SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2000
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 A Common Stock, Par Value $0.01 New York Stock Exchange
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, and Class A Common Stock, $0.01 par value, held by non-
affiliates of the Registrant as of November 14, 2000, was $82,528,556 and
$26,104,778; respectively. 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 November 14, 2000.
13,523,429 shares of the Registrant's Class A Common Stock, $.01 par value,
were outstanding as of November 14, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's proxy statement for the annual meeting of
stockholders to be held January 31, 2001 are incorporated by reference into
Part III.
<PAGE>
PILGRIM'S PRIDE CORPORATION
FORM 10-K
TABLE OF CONTENTS
PART I
PAGE
Item 1. Business.............................................................4
Item 2. Properties..........................................................22
Item 3. Legal Proceedings...................................................24
Item 4. Submission of Matters to a Vote of Security Holders.................25
PART II
Item 5. Market for Registrant's Common Stock and Related Security Holder
Matters.............................................................26
Item 6. Selected Financial Data.............................................27
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition.................................................28
Item 7a.Quantitative and Qualitative Disclosures About Market Risk..........34
Item 8. Financial Statements and Supplementary Data (see Index to Financial
Statements and Schedules below).....................................36
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure................................................36
PART III
Item 10. Directors and Executive Officers of Registrant.....................37
Item 11. Executive Compensation.............................................37
Item 12. Security Ownership of Certain Beneficial Owners and Management.....37
Item 13. Certain Relationships and Related Transactions.....................37
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....37
Signatures..................................................................43
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Report of Ernst & Young LLP, Independent Auditors...........................45
Consolidated Balance Sheets as of September 30, 2000 and October 2, 1999....46
Consolidated Statements of Income for the years ended
September 30, 2000, October 2, 1999 and September 26, 1998..............47
Consolidated Statements of Stockholders' Equity for the years ended
September 30, 2000, October 2, 1999 and September 26, 1998..............48
Consolidated Statements of Cash Flows for the years ended
....September 30, 2000, October 2, 1999 and September 26, 1998..............49
Notes to Consolidated Financial Statements..................................50
Schedule II - Valuation and Qualifying Accounts for the years ended
September 30, 2000, October 2, 1999 and September 26, 1998..............58
PART I
ITEM 1. BUSINESS
GENERAL
Pilgrim's Pride Corporation (referred to herein as "the Company",
"we", "us", "our" and similar terms) 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. We are the fifth largest
producer of chicken in the United States and the second largest in Mexico.
Through vertical integration, we control the breeding, hatching and growing
of chickens and the processing, preparation, packaging and sale of our
product lines. Our U.S. operations, including U.S. produced chicken
products sold for export to Canada, Mexico, Eastern Europe, the Far East
and other world markets, accounted for 79.5% of our net sales in fiscal
2000. The remaining 20.5% of our net sales in fiscal 2000 arose from our
Mexico operations. In fiscal 2000, we sold 2.0 billion pounds of dressed
chicken and generated net sales of $1.5 billion, net income of $52.3
million and earnings before interest, taxes and depreciation ("EBITDA") of
$115.4 million. Pilgrim's Pride Corporation was incorporated in July 1968.
Our objectives are to increase sales, profit margins and earnings and
outpace the growth of the chicken industry. Key elements of our strategy
to achieve these objectives are to:
- CAPITALIZE ON ATTRACTIVE U.S. PREPARED FOODS MARKET. We
focus our U.S. growth initiatives on sales of prepared foods to
the foodservice market because this market segment continues to be
one of the fastest growing and most profitable segments in the
chicken industry. Products sold to this market segment require
further processing, which enables us to charge a premium for our
products and also reduces the impact of feed ingredient costs on
our profitability. Feed ingredient costs typically decrease from
approximately 30-50% of total production cost for fresh chicken
products to approximately 16-25% for prepared chicken products.
Our sales of prepared food products to the foodservice market grew
from $305.3 million in fiscal 1996 to $593.4 million in fiscal
2000, a compounded annual growth rate of 18.1%. In addition,
these sales increased as a percentage of our total U.S. chicken
revenues from 39.3% to 56.5% during the same five-year period.
- EMPHASIZE CUSTOMER-DRIVEN RESEARCH AND TECHNOLOGY. We have a
long-standing reputation for customer-driven research and
development in designing new products and implementing advanced
processing technology. This enables us to better meet our
customers' changing needs for product innovation, consistent
quality and cost efficiency. In particular, customer-driven
research and development is integral to our growth strategy for
the prepared foods market where customers continue to place
greater importance on value-added services. Our research and
development personnel often work directly with institutional
customers in developing products for these customers, which we
believe helps promote long-term relationships. Approximately
$114.4 million or 16.4% of our sales to foodservice customers in
fiscal 2000 consisted of products which we did not sell in fiscal
1996.
- ENHANCE U.S. FRESH CHICKEN PROFITABILITY THROUGH VALUE-ADDED,
BRANDED PRODUCTS. Our U.S. fresh chicken sales were $252.8 million
in fiscal 2000, or 24.1% of total U.S. chicken sales for the
period. In addition to maintaining the sales of mature,
traditional fresh chicken products, our strategy is to shift the
mix of our U.S. fresh chicken products by continuing to increase
sales of higher margin, faster growing products, such as marinated
chicken and chicken parts. Our fresh chicken products are sold
under the Pilgrim's Pride brand name, which is well known in many
southwestern markets for quality and freshness.
- IMPROVE OPERATING EFFICIENCIES AND INCREASE CAPACITY ON A
COST-EFFECTIVE BASIS. As production and sales have grown, we have
continued to focus on improving operating efficiencies by
investing in state-of-the-art technology, processes and training
and continuing to implement a total quality management program.
Specific initiatives include:
- STANDARDIZING LOWEST-COST PRODUCTION PROCESSES ACROSS OUR
VARIOUS FACILITIES;
- CENTRALIZING PURCHASING AND OTHER SHARED SERVICES; AND
- UPGRADING TECHNOLOGY WHERE APPROPRIATE.
WE ALSO MADE COST-EFFECTIVE ACQUISITIONS BOTH IN THE U.S. AND MEXICO
AND SUBSEQUENTLY INCREASED THE CAPACITY AND IMPROVED THE EFFICIENCY OF
THE ACQUIRED PROPERTIES. AS A RESULT, ACCORDING TO INDUSTRY DATA,
WE HAVE CONSISTENTLY BEEN ONE OF THE LOWEST COST PRODUCERS OF
CHICKEN IN THE U.S., AND WE ALSO BELIEVE WE ARE ONE OF THE LOWEST
COST PRODUCERS OF CHICKEN IN MEXICO.
In furtherance of this strategy, on September 27, 2000 the Company
announced that it had signed a definitive agreement to acquire all
the outstanding stock of WLR Foods, Inc. in a cash merger valued
at approximately $300 million, which includes the assumption
and/or refinancing of approximately $60 million of WLR Foods' debt
and other obligations (the "WLR Acquisition"). Pursuant to the
agreement, the Company will pay $14.25 for each outstanding share
of WLR Foods common stock. The merger is subject to customary
closing conditions, including the receipt of regulatory approval
and the approval of WLR Foods' shareholders, and is expected to be
completed during January 2001. See "Business--Recent
Developments" and "Management's Discussion and Analysis of Results
of Operations and Financial Condition--Recent Developments".
- CAPITALIZE ON THE GROWING MEXICAN MARKET. We seek to
leverage our leading market position and reputation for freshness
and quality in Mexico by focusing on the following four
objectives:
- TO BE ONE OF THE MOST COST-EFFICIENT PRODUCERS AND PROCESSORS
OF CHICKEN IN MEXICO BY APPLYING TECHNOLOGY AND EXPERTISE
UTILIZED IN THE U.S.;
- TO CONTINUALLY INCREASE OUR DISTRIBUTION OF HIGHER MARGIN,
MORE VALUE-ADDED PRODUCTS TO NATIONAL RETAIL STORES AND
RESTAURANTS;
- TO CONTINUE TO BUILD AND EMPHASIZE BRAND AWARENESS AND
CAPITALIZE ON THE MEXICAN CONSUMERS' PREFERENCE FOR BRANDED
PRODUCTS AND THEIR INSISTENCE ON FRESHNESS AND QUALITY; AND
- TO ENSURE THAT, AS MEXICAN TARIFFS ON IMPORTED CHICKEN ARE
ELIMINATED BY 2003, A SIGNIFICANT PORTION OF THE CHICKEN
IMPORTED FROM THE U.S. WILL BE DISTRIBUTED THROUGH OUR
EXISTING AND PLANNED DISTRIBUTION FACILITIES. THE LOCATION OF
OUR U.S. OPERATIONS IN THE SOUTHWEST GIVES US A STRATEGIC
ADVANTAGE TO CAPITALIZE ON ANY EXPORTS OF U.S. CHICKEN TO
MEXICO.
OUR CHICKEN PRODUCTS CONSIST PRIMARILY OF:
(1) PREPARED FOODS, WHICH ARE FOODS SUCH AS PORTION-CONTROLLED
BREAST FILLETS, TENDERLOINS AND STRIPS, FORMED NUGGETS AND PATTIES AND
BONE-IN CHICKEN PARTS. PREPARED FOODS ARE SOLD FROZEN AND MAY BE
EITHER FULLY COOKED, PARTIALLY COOKED OR RAW, BREADED OR NON-BREADED,
PRE-MARINATED OR NON-MARINATED.
(2) FRESH CHICKEN, WHICH IS REFRIGERATED (NON-FROZEN) WHOLE OR
CUT-UP CHICKEN SOLD TO THE FOODSERVICE INDUSTRY EITHER PRE-MARINATED
OR NON-MARINATED. FRESH CHICKEN ALSO INCLUDES 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 GROCER'S FRESH MEAT COUNTER.
(3) EXPORT AND OTHER PRODUCTS, WHICH ARE PARTS AND WHOLE CHICKEN,
EITHER REFRIGERATED OR FROZEN FOR U.S. EXPORT OR DOMESTIC USE.
(4) OUR MEXICO PRODUCTS PRIMARILY CONSIST OF VALUE-ADDED PRODUCTS
SUCH AS EVISCERATED CHICKEN AND CHICKEN PARTS AND BASIC PRODUCTS SUCH
AS NEW YORK DRESSED (WHOLE CHICKEN WITH ONLY FEATHERS AND BLOOD
REMOVED) AND LIVE BIRDS.
OUR CHICKEN PRODUCTS ARE PRIMARILY SOLD TO:
(1) FOODSERVICE CUSTOMERS, WHICH ARE CUSTOMERS SUCH AS CHAIN
RESTAURANTS, FROZEN ENTREE PRODUCERS, INSTITUTIONS AND
DISTRIBUTORS. WE SELL TO OUR FOODSERVICE CUSTOMERS PRODUCTS RANGING
FROM PORTION-CONTROLLED REFRIGERATED CHICKEN PARTS TO FULLY-COOKED AND
FROZEN, BREADED OR NON-BREADED CHICKEN PARTS OR FORMED PRODUCTS.
(2) RETAIL CUSTOMERS, WHICH ARE CUSTOMERS SUCH AS GROCERY STORE
CHAINS, RETAIL DISTRIBUTORS AND WHOLESALE CLUBS. WE SELL TO OUR
RETAIL CUSTOMERS BRANDED, PRE-PACKAGED CUT-UP AND WHOLE CHICKEN, AND
FRESH REFRIGERATED WHOLE CHICKENS AND CHICKEN PARTS IN TRAYS, BAGS OR
OTHER CONSUMER PACKS.
THE FOLLOWING TABLE SETS FORTH, FOR THE PERIODS SINCE FISCAL 1996, NET
SALES ATTRIBUTABLE TO EACH OF OUR PRIMARY PRODUCT LINES AND THE MARKETS
SERVED WITH THOSE PRODUCTS. WE BASED THE TABLE ON OUR INTERNAL SALES
REPORTS AND THEIR CLASSIFICATION OF PRODUCT TYPES AND CUSTOMERS.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
Sept. 30, Oct. 2, Sept. 26, Sept. 27, Sept. 28,
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(52 WEEKS) (53 WEEKS) (52 WEEKS) (52 WEEKS) (52 WEEKS)
(IN THOUSANDS)
U.S. Chicken Sales:
Prepared Foods:
Foodservice $ 593,354 $ 530,340 $ 420,396 $ 348,961 $ 305,250
Retail 48,059 28,254 46,400 42,289 43,442
Total Prepared Foods 641,413 558,594 466,796 391,250 348,692
Fresh Chicken:
Foodservice 103,803 125,395 145,297 174,103 145,377
Retail 148,977 161,180 162,283 153,554 141,876
Total Fresh
Chicken 252,780 286,575 307,580 327,657 287,253
Export and Other 156,194 118,327 139,976 142,030 140,614
Total U.S.
