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 March 31, 2001
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 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 XNo
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 May 14, 2001.
13,523,429 shares of the Registrant's Class A Common Stock, $.01 par value,
were outstanding as of May 14, 2001.
INDEX
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets
March 31, 2001 and September 30, 2000
Consolidated statements of income
Three months and six months ended March 31,
2001 and April 1, 2000
Consolidated statements of cash flows
Six months ended March 31, 2001 and April 1,
2000
Notes to condensed consolidated financial statements
March 31, 2001
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about
Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, 2001 September 30, 2000
ASSETS (in thousands)
Current Assets:
Cash and cash equivalents $ 4,745 $ 28,060
Trade accounts and other
receivables, less allowance
for doubtful accounts 109,675 50,286
Inventories 305,225 181,237
Deferred income taxes 5,091 6,256
Prepaid expenses and other
current assets 8,886 3,131
Total Current Assets 433,622 268,970
Other Assets: 23,695 18,576
Property, Plant and Equipment
Land 37,503 26,137
Buildings, machinery and equipment 865,147 565,034
Autos and trucks 52,413 48,187
Construction in progress 74,087 68,743
Total Fixed Assets 1,029,150 708,101
Less accumulated depreciation 310,206 290,227
718,944 417,874
$1,176,261 $705,420
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable to banks $ 59,000 $ --
Accounts payable 125,545 105,078
Accrued expenses 77,674 34,704
Current maturities of long-term debt 4,947 4,657
Total Current Liabilities 267,166 144,439
Long-Term Debt, less current maturities 460,346 165,037
Deferred Income Taxes 103,599 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 March 31, 2001 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 March 31, 2001 and September 30,
2000 276 276
Additional paid-in capital 79,625 79,625
Retained earnings 265,790 264,088
Less treasury stock (1,568) (1,568)
Total Stockholders' Equity 344,261 342,559
$1,176,261 $705,420
See notes to condensed consolidated financial statements.
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(UNAUDITED)
Three Months Ended Six Months Ended
March 31, April 1, March 31, April 1,
2001 2000 2000 2001
(in thousands, except share and per share data)
Net Sales $541,593 $373,260 $927,625 $728,085
Costs and Expenses:
Cost of sales 512,377 339,231 851,243 648,580
Selling, general
and administrative 34,488 20,747 58,443 41,001
546,865 359,978 909,686 689,581
Operating (loss) income (5,272) 13,282 17,939 38,504
Other Expense(Income):
Interest expense, net 7,085 4,699 11,225 8,602
Foreign exchange gain (loss) 42 (76) 163 (66)
Miscellaneous, net (281) (519) (403) (717)
6,846 4,104 10,985 7,819
Income (loss) before income taxes (12,118) 9,178 6,954 30,685
Income tax (benefit)expense (2,316) 155 4,019 6,804
Net income (loss)
$ (9,802) $ 9,023 $ 2,935 $ 23,881
Net income (loss) per common share
- basic and diluted $ (0.24) $ 0.22 $ 0.07 $ 0.58
Dividends per common share $ 0.015 $ 0.015 $ 0.03 $ 0.03
Weighted average shares
outstanding 41,112,679 41,383,779 41,112,679 41,383,779
See notes to condensed consolidated financial statements.
