31, 1999. The Company will
continue to monitor its critical systems over the next several months but does
not anticipate any significant impact due to Year 2000 exposures from its
internal systems as well as from the activities of its suppliers and customers.
Costs incurred to achieve Year 2000 readiness, which include contractor costs to
modify existing systems and costs of internal resources dedicated to achieving
Year 2000 compliance, were charged to expense as incurred. The Company has not
experienced any material change in total costs related to Year 2000 remediation
efforts since entering the year 2000.
Environmental Compliance
At the present time, the Company is not subject to any material costs for
compliance with any environmental laws in any jurisdiction in which it operates.
However, in the future, the Company could become subject to material costs to
comply with new environmental laws or environmental regulations in jurisdiction
in which it might conduct business. At the present time, the Company cannot
assess the potential impact of any such potential environmental regulations.
During the three months ended December 31, 1999, the Company has invested
approximately $160,000 to remodel and expand its recycling and waste treatment
facilities.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 1999
COMPARED TO THE THREE MONTHS ENDED DECEMBER 31, 1998
The Company's operations resulted in $0.24 diluted earnings per share for the
three months ended December 31, 1999, compared to $0.20 during the comparative
period for 1998.
The following table sets forth, for the period indicated, certain selected
income statement data expressed as a percentage of net sales:
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Three months ended December 31,
-------------------------------
1999 1998
---- ----
Net sales 100.00% 100.00%
Cost of sales 63.79% 63.21%
Gross profit 36.21% 36.79%
Total operating expenses 24.01% 21.37%
Operating income 12.20% 15.42%
Other expenses, net 2.82% 3.42%
Income before income taxes and minority interest 9.41% 11.33%
Income taxes 1.19% 1.07%
Income before minority interest 8.23% 10.26%
Minority interest 1.53% 5.13%
Net income 6.69% 5.13%
Preferred stock dividends 0.18% 0.39%
Net income applicable to common stock holders 6.51% 4.74%
Net sales generated by the Company's operations for the three months ended
December 31, 1999 and 1998 were $33.12 million and $ 31.65 million,
respectively, an increase of $1.47 million or 4.64%. Cost of sales for the three
months ended December 31, 1999 were $21.13 million, compared to $20.01 million
for the comparative period of 1998. Gross profit margin was 36.21% and 36.77%
for the three months ended December 31, 1999 and 1998, respectively, a decrease
of 0.56%.
The following table shows sales amounts and distribution by business segment in
millions, for the three months ended December 31:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1999 1998 Increase (decrease)
---- ---- ------------------
Sales Sales
Segment Amount Distribution Amount Distribution Amount %
------- ------ ------------ ------ ------------ ------ ---
Broiler chicken $20.08 60.63% $18.60 58.77% $ 1.48 7.96%
Animal feed 5.39 16.27% 5.88 18.58% (0.49) (8.33)%
By products 2.95 8.91% 2.45 7.74% 0.50 20.40%
Restaurants 2.77 8.36% 2.85 9.00% (0.08) (2.81)%
Exports 1.22 3.68% 0.99 3.13% 0.23 23.23%
Others 0.71 2.15% 0.88 2.78% (0.17) (19.32)%
------- ------ ------ ------ ----- -----
TOTAL $ 33.12 100.00% $31.65 100.00% 1.47 4.64%
======= ====== ====== ====== ===== =====
</TABLE>
Broiler chicken: Sales of broiler chicken were $20.08 million and $18.60 million
for the three months ended December 31, 1999 and 1998, respectively. The
increase of 7.96% is primarily due to a 10.97% increase in tonnage and an
increase in sales to clients with large volumes of purchases. This increase was
offset by a variation in the sales mix, with increased in sales of lower priced
products. Cost of sales for Broiler chicken were $13.03 million and $11.55 for
the three months ended December 31, 1999 and 1998, respectively, increasing
-15-
<PAGE>
$1.48 million or 12.81%. Gross profit margin for this segment decreases from
37.90% to 35.10%, which is mainly due to increases in the cost of raw material
and variations in the sales mix.
Animal Feed: Sales for commercial animal feed were $5.39 million and $5.88
million for the three months ended December 31, 1999 and 1998 respectively,
decreasing by $490,000 or 8.33%. For the period under analysis, tonnage
increased by 2.03% mainly in pet food products due to an aggressive marketing
strategy. During fiscal 1999, the Company lowered its sales prices, as a
strategy to maintain its market share, and has continued this strategy for this
quarter, by maintaining its sales prices. The Company plans to open new
distributing outlets, promote some of its products and improve technical
assistance to its clients, as a marketing strategy to increase sales. Cost of
sales for animal feed for the three months ended December 31, 1999, were $3.94
million, compared to $4.20 million for the comparable period of 1998, for a
decrease of $260,000 or a 6.19%. Gross profit margin decreased from 28.53% in
the three months ended December 31, 1998, to 26.90% in the comparable period of
1999. This variation is mainly due to the lower sales prices, and an increase in
raw material cost, which is an important element in the cost of the product.
