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 December 30, 2000
Commission file number 1-9273
PILGRIM'S PRIDE CORORATION
(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 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 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 January 18, 2001.
13,523,429 shares of the Registrant's Class A Common Stock, $.01 par value,
were outstanding as of January 18, 2001.
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INDEX
PILGRIM'S PRIDE CORORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets
December 30, 2000 and September 30, 2000
Consolidated statements of income
Three months ended December 30, 2000 and January 1, 2000
Consolidated statements of cash flows
Three months ended December 30, 2000 and January 1, 2000
Notes to condensed consolidated financial statements December 30, 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
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
December 30, 2000 September 30, 2000
ASSETS (in thousands)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 11,277 $ 28,060
Trade accounts and other receivables,
Less allowance for doubtful accounts 64,286 50,286
Inventories 167,212 181,237
Deferred income taxes 6,338 6,256
Prepaid expenses and other current assets 4,056 3,131
Total Current Assets 253,169 268,970
Other Assets 19,007 18,576
Property, Plant and Equipment 740,443 708,101
Less accumulated depreciation 298,279 290,227
442,164 417,874
$714,340 $705,420
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable to banks $ 9,500 $ --
Accounts payable 96,480 105,078
Accrued expenses 34,939 34,704
Current maturities of long-term debt 4,742 4,657
Total Current Liabilities 145,661 144,439
Long-Term Debt, less current maturities 156,546 165,037
Deferred Income Taxes 56,568 52,496
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; 13,523,429
issued and outstanding at December 30,
2000 and September 30, 2000 138 138
Common stock - Class B, $.01 par value,
authorized 60,000,000 shares; 27,589,250
issued and outstanding at December 30, 2000
and September 30, 2000 276 276
Additional paid-in capital 79,625 79,625
Retained earnings 276,205 264,088
Less treasury stock (1,568) (1,568)
Total Stockholders' Equity 354,676 342,559
$714,340 $705,420
See notes to condensed consolidated financial statements.
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PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
December 30, 2000 January 1, 2000
(in thousands, except share and
per share data)
<S> <C> <C>
Net Sales $386,032 $354,825
Costs and Expenses:
Cost of sales 338,866 309,348
Selling, general and administrative 23,955 20,255
362,821 329,603
Operating income 23,211 25,222
Other Expense (Income):
Interest expense, net 4,140 3,903
Foreign exchange loss 121 10
Miscellaneous, net (gain) (122) (198)
4,139 3,715
Income before income taxes 19,072 21,507
Income tax expense 6,335 6,649
Net income $ 12,737 $ 14,858
Net income per common share - basic and diluted $ 0.31 $ 0.36
Dividends declared per common share $ 0.015 $ 0.015
Weighted average shares outstanding 41,112,679 41,383,779
See notes to condensed consolidated financial statements.
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PILGRIM'S PRIDE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
December 30, 2000 January 1, 2000
(in thousands)
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 12,737 $ 14,858
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 8,668 8,586
(Gain) on property disposals (8) (7)
Provision for doubtful accounts 173 33
Deferred income taxes 3,991 5,990
Changes in operating assets and liabilities:
Accounts and other receivables (14,174) (8,068)
Inventories 14,025 14,286
Prepaid expenses (925) (1,670)
Accounts payable and accrued
expenses (8,363) (1,947)
Other (124) (238)
Cash Provided By Operating
Activities 16,000 31,820
Investing Activities:
Acquisitions of property, plant and equipment (32,607) (14,412)
Proceeds from property disposals 56 44
Other, net (620) 1,005
Net Cash Used In Investing
Activities (33,171) (13,363)
Financing Activities:
Proceeds from notes payable to banks 70,000 1,000
Repayments of notes payable to banks (60,500) (1,000)
Proceeds from long-term debt 10,701 20,000
Payments on long-term debt (19,144) (40,809)
Cash dividends paid (621) (621)
Cash Used In Financing
Activities 436 (21,430)
Effect of exchange rate changes on cash and
cash equivalents (48) 73
Decrease in cash and cash
equivalents (16,783) (2,900)
Cash and cash equivalents at beginning of year 28,060 15,703
Cash and cash equivalents at
end of period $11,277 $12,803
Supplemental disclosure information:
Cash paid during the period for:
Interest (net of amount capitalized) $ 1,661 $ 1,344
Income taxes 517 106
See notes to condensed consolidated financial statements.
