SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended SEPTEMBER 26, 1998 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)
Registrant's telephone number, including area code: (903) 855-1000
Securities registered pursuant to Section 12 (b) of the Act:
Name of each exchange on
TITLE OF EACH CLASS WHICH REGISTERED
Class B Common Stock, Par Value $0.01 New York Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [X]
<PAGE>
The aggregate market value of the Registrant's Class B Common Stock,
$0.01 par value, held by non-affiliates of the Registrant as of December
8, 1998, was $236,108,468. For purposes of the foregoing calculation
only, all directors, executive officers, and 5% beneficial owners have
been deemed affiliates.
27,589,250 shares of the Registrant's Class B Common Stock, $.01 par
value, were outstanding as of December 10, 1998.
No Class A Common Stock was outstanding as of December 10, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's proxy statement for the annual meeting of
stockholders to be held February 3, 1999 are incorporated by reference
into Part III.
PILGRIM'S PRIDE CORPORATION
FORM 10-K
TABLE OF CONTENTS
PART I
PAGE
Item 1. Business
4
Item 2. Properties
18
Item 3. Legal Proceedings
20
Item 4. Submission of Matters to a Vote of Security Holders.
20
PART II
Item 5. Market for Registrant's Common Stock and Related Security Holder
Matters
21
Item 6. Selected Financial Data
22
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition
23
Item 8. Financial Statements and Supplementary Data (see Index to Financial
Statements and Schedules below).
30
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
30
PART III
Item 10. Directors and Executive Officers of Registrant
31
Item 11. Executive Compensation
31
Item 12. Security Ownership of Certain Beneficial Owners and Management
31
Item 13. Certain Relationships and Related Transactions
31
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
31
Signatures.
38
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Report of Ernst & Young LLP--Independent Auditors
40
Consolidated Balance Sheets as of September 26, 1998 and September 27, 1997
41
Consolidated Statements of Income (Loss) for the years ended
September 26, 1998, September 27, 1997 and September 28, 1996
42
Consolidated Statements of Stockholders' Equity for the years ended
September 26, 1998, September 27, 1997 and September 28, 1996
43
Consolidated Statements of Cash Flows for the years ended
September 26, 1998, September 27, 1997 and September 28,1996
44
Notes to Consolidated Financial Statements
45
Schedule II - Valuation and Qualifying Accounts for the years ended
September 26, 1998, September 27, 1997 and September 28, 1996
51
PART I
ITEM 1. BUSINESS
GENERAL
Pilgrim's Pride Corporation (the "Company"), which was incorporated
in Texas in 1968 and reincorporated in Delaware in 1986, is the successor
to a partnership founded in 1946 as a retail feed store. Over the years,
the Company grew through both internal growth and various acquisitions of
farming operations and chicken processors. In addition to domestic
growth, the Company initially expanded into Mexico through the
acquisition of several smaller chicken producers in 1988.
Pilgrim's Pride Corporation is one of the largest producers of
prepared and fresh chicken products in North America and has one of the
best known brand names in the chicken industry. The Company is the
fourth largest producer of chicken in the United States and one of the
two largest in Mexico. Through vertical integration, the Company
controls the breeding, hatching and growing of chickens and the
processing, preparation, packaging and sale of its product lines. In
fiscal 1998, approximately 79% of the Company's net sales were from its
U.S. operations, including U.S. produced chicken products sold for export
to Canada, Eastern Europe, the Far East and other world markets, with the
remaining approximately 21% arising from the Company's Mexico operations.
The Company's objectives are to increase sales, profit margins and
earnings and outpace the growth of the chicken industry: (i) by focusing
on growth in the prepared food products market, (ii) by focusing on
growth in the Mexico market, and (iii) through greater utilization of the
Company's existing assets. Key elements of the Company's strategy to
achieve these objectives are to:
FOCUS U.S. GROWTH ON PREPARED FOODS. In recent years the Company
has focused its sales of prepared foods to the foodservice market,
particularly to chain restaurants and frozen entr<e'>e producers.
The market for prepared foods has experienced greater growth and
higher margins than fresh chicken products, and the Company's sales
of prepared foods products to the foodservice market have grown from
$205.2 million in fiscal 1994 to $419.2 million in fiscal 1998, a
compounded annual growth rate of 19.5%. Additionally, the
production and sale of prepared foods 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 cost. The Company is now the largest
supplier of chicken to Wendy's and Jack-in-the-Box chain restaurants
and to Stouffer's frozen entr<e'>e operation. Other major prepared
foods customers include KFC and Taco Bell. Prepared foods
constituted 51.0% of the Company's U.S. chicken sales in fiscal
1998.
FOCUS ON CUSTOMER DRIVEN RESEARCH AND TECHNOLOGY. Much of the
Company's growth in prepared foods has been the result of customer-
driven research & development focused on designing new products to
meet customers' changing needs. The Company's research &
development personnel often work directly with institutional
customers in developing proprietary products. Approximately $188
million of the Company's sales to foodservice customers in fiscal
1998 consisted of new products, which were not sold by the Company
in fiscal 1994. The Company is also a leader in utilizing advanced
processing technology, which enables the Company to better meet its
customers' needs for product innovation, consistent quality and cost
efficiency.
ENHANCE THE U.S. FRESH CHICKEN PRODUCT MIX THROUGH VALUE-ADDED,
BRANDED PRODUCTS. The Company's fresh chicken business is an
important component of its sales and has grown from sales of $280.4
million in fiscal 1994 to $306.6 million in fiscal 1998. In
addition to maintaining its sales of mature, traditional fresh
chicken products, the Company's strategy is to shift the mix of its
U.S. fresh chicken products by continuing to increase sales of
higher margin, faster growing products, such as marinated chicken
and chicken parts. As a result of this strategy, the Company's
compounded annual growth rate of fresh chicken sales from fiscal
1994 to fiscal 1998 exceeded 2.2% while total U.S. industry sales of
fresh chicken increased approximately 1%.
MAINTAIN OPERATING EFFICIENCIES AND INCREASE CAPACITY ON A COST-
EFFECTIVE BASIS. As production and sales have grown, the Company
has maintained operating efficiencies by investing in state-of-the-
art technology, processes and training and by making cost-effective
acquisitions both in the U.S. and Mexico. As a result, according to
industry data, since 1993 the Company has consistently been one of
the lowest cost producers of chicken.
CAPITALIZE ON INTERNATIONAL DEMAND FOR U.S. CHICKEN. Due to U.S.
consumers' preference for chicken breast meat, the Company has
targeted international markets to generate sales of leg quarters.
The Company has also begun selling prepared food products for export
to the international divisions of its U.S. chain restaurant
customers. As a result of these efforts, sales for these markets
have grown from less than 2% of the Company's total U.S. chicken
sales in fiscal 1994 to more than 6% in fiscal 1998. Management
believes that: (i) U.S. chicken exports will continue to grow as
worldwide demand for high grade, low costs protein sources
increases, and (ii) worldwide demand for higher margin prepared food
products will increase over the next five years; and accordingly,
the Company is well positioned to capitalize on such growth.
CAPITALIZE ON INVESTMENTS AND EXPERTISE IN MEXICO. The Company's
strategy in Mexico is focused on: (i) being one of the most cost-
efficient producers and processors of chicken in Mexico by applying
technology and expertise utilized in the U.S. and (ii) increasing
distribution of its higher margin, value added products to national
retail stores and restaurants. This strategy has resulted in the
Company obtaining a market leadership position, with its estimated
market share in Mexico increasing from 11.6% in 1994 to 16.8% in
1998.
The Company's chicken products consist primarily of: (i) prepared
foods, which include portion-controlled breast fillets, tenderloins and
strips, formed nuggets and patties and bone-in chicken parts, which are
sold frozen and may be either fully cooked or raw, (ii) fresh chicken,
which includes refrigerated (non-frozen), whole or cut-up chicken sold to
the foodservice industry either pre-marinated or non-marinated and
prepackaged chicken, which includes various combinations of freshly
refrigerated, whole chickens and chicken parts in trays, bags or other
consumer packs labeled and priced ready for the retail grocers' fresh
meat counter, and (iii) export and other, which includes parts and whole
chicken, either refrigerated or frozen for U.S. export or domestic use.
The Company's Mexico products consist of live, uneviscerated and
eviscerated chicken.
The following table sets forth, for the periods since fiscal 1994,
net sales attributable to each of the Company's primary product lines and
markets served with such products. The table is based on the Company's
internal sales reports and its classification of product types and
customers.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
Sept. 26, Sept.27, Sept. 28, Sept. 30, Oct.1,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Chicken Sales:
Prepared Foods:
FOOD SERVICE $419,150 $347,831 $303,939 $240,456 $205,224
Retail 45,877 41,804 42,946 38,683 61,068
Total Prepared Foods 465,027 389,635 346,885 279,139 266,292
Fresh Chicken:
Food Service 144,928 173,743 145,052 140,201 155,294
Retail 161,634 152,738 141,135 138,368 125,133
Total Fresh Chicken 306,562 326,481 286,187 278,569 280,427
Export and Other 139,976 142,030 140,614 113,414 88,437
Total U.S. Chicken 911,565 858,146 773,686 671,122 635,156
Mexico 278,087 274,997 228,129 159,491 188,744
Total Chicken Sales 1,189,652 1,133,143 1,001,815 830,613 823,900
Sales of Other
U.S. Products 141,893 144,506 137,495 101,193 98,709
Total Net Sales $1,331,545 $1,277,649 $1,139,310 $931,806 $922,609
</TABLE>
UNITED STATES
The following table sets forth, since fiscal 1994,
the percentage of net U.S. chicken sales attributable
to each of the Company's primary product lines and
markets serviced with such products. The table and
related discussion are based on the Company's internal
sales reports and its classification of product types
and customers.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SEPT. 26, SEPT. 27, SEPT.28, SEPT.30, OCT. 1,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. CHICKEN SALES:
Prepared Foods:
Foodservice 46.0% 40.5% 39.3% 35.8% 32.3%
Retail 5.0 4.9 5.6 5.8 9.6
Total Prepared Foods 51.0 45.4 44.9 41.6 41.9
Fresh Chicken:
Foodservice 15.9 20.2 18.7 20.9 24.5
Retail 17.7 17.8 18.2 20.6 19.7
Total Fresh Chicken 33.6 38.0 36.9 41.5 44.2
15.4 16.6 18.2 16.9 13.9
TOTAL U.S. CHICKEN
SALES MIX 100.0% 100.0% 100.0% 100.0% 100.0%
</TABLE>
PRODUCT TYPES
U.S. PREPARED FOODS OVERVIEW. During fiscal 1998, $465.0 million of
the Company's net U.S. chicken sales were in prepared foods products to food
service and retail, as compared to $266.3 million in fiscal 1994, which
reflects the strategic focus for growth of the Company. The market
for prepared food products has experienced, and management believes that
this market will continue to experience, greater growth and higher margins
than fresh chicken products. Additionally, the production and sale of
prepared foods reduces the impact of feed grain costs on the Company's
profitability. As further processing is performed, feed grain costs
becomes a decreasing percentage of a product's total production costs.
The Company establishes prices for its prepared food products
based primarily upon perceived value to the customer, production costs and
prices of competing products. The majority of these products are sold
pursuant to agreements with varying terms that either set a fixed price for the
products or seta price according to formulas based on an underlying commodity
market, subject in many cases to minimum and maximum prices.
U.S. Fresh Chicken Overview. The Company's fresh chicken business
is an important component of its sales and has grown from sales of $280.4
million in fiscal 1994 to $306.6 million in fiscal 1998. In addition to
maintaining its sales of mature, traditional fresh chicken products,
the Company's strategy is to shift the mix of its U.S. fresh chicken
products by continuing to increase sales of higher margin, faster growing
products, such as marinated chicken and chicken parts. As a result of this
strategy, the Company's compounded annual growth rate of fresh chicken
sales from fiscal 1994 to fiscal 1998 exceeded 2.2% while total U.S.
industry sales of fresh chicken increased approximately 1%.
Most fresh chicken products are sold to established customers based
upon certain weekly or monthly market prices reported by the USDA and
other public price reporting services, plus a markup, which is dependent
upon the customer's location, volume, product specifications and other
factors. The Company believes its practices with respect to sales of
its fresh chicken are generally consistent with those of its competitors.
Prices of these products are negotiated daily or weekly and are generally
related to market prices quoted by the USDA or other public reporting
services.
EXPORT AND OTHER OVERVIEW. The Company's export and other
products consist of whole chickens and chicken parts sold primarily in bulk,
non-branded form either refrigerated to distributors in the U.S. or frozen for
distribution to export markets. Sales growth in the "Export and Other"
category between fiscal 1994 and fiscal 1998 primarily reflects increased
exports of chicken products. In fiscal 1998, approximately $56 million of
the Company's sales were attributable to exports of U.S. chicken. These
exports and other products have historically been characterized by lower
prices and greater price volatility than the Company's more value-added
product lines.
MARKETS
U.S. FOODSERVICE. The majority of the Company's U.S. chicken sales
are derived from products sold to the foodservice market which
principally consists of chain restaurants, frozen entr<e'>e producers,
institutions and distributors, located throughout the continental United
States. The Company supplies chicken products ranging from portion-controlled
refrigerated chicken parts to fully cooked and frozen, breaded or non-breaded
chicken parts or formed products.
As the second largest full-line supplier of chicken to the foodservice
market, the Company believes it is well-positioned to be the primary or
secondary supplier to many national and international chain restaurants
who require multiple suppliers of chicken products. Additionally, the
Company is well suited to be the sole supplier for many regional chain
restaurants that offer better margin opportunities and a growing base of
business. Due to its comparatively large size in this market, management
believes the Company has significant competitive advantages in
terms of product capability, production capacity, research and development
expertise, and distribution and marketing experience relative to smaller and
to non-vertically integrated producers. As a result of these competitive
advantages, the Company's sales to the foodservice market from fiscal 1994
through fiscal 1998 grew at a compound annual growth rate of approximately
11.9%. Based on industry data, the Company estimates that total industry
dollar sales to the foodservice market during this same period grew
at a compounded annual growth rate of approximately 8.0%. The Company
markets both prepared food and fresh chicken products to the foodservice
industry.
FOODSERVICE - PREPARED FOODS: The majority of the Company's sales to
the foodservice market consist of prepared food products. Prepared food
sales to the foodservice market were $419.2 million in fiscal 1998
compared to $205.2 million in fiscal 1994, a compounded growth rate of
approximately 19.5%. The Company's prepared food products include portion-
controlled breast fillets,tenderloins and strips, formed nuggets and
patties and bone-in chicken parts, which are sold frozen and in various
states of preparation, including blanched, battered, breaded and either
partially or fully cooked. The Company attributes this growth in sales
of prepared foods to the foodservice market to a number of factors:
FIRST, there has been significant growth in the number of
foodservice operators offering chicken on their menus and the
number of chicken items offered.
SECOND, foodservice operators are increasingly purchasing prepared
chicken products, which allow them to reduce labor cost while providing
greater product consistency, quality and variety across all restaurant
locations.
THIRD, there is a strong need among larger foodservice companies
for an alternative or additional supplier to the Company's principal
competitor in the prepared foods market. A viable alternative
supplier must be able to ensure supply, demonstrate innovation and
new product development, and provide competitive pricing. The Company has
been successful in its objective of becoming the alternative supplier of
choice by being the primary or secondary prepared chicken supplier
to many large foodservice companies because: (i) it is vertically
integrated, giving the Company control over its supply of chicken
and chicken parts, (ii) its further processing facilities are particularly
well suited to the high volume production runs necessary to meet the
capacity and quality requirements of the U.S. foodservice market, and
(iii) it has established a reputation for dependable quality, highly
responsive service and excellent technical support.
FOURTH, as a result of the experience and reputation developed
with larger customers, the Company has increasingly become the
principal supplier to mid-sized foodservice organizations.
FIFTH, the Company's in-house product development group follows a
customer-driven research & development focus designed to
develop new products to meet customers' changing needs. The
Company's research & development personnel often work directly with
institutional customers in developing proprietary products.
Approximately $188.4 million of the Company's sales to foodservice
customers in fiscal 1998 consisted of new products, which were not sold
by the Company in fiscal 1994.
SIXTH, the Company is a leader in utilizing advanced processing
technology, which enables the Company to better meet its
customers' needs for product innovation, consistent quality and
cost efficiency.
FOODSERVICE - FRESH CHICKEN: The Company produces and markets
fresh, refrigerated chicken for sale to U.S. quick-service restaurant chains,
delicatessens and other customers. These chickens have the giblets removed,
are usually of specific weight ranges, are usually pre-cut to customer
specifications and are often marinated to enhance value and product
differentiation. By growing and processing to customers' specifications,the
Company is able to assist quick-service restaurant chains in controlling
costs and maintaining quality and size consistency of chicken pieces sold to
the consumer.
U.S. RETAIL. The U.S. retail market consists primarily of grocery
store chains and retail distributors. The Company concentrates its efforts in
this market on sales of branded, prepackaged cut-up and whole chicken to
grocery chains and retail distributors in the mid-western, southwestern and
western regions of the United States. This regional marketing focus
enables the Company to develop consumer brand franchises and capitalize
on proximity to the trade customer in terms of lower transportation costs;
more timely, responsive service; and enhanced product freshness. For a number
of years, the Company has invested in both trade and retail marketing
designed to establish high levels of brand name awareness and consumer
preferences within these markets.
The Company utilizes numerous marketing techniques, including
advertising, to develop and strengthen trade and consumer awareness and
increase brand loyalty for consumer products marketed under the
"Pilgrim's Pride" brand. The Company's founder, Lonnie "Bo" Pilgrim, is
the featured spokesman in the Company's television, radio and print
advertising, and a trademark cameo of a person in a Pilgrim's hat serves as
the logo on all of the Company's primary branded products. As a result of
this marketing strategy, the Company has established a well-known brand
name in certain southwestern markets, including the Dallas/Fort Worth area.
Management believes its efforts to achieve and maintain brand awareness
and loyalty help to provide more secure distribution for its products and
generate greater price premiums than would otherwise be the case in certain
southwestern markets. The Company also maintains an active program to identify
consumer preferences primarily by testing new product ideas, packaging
designs and methods through taste panels and focus groups located in key
geographic markets.
RETAIL - PREPARED FOODS. The Company sells retail oriented prepared
foods primarily to grocery store chains located in the mid-western, south-
western and western region of the U.S. where it also markets prepackaged
fresh chicken. Being a major, national competitor in retail, branded frozen
foods is not a part of the Company's current business strategy. The
Company no longer serves the wholesale club industry, which is now dominated
by two large national operators, and has redirected this prepared foods
capacity to a more diversified customer base.
RETAIL - FRESH CHICKEN. The Company's prepackaged retail products
include various combinations of freshly refrigerated whole chickens and chicken
parts in trays, bags or other consumer packs, labeled and priced ready for the
grocer's fresh meat counter. Management believes the retail, prepackaged fresh
chicken business will continue to be a large and relatively stable market,
providing opportunities for product differentiation and regional brand
loyalty.
The Company concentrates its sales and marketing efforts for the above
product types to grocery chains and retail distributors in the mid-western,
southwestern and western regions of the United States. This regional marketing
focus enables the Company to develop consumer brand franchises and capitalize
on proximity to the trade customer in terms of lower transportation costs; more
timely, responsive service; and enhanced product freshness.
EXPORT AND OTHER CHICKEN. The Company's export and other products
consist of whole chickens and chicken parts sold primarily in bulk, non-branded
form either refrigerated to distributors in the U.S., or frozen for
distribution to export markets. In recent years, the Company has de-emphasized
its marketing of bulk-packaged chicken in the U.S. in favor of more value-
added products and export opportunities. In the U.S., prices of these
products are negotiated daily or weekly and are generally related to market
prices quoted by the USDA or other public price reporting services. The
Company also sells U.S. produced chicken products for export to Canada,
Eastern Europe, the Far East and other world markets. Due to U.S.
consumers' preference for chicken breast meat, the Company has targeted
international markets to generate sales of leg quarters. The Company has also
begun selling prepared food products for export to the international divisions
of its U.S. chain restaurant customers. As a result of these efforts,
the Company's sales for export have grown from less than 2% of its total
U.S. chicken sales in fiscal 1994 to more than 6% in fiscal 1998. Management
believes that: (i) U.S. chicken exports will continue to grow as
worldwide demand for high grade low cost protein sources increases, (ii) world-
wide demand for higher margin prepared food products will increase over
the next five years, and accordingly, (iii) the Company is well positioned to
capitalize on such growth.
OTHER U.S. PRODUCTS. The Company markets fresh eggs under the Pilgrim's
Pride brand name as well as private labels in various sizes of cartons
and flats to U.S. retail grocery and institutional foodservice customers
located primarily in Texas. The Company has a housing capacity for
approximately 2.3 million commercial egg laying hens which can produce
approximately 41 million dozen eggs annually. U.S. egg prices are
determined weekly based upon reported market prices. The U.S. egg industry
has been consolidating over the last few years with the 25 largest
producers accounting for more than 58% of the total number of egg laying hens
in service during 1998. The Company competes with other U.S. egg
producers primarily on the basis of product quality, reliability, price
and customer service. According to an industry publication, the Company
is the twenty-eighth largest producer of eggs in the United States.