Chicken 1,050,387 963,496 914,352 860,937 776,559
Mexico 307,362 254,500 278,087 274,997 228,129
Total Chicken Sales 1,357,749 1,217,996 1,192,439 1,135,934 1,004,688
Sales of Other U.S.
Products 141,690 139,407 139,106 141,715 134,622
Total Net Sales $1,499,439 $1,357,403 $1,331,545 $1,277,649 $1,139,310
</TABLE>
UNITED STATES
The following table sets forth, since fiscal 1996, the percentage of our
net U.S. chicken sales attributable to each of our primary product lines and
the markets serviced with those products. We based the table and related
discussion on our internal sales reports and their classification of product
types and customers.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
Sept. 30, Oct. 2, Sept. 26, Sept. 27 Sept. 28,
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Chicken Sales:
Prepared Foods:
Foodservice 56.5 % 55.1 % 46.0 % 40.5 % 39.3 %
Retail 4.6 2.9 5.1 4.9 5.6
Total Prepared Foods 61.1 58.0 51.1 45.4 44.9
Fresh Chicken:
Foodservice 9.9 13.0 15.9 20.2 18.7
Retail 14.2 16.7 17.7 17.9 18.3
Total Fresh Chicken 24.1 29.7 33.6 38.1 37.0
Export and Other 14.8 12.3 15.3 16.5 18.1
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 2000, $641.4 million of our
net U.S. chicken sales were in prepared food products to foodservice and
retail, as compared to $348.7 million in fiscal 1996. These numbers reflect the
strategic focus for our growth. The market for prepared food products has
experienced, and we believe that this market will continue to experience,
greater growth and higher margins than fresh chicken products. Also, the
production and sale in the U.S. of prepared food products reduce the impact of
the costs of feed ingredients on our profitability. Feed ingredient purchases
are the single largest component of our cost of goods sold, representing
approximately 26.6% of our U.S. cost of goods sold in fiscal 2000. The
production of feed ingredients is positively or negatively affected primarily
by weather patterns throughout the world, the global level of supply
inventories and the agricultural policies of the United States and foreign
governments. As further processing is performed, feed ingredient costs become
a decreasing percentage of a product's total production cost, thereby reducing
their impact on our profitability.
We establish prices for our 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 set a price
according to formulas based on an underlying commodity market, subject in many
cases to minimum and maximum prices. Most fixed price contracts are set for
one year terms and are negotiated in the October to December time frame.
U.S. FRESH CHICKEN OVERVIEW. Our fresh chicken business is an important
component of our sales and were $252.8 million in fiscal 2000, or 24.1% of
total U.S. chicken sales for the period. In addition to maintaining sales of
mature, traditional fresh chicken products, our strategy is to shift the mix of
our U.S. fresh chicken products by continuing to increase sales of higher
margin, faster growing products, such as marinated chicken and chicken parts.
Most fresh chicken products are sold to established customers based upon
certain weekly or monthly market prices reported by the United States
Department of Agriculture ("USDA") and other public price reporting services,
plus a markup, which is dependent upon the customer's location, volume, product
specifications and other factors. We believe our practices with respect to
sales of fresh chicken are generally consistent with those of our 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. Our 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 fiscal 2000, approximately $40.4 million of these 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 our more value-added product lines.
MARKETS
U.S. FOODSERVICE. The majority of our U.S. chicken sales are derived from
products sold to the foodservice market. This market principally consists of
chain restaurants, frozen entree producers, institutions and distributors
located throughout the continental United States. We are the largest supplier
of chicken to Wendy's (TM), Jack-in-the-Box (TM) and
Stouffer's (TM) frozen entree operation. We are also a significant
supplier to KFC (TM) and Taco Bell (TM), and in 1998 began selling
chicken to Burger King (TM). We supply chicken products ranging from
portion-controlled refrigerated chicken parts to fully cooked and frozen,
breaded or non-breaded chicken parts or formed products.
We believe Pilgrim's Pride is well-positioned to be the primary or
secondary supplier to many national and international chain restaurants that
require multiple suppliers of chicken products. Additionally, we are well
suited to be the sole supplier for many regional chain restaurants. These
regional chain restaurants often offer better margin opportunities and a
growing base of business.
We believe we have significant competitive strengths 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 strengths, our sales to
the foodservice market from fiscal 1996 through fiscal 2000 grew at a
compounded annual growth rate of 11.5% and represented 58.5% of the U.S. net
sales in fiscal 2000. Based on industry data, we estimate that total industry
dollar sales to the foodservice market grew at a compounded annual growth rate
of 2.9% during the five calendar year period from 1995 to 1999. According to
the FOOD INSTITUTE REPORT, food expenditures on "food-away-from-home" are
estimated to increase by a 4.8% compounded annual growth rate from 1999 through
2010 as a result of the growth of quick service restaurants and the continuing
trend of consumers spending money on food-away-from-home rather than "food-at-
home". Food-away-from-home is projected by the FOOD INSTITUTE REPORT to
account for 53% of total food expenditures by 2010, as compared with 45% in
1998.
FOODSERVICE--PREPARED FOODS. The majority of our sales to the foodservice
market consist of prepared food products. Prepared food sales to the
foodservice market were $593.4 million in fiscal 2000 compared to $305.3
million in fiscal 1996, a compounded annual growth rate of approximately 18.1%.
We attribute 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 costs 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 our 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. We have been successful in our objective of
becoming the alternative supplier of choice by being the primary or
secondary prepared chicken supplier to many large foodservice companies
because:
- WE ARE VERTICALLY INTEGRATED, GIVING US CONTROL OVER OUR SUPPLY
OF CHICKEN AND CHICKEN PARTS;
- OUR 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
- WE HAVE 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, we have increasingly become the principal
supplier to mid-sized foodservice organizations.
FIFTH, our in-house product development group follows a customer-driven
research and development focus designed to develop new products to meet
customers' changing needs. Our research and development personnel often
work directly with institutional customers in developing products for
these customers. Approximately $114.4 million or 16.4% of our sales to
foodservice customers in fiscal 2000 consisted of new products which were
not sold by us in fiscal 1996.
SIXTH, we are a leader in utilizing advanced processing technology, which
enables us to better meet our customers' needs for product innovation,
consistent quality and cost efficiency.
FOODSERVICE--FRESH CHICKEN. We produce and market 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, and are usually pre-cut to customer specifications.
They are often marinated to enhance value and product differentiation. By
growing and processing to customers' specifications, we are 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. We concentrate our efforts in this market on
sales of branded, prepackaged cut-up and whole chicken to grocery chains and
retail distributors in the midwestern, southwestern and western regions of the
United States. This regional marketing focus enables us 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, we have invested in both trade and
retail marketing designed to establish high levels of brand name awareness and
consumer preferences within these markets.
We utilize 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. Our founder,
Lonnie "Bo" Pilgrim, is the featured spokesman in our television, radio and
print advertising, and a trademark cameo of a person in a Pilgrim's hat serves
as the logo on all of our primary branded products. As a result of this
marketing strategy, Pilgrim's Pride is a well-known brand name in several
southwestern markets, including in Dallas/Fort Worth, Houston and San Antonio,
Texas; Oklahoma City, Oklahoma; Denver, Colorado; Phoenix, Arizona; and Los
Angeles and San Diego, California. We believe our efforts to achieve and
maintain brand awareness and loyalty help to provide more secure distribution
for our products. We also believe our efforts at brand awareness generate
greater price premiums than would otherwise be the case in certain southwestern
markets. We also maintain an active program to identify consumer preferences.
The program primarily consists of testing new product ideas, packaging designs
and methods through taste panels and focus groups located in key geographic
markets.
RETAIL--PREPARED FOODS. We market consumer carton and bagged products to
major grocery stores and wholesale club chains throughout the U.S., Mexico and
Puerto Rico. Being a leader in this market channel is an important part of our
overall marketing strategy and we believe our growth in this segment will
continue to increase as the consumer demands more convenient chicken offerings.
RETAIL--FRESH CHICKEN. Our 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 retail
grocer's fresh meat counter. We believe 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.
EXPORT AND OTHER CHICKEN. Our 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, we have de-emphasized our 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. We also sell U.S.-produced chicken products
for export to Canada, Mexico, Eastern Europe, the Far East and other world
markets. Due to U.S. consumers' preference for a chicken's white meat, the
U.S. chicken industry has traditionally targeted international markets to
generate sales for a chicken's dark meat. We have also begun selling prepared
food products for export to the international divisions of our U.S. chain
restaurant customers. We believe that U.S. chicken exports will continue to
grow as worldwide demand for high-grade, low-cost protein sources increases.
We also believe that worldwide demand for higher margin prepared food products
will increase over the next five years. Accordingly, we believe we are well
positioned to capitalize on such growth.
OTHER U.S. PRODUCTS. We market 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. We have a housing capacity for approximately 2.3 million commercial egg
laying hens which can produce approximately 42 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 54% of the total number of egg
laying hens in service during 1999. We compete with other U.S. egg producers
primarily on the basis of product quality, reliability, price and customer
service. According to an industry publication, Pilgrim's Pride is the thirty-
seventh largest producer of eggs in the United States.
In 1997, we introduced a high-nutrient egg called EggsPlus (TM).
This egg contains high levels of Omega-3 and Omega-6 fatty acids along with
Vitamin E, making it a heart-friendly product. EggsPlus (TM) comes from
hens fed a unique diet of natural grains and flax-seed rich in Essential Fatty
Acids. They are also fed a patented blend of natural antioxidants to help
increase the nutritional quality of EggsPlus (TM). This allows the hens
to produce fresh eggs containing six times more Vitamin E than ordinary eggs.
Our marketing of EggsPlus (TM) has received national recognition for our
progress in being an innovator in the "functional foods" category.
EggsPlus (TM) are sold in the southwest markets of Dallas, Houston,
Oklahoma City and New Orleans as well as in Arizona and California.
We also convert chicken by-products into protein products primarily for
sale to manufacturers of pet foods. In addition, we produce and sell livestock
feeds at our feed mills in Pittsburg and Mt. Pleasant, Texas and at our farm
supply store in Pittsburg, Texas to dairy farmers and livestock producers in
northeastern Texas.
TOTAL QUALITY MANAGEMENT AND PRODUCTIVITY IMPROVEMENTS. Beginning in
1991, we implemented a total quality management program to increase the
emphasis by all of our employees on maintaining the highest quality products
and lowest cost production. The successful implementation of these initiatives
for a company of our size and with the number of employees we have usually
takes several years. As this new management culture has become more entrenched
within Pilgrim's Pride, we have begun to experience significant gains resulting
from these efforts. For example, cross-geographical business process teams
have been formed and are producing significant gains in performance
characteristics. The gains range from waste reductions to process yield
improvements resulting in an estimated annualized cost savings in excess of
$17.0 million. Additionally, in fiscal 2000, centralizing purchasing and
combining our purchasing power across company locations has successfully
reduced the cost of procured materials by more than an estimated $4.0 million.
We have also employed new technology to consolidate administrative support
activities such as accounts payable processing, treasury management and
accounts receivable management. This consolidation has reduced the transaction
costs of providing these services.
MEXICO
BACKGROUND
The Mexican market represented approximately 20.5% of our net sales in
fiscal 2000. We entered the Mexican market in 1979 by seasonally selling eggs
to the Mexican government. Recognizing favorable long-term demographic trends
and improving economic conditions in Mexico, we began exploring opportunities
to produce and market chicken in Mexico. In fiscal 1988, we acquired four
vertically integrated chicken production operations in Mexico for approximately
$15.1 million. From fiscal 1988 through fiscal 2000, we made acquisitions and
capital expenditures in Mexico totaling $211.1 million to expand and improve
these operations. As a result of these expenditures, we have increased weekly
production in our Mexican operations by over 400% since our original investment
in fiscal 1988. We are now the second largest producer of chicken in Mexico.
