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 29, 2001
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 22, 2002.
13,523,429 shares of the Registrant's Class A Common Stock, $.01 par value,
were outstanding as of January 22, 2002.
INDEX
PILGRIM'S PRIDE CORORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets
December 29, 2001 and September 29, 2001
Consolidated statements of income
Three months ended December 29, 2001 and
December 30, 2000
Consolidated statements of cash flows
Three months ended December 29, 2001 and
December 30, 2000
Notes to consolidated financial statements December
29, 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 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)
December 29, 2001 September 29, 2001
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $14,398 $ 20,916
Trade accounts and other
receivables, less allowance
for doubtful accounts 92,211 95,022
Inventories 260,140 314,400
Other current assets 13,998 12,934
Total Current Assets 380,747 443,272
OTHER ASSETS 19,999 20,067
PROPERTY, PLANT AND EQUIPMENT
Land 36,350 36,350
Buildings, machinery and equipment 935,108 929,922
Autos and trucks 53,349 53,264
Construction-in-progress 83,002 71,427
1,107,809 1,090,963
Less accumulated depreciation 355,117 338,607
752,692 752,356
$1,153,438 $1,215,695
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $143,236 $151,265
Accrued expenses 88,974 83,558
Current maturities of long-term debt 5,177 5,099
Total Current Liabilities 237,387 239,922
LONG-TERM DEBT, LESS CURRENT MATURITIES 396,945 467,242
DEFERRED INCOME TAXES 126,573 126,710
MINORITY INTEREST IN SUBSIDIARY 889 889
COMMITMENTS AND CONTINGENCIES -- --
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 138 138
Common stock - Class B, $.01 par
value, authorized 60,000,000 shares;
27,589,250 issued and outstanding 276 276
Additional paid-in capital 79,625 79,625
Retained earnings 315,128 302,758
Accumulated other comprehensive loss (1,955) (297)
Less treasury stock, 271,100 shares (1,568) (1,568)
Total Stockholders' Equity 391,644 380,932
$1,153,438 $1,215,695
See notes to consolidated financial statements.
Pilgrim's Pride Corporation and Subsidiaries
Consolidated Income Statements
(Unaudited)
THREE MONTHS ENDED
DECEMBER 29, 2001 DECEMBER 30, 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NET SALES $656,030 $386,032
COSTS AND EXPENSES:
Cost of sales 598,165 338,866
Selling, general and administrative 34,535 23,955
632,700 362,821
Operating income 23,330 23,211
OTHER EXPENSE (INCOME):
Interest expense, net 8,573 4,140
Foreign exchange (gain)loss (535) 121
Miscellaneous, net (387) (122)
7,651 4,139
INCOME BEFORE INCOME TAXES 15,679 19,072
INCOME TAX EXPENSE 2,688 6,335
NET INCOME $ 12,991 $ 12,737
NET INCOME PER COMMON SHARE
- BASIC AND DILUTED $ 0.32 $ 0.31
DIVIDENDS DECLARED PER COMMON SHARE $ 0.015 $ 0.015
WEIGHTED AVERAGE SHARES OUTSTANDING 41,112,679 41,112,679
See notes to consolidated financial statements.