The Company also converts chicken by-products into protein products
primarily for sale to manufacturers of pet foods. In addition, the
Company produces and sells livestock feeds at its feed mills in Pittsburg and
Mt. Pleasant, Texas and at its farm supply store in Pittsburg, Texas to
dairy farmers and livestock producers in northeastern Texas.
MEXICO
BACKGROUND. The Mexico market represented approximately 20.9% of
the Company's net sales in fiscal 1998. The Company entered the Mexico market
in 1979 when it began seasonally selling eggs to the Mexico government.
Recognizing favorable long-term demographic trends and improving economic
conditions in Mexico, the Company began exploring opportunities to
produce and market chicken in Mexico. In fiscal 1988, the Company acquired
four vertically integrated chicken production operations in Mexico for
approximately $15.1 million. From fiscal 1988 through fiscal 1998, the
Company made acquisitions and capital expenditures in Mexico totaling
$172.7 million to expand and improve such operations. As a result of these
expenditures, the Company has increased weekly production in its Mexico
operations by over 350% since its original investment in fiscal 1988. The
Company is now one of the two largest producers of chicken in Mexico.
The Company believes its facilities are among the most technologically
advanced in Mexico and that it is one of the lowest cost producers of
chicken in Mexico.
PRODUCT TYPES. While the market for chicken products in Mexico is
less developed than in the United States, with sales attributed to fewer,
more basic products, the market for value added products is increasing.
The Company's strategy is to lead this trend. The products currently sold
by the Company in Mexico consist primarily of basic products such as
New York dressed (whole chickens with only feathers and blood removed),
live birds and value added products such as eviscerated chicken and
chicken parts. The Company has increased its sales of value added
products, particularly through national retail chains and restaurants,
and plans to continue to do so. The Company remains opportunistic, however,
utilizing its low cost production to enter markets where profitable
opportunities exist. For example, the Company has significantly increase
its sales of live birds since 1994 as many smaller producers exited this
segment of the business as a result of the recession in Mexico.
MARKETS. The Company sells its Mexico chicken products primarily
to large wholesalers and retailers. The Company's customer base in Mexico
covers a broad geographic area from Mexico City, the capital of Mexico with a
population estimated to be over 20 million, to Saltillo, the capital
of the State of Coahuila, about 500 miles north of Mexico City, and from
Tampico on the Gulf of Mexico to Acapulco on the Pacific, which region
includes the cities of San Luis Potosi and Queretaro, capitals of the
states of the same name.
COMPETITION
The chicken industry is highly competitive and certain of the Company's
competitors have greater financial and marketing resources than the Company.
In the United States and Mexico, the Company competes principally with other
vertically integrated chicken companies.
In general, the competitive factors in the U.S. chicken industry include
price, product quality, brand identification, breadth of product line and
customer service. Competitive factors vary by major market. In the
foodservice market, competition is based on consistent quality, product
development, service and price. In the U.S. retail market, management
believes that product quality, brand awareness and customer service are the
primary bases of competition. There is some competition with non-vertically
integrated further processors in the U.S. prepared food business. The
Company believes it has significant, long-term cost and quality advantages
over non-vertically integrated further processors.
In Mexico, where product differentiation is limited, product
quality and price are the most critical competitive factors. The North
American Free Trade Agreement, which went into effect on January 1, 1994,
requires annual reductions in tariffs for chicken and chicken products in
order to eliminate such tariffs by January 1, 2003. As such tariffs are
reduced, there can be no assurance that increased competition from
chicken imported into Mexico from the U.S. will not have a material
adverse effect on the Mexico chicken industry in general, or the
Company's Mexico operations in particular.
OTHER ACTIVITIES
The Company has regional distribution centers located
in Arlington, El Paso, Mt. Pleasant and San Antonio, Texas; Phoenix, Arizona;
and Oklahoma City, Oklahoma that distribute the Company's own poultry products
along with certain poultry and non-poultry products purchased from third
parties to independent grocers and quick service restaurants. The Company's
non-poultry distribution business is conducted as an accommodation to their
customers and to achieve greater economies of scale in distribution
logistics. The store-door delivery capabilities for the Company's own poultry
products provide a strategic service advantage in selling to quick
service, national chain restaurants.
REGULATION
The chicken industry is subject to government regulation, particularly
in the health and environmental areas. The Company's chicken processing
facilities in the U.S. are subject to on-site examination, inspection and
regulation by the USDA. The FDA inspects the production of the Company's
feed mills in the U.S. The Company's Mexican food processing facilities
and feed mills are subject to on-site examination, inspection and
regulation by a Mexican governmental agency, which performs functions
similar to those performed by the USDA and FDA. Since commencement of
operations by the Company's predecessor in 1946, compliance with applicable
regulations has not had a material adverse effect upon the Company's
earnings or competitive position and such compliance is not anticipated to
have a materially adverse effect in the future. Management believes that the
Company is in substantial compliance with all applicable laws and
regulations relating to the operations of its facilities.
The Company anticipates increased regulation by the USDA concerning
food safety, by the FDA concerning the use of medications in feed and by the
TNRCC, the ASVO and the EPA concerning the disposal of chicken by-products
and wastewater discharges. Although the Company does not anticipate any
such regulation having a material adverse effect upon the Company, no
assurances can be given tothat effect.
EMPLOYEES AND LABOR RELATIONS
As of December 14, 1998 the Company employed approximately 9,700 persons
in the U.S. and 3,300 persons in Mexico. Approximately 2,000 employees
at the Company's Lufkin and Nacogdoches, Texas facilities are members of
collective bargaining units represented by the United Food and Commercial
Workers Union (the "UFCW"). None of the Company's other U.S. employees
have union representation. The Company's collective bargaining agreements
with the UFCW expire on August 10, 2001 with respect to the Company's Lufkin
employees and on October 6, 2001 with respect to the Company's
Nacogdoches employees. The Company believes that the terms of each of
these agreements are no more favorable than those provided to its non-union
U.S. employees. In Mexico, most of the Company's hourly employees are
covered by collective bargaining agreements as most employees are in Mexico.
The Company has not experienced any work stoppage since a two-day work
stoppage at the Lufkin facility in May 1993, and management believes
that relations with the Company's employees are satisfactory.
STATEMENTS REGARDING FORWARD LOOKING COMMENTS
Except for historical information contained herein, Management's
Discussion and Analysis of Results of Operations and Financial Condition or
other discussions elsewhere in this Form 10K contains forward-looking
statements that are dependent upon a number of risks and uncertainties
that could cause actual results to differ materially from those in the
forward-looking statement. These risks and uncertainties include changes
in commodity prices of feed grain and chicken, the Company's substantial
indebtedness, risks associated with the Company's foreign operations,
including currency exchange rate fluctuations, trade barriers, exchange
controls, expropriation and changes in laws and practices, the impact
of current and future laws and regulations, and the other risks described
in the Company's SEC filings. The Company does not intend to provide updated
information about the matters referred to in these forward looking
statements, other than in the context of Management's Discussion and
Analysis of Results of Operations and Financial Condition contained herein
and other disclosures in the Company's SEC filings.
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is certain information relating to the
Current directors and executive officers of the Company:
EXECUTIVE OFFICERS
OF THE COMPANY AGE POSITIONS
Lonnie "Bo" Pilgrim (1) 70 Chairman of the Board
Clifford E. Butler 56 Vice Chairman of the Board
David Van Hoose 56 Chief Executive Officer
President
Chief Operating Officer
Director
Richard A. Cogdill 38 Executive Vice President
ChiefFinancial Officer
Secretary
and
Treasurer
Director
O.B. Goolsby, Jr. 51 Executive Vice President
Prepared Foods Complexes
Robert L. Hendrix 62 Executive Vice President
Growout and Processing
Michael J. Murray 40 Executive Vice President
Sales & Marketing and Distribution
Randy P. Stroud 43 Executive Vice President
Mexico Operations
Ray Gameson 49 Senior Vice President
Human Resources
David Hand 42 Senior Vice President
Sales and Marketing
Retail and Fresh Products
Michael D. Martin 44 Senior Vice President
Complex Manager
DeQueen and Nashville
Arkansas Complex
James J. Miner, Ph.D. 70 Senior Vice President
Technical Services
Robert N. Palm 55 Senior Vice President
Lufkin, Nacogdoches and Center
Texas Complex
Lonnie Ken Pilgrim (1) 40 Senior Vice President
Director of Transportation
Director
Charles L. Black (1) 68 Director
Robert E. Hilgenfeld (1) (2) 73 Director
Vance C. Miller, Sr. (1) (2) 64 Director
James G. Vetter, Jr. (1) (2) 64 Director
Donald L. Wass, Ph.D. (1) (2) 66 Director
_________
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
LONNIE "BO" PILGRIM has served as Chairman of the Board since
the organization of the Company in July 1968. He was previously Chief Executive
Officer from July 1968 to June 1998. Prior to the incorporation of the Company,
Mr. Pilgrim was a partner in the Company's predecessor partnership business
founded in 1946.
CLIFFORD E. BUTLER serves as Vice Chairman of the Board. He joined
the Company as Controller and Director in 1969, was named Senior Vice President
of Finance in 1973, became Chief Financial Officer and Vice Chairman of the
board in July 1983, became Executive President on January 1997 and served in
such capacity through July 1998 and continues to serve as Vice Chairman of the
Board.
DAVID VAN HOOSE serves as Chief Executive Officer, President and
Chief Operating Officer of the Company. He was named Chief Executive Officer
and Chief Operating Officer in June 1998 and President in July 1998.
He was previously President of Mexico Operations from April 1993 to June 1998
and Senior Vice President, Director General, Mexico Operations from August
1990 to April 1993. Mr. Van Hoose was employed by the Company in September
1988 as Senior Vice President, Texas Processing. Prior to that, Mr. Van
Hoose was employed by Cargill, Inc., as General Manager of one of its chicken
operations.
RICHARD A. COGDILL has served as Executive Vice President, Chief
Financial Officer, Secretary and Treasurer since January 1997. He became
a Director in September 1998. Previously he served as Senior Vice President,
Corporate Controller, from August 1992 through December 1996 and as
Vice President, Corporate Controller from October 1991 through August 1992.
Prior to October 1991 he was a Senior Manager with Ernst & Young LLP. He is
a Certified Public Accountant.
O.B. GOOLSBY, JR. has served as Executive Vice President, Prepared
Foods Operations since June 1998. He was previously Senior Vice
President, Prepared Foods Operations from August 1992 to June 1998 and
Vice President, Prepared Foods Operations from April 1986 to August 1992
and was previously employed by the Company from November 1969 to January
1981.
ROBERT L. HENDRIX has been Executive Vice President, Operations, of
the Company since March 1994. He was a Director of the Company from
March 1994 to September 1998. Prior to that he served as Senior Vice
President, NETEX Processing from August 1992 to March 1994 and as President
and Chief of Complex Operations from September 1988 to March 1992. He was
on leave from the Company from March 1992 to August 1992. From July 1983
to March 1992 he served as a Director of the Company. He was President and
Chief Operating Officer of the Company from July 1983 to September 1988.
He joined the Company as Senior Vice President in September 1981 when the
Company acquired Mountaire Corporation of DeQueen, Arkansas, and, prior thereto,
he was Vice President of Mountaire Corporation.
MICHAEL J. MURRAY has been Executive Vice President, Sales & Marketing
and Distribution since June 1998. He previously served as Senior
Vice President, Sales & Marketing, Prepared Foods from October 1994 to June
1998 and as Vice President of Sales and Marketing, Food Service from August
1993 to October 1994. From 1990 to July 1993, he was employed by Cargill,
Inc. Prior to that, from March 1987 to 1990 he was employed by the Company
as a Vice President for sales and marketing and prior thereto, he was employed
by Tyson Foods, Inc.
RANDY P. STROUD has served as Executive Vice President,
Mexico Operations since August 1998. Previously he was Live Production Manager
at the Lufkin, Texas Complex from May 1989 to August 1998 and as Breeder
Department Manager from June 1985 to May 1989.Prior to that he was employed
in variousoperating management positions by Plus-Tex Poultry, Inc., a Lufkin,
Texas based Company acquired by Pilgrim's Pride in June of 1985.
RAY GAMESON has been Senior Vice President of Human Resources
since October 1994. He previously served as Vice President of Human
Resources since August 1993. From December 1991 to July 1993, he was
employed by Townsends, Inc. and served as Complex Human Resource, Manager.
Prior to that, he was employed by the Company as Complex Human Resource,
Manager, at its Mt. Pleasant, Texas location.
DAVID HAND has served as Senior Vice President of Sales and Marketing,
Retail and Fresh Products since January 1998. Previously he was Vice
President of Commodity and export Sales from November 1996 to June 1998.
Prior to that he was Director of Commodity and Export Sales from October
1992 to November 1996. He joined the Company in June 1990 and was Export
Sales Manager from June 1990 to October 1992. Prior to that he was
President of Plantation Marketing and was with ConAgra from 1979 to 1986.
MICHAEL D. MARTIN has been Senior Vice President, DeQueen, Arkansas
Complex Manager, of the Company since April 1993. He previously served as
Plant Manager at the Company's Lufkin, Texas operations and Vice President,
Processing, at the Company's Mt. Pleasant, Texas, operations up to April 1993.
He has served in various other operating management positions in the
Arkansas Complex since September 1981. Prior to that, he was employed by
Mountaire Corporation of DeQueen, Arkansas, until it was acquired by the
Company in September 1981.
JAMES J. MINER, PH.D., has been Senior Vice President, Technical
Services, since April 1994. He has been employed by the Company and its
predecessor partnership since 1966 and served as Senior Vice President
responsible for live production and feed nutrition from 1968 to April 1994. He
was a Director from the incorporation of the Company in 1968 through September
1998.
ROBERT N. PALM has been Senior Vice President, Lufkin, Texas, Complex
Manager of the Company, since June 1985 and was previously employed in
various operating management positions by Plus-Tex Poultry, Inc., a Lufkin,
Texas based company acquired by Pilgrim's Pride in June 1985.
LONNIE KEN PILGRIM has been employed by the Company since 1977 and has
been Senior Vice President, Transportation since August 1997. Prior to
that he served the Company as its Vice President, Director of Transportation.
He has beena member of the Board of Directors since March 1985. He is a son
of Lonnie "Bo" Pilgrim.
CHARLES L. BLACK was Senior Vice President, Branch President of
NationsBank, Mt. Pleasant, Texas, from December 1981 to his retirement
in February 1995. He previously was a Director of the Company from
1968 to August 1992 and has served as a director since his re-election in
February 1995.
ROBERT E. HILGENFELD was elected a Director in September 1986.
Mr. Hilgenfeld was a Senior Vice President-Marketing/Processing for the
Company from 1969 to 1972 and for seventeen years prior to that worked in
various sales and management positions for the Quaker Oat Company. From
1972 until April 1986, he was employed by Church's Fried Chicken Company
("Church's") as Vice President-Purchasing Group, Vice President and
Senior Vice President. He was elected a Director of Church's in 1985 and
retired from Church's in April 1986. Since retirement he has served as
a consultant to various companies including the Company.
VANCE C. MILLER, SR. was elected a Director in September 1986.
Mr. Miller has been Chairman of Vance C. Miller Interests, a real
estate development company formed in 1977 and has served as the Chairman of
the Board and Chief Executive Officer of Henry S. Miller Cos., a Dallas,
Texas real estate services firm since 1991. Mr. Miller also serves as
a director of Resurgence Properties, Inc.
JAMES G. VETTER, JR. has practiced law in Dallas, Texas since 1966.
He is a member of the Dallas law firm of Godwin & Carlton, P.C., and has served
as general counsel and a Director since 1981. Mr.Vetter is a Board Certified-
Tax Law Specialist and serves as a lecturer and author in tax matters.
DONALD L. WASS, Ph.D. was elected a Director of the Company in May 1987.
He has been President of the William Oncken Company of Texas, a time
management consulting company, since 1970.
ITEM 2. PROPERTIES
PRODUCTION AND FACILITIES
BREEDING AND HATCHING: The Company supplies all of its chicks in the U.S.
by producing its own hatching eggs from domestic breeder flocks in the U.S.
owned by the Company, approximately 34% of which are maintained on 42
Company-operated breeder farms. In the U.S., the Company currently owns or
contracts for approximately 8.5 million square feet of breeder housing on
approximately 238 breeder farms. In Mexico, all of the Company's breeder
flocks are maintained on Company-owned farms.
The Company owns seven hatcheries in the United States, located in
Nacogdoches, Center and Pittsburg, Texas, and DeQueen and Nashville,
Arkansas, where eggs are incubated and hatched in a process requiring 21 days.
Once hatched, the day-old chicks are inspected and vaccinated against
common poultry diseases and transported by Company vehicles to grow-out
farms. The Company's seven hatcheries in the U.S. have an aggregate
production capacity of approximately 9.0 million chicks per week. In
Mexico, the Company owns seven hatcheries, which have an aggregate
production capacity of approximately 3.3 million chicks per week.
GROW-OUT: The Company places its U.S. grown chicks on approximately
1,100 grow-out farms located in Texas and Arkansas. These farms
provide the Company with approximately 58.0 million square feet of growing
facilities. The Company operates 33 grow-out farms in the U.S., which account
for approximately 7.6% of its total annual U.S. chicken capacity. The
Company also places chicks with farms owned by affiliates of the Company
under grow-out contracts. The remaining chicks are placed with
independent farms under grow-out contracts. Under such grow-out
contracts, the farmers provide the facilities, utilities and labor.
The Company supplies the chicks, the feed and all veterinary and technical
services. Contract grow-out farmers are paid based on live weight under
an incentive arrangement. In Mexico, the Company owns approximately 38% of
its grow-out farms and contracts with independent farmers for the balance
of its production.Arrangements with independent farmers in Mexico are similar
to the Company's arrangements with contractors in the United States.
FEED MILLS: An important factor in the production of chicken is the rate
at which feed is converted into body weight. The Company purchases feed
ingredients on the open market. The primary feed ingredients include
corn, milo and soybean meal, which historically have been the largest
component of the Company's total production cost. The quality and
composition of the feed is critical to the conversion rate, and accordingly,
the Company formulates and produces its own feed. In the U.S., the Company
operates seven feed mills located in Nacogdoches, Mt. Pleasant, Center and
Pittsburg, Texas and Nashville and Hope, Arkansas. The Company currently
has annual feed requirements of approximately 2.3 million tons and the
capacity to produce approximately 2.7 million tons. The Company owns four
feed mills in Mexico, which produce all of the requirements of its
Mexico operations. Mexico's annual feed requirements are approximately
0.6 million tons with a capacity to produce approximately 0.9 million
tons. In fiscal 1998, approximately 26% of Mexico's feed ingredients
used were imported from the United States. However, this percentage fluctuates
based on the availability and cost of local grain supplies.
Feed grains are commodities subject to volatile price changes caused by
weather, size of harvest, transportation and storage costs and the
agricultural policies of the United States and foreign governments. Although
the Company can and sometimes does purchase grain in forward markets, it
cannot eliminate the potential adverse effect of grain price changes.
PROCESSING: Once the chickens reach processing weight, they are
transported in the Company's trucks to the Company's processing plants. These
plants utilize modern, highly automated equipment to process and package
the chickens. The Company periodically reviews possible application
of new processing technologies in order to enhance productivity and reduce
costs. The Company's six U.S. processing plants, two of which are located
in Mt. Pleasant, Texas, and the remainder of which are located in Dallas,
Nacogdoches and Lufkin, Texas, and DeQueen, Arkansas, have the capacity,
under present U.S.D.A. inspection procedures, to produce approximately
1.3 billion pounds of dressed chicken annually. The Company's three
processing plants located in Mexico, which perform fewer processing
functions than the Company's U.S. facilities, have the capacity to process
approximately 485 million pounds of dressed chicken annually.
PREPARED FOODS PLANT: The Company's prepared foods plant in Mt. Pleasant,
Texas, was constructed in 1986 and has expanded significantly since that
time. This facility has deboning lines, marination systems,
batter/breading systems, fryers, ovens, both mechanical and cryogenic
freezers, a variety of packaging systems and cold storage. This plant is
currently operating at the equivalent of two shifts a day for six days a
week. If necessary, the Company could add additional shifts during the
seventh day of the week. The Company completed construction of a new
prepared foods facility at its Dallas, Texas location during fiscal
first quarter 1998. The Dallas, Texas facility is functionally equivalent
to the Mt. Pleasant, Texas facility described above.
EGG PRODUCTION: The Company produces eggs at three farms
near Pittsburg, Texas. One farm is owned by the Company, while two farms are
operated under contract by an entity owned by a major stockholder of the
Company. The eggs are cleaned, sized, graded and packaged for shipment
at processing facilities located on the egg farms. The farms have a housing
capacity for approximately 2.3 million producing hens and are currently
housing approximately 2.0 million hens.
