SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended APRIL 1, 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)
(903) 855-1000
(Telephone number of principal executive offices)
Not Applicable
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter periods that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
27,589,250 shares of the Registrant's Class B Common Stock, $.01 par value,
were outstanding as of April 20, 2000.
13,794,529 shares of the Registrant's Class A Common Stock, $.01 par value,
were outstanding as of April 20, 2000.
<PAGE>
INDEX
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets
April 1, 2000 and October 2, 1999
Consolidated statements of income
Three months and six months ended April 1, 2000 and April 3, 1999
Consolidated statements of cash flows
Six months ended April 1, 2000 and April 3, 1999
Notes to condensed consolidated financial statements--April 1, 2000
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
PART I. FINANCIAL INFORMATION
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS APRIL 1, 2000 OCTOBER 2, 1999
(unaudited)
ASSETS (in thousands)
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 10,471 $ 15,703
Trade accounts and other receivables,
less allowance for doubtful accounts 58,432 84,368
Inventories 185,831 168,035
Deferred income taxes 6,673 6,913
Prepaid expenses and other current
assets 3,942 3,376
Total Current Assets 265,349 278,395
Other Assets 19,575 13,632
Property, Plant and Equipment 654,329 622,334
Less accumulated depreciation 274,095 258,599
380,234 363,735
$ 665,158 $ 655,762
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 90,594 $ 81,587
Accrued expenses 30,249 38,213
Current maturities of long-term debt 5,041 4,353
Total Current Liabilities 125,884 124,153
Long-Term Debt, less current maturities 175,350 183,753
Deferred Income Taxes 46,137 52,708
Minority Interest in Subsidiary 889 889
Stockholders' Equity:
Preferred stock, $.01 par value,
authorized 5,000,000
shares; none issued -- --
Common stock - Class A, $.01 par value,
authorized 100,000,000 shares;
13,794,529 issued and outstanding
in 2000 and 1999 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 236,859 214,220
Total Stockholders' Equity 316,898 294,259
$ 665,158 $ 655,762
<TABLE\>
See notes to condensed consolidated financial statements.
<PAGE>
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 1, April 3, April 1, April 3,
2000 1999 2000 1999
(26 weeks) (27 weeks)
(in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $373,260 $ 329,894 $ 728,085 $ 665,982
Costs and Expenses:
Cost of sales 339,231 283,632 648,580 575,819
Selling, general and
administrative 20,747 20,970 41,001 38,685
359,978 304,602 689,581 614,504
Operating income 13,282 25,292 38,504 51,478
Other Expense (Income):
Interest expense, net 4,699 4,090 8,602 8,823
Foreign exchange gain (76) (161) (66) (253)
Miscellaneous, net (519) (261) (717) (173)
4,104 3,668 7,819 8,397
Income before income taxes 9,178 21,624 30,685 43,081
Income tax expense 155 7,044 6,804 12,581
Net income $ 9,023 $ 14,580 $ 23,881 $ 30,500
Net income per common
share $ 0.22 $ 0.35 $ 0.58 $ 0.74
Dividends per common
share $ 0.015 $ 0.01 $ 0.03 $ 0.02
Weighted average
shares outstanding 41,383,779 41,383,779 41,383,779 41,383,779
</TABLE>
See Notes to condensed consolidated financial statements.
