SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended APRIL 3, 1999
Commission file number 1-9273
PILGRIM'S PRIDE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 75-1285071
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
110 SOUTH TEXAS, PITTSBURG, TX 75686-0093
(Address of principal executive offices) (Zip code)
(903) 855-1000
(Telephone number of principle executive offices)
Not Applicable
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter periods that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date.
Class B Common Stock, $.01 Par Value--- 27,589,250 shares as of May 12, 1999
<PAGE>
INDEX
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements (Unaudited):
Condensed consolidated balance sheets:
April 3, 1999 and September 26, 1998
Consolidated statements of income:
Three months and six months ended April 3, 1999 and March 28, 1998
Consolidated statements of cash flows:
Six months ended April 3, 1999 and March 28, 1998
Notes to condensed consolidated financial statements--April 3, 1999
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Item 3: Quantitative and Qualitative Disclosures about Market Risk
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
1
<PAGE>
PART I. FINANCIAL INFORMATION
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ITEM 1: FINANCIAL STATEMENTS:
April 3, September 26,
1999 1998
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 13,052 $ 25,125
Trade accounts and other receivables,
less allowance for doubtful accounts 68,793 81,813
Inventories 172,255 141,684
Deferred income taxes 4,596 7,010
Prepaid expenses and other
current assets 2,585 2,902
Total Current Assets 261,281 258,534
Other Assets 12,258 11,757
Property, Plant and Equipment 599,009 562,099
Less accumulated depreciation 245,803 230,951
353,206 331,148
$ 626,745 $ 601,439
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable 66,549 70,069
Accrued expenses 37,708 35,536
Current maturities of long-term debt 6,338 5,889
Total Current Liabilities 110,595 111,494
Long-Term Debt, less current maturities 197,971 199,784
Deferred Income Taxes 56,747 58,401
Minority Interest in Subsidiary 889 889
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
1999 and 1998 276 276
Additional paid-in capital 79,763 79,763
Retained earnings 180,504 150,832
Total Stockholders' Equity 260,543 230,871
$ 626,745 $ 601,439
See notes to condensed consolidated financial statements.
1
<PAGE>
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
APRIL 3, MARCH 28, APRIL 3, MARCH 28,
1999 1998 1999 1998
(27 weeks) (26 weeks)
(in thousands, except share and per share data)
<S> <C> <C> <C> <C>
Net Sales $ 329,894 $ 324,446 $ 665,982 $ 662,333
Costs and Expenses:
Cost of sales 283,632 297,585 575,819 606,092
Selling, general
and administrative 20,970 15,463 38,685 29,472
304,602 313,048 614,504 635,564
Operating income 25,292 11,398 51,478 26,769
Other Expense (Income):
Interest expense, net 4,090 5,093 8,823 10,129
Foreign exchange
(gain) loss (161) 574 (253) 1,102
Miscellaneous, net (261) (488) (173) (951)
3,668 5,179 8,397 10,280
Income before
income taxes 21,624 6,219 43,081 16,489
Income tax expense
(benefit) 7,044 (549) 12,581 (1,396)
Net income $ 14,580 $ 6,768 $ 30,500 $ 17,885
Net income
per common share $ .53 $ .25 $ 1.11 $ .65
Dividends
per common share $ .015 $ .015 $ .03 $ .03
Weighted average
shares outstanding 27,589,250 27,589,250 27,589,250 27,589,250
</TABLE>
See Notes to condensed consolidated financial statements.
