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 the quarterly period ended JANUARY 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
(Registrant's telephone number, including area code)
NOT APPLICABLE
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter periods that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date:
27,589,250 shares of the Registrant's Class B Common Stock, $.01 par value,
were outstanding as of January 20, 2000.
13,794,529 shares of the Registrant's Class A Common Stock, $.01 par value,
were outstanding as of January 20, 2000.
INDEX
PILGRIM'S PRIDE CORPORATION
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements (Unaudited):
Condensed consolidated balance sheets:
January 1, 2000 and October 2, 1999
Consolidated statements of income:
Three months ended January 1, 2000 and January 2, 1999
Consolidated statements of cash flows:
Three months ended January 1, 2000 and January 2, 1999
Notes to condensed consolidated financial statements--January 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 6. Exhibits and Reports on Form 8-K
SIGNATURES
PART I. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS:
PILGRIM'S PRIDE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JANUARY 1, 2000 OCTOBER 2, 1999
(in thousands)
ASSETS
Current Assets:
Cash and cash equivalents $ 12,803 $ 15,703
Trade accounts and other receivables,
less allowance for doubtful accounts 92,403 84,368
Inventories 153,749 168,035
Deferred income taxes 6,614 6,913
Prepaid expenses and other current assets 5,046 3,376
Total Current Assets 270,615 278,395
Other Assets 12,425 13,632
Property, Plant and Equipment 636,251 622,334
Less accumulated depreciation 266,321 258,599
369,930 363,735
$ 652,970 $ 655,762
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable 81,749 81,587
Accrued expenses 36,104 38,213
Current maturities of long-term debt 4,103 4,353
Total Current Liabilities 121,956 124,153
Long-term Debt, less current maturities 163,230 185,753
Deferred Income Taxes 58,399 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 228,457 214,220
Total Stockholders' Equity 308,496 294,259
$ 652,970 $ 655,762
See Notes to Condensed Consolidated Financial Statements.
PILGRIM'S PRIDE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
QUARTER ENDED
January 1, January 2,
2000 1999
(13 weeks) (14 weeks)
(in thousands, except share
and per share data)
Net Sales $ 354,825 $ 336,088
Costs and Expenses:
Cost of sales 309,348 292,187
Selling, general and administrative 20,255 17,715
329,603 309,902
Operating Income 25,222 26,186
Other Expense (Income):
Interest expense, net 3,903 4,733
Foreign exchange loss (gain) 10 (92)
Miscellaneous, net income (198) 88
3,715 4,729
Income before income taxes 21,507 21,457
Income tax expense 6,649 5,537
Net income $ 14,858 $ 15,920
Net income per common share - basic and diluted $ .36 $ .38
Dividends per common share $ .015 $ .01
Weighted average shares outstanding 41,383,779 41,383,779
See Notes to Condensed Consolidated Financial Statements.
PILGRIM'S PRIDE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
QUARTER ENDED
January 1, January 2,
2000 1999
(13 weeks) (14 weeks)
(in thousands)
Cash Flows From Operating Activities:
Net income $ 14,858 $ 15,920
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 8,586 8,653
(Gain) loss on property disposals (7) 76
Provision for doubtful accounts 33 334
Deferred income taxes 5,990 4,195
Changes in operating assets and liabilities:
Accounts and other receivable (8,068) (7,942)
Inventories 14,286 10,811
Prepaid expenses (1,670) 1,021
Accounts payable and accrued expenses (1,947) 4,777
Other (238) (396)
Net Cash Flows Provided By Operating Activities: 31,820 37,449
Investing Activities:
Acquisitions of property, plant and equipment (14,412) (12,833)
Proceeds from property disposals 44 235
Other, net 1,005 (340)
Net Cash Used In Investing Activities (13,363) (12,938)
Financing Activities:
Proceeds from notes payable 1,000 --
Payments on notes payable (1,000) --
Proceeds from long-term debt 20,000 --
Payments on long-term debt (40,809) (15,780)
Cash dividends paid (621) (414)
Cash Used In Financing Activities (21,430) (16,194)
Effect of Exchange Rate Changes
on Cash and Cash Equivalents 73 224
(Decrease) increase in cash
and cash equivalents (2,900) 8,541
Cash and cash equivalents at beginning of year 15,703 25,125
Cash and cash equivalents at end of period $ 12,803 $ 33,666
Supplemental disclosure information:
Cash paid during the period for:
Interest (net of amount capitalized) $ 1,344 $ 1,930
Income Taxes $ 106 $ 4,779
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 January 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 Company's first
quarter of fiscal year 2000 ended on January 1, 2000, and included 13
weeks, while the Company's first quarter of fiscal 1999, which ended on
January 2, 1999, had 14 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--INVENTORIES
Inventories consist of the following:
JANUARY 1, 2000 OCTOBER 2, 1999
(in thousands)
Live chickens and hens $ 43,623 $ 68,116
Feed, eggs and other 51,047 48,021
Finished chicken products 59,079 51,898
$ 153,749 $ 168,035
NOTE C--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 January 20, 2000 there were no outstanding balances under this
agreement.