<PAGE>
PILGRIM'S PRIDE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 1, 2000 APRIL 3, 1999
(in thousands)
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $23,881 $30,500
Adjustments to reconcile net income to cash
Provided by operating activities:
Depreciation and amortization 17,464 17,121
Loss/(Gain) on property disposals 40 (144)
Provision for doubtful accounts (1,307) 3,398
Deferred income taxes (6,020) 760
Changes in operating assets and liabilities:
Accounts and other receivable 27,243 9,622
Inventories (17,796) (30,571)
Prepaid expenses (877) 317
Accounts payable and accrued expenses 1,042 (1,347)
Other (262) (216)
Cash Flows Provided by
Operating Activities 43,408 29,440
Investing Activities:
Acquisitions of property, plant and equipment (35,368) (38,768)
Proceeds from property disposals 2,121 528
Other, net (6,448) (996)
Net Cash Used In Investing Activities (39,695) (39,236)
Financing Activities:
Proceeds from notes payable to banks 35,000 14,000
Repayment of notes payable to banks (35,000) (14,000)
Proceeds from long-term debt 20,047 15,259
Payments on long-term debt (27,840) (16,751)
Cash dividends paid (1,242) (828)
Cash Used In Financing Activities (9,035) (2,320)
Effect of exchange rate changes on cash and
cash equivalents 90 43
Decrease in cash and cash equivalents (5,232) (12,073)
Cash and cash equivalents at beginning of year 15,703 25,125
Cash and cash equivalents at end of period $10,471 $13,052
Supplemental disclosure information:
Cash paid during the period for
Interest (net of amount capitalized) $ 7,947 $ 9,348
Income Taxes $ 12,737 $ 12,078
</TABLE>
See notes to condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Pilgrim's Pride Corporation ("Pilgrim's" or "the Company") have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. The Condensed Consolidated Balance Sheet as
of October 2, 1999 has been derived from the audited financial statements as of
that date. Operating results for the period ended April 1, 2000 are not
necessarily indicative of the results that may be expected for the year ended
September 30, 2000. For further information, refer to the consolidated
financial statements and footnotes thereto included in Pilgrim's annual report
on Form 10-K for the year ended October 2, 1999.
The consolidated financial statements include the accounts of Pilgrim's and its
wholly and majority owned subsidiaries. Significant intercompany accounts and
transactions have been eliminated.
The Company reports on the basis of a 52/53-week fiscal year, which ends on the
Saturday closest to September 30. As a result, the first six months of fiscal
2000 ended April 1, 2000 had 26 weeks, while the first six months ended April
3, 1999 had 27 weeks.
The assets and liabilities of the foreign subsidiaries are translated at end-
of-period exchange rates, except for any non-monetary assets, which are
translated at equivalent dollar costs at dates of acquisition using historical
rates. Operations of foreign subsidiaries are translated at average exchange
rates in effect during the period.
Historical per share and weighted average shares outstanding amounts have been
restated, where appropriate, to give effect to the July, 1999 stock dividend.
NOTE B--ACCOUNTS RECEIVABLE
On June 26, 1998 the Company entered into an asset sale agreement (the
"Agreement") to sell up to $60 million of accounts receivable. In connection
with the Agreement, the Company sells, on a revolving basis, certain of its
trade receivables (the "Pooled Receivables") to a special purpose corporation,
wholly owned by the Company, which in turn sells a percentage ownership
interest to third parties. At April 1, 2000, an interest in these Pooled
Receivables of $39.8 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 gross
proceeds resulting from the sale are included in cash flows from operating
activities in the Consolidated Statements of Cash Flows. Losses on these sales
were immaterial.
NOTE C--INVENTORIES
<TABLE>
<CAPTION>
Inventories consist of the following:
APRIL 1, 2000 OCTOBER 2, 1999
(in thousands)
<S> <C> <C> <C> <C>
Live chickens and hens $ 70,516 $ 68,116
Feed, eggs and other 57,955 48,021
Finished chicken products 57,360 51,898
$ 185,831 $ 168,035
</TABLE>
NOTE D--LONG TERM DEBT
On December 14, 1999, the Company arranged for a $200 million revolving/term
borrowing facility secured by certain property, plant and equipment of the
Company. The facility provides for $140 million and $60 million of 10-year and
7-year, respectively, commitments. Borrowings will be split pro-rata between
the 10-year and 7-year maturities as they occur. Interest rates on outstanding
balances are tied to the Company's debt-to-capitalization ratio. The current
rates under the facility are LIBOR plus one and one-quarter percent for the 7-
year term and LIBOR plus one and three-eighths percent for the 10-year term.
Upon closing the agreement on December 14, 1999, the Company paid off two of
its term lenders who simultaneously became part of the bank group which
provides the new revolving/term borrowing facility. As a result of this
refinancing, the annual maturities of long-term debt for the five years
subsequent to October 2, 1999 are adjusted as follows: 2000-$4.1 million;
2001-$4.7 million; 2002-$5.0 million; 2003-$99.2 million and 2004-$5.6 million.