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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 September 30, 2000 has been
derived from the audited financial statements as of that date. Operating
results for the period ended December 30, 2000 are not necessarily
indicative of the results that may be expected for the year ended September
29, 2001. For further information, refer to the consolidated financial
statements and footnotes thereto included in Pilgrim's annual report on
Form 10-K for the year ended September 30, 2000.
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 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.
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
and the approval of WLR Foods' shareholders. The date of the WLR Foods'
shareholder vote is currently anticipated to occur on January 26, 2001,
with the closing of the transaction to proceed shortly thereafter. The
transaction has received the unanimous approval of both companies' Board of
Directors. The WLR Acquisition will be accounted for as a purchase and
will be financed through arranged lines of credit discussed in Note D.
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 December 30, 2000, an
interest in these Pooled Receivables of $36.0 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
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Inventories consist of the following: December 30, 2000 September 30, 2000
(in thousands)
<S> <C> <C>
Live chickens and hens $ 45,079 $ 72,438
Feed, eggs and other 55,528 54,627
Finished chicken products 66,605 54,172
$167,212 $181,237
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NOTE D-LONG TERM DEBT
On November 16, 2000 the Company entered into amended and restated
revolving credit facilities and secured term borrowing facilities,
increasing the total amount available to $120.0 million and $400.0 million,
respectively, from $70.0 million and $200.0 million, respectively. 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 December 30, 2000 bore
interest rates at LIBOR plus five-eighths percent. These facilities are
secured by inventory and fixed assets or are unsecured.
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.
At December 30, 2000, $66.3 million was available under the revolving
credit facilities and $200.0 million was available under the term borrowing
facilities.
NOTE E-RELATED PARTY TRANSACTIONS
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Transactions with related parties are summarized as follows:
Three Months Ended
December 30, 2000 January 1, 2000
(in thousands)
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Contract egg grower fees to major stockholder $ 1,248 $ 1,345
Chick, feed and other sales to major stockholder 30,770 26,555
Live chicken purchases from major stockholder 13,446 9,360
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On December 29, 2000 the Company entered into an agreement to lease a
commercial egg property and assume all of the ongoing costs of the operation
from the Company's major stockholder. The Company had previously purchased the
eggs produced from this operation pursuant to a contract grower arrangement.
The lease term runs for ten years with a yearly lease payment of $750,000. The
Company has an option to extend the lease for an additional five years,
with an option at the end of the lease to purchase the property at fair
market value as determined by an independent appraisal.
NOTE F-CONTINGENCIES
Since March 23, 1999, the Company has been 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. During the first fiscal
quarter of 2001, the Company received $2.2 million in partial settlement of
its claim and anticipates the remaining amounts will be received 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 this matter, 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, Inc.
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.
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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 26.6% of our 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.
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Three Months Ended
December 30, 2000 January 1, 2000
(in thousands)
<S> <C> <C>
Net Sales to Unaffiliated Customers:
United States $307,552 $284,379
Mexico 78,480 70,446
Operating Income:
United States 20,631 21,106
Mexico 2,580 4,116
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The following table presents certain items as a percentage of net sales for
the periods indicated.
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Three Months Ended
Percentage of Net Sales
December 30, 2000 January 1, 2000
(in thousands)
<S> <C> <C>
Net Sales 100.0 % 100.0 %
Costs and Expenses:
Cost of sales 87.8 87.2
Gross profit 12.2 12.8
Selling, general and administrative 6.2 5.7
Operating Income 6.0 7.1
Interest Expense 1.1 1.1
Income Before Income Taxes 4.9 6.1
Net Income 3.3 4.2
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Results of Operations
FISCAL FIRST QUARTER 2001 COMPARED TO FISCAL FIRST QUARTER 2000
CONSOLIDATED NET SALES. Consolidated net sales were $386.0 million for the
first quarter of fiscal 2001, an increase of $31.2 million, or 8.8%, from
the first quarter of fiscal 2000. The increase in consolidated net sales
resulted from a $15.6 million increase in U.S. chicken sales to $265.8
million, an $8.1 million increase in Mexico chicken sales to $78.5 million
and a $7.5 million increase of sales of other U.S. products to $41.7
million. The increase in U.S. chicken sales was primarily due to a 5.1%
increase in dressed pounds produced and by a 1.1% increase in total revenue
per dressed pound produced. The increase in Mexico chicken sales was
partially due to a 10.5% increase in dressed pounds produced and by a 0.9%
increase in revenue per dressed pound. The $7.5 million increase in sales
of other U.S. products was primarily due to higher selling prices in the
Company's Commercial Egg division.