PILGRIM'S PRIDE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
March 31, 2001 April 1, 2000
(in thousands)
Cash Flows From Operating Activities:
Net income $2,935 $23,881
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation and amortization 20,820 17,464
(Loss)gain on property disposals (2) 40
Provision for doubtful accounts (329) (1,307)
Deferred income taxes (1,755) (6,020)
Changes in operating assets and liabilities:
Accounts and other receivables (4,034) 27,243
Inventories (17,777) (17,796)
Prepaid expenses (3,445) (877)
Accounts payable and accrued expenses (27,735) 1,042
Other (164) (262)
Cash (Used In)Provided By
Operating Activities (31,486) 43,408
Investing Activities:
Acquisitions of property, plant
and equipment (60,400) (35,368)
Business Acquisitions (239,539) -
Proceeds from property disposals 856 2,121
Other, net (364) (6,448)
Net Cash Used In Investing
Activities (299,447) (39,695)
Financing Activities:
Borrowing for Acquisition 285,070 -
Repayments on WLR Foods, Inc. Debt (45,531) -
Proceeds from notes payable to banks 136,000 35,000
Repayments of notes payable to banks (77,000) (35,000)
Proceeds from long-term debt 32,430 20,047
Payments on long-term debt (22,107) (27,840)
Cash dividends paid (1,233) (1,242)
Cash Provided By (Used In)
Financing Activities 307,629 (9,035)
Effect of exchange rate changes on
cash and cash equivalents (11) 90
Decrease in cash and cash
equivalents (23,315) (5,232)
Cash and cash equivalents at beginning of
period 28,060 15,703
Cash and cash equivalents at end of period $ 4,745 $ 10,471
Supplemental disclosure information:
Cash paid during the period for:
Interest (net of amount
capitalized) $8,590 $7,947
Income taxes $3,970 $12,737
See notes to consolidated financial statements.
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES
March 31, 2001
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE A-BASIS OF PRESENTATION AND ACQUISITION
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
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 March 31, 2001 are not necessarily indicative of the
results that may be expected for the year ending 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 January 27, 2001, the Company completed the acquisition of all of the
outstanding shares of WLR Foods, Inc. ("WLR") common stock for $14.25 per
share or approximately $239.5 million and refinanced approximately $45.5
million of WLR debt.
The purchase price and refinancing were provided by borrowings on the
Company's existing secured term borrowing facility and revolving credit
facility (See Note D ). WLR operations have been included since the
acquisition on January 27, 2001. The acquisition is being accounted for
under the purchase method of accounting and the purchase price has been
allocated primarily to fixed assets, summarized as follows:
Current assets, less current liabilities $ 77,549
Fixed assets 261,676
Deferred taxes established (54,024)
Long-term debt (45,662)
Total Purchase Price $239,539
The purchase price allocation is preliminary, but in the opinion of
management represents the estimated fair value of assets acquired and
liabilities assumed.
The following table represents pro forma financial information as if the
acquisition of WLR had occurred as of the first of each period presented.
Certain reclassifications have been made to the WLR historical financial
statements to conform to the presentation used by Pilgrim's Pride
Corporation.
Three Months Ended Six Months Ended
March 31, April 1, March 31, April 1,
2001 2000 2001 2000
(in thousands)
Net Sales $ 592,697 $ 572,442 $1,201,676 $1,146,070
Depreciation and
Amortization 14,116 15,489 28,968 30,083
Interest Expense, Net 9,466 12,128 21,468 23,300
Net Income(Loss) $ (13,678) $ (1,194) $ (2,133) $ 10,083
Net Income(Loss)Per
Common Share
- Basic and Diluted ($ 0.33) ($ 0.03) ($ 0.05) $ 0.25
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 March 31, 2001, and
September 30, 2000, an interest in these Pooled Receivables of $38.0
million and $35.4 million, respectively, 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 ("SFAS 125"). 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.
Effective April 1, 2001, the Company adopted FINANCIAL ACCOUNTING STANDARDS
BOARD STATEMENT NO. 140, ACCOUNTING FOR TRANSFERS AND SERVICING OF
FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES (SFAS NO. 140), the
statement is effective for transfers occurring after March 31, 2001. Under
the transition provisions of SFAS 140, assets transferred on or before
March 31, 2001, and transfers of assets after that date required by
commitments made before that date, shall continue to be accounted for under
SFAS 125. Beyond these transition provisions, the Company believes that
continued sales of the pooled receivables to third parties under the
facility will not be affected by the adoption of SFAS 140 and such sales
will be reflected in the Company's financial statements consistently with
the presentation under its predecessor SFAS 125.
