SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended DECEMBER 27, 1997
Commission file number 1-9273
PILGRIM'S PRIDE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 75-1285071
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
110 SOUTH TEXAS, PITTSBURG, TX 75686-0093
(Address of principal executive offices) (Zip code)
(903) 855-1000
(Telephone number of principle executive offices)
NOT APPLICABLE
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
COMMON STOCK $.01 PAR VALUE---27,589,250 SHARES AS OF FEBRUARY 6, 1998
INDEX
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements (Unaudited):
Condensed consolidated balance sheets:
December 27, 1997 and September 27, 1997
Consolidated statements of income:
Three months ended December 27, 1997 and December 28, 1996
Consolidated statements of cash flows:
Three months ended December 27, 1997 and December 28, 1996
Notes to condensed consolidated financial statements--December 27, 1997
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
PART I. FINANCIAL INFORMATION
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ITEM 1: FINANCIAL STATEMENTS:
December 27, 1997 September 27, 1997
(UNAUDITED)
(in thousands)
ASSETS
Current Assets:
Cash and cash equivalents $ 14,032 $ 20,338
Trade accounts and other receivables,
less allowance for doubtful accounts 79,528 77,967
Inventories 125,365 146,180
Deferred income taxes 3,962 3,998
Prepaid expenses 5,823 2,353
Other current assets 311 311
Total Current Assets 229,021 251,147
Other Assets 18,313 18,094
Property, Plant and Equipment 525,380 510,661
Less accumulated depreciation 208,103 200,778
317,277 309,883
$ 564,611 $ 579,124
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable to banks $ - $ -
Accounts payable 66,108 71,225
Accrued expenses 39,257 34,784
Current maturities of long-term debt 8,708 11,596
Total Current Liabilities 114,073 117,605
Long-Term Debt, less current maturities 204,890 224,743
Deferred Income Taxes 51,586 53,418
Minority Interest in Subsidiary 842 842
Stockholders' Equity:
Common stock; $.01 par value 276 276
Additional paid-in capital 79,763 79,763
Retained earnings 113,181 102,477
Total Stockholders' Equity 193,220 182,516
$ 564,611 $ 579,124
See notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(UNAUDITED)
<S> <C> <C>
THREE MONTHS ENDED
December 27, December 28,
1997 1996
(in thousands, except share and per share data)
Net Sales $ 337,887 $ 297,806
Costs and Expenses:
Cost of sales 308,507 267,539
Selling, general and administrative 14,009 13,953
322,516 281,492
Operating Income 15,371 16,314
Other Expense (Income):
Interest expense, net 5,036 5,449
Foreign exchange loss 528 437
Miscellaneous, net income [463] [2,509]
5,101 3,377
Income before income taxes 10,270 12,937
Income tax (benefit) expense [847] 2,832
Net income $ 11,117 $ 10,105
Net income per common share $ .40 $ .37
Dividends per common share $ .015 $ .015
Weighted average shares outstanding 27,589,250 27,589,250
</TABLE>
See Notes to condensed consolidated financial statements.
<PAGE>
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES
DECEMBER 27, 1997
PILGRIM'S PRIDE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
December 27, December 28,
1997 1996
(in thousands)
Cash Flows From Operating Activities:
Net income $ 11,117 $ 10,105
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 8,052 7,135
Loss on property disposals 10 7
Provision for doubtful accounts 667 [321]
Deferred income taxes [1,796] 3,064
Changes in operating assets and liabilities:
Accounts and other receivable [2,228] [6,843]
Inventories 20,815 17,542
Prepaid expenses [3,474] [170]
Accounts payable and accrued expenses [643] [13,693]
Other [91] [171]
Net Cash Flows Provided By Operating Activities: 32,429 16,655
Investing Activities:
Acquisitions of property, plant and equipment [15,352] [4,195]
Proceeds from property disposals 348 77
Other, net [459] [34]
Net Cash Used In Investing Activities [15,463] [4,152]
Financing Activities:
Proceeds from notes payable to banks - 10,500
Repayments of notes payable to banks - [21,500]
Proceeds from long-term debt 1,117 0
Payments on long-term debt [23,895] [1,702]
Cash dividends paid [414] [414]
Cash Used In Financing Activities [23,192] [13,116]
Effect of Exchange Rate Changes on
Cash and Cash Equivalents [81] 1
Decrease in cash and cash equivalents [6,307] [612]
Cash and cash equivalents at beginning of year 20,339 18,040
Cash and cash equivalents at end of period $ 14,032 $ 17,428
Supplemental disclosure information:
Cash paid during the period for:
Interest (net of amount capitalized) $ 2,890 $ 2,983
Income Taxes $ 413 $ 333
See notes to condensed consolidated financial statements.