By-products: Total sales for this segment were of $2.95 million and $2.45
million for the three months ended December 31, 1999 and 1998, respectively. The
20.41% increase is mainly due to a 2.06% volume increase offset by an increase
in sales prices. In addition, during the comparable period in 1998, the Company
lowered its sales prices on certain key products to certain large volume
clients, in order to maintain sales volume and market share, which resulted in
lower sales for that period. Cost of sales for this segment were $1.35 million
and $1.41 million for the three months ended December 31, 1999 and 1998,
respectively. Gross profit margin increased from 42.45% to 54.24%, which is
mainly due to higher sales prices.
Restaurants: The restaurant segment had sales of $2.77 million and $2.85 million
during the three months ended December 31, 1999 and 1998 respectively, for a
decrease of 2.81%. The decrease in sales is a result of strong market
competition in this segment. During the period under analysis, the Company has
opened a new restaurant and has invested in new cooking equipment, which has
improved the flavor of the product and has reduced food preparation costs. The
Company has continued its marketing strategy by remodeling some of its
restaurants. Cost of sales for the restaurant segment for the period under
analysis amounted to $1.35 million compared to $1.53 during the comparable
period in 1998. This decrease is mainly due to lower costs and higher
efficiencies in the administration of the costs of the products sold. Gross
profit margin has increased from 46.32% to 51.90%, which is mainly the result of
lower costs.
Exports: The Company's exports were $1.22 million and $990,000 for the three
months ended December 31, 1999 and 1998, respectively. The
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<PAGE>
increase was primarily due to an increase of 39.56% in tonnage, higher sales of
pet food products and a new subsidiary opened in Honduras during the period
under analysis. This increase in sales was offset by variations in sales mix to
lower priced products. Cost of sales for this segment were $960,000 and $700,000
for the three months ended December 31, 1999 and 1998, respectively. Gross
profit margin decreased from 29.29% to 21.31%, mainly as a result of variations
in sales mix.
Other: Sales of other were $710,000 and $880,000 for the three months December
31, 1999 and 1998, respectively, decreasing by 19.32%. Sales for the three
months under analysis increases due to the inclusion of sales of recycling
material, which the Company has begun to market during this quarter. This is
offset by a non-recurrent sale of fertile eggs carried out during the comparable
period in 1998. Sale of other items includes commercial eggs, raw materials and
baby chicks and these sales comprise in 2.15% and 2.78% of total sales for the
three months ended December 31, 1999 and 1998, respectively. Cost of sales for
others were $490,000 and $620,000 for the three months ended December 31, 1999
and 1998, respectively, decreasing 20.97%. Gross profit margin was 30.99% and
29.54%, which is mainly the result in variations in the sales mix to more
profitable products.
OPERATING EXPENSES
Operating expenses increased from $6.76 million to $7.95 million, an increase of
$1.19 or 17.54% during the three months ended December 31, 1999 as compared with
the three months ended December 31, 1998. The increase is primarily due to
higher payroll expenses, vehicle fleet leasing costs and the expenses associated
with a new subsidiary in Honduras, which commenced operations during January,
1999. As a percentage of sales, operating expenses were 24.01% and 21.37% of
sales for the three months ended December 31, 1999 and 1998, respectively.
OTHER EXPENSES
Non-operating expenses decreased from $1.30 million during the three months
ended December 31, 1998 to $920,000 for the comparable period in 1999, a
decrease of $38,000 or 29.23%. This decrease is mainly due to lower interest and
exchange difference expenses. As a percentage of net sales, non-operating
expenses were 2.78% and 4.09% for the three months ended December 31, 1999 and
1998, respectively.
PROVISION FOR INCOME TAXES
Provision for income taxes were approximately $390,000 and $340,000 for the
three months ended December 31, 1999 and 1998, respectively. As a percentage of
sales, estimated income taxes were 1.19% and 1.07% for the three months ended
December 31, 1999 and 1998, respectively.
-17-
<PAGE>
FINANCIAL CONDITION
Operating activities:
As of December 31, 1999, the Company had $5.19 million in cash and cash
equivalents. Working capital was $4.66 million as compared to $6.24 million at
the end of fiscal year 1999, for a $1.58 million decrease. This decrease is
primarily due to an increase short-term liabilities. The current ratios were
1.16 and 1.25 as of December 31, 1999 and September 30, 1999, respectively.