Pilgrim's Pride Corporation and Subsidiaries
Consolidated Statements of Cash Flow
(Unaudited)
THREE MONTHS ENDED
DECEMBER 29, 2001 DECEMBER 30, 2002
(IN THOUSANDS)
Cash Flows From Operating Activities:
Net income $12,991 $12,737
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 17,399 8,668
Loss (Gain) on property disposals 32 (8)
Provision for doubtful accounts 128 173
Deferred income taxes (138) 3,991
Changes in operating assets and liabilities:
Accounts and other receivables 2,683 (14,174)
Inventories 54,260 14,025
Prepaid expenses (1,064) (925)
Accounts payable and accrued expenses (2,613) (8,363)
Other (1,905) (124)
Cash Provided By Operating
Activities 81,773 16,000
INVESTING ACTIVITIES:
Acquisitions of property, plant and
equipment (17,333) (32,607)
Proceeds from property disposals 84 56
Other, net (278) (620)
Net Cash Used In Investing
Activities (17,527) (33,171)
FINANCING ACTIVITIES:
Proceeds from notes payable to banks 18,500 70,000
Repayments of notes payable to banks (18,500) (60,500)
Proceeds from long-term debt 10,223 10,701
Payments on long-term debt (80,441) (19,144)
Cash dividends paid (621) (621)
Cash (Used In) Provided By
Financing Activities (70,839) 436
Effect of exchange rate changes on cash
and cash equivalents 75 (48)
Decrease in cash and cash equivalents (6,518) (16,783)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 20,916 28,060
CASH AND CASH EQUIVALENTS AT END OF PERIOD $14,398 $11,277
SUPPLEMENTAL DISCLOSURE INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) $ 4,148 $ 1,661
Income taxes 178 517
See notes to consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A-BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Pilgrim's
Pride Corporation ("Pilgrim's" or "Company") have been prepared in
accordance with accounting principles generally accepted in the United
States 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. Operating
results for the period ended December 29, 2001 are not necessarily
indicative of the results that may be expected for the year ended September
28, 2002. 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 29, 2001.
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.
Effective January 1, 2002, the Mexican Congress passed the Mexico Tax Reform
(the "Reform"), which eliminated the previous tax exemption under Simplified
Regime for the Company's Mexico subsidiaries. The Reform will require that
the Company's Mexico subsidiaries calculate and pay taxes under a new special
regime of the Mexico Income Tax Laws beginning January 1, 2002, subject to
transitional provisions. The Company is evaluating the effect of the changes
to the Mexico tax law, which will likely be reflected in the second quarter
results and are not expected to have a material effect on the Company cash
flows or financial position.
Total comprehensive income for the three months ending December 29, 2001
and December 30, 2000 was $11.3 million and $12.7 million, respectively.
On January 27, 2001, we acquired WLR Foods, Inc. (formerly Nasdaq: WLRF)
for approximately $239.5 million and the assumption of approximately $45.5
million of indebtedness. The purchase price and refinancing were provided
by borrowings on the Company's existing secured term borrowing facility and
revolving credit facility. 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, which is
still preliminary, has been allocated based on the estimated fair value of
assets and liabilities.
The following table represents pro forma financial information as if the
acquisition of WLR had occurred as of the first day of each period
presented. Certain reclassifications have been made to the WLR historical
financial statements to conform to the presentation used by Pilgrim's.
THREE MONTHS ENDED
DECEMBER 29, 2001 DECEMBER 30, 2000
(in thousands)
HISTORICAL PRO FORMA
Net Sales $656,030 $601,396
Operating Income 23,330 29,798
Interest Expense, Net 8,573 10,900
Income Before Tax 15,679 18,896
Net Income 12,991 12,629
Depreciation and Amortization 17,399 16,397
Net Income Per Common Share
- Basic and Diluted $ 0.32 $ 0.31
NOTE B-ACCOUNTS RECEIVABLE
On June 26, 1998 the Company entered into an Asset Sale Agreement to sell
up to $60 million of accounts receivable. In connection with the Asset
Sale 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 29, 2001 and September
29, 2001, an interest in these Pooled Receivables of $60.0 million and
$58.5 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. 140,
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES. The increase in pooled receivable sales
from September 29, 2001, is included in cash flows from operating
activities in the Consolidated Statements of Cash Flows. Losses on these
sales were immaterial.