2
<PAGE>
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES
DECEMBER 27, 1997
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT
(Unaudited)
_________________________________________________________________________
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. Operating results for the period ended December 27, 1997 are
not necessarily indicative of the results that may be expected for the
year ended September 26, 1998. For further information, refer to the
consolidated financial statements and footnotes thereto included in
Pilgrim's annual report on Form 10-K for the year ended September 27,
1997.
The consolidated financial statements include the accounts of Pilgrim's
and its wholly and majority owned subsidiaries. Significant inter-
company accounts and transactions have been eliminated.
The assets and liabilities of the foreign subsidiaries are translated at
end-of-period exchange rates, except for any non-monetary assets which
are translated at equivalent dollar costs at dates of acquisition using
historical rates. Operations of foreign subsidiaries are translated at
average exchange rates in effect during the period.
NOTE B--NET INCOME PER COMMON SHARE
Earnings per share for the periods ended December 27, 1997 and December
28, 1996 are based on the weighted average shares outstanding for the
periods.
NOTE C--INVENTORIES
Inventories consist of the following:
DECEMBER 27, 1997 SEPTEMBER 27, 1997
(in thousands)
Live chickens and hens $ 47,730 $ 68,034
Feed, eggs and other 44,474 43,878
Finished chicken products 33,161 34,268
$ 125,365 $ 146,180
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
______________________________________________________________________________
GENERAL
Profitability in the chicken industry can be materially affected by
the commodity prices of feed grains and the commodity prices of chicken
and chicken parts, each of which are determined largely by supply and
demand. As a result, the chicken industry as a whole has been
characterized by cyclical earnings. Cyclical fluctuations in earnings of
individual chicken companies can be mitigated somewhat by: (i) business
strategy, (ii) product mix, (iii) sales and marketing plans, and (iv)
operating efficiencies. In an effort to reduce price volatility and to
generate higher, more consistent profit margins, the Company has
concentrated on the production and marketing of prepared food products,
which generally have higher margins than the Company's other products.
Additionally, the production and sale in the U.S. of prepared foods
products reduces the impact of feed grain costs on the Company's
profitability. As further processing is performed, feed grain costs
become a decreasing percentage of a product's total production costs.
In December 1994, the Mexican government changed its policy of
defending the peso against the U.S. dollar and allowed it to float freely
on the currency markets. These events resulted in the Mexican peso
exchange rate declining from 3.39 to 1 U.S. dollar at October 3, 1994 to
a low of 8.50 to 1 U.S. dollar at October 28, 1997. The decline in the
Mexican peso exchange rate affected the Company's operations directly and
indirectly as a result of the related economic recession in Mexico in
fiscal 1995. Similarly, the Company's results of operations were
adversely affected by: (i) the continuation of the economic recession in
Mexico in fiscal 1996, as well as, (ii) significantly higher feed grain
costs in fiscal 1996 (which included record high corn prices).In fiscal
1997 and the first quarter of fiscal 1998, however, the Company benefited
substantially from: (i) a rebounding economy in Mexico when compared to
fiscal 1996 and 1995, and, (ii) the adjustment in the supply of poultry
products in Mexico to the levels of demand existing after the economic
recession. On February 5, 1998 the Mexican peso closed at 8.42 to 1
U.S. dollar. No assurance can be given as to the future valuation of the
Mexican peso and how further movement in the Mexican peso could affect
future earnings positively or negatively.
The following table presents certain information regarding the Company's
U.S. and Mexican operations.