OTHER FACILITIES AND INFORMATION: The Company operates a rendering
plant located in Mt. Pleasant, Texas, that currently processes
by-products from approximately 8.2 million chickens weekly into protein
products, which are used in the manufacture of chicken and livestock
feed and pet foods. The Company operates a feed supply store in Pittsburg,
Texas, from which it sells various bulk and sacked livestock feed
products. The Company owns an office building in Pittsburg, Texas,
which houses its executive offices, and an office building in Mexico City,
which houses the Company's Mexican marketing offices.
Substantially all of the Company's U.S. property, plant and equipment
is pledged as collateral on its secured debt.
ITEM 3. LEGAL PROCEEDINGS
From time to time the Company is named as a defendant or co-defendant
in lawsuits arising in the course of its business. The Company does not
believe that such pending lawsuits will have a material adverse impact on the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 30, 1998, the Company's shareholders approved an amendment to
the Company's certificate of incorporation that reclassified the Company's
existing common stock to Class B common stock ("Class B Stock") and created
a new class of common stock designated as Class A common stock ("Class A
Stock"). Under the reclassification, each outstanding share of the
Company's existing common stock was reclassified into one share of Class B
Stock. Each share of Class B Stock has substantially the same rights,
powers and limitations as the Company's common stock outstanding
immediately prior to such amendment, except that each share of Class B Stock
entitles the holder thereof to 20 votes per share except as otherwise
provided by law. Each share of the new Class A Stock is substantially
identical to the shares of Class B Stock, except that each share of Class A
Common Stock entitles the holder thereof to one vote per share on any
matter submitted for a stockholder vote.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
<TABLE>
<CAPTION>
QUARTERLY STOCK PRICES AND DIVIDENDS
high and low sales prices and dividends were:
Prices Prices
1998 1997 DIVIDENDS
<S> <C> <C> <C> <C> <C> <C>
QUARTER HIGH LOW HIGH LOW 1998 1997
First $16 9/16 $12 3/4 $ 9 $ 7 3/4 $.015 $.015
Second 15 7/8 10 3/4 12 1/8 8 5/8 .015 .015
Third 19 11/16 13 13/16 12 3/4 9 1/2 .015 .015
Fourth 24 1/16 18 1/4 15 3/8 10 5/16 .015 .015
</TABLE>
The Company's Class B common stock is traded on the New York Stock
Exchange (ticker symbol "CHX"), no Class A common stock has been issued.
The Company estimates there were approximately 13,000 holders
(including individual participants in security position listings) of the
Company's Class B common stock as of December 8, 1998. See Note F - Common
Stock, of the Notes to Consolidated Financial Statements for additional
discussion of the Company's common stock.
ITEM 6. SELECTED FINANCIAL DATA
S E L E C T E D F I N A N C I A L D A T A
Pilgrim's Pride Corporation
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA) Ten Years Ended September 26, 1998
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $1,331,545 $1,277,649 $1,139,310 $931,806 $922,609 $887,843 $817,361 $786,651 $720,555 $661,077
Gross margin 136,103 114,467 70,640 74,144 110,827 106,036 32,802 75,567 74,190 83,356
Operating income
(loss) 77,256 63,894 21,504(b) 24,930(b) 59,698 56,345 (12,475) 31,039 33,379 47,014
Income (loss) before
income taxes and
extraordinary
charge 56,522 43,824 47 2,091 42,448 32,838 (33,712) 12,235 20,463 31,027
Income tax expense
(benefit) (c) 6,512 2,788 4,551 10,058 11,390 10,543 (4,048) (59) 4,826 10,745
Income (loss) before
extraordinary
charge 50,010 41,036 (4,504) (7,967) 31,058 22,295 (29,664) 12,294 15,637 20,282
Extraordinary charge
early repayment of
debt, net of taxes -- -- (2,780) -- -- (1,286) -- -- -- --
Net income (loss) 50,010 41,036 (7,284) (7,967) 31,058 21,009 (29,664) 12,294 15,637 20,282
Per Common Share Data:
Income (loss) before
extraordinary
charge $1.81 $1.49 $(0.16) $(0.29) $1.13 $0.81 $(1.24) $0.54 $0.69 $0.90
Extraordinary Charge--
early repayment of
debt -- -- (0.10) -- -- (0.05) -- -- -- --
Net income loss 1.81 1.49 (0.26) (0.29) 1.13 0.76 (1.24) 0.54 0.69 0.90
Cash dividends 0.06 0.06 0.06 0.06 0.06 0.03 0.06 0.06 0.06 0.06
Book value(d) 8.37 6.62 5.19 5.51 5.86 4.80 4.06 4.97 4.49 3.86
Balance Sheet Summary
Working Capital $147,040 $133,542 $88,455 $88,395 $99,724 $72,688 $11,227 $44,882 $54,161 $60,313
Total Assets 601,439 579,124 536,722 497,604 438,683 422,846 434,566 428,090 379,694 291,102
Notes payable and
current maturities of
long-term debt 5,889 11,596 35,850 18,187 4,493 25,643 86,424 44,756 30,351 9,528
Long-term debt, less
current
maturities 199,784 224,743 198,334 182,988 152,631 159,554 131,534 175,776 154,227 109,412
Total stockholders'
equity 230,871 182,516 143,135 152,074 161,696 132,293 112,112 112,353 101,414 87,132
(KEY INDICATORS (AS A PERCENTAGE OF NET SALES):
Gross margin 10.2% 9.0% 6.2% 8.0% 12.0% 11.9% 4.0% 9.6% 10.3% 12.6%
Selling, general and
administrative
expenses 4.4% 4.0% 4.3% 5.3% 5.5% 5.6% 5.7% 5.7% 5.7% 5.5%
Operating income
(loss) 5.8% 5.0% 1.9% 2.7% 6.5% 6.3% (1.6)% 3.9% 4.6% 7.1%
Interest
expense, net 1.5% 1.7% 1.9% 1.9% 2.1% 2.9% 2.8% 2.5% 2.3% 2.7%
Net income (loss) 3.8% 3.2% (0.6)% (0.9)% 3.4% 2.4% (3.6)% 1.6% 2.2% 3.1%
(a) Fiscal 1993 had 53 weeks
(b) The peso decline and the related economic recession in Mexico contributed significantly to the operating losses experienced by
the Company's Mexico operations of $8.2 million and $17.0 million for fiscal years 1996 and 1995, respectively. See
"Management's Discussion and Analysis of Financial Condition and Results of Operations".
(c) The Company does not include income or losses from its Mexico operations in its determination of taxable income for U.S. income
tax purposes based upon its determination that such earnings will be indefinitely reinvested in Mexico. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and Note D of the Consolidated Financial Statements
of the Company.
(d) Amounts are based on end-of-period shares of common stock outstanding.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
GENERAL
Profitability in the chicken industry can be materially affected by
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.
The following table presents certain items as a percentage of net sales
for the periods indicated:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
Net sale 100.0% 100.0% 100.0%
Cost of sales 89.8 91.0 93.8
Gross profit 10.2 9.0 6.2
Selling, general and
administrative expense 4.4 4.0 4.3
Operating income 5.8 5.0 1.9
Interest expense 1.5 1.7 1.9
Income before income
taxes and
extraordinary charge 4.2 3.4 0.0
Net income (loss) 3.8 3.2 (0.6)
</TABLE>
RESULTS OF OPERATIONS
FISCAL 1998 COMPARED TO FISCAL 1997:
NET SALES. Consolidated net sales were $1.33 billion for
fiscal 1998, an increase of $53.9 million, or 4.2% over fiscal 1997.
The increase in consolidated net sales resulted from a $53.4
million increase in U.S. chicken sales to $911.6 million and a $3.1
million increase in Mexican chicken sales to $278.1 million
offset partially by a $2.6 million decrease of sales of other U.S.
products to $141.9 million. The increase in U.S. chicken sales was
primarily due to a 3.9% increase in dressed pounds produced
resulting primarily from the Company's expansion of existing
facilities and the purchase of poultry assets capable of
producing 650,000 chickens per week from Green Acre Foods, Inc.,
on April 15, 1997, and by a 2.3% increase in total revenue per
dressed pound produced. The increase in Mexico chicken sales
was primarily due to a 6.5% increase in total revenue per
dressed pound offset partially by a 5.0% decrease in dressed pounds
produced. Increased revenues per dressed pound produced in Mexico
were primarily the result of higher sales prices as well as
generally improved economic conditions in Mexico compared to
the prior year.
COST OF SALES. Consolidated cost of sales was $1.2 billion in
fiscal 1998, an increase of $32.3 million, or 2.8% over fiscal 1997.
The increase resulted primarily from a $37.4 million increase in
cost of sales of U.S. operations, offset partially by a $5.1 million
decrease in the cost of sales in Mexico operations. The cost of
sales increase in U.S. operations of $37.4 million was due to a 3.9%
increase in dressed pounds produced and increased production
of higher cost and margin products in prepared foods offset partially
by a 16.5% decrease in feed ingredient costs per pound
experienced during the period. The $5.1 million cost of sales
decrease in Mexico operations was primarily due to a 5.0% decrease
in dressed pounds produced partially offset by a 2.9%
increase in average costs of sales per dressed pound produced.
GROSS PROFIT. Gross profit was $136.1 million for fiscal
1998, an increase of $21.6 million, or 18.9% over the same
period last year. Gross profit as a percentage of sales increased to
10.2% in fiscal 1998 from 9.0% in fiscal 1997. The increased gross
profit resulted from higher margins for poultry products in
the U.S. and Mexico.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.
Consolidated selling, general and administrative expenses were $58.8
million in fiscal 1998 and $50.6 million in fiscal 1997.
Consolidated selling, general and administrative expenses as a
percentage of sales increased in fiscal 1998 to 4.4% compared to
4.0% in fiscal 1997 due primarily to higher administration costs.
OPERATING INCOME.Consolidated operating income was $77.3 million for
fiscal 1998, an increase of $13.4 million, or 20.9% when compared to
fiscal 1997, resulting primarily from higher margins experienced in the
U.S. and Mexico operations.
INTEREST EXPENSE.
Consolidated net interest expense decreased to $20.2 million, or
8.7% in fiscal 1998, when compared to $22.1 million for fiscal 1997,
due to lower outstanding debt levels.
MISCELLANEOUS, NET.Consolidated miscellaneous, net, a
component of Other Expense (Income), was ($1.7) million in
fiscal 1998, a $0.7 million decrease, or 30.4% when compared
to ($2.4) million for 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 in
fiscal 1998 increased to $6.5 million compared to an expense of
$2.8 million in fiscal 1997. This increase resulted from higher U.S.
earnings in fiscal 1998 than in fiscal 1997. While Mexico
earnings were also higher in fiscal 1998 than in fiscal 1997,
Mexico earnings are not currently subject to income taxes.
FISCAL 1997 COMPARED TO FISCAL 1996:
NET SALES. Consolidated net sales were $1.3 billion for fiscal
1997, an increase of $138.3 million, or 12.1% over fiscal
1996. The increase in consolidated net sales resulted
from an $84.5 million increase in U.S. chicken sales to $858.1
million, a $46.9 million increase in Mexico chicken sales to $275.0
million and by a $7.0 million increase of sales of other U.S.
products to $144.5 million. The increase in U.S. chicken sales was
primarily due to a 14.0% 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 2.7% decrease in
total revenue per dressed pound produced. The increase in Mexico
chicken sales was primarily due to a 25.5% increase in total revenue
per dressed pound partially offset by a 3.9% decrease in dressed
pounds produced resulting from management's decision in fiscal
1996 to reduce production due to the recession in Mexico.
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 chicken by-products
group.
COST OF SALES. Consolidated cost of sales was $1.2 billion in
fiscal 1997, an increase of $94.5 million, or 8.8% over fiscal 1996.
The increase primarily resulted from a $91.7 million increase in
cost of sales of U.S. operations, and a $2.8 million increase in the
cost of sales in Mexico operations. The cost of sales
increase in U.S. operations of $91.7 million was due to the 14.0%
increase in dressed pounds produced and increased production
of higher cost and margin products in prepared foods, partially
offset by a decrease in feed ingredient cost when compared to
fiscal 1996. The $2.8 million cost of sales increase in Mexico
operations was primarily due to a 5.4% increase in average costs of
sales per pound partially offset by a 3.9% decrease in dressed
pounds produced. The increase in average costs of sales per pound
was primarily the result of cost adjusting upward due to generally
improved economic conditions in Mexico compared to the prior year
offset partially by lower feed ingredient cost experienced in the
period.
GROSS PROFIT. Gross profit as a percentage of sales increased
to 9.0% in fiscal 1997 from 6.2% in fiscal 1996. The increased
gross profit resulted mainly from significantly higher margins in
Mexico.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.
Consolidated selling, general and administrative expenses were $50.6
million in fiscal 1997, and $49.1 million in fiscal 1996.
Consolidated selling, general and administrative expenses as a
percentage of sales decreased in fiscal 1997 to 4.0% compared to
4.3% in fiscal 1996. The decrease in selling, general and
administrative expenses as a percent of sales was primarily due
to increased sales, while selling, general and administrative
expenses remained relatively constant.
OPERATING INCOME.
Consolidated operating income was $63.9 million for fiscal 1997, an
increase of $42.4 million, or 197.1% when compared to fiscal
1996, resulting primarily from higher margins experienced in the
Mexico operations.
INTEREST EXPENSE.
Consolidated net interest expense increased slightly to $22.1
million, or 2.5% in fiscal 1997, when compared to $21.5 million in
fiscal 1996, due to slightly higher levels of outstanding
indebtedness in 1997. As a percentage of sales, however,
interest expense decreased to 1.7% in fiscal 1997 compared to 1.9% in
fiscal 1996.
MISCELLANEOUS EXPENSE.
Consolidated miscellaneous, net, a component of "Other Expense
(Income)", was ($2.4) million in fiscal 1997 and includes 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 in fiscal 1997 decreased to $2.8
million compared to an expense of $4.6 million in fiscal 1996. The
lower consolidated income tax expense in contrast to higher
consolidated income resulted from increased Mexico earnings that are
not currently subject to income taxes.
LIQUIDITY AND CAPITAL RESOURCES
At September 26, 1998, the Company's working capital
increased to $147.0 million and its current ratio increased to
2.32 to 1 compared with working capital of $133.5 million and a
current ratio of 2.14 to 1 at September 27, 1997. Strong
profits were primarily responsible for the increases in working
capital and current ratio from September 27, 1997, to September
26, 1998.
Trade accounts and other receivables were $81.8 million at
September 26, 1998, a $3.8 million increase from September 27, 1997.
The 4.9% increase was due primarily to higher net sales and
increased sales of prepared foods products, which normally have
longer credit terms than fresh chicken sales.
Inventories were $141.7 million at September 26, 1998,
compared to $146.2 million at September 27, 1997. The $4.5
million, or 3.1% decrease was due primarily to lower costs in the
live chicken and hen inventories resulting from lower feed costs.
Capital expenditures for the fiscal 1998 were $53.5 million and
were primarily incurred to expand certain facilities, improve
efficiencies, reduce costs and for the routine replacement of
equipment. The Company anticipates that it will spend
approximately $95.0 million for capital expenditures in fiscal
year 1999 and expects to finance such expenditures with available
operating cash flows and long-term financing.
Cash flows provided by operating activities were $85.0
million, $49.6 million and $11.4 million in fiscal 1998, 1997 and
1996, respectively. The significant increase in cash flows
provided by operating activities for fiscal 1998 when compared to
fiscal 1997 was due primarily to increased net income, a reduction
in inventory levels as discussed above, and a substantially smaller
increase in accounts receivable for fiscal 1998, when compared to
fiscal 1997. The significantincrease in cash flows provided by
operating activities for fiscal 1997, when compared to fiscal
1996, was due primarily to net income for fiscal 1997, compared
to a net loss in fiscal 1996.
Cash flows provided by (used in) financing activities were
($32.5) million, $348,000 and $27.3 million in fiscal 1998, 1997
and 1996, respectively. The cash provided by (used in) financing
activities primarily reflects the net proceeds (payments) from notes
payable and long-term financing and debt retirements.
At September 26, 1998, the Company's stockholders' equity
increased to $230.9 million from $182.5 million at September 27,
1997. Total debt to capitalization decreased to 47.1%
at September 26, 1998, compared to 56.4% at September 27, 1997.
The Company maintains $70 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 percent
and are secured by inventory and fixed assets or are unsecured. As
of October 30, 1998, $63.3 million was available under the revolving
credit facilities and $30.8 million was available under the
term borrowing facilities.
On June 26, 1998, the Company entered into an asset sale
agreement to sell up to $60 million of accounts receivable.
Under this agreement, as the sold accounts receivable are collected,
new qualifying accounts can be substituted thus maintaining the
maximum balance allowed to be outstanding at a rate
approximating .425% over commercial paper. As of September
26, 1998, no accounts receivable had been sold under this
agreement. Any such sales, however, are expected to be
recorded as a sale in accordance with FASB Statement No. 125,
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities.
The Company's deferred income taxes have resulted primarily from
the Company's use of the cash method of accounting for periods
before July 2, 1988. The "Omnibus Budget Reconciliation Act" of 1987
required certain family-owned farming businesses to switch to
the accrual method of accounting and provided that such
corporations establish a suspense account in lieu of taking the
adjustment into taxable income currently. "The Taxpayer Relief
Act of 1997" requires that this suspense account be taken into
income ratably over 20 years beginning in fiscal 1998, however,
any remaining balance in the suspense account will be
accelerated if the Company ceases to be a family-owned corporation.
A "family-owned" corporation is one in which at least 50% of the
total combined voting power of classes of stock of the
corporation are owned by members of the same family. The Company
believes that it will remain a family-owned corporation for the
foreseeable future.
MARKET RISK SENSITIVE INSTRUMENTS AND POSITIONS
The risk inherent in the Company's market risk sensitive
instruments and positions is the potential loss arising from
adverse changes in the price of feed ingredients, foreign currency
exchange rates and interest rates as discussed below. The
sensitivity analyses presented do not consider the effects that such
adverse changes may have on overall economic activity nor do
they consider additional actions management may take to mitigate
its exposure to such changes. Actual results may differ.
FEED INGREDIENTS. The Company is a purchaser of certain
commodities, primarily corn and soybean meal. As a result, the
Company's earnings are affected by changes in the price and
availability of such feed ingredients. As market conditions
dictate, the Company from time to time will lock-in future feed
ingredient prices, using various hedging techniques including
forward purchase agreements with suppliers and futures contracts.
The Company does not use such financial instruments for trading
purposes and is not a party to any leveraged derivatives. Market risk
is estimated as a hypothetical 10% increase in the weighted-average
cost of the Company's primary feed ingredients as of September 26,
1998. Based on projected 1999 feed consumption, such an increase
would result in an increase to cost of sales of approximately
$16.3 million in 1999, after considering the effect of forward
purchase commitments and future contracts outstanding as of
September 26, 1998. As of September 26, 1998, the Company
had hedged approximately 45.6% of its 1999 feed requirements.
FOREIGN CURRENCY. The Company's earnings are affected by
foreign exchange rate fluctuations related to the Mexican peso net
monetary position of its Mexico subsidiaries. The company
primarily manages this exposure by attempting to minimize its Mexican
peso net monetary position, but has also from time to time
considered executing hedges to help minimize this exposure.
However, such instruments have historically not been economically
feasible. The Company is also exposed to the effect of potential
exchange rate fluctuations to the extent that amounts are
repatriated from Mexico to the United States. However, the
company currently anticipates that the cash flows of its Mexico
subsidiaries will continue to be reinvested in its Mexico
operations. In addition, the Mexican peso exchange rate can
directly and indirectly impact the Company's results of operations
and financial position in several manners, including potential
economic recession in Mexico resulting from a devalued peso.
The impact on the Company's financial position and results of
operations of a hypothetical change in the exchange rate
between the U.S. dollar and the Mexican peso cannot be reasonably
estimated. Foreign currency exchange losses, representing the
decline in the U.S. dollar value of the net monetary assets of the
Company's Mexico subsidiaries, were $2.3 million, $0.4 million
and $1.3 million for 1998, 1997 and 1996, respectively. The
operating loss of the company's Mexico subsidiaries of $8.2
million in 1996 was primarily the result of the peso devaluation and
other economic factors at least partially attributable to the peso
devaluation. On December 3, 1998, the Mexican peso closed at 10.0 to
1 U.S. dollar, a decrease from 10.24 at September 26, 1998. No
assurance can be given as to the future valuation of the Mexican
peso and how further movements in the peso could affect future
earnings of the Company.
INTEREST RATES. The Company's earnings are also
affected by changes in interest rates due to the impact those
changes have on its variable-rate debt instruments. The Company has
variable-rate debt instruments representing approximately 22.5%
of its total long-term debt at September 26, 1998. If interest
rates average 25 basis points more in 1999, than they did during
1998, the Company's interest expense would be increased by $0.1
million. These amounts are determined by considering the
impact of the hypothetical interest rates on the Company's
variable-rate long-term debt at September 26, 1998.
Market risk for fixed-rate long-term debt is estimated as the
potential increase in fair value resulting from a hypothetical 25
basis points decrease in interest rates and amounts to approximately
$0.7 million, using discounted cash flow analysis.