NOTE C-INVENTORIES
Inventories consist of the following:
March 31, 2001 September 30, 2000
(in thousands)
Chicken:
Live chicken and hens $100,107 $ 72,438
Feed, eggs and other 65,598 54,627
Finished chicken products 69,185 54,172
$234,890 $181,237
Turkey:
Live turkey and hens $ 30,331 $ -
Feed, eggs and other 11,093 -
Finish turkey products 28,911 -
$ 70,335 $ -
Total Inventories $305,225 $181,237
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,
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 March 31, 2001 ranged from LIBOR plus five-
eighths percent to LIBOR plus two and one-quarter percent. These
facilities are secured by inventory and fixed assets or are unsecured.
Annual maturities of long-term debt for the five years subsequent to
September 30, 2000 adjusted for the additional borrowings to complete the
acquisition of WLR, are: 2001-$4.9 million; 2002 -$5.0 million; 2003 -
$98.6 million; 2004 - $20.0 million; and 2005 - $19.3 million.
At March 31, 2001, $20.6 million was available under the revolving credit
facilities and $95.0 million was available under the term borrowing
facilities.
NOTE E-RELATED PARTY TRANSACTIONS
Three Months Ended Six Months Ended
March 31, April 1, March 31, April 1,
2001 2000 2001 2000
(in thousands)
Contract egg grower fees to
major stockholder $ 3,852 $ 1,418 $ 5,100 $ 2,763
Lease payments on commercial
egg property 188 - 188 -
Chick, feed and other sales
to major stockholder 7,345 4,668 38,115 31,223
Live chicken purchases from
major stockholder 25,607 22,331 39,053 31,691
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
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 alleged the Company failed to pay
employees for all hours worked. The suit generally alleged 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 sought to recover
unpaid wages plus liquidated damages and legal fees. Approximately 1,700
consents to join as plaintiffs were filed with the court by current and/or
former employees. During the week of March 5, 2001, the case was tried in
the Federal Court of the Eastern District of Texas, Lufkin, Texas. The
Company prevailed at the trial with a judgment issued by the judge, which
found no evidence presented to support the plaintiffs allegations. The
plaintiffs have filed an appeal in the Fifth Circuit Court of Appeals to
reverse the judge's decision. 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, results of operations or liquidity. Substantially
similar suits have been filed against four other integrated chicken
companies, including WLR Foods, Inc, one of which resulted in a federal
judge dismissing most of the plaintiff's claims in that action with facts
similar to the Company's case.
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 met with the DOL
in a closing conference in March of 2001 and is currently considering the
recommendations presented by the DOL, the majority of which are procedural.
The Company does not expect this matter, individually or collectively, to
have a material impact on its financial position, results of operations or
liquidity.
NOTE G-BUSINESS SEGMENT
After the acquisition of WLR, the Company now operates in two reportable
business segments as (i) a producer of chicken and other products and (ii)
a producer of turkey products.
The Company's chicken and other products segment includes sales of chicken
and sales of other products it produces and purchases for resale in the
United States and Mexico. The chicken and other products segment conducts
separate operations in the United States and Mexico and is reported as two
separate geographical areas. The Company's turkey segment includes sales
of turkey products produced in its turkey operation recently acquired from
WLR, whose operations are exclusively in the United States.
Inter-area sales and inter-segment sales, which are not material, are
accounted for at prices comparable to normal trade customer sales.
Identifiable assets by segment and geographic area are those assets which
are used in the Company's operations in each segment or area, corporate
assets are included with chicken and other products.
