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 JULY 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 July 20, 2000.
13,523,429 shares of the Registrant's Class A Common Stock, $.01 par value,
were outstanding as of July 20, 2000.
<PAGE>
INDEX
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets
July 1, 2000 and October 2, 1999
Consolidated statements of income
Three months and nine months ended July 1, 2000 and July 3, 1999
Consolidated statements of cash flows
Nine months ended July 1, 2000 and July 3, 1999
Notes to condensed consolidated financial statements--July 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 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 JULY 1, 2000 OCTOBER 2, 1999
<S> <C> <C>
ASSETS (in thousands)
Current Assets:
Cash and cash equivalents $ 1,702 $ 15,703
Trade accounts and other receivables,
less allowance for doubtful accounts 73,962 84,368
Inventories 184,778 168,035
Deferred income taxes 6,551 6,913
Prepaid expenses and
other current assets 7,383 3,376
Total Current Assets 274,376 278,395
Other Assets 19,822 13,632
Property, Plant and Equipment 673,910 622,334
Less accumulated depreciation 281,658 258,599
392,252 363,735
$ 686,450 $ 655,762
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 90,891 $ 81,587
Accrued expenses 35,841 38,213
Current maturities of long-term debt 4,729 4,353
Total Current Liabilities 131,461 124,153
Long-Term Debt, less current maturities 172,686 183,753
Deferred Income Taxes 49,304 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; 13,565,129 and 13,794,529 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 253,385 214,220
Treasury stock (1,314) --
Total Stockholders' Equity 332,110 294,259
$ 686,450 $ 655,762
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 1, 2000 July 3, 1999 July 1, 2000 July 3, 1999
(39 weeks) (40 weeks)
(in thousands, except share and per share data)
<S> <C> <C> <C> <C>
Net Sales $ 391,979 $ 344,160 $ 1,120,064 $ 1,010,142
Costs and Expenses:
Cost of sales 345,314 294,745 993,894 870,564
Selling, general and
administrative 20,316 20,203 61,317 58,888
365,630 314,948 1,055,211 929,452
Operating income 26,349 29,212 64,853 80,690
Other Expense (Income):
Interest expense, net 4,967 4,308 13,569 13,131
Foreign exchange
(gain)/loss 598 (179) 532 (432)
Miscellaneous, net
(gain)/loss 465 (191) (252) (364)
6,030 3,938 13,849 12,335
Income before income taxes 20,319 25,274 51,004 68,355
Income tax expense 3,175 6,957 9,979 19,538
Net income $ 17,144 $ 18,317 $ 41,025 $ 48,817
Net income per
common share $ 0.41 $ 0.44 $ 0.99 $ 1.18
Dividends per
common share $ 0.015 $ 0.010 $ 0.045 $ 0.030
Weighted average shares
outstanding 41,274,680 41,383,779 41,347,413 41,383,779
</TABLE>
See Notes to condensed consolidated financial statements.
<PAGE>
PILGRIM'S PRIDE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
JULY 1, 2000 JULY 3, 1999
(in thousands)
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $41,025 $48,817
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 26,748 25,990
Loss on property disposals 572 47
Provision for doubtful accounts (1,403) 1,840
Deferred income taxes (3,043) (2,525)
Changes in operating assets and liabilities:
Accounts and other receivables 11,809 (19,149)
Inventories (16,743) (32,641)
Prepaid expenses (4,007) (1,809)
Accounts payable and accrued expenses 6,932 16,183
Other (184) (227)
Cash Provided by Operating Activities 61,706 36,526
Investing Activities:
Acquisitions of property, plant and equipment (56,933) (52,170)
Proceeds from property disposals 2,202 992
Other, net (6,996) (1,018)
Net Cash Used In Investing Activities (61,727) (52,196)
Financing Activities:
Proceeds from notes payable to banks 55,000 14,000
Repayment of notes payable to banks (55,000) (14,000)
Proceeds from long-term debt 20,047 15,259
Payments on long-term debt (30,865) (17,886)
Purchase of treasury stock (1,314) --
Cash dividends paid (1,860) (1,241)
Cash Used In Financing Activities (13,992) (3,868)
Effect of exchange rate changes on cash and
cash equivalents 12 56
Decrease in cash and cash equivalents (14,001) (19,482)
Cash and cash equivalents at beginning of year 15,703 25,125
Cash and cash equivalents at end
of period $ 1,702 $ 5,643
Supplemental disclosure information:
Cash paid during the period for:
Interest (net of amount capitalized) $ 10,459 $ 11,016
Income Taxes 13,059 22,463
</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 July 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 nine months of fiscal
2000 ended July 1, 2000 had 39 weeks, while the first nine months ended July 3,
1999 had 40 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 July 1, 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 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:
JULY 1, 2000 OCTOBER 2, 1999
(in thousands)
<S> <C> <C>
Live chickens and hens $ 74,786 $ 68,116
Feed, eggs and other 55,653 48,021
Finished chicken products 54,339 51,898
$ 184,778 $ 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 July 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>
Nine Months Ended
July 1, 2000 July 3, 1999
(39 weeks) (40 weeks)
(in thousands)
<S> <C> <C>
Contract egg grower fees to
major stockholder $ 4,065 $ 3,144
Chick, feed and other sales to
major stockholder 31,663 25,528
Live chicken purchases from
major stockholder 31,889 26,448
</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.