NEW ACCOUNTING PRONOUNCEMENTS
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES. In June 1998, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standards No.
133, Accounting for Derivative Instruments and Hedging Activities
(SFAS 133), which is required to be adopted in years beginning
after June 15, 1999. SFAS 133 permits early adoption as of the
beginning of any fiscal quarter after its issuance. SFAS 133 will
require the Company to recognize all derivatives on the balance
sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is a
hedge, depending on the nature of the hedge, changes in the fair
value of derivatives will either be offset against the change in
fair value of the hedged assets, liabilities, or firm commitments
through earnings or recognized in other comprehensive income until
the hedged item is recognized in earnings. The ineffective portion
of a derivative's change in fair value will be immediately
recognized in earnings. The Company is currently evaluating
the impact of SFAS 133; however, it is not expected to have a
material impact on the Company's financial condition or results of
operations.
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION. In June 1997, the FASB issued Statement of Financial
Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information (SFAS 131), effective for years
beginning after December 15, 1997. SFAS No. 131 supersedes SFAS No.
14, Financial Reporting Segments of a Business Enterprise, and
requires that a public Company report annual and interim
financial descriptive information about its reportable operating
segments pursuant to criteria that differ from current accounting
practice. Because this statement addresses how supplemental
financial information is disclosed in annual and interim reports, the
adoption will have no impact on the Company's financial
statements, but may affect the disclosure of segment information.
IMPACT OF YEAR 2000
The Year 2000 Issue is the result of computer programs being
written using two digits rather than four to define the applicable
year. Any of the Company's computer programs that have date-
sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a system failure
or miscalculations causing disruptions of operations,
including among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business
activities.
The Company has determined that it will be required to modify
or replace portions of its software so that its computer
systems will function properly with respect to dates in the year
2000 and thereafter. To date, the Company has updated substantially
all of its computer systems in the U.S. and is in the process of
updating its systems in Mexico. The Company anticipates completing
the remaining portion of its Year 2000 project by mid-1999. The
Company presently believes that with these modifications and
replacements, the Year 2000 Issue will not pose significant
operational problems for its computer systems.
Systems assessments and minor system modifications were
completed using existing internal resources and as a result,
incremental costs were minimal. System replacements, consisting
primarily of capital projects, were initiated for other business
purposes while at the same time achieving Year 2000 compliance.
System replacement projects were completed primarily using external
resources. The total cost of the Year 2000 project is not expected
to have a material effect on the Company's results of operations.
Additionally, the Company will be initiating communications
with all of its significant suppliers and large customers to
determine the extent to which the Company's interface systems are
vulnerable to those third parties' failure to remediate their own
Year 2000 Issues. However, there can be no assurance that the
systems of other parties upon which the Company relies will be
converted on a timely basis. The Company's business, financial
condition, or results of operations could be materially
adversely impacted by the failure of its systems and applications or
those operated by others to properly operate or manage dates
beyond 1999.
The Company believes that its initiatives and its existing
business recovery plans are adequate to address reasonably
likely Year 2000 Issues. If unforeseen circumstances arise,
the Company will attempt to develop contingency plans for
these situations.
IMPACT OF INFLATION
Due to moderate inflation in the U.S. and the Company's rapid
inventory turnover rate, the results of operations have not
been significantly affected by inflation during the past three-
year period.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements together with the
report of independent auditors, and financial statement schedules
are included on pages 38 through 49 of this document. Financial
statement schedules other than those included herein have been
omitted because the required information is contained in the
consolidated financial statements or related notes, or such
information is not applicable.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
NOT APPLICABLE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE
OFFICERS OF REGISTRANT
Reference is made to "Election of Directors" on pages 3
through 5 of Registrant's Proxy Statement for its 1999 Annual
Meeting of Stockholders, which section is incorporated herein by
reference.
Referece is made to "Compliance with Section 16(a) of
the Exchange Act" on page 12 of Registrant's Proxy Statement for
its 1999 Annual Meeting of Stockholders, which section is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information responsive to Items 11, 12 and 13 is
incorporated by reference from sections entitled "Security
Ownership", "Election of Directors", "Executive Compensation", and
"Certain Transactions" of the Registrant's Proxy Statement for its 1999
Annual Meeting of Stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a)(1) The financial statementslisted in the accompanying
index to financial statements and schedules are filed as part of this
report.
(2) All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are
required under the related instructions or are applicable and therefore
have been omitted.
(3) The financial statements schedule entitled Valuation
and Qualifying Accounts and Reserves is filed as part of this report
on page 51.
(4) On June 30, 1998 the Company filed a current report on
Form 8-K related to the reclassification of its common stock.
(5) Exhibits
Exhibit
NUMBER
<TABLE>
<CAPTION>
<S> <C> <C> <C>
2.1 Agreement and Plan of Reorganization dated September 15, 1986, by and
among Pilgrim's Pride Corporation, a Texas corporation; Pilgrim's Pride
Corporation, a Delaware corporation; and Doris Pilgrim Julian, Aubrey Hal
Pilgrim, Paulette Pilgrim Rolston, Evanne Pilgrim, Lonnie "Bo" Pilgrim,
Lonnie Ken Pilgrim, Greta Pilgrim Owens and Patrick Wayne Pilgrim
(incorporated by reference from Exhibit 2.1 to the Company's Registration
Statement on Form S-1 (No. 33-8805) effective November 14, 1986).
3.1 Certificate of Incorporation of the Company (incorporated by reference
from Exhibit 3.1 of the Company's Registration Statement on Form S-1 (No.
33-8805) effective November 14, 1986).
3.2 Amended and Restated Corporate Bylaws of Pilgrim's Pride Corporation,
a Delaware Corporation, effective September 30, 1998.
4.1 Certificate of Incorporation of the Company (incorporated by reference
from Exhibit 3.1 of the Company's Registration Statement on Form S-1 (No.
33-8805) effective November 14, 1986).
4.2 Amended and Restated Corporate Bylaws of Pilgrim's Pride Corporation,
a Delaware Corporation, effective December 4, 1996 (incorporated by
reference from Exhibit 3.3 of the Company's Quarterly Report on Form 10-Q
for the three months ended March 29, 1997).
4.3 Specimen Certificate for shares of Common Stock, par value $.01 per
share, of the Company (incorporated by reference from Exhibit 4.6 of the
Company's Form 8 filed on July 1, 1992).
4.4 Form of Indenture between the Company and Ameritrust Texas National
Association relating to the Company's 10 7/8% Senior Subordinated Notes
Due 2003 (incorporated by reference from Exhibit 4.6 of the Company's
Registration Statement on Form S-1 (No. 33-59626) filed on March 16,
1993).
4.5 Form of 10 7/8% Senior Subordinated Note Due 2003 (incorporated by
reference from Exhibit 4.8 of the Company's Registration Statement on
Form S-1 (No. 33-61160) filed on June 16, 1993).
10.1 Pilgrim's Industries, Inc. Profit Sharing Retirement Plan, restated as
of July 1, 1987 (incorporated by reference from Exhibit 10.1 of the
Company's Form 8 filed on July 1, 1992).
10.2 Bonus Plan of the Company (incorporated by reference from Exhibit 10.2
to the Company's Registration Statement on Form S-1 (No. 33-8805)
effective November 14, 1986).
10.3 Stock Purchase Agreement dated May 12, 1992, between the Company and
Archer Daniels Midland Company (incorporated by reference from
Exhibit 10.45 of the Company's Form 10-K for the year ended September 26,
1992).
10.4 Employee Stock Investment Plan of the Company (incorporated by
reference from Exhibit 10.28 of the Company's Registration Statement on
Form S-1 (No. 33-21057) effective May 2, 1988).
10.5 Promissory Note dated September 20, 1990, by and between the Company
and Hibernia National Bank of Texas (incorporated by reference from
Exhibit 10.42 of the Company's Form 8 filed on July 1, 1992).
10.6 Loan Agreement dated October 16, 1990, by and among the Company,
Lonnie "Bo" Pilgrim and North Texas Production Credit Association, with
related Variable Rate Term Promissory Note and Deed of Trust (incorporated
by reference from Exhibit 10.43 of the Company's Form 8 filed on July 1,
1992).
10.7 Secured Credit Agreement dated May 27, 1993, by and among the Company
and Harris Trust and Savings Bank, and FBS AG Credit, Inc.,
Internationale Nederlanden Bank, N.V., Boatmen's First National Bank of
Kansas City, and First Interstate Bank of Texas, N.A. (incorporated by
reference from Exhibit 10.31 of the Company's Registration Statement on
Form S-1 (No. 33-61160) filed on June 16, 1993).
10.8 First Amendment to Secured Credit Agreement dated June 30, 1994 to the
Secured Credit Agreement dated May 27, 1993, by and among the Company and
Harris Trust and Savings Bank, and FBS AG Credit, Inc., Internationale
Nederlanden Bank N.V., Boatmen's First National Bank of Kansas City and
First Interstate Bank of Texas, N.A. (incorporated by reference from
Exhibit 10.33 of the Company's annual report on Form 10-K for the fiscal
year ended September 28, 1996).
10.9 Second Amendment to Secured Credit Agreement dated December 6, 1994 to
the Secured Credit Agreement dated May 27, 1993, by and among the Company
and Harris Trust and Savings Bank, and FBS AG Credit, Inc.,
Internationale Nederlanden Bank N.V., Boatmen's First National Bank of
Kansas City and First Interstate Bank of Texas, N.A. (incorporated by
reference from Exhibit 10.36 of the Company's annual report on Form 10-K
for the fiscal year ended September 28, 1996).
10.10 Third Amendment to Secured Credit Agreement dated June 30, 1995 to the
Secured Credit Agreement dated May 27, 1993, by and among the Company and
Harris Trust and Savings Bank, and FBS AG Credit, Inc., Internationale
Nederlanden Bank N.V., (incorporated by reference from Exhibit 10.37 of
the Company's annual report of Form 10-K for the fiscal year ended
September 28, 1996).
10.11 Second Amended and Restated Loan and Security Agreement dated July 31,
1995, by and among the Company, the banks party thereto and Creditanstalt
-Bankverein, as agent (incorporated by reference from Exhibit 10.38 of
the Company's annual report on Form 10-K for the fiscal year ended
September 28, 1996).
10.12 Revolving Credit Loan Agreement dated March 27, 1995 by and among the
Company and Agricultural Production Credit Association (incorporated by
reference from Exhibit 10.39 of the Company's annual report on Form 10-K
for the fiscal year ended September 28, 1996).
10.13 First Supplement to Revolving Credit Loan Agreement dated July 6, 1995
by and among the Company and Agricultural Production Credit Association
(incorporated by reference from Exhibit 10.40 of the Company's annual
report on Form 10-K for the fiscal year ended September 28, 1996).
10.14 Credit Agreement dated as of January 31, 1996 is entered into among
Pilgrim's Pride, S.A. de C.V., and Internationale Nederlanden (U.S.)
Capital Corporation, Pilgrim's Pride Corporation, Avicola Pilgrim's Pride
de Mexico, S.A. de C.V., Compania Incubadora Avicola Pilgrim's Pride,
S.A. de C.V., Productora Y Distribuidora de Alimentos, S.A. de C.V.,
Immobiliaria Avicola Pilgrim's Pride, S. De R.L. de C.V. and C.I.A.
Incubadora Hidalgo, S.A. de C.V. (incorporated by reference from Exhibit
10.42 of the Company's annual report on Form 10-K for the fiscal year
ended September 28, 1996).
10.15 Fourth Amendment to Secured Credit Agreement dated June 6, 1996 to the
Secured Credit Agreement dated May 27, 1993, by and among the Company and
Harris Trust and Savings Bank, and FBS AG Credit, Inc., Internationale
Nederlanden Bank N.V., successor to First Interstate Bank of Texas, N.A.
(incorporated by reference from Exhibit 10.43 of the Company's annual
report on Form 10-K for the fiscal year ended September 28, 1996).
10.16 Second Supplement to Revolving Credit Loan Agreement dated June 28,
1996 by and among the Company and Agricultural Production Credit
Association (ncorporated by reference from Exhibit 10.44 of the Company's
annual report on Form 10-K for the fiscal year ended September 28, 1996).
10.17 Third Supplement to Revolving Credit Loan Agreement dated August 22,
1996 by and among the Company and Agricultural Production Credit
Association (incorporated by reference from Exhibit 10.45 of the
Company's annual report on Form 10-K for the fiscal year ended September
28, 1996).
10.18 Note Purchase Agreement dated April 14, 1997 by and between John
Hancock Mutual Life Insurance Company and Signature 1A (Cayman), Ltd. and
the Company (incorporated by reference from Exhibit 10.46 of the
Company's Quarterly Report on Form 10-Q for the three months ended March
29, 1997).
10.19 Guaranty Fee Agreement between Pilgrim's Pride Corporation and Certain
Shareholders dated November 28, 1996 (incorporated by reference from
Exhibit 10.47 of the Company's Quarterly Report on Form 10-Q for the
three months ended March 29, 1997).
10.20 Aircraft Lease Extension Agreement between B.P. Leasing Co., (L.A.
Pilgrim, Individually) and Pilgrim's Pride Corporation, (formerly
Pilgrim's Industries, Inc.) effective November 15, 1992 (incorporated by
reference from Exhibit 10.48 of the Company's Quarterly Report on Form
10-Q for the three months ended March 29, 1997).
10.21 Broiler Grower Contract dated May 6, 1997 between Pilgrim's Pride
Corporation and Lonnie "Bo" Pilgrim (Farm 30) (incorporated by reference
from Exhibit 10.49 of the Company's Quarterly Report on Form 10- for the
three months ended March 29, 1997).
10.22 Commercial Egg Grower Contract dated May 7, 1997 between Pilgrim's
Pride Corporation and Pilgrim Poultry G.P. (incorporated by reference
from Exhibit 10.50 of the Company's Quarterly Report on Form 10-Q for the
three months ended March 29, 1997).
10.23 Agreement dated October 15, 1996 between Pilgrim's Pride Corporation
and Pilgrim Poultry G.P. (incorporated by reference from Exhibit 10.51 of
the Company's Quarterly Report on Form 10-Q for the three months ended
March 29, 1997).
10.24 Heavy Breeder Contract dated May 7, 1997 between Pilgrim's Pride
Corporation and Lonnie "Bo" Pilgrim (Farms 44, 45 & 46) (incorporated by
reference from Exhibit 10.51 of the Company's Quarterly Report on Form
10-Q for the three months ended March 29, 1997).
10.25 Broiler Grower Contract dated January 9, 1997 by and between Pilgrim's
Pride and O.B. Goolsby, Jr. (incorporated by reference from Exhibit
10.25 of the Company's Registration Statement on Form S-1 (No. 333-29163)
effective June 27, 1997).
10.26 Broiler Grower Contract dated January 15, 1997 by and between
Pilgrim's Pride Corporation and B.J.M. Farms. (incorporated by reference
from Exhibit 10.26 of the Company's Registration Statement on Form S-1
(No. 333-29163) effective June 27, 1997).
10.27 Broiler Grower Agreement dated January 29, 1997 by and between
Pilgrim's Pride Corporation and Clifford E. Butler (incorporated by
reference from Exhibit 10.27 of the Company's Registration Statement on
Form S-1 (No. 333-29163) effective June 27, 1997).
10.28 Secured Term Credit Agreement dated June 5, 1997 by and among
Pilgrim's Pride Corporation and Harris Trust and Savings Bank, and FBS AG
Credit, Inc., CoBank, ACB, ING (U.S.) Capital Corporation, Wells Fargo
Bank (Texas) and N.A., Caisse National de Credit Agricole, Chicago
Branch.*
10.29 Amended and Restated Secured Credit Agreement dated August 11, 1997 to
the Secured Credit Agreement dated May 27, 1993 by and among the Company
and Harris Trust and Savings Bank, and FBS AG Credit, Inc., CoBank, ACB,
ING (U.S.) Capital Corporation, Wells Fargo Bank (Texas) and N.A., Caisse
National de Credit Agricole, Chicago Branch.*
10.30 Second Amendment to Second Amended and Restated Loan and Security
Agreement dated September 18, 1997 by and among the Company, the banks
party thereto and Creditanstalt-Bankverein, as agent.*
10.31 Guaranty Fee Agreement between Pilgrim's Pride Corporation and Certain
Shareholders dated July 23, 1997.*
10.32 Revolving Credit Agreement dated March 2, 1998 by and between
Pilgrim's Pride de Mexico, S.A. de C.V., (the borrower); Avicola
Pilgrim's Pride de Mexico, S.A. de C.V. (the Mexican Guarantor),
Pilgrim's Pride Corporation (the U.S. Guarantor), and COAMERICA Bank (the
bank), (incorporated by reference from Exhibit 10.32 of the Company's
Quarterly report on form 10-Q for the three months ended March 28, 1998.
10.33 Receivables Purchase Agreement between Pilgrim's Pride Funding
Corporation, as Seller, Pilgrim's Pride Corporation, as Servicer, Pooled
Accounts Receivable Capital Corporation, as Purchaser, and Nesbitt Burns
Securities Inc., as Agent (incorporated by reference from Exhibit 10.33
of the Company's Quarterly report on form 10-Q for the three months ended
June 27, 1998).
10.34 Purchase and Contribution Agreement Dated as of June 26, 1998 between
Pilgrim's Pride Funding Corporation and Pilgrim's Pride Corporation
(incorporated by reference from Exhibit 10.34 of the Company's Quarterly
report on form 10-Q for the three months ended June 27, 1998).
10.35 Second Amendment to Security Agreement Re: Accounts Receivable, Farm
Products and Inventory between Pilgrim's Pride Corporation and Harris
Trust and Savings Bank (incorporated by reference from Exhibit 10.35 of
the Company's Quarterly report on form 10-Q for the three months ended
June 27, 1998).
10.36 First Amendment to Amended and Restated Secured Credit Agreement
between Pilgrim's Pride Corporation and Harris Trust and Savings Bank,
U.S. Bancorp Ag Credit, Inc., CoBank, ACB, ING (U.S.) Capital Corporation
("ING"), Wells Fargo Bank, N.A. and Credit Agricole Indosuez
(incorporated by reference from Exhibit 10.33 of the Company's Quarterly
report on form 10-Q for the three months ended June 27, 1998).
21.1 Subsidiaries of Registrant.*
23.1 Consent of Ernst & Young LLP.*
* Filed herewith
</TABLE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the issuer has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized on the 10th day of December 1998.
PILGRIM'S PRIDE CORPORATION
By: /s/ R.A. Cogdill
Richard A. Cogdill
Chief Financial Officer
Secretary and Treasurer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the date
indicated.
SIGNATURE TITLE DATE
/s/ Lonnie "Bo" Pilgrim
________________________ Chairman 12/10/98
Lonnie "Bo" Pilgrim Board of Directors
/s/ Clifford E. Butler
_______________________ Vice Chairman 12/10/98
Clifford E. Butler Board of Directors
/s/ David Van Hoose
________________________ Chief Executive Officer 12/10/98
David Van Hoose President
Chief Operating Officer
Director
/s/ Richard A. Cogdill
_______________________ Executive Vice President 12/10/98
Richard A. Cogdill Chief Financial Officer
Secretary and Treasurer
Director
/s/ Lonnie Ken Pilgrim
_______________________ Senior Vice President and 12/10/98
Lonnie Ken Pilgrim Director of Transportation
Director
/s/ Charles L. Black
_______________________ Director 12/10/98
Charles L. Black
_______________________ Director 12/10/98
Robert E. Hilgenfeld
______________________ Director 12/10/98
Vance C. Miller
______________________ Director 12/10/98
James J. Vetter, Jr.
_______________________ Director 12/10/98
Donald L. Wass
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
Pilgrim's Pride Corporation
Stockholders and Board of Directors
Pilgrim's Pride Corporation
We have audited the accompanying consolidated balance
sheets of Pilgrim's Pride Corporation and subsidiaries at
September 26, 1998, and September 27, 1997, and the related
consolidated statements of income (loss), stockholders' equity and
cash flows for each of the three years in the period ended
September 26, 1998. Our audits also included the financial
statement schedule listed in the index at Item 14(a). These
financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects, the
consolidated financial position of Pilgrim's Pride Corporation as of
at September 26, 1998, and September 27, 1997, and the
consolidated results of its operations and its cash flows for
each of the three years in the period ended September 26, 1998,
in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements, taken
as a whole, presents fairly in all material respects the information
set forth therein.