The following table presents certain information regarding the Company's
segments:
Three Months Ended Six Months Ended
March 31, April 1, March 31, April 1,
2001 2000 2001 2000
(in thousands)
Net Sales to Customers:
Chicken and Other Products:
United States $ 394,322 $ 296,530 $ 701,874 $ 580,909
Mexico 75,844 76,730 154,324 147,176
Sub-total 470,166 373,260 856,198 728,085
Turkey 71,427 - 71,427 -
Total $ 541,593 $ 373,260 $ 927,625 $ 728,085
Operating Income(Loss):
Chicken and Other Products:
United States $ (257) $ 3,503 $ 20,374 $ 24,609
Mexico (5,202) 9,779 (2,622) 13,895
Sub-total (5,459) 13,282 17,752 38,504
Turkey 187 - 187 -
Total $ (5,272) $ 13,282 $ 17,939 $ 38,504
Depreciation and Amortization:
Chicken and Other Products:
United States $ 8,797 $ 5,956 $ 14,685 $ 11,705
Mexico 1,792 2,921 4,571 5,759
Sub-total 10,589 8,877 19,256 17,464
Turkey 1,564 - 1,564 -
Total $ 12,153 $ 8,877 $ 20,820 $ 17,464
Total Assets:
Chicken and Other Products:
United States $ 778,177 $ 481,466 $ 778,197 $ 481,466
Mexico 211,443 183,692 211,443 183,692
Sub-total 989,620 665,158 989,620 665,158
Turkey 186,641 - 186,641 -
Total $1,176,261 $ 665,158 $1,176,261 $ 665,158
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES
March 31, 2001
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Profitability in the poultry (inclusive of chicken and turkey) industry can
be materially affected by the commodity prices of poultry, poultry parts
and feed ingredients. Those commodity prices are determined largely by
supply and demand. As a result, the poultry industry as a whole has been
characterized by cyclical earnings. These cyclical fluctuations in
earnings of individual poultry 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.
In general, the Company's chicken and other sales are relatively stable
throughout the year. However, demand for turkey products is typically
strongest in September through December. Management responds to this
seasonality by attempting to manage operating volumes and inventory levels,
and the associated working capital requirements, to meet expected demand.
As a consequence, the Company's short-term borrowings typically peak in the
second quarter of each fiscal year, reflecting the buildup of turkey
product inventories.
The following table presents certain information regarding the Company's
segments:
Three Months Ended Six Months Ended
March 31, April 1, March 31, April 1,
2001 2000 2001 2000
(in thousands)
Net Sales to Customers:
Chicken and Other Products:
United States $ 394,322 $ 296,530 $ 701,874 $ 580,909
Mexico 75,844 76,730 154,324 147,176
Sub-total 470,166 373,260 856,198 728,085
Turkey 71,427 - 71,427 -
Total $ 541,593 $ 373,260 $ 927,625 $ 728,085
Operating Income(Loss):
Chicken and Other Products:
United States $ (257) $ 3,503 $ 20,374 $ 24,609
Mexico (5,202) 9,779 (2,622) 13,895
Sub-total (5,459) 13,282 17,752 38,504
Turkey 187 - 187 -
Total $ (5,272) $ 13,282 $ 17,939 $ 38,504
Depreciation and Amortization:
Chicken and Other Products:
United States $ 8,797 $ 5,956 $ 14,685 $ 11,705
Mexico 1,792 2,921 4,571 5,759
Sub-total 10,589 8,877 19,256 17,464
Turkey 1,564 - 1,564 -
Total $ 12,153 $ 8,877 $ 20,820 $ 17,464
The following table presents certain items as a percentage of net sales for
the periods indicated.
Percentage of Net Sales
Three Months Ended Six Months Ended
March 31, April 1, March 31, April 1,
2001 2000 2001 2000
Net Sales 100.0 % 100.0 % 100.0 % 100.0 %
Costs and Expenses:
Cost of sales 94.6 90.9 91.8 89.1
Gross profit 5.4 9.1 8.2 10.9
Selling, general and
administrative 6.4 5.6 6.3 5.6
Operating (Loss) Income (1.0) 3.6 1.9 5.3
Interest Expense 1.3 1.3 1.2 1.2
Income (loss) before
Income Taxes (2.2) 2.5 0.7 4.2
Net Income (loss) (1.8) 2.4 0.3 3.3
RESULTS OF OPERATIONS
On January 27, 2001, the Company completed the acquisition of WLR Foods,
Inc. ("WLR"), a vertically integrated producer of chicken and turkey
products located in the Eastern United States. Accordingly, nine weeks of
operations of the former WLR are included in the Company's results for the
second quarter of fiscal 2001 and the first six months of fiscal 2001.