NOTE D--RELATED PARTY TRANSACTIONS
Transactions with related entities are summarized as follows:
QUARTER ENDED
JANUARY 1, 2000 JANUARY 2, 1999
(13 weeks) (14 weeks)
(in thousands)
Contract egg grower fees to major stockholder $ 1,345 $ 903
Chick, feed and other sales to major stockholder 26,555 23,050
Live chicken purchases from major stockholder 9,360 12,565
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:
1 Business strategy;
2 Product mix;
3 Sales and marketing plans; and
4 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 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 13 weeks of operations in the
first quarter of fiscal 2000 compared to 14 weeks in the first quarter of
fiscal 1999.
The following table presents certain information regarding the Company's
U.S. and Mexican operations.
Quarter Ended
January 1, 2000 January 2, 1999
(13 weeks) (14 weeks)
Net Sales to Unaffiliated
Customers:
United States $284,379 $266,954
Mexico 70,446 69,134
Operating Income:
United States 21,106 18,741
Mexico 4,116 7,445
The following table presents certain items as a percentage of net sales
for the periods indicated.
QUARTER ENDED
JANUARY 1, 2000 JANUARY 2, 1999
Net sales 100.0% 100.0%
Costs and expenses:
Cost of sales 87.2 86.9
Gross profit 12.8 13.1
Selling, general and administrative 5.7 5.3
Operating Income 7.1 7.8
Interest expense 1.1 1.4
Income before income taxes 6.1 6.4
Net Income 4.2 4.7
RESULTS OF OPERATIONS
FIRST QUARTER 2000 COMPARED TO FIRST QUARTER 1999:
NET SALES. Consolidated net sales were $354.8 million for the first
quarter of fiscal 2000, an increase of $18.7 million, or 5.6% from the
first quarter of fiscal 1999. The increase in consolidated net sales
resulted from a $25.2 million increase in U.S. chicken sales to $250.2
million and a $1.3 million increase in Mexico chicken sales to $70.4
million offset by a $7.8 million decrease of sales of other U.S. products
to $34.2 million. The increase in U.S. chicken sales was primarily due to
an 8.5% increase in total revenue per dressed pound and a 2.5% increase in
dressed pounds produced. The increase in Mexico chicken sales was primarily
due to a 2.2% increase in revenue per dressed pound partially offset by a
.3% decrease in dressed pounds produced. The $7.8 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 $309.3 MILLION IN THE
FIRST QUARTER OF FISCAL 2000, AN INCREASE OF $17.2 MILLION, OR 5.9%
COMPARED TO THE FIRST QUARTER OF FISCAL 1999. THE INCREASE RESULTED
PRIMARILY FROM A $12.5 MILLION INCREASE IN THE COST OF SALES OF U.S.
OPERATIONS AND BY A $4.7 MILLION INCREASE IN THE COST OF SALES IN MEXICO
OPERATIONS. THE COST OF SALES INCREASE IN U.S. OPERATIONS OF $12.5 MILLION
WAS DUE PRIMARILY TO INCREASED PRODUCTION OF HIGHER COST AND MARGIN
PREPARED FOOD PRODUCTS AND BY A 2.5% INCREASE IN DRESSED POUNDS PRODUCED.
THE $4.7 MILLION COST OF SALES INCREASE IN MEXICO OPERATIONS WAS PRIMARILY
DUE TO A 8.4% INCREASE IN AVERAGE COSTS OF SALES PER DRESSED POUND PRODUCED
CAUSED PRIMARILY BY LIVE-PRODUCTION DIFFICULTIES EXPERIENCED DURING THE
QUARTER. THE COMPANY ANTICIPATES THAT THIS NEGATIVE COMPARABLE TREND WILL
CONTINUE THROUGH THE SECOND FISCAL QUARTER BUT SHOULD BE ELIMINATED
THEREAFTER.