NOTE C-INVENTORIES
Inventories consist of the following:
DECEMBER 29, 2001 SEPTEMBER 29, 2001
(IN THOUSANDS)
Chicken:
Live chicken and hens $ 65,337 $ 97,073
Feed, eggs and other 78,326 77,970
Finished chicken products 61,317 70,493
204,980 245,536
Turkey:
Live turkey and hens 32,353 30,694
Feed, eggs and other 3,329 3,906
Finished turkey products 19,478 34,264
55,160 68,864
Total Inventory $260,140 $314,400
NOTE D-LONG TERM DEBT
At December 29, 2001, the Company maintained $130.0 million in revolving
credit facilities and $400.0 million in secured revolving/term borrowing
facility. The $400.0 million revolving/term borrowing facility provides
for $285.0 million and $115.0 million of 10 year and 7 year commitments,
respectively. Borrowings under these facilities are split pro rata between
the 10 year and 7 year maturities as they occur. The credit facilities
provide for interest at rates ranging from LIBOR plus five-eights 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 29, 2001 ranged from LIBOR plus one and
one-quarter percent to LIBOR plus two and one-quarter percent. These
facilities are secured by inventory and fixed assets or are unsecured. At
December 29, 2001, $84.3 million was available under the revolving credit
facility and $294.0 million was available under the term borrowing
facility. Annual maturities of long-term debt for the remainder of fiscal
2002 and for the five years subsequent to December 29, 2001 are: 2002 --
$3.9 million; 2003 -- $6.4 million; 2004 -- $11.8 million; 2005 -- $11.5
million; and 2006 -- $50.6 million.
NOTE E-RELATED PARTY TRANSACTIONS
The major stockholder of the Company owns an egg laying and a chicken
growing operation.
Transactions with related parties are summarized as follows:
THREE MONTHS ENDED
DECEMBER 29, 2001 DECEMBER 30, 2000
(IN THOUSANDS)
Contract egg grower fees to
major stockholder $ -- $ 1,248
Lease payment to major stockholder 188 --
Chick, feed and other sales to major
stockholder 37,107 30,770
Live chicken purchases from major stockholder 20,550 13,446
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 agreement. The lease term runs for ten years with a monthly lease
payment of $62,500. 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.
The Company had accounts receivable of approximately $0.1 million at
December 29, 2001, from related parties, including its major stockholder.
NOTE F-CONTINGENCIES
In January of 1998, seventeen of our current and/or former employees 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 Pilgrim's Pride violated requirements of the Fair Labor
Standards Act. The suit alleged Pilgrim's Pride failed to pay employees
for all hours worked. The suit generally alleged that (1) 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 (2) 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. The plaintiff's brief was submitted to the court on
November 5, 2001. Pilgrim's Pride's response to the plaintiff's brief to
the Fifth Circuit Court of Appeals was submitted on December 5, 2001.
Appellants filed a short reply brief. The National Chicken Council has
filed an Amicus Curiae brief in support of our position on this appeal,
which was accepted by the court. 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 our
financial position, operations or liquidity. Substantially similar suits
have been filed against four other integrated poultry companies, including
WLR Foods, one of which resulted in a federal judge dismissing most of the
plaintiffs' claims in that action with facts similar to our case.
In August of 2000, four of our current and/or former employees filed the
case of "Betty Kennell, et al. v. Wampler Foods, Inc." in the United
States District Court for the Northern District of West Virginia, claiming
we violated requirements of the Fair Labor Standards Act. The suit
generally makes the same allegations as Anderson v. Pilgrim's Pride
discussed above. Plaintiffs seek to recover unpaid wages plus liquidated
damages and legal fees. Approximately 150 consents to join as plaintiffs
were filed with the court by current and/or former employees. No trial
date has been set. To date, only limited discovery has been performed.
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. We do not expect this matter, individually or collectively, to have
a material impact on our financial position, operations or liquidity.
NOTE G - BUSINESS SEGMENTS
Since the acquisition of WLR Foods on January 27, 2001, the Company
operates in two reportable business segments as (1) a producer of chicken
and other products and (2) a producer of turkey products.
The Company's chicken and other products segment primarily includes sales
of chicken products the Company produces and purchases for resale in the
United States and Mexico, and also includes table eggs and feed. The
Company's 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 our turkey operation recently acquired from WLR Foods,
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.
Corporate assets and expenses are included with chicken and other products.