NOTE F--TREASURY STOCK
During the three and nine months ended July 1, 2000, the Company repurchased
229,400 shares of its Class A common stock at a total cost of $1.3 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 39 weeks of operations in the first
nine months of fiscal 2000 compared to 40 weeks in the first nine months of
fiscal 1999.
The following table presents certain information regarding the Company's U.S.
and Mexico operations.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 1, 2000 July 3, 1999 July 1, 2000 July 3, 1999
(39 weeks) (40 weeks)
(in thousands)
<S> <C> <C> <C> <C>
Net Sales to Unaffiliated
Customers:
United States $310,913 $281,255 $891,822 $821,571
Mexico 81,066 62,905 228,242 188,571
Operating Income:
United States 12,910 22,076 37,519 62,558
Mexico 13,439 7,136 27,334 18,132
</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 Nine Months Ended
July 1, 2000 July 3, 1999 July 1, 2000 July 3, 1999
<S> <C> <C> <C> <C>
Net Sales 100.0 % 100.0 % 100.0 % 100.0 %
Costs and Expenses:
Cost of sales 88.1 85.6 88.7 86.2
Gross profit 11.9 14.4 11.3 13.8
Selling, general and
administrative 5.2 5.9 5.5 5.8
Operating Income 6.7 8.5 5.8 8.0
Interest Expense 1.3 1.3 1.2 1.3
Income before Income Taxes 5.2 7.3 4.6 6.5
Net Income 4.4 5.3 3.7 4.8
</TABLE>
RESULTS OF OPERATIONS
THIRD QUARTER 2000 COMPARED TO THIRD QUARTER 1999:
NET SALES. Consolidated net sales were $392.0 million for the third quarter of
fiscal 2000, an increase of $47.8 million, or 13.9%, from the third quarter of
fiscal 1999. The increase in consolidated net sales resulted from a $28.2
million increase in U.S. chicken sales to $283.0 million, a $18.1 million
increase in Mexico chicken sales to $81.1 million, and by a $1.5 million
increase in sales of other U.S. products to $27.9 million. The increase in U.S.
chicken sales was primarily due to a 13.1% increase in dressed pounds produced
offset partially by a 1.8% decrease in total revenue per dressed pound. The
increase in Mexico chicken sales was primarily due to a 17.9% increase in
revenue per dressed pound and by a 9.3% increase in dressed pounds produced.
The $1.5 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 $345.3 million in the third
quarter of fiscal 2000, an increase of $50.6 million, or 17.2%, compared to the
third quarter of fiscal 1999. The increase resulted primarily from a $39.7
million increase in the cost of sales of our U.S. operations and by a $10.9
million increase in the cost of sales in our Mexico operations. The cost of
sales increase in our U.S. operations of $39.7 million was primarily due to a
13.1% increase in dressed pounds produced, an 8.1% increase in feed ingredient
cost and increased production of higher cost prepared food products. The $10.9
million cost of sales increase in our Mexico operations was primarily due to a
10.8% increase in average costs of sales per dressed pound produced caused
primarily by the continued shift of production to a higher-valued product mix
and by a 5.2% increase in feed ingredient costs.
GROSS PROFIT. Gross profit was $46.7 million for the third quarter of fiscal
2000, a decrease of $2.8 million, or 5.6%, over the same period last year.
Gross profit as a percentage of sales decreased to 11.9% in the third quarter
of fiscal 2000 from 14.4% in the third quarter of fiscal 1999. The lower gross
profit resulted from lower net margins in our U.S. operations primarily due to
higher feed ingredient costs and decreased selling prices resulting from lower
overall U.S. chicken market prices, offset in part by higher net margins in our
Mexico operations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Consolidated selling, general
and administrative expenses were $20.3 million in the third quarter of fiscal
2000 and $20.2 million in the third quarter of fiscal 1999.
OPERATING INCOME. Consolidated operating income was $26.3 million for the
third quarter of fiscal 2000, a decrease of $2.9 million, or 9.8%, when
compared to the third quarter of fiscal 1999, resulting primarily from lower
net U.S. margins primarily due to higher feed ingredient costs and decreased
selling prices, offset in part by higher net margins in our Mexico operations.
INTEREST EXPENSE. Consolidated net interest expense increased 15.3% to $5.0
million in the third quarter of fiscal 2000, when compared to $4.3 million for
the third quarter of fiscal 1999, due to higher average outstanding debt levels
and higher interest rates experienced in the third quarter of fiscal 2000.
INCOME TAX EXPENSE. Consolidated income tax expense in the third quarter of
fiscal 2000 decreased to $3.2 million compared to an expense of $7.0 million in
the third quarter of fiscal 1999. This decrease resulted from lower U.S.
earnings in the third quarter of fiscal 2000 than in the third quarter of
fiscal 1999.
FIRST NINE MONTHS OF FISCAL 2000 COMPARED
TO FIRST NINE MONTHS OF FISCAL 1999.