FISCAL SECOND QUARTER 2001 COMPARED TO FISCAL SECOND QUARTER 2000
CONSOLIDATED NET SALES. Consolidated net sales were $541.6 million for the
second quarter of fiscal 2001, an increase of $168.3 million, or 45.1%,
from the second quarter of fiscal 2000. The increase in consolidated net
sales resulted from a $94.1 million increase in U.S. chicken sales to
$347.8 million, a $71.4 million increase in turkey sales and a $3.7 million
increase in sales of other U.S. products to $46.6 million, partially offset
by a $0.9 million decrease in Mexico chicken sales to $75.8 million. The
increase in U.S. chicken sales was primarily due to a 31.1% increase in
dressed pounds produced, all of which was due to the acquisition of WLR,
and to a 4.5% increase in total revenue per dressed pound produced. The
increase in turkey sales was due to the addition of this product line from
the acquisition of WLR. The $3.7 million increase in sales of other U.S.
products was due primarily to the acquisition of WLR. The $0.9 million
decrease in Mexico chicken sales was primarily due to a 19.5% decrease in
revenue per dressed pound resulting from an oversupply of chicken in
Mexico, partially offset by a 22.8% increase in dressed pounds produced.
COST OF SALES. Consolidated cost of sales was $512.4 million in the second
quarter of fiscal 2001, an increase of $173.1 million, or 51.0%, compared
to the second quarter of fiscal 2000. The increase resulted primarily from
a $159.0 million increase in the cost of sales of U.S. operations and from
a $14.1 million increase in the cost of sales in Mexico operations.
The cost of sales increase in our U.S. operations of $159.0 million was due
primarily to the acquisition of WLR, $64.6 million of which related to the
turkey operations, and increased production of higher cost prepared food
products, higher energy costs and higher feed ingredient costs.
The $14.1 million cost of sales increase in our Mexico operations was
primarily due to a 22.8% increase in dressed pounds produced offset
partially by a 0.2% decrease in average costs of sales per dressed pound
produced.
GROSS PROFIT. Gross profit was $29.2 million for the second quarter of
fiscal 2001, a decrease of $4.8 million, or 14.1%, over the same period
last year. Gross profit as a percentage of sales decreased to 5.4% in the
second quarter of fiscal 2001 from 9.1% in the second quarter of fiscal
2000 due to lower net sales in Mexico and lower margins in our U.S.
operations as 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,
future operations 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 $34.5 million in the second
quarter of fiscal 2001 and $20.7 million in the second quarter of fiscal
2000. The $13.7 million, or 66.2%, increase was due primarily to the
acquisition of WLR and certain integration costs related thereto.
Consolidated selling, general and administrative expenses as a percentage
of sales increased in the second quarter of fiscal 2001 to 6.4%, compared
to 5.6% in the second quarter of fiscal 2000.
OPERATING INCOME (LOSS). Consolidated operating loss was $5.3 million for
the second quarter of fiscal 2001, a decrease of $18.6 million when
compared to the second quarter of fiscal 2000, resulting primarily from
lower net margins in Mexico and lower margins in our U.S. operations as
discussed above.
INTEREST EXPENSE. Consolidated net interest expense increased 50.8% to
$7.1 million in the second quarter of fiscal 2001, compared to $4.7 million
in the second quarter of fiscal 2000, due to higher outstanding balances
resulting from the acquisition of WLR offset partially by lower interest
rates experienced in the second quarter of fiscal 2001.
INCOME TAX BENEFIT. Consolidated income tax benefit in the second
quarter of fiscal 2001 was $2.3 million compared to an expense of $0.2
million in the second quarter of fiscal 2000. This benefit resulted from a
pre-tax loss in the U.S. Operations in the second quarter of fiscal 2001.