We believe our facilities are among the most technologically advanced in Mexico
and that we are 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. Our strategy is to lead this
trend. The products currently sold by us in Mexico consist primarily of value-
added products such as eviscerated chicken and chicken parts and basic products
such as New York dressed (whole chickens with only feathers and blood removed)
and live birds. We have increased our sales of value-added products, primarily
through national retail chains and restaurants, and it is our business strategy
to continue to do so. In addition, we remain opportunistic, utilizing our low
cost production to enter markets where profitable opportunities exist. For
example, we have increased our sales of live birds since 1994, as many smaller
producers exited this segment of the business as a result of the recession in
Mexico in 1995 and 1996.
MARKETS
We sell our Mexico chicken products primarily to large wholesalers and
retailers. Our 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.
RECENT DEVELOPMENTS
On September 27, 2000, the Company announced that it had signed a
definitive agreement to acquire all the outstanding stock of WLR Foods, Inc. in
a cash merger valued at approximately $300 million, which includes the
assumption and/or refinancing of approximately $60 million of WLR Foods' debt
and other obligations. Pursuant to the agreement, the Company will pay $14.25
for each outstanding share of WLR Foods common stock. The merger is subject to
customary closing conditions, including the receipt of regulatory approval and
the approval of WLR Foods' shareholders, and is expected to be completed during
January 2001. The Company intends to finance the transaction with existing
cash and borrowings under its existing financing facilities.
WLR Foods is an integrated provider of turkey and chicken products
marketed primarily under the Wampler Foods brand. It is nationally ranked as
the fourth largest turkey company and the seventh largest poultry food
processor by sales volume. WLR Foods employs approximately 7,000 employees.
It has seven poultry processing facilities, one further processing facility,
two grow-out facilities and a sales and marketing office and corporate office,
located in Virginia, North Carolina, West Virginia and Pennsylvania. WLR Foods
markets branded and private label poultry products to retailers, fast food
operators, food service and institutional customers throughout the United
States with an emphasis on the East Coast. Export sales currently represent
approximately 11% of sales. Pilgrim's Pride does not presently own any turkey-
related facilities or operate in the turkey business and intends to evaluate
the turkey business and its options with respect thereto.
COMPETITION
The chicken industry is highly competitive and some of our competitors
have greater financial and marketing resources than we do. In the United
States and Mexico, we compete principally with other vertically integrated
chicken companies.
In general, the competitive factors in the U.S. chicken industry include
price, product quality, product development, 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, we believe 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. We believe we have significant,
long-term cost and quality advantages over non-vertically integrated further
processors.
In Mexico, where product differentiation has traditionally been limited,
product quality and price have been 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 those tariffs by January 1, 2003. As those tariffs are reduced,
increased competition from chicken imported into Mexico from the U.S. may have
a material adverse effect on the Mexican chicken industry in general, or on our
Mexican operations in particular.
While the extent of the impact of the elimination of tariffs is uncertain,
we believe we are uniquely positioned to benefit from this elimination for two
reasons. First, we have an extensive distribution network in Mexico which
distributes products to 19 of the 32 Mexican states, encompassing approximately
74% of the total population of Mexico. We believe this distribution network
will be an important asset in distributing our own U.S.-produced chicken.
Second, we have the largest U.S. production and distribution capacities near
the Mexican border, which will provide us with cost advantages in exporting
U.S. chicken into Mexico. These facilities include our processing facilities in
Mt. Pleasant, Pittsburg, Lufkin, Nacogdoches, Dallas and Waco, Texas, and
distribution facilities in San Antonio and El Paso, Texas and Phoenix, Arizona.
OTHER ACTIVITIES
We have regional distribution centers located in Arlington, El Paso, Mt.
Pleasant and San Antonio, Texas; Phoenix, Arizona; and Oklahoma City, Oklahoma.
These facilities distribute our own poultry products along with certain poultry
and non-poultry products purchased from third parties to independent grocers
and quick service restaurants. Our non-poultry distribution business is
conducted as an accommodation to our customers and to achieve greater economies
of scale in distribution logistics. The store-door delivery capabilities for
our 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, including provisions relating to the
discharge of materials into the environment, by the Centers for Disease
Control, the USDA, the Food and Drug Administration ("FDA") and the
Environmental Protection Agency in the United States and by similar
governmental agencies in Mexico. Our 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 our feed mills in the U.S. Our 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 our predecessor in 1946, compliance with applicable
regulations has not had a material adverse effect upon our earnings or
competitive position and such compliance is not anticipated to have a
materially adverse effect in the future. We believe that we are in substantial
compliance with all applicable laws and regulations relating to the operations
of our facilities.
We anticipate increased regulation by the USDA concerning food safety, by
the FDA concerning the use of medications in feed and by the Texas Natural
Resources and Conservation Commission, the Arkansas State Veterinarian Office
and the EPA concerning the disposal of chicken by-products and wastewater
discharges. Although we do not anticipate any regulations having a material
adverse effect upon us, we can give no assurance that such regulations will not
have such a material adverse effect.
On February 9, 2000, the U.S. Department of Labor ("DOL") began a
nationwide audit of wage and hour practices in the chicken industry. The DOL
has audited 51 chicken plants, three of which are owned by the Company. The
DOL audit is examining pay practices relating to both processing plant and
catching crew employees and includes practices which are the subject of
Anderson v. Pilgrim's Pride discussed in Item 3. Legal Proceedings. The
Company expects to have a closing conference with the DOL before April of 2001.
EMPLOYEES AND LABOR RELATIONS
As of November 17, 2000 we employed approximately 11,300 persons in the
U.S. and 4,100 persons in Mexico. Approximately 2,000 employees at our Lufkin
and Nacogdoches, Texas facilities are members of collective bargaining units
represented by the United Food and Commercial Workers Union. None of our other
U.S. employees have union representation. Collective bargaining agreements with
the United Food and Commercial Workers Union expire on August 10, 2001 with
respect to our Lufkin employees and on October 6, 2001 with respect to our
Nacogdoches employees. We believe that the terms of each of these agreements
are no more favorable than those provided to our non-union U.S. employees. In
Mexico, most of our hourly employees are covered by collective bargaining
agreements, as most employees in Mexico are. We have not experienced any work
stoppage since a two-day work stoppage at our Lufkin, Texas facility in May
1993, and we believe our relations with our employees are satisfactory.
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, the statements included in
Management's Discussion and Analysis of Results of Operations and Financial
Condition, the Business Section and elsewhere in this Form 10-K are 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 ingredients and chicken, the Company's 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,
the impact of uncertainties of litigation as well as other risks described in
the Company's filings with the Securities and Exchange Commission ("SEC"). 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 and other disclosures in the Company's SEC filings.
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is certain information relating to our current directors
and executive officers:
NAME AGE POSITION(S)
Lonnie "Bo" Pilgrim (1) 72 Chairman of the Board
Clifford E. Butler 58 Vice Chairman of the Board
David Van Hoose 59 Chief Executive Officer
President
Chief Operating Officer
Director
(Principal Executive Officer)
Richard A. Cogdill 40 Executive Vice President
Chief Financial Officer
Secretary and Treasurer
Director
(Principal Financial and Accounting Officer)
O.B. Goolsby, Jr. 53 Executive Vice President
Prepared Foods Complexes
Robert L. Hendrix 64 Executive Vice President
Growout and Processing
Alejandro M. Mann 40 Executive Vice President
Mexico Operations
Michael J. Murray 42 Executive Vice President
Sales and Marketing and Distribution
Ray Gameson 52 Senior Vice President
Human Resources
David Hand 43 Senior Vice President
Sales and Marketing
Retail and Fresh Products
<PAGE>
Michael D. Martin 46 Senior Vice President
Complex Manager
DeQueen and Nashville
Arkansas Complex
James J. Miner, Ph.D. 72 Senior Vice President
Technical Services
Robert N. Palm 57 Senior Vice President
Complex Manager
Lufkin/Nacogdoches and Center
Texas Complex
Lonnie Ken Pilgrim (1) 42 Senior Vice President
Director of Transportation
Director
Charles L. Black (1) (2) 71 Director
S. Key Coker (2) 43 Director
Vance C. Miller (1) (2) 66 Director
James G. Vetter, Jr. (1) (2) 66 Director
Donald L. Wass, Ph.D. (1) (2) 68 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 Pilgrim's Pride in July 1968. He was previously Chief Executive
Officer from July 1968 to June 1998. Prior to the incorporation of Pilgrim's
Pride, Mr. Pilgrim was a partner in its predecessor partnership business
founded in 1946.
CLIFFORD E. BUTLER serves as Vice Chairman of the Board. He joined us 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 in January 1997 and served in such capacity
through July 1998. He continues to serve as Vice Chairman of the Board.
DAVID VAN HOOSE serves as Chief Executive Officer, President and Chief
Operating Officer, (Principal Executive Officer) of Pilgrim's Pride. He became
a Director in July 1998. 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 us 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, (Principal Financial and Accounting Officer)
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 Complexes from April 1986 to August 1992. He was previously employed by
us from November 1969 to January 1981.
ROBERT L. HENDRIX has been Executive Vice President, Grow-Out and
Processing, of Pilgrim's Pride since March 1994. He was a Director 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. He was President and Chief Operating Officer of Pilgrim's Pride from
July 1983 to September 1988. He joined us as Senior Vice President in September
1981 when Pilgrim's Pride acquired Mountaire Corporation of DeQueen, Arkansas,
and, prior thereto, he was Vice President of Mountaire Corporation.
ALEJANDRO M. MANN has served as Executive Vice President, Mexico
Operations since October 1, 2000. Previously, he was Vice-President of Finance
and Processing Plants, Mexico Operations from January 2000 to September 2000.
He was employed as Director of Finance, Mexico Operations from August 1995 to
December 1999 and from November 1993 to July 1995 as Director of Internal Audit
for the U.S. and Mexico Operations at the corporate headquarters. From August
1989 to October 1993, he was employed by Central Soya Inc.
MICHAEL J. MURRAY has been Executive Vice President, Sales and Marketing
and Distribution since June 1998. He previously served as Senior Vice
President, Sales and Marketing, Prepared Foods from October 1994 to June 1998
and as Vice President of Sales and Marketing, Foodservice 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 us as a Vice President for
sales and marketing and prior thereto, he was employed by Tyson Foods, Inc.
RAY GAMESON has been Senior Vice President, Human Resources since October
1994. He previously served as Vice President of Human Resources beginning in
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 us as Complex Human Resource, Manager, at our 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 Pilgrim's Pride 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, Complex Manager,
DeQueen, Arkansas Complex since April 1993. He previously served as
Plant Manager at our Lufkin, Texas operations and Vice President, Processing,
at our 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 Pilgrim's Pride 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, Complex Manager, Lufkin,
Nacogdoches and Center, Texas Complex 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 as the Vice President, Director of Transportation. He has been a 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 Pilgrim's Pride from 1968 to
August 1992 and has served as a Director since his re-election in February
1995.
S. KEY COKER, is Senior Vice President of Compass Bank, a $20 billion
dollar bank with offices throughout the southern United States. He currently
manages the Corporate Banking Division for the Dallas Region. He is a career
banker with 21 years of experience in banking. He was elected a director of
the Company in September 2000.
VANCE C. MILLER 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 shareholder of the Dallas law firm of Godwin, White & Gruber, P.C., (formerly
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.
<PAGE>
ITEM 2. PROPERTIES
BREEDING AND HATCHING
We supply all of our chicks in the U.S. by producing our own hatching eggs
from domestic breeder flocks in the U.S. These flocks are owned by us, and
approximately 18.0% of them are maintained on 41 company-owned breeder farms.
In the U.S., we currently own or contract for approximately 10.8 million square
feet of breeder housing on approximately 282 breeder farms. In Mexico, all of
our breeder flocks are maintained on company-owned farms totaling approximately
3.3 million square feet.
We own eight hatcheries in the United States. These hatcheries are
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 our vehicles to grow-out farms. Our eight
hatcheries in the U.S. have an aggregate production capacity of approximately
10.6 million chicks per week. In Mexico, we own seven hatcheries, which have
an aggregate production capacity of approximately 3.5 million chicks per week.