As of April 1, 2000 there was $15.0 million outstanding under this agreement.
NOTE E--RELATED PARTY TRANSACTIONS
Transactions with related entities are summarized as follows:
<TABLE>
<CAPTION>
Six Months Ended
April 1, 2000 April 3, 1999
(26 weeks) (27 weeks)
(in thousands)
<S> <C> <C> <C> <C>
Contract egg grower fees to
major stockholder $ 2,763 $ 2,106
Chick, feed and other sales to
major stockholder 31,223 25,263
Live chicken purchases from
major stockholder 31,691 26,135
</TABLE>
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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Profitability in the chicken industry can be materially affected by the
commodity prices of 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 reduces 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 30.9% of our cost of
goods sold in fiscal 1999. 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 Company's accounting cycle resulted in 26 weeks of operations in the first
six months of fiscal 2000 compared to 27 weeks in the first six months of
fiscal 1999.
The following table presents certain information regarding the Company's U.S.
and Mexico operations.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 1, April 3, April 1, April 3,
2000 1999 2000 1999
(26 weeks) (27 weeks)
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales to Unaffiliated
Customers:
United States $296,530 $273,362 $580,909 $540,316
Mexico 76,730 56,531 147,176 125,666
Operating Income:
United States 3,502 21,741 24,609 40,482
Mexico 9,779 3,551 13,895 10,996
</TABLE>
The following table presents certain items as a percentage of net sales for the
periods indicated.
<TABLE>
<CAPTION>
Percentage of Net Sales
Three Months Ended Six Months Ended
April 1, April 3, April 1, April 3,
2000 1999 2000 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales 100.0 % 100.0 % 100.0 % 100.0 %
Costs and Expenses:
Cost of sales 90.9 86.0 89.1 86.5
Gross profit 9.1 14.0 10.9 13.5
Selling, general and
administrative 5.6 6.4 5.6 5.8
Operating Income 3.6 7.7 5.3 7.7
Interest Income 1.3 1.2 1.2 1.3
Income before Income Taxes 2.5 6.6 4.2 6.5
Net Income 2.4 4.4 3.3 4.6
</TABLE>
RESULTS OF OPERATIONS
SECOND QUARTER 2000 COMPARED TO SECOND QUARTER 1999:
NET SALES. Consolidated net sales were $373.3 million for the second quarter
of fiscal 2000, an increase of $43.4 million, or 13.2%, from the second quarter
of fiscal 1999. The increase in consolidated net sales resulted from a $20.2
million increase in Mexico chicken sales to $76.7 million, a $19.2 million
increase in U.S. chicken sales to $253.7 million and by a $4.0 million
increase of sales of other U.S. products to $42.9 million. The increase in
Mexico chicken sales was primarily due to a 16.8% increase in revenue per
dressed pound and by a 16.2% increase in dressed pounds produced. The increase
in U.S. chicken sales was primarily due to a 12.5% increase in dressed pounds
produced offset partially by a 3.9% decrease in total revenue per dressed
pound. The $4.0 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 $339.2 million in the second
quarter of fiscal 2000, an increase of $55.6 million, or 19.6%, compared to the
second quarter of fiscal 1999. The increase resulted primarily from a $42.5
million increase in the cost of sales of U.S. operations and by a $13.1 million
increase in the cost of sales in Mexico operations. The cost of sales increase
in U.S. operations of $42.5 million was due primarily to 12.5% increase in
dressed pounds produced, by increased production of higher cost prepared food
products, losses realized in the late January, 2000 ice storm and by a $5.8
million write-off of accounts receivable associated with AmeriServe, which
filed bankruptcy on January 31, 2000. AmeriServe is a significant distributor
of products to several fast food and casual dining restaurant chains, several
of which are customers of the Company.
The $13.1 million cost of sales increase in Mexico operations was primarily due
to a 16.2% increase in dressed pounds produced and by a 9.1% 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 $34.0 million for the second quarter of fiscal
2000, a decrease of $12.2 million, or 26.4%, over the same period last year.