FIRST SIX MONTHS OF FISCAL 2001 COMPARED TO FIRST SIX MONTHS OF FISCAL 2000
CONSOLIDATED NET SALES. Consolidated net sales were $927.6 million for the
first six months of fiscal 2001, an increase of $199.5 million, or 27.4%,
from the first six months of fiscal 2000. The increase in consolidated net
sales resulted from a $109.7 million increase in U.S. chicken sales to
$613.6 million, a $71.4 million increase in turkey sales, and an $11.3
million increase in sales of other U.S. products to $88.3 million and a
$7.1 million increase in Mexico chicken sales to $154.3 million. The
increase in U.S. chicken sales was primarily due to an 18.7% increase in
dressed pounds produced, which resulted primarily from the acquisition of
WLR, and to a 2.6% increase in total revenue per dressed pound produced.
The increase in turkey sales was due to the acquisition of WLR. The $11.3
million increase in sales of other U.S. products to $88.3 million was
primarily due to the acquisition of WLR and higher prices in the Company's
commercial egg and poultry byproducts operations. The $7.1 million increase
in Mexico chicken sales was primarily due to a 16.3% increase in dressed
pounds produced offset partially by a 9.9% decrease in average revenue per
dressed pound produced.
COST OF SALES. Consolidated cost of sales was $851.2 million in the first
six months of fiscal 2001, an increase of $202.7 million, or 31.3%,
compared to the first six months of fiscal 2000. The increase resulted
primarily from a $180.0 million increase in the cost of sales of U.S.
operations and by a $22.7 million increase in the cost of sales in Mexico
operations.
The cost of sales increase in our U.S. operations of $180.0 million was due
primarily to the acquisition of WLR, $64.6 million of which related to the
turkey operations, increased production of higher cost prepared food
products, higher energy costs and higher feed ingredient costs.
The $22.7 million cost of sales increase in our Mexico operations was
primarily due to a 16.3% increase in dressed pounds produced and by a 1.6%
increase in average costs of sales per dressed pound produced.
GROSS PROFIT. Gross profit was $76.4 million for the first six months of
fiscal 2001, a decrease of $3.1 million, or 3.9%, over the same period last
year. Gross profit as a percentage of sales decreased to 8.2% in the first
six months of fiscal 2001 from 10.9% in the first six months of fiscal 2000
due to lower net sales in Mexico and lower margins in our U.S. operations
as 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. To the extent that these trends continue, subsequent
period's operations 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 $58.4 million in the first six
months of fiscal 2001 and $41.0 million in the first six months of fiscal
2000. The $17.4 million increase was due primarily to the acquisition of
WLR and certain integration costs related thereto. Consolidated selling,
general and administrative expenses as a percentage of sales increased in
the first six months of fiscal 2001 to 6.3%, compared to 5.6% in the first
six months of fiscal 2000.
OPERATING INCOME. Consolidated operating income was $17.9 million for the
first six months of fiscal 2001, a decrease of $20.6 million when compared
to the first six months of fiscal 2000, resulting primarily from lower net
margins in Mexico and lower margins in our U.S. operations.
INTEREST EXPENSE. Consolidated net interest expense increased 30.5% to
$11.2 million in the first six months of fiscal 2001, when compared to $8.6
million for the first six months of fiscal 2000, due to higher outstanding
balances incurred for the acquisition of WLR, offset partially by lower
interest rates experienced in the first six months of fiscal 2001.
INCOME TAX EXPENSE. Consolidated income tax expense in the first six
months of fiscal 2001 decreased to $4.0 million compared to an expense of
$6.8 million in the first six months of fiscal 2000. This decrease
resulted from lower U.S. pre-tax earnings in the first six months of fiscal
2001 than in the first six months 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,
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 March 31, 2001 ranged from LIBOR plus five-
eighths percent, to LIBOR plus two and one-quarter 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 to the Consolidated Financial
Statements".
At March 31, 2001, $20.6 million was available under the revolving credit
facilities and $95.0 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 March 31, 2001, and
September 30, 2000, an interest in these Pooled Receivables of $38.0
million and $35.4 million, respectively, 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 ("SFAS 125"). 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.
At March 31, 2001, the Company's working capital and current ratio were
$166.5 million and 1.62 to 1, respectively, compared to $124.5 million and
1.86 to 1, respectively, at September 30, 2000.