1
<PAGE>
PILGRIM'S PRIDE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 3, 1999 MARCH 28, 1998
(In Thousands)
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $30,500 $17,885
Adjustments to reconcile
net income to cash
Provided by operating activities:
Depreciation and amortization 17,121 16,066
(Gain) on property disposals (144) (37)
Provision for doubtful accounts 3,398 921
Deferred income taxes 760 (2,404)
Changes in operating assets and liabilities:
Accounts and other receivable 9,622 3,151
Inventories (30,571) (4,185)
Prepaid expenses 317 234
Accounts payable and
accrued expenses (1,347) (12,897)
Other (216) 11
Cash Flows Provided by
Operating Activities 29,440 18,745
Investing Activities:
Acquisitions of property,
plant and equipment (38,768) (25,801)
Proceeds from property disposals 528 512
Other, net (996) (98)
Net Cash Used In
Investing Activities (39,236) (25,387)
Financing Activities:
Proceeds from notes payable to banks 14,000 21,000
Repayment of notes payable to banks (14,000) (21,000)
Proceeds from long-term debt 15,259 21,126
Payments on long-term debt (16,751) (26,556)
Cash dividends paid (828) (828)
Cash Used In
Financing Activities (2,320) (6,258)
Effect of exchange rate changes
on cash and Cash equivalents 43 (183)
Decrease in cash and
cash equivalents (12,073) (13,083)
Cash and cash equivalents
at beginning of year 25,125 20,339
Cash and cash equivalents
at end of period 13,052 $7,256
Supplemental disclosure information:
Cash paid during the period for
Interest (net of amount
capitalized) $9,348 $10,547
Income Taxes $12,078 $480
</TABLE>
See notes to condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the period ended
April 3, 1999 are not necessarily indicative of the results that may be
expected for the year ended October 2, 1999. For further information, refer to
the consolidated financial statements and footnotes thereto included in
Pilgrim's annual report on Form 10-K for the year ended September 26, 1998.
The consolidated financial statements include the accounts of Pilgrim's and its
wholly and majority owned subsidiaries. Significant intercompany accounts and
transactions have been eliminated.
The Company reports on the basis of a 52/53-week fiscal year, which ends on the
Saturday closest to September 30. As a result, the first six months of fiscal
1999 ended April 3, 1999 and had 27 weeks, while the first six months ended
March 28, 1998 and had 26 weeks.
The assets and liabilities of the foreign subsidiaries are translated at end-
of-period exchange rates, except for any non-monetary assets which are
translated at equivalent dollar costs at dates of acquisition using historical
rates. Operations of foreign subsidiaries are translated at average exchange
rates in effect during the period.
NOTE B--NET INCOME PER COMMON SHARE
Earnings per share for the periods ended April 3, 1999 and March 28, 1998 are
based on the weighted average shares outstanding for the periods.
NOTE C--ACCOUNTS RECEIVABLE
On June 26, 1998 the Company entered into an asset sale agreement (the
"Agreement") to sell up to $60 million of accounts receivable. In connection
with the Agreement, the Company sells, on a revolving basis, certain of its
trade receivables (the "Pooled Receivables") to a special purpose corporation,
which in turn sells a percentage ownership interest to third parties. These
transactions have been recorded as sales in accordance with FASB Statement No.
125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. At April 3, 1999, an interest in these Pooled
Receivables of approximately $22 million had been sold to third parties and is
reflected as a reduction to accounts receivable. The gross proceeds resulting
from the sale are included in cash flows from operating activities in the
Consolidated Statements of Cash Flows. Losses on these sales were immaterial.
NOTE D--INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
APRIL 3, 1999 SEPTEMBER 26, 1998
(in thousands)
<S> <C> <C> <C> <C>
Live chickens and hens $ 65,402 $ 61,295
Feed, eggs and other 49,084 46,199
Finished chicken products 57,768 34,190
$ 172,254 $ 141,684
NOTE E--LONG TERM DEBT
On March 30, 1999 the Company borrowed $15 million from an existing secured-
term borrowing facility at 7.07% interest payable in monthly installments
of approximately $138,000 plus one balloon payment at maturity on February 28,
2006.
1
<PAGE>
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES
April 3, 1999
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Profitability in the chicken industry can be materially affected by the
commodity prices of feed grains and the commodity prices of chicken and chicken
parts, each of which are determined largely by supply and demand. As a result,
the chicken industry as a whole has been characterized by cyclical earnings.