ERNST & YOUNG LLP
Dallas, Texas
November 4, 1998
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
Pilgrim's Pride Corporation
<S> <C> <C> <C> <C>
(IN THOUSANDS) TWO YEARS ENDED SEPTEMBER 26, 1998
<S> <C> <C> <C> <C>
ASSETS 1998 1997
CURRENT ASSETS:
Cash and cash equivalents $ 25,125 $ 20,338
Trade accounts and other receivables,
less allowance for doubtful accounts 81,813 77,967
Inventories 141,684 146,180
Deferred income taxes 7,010 3,998
Prepaid expenses and other current assets 2,902 2,664
Total Current Assets 258,534 251,147
OTHER ASSETS 11,757 18,094
PROPERTY, PLANT AND EQUIPMENT:
Land 26,404 25,737
Buildings, machinery and equipment 470,763 436,783
Autos and trucks 35,547 33,278
Construction-in-progress 29,385 14,863
562,099 510,661
Less accumulated depreciation 230,951 200,778
331,148 309,883
$601,439 $579,124
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 70,069 $ 71,225
Accrued expenses 35,536 34,784
Current maturities of long-term debt 5,889 11,596
Total Current Liabilities 111,494 117,605
Long-Term Debt, less current maturities 199,784 224,743
Deferred Income Taxes 58,401 53,418
Minority Interest in Subsidiary 889 842
Commitments and Contingencies -- --
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value,
authorized 5,000,000 shares; none issued -- --
Common stock - Class A, $.01 par value,
authorized 100,000,000 shares; none issued -- --
Common stock - Class B, $.01 par value,
authorized 60,000,000 shares;
27,589,250 issued and outstanding
in 1998 and 1997 276 276
Additional paid-in capital 79,763 79,763
Retained earnings 150,832 102,477
Total Stockholders' Equity 230,871 182,516
$601,439 $579,124
Total Stockholders' Equity
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
Pilgrim's Pride Corporation
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA) THREE YEARS ENDED SEPTEMBER 26, 1998
1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
NET SALES $1,331,545 $1,277,649 $1,139,310
COST AND EXPENSES:
Cost of sales 1,195,442 1,163,152 1,068,670
Selling, general
and administrative 58,847 50,603 49,136
1,254,289 1,213,755 1,117,806
Operating Income 77,256 63,894 21,504
OTHER EXPENSES (INCOME):
Interest expense, net 20,148 22,075 21,539
Foreign exchange loss 2,284 434 1,275
Miscellaneous, net (1,698) (2,439) (1,357)
20,734 20,070 21,457
INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY CHARGE 56,522 43,824 47
Income tax expense 6,512 2,788 4,551
NET INCOME (LOSS) BEFORE
EXTRAORDINARY CHARGE 50,010 41,036 (4,504)
Extraordinary charge-early
repayment of debt, net of tax -- -- (2,780)
NET INCOME (LOSS) $ 50,010 $ 41,036 $ (7,284)
Net income (loss) per common share
before extraordinary charge
- basic and diluted $1.81 $1.49 $(0.16)
Extraordinary charge per
common share
- basic and diluted -- -- (0.10)
NET INCOME (LOSS) PER COMMON SHARE
- BASIC AND DILUTED $ 1.81 $ 1.49 $ (0.26)
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
Pilgrim's Pride Corporation
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class B
Number Common Additional Retained
of Shares Stock Paid-In Capital Earnings Total
Balance at September 30, 1995 27,589,250 $276 $79,763 $72,035 $152,074
Net loss for year (7,284) (7,284)
Cash dividends declared ($.06 (1,655) (1,655)
per share)
Balance at September 28, 1996 27,589,250 276 79,763 63,096 143,135
Net income for year 41,036 41,036
Cash dividends declared ($.06 (1,655) (1,655)
per share)
Balance at September 27, 1997 27,589,250 276 79,763 102,477 182,516
Net income for year 50,010 50,010
Cash dividends declared ($.06 (1,655) (1,655)
per share)
Balance at September 26, 1998 27,589,250 $ 276 $ 79,763 $150,832 $230,871
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Pilgrim's Pride Corporation
(IN THOUSANDS, EXCEPT PER SHARE DATA) THREE YEARS ENDED SEPTEMBER 26, 1998
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 50,010 $41,036 $ (7,284)
Adjustments to reconcile net income
(loss) to cash
Provided by operating activities:
Depreciation and amortization 32,591 29,796 28,024
(Gain) loss on property disposals 132 874 (211)
Provision for doubtful accounts 409 (60) 1,003
Deferred income taxes 571 2,613 (354)
Extraordinary charge -- -- 4,587
Changes in operating assets and liabilities:
Accounts and other receivables (4,255) (15,213) (6,858)
Inventories 4,496 (9,314) (24,830)
Prepaid expenses and
other current assets (246) (999) (674)
Accounts payable and
accrued expenses 996 1,056 18,165
Other 312 (174) (177)
Cash Provided by Operating Activities 85,016 49,615 11,391
INVESTING ACTIVITIES:
Acquisitions of property, plant
and equipment (53,518) (50,231) (34,314)
Proceeds from property disposals 5,629 3,853 1,468
Other, net 595 (1,291) 312
Cash Used in Investing Activities (47,294) (47,669) (32,534)
FINANCING ACTIVITIES:
Proceeds from notes payable
to banks 35,500 68,500 91,000
Repayments on notes payable
to banks (35,500) (95,500) (77,000)
Proceeds from long-term debt 21,125 39,030 51,028
Payments on long-term debt (51,968) (10,027) (32,140)
Cash dividends paid (1,655) (1,655) (1,655)
Extraordinary charge, cash items -- -- (3,920)
Cash Provided by (Used in)
Financing Activities (32,498) 348 27,313
Effect of exchange rate changes
on cash and cash equivalents (437) 4 (22)
Increase in cash and cash equivalents 4,787 2,298 6,148
Cash and cash equivalents at
beginning of year 20,338 18,040 11,892
CASH AND CASH EQUIVALENTS AT END OF YEAR: $ 25,125 $20,338 $18,040
SUPPLEMENTAL DISCLOSURE INFORMATION:
Cash paid during the year for:
Interest (net of amount capitalized) $20,979 $22,026 $20,310
Income taxes $ 4,543 $ 2,021 $ 4,829
See Notes to Consolidated Financial Statements.
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pilgrim's Pride Corporation
NOTE A - BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Pilgrim's Pride Corporation ("the Company") is a vertically integrated
producer of chicken products, controlling the breeding, hatching and growing
of chickens and the processing, preparation and packaging of its product
lines. The Company is the fourth largest producer of chicken in the United
States, with production and distribution facilities located in Texas, Arkansas,
Oklahoma and Arizona, and is the second largest producer of chicken in Mexico,
with production and distribution facilities located in Mexico City and the
states ofCoahuila, San Louis Potosi, Queretaro and Hidalgo. The Company's
chicken products consist primarily of prepared foods, which include portion-
controlled breast fillets, tenderloins and strips, formed nuggets and patties,
bone-in chicken parts,fresh foodservice chicken, pre-packaged chicken, and bulk
packaged chicken.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of Pilgrim's Pride Corporation and its wholly and majority owned
subsidiaries. Significant intercompany accounts and transactions have been
eliminated.
The financial statements of the Company's Mexico subsidiaries are re-measured as
if the U.S. dollar were the functional currency. Accordingly, assets and
liabilities of the Mexico subsidiaries are translated at end-of- period
exchange rates, except for non-monetary assets which are translated at
equivalent dollar costs at dates of acquisition using historical rates.
Operations are translated at average exchange rates in effect during the
period. Foreign exchange (gains) losses are separately stated as components
of "Other expenses (income)" in the Consolidated Statement of Income (Loss).
CASH EQUIVALENTS: The Company considers highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
ACCOUNTS RECEIVABLE: The Company does not believe it has significant
concentrations of credit risk in its accounts receivable, which are generally
unsecured. Credit evaluations are performed on all significant customers
and updated as circumstances dictate. Allowances for doubtful accounts were
$3.7 million and $3.8 million at September 26, 1998 and September 27, 1997,
respectively.
INVENTORIES:
Live chicken inventories are stated at the lower of cost or market and
breeder hens at the lower of cost, less accumulated amortization, or market.
The costs associated with breeder hens are accumulated up to the production
stage and amortized over the productive lives using the straight-line method.
Finished chicken products, feed, eggs and other inventories are stated at the
lower of cost (first-in, first-out method) or market. Occasionally, the
Company hedges a portion of its purchases of major feed ingredients using
futures contracts to minimize the risk of adverse price fluctuations. The
changes in market value of such agreements have a high correlation to
the price changes of the feed ingredients being hedged. Gains and losses on the
hedge transactions are deferred and recognized as a component of cost
of sales when products are sold. Gains and losses on the futures contracts
would be recognized immediately were the changes in the market value of the
agreements to cease to have a high correlation to the price changes of the
feed ingredients being hedged.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment is stated at cost. For financial reporting
purposes, depreciation is computed using the straight-line method over the
estimated useful lives of these assets. Depreciation expense was $31.5
million, $28.7 million and $26.8 million in 1998, 1997 and 1996, respectively.
NET INCOME (LOSS) PER COMMON SHARE: Net income (loss) per share is
based on the weighted average number of shares of common stock outstanding
during the year. The weighted average number of shares outstanding (basic
and diluted) was 27,589,250 in all periods.
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128, EARNINGS PER SHARE (SFAS
128), which the Company was required to adopt in the first quarter of 1998.
The adoption of SFAS 128 had no impact on the reporting of earnings per share.
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
<PAGE>
NOTE B - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998 1997
<S> <C> <C> <C> <C>
Live chicken and hens $ 61,295 $ 68,034
Feed, eggs and other 46,199 43,878
Finished chicken 34,190 34,268
products $141,684 $146,180
</TABLE>
NOTE C - NOTES PAYABLE AND LONG- TERM DEBT
The Company maintains $70 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 percent and are secured by inventory and fixed assets. At
September 26, 1998, $63.3 million was available under the revolving credit
facilities and $30.8 million was available under the term borrowing facilities.
Annual maturities of long-term debt for the five years subsequent to September
26, 1998 are: 1999 - $5.7 million; 2000 - $10.0 million; 2001 - $10.2
million; 2002 - $10.4 million and 2003 - $126.3 million. During 1996, the
Company retired certain debt prior to its scheduled maturity. These repayments
resulted in an extraordinary charge of $2.8 million, net of $1.8 million tax
benefit.
The Company is required, by certain provisions of its debt agreements, to
maintain levels of working capital and net worth, to limit dividends to a
maximum of $1.7 million per year, to maintain various fixed charge, leverage,
current and debt-to-equity ratios, and to limit annual capital expenditures.
Substantially all of the Company's domestic property, plant and equipment is
pledged as collateral on its long- term debt and credit facilities.
Total interest was $21.6 million in 1998 and $23.4 million in 1997 and
1996. Interest related to new construction capitalized in 1998, 1997 and 1996
was $1.7 million, $.5 million and $1.3 million, respectively.
The fair value of long-term debt, at September26, 1998 and September27, 1997,
based upon quoted market prices for the same or similar issues where available
or by using discounted cash flow analysis, was approximately $206.7 million
and $241.4 million, respectively. Long-term debt consist of the following:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C> <C> <C> <C>
Maturity 1998 1997
Senior subordinated notes, interest at 10 7/8%
(effective rate of 11 1/8%) 2003 $95,512 $99,118
Notes payable to an insurance company at 7.11% - 2006 56,554 59,543
7.21%
Notes payable to bank at LIBOR plus 1.8% in 1998
and 2% in 1997 2003 32,000 40,000
Notes payable to an agricultural lender at a
rate approximating LIBOR plus 1.65% 2003 14,224 28,871
Other notes payable Various 7,383 8,807
205,673 236,339
Less current maturities 5,889 11,596
$199,784 $224,743
</TABLE>
<PAGE>
NOTE D - INCOME TAXES
Income (loss) before income taxes and extraordinary charge after
allocation of certain expenses to foreign operations for 1998, 1997 and 1996
was $23.7 million, $15.8 million and $16.3 million, respectively, for U.S.
operations, and $32.8 million, $28 million and ($16.3) million, respectively,
for foreign operations. The provisions for income taxes are based on pre-tax
financial statement income.
The components of income tax expense (benefit) are set forth below:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
Current:
Federal $4,985 $1,113 $3,005
Foreign 948 245 817
State and other 8 (1,183) 1,083
5,941 175 4,905
Deferred 571 2,613 (354)
$6,512 $ 2,788 $ 4,551
</TABLE>
The following is a reconciliation between the statutory U.S. federal
income tax rate and the Company's effective income tax rate:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998 1997 1996
<S> <C> <C> <C>
Federal income tax rate 35.0% 35.0% 35.0%
State tax rate, net (0.4) (0.8) 1,674.1
Effect of Mexico loss
being non-deductible
in U.S. - - 6,252.3
Difference in U.S.
Statutory tax rate and
Mexico effective tax rate (23.1) (27.8) 1,649.3
Other, net - - 0.2
11.5% 6.4% 9,610.9%
</TABLE>
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax liabilities and assets are
as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998 1997
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation $25,304 $24,584
Prior use of cash accounting 32,905 34,223
Other 1,059 823
Total deferred tax 59,268 59,630
liabilities
Deferred tax assets:
AMT credit carryforward 234 3,518
Expense deductible in
different years 7,643 6,692
Total deferred tax asset 7,877 10,210
Net deferred tax liabilities $51,391 $49,420
</TABLE>
The Company has not provided any U.S. deferred income taxes on the
undistributed earnings of its Mexico subsidiaries based upon its determination
that such earnings will be indefinitely reinvested. As of September 26, 1998,
the cumulative undistributed earnings of these subsidiaries were approximately
$94.4 million. If such earnings were not considered indefinitely reinvested,
deferred U.S. and foreign income taxes would have been provided, after
consideration of estimated foreign tax credits. However, determination of the
amount of deferred federal and foreign income taxes is not practical.
NOTE E - ACCOUNTS RECEIVABLE
On June 26, 1998, the Company entered into an asset sale agreement to
sell up to $60 million of accounts receivable. Under this agreement, as the
sold accounts receivable are collected, new qualifying accounts can be
substituted thus maintaining the maximum balance allowed to be outstanding at a
rate approximating .425% over commercial paper. As of September 26, 1998,no
accounts receivable had been sold under this agreement. Any such sales,
however, are expected to be recorded as a sale in accordance with FASB
Statement No. 125, Accounting for Transfers and Servicing of FinancialAssets
and Extinguishments of Liabilities.
NOTE F - COMMON STOCK
On June 30, 1998, the Company's shareholders approved an amendment to the
Company's certificate of incorporation that reclassified the Company's existing
common stock to Class B common stock ("Class B Stock") and created a new class
of common stock designated as Class A common stock ("Class A Stock"). Under
the reclassification, each outstanding share of the Company's existing common
stock was reclassified into one share of Class B Stock. Each shareof Class B
Stock has substantially the same rights, powers and limitationsas the Company's
common stock outstanding immediately prior to such amendment, except that each
share of Class B Stock entitles the holder thereof to 20 votes per share
except as otherwise provided by law. Each share of the new Class A Stock is
substantially identical to the shares of Class B Stock, except that each share
of Class A Common Stock entitles the holder thereof to one vote per shareon any
matter submitted for a stockholder vote.
NOTE G - SAVINGS PLAN
The Company maintains a Section 401 (k) Salary Deferral Plan (the "Plan").
Under the Plan, eligible U.S. employees may voluntarily contribute a
percentage of their compensation. The Plan provides for a contribution of up
to four percent of compensation subject to an overall Company contribution
limit of five percent of the U.S. operation's income before taxes. Under this
plan, the Company's expenses were $1.7 million, $1.2 million and $1.0 million
in 1998, 1997 and 1996, respectively.
NOTE H- RELATED PARTY TRANSACTIONS
The major stockholder of the Company owns an egg laying and a chicken
growing operation. Transactions with related entities are summarized as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998 1997 1996
<S> <C> <C> <C>
Contract egg grower
fees to major
Stockholder $ 4,989 $ 4,926 $ 4,697
Chick, feed and other
sales to major
stockholder 21,396 20,116 18,057
Live chicken purchases
from major
stockholder 21,883 20,442 18,112
</TABLE>
The Company leases an airplane from its major stockholder under an
operating lease agreement. The terms of the lease agreement require monthly
payments of $33,000 plus operating expenses. Lease expense was $396,000 for
each of the years 1998, 1997 and 1996. Operating expenses were $52,950,
$107,000 and $88,000 in 1998, 1997 and 1996, respectively.
NOTE I-COMMITMENTS AND CONTINGENCIES
The Consolidated Statements of Income (Loss)include rental expense for
operating leases of approximately $14.3 million, $11.3 million and $10.1
million in 1998, 1997 and 1996, respectively. The Company's future minimum
lease commitments under non- cancelable operating leases are as follows:
1999 - $12.7 million; 2000 - $11.6 million; 2001 - $9.6 million; 2002 - $6.5
million; 2003 - $5.4 million and thereafter $7.3 million. At September 26,
1998, the Company had $6.7 million in letters of credit outstanding relating
to normal business transactions.
The Company is subject to various legal proceedings and claims which
arise in the ordinary course of its business. In the opinion of management,
the amount of ultimate liability with respect to these actions will not
materially affect the financial position or results of operations of the
Company.
NOTE J-BUSINESS SEGMENTS
The Company operates in a single business segment as a producer of
agricultural products and conducts separate operations in the United
States and Mexico.
Inter- area sales, which are not material, are accounted
for at prices comparable to normal trade customer sales. Identifiable assets
by geographic area are those assets which are used in the Company's operations
in each area.
Information about the Company's operations in these geographic areas is as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998 1997 1996
<S> <C> <C> <C>
Sales to unaffiliated
Customers:
United States $1,053,458 $1,002,652 $911,181
Mexico 278,087 274,997 228,129
$1,331,545 $1,277,649 $1,139,310
Operating income
(loss):
United States $36,279 $29,321 $29,705
Mexico 40,977 34,573 (8,201)
$77,256 63,894 $21,504
Identifiable assets:
United States $424,591 $404,213 $363,543
Mexico 176,848 174,911 173,179
$601,439 $579,124 $536,722
</TABLE>
The operating loss in Mexico in 1996 was primarily the result of currency
devaluation and other economic factors. As of September 26, 1998 the Company
had net assets in Mexico of $150 million.
NOTE K-QUARTERLY RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA) YEAR ENDED SEPTEMBER 26, 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
First Quarter Second Quarter Third Quarter Fourth Quarter Fiscal Year
Net Sales $337,887 $324,446 $328,500 $340,712 $1,331,545
Gross Profit 29,380 26,861 32,736 47,126 136,103
Operating income 15,371 11,398 19,043 31,444 77,256
Net income 11,117 6,768 11,835 20,290 50,010
Per Share:
Net income 0.40 .25 .43 .73 1.81
Cash dividends .015 .015 .015 .015 .06
Market price:
High 16 9/16 15 7/8 19 11/16 24 1/16 24 1/16
Low 12 3/4 10 3/4 13 13/16 18 1/4 10 3/4
</TABLE>
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA) YEAR ENDED SEPTEMBER 27, 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
First Quarter Second Quarter Third Quarter Fourth Quarter Fiscal Year
Net sales $297,806 $303,401 $335,168 $341,274 $1,277,649
Gross profit 30,267 23,085 27,285 33,860 114,497
Operating income 16,314 9,660 12,627 25,293 63,894
Net income 10,105 (a) 4,954 7,286 18,691 41,036 (a)
Per Share:
Net income .37 (a) .18 .26 .68 1.49 (a)
Cash dividends .015 .015 .015 .015 0.06
Market price:
High 9 12 1/8 12 3/4 15 3/8 15 3/8
Low 7 3/4 8 5/8 9 1/2 10 5/16 7 3/4
(a) Includes $2.2 million ($1.3 million net of taxes) of other income arising from the final settlement of claims
arising from a January 1992 fire at the Company's prepared foods plant.
</TABLE>
<PAGE>
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
SCHEUDLE II-VALUATION AND QUALIFYING ACCOUNTS
COL. A COL. B COL. C COL. D COL. E
ADDITIONS
BALANCE AT CHARGED TO COSTS CHARGED TO OTHER DEDUCTIONS- BALANCE AT END
DESCRIPTION BEGINNING AND EXPENSES ACCOUNTS OF PERIOD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER 26, 1998:
RESERVES AND ALLOWANCES DEDUCTED
FROM ASSET ACCOUNTS:
ALLOWANCE FOR
DOUBTFUL ACCOUNTS $3,823,000 $ 409,000 $ -- $ 538,000 $ 3,694,000
YEAR ENDED SEPTEMBER 27, 1997:
RESERVES AND ALLOWANCES DEDUCTED
FROM ASSET ACCOUNTS:
ALLOWANCE FOR
DOUBTFUL ACCOUNTS $3,985,000 $ (60,000) $ -- $ 102,000 $ 3,823,000
YEAR ENDED SEPTEMBER 28, 1996:
RESERVES AND ALLOWANCES DEDUCTED
FROM ASSET ACCOUNTS:
ALLOWANCE FOR
DOUBTFUL ACCOUNTS $4,280,000 $ 1,003,000 $ -- $ 1,298,000 $ 3,985,000
</TABLE>
<PAGE>
EXHIBIT
22-
SUBSIDIARIES OF REGISTRANT
1. AVICOLA PILGRIM'S PRIDE DE MEXICO, S.A. DE C.V.
2. CIA. INCUBADORA HIDALGO, S.A. DE C.V.
3. INMOBILIARIA AVICOLA PILGRIM'S PRIDE, S. DE R.L. DE C.V.
4. PILGRIM'S PRIDE, S.A. DE C.V.
5. PRODUCTORA Y DISTRIBUIDORA DE ALIMENTOS, S.A. DE C.V.
6. GALLINA PESADA S.A. DE C.V.
7. PILGRIM'S PRIDE FUNDING CORPORATION
8. PILGRIM'S PRIDE INTERNATIONAL, INC.
9. PPC OF DELAWARE BUSINESS TRUST
EXHIBIT
23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 3- 12043) of Pilgrim's Pride Corporation of our report dated
November 4, 1998, with respect to the consolidated financial statements of
Pilgrim's Pride Corporation included in this Annual Report (Form 10-K) and
schedule for the year ended September 26, 1998.