Gross profit as a percentage of sales decreased to 9.1% in the second quarter
of fiscal 2000 from 14.0% in the second quarter of fiscal 1999. The lower
gross profit resulted primarily from lower net margins on U.S. operations due
to higher costs on higher volumes at decreased selling prices resulting from
lower overall U.S. poultry market prices, losses realized in the late January,
2000 ice storm and the AmeriServe write-off discussed above.
Beginning in the fourth quarter of fiscal 1999, commodity chicken margins 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 period's 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 $20.7 million in the second quarter of fiscal
2000 and $21.0 million in the second quarter of fiscal 1999. Consolidated
selling, general and administrative expenses as a percentage of sales decreased
in the second quarter of fiscal 2000 to 5.6% compared to 6.4% in the second
quarter of fiscal 1999 due primarily to higher net sales while selling, general
and administrative expenses stayed relatively stable.
OPERATING INCOME. Consolidated operating income was $13.3 million for the
second quarter of fiscal 2000, a decrease of $12.0 million, or 47.5%, when
compared to the second quarter of fiscal 1999, resulting primarily from lower
net U.S. margins due to higher costs on higher volumes at decreased selling
prices resulting from lower overall U.S. poultry market prices and the
AmeriServe write-off discussed above.
INTEREST EXPENSE. Consolidated net interest expense increased 14.9% to $4.7
million in the second quarter of fiscal 2000, when compared to $4.1 million for
the second quarter of fiscal 1999, due to higher average outstanding debt
levels and higher interest rates experienced in the second quarter of fiscal
2000.
INCOME TAX EXPENSE. Consolidated income tax expense in the second quarter of
fiscal 2000 decreased to $155,000 compared to an expense of $7.0 million in the
second quarter of fiscal 1999. This decrease resulted from lower U.S. earnings
in the second quarter of fiscal 2000 than in the second quarter of fiscal 1999.
FIRST SIX MONTHS OF FISCAL 2000 COMPARED
TO FIRST SIX MONTHS OF FISCAL 1999.
CONSOLIDATED NET SALES. Consolidated net sales were $728.1 million for the
first six months of fiscal 2000, an increase of $62.1 million, or 9.3%, from
the first six months of fiscal 1999. The increase in consolidated net sales
resulted from a $44.4 million increase in U.S. chicken sales to $503.9 million
and a $21.5 million increase in Mexico chicken sales to $147.2 million offset
partially by a $3.8 million decrease of sales of other U.S. products to $77.0
million. The increase in U.S. chicken sales was primarily due to 7.5% increase
in dressed pounds produced and by a 2.0% increase in total revenue per dressed
pound. The increase in Mexico chicken sales was primarily due to a 9.5%
increase in revenue per dressed pound and by a 6.9% increase in dressed pounds
produced. The $3.8 million decrease in sales of other U.S. products was
primarily due to lower selling prices in the Company's commercial egg division.
COST OF SALES. Consolidated cost of sales was $648.6 million in the first six
months of fiscal 2000, an increase of $72.8 million, or 12.7%, compared to the
first six months of fiscal 1999. The increase resulted primarily from a $54.9
million increase in the cost of sales of U.S. operations and by a $17.8 million
increase in the cost of sales in Mexico operations. The cost of sales increase
in U.S. operations of $54.9 million was due primarily to a 7.5% increase in
dressed pounds produced, by increased production of higher cost and margin
prepared food products, losses realized in the late January, 2000 ice storm and
by a $5.8 million write off of accounts receivable associated with AmeriServe,
which filed Bankruptcy on January 31, 2000. AmeriServe is a significant
distributor of products to several fast food and casual dining restaurant
chains, several of which are customers of the Company.
The $17.8 million cost of sales increase in Mexico operations was primarily due
to a 6.9% increase in dressed pounds produced and by a 9.2% 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 $79.5 million for the first six months of fiscal
2000, a decrease of $10.7 million, or 11.8%, over the same period last year.