Trade accounts and other receivables were $109.7 million at March 31, 2001,
compared to $50.3 million at September 30, 2000. The $59.4 million
increase between March 31, 2001 and September 30, 2000 was due primarily to
the acquisition of WLR's trade receivables and other accounts partially
offset by the sale of receivables under the asset sale agreement discussed
above.
Accounts payable and accrued expenses were $203.2 million at March 31,
2001, compared to $139.8 million at September 30, 2000, an increase of
$63.4 million, or 45.4%, which was primarily due to the acquisition of
WLR.
Inventories were $305.2 million at March 31, 2001, compared to $181.2
million at September 30, 2000. The $124.0 million, or 68.4%, increase in
inventories between March 31, 2001 and September 30, 2000 was primarily due
to the acquisition of WLR.
Capital expenditures of $60.4 million and $35.4 million for the six month
periods ended March 31, 2001 and April 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 (used in) provided by operating activities were ($31.5) million
and $43.4 million for the six-month periods ended March 31, 2001 and April
1, 2000, respectively. The decrease in cash flows provided by operating
activities for the six months ended March 31, 2001, when compared to the
six months ended April 1, 2000, was due primarily to the variations in
accounts receivable upon initial use of the asset sale program last year
discussed above, lower net income than the prior year and decreases in
accounts payable.
Cash flows provided by (used in) financing activities were $307.6 million
and ($9.0) million for the six-month periods ended March 31, 2001 and April
1, 2000, respectively. The cash used in financing activities primarily
reflects the net proceeds and payments from notes payable and long-term
financing and debt retirement. The substantial increase was primarily due
to funds provided and used for the WLR acquisition.
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
statements. These risks and uncertainties include changes in commodity
prices of feed ingredients and poultry, 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 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
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
The risk inherent in the Company's market risk sensitive instruments and
positions is the potential loss arising from adverse changes in the price
of feed ingredients and interest rates as discussed below and as adjusted
for the acquisition of WLR. The sensitivity analyses presented do not
consider the effects that such adverse changes may have on overall economic
activity, nor do they consider additional actions management may take to
mitigate its exposure to such changes. Actual results may differ.
FEED INGREDIENTS. The Company is a purchaser of certain commodities,
primarily corn and soybean meal. As a result, the Company's earnings are
affected by changes in the price and availability of such feed ingredients.
The Company from time to time will lock-in future feed ingredient prices
using various hedging techniques, including forward purchases agreements
with suppliers and futures contracts. The Company does not use such
financial instruments for trading purposes and is not a party to any
leveraged derivatives. Market risk is estimated as a hypothetical 10%
increase in the weighted-average cost of the Company's primary feed
ingredients as of September 30, 2000. Based on projected 2001 feed
consumption, such an increase would result in an increase to cost of sales
of approximately $47.5 million in 2001. As of March 31, 2001, the Company
had hedged none of its 2001 feed requirements.
INTEREST RATES. The Company's earnings are also affected by changes in
interest rates due to the impact those changes have on its variable-rate
debt instruments. The acquisition of WLR substantially increased the
Company's outstanding balances of variable rate debt. The Company, after
adjusting for the additional borrowing to complete the acquisition of WLR,
has variable-rate debt instruments representing approximately 65.6% of its
long-term debt at March 31, 2001. If interest rates average 25 basis
points more in 2001 than they did during 2000, the Company's interest
expense would be increased by $794,000. These amounts are determined by
considering the impact of the hypothetical interest rates on the Company's
variable-rate long-term debt at March 31, 2001.
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES
March 31, 2001
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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 alleged the Company failed to pay
employees for all hours worked. The suit generally alleged 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 sought to recover
unpaid wages plus liquidated damages and legal fees. Approximately 1,700
consents to join as plaintiffs were filed with the court by current and/or
former employees. During the week of March 5, 2001, the case was tried in
the Federal Court of the Eastern District of Texas, Lufkin, Texas. The
Company prevailed at the trial with a judgment issued by the judge, which
found no evidence presented to support the plaintiffs' allegations. The
plaintiffs have filed an appeal in the Fifth Circuit Court of Appeals to
reverse the judge's decision. 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, operations or liquidity. Substantially similar suits
have been filed against four other integrated chicken companies, including
WLR Foods, Inc, one of which resulted in a federal judge dismissing most of
the plaintiffs' claims in that action with facts similar to the Company's
case.