Consolidated Net Sales. Consolidated net sales were $1.1 billion for the first
nine months of fiscal 2000, an increase of $109.9 million, or 10.9%, from the
first nine months of fiscal 1999. The increase in consolidated net sales
resulted from a $72.5 million increase in U.S. chicken sales to $786.8 million
and a $39.7 million increase in Mexico chicken sales to $228.2 million offset
partially by a $2.3 million decrease of sales of other U.S. products to $105.0
million. The increase in U.S. chicken sales was primarily due to a 9.4%
increase in dressed pounds produced and by a .7% increase in total revenue per
dressed pound. The increase in Mexico chicken sales was primarily due to a
12.4% increase in revenue per dressed pound and by a 7.7% increase in dressed
pounds produced. The $2.3 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 $993.9 million in the first nine
months of fiscal 2000, an increase of $123.3 million, or 14.2%, compared to the
first nine months of fiscal 1999. The increase resulted primarily from a $94.6
million increase in the cost of sales of our U.S. operations and by a $28.7
million increase in the cost of sales in our Mexico operations.
The cost of sales increase in our U.S. operations of $94.6 million was due
primarily to a 9.4% increase in dressed pounds produced, a 4.2% increase in
feed ingredient costs, 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 from AmeriServe, which filed
Bankruptcy on January 31, 2000. AmeriServe is a significant distributor of
products to fast food and casual dining restaurant chains, several of which are
customers of the Company. The $28.7 million cost of sales increase in our
Mexico operations was primarily due to a 7.7% increase in dressed pounds
produced and by a 9.7% 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 $126.2 million for the first nine months of
fiscal 2000, a decrease of $13.4 million, or 9.6%, over the same period last
year. Gross profit as a percentage of sales decreased to 11.3% in the first
nine months of fiscal 2000 from 13.8% in the first nine months of fiscal 1999.
The lower gross profit resulted from lower net margins in our U.S. operations
primarily due to higher feed ingredient costs, 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 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
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 $61.3 million in the first nine months of
fiscal 2000 and $58.9 million in the first nine months of fiscal 1999.
Consolidated selling, general and administrative expenses as a percentage of
sales decreased in the first nine months of fiscal 2000 to 5.5% compared to
5.8% in the first nine 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 $64.9 million for the
first nine months of fiscal 2000, a decrease of $15.8 million, or 19.6%, when
compared to the first nine months of fiscal 1999, resulting primarily from
lower net U.S. margins due to higher feed ingredient costs, losses realized in
the late January, 2000 ice storm and the AmeriServe write off discussed above.
INTEREST EXPENSE. Consolidated net interest expense increased 3.3% to $13.6
million in the first nine months of fiscal 2000, when compared to $13.1 million
for the first nine months of fiscal 1999 due to higher average outstanding debt
levels and by higher interest rates experienced in the first nine months of
fiscal 2000.
INCOME TAX EXPENSE. Consolidated income tax expense in the first nine months
of fiscal 2000 decreased to $10.0 million compared to an expense of $19.5
million in the first nine months of fiscal 1999. This decrease resulted from
lower U.S. earnings in the first nine months of fiscal 2000 than in the first
nine 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 July 20, 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 the above-mentioned $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 July 20, 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 July 1, 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 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 July 1, 2000, 299,400 shares of Class A common stock had
been repurchased under this plan at a total cost of $1.3 million.
At July 1, 2000, the Company's working capital and current ratio was $142.9
million and 2.09 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 $74.0 million at July 1, 2000,
compared to $84.4 million at October 2, 1999. The 12.3% decrease between July
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 29.6% to $109.4 million.
This increase was due primarily to the higher level of sales activity.
Accounts payable and accrued expenses were $126.7 million at July 1, 2000,
compared to $119.8 million at October 2, 1999, an increase of $6.9 million, or
5.8% and was primarily due to higher levels of sales and the corresponding
increased production activity and increased expenditures for capital projects.
Inventories were $184.8 million at July 1, 2000, compared to $168.0 million at
October 2, 1999. The $16.7 million, or 10.0%, increase in inventories between
July 1, 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 $56.9 million and $52.2 million for the nine month
periods ended July 1, 2000 and July 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. The Company expects
to finance such expenditures with available operating cash flows and long-term
financing.
Cash flows provided by operating activities were $61.7 million and $36.5
million, for the nine-month periods ended July 1, 2000 and July 3, 1999,
respectively. The increase in cash flows provided by operating activities for
the nine months ended July 1, 2000 when compared to the nine months ended July
3, 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 and accrued payables, offset by an increase in inventories and
accounts receivables, payments of previously deferred income taxes and a
decrease in operating income.
Cash flows used in financing activities were $14.0 million and $3.9 million for
the nine month periods ended July 1, 2000 and July 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 $14.9
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 January 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 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 expects to
audit 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 above.
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
July 1, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PILGRIM'S PRIDE CORPORATION
/s/
Date JULY 20, 2000 Richard A. Cogdill
Executive Vice President and
Chief Financial Officer and
Secretary and Treasurer
in his respective capacity as such