Gross profit as a percentage of sales decreased to 10.9% in the first six
months of fiscal 2000 from 13.5% in the first six months of fiscal 1999. The
lower gross profit resulted primarily from lower net margins on U.S. operations
due to higher costs on higher volumes at decreased selling prices resulting
from lower overall U.S. poultry market prices, losses realized in the late
January, 2000 ice storm and the AmeriServe write off discussed above.
Beginning in the fourth quarter of fiscal 1999, commodity chicken margins 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 period's 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 $41.0 million in the first six months of
fiscal 2000 and $38.7 million in the first six months of fiscal 1999.
Consolidated selling, general and administrative expenses as a percentage of
sales decreased in the first six months of fiscal 2000 to 5.6% compared to 5.8%
in the first six months of fiscal 1999 due primarily to higher net sales while
selling, general and administrative expenses stayed relatively stable.
OPERATING INCOME. Consolidated operating income was $38.5 million for the
first six months of fiscal 2000, a decrease of $13.0 million, or 25.2%, when
compared to the first six months of fiscal 1999, resulting primarily from lower
net U.S. margins due to higher costs on higher volumes at decreased selling
prices resulting from lower overall U.S. poultry market prices, losses
realized in the late January, 2000 ice storm and the AmeriServe write off
discussed above.
INTEREST EXPENSE. Consolidated net interest expense decreased 2.5% to $8.6
million in the first six months of fiscal 2000, when compared to $8.8 million
for the first six months of fiscal 1999 due to lower average outstanding debt
levels offset in part by higher interest rates experienced in the first six
months of 2000.
INCOME TAX EXPENSE. Consolidated income tax expense in the first six months
of fiscal 2000 decreased to $6.8 million compared to an expense of $12.6
million in the first six months of fiscal 1999. This decrease resulted from
lower U.S. earnings in the first six months of fiscal 2000 than in the first
six months of fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company maintains $70 million in revolving credit facilities and $200
million in secured-revolving/term borrowing facilities. The credit facilities
currently provide for interest at rates ranging from LIBOR plus one and one-
quarter percent to LIBOR plus one and three-eighths percent and are secured by
inventory and fixed assets or are unsecured. As of April 19, 2000, $63.3
million was available under the revolving credit facilities and $185.0 million
was available under the revolving/term borrowing facilities.
On December 14, 1999, the Company arranged for a $200 million revolving/term
borrowing facility secured by certain property, plant and equipment of the
Company. The facility provides for $140 million and $60 million of 10-year and
7-year, respectively, commitments. Borrowings will be split pro-rata between
the 10-year and 7-year maturities as they occur. Interest rates on outstanding
balances are tied to the Company's debt-to-capitalization ratio. The current
rates under the facility are LIBOR plus one and one-quarter percent for the 7-
year term and LIBOR plus one and three-eighths percent for the 10-year term.
Upon closing the agreement on December 14, 1999, the Company paid off two of
its term lenders who simultaneously became part of the bank group, which
provides the new revolving/term borrowing facility. As a result of this
refinancing, the annual maturities of long-term debt for the five years
subsequent to October 2, 1999 are adjusted as follows: 2000-$4.1 million;
2001-$4.7 million; 2002-$5.0 million; 2003-$99.2 million and 2004-$5.6 million.
As of April 19, 2000 there was $15.0 million outstanding under this agreement.
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. Any amounts
the Company does not borrow by June 2002 will not be available. The amounts
borrowed by the Company will be reflected as debt when received from the Camp
County Industrial Development Corporation. Management expects that the
reflection of the bonds as debt will occur before June 2002. The interest
rates on amounts borrowed will closely follow the tax-exempt commercial paper
rates.
On June 26, 1998 the Company entered into an asset sale agreement (the
"Agreement") to sell up to $60 million of accounts receivable. In connection
with the Agreement, the Company sells, on a revolving basis, certain of its
trade receivables (the "Pooled Receivables") to a special purpose corporation,
wholly owned by the Company, which in turn sells a percentage ownership
interest to third parties. At April 1, 2000, an interest in these Pooled
Receivables of $39.8 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 gross
proceeds resulting from the sale are included in cash flows from operating
activities in the Consolidated Statements of Cash Flows. Losses on these sales
were immaterial.