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 met with the DOL
in a closing conference in March of 2001 and is currently considering the
recommendations presented by the DOL, the majority of which are procedural.
The Company does not expect this matter, individually or collectively, to
have a material impact on its financial position, operations or liquidity.
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Pilgrim's Pride Corporation held its Annual Meeting of Shareholders on
January 31, 2001. The meeting was held to elect the Board of Directors for
the ensuing year; to appoint Ernst & Young LLP as the Company's independent
auditors for the fiscal year ending September 29, 2001; and to transact
such other business as may be properly brought before the meeting. There
were 12,505,402 Class A shares and 24,695,890 Class B shares represented
with one vote per share for Class A shares (or 12,505,402 votes in the
aggregate) and twenty votes per share for Class B shares, (493,917,800
votes in the aggregate). With regard to the election of Directors for the
ensuing year, the following votes were cast:
NOMINEE FOR WITHHELD
Lonnie "Bo" Pilgrim
Class A 12,240,089 265,313
Class B 466,930,100 26,987,700
Clifford E. Butler
Class A 12,440,046 65,356
Class B 489,657,860 4,259,940
David Van Hoose
Class A 12,446,259 59,143
Class B 489,667,960 4,249,840
Richard A. Cogdill
Class A 12,446,259 59,143
Class B 489,667,960 4,249,840
Lonnie Ken Pilgrim
Class A 12,241,812 263,590
Class B 466,927,120 26,990,680
Charles L. Black
Class A 12,444,984 60,418
Class B 490,214,940 3,702,860
S. Key Coker
Class A 12,445,259 60,143
Class B 490,227,960 3,689,840
Vance C. Miller, Sr.
Class A 12,445,109 60,293
Class B 490,219,960 3,697,840
James G. Vetter, Jr.
Class A 12,438,546 66,856
Class B 489,595,720 4,322,080
Donald L. Wass, Ph.D.
Class A 12,444,659 60,743
Class B 490,209,960 3,707,840
All Directors were elected by the above results.
With regard to ratifying the appointment of Ernst & Young LLP as the
Company's independent auditors for fiscal 2001, the following votes were
cast:
For Against Abstained
Class A 12,496,269 7,164 1,969
Class B 493,652,180 153,900 111,720
Ernst & Young LLP was appointed as independent auditors for fiscal 2001 by
the above results.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBIT NUMBER
12. Ratio of earnings to Fixed Charges for the six months ended March
31, 2001 and April 1, 2000.*
* Filed herewith
FORM 8-K FILINGS
The Company filed a Form 8-K on February 8, 2001, relating to the
acquisition by a wholly-owned subsidiary of Pilgrim's Pride Corporation of
WLR
The Company filed a Form 8-K/A on April 12, 2001, as an amendment to the
Form 8-K filed on February 8, 2001, relating to the acquisition by a
wholly-owned subsidiary of Pilgrim's Pride Corporation of WLR
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 May 15, 2001 Richard A. Cogdill
Executive Vice President and
Chief Financial Officer and
Secretary and Treasurer
in his respective capacity as such
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES
March 31, 2001
EXHIBIT 12
PILGRIM'S PRIDE CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
SIX MONTHS ENDED
MARCH 31, APRIL 1,
2001 2000
EARNINGS:
Income before income taxes and extraordinary $ 6,954 $ 30,685
charge
Add: Total fixed charges (see below) 19,596 12,343
Less: Interest Capitalized 3,546 1,729
Total Earnings $ 23,004 $ 41,299
FIXED CHARGES:
Interest (1) $15,173 $ 8,603
Portion of rental expense representative of the
interest factor 4,423 3,740
Total fixed charges $ 19,596 $12,343
Ratio of earnings to fixed charges 1.17 3.35
(1) Interest includes amortization of
capitalized financing fees.