GROW-OUT
We place our U.S. grown chicks on contract grow-out farms located in
Texas, Arkansas and Oklahoma, some of which are owned by our affiliates. These
contract grow-out farms contain approximately 4,400 chicken houses with
approximately 58.4 million square feet of growing facilities. Additionally, we
own and operate grow-out farms containing approximately 390 chicken houses with
approximately 4.4 million square feet of growing facilities in the U.S., which
account for approximately 7.1% of our total annual U.S. chicken capacity. On
the contracted grow-out farms, the farmers provide the facilities, utilities
and labor; we supply 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, we place our grown chicks on contract grow-
out farms containing approximately 884 chicken houses with approximately 11.9
million square feet of growing facilities. Additionally, we own and operate
grow-out farms containing approximately 507 chicken houses with approximately
7.7 million square feet of growing facilities in Mexico, which account for
approximately 39.3% of our total annual Mexican chicken capacity. Arrangements
with independent farmers in Mexico are similar to our 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 quality and composition of the feed is
critical to the conversion rate. Accordingly, we formulate and produce our own
feed. We purchase feed ingredients on the open market. The primary feed
ingredients include corn, milo and soybean meal, which historically have been
the largest components of our total production costs. In the U.S., we operate
seven feed mills located in Nacogdoches, Mt. Pleasant, Tenaha and Pittsburg,
Texas and Nashville and Hope, Arkansas. In the U.S., we currently have annual
feed requirements of approximately 2.3 million tons and the capacity to produce
approximately 3.6 million tons. We own four feed mills in Mexico, which produce
all of the requirements of our Mexico operations. Mexico's annual feed
requirements are approximately 0.7 million tons with a capacity to produce
approximately 1.0 million tons. In fiscal 2000, approximately 68% of the feed
ingredients used by us in Mexico were imported from the United States, but this
percentage fluctuates based on the availability and cost of local feed
ingredient supplies.
PROCESSING
Once the chickens reach processing weight, they are transported in our
trucks to our processing plants. These plants utilize modern, highly automated
equipment to process and package the chickens. We periodically review possible
application of new processing technologies in order to enhance productivity and
reduce costs. Our 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 USDA
inspection procedures, to slaughter approximately 8.5 million head of chicken
per week, assuming a five-day work week. Our three processing plants located
in Mexico have the capacity to slaughter approximately 3.3 million head of
chicken per week, assuming a six-day work week, which is typical in Mexico.
PREPARED FOODS PLANT
Our prepared foods plant in Mt. Pleasant, Texas was constructed in 1986
and has been 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, we could add additional shifts during
the seventh day of the week. We constructed a new prepared foods facility at
our Dallas, Texas location during fiscal 1998. The Dallas, Texas facility is
functionally equivalent to the Mt. Pleasant, Texas facility. We acquired a
prepared foods plant in Waco, Texas from Plantation Foods, Inc. during fiscal
1999. The Waco, Texas facility has undergone two significant expansions since
acquisition and is functionally equivalent to the Mt. Pleasant and Dallas,
Texas facilities.
EGG PRODUCTION
We produce table eggs at three farms near Pittsburg, Texas. One farm is
owned by us, while two farms are operated under contract by an entity owned by
our major stockholder. 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 1.9 million hens.
OTHER FACILITIES AND INFORMATION
We operate a rendering plant located in Mt. Pleasant, Texas. The rendering
plant currently processes by-products from approximately 8.9 million chickens
weekly into protein products. These products are used in the manufacture of
chicken and livestock feed and pet foods. We operate a commercial feed mill in
Mt. Pleasant, Texas which produces various bulk and sacked livestock feed,
which are sold to area dairies, ranches and farms. We also operate a feed
supply store in Pittsburg, Texas, from which we sell various bulk and sacked
livestock feed products, a majority of which is produced in our Mt. Pleasant,
Texas commercial feed mill. We own an office building in Pittsburg, Texas,
which houses our executive offices, and an office building in Mexico City,
which houses our Mexican marketing offices.
Substantially all of our U.S. property, plant and equipment is pledged as
collateral on our secured debt.
ITEM 3. LEGAL PROCEEDINGS
On March 23, 1999, the Company is a plaintiff in two antitrust lawsuits in
U.S. District Court in Washington, D.C. alleging a world-wide conspiracy to
control production capacity and raise prices of common vitamins such as A, B-4,
C and E. The suit alleged that, Roche Holding, Ltd. Affiliates Hoffmann-
LaRoche Inc., Roche Vitamins Inc. and F. Hoffman-LaRoche, Ltd.; Rhone-Poulenc
SA; BASF AG and the German chemical company's U.S. unit, BASF Corp.; Eisai Co.;
Takeda Chemical Industries Ltd.; and Merck KgaA conspired to control production
of vitamins A, C and E. In a separate suit, the Company contended that Chinook
Group Ltd., DuCoa LP, DCV Inc. and various individuals tried to monopolize the
vitamin B-4 market. On November 3, 1999, a settlement, which was entered into
as part of a class action lawsuit, to which the Company was a member was agreed
to among the defendants and the class, which would provide for a recovery of
between 18-20% of vitamins purchased from the defendants from 1990 through
1998. On March 28, 2000, the judge presiding over the case accepted the
negotiated settlement between the parties; however, appeals from various
sources are in process. The Company has filed documentation showing that
vitamin purchases made during the recovery period totaled approximately $14.9
million. Based on information the Company has received to date, it is
anticipated that the majority of the recovery will occur upon resolution of the
appeals process, which is expected before the end of fiscal 2001.
In January of 1998, seventeen current and/or former employees of the Company
filed the case of "Octavius Anderson, et al. v. Pilgrim's Pride Corporation" in
the United States District Court for the Eastern District of Texas, Lufkin
Division, claiming the Company violated requirements of the Fair Labor
Standards Act. The suit alleges the Company failed to pay employees for all
hours worked. The suit generally alleges that (i) employees should be paid for
time spent to put on, take off, and clean certain personal gear at the
beginning and end of their shifts and breaks and (ii) the use of a master time
card or production "line" time fails to pay employees for all time actually
worked. Plaintiffs seek to recover unpaid wages plus liquidated damages and
legal fees. Approximately 1,700 consents to join as plaintiffs have been filed
with the court by current and/or former employees. It is anticipated that a
trial date will be set in February of 2001. The Company believes it has
substantial defenses to the claims made and intends to vigorously defend the
case. However, neither the likelihood of an unfavorable outcome nor the amount
of ultimate liability, if any, with respect to this case can be determined at
this time. The Company does not expect these matters, individually or
collectively, to have a material impact on its financial position or liquidity.
Substantially similar suits have been filed against four other integrated
chicken companies, including WLR Foods.
THE COMPANY IS SUBJECT TO VARIOUS OTHER 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
QUARTERLY STOCK PRICES AND DIVIDENDS
High and low sales prices of and dividends on the Company's Class B and
Class A common stock for the periods indicated (as adjusted for the
June 30, 1999 stock dividend referred to in Note F of the Consolidated
Financial Statements) were:
<TABLE>
<CAPTION>
Prices Prices
2000 1999 DIVIDENDS
QUARTER HIGH LOW HIGH LOW 2000 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class B Common Stock
First $9 $6 1/4 $16 11/16 $11 5/16 $.01 $.01
Second 8 9/16 6 1/4 15 7/8 10 9/16 .01 .01
Third 8 5/16 6 3/4 20 9 7/8 .01 .01
Fourth 7 13/16 6 5/8 16 5/16 6 1/4 .01 .01
Class A Common Stock
First 7 4 5/8 N/A N/A .01 N/A
Second 6 5/8 4 1/2 N/A N/A .01 N/A
Third 6 1/8 4 1/16 N/A N/A .01 N/A
Fourth(1) $5 11/16 $4 13/16 $14 3/4 $ 4 5/8 $.01 $.01
</TABLE>
(1) ON JULY 2, 1999, THE COMPANY'S BOARD OF DIRECTORS DECLARED A DIVIDEND
OF ONE SHARE OF THE COMPANY'S CLASS A COMMON STOCK FOR EVERY TWO
SHARES OF THE COMPANY'S CLASS B COMMON STOCK. THE ADDITIONAL SHARES
WERE ISSUED ON JULY 30, 1999. THE PRICES LISTED ABOVE ARE ADJUSTED TO
REFLECT SUCH DIVIDEND. PLEASE REFER TO NOTE F OF THE CONSOLIDATED
FINANCIAL STATEMENTS FOR MORE INFORMATION REGARDING THE STOCK
DIVIDEND.
THE COMPANY'S CLASS B COMMON STOCK (TICKER SYMBOL "CHX") AND CLASS A COMMON
STOCK (TICKER SYMBOL "CHX.A") ARE TRADED ON THE NEW YORK STOCK EXCHANGE. THE
COMPANY ESTIMATES THERE WERE APPROXIMATELY 15,400 AND 14,500 HOLDERS
(INCLUDING INDIVIDUAL PARTICIPANTS IN SECURITY POSITION LISTINGS) OF THE
COMPANY'S CLASS B AND CLASS A COMMON STOCK, RESPECTIVELY, AS OF NOVEMBER 14,
2000. SEE NOTE F--COMMON STOCK, OF THE NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS FOR ADDITIONAL DISCUSSION OF THE COMPANY'S COMMON STOCK.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
Selected Financial Data
Pilgrim's Pride Corporation
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA) TEN YEARS ENDED SEPTEMBER 30, 2000
2000 1999(a) 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales $1,499,439 $1,357,403 $1,331,545 $1,277,649 $1,139,310
Gross margin 165,828 185,708 136,103 114,467 70,640
Operating income (loss) 80,488 109,504 77,256 63,894 21,504(b)
Income (loss) before
income taxes and
extraordinary charge 62,786 90,904 56,522 43,824 47
Income tax expense
(benefit) (C) 10,442 25,651 6,512 2,788 4,551
Income (loss) before
extraordinary charge 52,344 65,253 50,010 41,036 (4,504)
Extraordinary charge-
early repayment of
debt, net of tax - -- -- -- (2,780)
Net income (loss) 52,344 65,253 50,010 41,036 (7,284)
Per Common Share Data:(d)
Income (loss) before
extraordinary charge $ 1.27 $ 1.58 $ 1.21 $ 0.99 $ (0.11)
Extraordinary charge
early repayment of debt -- -- -- -- (0.07)
Net income (loss) 1.27 1.58 1.21 0.99 (0.18)
Cash dividends 0.06 0.045 0.04 0.04 0.04
Book value 8.33 7.11 5.58 4.41 3.46
Balance Sheet Summary:
Working capital $124,531 $154,242 $147,040 $133,542 $88,455
Total assets 705,420 655,762 601,439 579,124 536,722
Notes payable and
current maturities of
long-term debt 4,657 4,353 5,889 11,596 35,850
Long-term debt, less
current maturities 165,037 183,753 199,784 224,743 198,334
Total stockholders'
equity 342,559 294,259 230,871 182,516 143,135
Key Indicators (as a percentage of net sales):
Gross margin 11.1% 13.7% 10.2% 9.0% 6.2%
Selling, general and
administrative
expenses 5.7% 5.6% 4.4% 4.0% 4.3%
Operating income (loss) 5.4% 8.1% 5.8% 5.0% 1.9%
Interest expense, net 1.2% 1.3% 1.5% 1.7% 1.9%
Net income (loss) 3.5% 4.8% 3.8% 3.2% (0.6%)
(In thousands, except per share data:) Ten years Ended September 30, 2000
1995 1994 1993(a) 1992 1991
Income Statement Data:
Net sales $931,806 $922,609 $887,843 $817,361 $786,651
Gross margin 74,144 110,827 106,036 32,802 75,567
Operating income (loss) 24,930(b) 59,698 56,345 (12,475) 31,039
Income (loss) before
income taxes and
extraordinary charge 2,091 42,448 32,838 (33,712) 12,235
Income tax expense
(benefit) (c) 10,058 11,390 10,543 (4,048) (59)
Income (loss) before
extraordinary charge (7,967) 31,058 22,295 (29,664) 12,294
Extraordinary charge-
early repayment of
debt, net of tax -- -- (1,286) -- --
Net income (loss) (7,967) 31,058 21,009 (29,664) 12,294
Per Common Share Data:(d)
Income (loss) before
extraordinary charge $ (0.19) $ 0.75 $ 0.54 $ (0.83) $ 0.36
Extraordinary chrge-
early repayment of debt -- -- (0.03) -- --
Net income (loss) (0.19) 0.75 0.51 (0.83) 0.36
Cash dividends 0.04 0.04 0.02 0.04 0.04
Book value 3.67 3.91 3.20 2.71 2.72
Balance Sheet Summary:
Working capital $ 88,395 $ 99,724 $ 72,688 $ 11,227 $ 44,882
Total assets 497,604 438,683 422,846 434,566 428,090
Notes payable and
current maturities of
long-term debt 18,187 4,493 25,643 86,424 44,756
Long-term debt, less
current maturities 182,988 152,631 159,554 131,534 175,776
Total stockholders'
equity 152,074 161,696 132,293 112,112 112,353
Key Indicators (as a percentage of net sales):
Gross margin 8.0% 12.0% 11.9% 4.0% 9.6%
Selling, general and
administrative expenses 5.3% 5.5% 5.6% 5.7% 5.7%
Operating income (loss) 2.7% 6.5% 6.3% (1.6%) 3.9%
Interest expense, net 1.9% 2.1% 2.9% 2.8% 2.5%
Net income (loss) (0.9%) 3.4% 2.4% (3.6%) 1.6%
(a) Fiscal 1999 and 1993 had 53 weeks
(b) In addition to foreign exchange losses, 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.