On March 31, 2000 the Company announced that its Board of Directors authorized
the repurchase of $25 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 April 19, 2000 no shares of stock had been
repurchased under this plan.
At April 1, 2000, the Company's working capital and current ratio was $139.5
million and 2.11 to 1, respectively, compared to of $154.2 million and 2.24 to
1, respectively, at October 2, 1999.
Trade accounts and other receivables were $58.4 million at April 1, 2000,
compared to $84.4 million at October 2, 1999. The 30.7% decrease between
April 1, 2000 and October 2, 1999 was due 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 15.3% to $97.3 million.
This increase was due primarily to the higher level of sales activity during
the period.
Accounts payable and accrued expenses were $120.8 million at April 1, 2000,
compared to $119.8 million at October 2, 1999, an increase of $1.0 million, or
0.8%.
Inventories were $185.8 million at April 1, 2000, compared to $168.0 million
at October 2, 1999. The $17.8 million, or 10.6%, increase in inventories
between April 1, 2000 and October 2, 1999 was due primarily to higher prepared
food inventories resulting from the Company's intended growth in this market
area.
Capital expenditures of $35.4 million and $38.8 million for the six month
periods ended April 1, 2000 and April 3, 1999, respectively, were primarily
incurred to expand certain facilities, improve efficiencies, reduce costs,
routine equipment replacement and the purchase of a chicken litter disposal
and fertilizer business as discussed in Note E of the Condensed
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. We expect to finance such expenditures with available
operating cash flows and long-term financing.
Cash flows provided by operating activities were $43.4 million and $29.4
million, for the six-month periods ended April 1, 2000 and April 3, 1999,
respectively. The increase in cash flows provided by operating activities for
the six months ended April 1, 2000 when compared to the six months ended April
3, 1999 was due primarily to sales of the $39.8 million accounts receivables
under the accounts receivable sales agreement mentioned above, offset by an
increase in inventories and accounts receivable, payments of previously
deferred income taxes and a decrease in operating income.
Cash flows used in financing activities were $9.0 million and $2.3 million for
the six month periods ended April 1, 2000 and April 3, 1999, respectively. The
cash used in financing activities primarily reflects the net proceeds
(payments) from notes payable and long-term financing and debt retirement.
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.
STATEMENTS REGARDING FORWARD LOOKING COMMENTS
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements made by (or on behalf of) the Company. Except for
historical information contained herein, Management's Discussion and Analysis
of Results of Operations and Financial Condition and other discussions
elsewhere in this Form 10-Q 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 statement.
These risks and uncertainties include changes in commodity prices of feed
ingredients and chicken, the Company's substantial indebtedness, risks
associated with the Company's foreign operations, including currency exchange
rate fluctuations, trade barriers, exchange controls, expropriation and changes
in laws and practices, the impact of current and future laws and regulations,
and the other risks described in the Company's SEC filings. The Company does
not intend to provide updated information about the matters referred to in
these forward looking statements, other than in the context of Management's
Discussion and Analysis of Results of Operations and Financial Condition
contained herein and other disclosures in the Company's SEC filings.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes from the information provided in Item 7a of
the Company's Annual Report on Form 10-K for the year ended October 2, 1999.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On March 23, 1999, the Company filed 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 chemicals 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 (the "Class"), 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 in a case of this
magnitude are to be expected. The Company has filed documentation showing that
vitamin purchases made during the recovery period totaled approximately $19.0
million. Based on information the Company has received to date, it is
anticipated that the majority of the recovery will occur before the end of
fiscal 2000.
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 ("Anderson v. Pilgrim's Pride") 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 by current and/or former employees with the
court. It is anticipated that a trial date will be set in August of 2000. The
Company believes it has substantial defenses to the claims made and intends to
vigorously defend the case. However, neither the likelihood of unfavorable
outcome nor the amount of ultimate liability, if any, with respect to this case
can be determined at this time. Substantially similar suits have been filed
against four other integrated poultry companies.