Cyclical fluctuations in earnings of individual chicken companies can be
mitigated somewhat by: (i) business strategy, (ii) product mix, (iii) sales
and marketing plans, and (iv) operating efficiencies. In an effort to reduce
price volatility and to generate higher, more consistent profit margins, the
Company has concentrated on the production and marketing of prepared food
products, which generally have higher margins than the Company's other
products. Additionally, the production and sale in the U.S. of prepared foods
products reduces the impact of feed grain costs on the Company's profitability.
As further processing is performed, feed grain costs become a decreasing
percentage of a product's total production costs.
As discussed in Note A to the Condensed Consolidated Financial Statements, the
Company's accounting cycle resulted in 27 weeks of operations in the first six
months of fiscal 1999 compared to 26 weeks in the first six months of 1998.
The following table presents certain information regarding the Company's U.S
and Mexico operations.
</TABLE>
<TABLE>
<CAPTION>
Net Sales Net Sales
<S> <C> <C> <C>
Three Months Ended Six Months Ended
April 3, 1999 March 28, 1998 April 3, 1999 March 28, 1998
(27 weeks) (26 weeks)
(In Thousands)
Sales to unaffiliated customers:
United States $273,362 $254,342 $540,316 $513,918
Mexico 56,531 70,104 125,666 148,415
Operating Income:
United States $ 21,741 $ 3,104 $ 40,482 $ 5,577
Mexico 3,551 8,294 10,996 21,192
</TABLE>
The following table presents certain items as a percentage of net sales for the
periods indicated.
<TABLE>
<CAPTION>
Percentage of Net Sales Percentage of Net Sales
Three Months Ended Six Months Ended
April 3, 1999 March 28, 1998 April 3, 1999 March 28, 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Sales 86.0% 91.7% 86.5% 91.5%
Gross Profit 14.0% 8.3% 13.5% 8.5%
Selling, General and
Administrative 6.4% 4.8% 5.8% 4.5%
Operating Income 7.7% 3.5% 7.7% 4.0%
Interest Expense 1.2% 1.6% 1.3% 1.5%
Income before Income
Taxes 6.6% 1.9% 6.5% 2.5%
Net Income 4.4% 2.1% 4.6% 2.7%
</TABLE>
Results of Operations
SECOND QUARTER 1999 COMPARED TO SECOND QUARTER 1998:
NET SALES. Consolidated net sales were $329.9 million for the second quarter
of fiscal 1999, an increase of $5.4 million, or 1.7% from the second quarter of
fiscal 1998. The increase in consolidated net sales resulted from a $18.4
million increase in U.S. chicken sales to $236.7 million offset partially by a
$13.6 million decrease in Mexico chicken sales to $56.5 million and a $0.6
million decrease of sales of other U.S. products to $36.7 million. The increase
in U.S. chicken sales was primarily due to a 7.7% increase in dressed pounds
produced and a 0.7% increase in total revenue per dressed pound. The higher
average selling prices resulted primarily from the continuing shift of the
Company's sales mix to the higher valued prepared foods products. The decrease
in Mexico chicken sales was primarily due to a 16.6% decrease in revenue per
dressed pound and a 3.3% decrease in dressed pounds sold.
COST OF SALES. Consolidated cost of sales was $283.6 million in the second
quarter of fiscal 1999, a decrease of $14.0 million, or 4.7% compared to the
second quarter of fiscal 1998. The decrease resulted primarily from an $8.6
million decrease in the cost of sales in Mexico operations and by a $5.4
million decrease in the cost of sales of U.S. operations. The $8.6 million cost
of sales decrease in Mexico operations was primarily due to a 10.1% decrease in
feed ingredient costs per pound and by a 3.3% decrease in dressed pounds
produced. The cost of sales decrease in U.S. operations of $5.4 million was due
to a 25.0% decrease in feed ingredient costs per pound, partially offset by a
7.7% increase in dressed pounds produced.