COST OF SALES. Consolidated cost of sales was $338.9 million in the first
quarter of fiscal 2001, an increase of $29.5 million, or 9.5%, compared to
the first quarter of fiscal 2000. The increase resulted primarily from a
$21.0 million increase in the cost of sales of our U.S. operations offset
in part by a $2.2 million recovery from the vitamin litigations discussed
in "Note F of the Condensed Consolidated Financial Statements" and by an
$8.5 million increase in the cost of sales in our Mexico operations.
The cost of sales increase in our U.S. operations of $21.0 million was due
primarily to a 5.1% increase in dressed pounds produced, a 10.2% increase
in feed ingredient costs and by increased production of higher cost
prepared food products. The $8.5 million cost of sales increase in our
Mexico operations was primarily due to a 10.5% increase in dressed pounds
produced and by a 3.0% 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 $47.2 million for the first quarter of
fiscal 2001, an increase of $1.7 million, or 3.7%, over the same period
last year. Gross profit as a percentage of sales decreased to 12.2% in the
first quarter of fiscal 2001 from 12.8% in the first quarter of fiscal 2000
due to lower net margins in Mexico and in our US operations primarily due
to higher ingredient costs. The higher gross profit resulted in part from
a $2.2 million recovery from the vitamin litigation discussed in "Note F of
the Condensed Consolidated Financial Statements".
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 $24.0 million in the first quarter
of fiscal 2001 and $20.3 million in the first quarter of fiscal 2000.
Consolidated selling, general and administrative expenses as a percentage
of sales increased in the first quarter of fiscal 2001 to 6.2%, compared to
5.7% in the first quarter of fiscal 2000, due primarily to increases in
selling and administrative expenses resulting from higher sales volume.
OPERATING INCOME. Consolidated operating income was $23.2 million for the
first quarter of fiscal 2001, a decrease of $2.0 million, or 8.0%, when
compared to the first quarter of fiscal 2000, resulting primarily from
lower net margins in Mexico and in our U.S. operations due to higher feed
ingredient costs, offset in part by a $2.2 million recovery from the
vitamin litigations discussed in "Note F of the Condensed Consolidated
Financial Statements".
INTEREST EXPENSE. Consolidated net interest expense increased 6.1% to $4.1
million in the first quarter of fiscal 2001, when compared to $3.9 million
for the first quarter of fiscal 2000 due to higher interest rates
experienced in the first quarter of fiscal 2001.
INCOME TAX EXPENSE. Consolidated income tax expense in the first quarter
of fiscal 2001 decreased to $6.3 million compared to an expense of $6.6
million in the first quarter of fiscal 2000. This decrease resulted from
lower U.S. earnings in the first quarter of fiscal 2001 than in the first
quarter of fiscal 2000.
LIQUIDITY AND CAPITAL RESOURCES
On November 16, 2000 the Company entered into amended and restated
revolving credit facilities and secured term borrowing facilities,
increasing the total amount available to $120.0 million and $400.0 million,
respectively, from $70.0 million and $200.0 million, respectively. 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 December 30, 2000 bore
interest rates at LIBOR plus five-eighths. These facilities are secured by
inventory and fixed assets or are unsecured.
These increases were made to provide the funding necessary to consummate
the WLR Acquisition discussed in "Note A to the Condensed Consolidated
Financial Statements". 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.
At December 30, 2000, $66.3 million was available under the revolving
credit facilities and $200.0 million was available under the term borrowing
facilities.
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 December 30, 2000, an
interest in these Pooled Receivables of $36.0 million had been sold to
third parties and is reflected as 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.