Gross Profit. GROSS PROFIT WAS $45.5 MILLION FOR THE FIRST QUARTER OF
FISCAL 2000, AN INCREASE OF $1.6 MILLION, OR 3.6% OVER THE SAME PERIOD LAST
YEAR. GROSS PROFIT AS A PERCENTAGE OF SALES DECREASED TO 12.8% IN THE
FIRST QUARTER OF FISCAL 2000 FROM 13.1% IN THE FIRST QUARTER OF FISCAL
1999. THE LOWER GROSS PROFIT RESULTED PRIMARILY FROM HIGHER AVERAGE COSTS
OF SALES PER DRESSED POUND PRODUCED IN MEXICO.
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. AND MEXICO. TO THE EXTENT THAT THESE TRENDS
CONTINUE, SUBSEQUENT PERIOD'S GROSS MARGINS COULD BE NEGATIVELY AFFECTED TO
THE EXTEND NOT OFFSET BY OTHER FACTORS SUCH AS THOSE DISCUSSED UNDER "-
GENERAL" ABOVE.
Selling, General and Administrative Expenses. CONSOLIDATED SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES WERE $20.3 MILLION IN THE FIRST QUARTER
OF FISCAL 2000 AND $17.7 MILLION IN THE FIRST QUARTER OF FISCAL 1999.
CONSOLIDATED SELLING, GENERAL AND ADMINISTRATIVE EXPENSES AS A PERCENTAGE
OF SALES INCREASED IN THE FIRST QUARTER OF FISCAL 2000 TO 5.7% COMPARED TO
5.3% IN THE FIRST QUARTER OF FISCAL 1999 DUE PRIMARILY TO INCREASED
RETIREMENT AND VARIABLE COMPENSATION COSTS WHICH ARE DEPENDENT UPON U.S.
PROFITS AND OTHER ADMINISTRATIVE EXPENSES.
Operating Income. CONSOLIDATED OPERATING INCOME WAS $25.2 MILLION FOR
THE FIRST QUARTER OF FISCAL 2000, A DECREASE OF $1.0 MILLION, OR 3.7% WHEN
COMPARED TO THE FIRST QUARTER OF FISCAL 1999, RESULTING PRIMARILY FROM
INCREASED AVERAGE COSTS OF SALES PER DRESSED POUND PRODUCED IN MEXICO.
Interest Expense. CONSOLIDATED NET INTEREST EXPENSE DECREASED 17.5% TO
$3.9 MILLION IN THE FIRST QUARTER OF FISCAL 2000, WHEN COMPARED TO $4.7
MILLION FOR THE FIRST QUARTER OF FISCAL 1999, DUE TO LOWER AVERAGE
OUTSTANDING DEBT LEVELS.
Income Tax Expense. CONSOLIDATED INCOME TAX EXPENSE IN THE FIRST
QUARTER OF FISCAL 2000 INCREASED TO $6.6 MILLION COMPARED TO AN EXPENSE OF
$5.5 MILLION IN THE FIRST QUARTER OF FISCAL 1999. THIS INCREASE RESULTED
FROM HIGHER U.S. EARNINGS IN THE FIRST QUARTER OF FISCAL 2000 THAN IN THE
FIRST QUARTER 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 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 January 20,
2000, $63.3 million was available under the revolving credit facilities and
$200 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 January 20, 2000 there were no outstanding balances 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. It is expected 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 to
sell up to $60 million of accounts receivable. Under this agreement, the
Company may sell, on a revolving basis, certain of its trade receivables to
a special purpose corporation, wholly owned by us, which in turn may sell a
percentage ownership interest to third parties. As of January 1, 2000, no
sold trade receivables were outstanding and the entire facility was
available for sales of interests in qualifying receivables.
At January 1, 2000, the Company's working capital and current ratio was
$148.7 million and 2.22 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 $92.4 million at January 1,
2000, compared to $84.4 million at October 2, 1999. The 9.5% increase
between January 1, 2000 and October 2, 1999 was primarily due to an
increase in sales of prepared food products, which normally have longer
credit terms than fresh chicken sales.
Inventories were $153.7 million at January 1, 2000, compared to $168.0
million at October 2, 1999. The $14.3 million, or 8.5% decrease in
inventories between January 1, 2000 and October 2, 1999 was due primarily
to lower costs in the live chicken and hen inventories resulting from lower
feed ingredient costs and seasonal variations in sales of chicken and feed
products to the Company's principal stockholder.
Capital expenditures were $14.4 million and $12.8 million for three
months period ended January 1, 2000 and January 2, 1999, respectively, were
primarily incurred to expand certain facilities, improve efficiencies,
reduce costs and for the routine replacement of equipment. 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 less 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 $31.8 million and $37.4
million, for the three month periods ended January 1, 2000 and January 2,
1999, respectively. The decrease in cash flows provided by operating
activities for the three months ended January 1, 2000 when compared to the
three months ended January 2, 1999 was due primarily to increased prepaid
expenses and decreased accounts payable and accrued expenses.