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES
December 29,2001
THREE MONTHS ENDED
DECEMBER 29, 2001 DECEMBER 30, 2000
(IN THOUSANDS)
Net Sales to Customers:
Chicken and Other Products:
United States $ 448,063 $ 307,552
Mexico 90,916 78,480
Sub-total 538,979 386,032
Turkey 117,051 --
Total $ 656,030 $ 386,032
OPERATING INCOME:
Chicken and Other Products:
United States $ 9,356 $ 20,631
Mexico 8,471 2,580
Sub-total 17,827 23,211
Turkey 5,503 --
Total $ 23,330 $ 23,211
DEPRECIATION AND AMORTIZATION:
Chicken and Other Products:
United States $ 10,792 $ 5,889
Mexico 3,417 2,779
Sub-total 14,209 8,668
Turkey 3,190 --
Total $ 17,399 $ 8,668
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Profitability in the poultry industry is materially affected by the
commodity prices of feed ingredients, chicken and turkey, which are
determined by supply and demand factors. As a result, the chicken and
turkey industries are subject to cyclical earnings fluctuations. Cyclical
earnings fluctuations 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 foods products. Prepared foods products generally
have higher profit margins than our other products. Also, the production
and sale in the U.S. of prepared foods 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 30.1% of our cost of goods sold in fiscal 2001. The
production of feed ingredients is positively or negatively affected
primarily by weather patterns throughout the world, the global level of
supply inventories, demand for feed ingredients 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. Products sold in this form enable us to
charge a premium, reduce the impact of feed ingredient costs on our
profitability and improve and stabilize our profit margins.
The following table presents certain information regarding our segments:
THREE MONTHS ENDED
DECEMBER 29, 2001 DECEMBER 30, 2000
(IN THOUSANDS)
Net Sales to Customers:
Chicken and Other Products:
United States $448,063 $307,552
Mexico 90,916 78,480
Sub-total 538,979 386,032
Turkey 117,051 --
Total $656,030 $386,032
OPERATING INCOME:
Chicken and Other Products:
United States $ 9,356 $ 20,631
Mexico 8,471 2,580
Sub-total 17,827 23,211
Turkey 5,503 --
Total $ 23,330 $ 23,211
DEPRECIATION AND AMORTIZATION:
Chicken and Other Products:
United States $ 10,792 $ 5,889
Mexico 3,417 2,779
Sub-total 14,209 8,668
Turkey 3,190 --
Total $ 17,399 $ 8,668
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES
December 29,2001
The following table presents certain items as a percentage of net sales for
the periods indicated.
Percentage of Net Sales
THREE MONTHS ENDED
DECEMBER29, 2001 DECEMBER 30, 2000
(IN THOUSANDS)
Net Sales 100.0 % 100.0 %
Costs and Expenses:
Cost of sales 91.2 87.8
Gross profit 8.8 12.2
Selling, general and administrative 5.3 6.2
Operating Income 3.6 6.0
Interest Expense 1.3 1.1
Income Before Income Taxes 2.4 4.9
Net Income 2.0 3.3
RESULTS OF OPERATIONS
FISCAL FIRST QUARTER 2002 COMPARED TO FISCAL FIRST QUARTER 2001
On January 27, 2001, we completed the acquisition of WLR Foods, a
vertically integrated producer of chicken and turkey products located in
the eastern United States. Accordingly, the former WLR Foods operations are
included in our results for the first quarter ended December 29, 2001 and
not in the quarter ended December 30, 2000.
CONSOLIDATED NET SALES. Consolidated net sales were $656.0 million for the
first quarter of fiscal 2002, an increase of $270.0 million, or 69.9%, from
the first quarter of fiscal 2001. The increase in consolidated net sales
resulted from a $136.4 million increase in U.S. chicken sales to $402.2
million, a $117.1 million increase in turkey sales, a $12.4 million
increase in Mexico chicken sales to $90.9 million and a $4.1 million
increase in sales of other U.S. products to $45.8 million. The increase in
U.S. chicken sales was primarily due to a 55.8% increase in dressed pounds
produced, which resulted primarily from the acquisition of WLR Foods,
offset partially by a 2.9% decrease in total revenue per dressed pound
produced. The increase in turkey sales was due to the acquisition of WLR
Foods. The $12.4 million increase in Mexico chicken sales was primarily due
to an 8.6% increase in average revenue per dressed pound produced and by
6.7% increase in dressed pounds produced. The $4.1 million increase in
sales of other U.S. products to $45.8 million was primarily due to the
acquisition of WLR Foods.