<TABLE>
<CAPTION>
Net Sales
<S> <C> <C>
Three Months Ended
December 27, 1997 December 28, 1996
<S> <C> <C>
Sales to unaffiliated
customers: 259,576 231,538
United States 78,311 66,268
Mexico
Operating Income:
United States 2,472 10,369
Mexico 12,899 5,945
</TABLE>
The following table presents certain items as a percentage of net sales
for the periods indicated.
Percentage of Net Sales
THREE MONTHS ENDED
December 27, December 28,
1997 1996
Net sales 100.0% 100.0%
Costs and expenses:
Cost of sales 91.3% 89.8%
Gross profit 8.7% 10.2%
Selling, general and administrative 4.1% 4.7%
Operating Income 4.6% 5.5%
Interest expense 1.5% 1.8%
Income before income taxes 3.0% 4.3%
Net Income 3.3% 3.4%
FISCAL FIRST QUARTER 1998 COMPARED TO FISCAL FIRST QUARTER 1997:
NET SALES. Consolidated net sales were $337.9 million for the first
quarter of 1998, an increase of $40.1 million, or 13.5%, over the first
quarter of fiscal 1997. The increase in consolidated net sales resulted
from a $25.6 million increase in U.S. chicken sales to $218.6 million, a
$12.0 million increase in Mexican chicken sales to $78.3 million and $2.5
million increase of sales of other U.S. products to $41.0 million. The
increase in U.S. chicken sales was due primarily to a 19.0% increase in
dressed pounds produced resulting primarily from the Company's expansion
of existing facilities and the purchase of poultry producing assets
capable of producing 650,000 chickens per week from Green Acre Foods,
Inc. on April 15, 1997, offset partially by a 4.9% decrease in total
revenue per dressed pound produced. The increase in Mexican chicken sales
was due primarily to a 4.1% increase in total revenue per dressed pound
and to a 13.6% increase in dressed pounds produced. Increased revenue per
dressed pound produced in Mexico was primarily the result of higher sales
prices as well as generally improved economic conditions in Mexico
compared to the prior year. The increase in sales of other domestic
products was primarily the result of increased sales of the company's
wholesale feed operations and chicken by-products groups.
COST OF SALES. Consolidated cost of sales was $308.5 million in the
first quarter of fiscal 1998, an increase of $41.0 million, or 15.3%,
over the first quarter of fiscal 1997. The increase primarily resulted
from a $36.8 million increase in cost of sales of U.S. operations, and a
$4.2 million increase in the cost of sales in Mexican operations. The
cost of sales increase in U.S. operations of $36.8 million was due to a
19.0% increase in dressed pounds produced and increased production of
higher cost and margin products in prepared foods, partially offset by a
3.9% decrease in feed ingredient cost per pound when compared to the
first quarter of fiscal 1997. The $4.2 million cost of sales increase in
Mexican operations was due primarily to a 13.6% increase in dressed
pounds produced partially offset by a 5.5% decrease in average costs of
sales per pound. The decrease in average costs of sales per pound was
primarily the result of significantly improved performance and generally
improved economic conditions in Mexico compared to the prior year.
GROSS PROFIT. Gross profit as a percentage of sales decreased to
8.7% in the first quarter of fiscal 1998 from 10.2% in the first quarter
of fiscal 1997. The decreased gross profit resulted mainly from lower
margins in U.S. operations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Consolidated selling,
general and administrative expenses were constant at $14.0 million in the
first quarter of fiscal 1998, and the first quarter of fiscal 1997.
Consolidated selling, general and administrative expenses as a percentage
of sales decreased in the first quarter of fiscal 1998 to 4.1% compared
to 4.7% in the first quarter of fiscal 1997. The decrease in selling,
general and administrative expenses as a percent of sales was due
primarily to increased sales, while selling, general and administrative
expenses remained relatively constant.
OPERATING INCOME. Consolidated operating income was $15.4 million
for the first quarter of fiscal 1998, a decrease of $.9 million, or 5.8%
when compared to the first quarter of fiscal 1997, resulting primarily
from lower margins experienced in U.S. operations.