Cash provided by operating activities was $1.31 million and $4.88 million during
the three months ended December 31, 1999 and 1998, respectively. Cash flows from
operations decreased for the period under analysis in relation to its comparable
period in 1998 primarily due to an increase in account receivables due to higher
sales and inventory levels, due to seasonal variations.
Investing Activities:
Funds used for investing activities during the three months ended December 31,
1999 was $3.43 million compared to $400,000 during the same period of 1998.
Investing cash flows reflect capital expenditures, which are primarily related
to purchases and improvements in production equipment and facilities. The
Company is investing in the expansion of the further processing plant to
increase production, and an animal feed plant to increase production for
internal consumption. In addition, the Company is remodeling the waste and
recycling facilities and also installing a communication network between
different locations of the Company's facilities. The Company anticipates that it
will spend approximately $10 million for capital expenditures during the rest of
fiscal year 2000 and expects to finance such expenditures mostly with long-term
financing.
Financing Activities:
As of December 31, 1999, the Company had line of credit agreements with banks
for a maximum aggregate amount of $24 million, of which $10.6 million have
already been used. Agreements may be renewed annually and bear interest at
annual rates ranging from 8.00% to 10.50%. Property and other collateral secure
those agreements.
During the three months ended December 31, 1999, net cash provided by financing
activities was $3.46 million compared to $2.07 million required during the same
period of 1998. Net cash provided by financing activities primarily consists of
increases in short-term borrowings, which were mainly utilized to finance the
purchases of raw materials, due to a seasonal increase in production levels.
Management expects to continue to finance operations and capital expenditures
with its normal operating activities and external
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<PAGE>
sources. Management also expects that there will be sufficient resources
available to meet the Company's cash requirements through the rest of the fiscal
year.
CAUTIONARY STATEMENTS RELEVANT TO FORWARD-LOOKING INFORMATION FOR THE PURPOSE OF
SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Company and its representatives may, from time to time, make written or oral
forward-looking statements with respect to their current views and estimates of
future economic circumstances, industry conditions, company performance and
financial results. These forward-looking statements are subject to a number of
factors and uncertainties which could cause the Company's actual results and
experiences to differ materially from the anticipated results and expectations
expressed in such forward-looking statements. The Company cautions readers not
to place undue reliance on any forward-looking statements, which speak only as
of the date made. Among the factors that may affect the operating results of the
Company are the following: (i) fluctuations in the cost and availability of raw
materials, such as feed grain costs in relation to historical levels; (ii)
market conditions for finished products, including the supply and pricing of
alternative proteins which may impact the Company's pricing power; (iii) risks
associated with leverage, including cost increases due to rising interest rates;
(iv) changes in regulations and laws, including changes in accounting standards,
environmental laws, occupational, health and safety, currency fluctuations; and
(v) the effect of, or changes in, general economic conditions.
This management discussion and analysis of the financial condition and results
of operations of the Company may include certain forward-looking statements,
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, including
(without limitations) statements with respect to anticipated future operations
and financial performance, growth and acquisition opportunity and other similar
forecasts and statements of expectation. Words such as expects, anticipates,
intends, plans, believes, seeks, estimates, should and variations of those words
and similar expressions are intended to identify these forward-looking
statements. Forward-looking statements made by the Company and its Management
are based on estimates, projections, beliefs and assumptions of Management at
the time of such statements and are not guarantees of future performance. The
Company disclaims any obligations to update or review any forward-looking
statements based on occurrence of future events, the receipt of new information
or otherwise.
Actual future performance outcomes and results may differ materially from those
expressed in forward-looking statements made by the Company and its Management
as a result of a number of risks, uncertainties and assumptions. Representative
examples of these factors include (without
-19-
<PAGE>
limitation) general industrial and economic conditions; cost of capital and
capital requirement; shifts in customer demands; changes in the continued
availability of financial amounts and at the terms necessary to support the
Company's future business.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Exchange Rate Risk:
The Company makes U.S. dollar payments for its bank facilities and imported raw
materials such as corn, soybean meal and reproduction birds. Given its U.S.
dollar exposure, the Company actively manages its exchange rate risk. It uses a
financial model to determine the best strategy to mitigate against the
devaluation of the currency of Costa Rica, the colon, against the U.S. dollar.
The Company systematically increases its annual sales prices by a rate that is
consistent with the colon devaluation against the U.S. dollar. During the three
months ended December 31, 1999, the Company increased its sales prices an
average of 5.72%. The National devaluation rate in Costa Rica for that same
period was 1.95%. The Company plans to make additional sales price increase
during the rest of fiscal year 2000.