(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 Results
of Operations and Financial Condition" and Note D of the Consolidated
Financial Statements of the Company.
(d) Historical per share amounts have been restated to give
effect to a stock dividend issued on July 30, 1999. See Note F of the
Consolidated Financial Statements of the Company.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
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, the
statements included in Management's Discussion and Analysis of Results of
Operations and Financial Condition, the Business Section and elsewhere in
this annual report contain 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 statements. These
risks and uncertainties include changes in commodity prices of feed
ingredients and chicken, the Company's 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, the impact of uncertainties of litigation, as well as 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.
GENERAL
Profitability in the chicken industry can be materially affected by
the commodity prices of chicken, chicken parts and feed ingredients. Those
commodity prices are determined largely by supply and demand. As a result,
the chicken industry as a whole has been characterized by cyclical
earnings. These cyclical fluctuations in earnings of individual chicken
companies can be mitigated somewhat by:
- Business strategy;
- Product mix;
- Sales and marketing plans; and
- Operating efficiencies.
In an effort to reduce price volatility and to generate higher, more
consistent profit margins, we have concentrated on the production and
marketing of prepared food products. Prepared food products generally have
higher profit margins than our other products. Also, the production and
sale in the U.S. of prepared food products reduce the impact of the costs
of feed ingredients on our profitability. Feed ingredient purchases are the
single largest component of our cost of goods sold, representing
approximately 26.6% of our U.S. cost of goods sold in fiscal 2000. The
production of feed ingredients is positively or negatively affected
primarily by weather patterns throughout the world, the global level of
supply inventories and the agricultural policies of the United States and
foreign governments. As further processing is performed, feed ingredient
costs become a decreasing percentage of a product's total production costs,
thereby reducing their impact on our profitability.
The following table presents certain information regarding the Company's
U.S. and Mexico operations.
<TABLE>
<CAPTION>
Fiscal Year Ended
September 30, October 2, September 26,
2000 1999 1998
<S> <C> <C> <C> <C> <C> <C>
(52 weeks) (53 weeks) (52 weeks)
(In thousands)
Sales to unaffiliated
customers:
United States $1,192,077 $1,102,903 $1,053,458
Mexico 307,362 254,500 278,087
Total sales to unaffiliated
customers $1,499,439 $1,357,403 $1,331,545
Operating income:
United States $ 45,928 $ 88,177 $ 36,279
Mexico 34,560 21,327 40,977
Total operating income $ 80,488 $ 109,504 $ 77,256
</TABLE>
The following table presents certain items as a percentage of net sales for
the periods indicated:
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C> <C> <C> <C>
Net sales 100.0 % 100.0 % 100.0 %
Cost of sales 88.9 86.3 89.8
Gross profit 11.1 13.7 10.2
Selling, general and
administrative expense 5.7 5.6 4.4
Operating income 5.4 8.1 5.8
Interest expense 1.2 1.3 1.5
Income before income taxes 4.2 6.7 4.2
Net income 3.5 4.8 3.8
</TABLE>
Results of Operations
FISCAL 2000 COMPARED TO FISCAL 1999:
NET SALES. Consolidated net sales were $1.5 billion for fiscal 2000,
an increase of $142.0 million, or 10.5%, from fiscal 1999. The increase in
consolidated net sales resulted from an $86.9 million increase in U.S.
chicken sales to $1.1 billion, a $52.9 million increase in Mexico chicken
sales to $307.4 million and a $2.3 million increase of sales of other U.S.
products to $141.7 million. The increase in U.S. chicken sales was
primarily due to an 8.6% increase in dressed pounds produced . The
increase in Mexico chicken sales was primarily due to a 13.7% increase in
revenue per dressed pound and to a 6.2% increase in dressed pounds
produced. The $2.3 million increase in sales of other U.S. products was
primarily due to higher selling prices in the Company's Poultry By-Products
division.
COST OF SALES. Consolidated cost of sales was $1.3 billion in fiscal
2000, an increase of $161.9 million, or 13.8%, compared to fiscal 1999. The
increase resulted primarily from a $125.9 million increase in the cost of
sales of our U.S. operations and from a $36.0 million increase in the cost
of sales in our Mexico operations.
The cost of sales increase in our U.S. operations of $125.9 million
was due primarily to an 8.6% increase in dressed pounds produced, a 4.0%
increase in feed ingredient costs, increased production of higher-cost
prepared food products, losses associated with the late January 2000 ice
storm and a $5.8 million write off of accounts receivable from AmeriServe,
which filed bankruptcy on January 31, 2000. AmeriServe was a significant
distributor of products to fast food and casual dining restaurant chains,
several of which are customers of the Company. The $36.0 million cost of
sales increase in our Mexico operations was primarily due to a 6.2%
increase in dressed pounds produced and a 9.8% increase in average costs of
sales per dressed pound produced caused primarily by the continued shift of
production to a higher-valued product mix.
GROSS PROFIT. Gross profit was $165.8 million for fiscal 2000, a
decrease of $19.9 million, or 10.7%, over the same period last year. Gross
profit as a percentage of sales decreased to 11.1% in fiscal 2000 from
13.7% in fiscal 1999. The lower gross profit resulted from lower net
margins in our U.S. operations primarily due to lower selling prices
realized for fresh chicken products, higher feed ingredient costs, losses
associated with the late January 2000 ice storm and the AmeriServe write
off discussed above, offset in part by increased volume of prepared food
chicken sales.
Beginning in the fourth quarter of fiscal 1999, commodity chicken
margins in the U.S. have been under pressure due, in part, to increased
levels of chicken production in the U.S. To the extent that these trends
continue, subsequent periods' gross margins could be negatively affected to
the extent not offset by other factors such as those discussed under "-
General" above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Consolidated selling,
general and administrative expenses were $85.3 million in fiscal 2000 and
$76.2 million in fiscal 1999. Consolidated selling, general and
administrative expenses as a percentage of sales remained relatively stable
in fiscal 2000 at 5.7% compared to 5.6% in fiscal 1999. The $9.1 million
increase in consolidated selling, general and administrative expenses was
due to increased costs relating to our higher sales volumes.
OPERATING INCOME. Consolidated operating income was $80.5 million
for fiscal 2000, a decrease of $29.0 million, or 26.5%, when compared to
fiscal 1999, resulting primarily from lower net U.S. margins due to lower
selling prices realized for fresh chicken products, higher feed ingredient
costs, losses associated with the late January 2000 ice storm and the
AmeriServe write off discussed above, offset in part by increased volume of
prepared food chicken sales.
INTEREST EXPENSE. Consolidated net interest expense increased 0.6% to
$17.8 million in fiscal 2000, when compared to $17.7 million for fiscal
1999, due to higher interest rates experienced in fiscal 2000 on lower
outstanding debt levels.
INCOME TAX EXPENSE. Consolidated income tax expense in fiscal 2000
decreased to $10.4 million compared to an expense of $25.7 million in
fiscal 1999. This decrease resulted from lower U.S. earnings in fiscal 2000
than in fiscal 1999.
FISCAL 1999 COMPARED TO FISCAL 1998:
Our accounting cycle resulted in 53 weeks of operations in fiscal
1999, compared to 52 weeks in fiscal 1998.
NET SALES. Consolidated net sales were $1.36 billion for fiscal 1999,
an increase of $25.9 million, or 1.9% from fiscal 1998. The increase in
consolidated net sales resulted from a $49.1 million increase in U.S.
chicken sales to $963.5 million and a $0.4 million increase of sales of
other U.S. products to $139.4 million offset by a $23.6 million decrease in
Mexico chicken sales to $254.5 million. The increase in U.S. chicken sales
was primarily due to an 8.7% increase in dressed pounds produced and
partially offset by a 3.0% decrease in total revenue per dressed pound. The
decrease in Mexico chicken sales was primarily due to a 19.6% decrease in
revenue per dressed pound partially offset by a 13.9% increase in dressed
pounds sold.
COST OF SALES. Consolidated cost of sales was $1.2 billion in fiscal
1999, a decrease of $23.7 million, or 2.0%, compared to fiscal 1998. The
decrease resulted primarily from an $18.4 million decrease in the cost of
sales of U.S. operations and by a $5.3 million decrease in the cost of
sales in Mexico operations. The cost of sales decrease in U.S. operations
of $18.4 million was due primarily to a 22.1% decrease in feed ingredients
cost per pound partially offset by an 8.7% increase in dressed pounds
produced.
The $5.3 million cost of sales decrease in Mexico operations was
primarily due to a 15.4% decrease in feed ingredient costs per pound offset
partially by a 13.9% increase in dressed pounds produced.
GROSS PROFIT. Gross profit was $185.7 million for fiscal 1999, an
increase of $49.6 million, or 36.5%, over the same period last year. Gross
profit as a percentage of sales increased to 13.7% in fiscal 1999 from
10.2% in fiscal 1998. The increased gross profit resulted primarily from
lower feed ingredient costs per pound and higher production volumes.
Beginning in the fourth quarter of fiscal 1999, commodity chicken
margins in the U.S. have been under pressure due, in part, to increased
levels of chicken production in the U.S. To the extent that these trends
continue, subsequent periods' gross margins could be negatively affected to
the extent not offset by other factors such as those discussed under "-
General" above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Consolidated selling,
general and administrative expenses were $76.2 million in fiscal 1999 and
$58.8 million in fiscal 1998. Consolidated selling, general and
administrative expenses as a percentage of sales increased in fiscal 1999
to 5.6%, compared to 4.4% in fiscal 1998, due to increased retirement and
variable compensation costs which are dependent upon U.S. profits.
OPERATING INCOME. Consolidated operating income was $109.5 million
for fiscal 1999, an increase of $32.2 million, or 41.7%, when compared to
fiscal 1998, resulting primarily from lower feed ingredient costs per pound
and higher production volumes.
INTEREST EXPENSE. Consolidated net interest expense decreased 12.4%
to $17.7 million in fiscal 1999, when compared to $20.2 million for fiscal
1998, due to lower average outstanding debt levels.
MISCELLANEOUS, NET. Consolidated miscellaneous, net, a component of
Other Expenses (Income), was $1.0 million in fiscal 1999, a $2.7 million
decrease when compared to ($1.7) million for fiscal 1998 due primarily to
losses on disposal of assets.
INCOME TAX EXPENSE. Consolidated income tax expense in fiscal 1999
increased to $25.7 million compared to an expense of $6.5 million in fiscal
1998. This increase resulted from higher U.S. earnings in fiscal 1999 than
in fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
As of November 16, 2000, the Company maintains $120.0 million in
revolving credit facilities and $400.0 million in secured-revolving/term
borrowing facilities. The credit facilities provide for interest at rates
ranging from LIBOR plus five-eighths percent to LIBOR plus two and three-
quarters percent depending upon the Company's total debt to capitalization
ratio. Interest rates on debt outstanding at September 30, 2000 bore
interest at rates ranging from LIBOR plus five-eighths percent to LIBOR plus
one and one-eighth percent. These facilities are secured by inventory and
fixed assets or are unsecured. The $400.0 million revolving/term
borrowing facility provides for $285.0 million and $115.0 million of 10-year
and 7-year, respectively, commitments. Borrowings under this facility are
split pro-rata between the 10-year and 7-year maturities as they occur.
As of November 17, 2000, $113.8 million was available under the revolving
credit facilities and $200.0 million was available under the revolving/
term borrowing facilities with an additional $200.0 million becoming
available upon completion of the WLR Acquisition and the satisfaction of
certain other customary conditions occurring on or before February 28, 2001.
See Note C to the Consolidated Financial Statements.
The annual maturities of long-term debt for the five years subsequent
to September 30, 2000 are as follows: 2001-$4.7 million; 2002-$5.0
million; 2003-$96.1 million; 2004-$5.8 million and 2005-$6.0 million.