Ernst & Young LLP
Dallas, Texas
December 10, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-26-1998
<PERIOD-END> SEP-26-1998
<CASH> 25125
<SECURITIES> 0
<RECEIVABLES> 81813
<ALLOWANCES> 0
<INVENTORY> 141684
<CURRENT-ASSETS> 258534
<PP&E> 562099
<DEPRECIATION> 230951
<TOTAL-ASSETS> 601439
<CURRENT-LIABILITIES> 111494
<BONDS> 199784
0
0
<COMMON> 276
<OTHER-SE> 230595
<TOTAL-LIABILITY-AND-EQUITY> 601439
<SALES> 1331545
<TOTAL-REVENUES> 1331545
<CGS> 1195442
<TOTAL-COSTS> 1254289
<OTHER-EXPENSES> 20734
<LOSS-PROVISION> 409
<INTEREST-EXPENSE> 20148
<INCOME-PRETAX> 56522
<INCOME-TAX> 6512
<INCOME-CONTINUING> 50010
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 50010
<EPS-PRIMARY> 1.81
<EPS-DILUTED> 1.81
</TABLE>
* * * * *
AMENDED AND RESTATED
CORPORATE BYLAWS
OF
PILGRIM'S PRIDE CORPORATION
(A DELAWARE CORPORATION)
* * * * *
TABLE OF CONTENTS
AMENDED AND RESTATED
CORPORATE BYLAWS OF
PILGRIM'S PRIDE CORPORATION
(a Delaware corporation)
SECTION SUBJECT MATTER PAGE
AMENDED AND RESTATED
CORPORATE BYLAWS
OF
PILGRIM'S PRIDE CORPORATION
(a Delaware Corporation)
ARTICLE
NAME AND OFFICESARTICLE 1 NAME AND OFFICES
. NAME1.1 NAME. The name of the Corporation is PILGRIM'S PRIDE
CORPORATION, hereinafter referred to as the "Corporation."
. REGISTERED OFFICE AND AGENT1.2 REGISTERED OFFICE AND AGENT.
The Corporation shall establish, designate and continuously maintain a
registered office and agent in the State of Delaware, subject to the
following provisions:
() REGISTERED OFFICE(A) REGISTERED OFFICE. The Corporation
shall establish and continuously maintain in the State of Delaware a
registered office which may be, but need not be, the same as its place
of business.
() REGISTERED AGENT(B) REGISTERED AGENT. The Corporation
shall designate and continuously maintain in the State of Delaware a
registered agent, which agent may be either an individual resident of
the State of Delaware whose business office is identical with such
registered office, or a domestic corporation or a foreign corporation
authorized to transact business in the State of Delaware, having a
business office identical with such registered office.
() CHANGE OF REGISTERED OFFICE OR AGENT(C) CHANGE OF
REGISTERED OFFICE OR AGENT. The Corporation may change its registered
office or change its registered agent, or both, upon the filing in the
Office of the Secretary of State of Delaware of a statement setting
forth the facts required by law, and executed for the Corporation by
its President, a Vice President or other duly authorized officer.
. OTHER OFFICES1.3 OTHER OFFICES. The Corporation may also have
offices at such other places within and without the State of Delaware as
the Board of Directors may, from time to time, determine the business of
the Corporation may require.
ARTICLE
STOCKHOLDERSARTICLE 2 STOCKHOLDERS
. PLACE OF MEETINGS2.1 PLACE OF MEETINGS. Each meeting of the
stockholders of the Corporation is to be held at the principal offices of
the Corporation or at such other place, either within or without the State
of Delaware, as may be specified in the notice of the meeting or in a duly
executed waiver of notice thereof.
. ANNUAL MEETINGS2.2 ANNUAL MEETINGS. The annual meeting of the
stockholders for the election of Directors and for the transaction of such
other business as may properly come before the meeting shall be held within
one hundred twenty (120) days after the close of the fiscal year of the
Corporation on a day during such period to be selected by the Board of
Directors; provided, however, that the failure to hold the annual meeting
within the designated period of time or on the designated date shall not
work a forfeiture or dissolution of the Corporation.
. SPECIAL MEETINGS2.3 SPECIAL MEETINGS. Special meetings of the
stockholders, for any purpose or purposes, may be called by the Board of
Directors, Chairman of the Board, Vice Chairman of the Board, Chief
Executive Officer or President. The notice of a special meeting shall
state the purpose or purposes of the proposed meeting and the business to
be transacted at any such special meeting of stockholders, and shall be
limited to the purposes stated in the notice therefor.
. NOTICE2.4 NOTICE. Written or printed notice of the meeting stating
the place, day and hour of the meeting, and in the case of a special
meeting, the purpose or purposes for which the meeting is called, shall be
delivered not less than ten (10) nor more than sixty (60) days before the
date of the meeting, either personally or by mail, by or at the direction
of the Board of Directors, Chairman of the Board, Vice Chairman of the
Board, Chief Executive Officer, President, or Secretary, to each
stockholder of record entitled to vote at such meeting as determined in
accordance with the provisions of Section 2.10 hereof. If mailed, such
notice shall be deemed to be delivered when deposited in the United States
Mail, with postage thereon prepaid, addressed to the stockholder entitled
thereto at his address as it appears on the stock transfer books of the
Corporation.
. VOTING LIST.5 VOTING LIST. The officer or agent having charge and
custody of the stock transfer books of the Corporation, shall prepare, at
least ten (10) days before each meeting of stockholders, a complete list of
the stockholders entitled to vote at such meeting, arranged in alphabetical
order and showing the address of each stockholder and the number of shares
having voting privileges registered in the name of each stockholder. Such
list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours for a period of not
less than ten (10) days prior to such meeting either at the principal
office of the Corporation or at a place within the city where the meeting
is to be held, which place shall be specified in the notice of the meeting,
or, if not so specified, at the place where the meeting is to be held.
Such list shall also be produced and kept open at the time and place of the
meeting and shall be subject to the inspection of any stockholder during
the entire time of the meeting. The original stock ledger or transfer
book, or a duplicate thereof, shall be prima facie evidence as to identity
of the stockholders entitled to examine such list or stock ledger or
transfer book and to vote at any such meeting of the stockholders. The
failure to comply with the requirements of this Section shall not affect
the validity of any action taken at said meeting.
. QUORUM2.6 QUORUM. The holders of a majority of the shares of the
capital stock issued and outstanding and entitled to vote thereat,
represented in person or by proxy, shall be requisite and shall constitute
a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute, the Certificate of
Incorporation or these Bylaws. If, however, such quorum shall not be
present or represented at any such meeting of the stockholders, the
stockholders entitled to vote thereat, present in person, or represented by
proxy, shall have the power to adjourn the meeting, from time to time,
without notice other than announcement at the meeting, until a quorum shall
be present or represented. At such reconvened meeting at which a quorum
shall be present or represented, any business may be transacted which might
have been transacted at the meeting as originally notified. If the
adjournment is for more than thirty (30) days, or if after the adjournment
a new record date is fixed for the reconvened meeting, a notice of said
meeting shall be given to each stockholder entitled to vote at said
meeting.
. REQUISITE VOTE2.7 REQUISITE VOTE. If a quorum is present at
any meeting, the vote of the holders of a majority of the outstanding
shares of capital stock having voting power, present in person or
represented by proxy, shall determine any question brought before such
meeting, unless the question is one upon which, by express provision of the
Certificate of Incorporation or of these Bylaws, a different vote shall be
required, in which case such express provision shall govern and control the
determination of such question.
. WITHDRAWAL OF QUORUM2.8 WITHDRAWAL OF QUORUM. If a quorum is
present at the time of commencement of any meeting, the stockholders
present at such duly convened meeting may continue to transact any business
which may properly come before said meeting until adjournment thereof,
notwithstanding the withdrawal from such meeting of sufficient holders of
the shares of capital stock entitled to vote thereat to leave less than a
quorum remaining.
. VOTING AT MEETING2.9 VOTING AT MEETING. Voting at meetings
of stockholders shall be conducted and exercised subject to the following
procedures and regulations:
() VOTING POWER(A) VOTING POWER. In the exercise of voting
power with respect to each matter properly submitted to a vote at any
meeting of stockholders, each holder of the capital stock of the
Corporation having voting power shall be entitled to one (1) vote for
each such share held in his name on the books of the Corporation,
except to the extent otherwise specified by the Certificate of
Incorporation or Certificate of Designations pertaining to a series of
preferred stock.
() EXERCISE OF VOTING POWER; PROXIES(B) EXERCISE OF VOTING
POWER; PROXIES. Each stockholder entitled to vote at a meeting or to
express consent or dissent to corporate action in writing without a
meeting may vote either in person or authorize another person or
persons to act for him by proxy duly appointed by instrument in
writing subscribed by such stockholder or by his duly authorized
attorney-in-fact; provided, however, no such appointment of proxy
shall be valid, voted or acted upon after the expiration of three (3)
years from the date of execution of such written instrument of
appointment, unless otherwise stated therein. A proxy shall be
revocable unless expressly designated therein as irrevocable and
coupled with an interest. Proxies coupled with an interest include
the appointment as proxy of: (a) a pledgee; (b) a person who
purchased or agreed to purchase or owns or holds an option to purchase
the shares voted; (c) a creditor of the Corporation who extended its
credit under terms requiring the appointment; (d) an employee of the
Corporation whose employment contract requires the appointment; or (e)
a party to a voting agreement created under Section 218 of the General
Corporation Law of Delaware, as amended. Each proxy shall be filed
with the Secretary of the Corporation prior to or at the time of the
meeting. Any vote may be taken by voice vote or by show of hands
unless someone entitled to vote at the meeting objects, in which case
written ballots shall be used.
() ELECTION OF DIRECTORS(C) ELECTION OF DIRECTORS. In all
elections of Directors cumulative voting shall be prohibited.
. RECORD DATE2.10 RECORD DATE. As more specifically provided in
Article 7, Section 7.7 hereof, the Board of Directors may fix in advance a
record date for the purpose of determining stockholders entitled to notice
of or to vote at a meeting of stockholders, which record date shall not
precede the date upon which the resolution fixing the record date is
adopted by the Board of Directors, and which record date shall not be less
than ten (10) nor more than sixty (60) days prior to such meeting. In the
absence of any action by the Board of Directors fixing the record date, the
record date for determining stockholders entitled to notice of or to vote
at a meeting of stockholders shall be at the close of business on the day
before the day on which notice of the meeting is given, or, if notice is
waived, at the close of business on the day before the meeting is held.
. ACTION WITHOUT MEETINGS2.11 ACTION WITHOUT MEETINGS. Any action
permitted or required to be taken at a meeting of the stockholders of the
Corporation may be taken without a meeting, without prior notice, and
without a vote, if a consent or consents in writing, setting forth the
action so taken, shall be signed by the holder or holders of the
outstanding stock having not less than the minimum number of votes that
would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted, and such
written consent shall have the same force and effect as the requisite vote
of the stockholders thereon. Any such executed written consent, or an
executed counterpart thereof, shall be placed in the minute book of the
Corporation. Every written consent shall bear the date of signature of
each stockholder who signs the consent. No written consent shall be
effective to take the action that is the subject of the consent unless,
within sixty (60) days after the date of the earliest dated consent
delivered to the Corporation in the manner required under Section 2.12
hereof, a consent or consents signed by the holders of the minimum number
of shares of the capital stock issued and outstanding and entitled to vote
on and approve the action that is the subject of the consent are delivered
to the Corporation. Prompt notice of the taking of any action by
stockholders without a meeting by less than unanimous written consent shall
be given to those stockholders who did not consent in writing to the
action.
. RECORD DATE FOR ACTION WITHOUT MEETINGS2.12 RECORD DATE FOR
ACTION WITHOUT MEETINGS. Unless a record date shall have previously been
fixed or determined by the Board of Directors as provided in Section 2.10
hereof, whenever action by stockholders is proposed to be taken by consent
in writing without a meeting of stockholders, the Board of Directors may
fix a record date for the purpose of determining stockholders entitled to
consent to that action, which record date shall not precede, and shall not
be more than ten (10) days after, the date upon which the resolution fixing
the record date is adopted by the Board of Directors. If no record date
has been fixed by the Board of Directors and the prior action of the Board
of Directors is not required by statute or the Certificate of
Incorporation, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting shall be the first
date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the Corporation by delivery to its
registered office, its principal place of business, or an officer or agent
of the Corporation having custody of the books in which proceedings of
meetings of stockholders are recorded. Delivery shall be by hand or by
certified or registered mail, return receipt requested. Delivery to the
Corporation's principal place of business shall be addressed to the
Chairman of the Board of the Corporation. If no record date shall have
been fixed by the Board of Directors and prior action of the Board of
Directors is required by statute, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the Board of
Directors adopts a resolution taking such prior action.
. PREEMPTIVE RIGHTS2.13 PREEMPTIVE RIGHTS. No holder of shares of
capital stock of the Corporation shall, as such holder, have any right to
purchase or subscribe for any capital stock of any class which the
Corporation may issue or sell, whether or not exchangeable for any capital
stock of the Corporation of any class or classes, whether issued out of
unissued shares authorized by the Certificate of Incorporation, as amended,
or out of shares of capital stock of the Corporation acquired by it after
the issue thereof; nor shall any holder of shares of capital stock of the
Corporation, as such holder, have any right to purchase, acquire or
subscribe for any securities which the Corporation may issue or sell
whether or not convertible into or exchangeable for shares of capital stock
of the Corporation of any class or classes, and whether or not any such
securities have attached or appurtenant thereto warrants, options or other
instruments which entitle the holders thereof to purchase, acquire or
subscribe for shares of capital stock of any class or classes.
ARTICLE
DIRECTORS3 DIRECTORS
. MANAGEMENT POWERS3.1 MANAGEMENT POWERS. The powers of the
Corporation shall be exercised by or under the authority of, and the
business and affairs of the Corporation shall be managed under the
direction of its Board of Directors which may exercise all such powers of
the Corporation and do all such lawful acts and things as are not by
statute, the Certificate of Incorporation or these Bylaws directed or
required to be exercised or done by the stockholders.
. NUMBER AND QUALIFICATION3.2 NUMBER AND QUALIFICATION. The Board of
Directors shall consist of not less than one (1) member. The number of
Directors shall initially be fixed by the incorporator and thereafter from
time to time by the Board of Directors. Directors need not be residents of
the State of Delaware nor stockholders of the Corporation. Each Director
shall qualify as a Director following election as such by agreeing to act
or acting in such capacity. The number of Directors shall be fixed, and
may be increased or decreased, from time to time by resolution of the Board
of Directors without the necessity of a written amendment to the Bylaws of
the Corporation; provided, however, no decrease shall have the effect of
shortening the term of any incumbent Director.
. ELECTION AND TERM3.3 ELECTION AND TERM. Members of the Board
of Directors shall hold office until the annual meeting of the stockholders
of the Corporation and until their successors shall have been elected and
qualified. At the annual meeting of stockholders, the stockholders
entitled to vote in an election of Directors shall elect Directors to hold
office until the next succeeding annual meeting of the stockholders. Each
Director shall hold office for the term for which he is elected, and until
his successor shall be elected and qualified or until his death,
resignation or removal, if earlier.
. VOTING ON DIRECTORS3.4 VOTING ON DIRECTORS. Directors shall be
elected by the vote of the holders of a plurality of the shares entitled to
vote in the election of Directors and represented in person or by proxy at
a meeting of stockholders at which a quorum is present. Cumulative voting
in the election of Directors is expressly prohibited.
. VACANCIES AND NEW DIRECTORSHIPS3.5 VACANCIES AND NEW DIRECTORSHIPS.
Vacancies and newly created directorships resulting from any increase in
the authorized number of Directors elected by all the stockholders having
the right to vote as a single class may be filled by the affirmative vote
of a majority of the Directors then in office, although less than a quorum,
or by a sole remaining Director, or by the requisite vote of the
stockholders at an annual meeting of the stockholders or at a special
meeting of the stockholders called for that purpose, and the Directors so
elected shall hold office until their successors are elected and qualified.
If the holders of any class or classes of stock or series of stock of the
Corporation are entitled to elect one or more Directors by the Certificate
of Incorporation or Certificate of Designations applicable to such class or
series, vacancies and newly created directorships of such class or classes
or series may be filled by a majority of the Directors elected by such
class or classes or series thereof then in office, or by a sole remaining
Director so elected, and the Directors so elected shall hold office until
the next election of the class for which such Directors shall have been
chosen, and until their successors shall be elected and qualified. For
purposes of these Bylaws, a "vacancy" shall be defined as an unfilled
directorship arising by virtue of the death, resignation or removal of a
Director theretofore duly elected to serve in such capacity in accordance
with the relevant provisions of these Bylaws.
. REMOVAL3.6 REMOVAL. Any Director may be removed either for
or without cause at any duly convened special or annual meeting of
stockholders, by the affirmative vote of a majority in number of shares of
the stockholders present in person or by proxy at any meeting and entitled
to vote for the election of such Director, provided notice of intention to
act upon such matter shall have been given in the notice calling such
meeting.
. MEETINGS3.7 MEETINGS. The meetings of the Board of Directors
shall be held and conducted subject to the following regulations:
() PLACE(A) PLACE. Meetings of the Board of Directors of the
Corporation, annual, regular or special, are to be held at the
principal office or place of business of the Corporation, or such
other place, either within or without the State of Delaware, as may be
specified in the respective notices, or waivers of notice, thereof.
() ANNUAL MEETING(B) ANNUAL MEETING. The Board of Directors shall meet
each year immediately after the annual meeting of the stockholders, at the
place where such meeting of the stockholders has been held (either within
or without the State of Delaware), for the purpose of organization,
election of officers, and consideration of any other business that may
properly be brought before the meeting. No notice of any kind to either
old or new members of the Board of Directors for such annual meeting shall
be required.
() REGULAR MEETINGS(C) REGULAR MEETINGS. Regular meetings of the
Board of Directors may be held without notice at such time and at such
place or places as shall from time to time be determined and designated by
the Board.
() SPECIAL MEETINGS(D) SPECIAL MEETINGS. Special meetings of the
Board of Directors may be called by the Chairman of the Board, Vice
Chairman of the Board, Chief Executive Officer or President of the
Corporation on notice of two (2) days to each Director either personally or
by mail or by telegram, telex or facsimile transmission and delivery.
Special meetings of the Board of Directors shall be called by the Chairman
of the Board, Vice Chairman of the Board, Chief Executive Officer,
President or Secretary in like manner and on like notice on the written
request of two (2) Directors.
() NOTICE AND WAIVER OF NOTICE(E) NOTICE AND WAIVER OF NOTICE.
Attendance of a Director at any meeting shall constitute a waiver of notice
of such meeting, except where a Director attends for the express purpose of
objecting to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor
the purpose of, any regular meeting of the Board of Directors need be
specified in the notice or waiver of notice of such meeting.
() QUORUM(F) QUORUM. At all meetings of the Board of Directors, a
majority of the number of Directors shall constitute a quorum for the
transaction of business, unless a greater number is required by law or by
the Certificate of Incorporation. If a quorum shall not be present at any
meeting of Directors, the Directors present thereat may adjourn the
meeting, from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
() REQUISITE VOTE(G) REQUISITE VOTE. The act of a majority of the
Directors present at any meeting at which a quorum is present shall be the
act of the Board of Directors unless the act of a greater number is
required by statute, the Certificate of Incorporation or these Bylaws.
. ACTION WITHOUT MEETINGS3.8 ACTION WITHOUT MEETINGS. Unless
otherwise restricted by the Certificate of Incorporation or these Bylaws,
any action required or permitted by law to be taken at any meeting of the
Board of Directors, or any committee thereof, may be taken without a
meeting, if prior to such action a written consent thereto is signed by all
members of the Board or of such committee, as the case may be, and such
written consent is filed in the minutes or proceedings of the Board of
Directors or committee.
. COMMITTEES3.9 COMMITTEES. Committees designated and appointed
by the Board of Directors shall function subject to and in accordance with
the following regulations and procedures:
() DESIGNATION AND APPOINTMENT(A) DESIGNATION AND
APPOINTMENT. The Board of Directors may, by resolution adopted by a
majority of the entire Board, designate and appoint one or more
committees under such name or names and for such purpose or function
as may be deemed appropriate.