COST OF SALES. Consolidated cost of sales were $598.2 million in the
first quarter of fiscal 2002, an increase of $259.3 million, or 76.5%,
compared to the first quarter of fiscal 2001. The U.S. operations accounted
for $254.4 million of the increase in the cost of sales and our Mexico
operations accounted for $4.9 million of the increase.
The cost of sales increase in our U.S. operations of $254.4 million was due
primarily to the acquisition of WLR Foods, $105.7 million of which related
to the turkey operations. The increase in cost of sales of chicken
products also resulted from increased production of higher cost prepared
foods products.
The $4.9 million cost of sales increase in our Mexico operations was
primarily due to a 6.7% increase in dressed pounds produced.
GROSS PROFIT. Gross profit was $57.9 million for the first quarter of
fiscal 2002, an increase of $10.7 million, or 22.7%, over the same period
last year, due primarily to the acquisition of WLR Foods. Gross profit as a
percentage of sales decreased to 8.8% in the first quarter of fiscal 2002,
from 12.2% in the first quarter of fiscal 2001 due primarily to lower
commodity chicken sales prices experienced in our Eastern Division.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Consolidated selling,
general and administrative expenses were $34.5 million in the first quarter
of fiscal 2002 and $24.0 million in the first quarter of fiscal 2001. The
$10.5 million increase was due primarily to the acquisition of WLR Foods.
Consolidated selling, general and administrative expenses as a percentage
of sales decreased in the first quarter of fiscal 2002 to 5.3%, compared to
6.2% in the first quarter of fiscal 2001, due primarily to synergies
resulting from the WLR Foods acquisition.
OPERATING INCOME. Consolidated operating income remained relatively stable
at $23.3 million for the first quarter of fiscal 2002, increasing by
approximately $0.1 million, when compared to the first quarter of fiscal
2001.
INTEREST EXPENSE. Consolidated net interest expense increased 107.1% to
$8.6 million in the first quarter of fiscal 2002, when compared to $4.1
million for the first quarter of fiscal 2001, due to higher outstanding
balances incurred for the acquisition of WLR Foods.
INCOME TAX EXPENSE. Consolidated income tax expense in the first quarter
of fiscal 2002 decreased to $2.7 million compared to $6.3 million in the
first quarter of fiscal 2001. This decrease resulted from lower U.S. pre-
tax earnings in the first quarter of fiscal 2002 than in the first quarter
of fiscal 2001.
LIQUIDITY AND CAPITAL RESOURCES
WE MAINTAIN $130.0 MILLION IN REVOLVING CREDIT FACILITIES AND $400.0
MILLION IN A SECURED REVOLVING/TERM BORROWING FACILITY. THE $400.0 MILLION
REVOLVING/TERM BORROWING FACILITY PROVIDES FOR $285.0 MILLION AND $115.0
MILLION OF 10-YEAR AND 7-YEAR COMMITMENTS, RESPECTIVELY. BORROWINGS UNDER
THIS FACILITY ARE SPLIT PRO RATA BETWEEN THE 10-YEAR AND 7-YEAR MATURITIES
AS THEY OCCUR. 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 OUR TOTAL DEBT TO CAPITALIZATION RATIO. INTEREST
RATES ON DEBT OUTSTANDING UNDER THESE FACILITIES AS OF DECEMBER 29, 2001
RANGED FROM LIBOR PLUS ONE AND ONE-QUARTER PERCENT TO LIBOR PLUS TWO AND
ONE-QUARTER PERCENT. THESE FACILITIES ARE SECURED BY INVENTORY AND FIXED
ASSETS.