GROSS PROFIT. Gross profit was $46.3 million for the second quarter of fiscal
1999, an increase of $19.4 million, or 72.2% over the same period last year.
Gross profit as a percentage of sales increased to 14.0% in the second quarter
of fiscal 1999 from 8.3% in the second quarter of fiscal 1998. The increased
gross profit resulted primarily from lower feed ingredient costs per pound and
higher production volumes and selling prices in the U.S.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Consolidated selling, general
and administrative expenses were $21.0 million in the second quarter of fiscal
1999 and $15.5 million in the second quarter of fiscal 1998. Consolidated
selling, general and administrative expenses as a percentage of sales increased
in the second quarter of fiscal 1999 to 6.4% compared to 4.8% in the second
quarter of fiscal 1998 due to increased retirement and variable compensation
costs which are dependent upon U.S. profits, and higher administrative expense.
Operating Income. Consolidated operating income was $25.3 million for the
second quarter of
fiscal 1999, an increase of $13.9 million, or 121.9% when compared to the
second quarter of fiscal 1998, resulting primarily from lower feed ingredient
costs per pound and higher production volumes and selling prices in the U.S.
INTEREST EXPENSE. Consolidated net interest expense decreased to $4.1 million,
or 19.7% in the second quarter of fiscal 1999, when compared to $5.1 million
for the second quarter of fiscal 1998, due to lower average outstanding debt
levels.
INCOME TAX EXPENSE. Consolidated income tax expense in the second quarter of
fiscal 1999 increased to $7.0 million compared to a benefit of $.5 million in
the second quarter of fiscal 1998. This increase resulted from higher U.S.
earnings in the second quarter of fiscal 1999 than in the second quarter of
fiscal 1998.
SIX MONTHS ENDED APRIL 3, 1999 COMPARED TO
SIX MONTHS ENDED MARCH 28, 1998:
The Company's accounting cycle resulted in 27 weeks of operations in the first
six months of fiscal 1999 compared to 26 weeks in the first six months of
fiscal 1998.
NET SALES. Consolidated net sales were $666.0 million for the first six months
of fiscal 1999, an increase of $3.6 million, or .6% from the first six months
of fiscal 1998. The increase in consolidated net sales resulted from a $22.6
million increase in U.S. chicken sales to $459.5 million and a $3.8 million
increase of sales of other U.S. products to $80.8 million, offset partially by a
$22.7 million decrease in Mexico chicken sales to $125.7 million. The increase
in U.S. chicken sales was primarily due to a 7.2% increase in dressed pounds
produced partially offset by a 1.9% decrease in total revenue per dressed pound.
The decrease in Mexico chicken sales was primarily due to an 18.3% decrease in
revenue per dressed pound partially offset by a 3.7% increase in dressed pounds
sold.
COST OF SALES. Consolidated cost of sales was $575.8 million in the first six
months of fiscal 1999, a decrease of $30.3 million, or 5.0% compared to the
first six months of fiscal 1998. The decrease resulted primarily from a $17.7
million decrease in cost of sales of U.S. operations and a $12.6 million
decrease in the cost of sales in Mexico operations. The cost of sales decrease
in U.S. operations of $17.7 million was due to a 27.8% decrease in feed
ingredient costs per pound, partially offset by a 7.2% increase in dressed
pounds produced. The $12.6 million cost of sales decrease in Mexico operations
was primarily due to a 16.0% decrease in feed ingredient costs per pound,
offset partially by a 3.7% increase in dressed pounds produced.
GROSS PROFIT. Gross profit was $90.2 million for the first six months of
fiscal 1999, an increase of $33.9 million, or 60.3% over the same period last
year. Gross profit as a percentage of sales increased to 13.5% in the first
six months of fiscal 1999 from 8.5% in the first six months of fiscal 1998.
The increased gross profit resulted primarily from lower feed ingredient costs
per pound and higher production volumes and selling prices in the U.S.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Consolidated selling, general
and administrative expenses were $38.7 million in the first six months of
fiscal 1999 and $29.5 million in the first six months of fiscal 1998.