On June 29, 1999, the Camp County Industrial Development Corporation
issued $25.0 million of variable-rate environmental facilities revenue
bonds supported by letters of credit obtained by the Company. The Company
may draw from these proceeds over the construction period for new sewage
and solid waste disposal facilities at a poultry by-products plant to be
built in Camp County, Texas. The Company is not required to borrow the
full amount of the proceeds from the bonds. All amounts borrowed from
these funds will be due in 2029. The amounts borrowed by the Company will
be reflected as debt when received from the Camp County Industrial
Development Corporation. The interest rates on amounts borrowed will
closely follow the tax-exempt commercial paper rates. There were no
borrowings outstanding by the Company at September 30, 2000.
On June 26, 1998, the Company entered into an asset sale agreement
(the "Agreement") to sell up to $60.0 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 wholly owned by the Company, which in turn sells a
percentage ownership interest to third parties. At September 30, 2000, an
interest in these Pooled Receivables of $35.4 million had been sold to
third parties and is reflected as a reduction to accounts receivable.
On March 31, 2000, the Company announced that its Board of Directors
had authorized the repurchase of $25.0 million of its outstanding Class A
and/or Class B common stock. Based on the weighted average closing price of
these securities on March 30, 2000, this would represent approximately 10%
of the Company's total shares outstanding. The shares will be purchased on
the open market from time to time and will be paid for out of operating
cash flows or borrowings on existing lines of credit. As of September 30,
2000, 271,100 shares of Class A common stock had been repurchased under
this plan at a total cost of $1.6 million.
At September 30, 2000, the Company's working capital and current ratio
were $124.5 million and 1.86 to 1, respectively, compared to $154.2 million
and 2.24 to 1, respectively, at October 2, 1999.
Trade accounts and other receivables were $50.3 million at September
30, 2000, compared to $84.4 million at October 2, 1999. The 40.4% decrease
between September 30, 2000 and October 2, 1999 was due primarily to the
sale of receivables under the asset sale agreement discussed above.
Excluding the sale of receivables, trade accounts and other receivables
would have increased 1.5% to $85.7 million. This increase was due
primarily to the higher level of sales activity.
Accounts payable and accrued expenses were $139.8 million at September
30, 2000, compared to $119.8 million at October 2, 1999, an increase of
$20.0 million, or 16.7% and was primarily due to higher levels of sales and
the corresponding increased production activity and increased expenditures
for capital projects.
Inventories were $181.2 million at September 30, 2000, compared to
$168.0 million at October 2, 1999. The $13.2 million, or 7.9%, increase in
inventories between September 30, 2000 and October 2, 1999 was primarily
due to higher live chicken inventories in the field necessary to support
increased sales and production levels, as well as higher finished chicken
products inventories.
Capital expenditures of $92.1 million, $69.6 million and $53.5 million
for fiscal years 2000, 1999 and 1998, respectively, were primarily incurred
to expand certain facilities, improve efficiencies, reduce costs, conduct
routine equipment replacement and the purchase of a chicken litter disposal
and fertilizer business as discussed in Note H of the Consolidated
Financial Statements. Management of the Company and the independent members
of the Board of Directors believe that the terms of the purchase of the
chicken litter disposal and fertilizer business are not less favorable to
the Company than those which could be arranged with unaffiliated persons.
The Company has budgeted approximately $100.0 million for capital
expenditures in each of its next three fiscal years, primarily to increase
capacity through either building or acquiring new facilities, to improve
efficiencies and for the routine replacement of equipment. However, actual
levels of capital expenditures in any fiscal year may be greater or lesser
than those budgeted. The Company expects to finance such expenditures with
available operating cash flows and long-term financing.
Cash flows provided by operating activities were $130.8 million, $81.5
million and $85.0 million, for fiscal years 2000, 1999 and 1998,
respectively. The increase in cash flows provided by operating activities
for fiscal 2000, when compared to fiscal 1999, was due primarily to the
sale of the $35.4 million accounts receivables under the accounts
receivable sales agreement mentioned above and increases in accounts
payable and accrued expenses offset partially by an increase in inventories
and a decrease in operating income. The decrease in cash flows provided by
operating activities for fiscal 1999, when compared to fiscal 1998, was due
primarily to increased inventory levels, offset by increases in accounts
payable and accrued expenses.
Cash flows used in financing activities were $22.6 million, $19.6
million and $32.5 million for fiscal years 2000, 1999 and 1998,
respectively. The cash used in financing activities primarily reflects the
net payments on long-term debt.
RECENT DEVELOPMENTS
On September 27, 2000, the Company announced that it had signed a
definitive agreement to acquire all the outstanding stock of WLR Foods,
Inc. in a cash merger valued at approximately $300 million, which includes
the assumption and/or refinancing of approximately $60 million of WLR
Foods' debt and other obligations (the "WLR Acquisition"). Pursuant to the
agreement, the Company will pay $14.25 for each outstanding share of WLR
Foods common stock. The merger is subject to customary closing conditions,
including the receipt of regulatory approval and the approval of WLR Foods'
shareholders and is expected to be completed during January 2001. WLR
Foods is currently the twelfth largest chicken company and the fourth
largest turkey company in the United States, with operations in Virginia,
North Carolina, West Virginia and Pennsylvania. The Company intends to
finance the transaction with existing cash and borrowings under the
financing facility described above, which will result in the Company
incurring substantially greater interest expense in the future. The
transaction has received the unanimous approval of both companies' Board of
Directors and is expected to be completed during January 2001.
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 leverage 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 30, 2000. Based on projected 2001
feed consumption, such an increase would result in an increase to cost of
sales of approximately $33.1 million in 2001. As of September 30, 2000,
the Company had hedged none of its 2001 feed requirements and had entered
into no forward purchase contracts.
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
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
$0.2 million and $0.1 million in fiscal 2000 and 1999, respectively, and a
loss of $2.3 million in 1998. On November 14, 2000, the Mexican peso
closed at 9.50 to 1 U.S. dollar, a decrease from 9.44 at September 30,
2000. No assurance can be given as to how future 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 4.7% of its long-term debt at September 30,
2000. If interest rates average 25 basis points more in 2001 than they did
during 2000, the Company's interest expense would be increased by $25,000.
These amounts are determined by considering the impact of the hypothetical
interest rates on the Company's variable-rate long-term debt at September
30, 2000.
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 $0.4
million, using discounted cash flow analysis.
NEW ACCOUNTING PRONOUNCEMENTS
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 by the Company in its fiscal year beginning October 1, 2000.
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. SFAS 133 is not
expected to have a material impact on the Company's financial condition or
results of operations.
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 45 through 59 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
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
Reference is made to "Election of Directors" on pages 3 through 5 of
the Company's Proxy Statement for its 2000 Annual Meeting of Stockholders,
which section is incorporated herein by reference.
Reference is made to "Compliance with Section 16(a) of the Exchange
Act" on page 9 of the Company's Proxy Statement for its 2000 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 the sections entitled "Security Ownership", "Election of
Directors", "Executive Compensation" and "Certain Transactions" of the
Company's Proxy Statement for its 2000 Annual Meeting of Stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements
(1) THE FINANCIAL STATEMENTS LISTED 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 SEC ARE NOT REQUIRED UNDER THE RELATED
INSTRUCTIONS OR ARE NOT 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 58.
(4) EXHIBITS
(b) REPORTS ON FORM 8-K
(1) THE COMPANY FILED A FORM 8-K DATED JULY 20, 1999, TO REPORT THE
AMENDING OF THE ARTICLES OF INCORPORATION TO PERMIT DIVIDENDS OF
EITHER OF ITS CLASS A COMMON STOCK OR CLASS B COMMON STOCK TO HOLDERS
OF ITS CLASS B COMMON STOCK.
(2) THE COMPANY FILED A FORM 8-K DATED SEPTEMBER 27, 2000, TO REPORT IT
HAD SIGNED A DEFINITIVE AGREEMENT WITH WLR FOODS, INC. FOR THE SALE
OF ALL THE OUTSTANDING STOCK OF WLR FOODS, INC.
(C) EXHIBITS
<PAGE>
EXHIBIT NUMBER
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).
2.2 Agreement and Plan of Merger dated September 27, 2000 (incorporated by
reference from Exhibit 2 of WLR Foods, Inc.'s Current Report on Form 8-K
(No. 000-17060) dated September 28, 2000).
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 May 14,1999 (incorporated by reference from
Exhibit 3.2 of the Company's Quarterly Report on Form 10-Q for the three
months ended July 3, 1999).
3.3 Certificate of Amendment to Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 1 of the Company's Form 8-A, filed
with the SEC on July 20, 1999).
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 May 14, 1999, (incorporated by reference
from Exhibit 3.2 of the Company's Quarterly Report on Form 10-Q for the
three months ended July 3, 1999).
4.3 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).
4.4 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).
4.5 Certificated of Amendment to Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 1 of the Company's Form 8-A, filed
with the SEC on July 20, 1999).
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 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).
10.4 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).
10.5 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).
10.6 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).
10.7 Second Supplement to Revolving Credit Loan Agreement dated June 28, 1996
by and among the Company and Agricultural Production Credit Association
(incorporated by reference from Exhibit 10.44 of the Company's Annual
Report on Form 10-K for the fiscal year ended September 28, 1996).
10.8 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).
10.9 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).
10.10 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).
10.11 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-Q for the
three months ended March 29, 1997).
10.12 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).
10.13 Agreement dated October 15, 1996 between Pilgrim's Pride Corporation and
Pilgrim Poultry G.P. (incorporated by reference from Exhibit 10.23 of the
Company's Quarterly Report on Form 10-Q for the three months ended
January 2, 1999).
10.14 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).
10.15 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).
10.16 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).
10.17 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).
10.18 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.
10.19 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.
10.20 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).
10.21 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).
10.22 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).
10.23 Second Amended and Restated Secured Credit Agreement between Pilgrim's
Pride Corporation and Harris Trust and Savings Bank, individually and as
agent and the lenders from time to time parties hereto as lenders, dated
November 5, 1999.*
10.24 Guaranty Fee Agreement between Pilgrim's Pride Corporation and Pilgrim
Interests, LTD., dated June 11, 1999.*
10.25 Heavy Breeder Contract dated October 27, 1999 between Pilgrim's Pride
Corporation and David Van Hoose (Timberlake Farms).*
10.26 Credit Agreement dated December 14, 1999 by and between Pilgrim's Pride
Corporation and Cobank, ACB, individually and as agent, and the lenders
from time to time parties thereto as lenders.
12 Ratio of Earnings to Fixed Charges for the years ended September 30, 2000,
October 2, 1999, September 26, 1998, September 27, 1997 and September 28,
1996.*
21 Subsidiaries of Registrant.*
23 Consent of Ernst & Young LLP.*
27 Financial Data Schedule*
* Filed herewith
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on the
17th day of November 2000.
PILGRIM'S PRIDE CORPORATION
/s/ Richard A. Cogdill
By:
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 of the Board 11/20/2000
Lonnie "Bo" Pilgrim
/s/ Clifford E. Butler
_______________________ Vice Chairman of the Board 11/20/2000
Clifford E. Butler
/s/ David Van Hoose
________________________ Chief Executive Officer 11/20/2000
David Van Hoose President
Chief Operating Officer
Director
(Principal Executive Officer)
/s/ Richard A. Cogdill
_______________________ Executive Vice President 11/20/2000
Richard A. Cogdill Chief Financial Officer
Secretary and Treasurer
Director
(Principal Financial and Accounting Officer)
SIGNATURE TITLE DATE
/s/ Lonnie Ken Pilgrim
_______________________ Senior Vice President 11/20/2000
Lonnie Ken Pilgrim Director of Transportation
Director
/s/ Charles L. Black
_______________________ Director 11/20/2000
Charles L. Black
_______________________ Director 11/20/2000
S. Key Coker
______________________ Director 11/20/2000
Vance C. Miller
______________________ Director 11/20/2000
James J. Vetter, Jr.
_______________________ Director 11/20/2000
Donald L. Wass, Ph.D.