() MEMBERS; ALTERNATE MEMBERS; TERMS(B) MEMBERS; ALTERNATE
MEMBERS; TERMS. Each committee thus designated and appointed shall
consist of one or more of the Directors of the Corporation, one of
whom, in the case of the Executive Committee, shall be the Chief
Executive Officer of the Company. The Board of Directors may
designate one or more of its members as alternate members of any
committee, who may, subject to any limitations imposed by the entire
Board, replace absent or disqualified members at any meeting of that
committee. The members or alternate members of any such committee
shall serve at the pleasure of and subject to the discretion of the
Board of Directors.
() AUTHORITY(C) AUTHORITY. Each committee, to the extent
provided in the resolution of the Board creating same, shall have and
may exercise such of the powers and authority of the Board of
Directors in the management of the business and affairs of the
Corporation as the Board of Directors may direct and delegate, except,
however, those matters which are required by statute to be reserved
unto or acted upon by the entire Board of Directors.
() RECORDS(D) RECORDS. Each such committee shall keep and
maintain regular records or minutes of its meetings and report the
same to the Board of Directors when required.
() CHANGE IN NUMBER(E) CHANGE IN NUMBER. The number of
members or alternate members of any committee appointed by the Board
of Directors, as herein provided, may be increased or decreased (but
not below two) from time to time by appropriate resolution adopted by
a majority of the entire Board of Directors.
() VACANCIES(F) VACANCIES. Vacancies in the membership of
any committee designated and appointed hereunder shall be filled by
the Board of Directors, at a regular or special meeting of the Board
of Directors, in a manner consistent with the provisions of this
Section 3.9.
() REMOVAL(G) REMOVAL. Any member or alternate member of any
committee appointed hereunder may be removed by the Board of Directors by
the affirmative vote of a majority of the entire Board, whenever in its
judgment the best interests of the Corporation will be served thereby.
() MEETINGS(H) MEETINGS. The time, place and notice (if any) of
committee meetings shall be determined by the members of such committee.
() QUORUM; REQUISITE VOTE(I) QUORUM; REQUISITE VOTE. At
meetings of any committee appointed hereunder, a majority of the number of
members designated by the Board of Directors shall constitute a quorum for
the transaction of business. The act of a majority of the members and
alternate members of the committee present at any meeting at which a quorum
is present shall be the act of such committee, except as otherwise
specifically provided by statute, the Certificate of Incorporation or these
Bylaws. If a quorum is not present at a meeting of such committee, the
members of such committee present may adjourn the meeting from time to
time, without notice other than an announcement at the meeting, until a
quorum is present.
() COMPENSATION(j) COMPENSATION. Appropriate compensation for
members and alternate members of any committee appointed pursuant to the
authority hereof may be authorized by the action of a majority of the
entire Board of Directors pursuant to the provisions of Section 3.10
hereof.
() ACTION WITHOUT MEETINGS(K) ACTION WITHOUT MEETINGS. Any
action required or permitted to be taken at a meeting of any committee may
be taken without a meeting if a consent in writing, setting forth the
action so taken, is signed by all members of such committee. Such consent
shall have the same force and effect as a unanimous vote at a meeting. The
signed consent, or a signed copy, shall become a part of the record of such
committee.
() RESPONSIBILITY(L) RESPONSIBILITY. Notwithstanding any
provision to the contrary herein, the designation and appointment of a
committee and the delegation of authority to it shall not operate to
relieve the Board of Directors, or any member thereof, of any
responsibility imposed upon it or him by law.
. COMPENSATION.10 COMPENSATION. By appropriate resolution of the
Board of Directors, the Directors may be reimbursed their expenses, if any,
of attendance at each meeting of the Board of Directors and may be paid a
fixed sum (as determined from time to time by the vote of a majority of the
Directors then in office) for attendance at each meeting of the Board of
Directors or a stated salary as Director, or both. No such payment shall
preclude any Director from serving the Corporation in another capacity and
receiving compensation therefor. Members of special or standing committees
may, by appropriate resolution of the Board of Directors, be allowed
similar reimbursement of expenses and compensation for attending committee
meetings.
. MAINTENANCE OF RECORDS3.11 MAINTENANCE OF RECORDS. The
Directors may keep the books and records of the Corporation, except such as
are required by law to be kept within the State, outside the State of
Delaware or at such place or places as they may, from time to time,
determine.
. INTERESTED DIRECTORS AND OFFICERS3.12 INTERESTED DIRECTORS AND
OFFICERS. No contract or other transaction between the Corporation and one
or more of its Directors or officers, or between the Corporation and any
firm of which one or more of its Directors or officers are members or
employees, or in which they are interested, or between the Corporation and
any corporation or association of which one or more of its Directors or
officers are stockholders, members, directors, officers, or employees, or
in which they are interested, shall be void or voidable solely for this
reason, or solely because of the presence of such Director or Directors or
officer or officers at the meeting of the Board of Directors of the
Corporation, which acts upon, or in reference to, such contract, or
transaction, if (a) the material facts of such relationship or interest
shall be disclosed or known to the Board of Directors and the Board of
Directors shall, nevertheless in good faith, authorize, approve and ratify
such contract or transaction by a vote of a majority of the Directors
present, such interested Director or Directors to be counted in determining
whether a quorum is present, but not to be counted in calculating the
majority of such quorum necessary to carry such vote; (b) the material
facts of such relationship or interest as to the contract or transaction
are disclosed or are known to the stockholders entitled to vote thereon,
and the contract or transaction is specifically approved in good faith by
the vote of the stockholders; or (c) the contract or transaction is fair to
the Corporation as of the time it is authorized, approved or ratified by
the Board of Directors, a committee thereof or the stockholders. The
provisions of this Section shall not be construed to invalidate any
contract or other transaction which would otherwise be valid under the
common and statutory law applicable thereto.
ARTICLE
NOTICESARTICLE 4 NOTICES
. METHOD OF NOTICE4.1 METHOD OF NOTICE. Whenever under the
provisions of the General Corporation Law of Delaware or of the Certificate
of Incorporation or of these Bylaws, notice is required to be given to any
Director or stockholder, it shall not be construed to mean personal notice,
but such notice may be given in writing and delivered personally, through
the United States mail, by a recognized delivery service (such as Federal
Express) or by means of telegram, telex or facsimile transmission,
addressed to such Director or stockholder, at his address or telex or
facsimile transmission number, as the case may be, as it appears on the
records of the Corporation, with postage and fees thereon prepaid. Such
notice shall be deemed to be given at the time when the same shall be
deposited in the United States Mail or with an express delivery service or
when transmitted by telex or facsimile transmission or personally
delivered, as the case may be.
. WAIVER4.2 WAIVER. Whenever any notice whatever is required to be
given under the provisions of the General Corporation Law of Delaware or
under the provisions of the Certificate of Incorporation or these Bylaws, a
waiver thereof in writing signed by the person or persons entitled to such
notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice. Attendance by such person or
persons, whether in person or by proxy, at any meeting requiring notice
shall constitute a waiver of notice of such meeting, except where such
person attends the meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened.
ARTICLE
OFFICERS AND AGENTSARTICLE 5 OFFICERS AND AGENTS
. DESIGNATION5.1 DESIGNATION. The officers of the Corporation
shall be chosen by the Board of Directors and shall consist of the offices
of:
() Chairman of the Board, Vice Chairman of the Board, Chief
Executive Officer, Chief Operating Officer, President, Vice President,
Treasurer and Secretary; and
() Such other offices and officers (including one or more
additional Vice Presidents) and assistant officers and agents as the
Board of Directors shall deem necessary.
. ELECTION OF OFFICERS5.2 ELECTION OF OFFICERS. Each officer
designated in Section 5.1(a) hereof shall be elected by the Board of
Directors on the expiration of the term of office of such officer, as
herein provided, or whenever a vacancy exists in such office. Each officer
or agent designated in Section 5.1(b) above may be elected by the Board of
Directors at any meeting.
. QUALIFICATIONS5.3 QUALIFICATIONS. No officer or agent need be
a stockholder of the Corporation or a resident of Delaware. No officer or
agent is required to be a Director, except the Chairman of the Board. Any
two or more offices may be held by the same person.
. TERM OF OFFICE5.4 TERM OF OFFICE. Unless otherwise specified
by the Board of Directors at the time of election or appointment, or by the
express provisions of an employment contract approved by the Board, the
term of office of each officer and each agent shall expire on the date of
the first meeting of the Board of Directors next following the annual
meeting of stockholders each year. Each such officer or agent, unless
elected or appointed to an additional term, shall serve until the
expiration of the term of his office or, if earlier, his death, resignation
or removal.
. AUTHORITY.5 AUTHORITY. Officers and agents shall have such
authority and perform such duties in the management of the Corporation as
are provided in these Bylaws or as may be determined by resolution of the
Board of Directors not inconsistent with these Bylaws.
. REMOVAL5.6 REMOVAL. Any officer or agent elected or
appointed by the Board of Directors may be removed with or without cause by
the Board of Directors whenever in its judgment the best interests of the
Corporation will be served thereby. Such removal shall be without
prejudice to the contract rights, if any, of the person so removed.
Election or appointment of an officer or agent shall not of itself create
contract rights.
. VACANCIES5.7 VACANCIES. Any vacancy occurring in any office of
the Corporation (by death, resignation, removal or otherwise) shall be
filled by the Board of Directors.
. COMPENSATION.8 COMPENSATION. The compensation of all officers
and agents of the Corporation shall be fixed from time to time by the Board
of Directors.
. CHAIRMAN OF THE BOARD5.9 CHAIRMAN OF THE BOARD. The Chairman of
the Board shall be chosen from among the Directors. The Chairman of the
Board shall have the power to call special meetings of the stockholders and
of the Directors for any purpose or purposes, and he shall preside at all
meetings of the stockholders and Board of Directors, unless he shall be
absent or unless he shall, at his election, designate the Vice Chairman to
preside in his stead. The Chairman of the Board shall advise and counsel
the Vice Chairman of the Board, the Chief Executive Officer and other
officers of the Corporation and shall exercise such powers and perform such
duties as shall be assigned to or required of him from time to time by the
Board of Directors.
. VICE CHAIRMAN.10 VICE CHAIRMAN. The Vice Chairman shall have the
power to call special meetings of the stockholders and of the Directors for
any purpose or purposes, and, in the absence of the Chairman of the Board,
the Vice Chairman shall preside at all meetings of the Board of Directors.
The Vice Chairman shall advise and counsel the other officers of the
Corporation and shall exercise such powers and perform such duties as shall
be assigned to or required of him from time to time by the Board of
Directors. The Vice Chairman shall be authorized to execute promissory
notes, bonds, mortgages and other contracts requiring a seal, under the
seal of the Corporation, except where required or permitted by law to be
otherwise executed and except where the execution thereof shall be
expressly delegated by the Board of Directors to some other officer or
agent of the Corporation.
. CHIEF EXECUTIVE OFFICER5.11 CHIEF EXECUTIVE OFFICER. Subject
to the supervision of the Board of Directors, the Chief Executive Officer
shall have general supervision, management, direction and control of the
business and affairs of the Corporation and shall see that all orders and
resolutions of the Board of Directors are carried into effect. The Chief
Executive Officer may execute contracts, including sales and purchase
contracts, having a limited duration or effective maturity of less than one
year. In the absence of the Chairman of the Board and the Vice Chairman,
the Chief Executive Officer shall preside at all meetings of the
stockholders and the Board of Directors. The Chief Executive Officer shall
be ex officio a member of the Executive Committee, if any, of the Board of
Directors. The Chief Executive Officer shall have the general powers and
duties of management usually vested in the office of chief executive
officer of a corporation and shall perform such other duties and possess
such other authority and powers as the Board of Directors may from time to
time prescribe.
. [RESERVED]5.12 [RESERVED].
. CHIEF OPERATING OFFICER5.13 CHIEF OPERATING OFFICER. Subject to the
supervision of the Chairman of the Board, the Chief Operating Officer shall
have general supervision of the day to day operations of the Corporation.
The Chief Operating Officer shall be ex officio a member of the Executive
Committee, if any, of the Board of Directors. The Chief Operating Officer
shall have the general powers and duties of management usually vested in
the office of chief operating officer of a corporation and shall perform
such other duties and possess such other authority and powers as the
Chairman of the Board and Board of Directors may from time to time
prescribe.
. PRESIDENT.14 PRESIDENT. In the absence or disability of the
Chief Operating Officer, the President shall perform all of the duties of
the Chief Operating Officer and when so acting shall have all the powers
and be subject to all the restrictions upon the Chief Operating Officer,
including the power to sign all instruments and to take all actions which
the Chief Operating Officer is authorized to perform by the Board of
Directors or the Bylaws. The President shall have the general powers and
duties vested in the office of President as the Board of Directors may from
time to time prescribe or as the Chief Executive Officer may from time to
time delegate.
. VICE PRESIDENTS5.15 VICE PRESIDENTS. The Vice President, or if
there shall be more than one, the Vice Presidents in the order determined
by the requisite vote of the Board of Directors, shall, in the prolonged
absence or disability of the President, perform the duties and exercise the
powers of the President and shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe or
as the Chief Executive Officer may from time to time delegate. The Board
of Directors may designate one or more Vice Presidents as Executive Vice
Presidents or Senior Vice Presidents.
. SECRETARY.16 SECRETARY. The Secretary shall attend all meetings of
the Board of Directors and all meetings of the stockholders of the
Corporation and record all proceedings of the meetings of the Corporation
and of the Board of Directors in a book to be maintained for that purpose
and shall perform like duties for the standing committees when required.
The Secretary shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors,
Chairman of the Board, Vice Chairman of the Board, Chief Executive Officer,
Chief Operating Officer or President. The Secretary shall have custody of
the corporate seal of the Corporation, and he, or an Assistant Secretary,
shall have authority to affix the same to any instrument requiring it and
when so affixed, it may be attested by his signature or by the signature of
such Assistant Secretary. The Board of Directors may give general
authority to any other officer to affix the seal of the Corporation and to
attest the affixing by his signature.
. ASSISTANT SECRETARIES5.17 ASSISTANT SECRETARIES. The
Assistant Secretary, or if there be more than one, the Assistant
Secretaries in the order determined by the Board of Directors, shall in the
absence or disability of the Secretary, perform the duties and exercise the
powers of the Secretary and shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe or
as the Chief Executive Officer may from time to time delegate.
. TREASURER.18 TREASURER. The Treasurer shall be the chief financial
officer of the Corporation and shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts
and disbursements in books belonging to the Corporation and shall deposit
all moneys and other valuable effects in the name and to the credit of the
Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as
may be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the Chief Executive Officer and Chairman
of the Board and the Board of Directors, at its regular meetings, or when
the Board of Directors so requires, an account of all his transactions as
Treasurer and of the financial condition of the Corporation. If required
by the Board of Directors, the Treasurer shall give the Corporation a bond
in such sum and with such surety or sureties as shall be satisfactory to
the Board of Directors for the faithful performance of the duties of his
office and for the restoration to the Corporation, in case of his death,
resignation, retirement or removal from office, of all books, papers,
vouchers, money, and other property of whatever kind in his possession or
under his control owned by the Corporation. The Treasurer shall perform
such other duties and have such other authority and powers as the Board of
Directors may from time to time prescribe or as the Chief Executive Officer
may from time to time delegate.
. ASSISTANT TREASURERS5.19 ASSISTANT TREASURERS. The Assistant
Treasurer, or, if there shall be more than one, the Assistant Treasurers in
the order determined by the Board of Directors, shall, in the absence or
disability of the Treasurer, perform the duties and exercise the powers of
the Treasurer and shall perform such other duties and have such other
powers as the Board of Directors may from time to time prescribe or as the
Chief Executive Officer may from time to time delegate.
ARTICLE
INDEMNIFICATIONARTICLE 6 INDEMNIFICATION
. MANDATORY INDEMNIFICATION6.1 MANDATORY INDEMNIFICATION. Each person
who was or is made a party or is threatened to be made a party, or who was
or is a witness without being named a party, to any threatened, pending or
completed action, claim, suit or proceeding, whether civil, criminal,
administrative or investigative, any appeal in such an action, suit or
proceeding, and any inquiry or investigation that could lead to such an
action, suit or proceeding (a "Proceeding"), by reason of the fact that
such individual is or was a Director or officer of the Corporation, or
while a Director or officer of the Corporation is or was serving at the
request of the Corporation as a director, officer, partner, venturer,
proprietor, trustee, employee, agent or similar functionary of another
corporation, partnership, trust, employee benefit plan or other enterprise,
shall be indemnified and held harmless by the Corporation from and against
any judgments, penalties (including excise taxes), fines, amounts paid in
settlement and reasonable expenses (including court costs and attorneys'
fees) actually incurred by such person in connection with such Proceeding
if it is determined that he acted in good faith and reasonably believed (i)
in the case of conduct in his official capacity on behalf of the
Corporation that his conduct was in the Corporation's best interests, (ii)
in all other cases, that his conduct was not opposed to the best interests
of the Corporation, and (iii) with respect to any Proceeding which is a
criminal action, that he had no reasonable cause to believe his conduct was
unlawful; provided, however, that in the event a determination is made that
such person is liable to the Corporation or is found liable on the basis
that personal benefit was improperly received by such person, the
indemnification is limited to reasonable expenses actually incurred by such
person in connection with the Proceeding and shall not be made in respect
of any Proceeding in which such person shall have been found liable for
willful or intentional misconduct in the performance of his duty to the
Corporation. The termination of any Proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself be determinative of whether the person did
not act in good faith and in a manner which he reasonably believed to be in
or not opposed to the best interests of the Corporation, and, with respect
to any Proceeding which is a criminal action, had reasonable cause to
believe that his conduct was unlawful. A person shall be deemed to have
been found liable in respect of any claim, issue or matter only after the
person shall have been so adjudged by a court of competent jurisdiction
after exhaustion of all appeals therefrom.
. DETERMINATION OF INDEMNIFICATION6.2 DETERMINATION OF
INDEMNIFICATION. Any indemnification under the foregoing Section 6.1
(unless ordered by a court of competent jurisdiction) shall be made by the
Corporation only upon a determination that indemnification of such person
is proper in the circumstances by virtue of the fact that it shall have
been determined that such person has met the applicable standard of
conduct. Such determination shall be made (1) by a majority vote of a
quorum consisting of Directors who at the time of the vote are not named
defendants or respondents in the Proceeding; (2) if such quorum cannot be
obtained, by a majority vote of a committee of the Board of Directors,
designated to act in the matter by a majority of all Directors, consisting
of two or more Directors who at the time of the vote are not named
defendants or respondents in the Proceeding; (3) by special legal counsel
(in a written opinion) selected by the Board of Directors or a committee of
the Board by a vote as set forth in Subsection (1) or (2) of this Section,
or, if such quorum cannot be established, by a majority vote of all
Directors (in which Directors who are named defendants or respondents in
the Proceeding may participate); or (4) by the stockholders of the
Corporation in a vote that excludes the shares held by Directors who are
named defendants or respondents in the Proceeding.
. ADVANCE OF EXPENSES6.3 ADVANCE OF EXPENSES. Reasonable expenses,
including court costs and attorneys' fees, incurred by a person who was or
is a witness or who was or is named as a defendant or respondent in a
Proceeding, by reason of the fact that such individual is or was a Director
or officer of the Corporation, or while a Director or officer of the
Corporation is or was serving at the request of the Corporation as a
director, officer, partner, venturer, proprietor, trustee, employee, agent
or similar functionary of another corporation, partnership, trust, employee
benefit plan or other enterprise, shall be paid by the Corporation at
reasonable intervals in advance of the final disposition of such
Proceeding, and without the determination set forth in Section 6.2, upon
receipt by the Corporation of a written affirmation by such person of his
good faith belief that he has met the standard of conduct necessary for
indemnification under this Article 6, and a written undertaking by or on
behalf of such person to repay the amount paid or reimbursed by the
Corporation if it is ultimately determined that he is not entitled to be
indemnified by the Corporation as authorized in this Article 6. Such
written undertaking shall be an unlimited obligation of such person and it
may be accepted without reference to financial ability to make repayment.
. PERMISSIVE INDEMNIFICATION6.4 PERMISSIVE INDEMNIFICATION. The
Board of Directors of the Corporation may authorize the Corporation to
indemnify employees or agents of the Corporation, and to advance the
reasonable expenses of such persons, to the same extent, following the same
determinations and upon the same conditions as are required for the
indemnification of and advancement of expenses to Directors and officers of
the Corporation.
. NATURE OF INDEMNIFICATION6.5 NATURE OF INDEMNIFICATION. The
indemnification and advancement of expenses provided hereunder shall not be
deemed exclusive of any other rights to which those seeking indemnification
may be entitled under the Certificate of Incorporation, these Bylaws, any
agreement, vote of stockholders or disinterested Directors or otherwise,
both as to actions taken in an official capacity and as to actions taken in
any other capacity while holding such office, shall continue as to a person
who has ceased to be a Director, officer, employee or agent of the
Corporation and shall inure to the benefit of the heirs, executors and
administrators of such person.