Consolidated selling, general and administrative expenses as a percentage of
sales increased in the first six months of fiscal 1999 to 5.8% compared to 4.5%
in the first six months of fiscal 1998 due to increased retirement and variable
compensation costs which are dependent upon U.S. profits, and higher
administrative expenses in the U.S.
Operating Income. Consolidated operating income was $51.5 million for the
first six months of fiscal 1999, an increase of $24.7 million, or 92.3% when
compared to the first six months of fiscal 1998, resulting primarily from lower
feed ingredient costs per pound and higher production volumes and selling
prices in the U.S.
INTEREST EXPENSE. Consolidated net interest expense decreased to $8.8 million,
or 12.9% in the first six months of fiscal 1999, when compared to $10.1 million
for the first six months of fiscal 1998, due to lower average outstanding debt
levels.
INCOME TAX EXPENSE. Consolidated income tax expense in the first six months of
fiscal 1999 increased to $12.6 million compared to a benefit of $1.4 million in
the first six months of fiscal 1998. This increase resulted from higher U.S.
earnings in the first six months of fiscal 1999 than in the first six months of
fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
At April 3, 1999, the Company's working capital increased to $150.7 million and
its current ratio increased to 2.36 to 1 compared with working capital of
$147.0 million and a current ratio of 2.32 to 1 at September 26, 1998.
Trade accounts and other receivables were $68.8 million at April 3, 1999, a
$13.0 million decrease from September 26, 1998. The 15.9% decrease was
primarily due to sales of accounts receivable to an unrelated financial
institution partially offset by increased Mexico VAT receivables and an
increase in sales of prepared foods products, which normally have longer credit
terms than fresh chicken sales.
Inventories were $172.3 million at April 3, 1999, compared to $141.7 million at
September 26, 1998. The $30.6 million, or 21.6% increase was due primarily to
increases in prepared foods inventories due to seasonal variations. Accounts
payable were $66.6 million at April 3, 1999, a $3.5 million decrease from
September 26, 1998. The 5.0% decrease was due to normal seasonal variations in
account's payables.
Capital expenditures for the first six months of fiscal 1999 were $38.8 million
and were primarily incurred to acquire and 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.
At April 3, 1999, the Company's stockholders' equity increased to $260.5
million from $230.9 million at September 26, 1998. Total debt to
capitalization decreased to 44.0% at April 3, 1999 compared to 47.1% at
September 26, 1998.
The Company currently has $70 million in revolving credit facilities and $30
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 one and three-quarters percent and are secured by inventory and
fixed assets, or are unsecured. As of May 12, 1999, $63.3 million was
available under the revolving credit facilities and $28.1 million was available
under the term borrowing facilities. At the end of the quarter, the Company
borrowed $15 million on a pre-existing secured-term borrowing facility, the
proceeds of which were used primarily to acquire additional production
facilities during the quarter.
On June 26, 1998 the Company entered into an asset sale agreement (the
"Agreement") to sell up to $60 million of accounts receivable. In connection
with the Agreement, the Company sells, on a revolving basis, certain of its
trade receivables (the "Pooled Receivables") to a special purpose corporation,
which in turn sells a percentage ownership interest to third parties. These
transactions have been recorded as sales in accordance with FASB Statement No.
125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. At April 3, 1999, an interest in these Pooled
Receivables of approximately $22 million had been sold to third parties and is
reflected as a reduction to accounts receivable. The gross proceeds resulting
from the sale are included in cash flows from operating activities in the
Consolidated Statements of Cash Flows. Losses on these sales were immaterial.
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 began assessment of its future business system requirements in
1996. As part of the Company's review, it determined that it would be required
to modify or replace portions of its software and hardware so that its computer
systems will function properly with respect to dates in the Year 2000 and
thereafter.