<PAGE>
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 as of September 30, 2000 and October 2,
1999, and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the three years in the period ended September 30,
2000. Our audits also included the financial statements schedule listed in the
index at Item 14(a). These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 September 30, 2000 and October 2, 1999, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended September 30, 2000, in conformance with accounting
principles generally accepted in the United States. 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
October 30, 2000, except for the second paragraph of Note C, which is dated
November 16, 2000
Consolidated Balance Sheets
Pilgrim's Pride Corporation
<TABLE>
<CAPTION>
(In thousands) Two Years Ended September 30, 2000
2000 1999
<S> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 28,060 $ 15,703
Trade accounts and other receivables, less
allowance for doubtful accounts 50,286 84,368
Inventories 181,237 168,035
Deferred income taxes 6,256 6,913
Prepaid expenses and other
current assets 3,131 3,376
Total Current Assets 268,970 278,395
Other Assets 18,576 13,632
Property, Plant and Equipment:
Land 26,137 26,177
Buildings, machinery and equipment 565,034 514,984
Autos and trucks 48,187 38,479
Construction-in-progress 68,743 42,694
708,101 622,334
Less accumulated depreciation 290,227 258,599
417,874 363,735
$705,420 $655,762
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 105,078 $ 81,587
Accrued expenses 34,704 38,213
Current maturities of long-term debt 4,657 4,353
Total Current Liabilities 144,439 124,153
Long-Term Debt, Less Current Maturities 165,037 183,753
Deferred Income Taxes 52,496 52,708
Minority Interest in Subsidiary 889 889
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; 13,523,429 and
13,794,529 shares issued and outstanding in 2000
and 1999, respectively; 138 138
Common stock -- Class B, $.01 par value,
authorized 60,000,000 shares; 27,589,250 issued
and outstanding in 2000 and 1999 276 276
Additional paid-in capital 79,625 79,625
Retained earnings 264,088 214,220
Less treasury stock (1,568) --
Total Stockholders' Equity 342,559 294,259
$705,420 $655,762
See Notes to Consolidated Financial Statements
</TABLE>
Consolidated Statements of Income
Pilgrim's Pride Corporation
<TABLE>
<CAPTION>
(In thousands, except per share data) Three Years Ended September 30, 2000
2000 1999 1998
<S> <C> <C> <C> <C> <C> <C>
Net Sales $1,499,439 $1,357,403 $1,331,545
Cost and Expenses:
Cost of sales 1,333,611 1,171,695 1,195,442
Selling, general and
administrative 85,340 76,204 58,847
1,418,951 1,247,899 1,254,289
Operating Income 80,488 109,504 77,256
Other Expenses (Income):
Interest expense, net 17,779 17,666 20,148
Foreign exchange (gain) loss (152) (50) 2,284
Miscellaneous, net 75 984 (1,698)
17,702 18,600 20,734
Income Before Income Taxes 62,786 90,904 56,522
Income Tax Expense 10,442 25,651 6,512
Net Income $ 52,344 $ 65,253 $ 50,010
Net Income per Common
Share-Basic and Diluted $ 1.27 $ 1.58 $ 1.21
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
Consolidated Statements of Stockholders' Equity
Pilgrim's Pride Corporation
<TABLE>
<CAPTION>
(In thousands, except share and per share data)
Shares Total Additional Retained Treasury Total
of Common Stock Par Paid-In Earnings Stock
Class A Class B Value Capital
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 27,
1997 -- 27,589,250 $276 $79,763 $102,477 $182,516
Net income for year 50,010 50,010
Cash dividends declared
($.04 per share) (1,655) (1,655)
Balance at September 26,
1998 -- 27,589,250 276 79,763 150,832 230,871
Dividend of Class A
Common
Stock 13,794,529 -- 138 (138) -- --
Net income for year 65,253 65,253
Cash dividends declared
($.045 per share) (1,865) (1,865)
Balance at October 2,
1999 13,794,529 27,589,250 414 79,625 214,220 294,259
Treasury stock
purchased (271,100) ($1,568) (1,568)
Net income for year 52,344 52,344
Cash dividends declared
($.06 per share) (2,476) (2,476)
Balance at September 30,
2000 13,523,429 27,589,250 $414 $79,625 $264,088 ($1,568)$342,559
See Notes to Consolidated Financial Statements
</TABLE
<PAGE>
Consolidated Statements of Cash Flows
Pilgrim's Pride Corporation
</TABLE>
<TABLE>
<CAPTION>
(In thousands) Three Years Ended September 30, 2000
2000 1999 1998
<S> <C> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income $52,344 $65,253 $50,010
Adjustments to reoncile net income
to cash provided by operating activities:
Depreciation and amortization 36,027 34,536 32,591
Loss on property disposals 1,093 2,668 132
Deferred income taxes 444 (5,595) 571
Changes in operating assets and liabiities:
Accounts and other receivables 34,082 (2,555) (3,846)
Inventories (13,202) (26,351) 4,496
Prepaid expenses and other current assets 245 (474) (246)
Accounts payable and accrued expenses 19,982 14,195 996
Other (212) (225) 312
Cash Provided in Operating Activities 130,803 81,452 85,016
Investing Activities:
Acquisitions of property,
plant and equipment (92,128) (69,649) (53,518)
Proceeds from property disposals 2,319 1,178 5,629
Other, net (6,055) (2,822) 595
Cash Used in Investing Activities (95,864) (71,293) (47,294)
Financing Activities:
Proceeds from notes payable to banks 71,000 24,500 35,500
Repayments on notes payable to banks (71,000) (24,500) (35,500)
Proceeds from long-term debt 20,047 15,258 21,125
Payments on long-term debt (38,622) (33,029) (51,968)
Purchase of treasury stock (1,568) -- --
Cash dividends paid (2,476) (1,865) (1,655)
Cash Used in Financing Activities (22,619) (19,634) (32,498)
Effect of exchange rate changes on cash
and cash equivalents 37 53 (437)
Increase (decrease) in cash and
cash equivalents 12,357 (9,422) 4,787
Cash and cash equivalents at
beginning of year 15,703 25,125 20,338
Cash and Cash Equivalents at End of Year $28,060 $15,703 $25,125
Supplemental Disclosure Information:
Cash paid during the year for:
Interest (net of amount capitalized) $17,178 $18,130 $20,979
Income taxes $13,258 $31,835 $ 4,543
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
Pilgrim's Pride Corporation
Note A
Business and Summary of Significant Accounting Policies:
Pilgrim's Pride Corporation (referred to herein as "the Company", "we",
"us", "our" and similar terms) 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
fifth-largest producer of chicken in the United States, with production and
distribution facilities located in Texas, Arkansas, Oklahoma and Arizona, and
is one of the two largest producers of chicken in Mexico, with production and
distribution facilities located in Mexico City and the states of Coahuila, 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.
On September 27, 2000, the Company announced that it had signed a
definitive agreement to acquire all the outstanding stock of WLR Foods, Inc.
in a cash merger valued at approximately $300 million, which includes the
assumption and/or refinancing of approximately $60 million of WLR
Foods' debt and other obligations (the "WLR Acquisition"). Pursuant to the
agreement, the Company will pay $14.25 for each outstanding share of WLR Foods
common stock. The merger is subject to customary closing conditions, including
the receipt of regulatory approval and the approval of WLR Foods' shareholders,
and is expected to be completed during January 2001. The transaction has
received the unanimous approval of both companies' Board of Directors and is
expected to be completed during January 2001. The WLR Acquisition will be
accounted for as a purchase and will be financed through arranged lines of
credit discussed in Note C.
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 and prior year
amounts have been restated to conform to current year presentations.
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, fiscal year 1999 had 53
weeks, while fiscal years 2000 and 1998 each had 52 weeks.
The financial statements of the Company's Mexico subsidiaries are remeasured
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 losses are separately stated as components of "Other Expenses
(Income)" in the Consolidated Statement of Income.
Revenue Recognition:
The Company generally recognizes revenue when the product is shipped to the
customer.
Cash Equivalents:
The Company considers highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
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 unit-of-production
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
cease to have a high correlation to the price changes of the feed ingredients
being hedged.
Statement of Accounting Standards No. 133: Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133"), was adopted on October 1,
2000. No transitional impact resulted from the adoption of SFAS 133, and the
ongoing effect is not expected to have a material adverse impact on the
Company's financial condition or results of operations.
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 $34.7
million, $33.4 million and $31.5 million in 2000, 1999 and 1998, respectively.
Net Income Per Common Share:
Net income 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) and per-share amounts included herein
were 41,289,142 in 2000 and 41,383,779 in 1999 and 1998 after adjustment for
the common stock dividend referred to in Note F.
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.
Note B
Inventories:
Inventories consist of the following:
<TABLE>
<CAPTION>
(In thousands)
<S> <C> <C> <C> <C>
2000 1999
Live chicken and hens $ 72,438 $ 68,116
Feed, eggs and other 54,627 48,021
Finished chicken products 54,172 51,898
$181,237 $168,035
</TABLE>
Note C
Notes Payable and Long-Term Debt:
At September 30, 2000, the Company maintained $70.0 million in revolving
credit facilities and $200.0 million in secured term borrowing facilities. The
credit facilities provide for interest at rates ranging from LIBOR plus five-
eighths percent to LIBOR plus two and three-quarters percent, depending upon the
Company's total debt to capitalization ratio. Interest rates on debt
outstanding under these facilities at September 30, 2000 bore interest at
rates ranging from LIBOR plus five-eighths percent to LIBOR plus one and one-
eighth percent. These facilities are secured by inventory and fixed assets or
are unsecured. At September 30, 2000, $63.8 million was available under the
revolving credit facilities and $192.0 million was available under the term
borrowing facilities. Annual maturities of long-term debt for the five years
subsequent to September 30, 2000 are: 2001 -- $4.7 million; 2002 -- $5.0
million; 2003 -- $96.1 million; 2004 -- $5.8 million; and 2005 -- $6.0 million.
On November 16, 2000, the Company entered into amended and restated
revolving credit facilities and secured term borrowing facilities, increasing
the total amounts available to $120.0 million and $400.0 million, respectively,
from $70.0 million and $200.0 million, respectively, and bear interest at rates
dependent upon the Company's total debt to capitalization ratio as described
above. These increases were made to provide the funding necessary to
consummate the WLR Acquisition discussed in Note A. The increases in the
revolving credit facilities are available as of November 16, 2000; however, the
additional $200.0 million in secured term borrowing facilities will only be
available upon consummation of the WLR Acquisition and the satisfaction of
certain other customary conditions on or before February 28, 2001.
On June 29, 1999, the Camp County Industrial Development Corporation issued
$25.0 million of variable-rate environmental facilities revenue bonds supported
by letters of credit obtained by the Company. The Company may borrow from
these proceeds over the construction period of its new sewage and solid waste
disposal facilities at a poultry by-products plant to be built in Camp County,
Texas. The Company is not required to borrow the full amount of the proceeds
from the bonds. All amounts borrowed from these funds will be due in 2029 and
will be reflected as debt when received. The interest rates on amounts
borrowed will closely follow the tax-exempt commercial paper rates.
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 $3.4 million per year, and to maintain various fixed charge,
leverage, current and debt-to-equity ratios. 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 $21.7 million, $20.8 million and $23.2 million in 2000,
1999 and 1998, respectively. Interest related to new construction capitalized
in 2000, 1999 and 1998 was $3.3 million, $2.0 million and $1.7 million,
respectively.
<PAGE>
<TABLE>
<CAPTION>
Long-term debt consists of the following:
<S> <C> <C> <C> <C> <C> <C>
(In thousands)
Maturity 2000 1999
Senior subordinated notes, interest at 10 7/8%
(effective rate of 11 1/8%) 2003 $ 90,495 $ 93,364
Notes payable to an insurance company
at 7.07% - 7.21% 2006 70,121 67,843
Notes payable to an agricultural lender at
LIBOR plus 1.0% 2006 2,400 --
Notes payable to an agricultural lender at
LIBOR plus 1.125% 2009 5,600 --
Notes payable to a bank at LIBOR plus 1.8% 2003 -- 18,000
Notes payable to an agricultural lender at a rate
approximating LIBOR plus 1.25% to 1.65% 2006 -- 1,729
Other notes payable Various 1,078 7,170
169,694 188,106
Less current maturities 4,657 4,353
$165,037 $183,753
</TABLE>
The fair value of long-term debt, at September 30, 2000 and October 2, 1999,
based upon quoted market prices for the same or similar issues where available
or by using discounted cash flow analysis, was approximately $166.2 million and
$209.7 million, respectively.