At December 30, 2000, the Company's working capital and current ratio was
$107.5 million and 1.74 to 1, respectively, compared to $124.5 million and
1.86 to 1, respectively, at September 30, 2000.
Trade accounts and other receivables were $64.3 million at December 30,
2000, compared to $50.3 million at September 30, 2000. The 27.8% increase
between December 30, 2000 and September 30, 2000 was primarily due to an
increase in sales of prepared food products, which normally have longer
credit terms than fresh chicken sales, partially offset by the sale of
receivables under the asset sale agreement discussed above. Excluding the
sale of receivables, trade accounts and other receivables would have
increased 17.0% to $100.3 million at December 30, 2000 from $85.7 million
at September 30, 2000. This increase was due primarily to the higher level
of sales activity discussed above.
Accounts payable and accrued expenses were $131.4 million at December 30,
2000, compared to $139.8 million at September 30, 2000, a decrease of $8.4
million, or 6.0% and was primarily due to normal variations in accounts
payable.
Inventories were $167.2 million at December 30, 2000, compared to $181.2
million at September 30, 2000. The $14.0 million, or 7.7%, decrease in
inventories between December 30, 2000 and September 30, 2000 was primarily
due to lower live chicken and hen inventories resulting from seasonal
variations in sales of chicken and feed products to the Company's principal
stockholder, offset in part by higher finished goods inventory, required to
support the increase in net sales.
Capital expenditures of $32.6 million and $14.4 million for the three month
periods ended December 30, 2000 and January 1, 2000, respectively, were
primarily incurred to expand certain facilities, improve efficiencies,
reduce costs and routine equipment replacement. 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 $16.0 million and $31.8
million for the three month periods ended December 30, 2000 and January 1,
2000, respectively. The decrease in cash flows provided by operating
activities for the three months ended December 30, 2000, when compared to
the three months ended January 1, 2000, was due primarily to an increase in
accounts receivables and a decrease in accounts payables.
Cash flows provided by (used in) financing activities were $0.4 million and
($21.4) million for the three month periods ended December 30, 2000 and
January 1, 2000, respectively. The cash used in financing activities
primarily reflects the net proceeds (payments) from notes payable and long-
term financing and debt retirement.
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 $300.0 million, which
includes the assumption and/or refinancing of approximately $60.0 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 and the approval of WLR Foods' shareholders. The date of the WLR
Foods' shareholder vote is currently anticipated to occur on January 26, 2001,
with the closing of the transaction to proceed shortly thereafter. 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.
IMPACT OF INFLATION
Due to moderate inflation in the U.S. and the Company's rapid inventory
turnover rate, the results of operations have not been significantly
affected by inflation during the past three-year period.
FORWARD LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a safe harbor
for forward-looking statements made by (or on behalf of) the Company.
Except for historical information contained herein, Management's Discussion
and Analysis of Results of Operations and Financial Condition 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 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, risks associated with the Company's
integration of WLR Foods, Inc. into the Company, the impact of
uncertainties of litigation as well as other risks described in the
Company's Securities and Exchange Commission (SEC) filings. The Company
does not intend to provided 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 September
30, 2000.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Since March 23, 1999, the Company has been 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. During the first fiscal quarter of 2001, the Company
received $2.2 million in partial settlement of its claim and anticipates
the remaining amounts will be received 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 this matter, 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, Inc.
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, results of operations or
cash flows of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBIT NUMBER
10.27 First Amendment to the 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.*
10.28 Second Amendment to the 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.*
10.29 Second Amended and Restated Credit Agreement between Pilgrim's Pride
Corporation and CoBank, ACB, individually and as agent and the lenders
from time to time parties hereto as lenders, dated November 16, 2000.*
10.30 Commercial Property Lease dated December 29, 2000 between Pilgrim's
Pride Corporation and Pilgrim Poultry G.P.*
* Filed herewith
The Company has not filed any reports on Form 8-K that have not been
disclosed on Form 10-K for the year ended September 30, 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/ Richard A. Cogdill
Date 1/18/2001 Richard A. Cogdill
Executive Vice President and
Chief Financial Officer and
Secretary and Treasurer
in his respective capacity as such