Cash flows used in financing activities were $21.4 million and $16.2
million for the three month periods ended January 1, 2000 and January 2,
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 YEAR 2000
THE YEAR 2000 ISSUE IS THE RESULT OF COMPUTER PROGRAMS BEING WRITTEN
USING TWO DIGITS RATHER THAN FOUR TO DEFINE THE APPLICABLE YEAR. ANY OF
THE COMPANY'S COMPUTER PROGRAMS THAT HAVE DATE-SENSITIVE SOFTWARE MAY
RECOGNIZE A DATE USING "00" AS THE YEAR 1900 RATHER THAN THE YEAR 2000.
THIS COULD RESULT IN A SYSTEM FAILURE OR MISCALCULATIONS CAUSING
DISRUPTIONS OF OPERATIONS, INCLUDING AMONG OTHER THINGS, A TEMPORARY
INABILITY TO PROCESS TRANSACTIONS, SEND INVOICES OR ENGAGE IN SIMILAR
NORMAL BUSINESS ACTIVITIES.
THE COMPANY BEGAN ASSESSMENT OF ITS FUTURE BUSINESS SYSTEM REQUIREMENTS
IN 1996. AS A PART OF THE COMPANY'S REVIEW, IT DETERMINED THAT IT WOULD BE
REQUIRED TO MODIFY OR REPLACE PORTIONS OF ITS SOFTWARE AND HARDWARE SO THAT
ITS COMPUTER SYSTEMS WILL FUNCTION PROPERLY WITH RESPECT TO DATES IN THE
YEAR 2000 AND THEREAFTER.
THE COMPANY HAS TESTED THE IDENTIFIED SYSTEMS AND UPDATED THOSE SYSTEMS
IN THE U.S., INCLUDING THE SOFTWARE AND HARDWARE COMPONENTS DEEMED
NECESSARY TO ENSURE THE UNINTERRUPTED FULFILLMENT OF THE COMPANY'S CORE
BUSINESS PROCESSES AS THEY RELATE TO THE TIMELY, ACCURATE AND QUALITY
PRODUCTION AND DELIVERY OF OUR PRODUCTS TO OUR CUSTOMERS, THE PROCESSING OF
ACCOUNTING INFORMATION, AND THE ASSOCIATED PROCESSING AND REPORTING OF
INFORMATION AS REQUIRED BY OUR BUSINESS PARTNERS, BANKS AND GOVERNMENT
AGENCIES. THE COMPANY HAS UPDATED ITS CORE SYSTEMS IN MEXICO. THE COMPANY
PRESENTLY BELIEVES THAT DUE IN-PART TO THESE MODIFICATIONS AND
REPLACEMENTS, THE YEAR 2000 ISSUE DID NOT POSE SIGNIFICANT OPERATIONAL
PROBLEMS FOR ITS COMPUTER SYSTEMS THROUGH JANUARY 20, 2000.
THE COMPANY HAS REVIEWED YEAR 2000 DISCLOSURES OF THE PACKAGED SOFTWARE
APPLICATIONS IT USES TO ENSURE YEAR 2000 COMPLIANCE. THE SUPPLIERS OF
THESE SOFTWARE PRODUCTS HAVE PROVIDED APPROACHES FOR THE COMPANY TO ENSURE
COMPLIANCE OF CORE SOFTWARE, EITHER THROUGH PROGRAM OPTIONS, UPGRADES OR
NEW PRODUCTS. THESE SOLUTIONS HAVE BEEN IMPLEMENTED AND ARE OPERATIONAL.
THE COMPANY REGULARLY UPGRADES AND REPLACES HARDWARE PLATFORMS SUCH AS
DATABASE AND APPLICATION SERVERS AS WELL AS ITS TELEPHONE SYSTEMS. ALL OF
THE COMPANY'S CRITICAL BUSINESS APPLICATION SERVERS ARE YEAR 2000 COMPLIANT
AND 100% OF OUR CORE PERSONAL COMPUTERS ARE YEAR 2000 COMPLIANT. THERE ARE
35 CORE TELEPHONE SWITCHING SYSTEMS, ALL OF WHICH ARE YEAR 2000 COMPLIANT.
THE EMBEDDED TECHNOLOGY IN THE PRODUCTION ENVIRONMENT, SUCH AS
PROGRAMMABLE LOGIC CONTROLLERS, COMPUTER-CONTROLLED VALVES AND OTHER
EQUIPMENT, HAS BEEN INVENTORIED AND ALL ISSUES IDENTIFIED HAVE BEEN
RESOLVED. THERE WAS NO SIGNIFICANT EXPOSURE WITH REGARD TO PRODUCTION
EQUIPMENT THROUGH JANUARY 20, 2000.