. INSURANCE.6 INSURANCE. The Corporation shall have the power and
authority to purchase and maintain insurance or another arrangement on
behalf of any person who is or was a Director, officer, employee or agent
of the Corporation, or who is or was serving at the request of the
Corporation as a director, officer, partner, venturer, proprietor, trustee,
employee, agent, or similar functionary of another foreign or domestic
corporation, partnership, joint venture, sole proprietorship, trust,
employee benefit plan or other enterprise, against any liability, claim,
damage, loss or risk asserted against such person and incurred by such
person in any such capacity or arising out of the status of such person as
such, irrespective of whether the Corporation would have the power to
indemnify and hold such person harmless against such liability under the
provisions hereof. If the insurance or other arrangement is with a person
or entity that is not regularly engaged in the business of providing
insurance coverage, the insurance or arrangement may provide for payment of
a liability with respect to which the Corporation would not have the power
to indemnify the person only if including coverage for the additional
liability has been approved by the stockholders of the Corporation.
Without limiting the power of the Corporation to procure or maintain any
kind of insurance or other arrangement, the Corporation may, for the
benefit of persons indemnified by the Corporation, (1) create a trust fund;
(2) establish any form of self-insurance; (3) secure its indemnity
obligation by grant of a security interest or other lien on the assets of
the Corporation; or (4) establish a letter of credit, guaranty, or surety
arrangement. The insurance or other arrangement may be procured,
maintained, or established within the Corporation or with any insurer or
other person deemed appropriate by the Board of Directors regardless of
whether all or part of the stock or other securities of the insurer or
other person are owned in whole or part by the Corporation. In the absence
of fraud, the judgment of the Board of Directors as to the terms and
conditions of the insurance or other arrangement and the identity of the
insurer or other person participating in the arrangement shall be
conclusive and the insurance or arrangement shall not be voidable and shall
not subject the Directors approving the insurance or arrangement to
liability, on any ground, regardless of whether the Directors participating
in the approval is a beneficiary of the insurance or arrangement.
. NOTICE6.7 NOTICE. Any indemnification or advance of expenses to
a present or former Director or officer of the Corporation in accordance
with this Article 6 shall be reported in writing to the stockholders of the
Corporation with or before the notice or waiver of notice of the next
stockholders' meeting or with or before the next submission of a consent to
action without a meeting and, in any case, within the next twelve month
period immediately following the indemnification or advance.
ARTICLE
STOCK CERTIFICATES AND TRANSFER REGULATIONSARTICLE 7 STOCK
CERTIFICATES AND TRANSFER REGULATIONS
. DESCRIPTION OF CERTIFICATES7.1 DESCRIPTION OF CERTIFICATES. The
shares of the capital stock of the Corporation shall be represented by
certificates in the form approved by the Board of Directors and signed in
the name of the Corporation by the Chairman of the Board, Vice Chairman of
the Board, Chief Executive Officer, Chief Operating Officer, President or a
Vice President and the Secretary or an Assistant Secretary of the
Corporation, and sealed with the seal of the Corporation or a facsimile
thereof. Each certificate shall state on the face thereof the name of the
holder, the number and class of shares, the par value of shares covered
thereby or a statement that such shares are without par value, and such
other matters as are required by law. At such time as the Corporation may
be authorized to issue shares of more than one class, every certificate
shall set forth upon the face or back of such certificate a statement of
the designations, preferences, limitations and relative rights of the
shares of each class authorized to be issued, as required by the laws of
the State of Delaware, or may state that the Corporation will furnish a
copy of such statement without charge to the holder of such certificate
upon receipt of a written request therefor from such holder.
. ENTITLEMENT TO CERTIFICATES7.2 ENTITLEMENT TO CERTIFICATES.
Every holder of the capital stock in the Corporation shall be entitled to
have a certificate signed in the name of the Corporation by the Chairman of
the Board, Vice Chairman of the Board, Chief Executive Officer, Chief
Operating Officer, President or a Vice President and the Secretary or an
Assistant Secretary of the Corporation, certifying the class of capital
stock and the number of shares represented thereby as owned or held by such
stockholder in the Corporation.
. SIGNATURES7.3 SIGNATURES. The signatures of the Chairman of the
Board, Vice Chairman of the Board, Chief Executive Officer, Chief Operating
Officer, President, Vice President, Secretary or Assistant Secretary upon a
certificate may be facsimiles. In case any officer or officers who have
signed, or whose facsimile signature or signatures have been placed upon
any such certificate or certificates, shall cease to serve as such officer
or officers of the Corporation, whether because of death, resignation,
removal or otherwise, before such certificate or certificates are issued
and delivered by the Corporation, such certificate or certificates may
nevertheless be adopted by the Corporation and be issued and delivered with
the same effect as though the person or persons who signed such certificate
or certificates or whose facsimile signature or signatures have been used
thereon had not ceased to serve as such officer or officers of the
Corporation.
. ISSUANCE OF CERTIFICATES7.4 ISSUANCE OF CERTIFICATES.
Certificates evidencing shares of its capital stock (both treasury and
authorized but unissued) may be issued for such consideration (not less
than par value, except for treasury shares which may be issued for such
consideration) and to such persons as the Board of Directors may determine
from time to time. Shares shall not be issued until the full amount of the
consideration, fixed as provided by law, has been paid.
. PAYMENT FOR SHARES7.5 PAYMENT FOR SHARES. Consideration for
the issuance of shares shall be paid, valued and allocated as follows:
() CONSIDERATION(A) CONSIDERATION. The consideration for
the issuance of shares shall consist of money paid, labor done
(including services actually performed for the Corporation), or
property (tangible or intangible) actually received. Neither
promissory notes nor the promise of future services shall constitute
payment of consideration for shares.
() VALUATION(B) VALUATION. In the absence of fraud in the
transaction, the determination of the Board of Directors as to the
value of consideration received shall be conclusive.
() EFFECT(c) EFFECT. When consideration, fixed as provided by
law, has been paid, the shares shall be deemed to have been issued and
shall be considered fully paid and nonassessable.
() ALLOCATION OF CONSIDERATION(D) ALLOCATION OF
CONSIDERATION. The consideration received for shares shall be
allocated by the Board of Directors, in accordance with law, between
the stated capital and capital surplus accounts.
<PAGE>
. SUBSCRIPTIONS7.6 SUBSCRIPTIONS. Unless otherwise provided in the
subscription agreement, subscriptions of shares, whether made before or
after organization of the Corporation, shall be paid in full in such
installments and at such times as shall be determined by the Board of
Directors. Any call made by the Board of Directors for payment on
subscriptions shall be uniform as to all shares of the same class and
series. In case of default in the payment of any installment or call
when payment is due, the Corporation may proceed to collect the amount
due in the same manner as any debt due to the Corporation.
. RECORD DATE7.7 RECORD DATE. For the purpose of determining
stockholders entitled to notice of or to vote at any meeting of
stockholders, or any adjournment thereof, or entitled to receive a
distribution by the Corporation (other than a distribution involving a
purchase or redemption by the Corporation of any of its own shares) or a
share dividend, or in order to make a determination of stockholders for
any other proper purpose, the Board of Directors may fix a record date
for any such determination of stockholders, which record date shall not
precede the date upon which the resolution fixing the record date is
adopted by the Board of Directors, and which record date shall not be
more than sixty (60) days, and in the case of a meeting of stockholders,
not less than ten (10) days prior to the date on which the particular
action requiring such determination of stockholders is to be taken. If
no record date is fixed for the determination of stockholders entitled to
notice of or to vote at a meeting of stockholders, or stockholders
entitled to receive a distribution (other than a distribution involving a
purchase or redemption by the Corporation of any of its own shares) or a
share dividend, the date before the date on which notice of the meeting
is mailed or the date on which the resolution of the Board of Directors
declaring such distribution or share dividend is adopted, as the case may
be, shall be the record date for such determination of stockholders.
When a determination of stockholders entitled to vote at any meeting of
stockholders has been made as provided in this Section, such
determination shall be applied to any adjournment thereof.
<PAGE>
. REGISTERED OWNERS7.8 REGISTERED OWNERS. Prior to due
presentment for registration of transfer of a certificate evidencing
shares of the capital stock of the Corporation in the manner set forth in
Section 7.10 hereof, the Corporation shall be entitled to recognize the
person registered as the owner of such shares on its books (or the books
of its duly appointed transfer agent, as the case may be) as the person
exclusively entitled to vote, to receive notices and dividends with
respect to, and otherwise exercise all rights and powers relative to such
shares; and the Corporation shall not be bound or otherwise obligated to
recognize any claim, direct or indirect, legal or equitable, to such
shares by any other person, whether or not it shall have actual, express
or other notice thereof, except as otherwise provided by the laws of
Delaware.
. LOST, STOLEN OR DESTROYED CERTIFICATES7.9 LOST, STOLEN OR
DESTROYED CERTIFICATES. The Corporation shall issue a new certificate in
place of any certificate for shares previously issued if the registered
owner of the certificate satisfies the following conditions:
() PROOF OF LOSS(A) PROOF OF LOSS. Submits proof in
affidavit form satisfactory to the Corporation that such certificate
has been lost, destroyed or wrongfully taken;
() TIMELY REQUEST(B) TIMELY REQUEST. Requests the issuance
of a new certificate before the Corporation has notice that the
certificate has been acquired by a purchaser for value in good faith
and without notice of an adverse claim;
() BOND(C) BOND. Gives a bond in such form, and with such
surety or sureties, with fixed or open penalty, as the Corporation
may direct, to indemnify the Corporation (and its transfer agent and
registrar, if any) against any claim that may be made or otherwise
asserted by virtue of the alleged loss, destruction, or theft of
such certificate or certificates; and
() OTHER REQUIREMENTS(d) OTHER REQUIREMENTS. Satisfies
any other reasonable requirements imposed by the Corporation.
<PAGE>
In the event a certificate has been lost, apparently destroyed or
wrongfully taken, and the registered owner of record fails to notify the
Corporation within a reasonable time after he has notice of such loss,
destruction, or wrongful taking, and the Corporation registers a transfer
(in the manner hereinbelow set forth) of the shares represented by the
certificate before receiving such notification, such prior registered
owner of record shall be precluded from making any claim against the
Corporation for the transfer required hereunder or for a new certificate.
. REGISTRATION OF TRANSFERS.10 REGISTRATION OF TRANSFERS.
Subject to the provisions hereof, the Corporation shall register the
transfer of a certificate evidencing shares of its capital stock
presented to it for transfer if:
() ENDORSEMENT(a) ENDORSEMENT. Upon surrender of the
certificate to the Corporation (or its transfer agent, as the case
may be) for transfer, the certificate (or an appended stock power)
is properly endorsed by the registered owner, or by his duly
authorized legal representative or attorney-in-fact, with proper
written evidence of the authority and appointment of such
representative, if any, accompanying the certificate;
() GUARANTY AND EFFECTIVENESS OF SIGNATURE(B) GUARANTY AND
EFFECTIVENESS OF SIGNATURE. The signature of such registered owner
or his legal representative or attorney-in-fact, as the case may be,
has been guaranteed by a national banking association or member of
the New York Stock Exchange, and reasonable assurance in a form
satisfactory to the Corporation is given that such endorsements are
genuine and effective;
() ADVERSE CLAIMS(c) ADVERSE CLAIMS. The Corporation has
no notice of an adverse claim or has otherwise discharged any duty
to inquire into such a claim;
() COLLECTION OF TAXES(D) COLLECTION OF TAXES. Any
applicable law (local, state or federal) relating to the collection
of taxes relative to the transaction has been complied with; and
() ADDITIONAL REQUIREMENTS SATISFIED(E) ADDITIONAL
REQUIREMENTS SATISFIED. Such additional conditions and
documentation as the Corporation (or its transfer agent, as the case
may be) shall reasonably require, including without limitation
thereto, the delivery with the surrender of such stock certificate
or certificates of proper evidence of succession, assignment or
other authority to obtain transfer thereof, as the circumstances may
require, and such legal opinions with reference to the requested
transfer as shall be required by the Corporation (or its transfer
agent) pursuant to the provisions of these Bylaws and applicable
law, shall have been satisfied.
<PAGE>
. RESTRICTIONS ON TRANSFER AND LEGENDS ON CERTIFICATES7.11
RESTRICTIONS ON TRANSFER AND LEGENDS ON CERTIFICATES.
() SHARES IN CLASSES OR SERIES(A) SHARES IN CLASSES OR
SERIES. If the Corporation is authorized to issue shares of more
than one class, the certificate shall set forth, either on the face
or back of the certificate, a full or summary statement of all of
the designations, preferences, limitations, and relative rights of
the shares of each such class and, if the Corporation is authorized
to issue any preferred or special class in series, the variations in
the relative rights and preferences of the shares of each such
series so far as the same have been fixed and determined, and the
authority of the Board of Directors to fix and determine the
relative rights and preferences of subsequent series. In lieu of
providing such a statement in full on the certificate, a statement
on the face or back of the certificate may provide that the
Corporation will furnish such information to any stockholder without
charge upon written request to the Corporation at its principal
place of business or registered office and that copies of the
information are on file in the office of the Secretary of State.
() RESTRICTION ON TRANSFER(B) RESTRICTION ON TRANSFER.
Any restrictions imposed by the Corporation on the sale or other
disposition of its shares and on the transfer thereof must be copied
at length or in summary form on the face, or so copied on the back
and referred to on the face, of each certificate representing shares
to which the restriction applies. The certificate may however state
on the face or back that such a restriction exists pursuant to a
specified document and that the Corporation will furnish a copy of
the document to the holder of the certificate without charge upon
written request to the Corporation at its principal place of
business.
() UNREGISTERED SECURITIES(c) UNREGISTERED SECURITIES.
Any security of the Corporation, including, among others, any
certificate evidencing shares of the capital stock of the
Corporation or warrants to purchase shares of capital stock of the
Corporation, which is issued to any person without registration
under the Securities Act of 1933, as amended, or the Blue Sky laws
of any state, shall not be transferable until the Corporation has
been furnished with a legal opinion of counsel with reference
thereto, satisfactory in form and content to the Corporation and its
counsel, to the effect that such sale, transfer or pledge does not
involve a violation of the Securities Act of 1933, as amended, or
the Blue Sky laws of any state having jurisdiction. The certificate
representing the security shall bear substantially the following
legend:
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE SECURITIES LAW BUT HAVE BEEN ACQUIRED FOR THE
PRIVATE INVESTMENT OF THE HOLDER HEREOF AND MAY NOT BE OFFERED,
SOLD OR TRANSFERRED UNTIL EITHER (i) A REGISTRATION STATEMENT
UNDER SUCH SECURITIES ACT OR SUCH APPLICABLE STATE SECURITIES
LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (ii)
THE CORPORATION SHALL HAVE RECEIVED AN OPINION OF COUNSEL
ACCEPTABLE TO THE CORPORATION AND ITS COUNSEL THAT REGISTRATION
UNDER SUCH SECURITIES ACT OR SUCH APPLICABLE STATE SECURITIES
LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED OFFER,
SALE OR TRANSFER.
ARTICLE
GENERAL PROVISIONS8 GENERAL PROVISIONS
. DIVIDENDS8.1 DIVIDENDS. Subject to the provisions of the General
Corporation Law of Delaware, as amended, and the Certificate of
Incorporation, dividends of the Corporation shall be declared and paid
pursuant to the following regulations:
() DECLARATION AND PAYMENT(A) DECLARATION AND PAYMENT.
Dividends on the issued and outstanding shares of capital stock of the
Corporation may be declared by the Board of Directors at any regular or
special meeting and may be paid in cash, in property, or in shares of
capital stock. Such declaration and payment shall be at the discretion
of the Board of Directors.
() RECORD DATE(B) RECORD DATE. The Board of Directors may fix in
advance a record date for the purpose of determining stockholders
entitled to receive payment of any dividend, such record date to be not
more than sixty (60) days prior to the payment date of such dividend, or
the Board of Directors may close the stock transfer books for such
purpose for a period of not more than sixty (60) days prior to the
payment date of such dividend. In the absence of action by the Board of
Directors, the date upon which the Board of Directors adopt the
resolution declaring such dividend shall be the record date.
. RESERVES8.2 RESERVES. There may be created by resolution of the Board
of Directors out of the surplus of the Corporation such reserve or reserves
as the Board of Directors from time to time, in its discretion, think proper
to provide for contingencies, or to repair or maintain any property of the
Corporation, or for such other purposes as the Board of Directors shall think
beneficial to the Corporation, and the Board of Directors may modify or
abolish any such reserve in the manner in which it was created.
<PAGE>
. BOOKS AND RECORDS8.3 BOOKS AND RECORDS. The Corporation shall
maintain correct and complete books and records of account and shall
prepare and maintain minutes of the proceedings of its stockholders, its
Board of Directors and each committee of its Board of Directors. The
Corporation shall keep at its registered office or principal place of
business, or at the office of its transfer agent or registrar, a record
of original issuance of shares issued by the Corporation and a record of
each transfer of those shares that have been presented to the Corporation
for registration or transfer. Such records shall contain the names and
addresses of all past and present stockholders and the number and class
of the shares issued by the Corporation held by each.
. ANNUAL STATEMENT8.4 ANNUAL STATEMENT. The Board of Directors
shall present at or before each annual meeting of stockholders a full and
clear statement of the business and financial condition of the
Corporation, including a reasonably detailed balance sheet and income
statement under current date.
<PAGE>
. CONTRACTS AND NEGOTIABLE INSTRUMENTS8.5 CONTRACTS AND NEGOTIABLE
INSTRUMENTS. Except as otherwise provided by law or these Bylaws, any
contract or other instrument relative to the business of the Corporation
may be executed and delivered in the name of the Corporation and on its
behalf by the Chairman of the Board, Vice Chairman of the Board, Chief
Executive Officer, Chief Operating Officer or President of the
Corporation. The Board of Directors may authorize any other officer or
agent of the Corporation to enter into any contract or execute and
deliver any contract in the name and on behalf of the Corporation, and
such authority may be general or confined to specific instances as the
Board of Directors may determine by resolution. All bills, notes, checks
or other instruments for the payment of money shall be signed or
countersigned by such officer, officers, agent or agents and in such
manner as are permitted by these Bylaws and/or as, from time to time, may
be prescribed by resolution of the Board of Directors. Unless authorized
to do so by these Bylaws or by the Board of Directors, no officer, agent
or employee shall have any power or authority to bind the Corporation by
any contract or engagement, or to pledge its credit, or to render it
liable pecuniarily for any purpose or to any amount.
. FISCAL YEAR.6 FISCAL YEAR. The fiscal year of the Corporation
shall end on the Saturday closest to September 30.
. CORPORATE SEAL8.7 CORPORATE SEAL. The Corporation seal shall
be in such form as may be determined by the Board of Directors. The seal
may be used by causing it or a facsimile thereof to be impressed or
affixed or in any manner reproduced.
. RESIGNATIONS8.8 RESIGNATIONS. Any Director, officer or
agent may resign his office or position with the Corporation by
delivering written notice thereof to the Chairman of the Board, Vice
Chairman of the Board, Chief Executive Officer, Chief Operating Officer,
President or Secretary. Such resignation shall be effective at the time
specified therein, or immediately upon delivery if no time is specified.
Unless otherwise specified therein, an acceptance of such resignation
shall not be a necessary prerequisite of its effectiveness.
. AMENDMENT OF BYLAWS8.9 AMENDMENT OF BYLAWS. These Bylaws may
be altered, amended, or repealed and new Bylaws adopted at any meeting of
the Board of Directors or stockholders at which a quorum is present, by
the affirmative vote of a majority of the Directors or stockholders, as
the case may be, present at such meeting, provided notice of the proposed
alteration, amendment, or repeal be contained in the notice of such
meeting.
<PAGE>
. CONSTRUCTION8.10 CONSTRUCTION. Whenever the context so requires
herein, the masculine shall include the feminine and neuter, and the
singular shall include the plural, and conversely. If any portion or
provision of these Bylaws shall be held invalid or inoperative, then, so
far as is reasonable and possible: (1) the remainder of these Bylaws
shall be considered valid and operative, and (2) effect shall be given to
the intent manifested by the portion or provision held invalid or
inoperative.
. TELEPHONE MEETINGS.11 TELEPHONE MEETINGS. Stockholders,
Directors or members of any committee may hold any meeting of such
stockholders, Directors or committee by means of conference telephone or
similar communications equipment which permits all persons participating
in the meeting to hear each other and actions taken at such meetings
shall have the same force and effect as if taken at a meeting at which
persons were present and voting in person. The Secretary of the
Corporation shall prepare a memorandum of the action taken at any such
telephonic meeting.
. TABLE OF CONTENTS; CAPTIONS.12 TABLE OF CONTENTS; CAPTIONS.
The table of contents and captions used in these Bylaws have been
inserted for administrative convenience only and do not constitute matter
to be construed in interpretation.
IN DUE CERTIFICATION WHEREOF, the undersigned, being the Secretary
of PILGRIM'S PRIDE CORPORATION, confirms the adoption and approval of the
foregoing Bylaws, effective as of the 30th day of September, 1998.
/s/ R. A. Cogdill
___________________________________________
RICHARD A. COGDILL, Secretary