INTEREST EXPENSE. Consolidated net interest expense decreased to
$5.0 million, or 7.6% in the first quarter of fiscal 1998, when compared
to $5.5 million in the first quarter of fiscal 1997, due to slightly
lower average interest rates and increased interest income, which is
netted against interest expense, in the first quarter of fiscal 1998. As
a percentage of sales, interest expense decreased to 1.5% in the first
quarter of fiscal 1998 compared to 1.8% in the first quarter of fiscal
1997.
MISCELLANEOUS EXPENSE. Consolidated miscellaneous, net, a component
of "Other Expense (Income)", was ($.5) million in the first quarter of
fiscal 1998, a $2.1 million decrease, or 81.5%, when compared to ($2.5)
million for the first quarter of fiscal 1997, which included a $2.2
million final settlement of claims resulting from the January 8, 1992
fire at the Company's prepared foods plant in Mt. Pleasant, Texas.
INCOME TAX EXPENSE. Consolidated income tax expense decreased in the
first quarter of fiscal 1998 to a benefit of $.8 million compared to an
expense of $2.8 million in the first quarter of fiscal 1997. This
reduction resulted from lower U.S. earnings than in the prior year in
contrast to higher consolidated income resulting from increased Mexican
earnings that are not currently subject to income taxes.
LIQUIDITY AND CAPITAL RESOURCES:
At December 27, 1997, the Company's working capital was $115.0
million and a current ratio was 2.01 to 1 compared with working capital
of $133.5 million and a current ratio of 2.14 to 1 at September 27, 1997.
The decreases in working capital and current ratio from December 28, 1996
to September 27, 1997 were due primarily to lower seasonal inventories.
Trade accounts and other receivables were $79.5 million at December
27, 1997, a $1.6 million increase from September 27, 1997. The 2.0%
increase was due primarily to increased sales volumes. Inventories were
$125.4 million at December 27, 1997 compared to $146.2 million at
September 27, 1997. The $20.8 million decrease between December 27, 1996
to September 27, 1997 was due primarily to seasonal variations in sales
of chicken and feed products to the Company's principal stockholder.
Prepaid expenses were $5.8 million at December 27, 1997 a $3.5 million
increase from September 27, 1997. The 147.5% increase was primarily due
to higher prepaid expenses in Mexico. Accounts payable were $66.1
million at December 27, 1997 a $5.1 million decrease from September 27,
1997. The 7.2% decrease was due to lower feed ingredient costs
experienced during the period. Accrued expenses were $39.3 million at
December 27, 1997, a $4.5 million increase from September 27, 1997. The
12.9% increase was primarily due to increased Construction in Progress
items.
Capital expenditures for the first quarter of fiscal 1998 were $15.4
million and were incurred primarily to acquire or expand production
capacities in the U.S., improve efficiencies, reduce costs and for the
routine replacement of equipment. The Company anticipates that it will
spend approximately $55.0 million for capital expenditures in fiscal year
1998 and expects to finance such expenditures with available operating
cash flows and long-term financing.
At December 27, 1997, the Company's stockholder's equity increased to
$193.2 million from $182.5 million at September 27, 1997. Total debt to
capitalization decreased to 52.5% at December 27, 1997 compared to 56.4%
at September 27, 1997. The Company maintains $110 million in revolving
credit facilities and $45 million in secured term borrowing facilities.
The credit facilities provide for interest at rates ranging from LIBOR
plus one and three-eighths percent to LIBOR plus two and three-eighths
percent and are secured by inventory, trade accounts receivable and fixed
assets. At December 27, 1997, $102 million was available under the
revolving credit facilities and $25 million was available under the term
borrowing facilities.
IMPACT OF INFLATION:
Due to moderate inflation and the Company's rapid inventory turnover
rate, the results of operations have not been adversely affected by
inflation during the past three-year period.
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the three months
ended December 27, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PILGRIM'S PRIDE CORPORATION
Date 2/6/98 /S/
Richard A. Cogdill
Executive Vice President and
Chief Financial Officer
Secretary and Treasurer in his
respective capacity as such
3
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