Commodity Risk Management:
The Company imports all of its corn and soybean meal, the primary ingredients in
chicken feed, from the United States of America. The Company has been actively
hedging its exposure to corn since 1991 and its strategy is to hedge against
price increases in corn and soybean meal. The Company is not involved in
speculative trading. The average prices paid by the Company for corn and soybean
meal were approximately 4.89% above and 0.43% below its budgeted prices,
respectively, for the three months ended December 31, 1999.
-20-
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS:
Pipasa is a defendant in a lawsuit brought in Costa Rica in which, as a result
of this lawsuit, the plaintiff seeks $3.6 million, Pipasa was served with
prejudgment liens for $1.5 million. These liens were placed on some of Pipasa's
cash accounts which were substituted for land owned by Pipasa with the approval
of a Costa Rican court. Such approval was subsequently appealed by the
plaintiff, however, the Superior Court ratified such substitution of collateral
on November 11, 1999. As a result, the prejudgment liens on cash accounts have
been released and Pipasa has received all of the funds originally attached. The
same Plaintiff, relying on the same cause(s) of action, has sued Pipasa in the
United States of America in the State of California and the State of Florida,
respectively. Pipasa has moved to dismiss the lawsuit in the State of Florida by
filing a motion for lack of personal jurisdiction in the State of Florida.
Subsequently, the California lawsuit has been suspended until the Florida court
rules on such motion. A hearing on these proceedings has been scheduled for May
1, 2000 in the State of Florida. While Pipasa still has time to answer the
complaints, the basis of the claim or the relief sought cannot be ascertained.
Pipasa believes the lawsuits are without merit and intends to assert a vigorous
defense. At the present time, neither the Company nor Pipasa can evaluate the
potential impact of this lawsuit on the financial results of the Company.
No other legal proceedings of a material nature exist to which the Company or
the Subsidiaries are a party, or were pending during the three months ended
December 31, 1999. The Company knows of no legal proceedings of a material
nature pending or threatened or judgments entered against any director or
officer of the Company in his capacity as such.
The Company is involved in various other claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position, results of operations or liquidity.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS:
On November 22, 1999, The Company concluded the acquisition for the purchase of
the remaining interest of As de Oros from Comercial Angui, S.A. (the "Final As
de Oros acquisition"). Pursuant to the Final As de Oros acquisition, the Company
issued a total of 1,670,921 shares of parent company stock, for the remaining
43.62% of common stock ownership in As de Oros.
-21-
<PAGE>
On December 7, 1999, The Company concluded the acquisition for the purchase of
the remaining interest of Pipasa from Inversiones La Ribera, S.A. (the "Final
Pipasa acquisition"). Pursuant to the Final Pipasa acquisition, the Company
issued 3,683,595 shares of parent company stock, for the remaining 40.44% of
common stock ownership in Pipasa.
As of such dates, As de Oros and Pipasa are wholly owned subsidiaries of the
Company.
The Company filed timely reports of Form 8K and 8K/A for both acquisitions.
ITEM 6. EXHIBITS AND REPORTS:
(a) Exhibits: The following exhibits are filed with this report:
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
(b) Current Report on Form 8-K: Two current Reports on form 8-K were
filed on February 2, 2000 and February 10, 2000, respectively,
and are hereby incorporated by reference.
-22-
<PAGE>
SIGNATURES
----------
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Company that duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
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 Company and in
the capacities and on the dates indicated.
RICA FOODS, INC. AND SUBSIDIARIES
Dated: February 22, 2000 /s/ Calixto Chaves
---------------------------------
Calixto Chaves
Chief Executive Officer
Dated: February 22, 2000 /s/ Randall Piedra
----------------------------------
Randall Piedra
Chief Financial Officer
-23-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF RICA FOODS, INC. FOR THE QUARTER ENDED DECEMBER 31,
1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 5,185,679
<SECURITIES> 33,752
<RECEIVABLES> 11,482,735
<ALLOWANCES> (811,645)
<INVENTORY> 14,056,314
<CURRENT-ASSETS> 33,188,465
<PP&E> 48,903,482
<DEPRECIATION> (10,948,456)
<TOTAL-ASSETS> 82,537,209
<CURRENT-LIABILITIES> 28,532,957
<BONDS> 0
0
2,216,071
<COMMON> 12,848
<OTHER-SE> 25,506,047
<TOTAL-LIABILITY-AND-EQUITY> 85,537,209
<SALES> 33,116,512
<TOTAL-REVENUES> 33,116,512
<CGS> 21,126,466
<TOTAL-COSTS> 21,126,466
<OTHER-EXPENSES> 8,506,446
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 933,665
<INCOME-PRETAX> 3,117,329
<INCOME-TAX> 393,397
<INCOME-CONTINUING> 2,723,931
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,723,931
<EPS-BASIC> 0.24
<EPS-DILUTED> 0.24
</TABLE>