SYSTEMS ASSESSMENTS AND MINOR SYSTEM MODIFICATIONS WERE COMPLETED USING
EXISTING INTERNAL RESOURCES AND, AS A RESULT, INCREMENTAL COSTS WERE
MINIMAL. SYSTEM REPLACEMENT, CONSISTING PRIMARILY OF CAPITAL PROJECTS,
WERE INITIATED FOR OTHER BUSINESS PURPOSES WHILE AT THE SAME TIME ACHIEVING
YEAR 2000 COMPLIANCE. SYSTEM REPLACEMENT PROJECTS WERE COMPLETED PRIMARILY
USING EXTERNAL RESOURCES. THE TOTAL COST OF THE YEAR 2000 PROJECT DID NOT
HAVE A MATERIAL ADVERSE EFFECT ON THE COMPANY'S RESULTS OF OPERATIONS.
ADDITIONALLY, THE COMPANY INITIATED COMMUNICATIONS WITH ALL OF ITS
SIGNIFICANT SUPPLIERS AND CERTAIN LARGE CUSTOMERS TO DETERMINE THE EXTENT
TO WHICH THE COMPANY'S INTERFACE SYSTEMS ARE VULNERABLE TO THOSE THIRD
PARTIES' FAILURE TO REMEDIATE THEIR OWN YEAR 2000 ISSUES. MOST OF OUR
SIGNIFICANT SUPPLIERS, SUCH AS FUEL, ELECTRICAL, WATER, RAIL, GRAIN AND
CONTAINER, RESPONDED FAVORABLY. OTHER KEY VENDOR AND CUSTOMER ASSESSMENTS
WERE COMPLETED WITH FAVORABLE RESPONSES.
THE COMPANY INSTITUTED A TWO-FOLD APPROACH TO CONTINGENCY PLANNING;
TECHNICAL AND BUSINESS CONTINUITY. THE TECHNICAL CONTINGENCY PLANNING TOOK
PLACE IN CONJUNCTION WITH THE IMPLEMENTATION OF THE COMPANY'S NEW
INFORMATION SYSTEMS IN THE U.S., AND CONTINUED THROUGH THE END OF 1999
PICKING UP THE NON-CORE HARDWARE AND SUPPORT TECHNOLOGY IN BOTH THE U.S.
AND MEXICO. BUSINESS CONTINGENCY PLANNING IN THE END WAS MINIMAL BASED ON
OUR SUPPLIER EVALUATIONS AND ASSESSMENT OF RISK.
AS OF JANUARY 20, 2000, THERE HAVE BEEN NO SIGNIFICANT BUSINESS
INTERRUPTIONS RELATED TO THE YEAR 2000 ISSUE. THE COMPANY WILL CONTINUE TO
MONITOR AND TEST ITS SYSTEMS AND THOSE OF OUR KEY VENDORS AND DEVELOP
CONTINGENCY PLANS, IF NEEDED, SHOULD ANY ISSUES BE IDENTIFIED.
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 OR
OTHER DISCUSSIONS ELSEWHERE IN THIS FORM 10-Q CONTAINS FORWARD-LOOKING
STATEMENTS THAT ARE DEPENDENT UPON A NUMBER OF RISKS AND UNCERTAINTIES THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN THE FORWARD-
LOOKING STATEMENT. THESE RISKS AND UNCERTAINTIES INCLUDE CHANGES IN
COMMODITY PRICES OF FEED GRAIN AND CHICKEN, THE COMPANY'S SUBSTANTIAL
INDEBTEDNESS, RISKS ASSOCIATED WITH THE COMPANY'S FOREIGN OPERATIONS,
INCLUDING CURRENCY EXCHANGE RATE FLUCTUATIONS, TRADE BARRIERS, EXCHANGE
CONTROLS, EXPROPRIATION AND CHANGES IN LAWS AND PRACTICES, THE IMPACT OF
CURRENT AND FUTURE LAWS AND REGULATIONS, 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 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 7 of the Company's Annual Report on Form 10-K for the year ended
October 2, 1999.
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBIT NUMBER
10.26 Credit Agreement dated December 14, 1999 by and between Pilgrim's
Pride Corporation and CoBank, ACB, individually and as agent, and the
lenders from time to time parties thereto as lenders.
The Company did not file any reports on Form 8-K during the three months
ended January 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
Date JANUARY 20, 2000 /s/ Richard A. Cogdill
Richard A. Cogdill
Executive Vice President and
Chief Financial Officer
Secretary and Treasurer in his
respective capacity as such