<PAGE>
Note D
Income Taxes:
Income before income taxes after allocation of certain expenses to foreign
operations for 2000, 1999 and 1998 was $32.7 million, $76.6 million and $23.7
million, respectively, for U.S. operations and $30.0 million, $14.3 million and
$32.8 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)
<S> <C> <C> <C>
2000 1999 1998
Current:
Federal $ 9,239 $28,449 $4,985
Foreign 138 318 948
State and other 621 2,480 8
9,998 31,247 5,941
Deferred 444 (5,596) 571
$10,442 $25,651 $6,512
</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)
<S> <C> <C> <C>
2000 1999 1998
Federal income tax rate 35.0% 35.0% 35.0%
State tax rate, net 1.4 1.3 (0.4)
Difference in U.S.
statutory tax rate and
Mexico's effective tax
rate (19.8) (8.1) (23.1)
16.6% 28.2% 11.5%
</TABLE>
Deferred income taxes reflect the net 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)
<S> <C> <C>
2000 1999
Deferred tax liabilities:
Tax over book depreciation $24,390 $24,345
Prior use of cash accounting 27,470 30,130
Other 2,849 1,209
Total deferred tax liabilities 54,709 55,684
Deferred tax assets:
Expenses deductible in different
years 8,469 9,889
Total deferred tax asset 8,469 9,889
Net deferred tax liabilities $46,240 $45,795
</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 30, 2000, the cumulative undistributed earnings of these subsidiaries
were approximately $152.4 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:
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 $4.1 million and
$4.7 million at September 30, 2000 and October 2, 1999, respectively.
On June 26, 1998, the Company entered into an asset sale agreement (the
"Agreement") to sell up to $60.0 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
wholly owned by the Company, which in turn sells a percentage ownership
interest to third parties. At September 30, 2000, an interest in these Pooled
Receivables of $35.4 million had been sold to third parties and is reflected as
a reduction to accounts receivable. 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. The 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 F
Common Stock:
The Company has two series of authorized common stock, Class A common stock
and Class B common stock. The shares have substantially the same rights,
powers and limitations, except that each share of Class B common stock entitles
the holder thereof to 20 votes per share, except as otherwise provided by law,
on any matter submitted for a stockholder vote, while each share of Class A
common stock entitles the holder thereof to one vote per share on any such
matter.
On July 2, 1999, the Company's Board of Directors declared a stock dividend
of the Company's Class A common stock. Stockholders of record on July 20, 1999
received one share of the Company's Class A common stock for every two shares
of the Company's Class B common stock held as of that date. The additional
shares were issued on July 30, 1999. Per share and weighted average shares
outstanding amounts for periods prior to July 30, 1999 have been restated to
give effect to the stock dividend.
During 2000, the Company repurchased 271,100 shares of Class A common stock
at a total cost of $1.6 million.
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 $2.3 million, $4.6 million and $1.7 million in 2000,
1999 and 1998, 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)
<S> <C> <C> <C>
2000 1999 1998
Contract egg grower
fees to major
stockholder $5,100 $4,501 $4,989
Chick, feed and other
sales to major
stockholder 31,879 25,076 21,396
Live chicken purchases
from major
stockholder 31,979 26,899 21,883
</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 2000, 1999 and 1998. Operating expenses were $127,680, $135,786 and
$52,950 in 2000, 1999 and 1998, respectively. The Company had accounts
receivable of approximately $0.1 million and $1.2 million at September 30, 2000
and at October 2, 1999, respectively, from related parties, including its
major stockholder.
On February 14, 2000, the Company purchased substantially all of the assets
of a chicken litter disposal and fertilizer business operated by the Company's
major stockholder's son for approximately $8.5 million.
Note I
Commitments:
The Consolidated Statements of Income include rental expense for operating
leases of approximately $22.4 million, $17.3 million and $14.3 million in 2000,
1999 and 1998, respectively. The Company's future minimum lease commitments
under non-cancelable operating leases are as follows: 2001 -- $17.2 million;
2002 -- $14.5 million; 2003 -- $13.9 million; 2004 -- $9.9 million; 2005 --
$7.2 million and thereafter $10.3 million.
At September 30, 2000, the Company had $6.2 million in letters of credit
outstanding relating to normal business transactions.
Note J
Contingencies:
The Company is a plaintiff in two antitrust lawsuits in U.S. District Court
in Washington, D.C. alleging a world-wide conspiracy to control production
capacity and raise prices of common vitamins such as A, B-4, C and E. On
November 3, 1999, a settlement, which was entered into as part of a class
action lawsuit, to which the Company was a member, was agreed to among the
defendants and the class, which would provide for a recovery of between 18-20%
of vitamins purchased from the defendants from 1990 through 1998. On March 28,
2000, the judge presiding over the case accepted the negotiated settlement
between the parties; however, appeals from various sources are in process. The
Company has filed documentation showing that vitamin purchases made during the
recovery period totaled approximately $14.9 million. Based on information the
Company has received to date, it is anticipated that the recovery will occur
upon resolution of the appeals process which is expected before the end of
fiscal 2001.
In January of 1998, seventeen current and/or former employees of the Company
filed the case of "Octavius Anderson, et al. v. Pilgrim's Pride Corporation" in
the United States District Court for the Eastern District of Texas, Lufkin
Division, claiming the Company violated requirements of the Fair Labor
Standards Act. The suit alleges the Company failed to pay employees for all
hours worked. Specifically, employees allege they should be paid for time
spent to put on, take off and clean certain personal gear. Plaintiffs seek to
recover unpaid wages plus liquidated damages and legal fees. Approximately
1,700 consents to join as plaintiffs have been filed with the court by current
and/or former employees. It is anticipated that a trial date will be set in
February of 2001. The Company believes it has substantial defenses to the
claims made and intends to vigorously defend the case. However, neither the
likelihood of an unfavorable outcome nor the amount of ultimate liability, if
any, with respect to this case can be determined at this time. The Company
does not expect these matters, individually or collectively, to have a material
impact on its financial position or liquidity. Substantially similar suits
have been filed against four other integrated chicken companies.
On February 9, 2000, the U.S. Department of Labor ("DOL") began a nationwide
audit of wage and hour practices in the chicken industry. The DOL has audited
51 chicken plants, three of which are owned by the Company. The DOL audit
examined pay practices relating to both processing plant and catching crew
employees and includes practices which are the subject of Anderson v. Pilgrim's
Pride discussed above. The Company expects to have a closing conference with
the DOL before April of 2001.
The Company is subject to various other 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.
<PAGE>
Note K
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)
<S> <C> <C> <C>
2000 1999 1998
(52 weeks) (53 weeks) (52 weeks)
Sales to unaffiliated customers:
United States $1,192,077 $1,102,903 $1,053,458
Mexico 307,362 254,500 278,087
$1,499,439 $1,357,403 $1,331,545
Operating income:
United States $ 45,928 $ 88,177 $ 36,279
Mexico 34,560 21,327 40,977
$ 80,488 $ 109,504 $ 77,256
Long-lived assets:
United States $ 310,066 $ 260,456 $ 227,273
Mexico 126,384 116,911 115,632
$ 436,450 $ 377,367 $ 342,905
</TABLE>
As of September 30, 2000, the Company had net assets in Mexico of $187.0
million.
During 2000 and 1999, revenue from one customer represented 13.5% and 13.9%,
respectively, of Consolidated Net Sales.
Note L
<TABLE>
<CAPTIONS>
Quarterly Results (Unaudited)
(In thousands, except per share data) Year ended September 30, 2000
First Second Third Fourth Fiscal Year
Quarter Quarter(a) Quarter Quarter
<S> <C> <C> <C> <C> <C>
Net sales $354,825 $373,260 $391,979 $379,375 $1,499,439
Gross profit 45,477 34,029 46,665 39,657 165,828
Operating income 25,222 13,282 26,349 15,635 80,488
Net Income 14,858 9,023 17,144 11,319 52,344
Per Share:
Net income .36 .22 .41 .28 1.27
Cash dividends .015 .015 .015 .015 .06
Market price:
Class B common stock
High 9 8 9/16 8 5/16 7 13/16 9
Low 6 1/4 6 1/4 6 3/4 6 5/8 6 1/4
Class A common stock
High 7 6 5/8 6 1/8 5 11/16 7
Low 4 5/8 4 1/2 4 1/16 4 13/16 4 1/16
</TABLE>
<TABLE>
<CAPTION>
(In thousands, except per sahre data) Year ended October 2, 1999
First Second Third Fourth Fiscal Year
Quarter(b) Quarter Quarter Quarter
<S> <C> <C> <C> <C> <C>
Net Sales $336,088 $329,894 $344,160 $347,261 $1,357,403
Gross profit 43,901 46,262 49,415 46,130 185,708
Operating income 26,186 25,292 29,212 28,814 109,504
Net income 15,920 14,580 18,317 16,436 65,253
Per Share (c)
Net income .39 .35 .44 .40 1.58
Cash dividends .01 .01 .01 .015 .045
Market price:
Class B common stock
High 16 11/16 15 7/8 20 16 5/16 20
Low 11 5/16 10 9/16 9 7/8 6 1/4 6 1/4
Class A common stock
High n/a n/a n/a 14 3/4 14 3/4
Low n/a n/a n/a 4 5/8 4 5/8
(a) The second quarter of 2000 includes a $5.8 million write-off of accounts
receivable from AmeriServe, which filed bankruptcy on January 31, 2000.
(b) The first quarter of 1999 includes 14 weeks.
(c) Per share amounts prior to 2000 have been restated to give effect to a
stock dividend issued on July 30, 1999. See Note F of the Consoldiated
Financial Statements of the Company.
</TABLE>
<TABLE>
<CAPTION>
PILGIRM'S PRIDE CORPORATION AND SUBSIDIARIES
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
Col. A Col. B Col. C Col. D Col. E
ADDITIONS
BALANCE CHARGED CHARGED DEDUCTIONS BALANCE
AT BEGINNING TO COSTS TO OTHER DESCRIBE AT END OF
DESCRIPTION OF PERIOD AND EXPENSES ACCOUNTS
DESCRIBE
<S> <C> <C><C> <C><C> <C><C> <C> <C> <C>
Year ended September 30, 2000:
Reserves and alowances deducted
from asset accounts:
Allowance for doubtful
accounts $4,703,000 $ (611,000) $ -- $ 6,000(1) $4,086,000
Year ended October 2, 1999:
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful
accounts $3,694,000 $1,122,000 $ -- $113,000(1) $4,703,000
Year ended September 26, 1998:
Reserves and allowances deducted
from asset accounts:
Allowance from doubtful
accounts $3,823,000 $ 409,000 $ -- $538,000(1) $3,694,000
(1) Uncollectable accounts written off, net of recoveries.
(2) The increase in the 1999 reserve accounts is primarily due to an increase
in sales of prepared foods products, which normally have longer credit
terms than fresh chicken sales.
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT 12
PILGIRM'S PRIDE CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
YEAR ENDED
September 30, October 2, September 26, September 27, September 28,
2000 1999 1998 1997 1996
(amounts in thousands, except ratio)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EARNINGS
Income before income taxes
and extraordinary
charge $62,786 $90,904 $56,522 $43,824 $ 47
Add: Total fixed charges
(see below) 29,168 26,706 27,987 27,647 26,788
Less: Interest
Capitalized 3,313 2,032 1,675 502 1,250
Total
Earnings $88,641 $115,578 $82,834 $70,969 $25,585
FIXED CHARGES:
Interest (1) $21,712 $ 20,889 $23,239 $23,889 $24,423
Portion of rental expense
representative of the
interest
factor 7,456 5,817 4,748 3,758 3,365
Total fixed
charges $29,168 $ 26,706 $27,987 $27,647 $26,788
Ratio of earnings to
fixed charges 3.04 4.33 2.96 2.57 -
Coverage
deficiency - - - - $ 1,203
(1) Interest includes amortization of capitalized financing fees.
</TABLE>
EXHIBIT 22-SUBSIDIARIES OF REGISTRANT
1. AVICOLA PILGRIM'S PRIDE DE MEXICO, S.A. DE C.V.
2. COMPANIA 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. GALLINA PESADA S.A. DE C.V.
6. PILGRIM'S PRIDE FUNDING CORPORATION
7. PILGRIM'S PRIDE INTERNATIONAL, INC.
8. PPC OF DELAWARE BUSINESS TRUST
9. PPC MARKETING, LTD.
10. PILGRIM'S PRIDE AFFORDABLE HOUSING CORPORATION
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 3-12043 and Form S-3 No. 333-84861) of Pilgrim's Pride
Corporation, and in the related Prospectuses, of our report dated October 30,
2000, except for the second paragraph of Note C, which is dated November 16,
2000, with respect to the consoldiated financial statments and schedule of
Pilgrim's Pride Corporation included in this Annual Report (Form 10-K) for the
year ended September 30, 2000.
ERNST & YOUNG LLP
Dallas, Texas
November 16, 2000