To date, the Company has tested the identified systems and updated those
systems in the U.S., including the software and hardware components deemed
necessary to insure the uninterrupted fulfillment of the Company's core
business processes as they relate to the timely, accurate, and quality
production and delivery of our products to our customers, the processing of
accounting information, and the associated processing and reporting of
information as required by our business partners, banks, and government
agencies. The Company is in the process of updating its systems in Mexico and
anticipates completing the remaining portion of its Year 2000 project by
October, 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.
The Company has reviewed Year 2000 disclosures of the packaged software
applications it uses to insure Year 2000 readiness. The suppliers of these
software products have provided some approach for the Company to insure
compliance of core software, either through program options, upgrades or new
products. Most of these solutions are already in place. Those remaining will
be implemented by the end of the third quarter 1999.
The Company regularly upgrades and replaces hardware platforms such as database
and application servers as well as its telephone systems. Currently all of the
Company's servers are Year 2000 ready and 100 percent of our core personal
computers are Year 2000 compliant. There are 18 core telephone switching
systems, all of which are Year 2000 ready.
The embedded technology in the production environment, such as programmable
logic controllers, computer-controlled values and other equipment, has been
inventoried. Equipment with Year 2000 data function requirements will be ready
by the end of the third quarter 1999.
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 has initiated 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. To date the significant suppliers, such
as fuel, electrical, water, rail, grain and container, have responded
favorably. We anticipate completion of vendor and customer assessments by the
end of the third quarter 1999. 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.
We have instituted a two-fold approach to Contingency Planning; technical and
business continuity. The technical contingency planning took place in
conjunction with the implementation of the Company's new information systems in
the U.S., and will continue through the third quarter of 1999 picking up the
non-core hardware and support technology in both the U.S. and Mexico. Business
contingency planning is currently underway and we anticipate this phase to be
materially complete in the third quarter of 1999.
The Company believes that its initiatives and its existing business recovery
plans are adequate to reasonably address 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.
FORWARD LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements made by or on behalf of the Company. 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 10Q 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, impact of
year 2000, 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.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
IMPACT OF MEXICO PESO EXCHANGE RATE
The Company's earnings are affected by foreign exchange rate fluctuations
related to the Mexico peso net monetary position of its Mexico subsidiaries.
The company primarily manages this exposure by attempting to minimize its
Mexico 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 Mexico
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 Mexico peso cannot be
reasonably estimated. Foreign currency exchange gains and losses, representing
the change in the U.S. dollar value of the net monetary assets of the Company's
Mexico subsidiaries, were a gain of $.3 million in the first six months of
fiscal 1999 and a loss of $1.1 million in the first six months of fiscal 1998.
On May 11, 1999, the Mexico peso closed at 9.28 to 1 U.S. dollar, strengthening
from 10.24 at September 26, 1998. No assurance can be given as to the future
valuation of the Mexico peso and how further movements in the peso could affect
future earnings of the Company.
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
The Company did not file any reports on Form 8-K during the three months ended
April 3, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PILGRIM'S PRIDE CORPORATION
/s/
Date 5/12/99 Richard A. Cogdill
Executive Vice President
Chief Financial Officer
Secretary and Treasurer
in his respective capacity as such
2
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-2-1999
<PERIOD-END> APR-3-1999
<CASH> 13052
<SECURITIES> 0
<RECEIVABLES> 68793
<ALLOWANCES> 3398
<INVENTORY> 172255
<CURRENT-ASSETS> 261281
<PP&E> 599099
<DEPRECIATION> 245803
<TOTAL-ASSETS> 626745
<CURRENT-LIABILITIES> 110595
<BONDS> 0
0
0
<COMMON> 276
<OTHER-SE> 260267
<TOTAL-LIABILITY-AND-EQUITY> 626745
<SALES> 665982
<TOTAL-REVENUES> 665982
<CGS> 575819
<TOTAL-COSTS> 614504
<OTHER-EXPENSES> (173)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8823
<INCOME-PRETAX> 43081
<INCOME-TAX> 12581
<INCOME-CONTINUING> 30500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30500
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 0
</TABLE>