On February 9, 2000, the U.S. Department of Labor (DOL) began a nationwide
audit of wage and hour practices in the poultry industry. The DOL expects to
audit 51 poultry plants, one of which is company owned. 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 above.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Pilgrim's Pride Corporation held its Annual Meeting of Shareholders on February
2, 2000. The meeting was held to elect the Board of Directors for the ensuing
year; to approve the Company's Senior Executive Performance Bonus Plan; to
appoint Ernst & Young LLP as the Company's independent auditors for the fiscal
year ending September 30, 2000; and to transact such other business as may be
properly brought before the meeting. There were 12,544,287 Class A shares and
25,270,368 Class B shares represented with 12,544,287 votes for Class A shares
and 505,407,360 votes for Class B shares. With regard to the election of
Directors for the ensuing year, the following votes were cast:
<TABLE>
<CAPTION>
NOMINEE FOR WITHHELD AGAINST
<S> <C> <C> <C> <C> <C> <C>
Lonnie "Bo" Pilgrim
Class A 12,495,577 48,710 -0-
Class B 502,757,940 2,649,420 -0-
Clifford E. Butler
Class A 12,496,027 48,260 -0-
Class B 502,829,760 2,577,600 -0-
David Van Hoose
Class A 12,496,027 48,260 -0-
Class B 502,829,760 2,577,600 -0-
Richard A. Cogdill
Class A 12,495,811 48,476 -0-
Class B 502,795,860 2,611,500 -0-
Lonnie Ken Pilgrim
Class A 12,495,925 48,362 -0-
Class B 502,547,280 2,860,080 -0-
Charles A. Black
Class A 12,495,202 49,085 -0-
Class B 502,662,640 2,744,720 -0-
Robert E. Hilgenfeld
Class A 12,496,202 48,085 -0-
Class B 502,538,740 2,868,620 -0-
Vance C. Miller
Class A 12,495,427 48,860 -0-
Class B 502,671,460 2,735,900 -0-
James G. Vetter
Class A 12,493,552 50,735 -0-
Class B 495,808,740 9,598,620 -0-
Donald L. Wass
Class A 12,493,877 50,410 -0-
Class B 502,717,460 2,689,900 -0-
</TABLE>
All Directors were elected by the above results.
With regard to the approval of the Senior Executive Performance Bonus Plan, the
following votes were cast:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAINED
<S> <C> <C> <C> <C> <C> <C>
Class A 12,431,840 100,159 12,288
Class B 496,972,360 8,112,740 322,260
</TABLE>
The Senior Executive Performance Bonus Plan was approved by the above results.
With regard to ratifying the appointment of Ernst & Young LLP as the Company's
independent auditors for fiscal 2000, the following votes were cast:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAINED
<S> <C> <C> <C> <C> <C> <C>
Class A 12,530,838 3,958 9,491
Class B 504,619,800 346,360 441,200
</TABLE>
Ernst & Young LLP was appointed as independent auditors for fiscal 2000 by the
above results.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
The Company did not file any reports on Form 8-K during the three months ended
April 1, 2000.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PILGRIM'S PRIDE CORPORATION
/s/ Richard A. Cogdill
Date APRIL 20, 2000 Richard A. Cogdill
Executive Vice President and
Chief Financial Officer and
Secretary and Treasurer
in his respective capacity as such
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-END> APR-1-2000
<CASH> 10471
<SECURITIES> 0
<RECEIVABLES> 64195
<ALLOWANCES> 5763
<INVENTORY> 185831
<CURRENT-ASSETS> 265349
<PP&E> 654329
<DEPRECIATION> 274095
<TOTAL-ASSETS> 665158
<CURRENT-LIABILITIES> 125884
<BONDS> 0
0
0
<COMMON> 414
<OTHER-SE> 316484
<TOTAL-LIABILITY-AND-EQUITY> 665158
<SALES> 373260
<TOTAL-REVENUES> 373260
<CGS> 339231
<TOTAL-COSTS> 359978
<OTHER-EXPENSES> 4104
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4699
<INCOME-PRETAX> 9178
<INCOME-TAX> 155
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9023
<EPS-BASIC> 0.22
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