AT DECEMBER 29, 2001, $84.3 MILLION WAS AVAILABLE UNDER THE REVOLVING
CREDIT FACILITIES AND $294.0 MILLION WAS AVAILABLE UNDER THE REVOLVING/TERM
BORROWING FACILITY. ANNUAL MATURITIES OF LONG-TERM DEBT FOR THE REMAINDER
OF FISCAL 2002 AND FOR THE FIVE YEARS SUBSEQUENT TO DECEMBER 29, 2001 ARE:
2002--$3.9 MILLION; 2003--$6.4 MILLION; 2004--$11.8 MILLION; 2005--$11.5
MILLION; AND 2006--$50.6 MILLION.
ON JUNE 26, 1998, WE ENTERED INTO AN ASSET SALE AGREEMENT TO SELL UP TO $60
MILLION OF ACCOUNTS RECEIVABLE. IN CONNECTION WITH THE ASSET SALE
AGREEMENT, WE SELL, ON A REVOLVING BASIS, CERTAIN OF OUR TRADE RECEIVABLES
(THE "POOLED RECEIVABLES") TO A SPECIAL PURPOSE CORPORATION WHOLLY OWNED BY
US, WHICH IN TURN SELLS A PERCENTAGE OWNERSHIP INTEREST TO THIRD PARTIES.
AT DECEMBER 29, 2001 AND SEPTEMBER 29, 2001, AN INTEREST IN THESE POOLED
RECEIVABLES OF $60.0 MILLION AND $58.5 MILLION, RESPECTIVELY, HAD BEEN SOLD
TO THIRD PARTIES AND IS REFLECTED AS A REDUCTION IN ACCOUNTS RECEIVABLE.
THESE TRANSACTIONS HAVE BEEN RECORDED AS SALES IN ACCORDANCE WITH FINANCIAL
ACCOUNTING STANDARDS BOARD STATEMENT NO. 140, ACCOUNTING FOR TRANSFERS AND
SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES. THE
INCREASE IN POOLED RECEIVABLE SALES FROM SEPTEMBER 29, 2001, IS INCLUDED IN
CASH FLOWS FROM OPERATING ACTIVITIES IN OUR CONSOLIDATED STATEMENTS OF CASH
FLOWS. LOSSES ON THESE SALES WERE IMMATERIAL.
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 PILGRIM'S PRIDE. WE 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. WE ARE NOT REQUIRED TO BORROW THE FULL AMOUNT OF THE
PROCEEDS FROM THE BONDS. ALL AMOUNTS BORROWED FROM THESE FUNDS WILL BE DUE
IN 2029. THE AMOUNTS THAT WE BORROW WILL BE REFLECTED AS DEBT WHEN RECEIVED
FROM THE CAMP COUNTY INDUSTRIAL DEVELOPMENT CORPORATION. THE INTEREST RATES
ON AMOUNTS BORROWED WILL CLOSELY FOLLOW THE TAX-EXEMPT COMMERCIAL PAPER
RATES. PRESENTLY, THERE ARE NO BORROWINGS OUTSTANDING UNDER THE BONDS.
AT DECEMBER 29, 2001, OUR WORKING CAPITAL DECREASED TO $143.4 MILLION AND
OUR CURRENT RATIO DECREASED TO 1.60 TO 1, COMPARED WITH WORKING CAPITAL OF
$203.5 MILLION AND A CURRENT RATIO OF 1.85 TO 1 AT SEPTEMBER 29, 2001,
PRIMARILY DUE TO LOWER INVENTORIES FROM NORMAL SEASONAL VARIATIONS.
TRADE ACCOUNTS AND OTHER RECEIVABLES WERE $92.2 MILLION AT DECEMBER 29,
2001, COMPARED TO $95.0 MILLION AT SEPTEMBER 29, 2001. THE 3.0% DECREASE IN
TRADE ACCOUNTS AND OTHER RECEIVABLES WAS PRIMARILY DUE TO NORMAL SEASONAL
VARIATIONS. EXCLUDING THE SALE OF RECEIVABLES, TRADE ACCOUNTS AND OTHER
RECEIVABLES WOULD HAVE DECREASED SLIGHTLY TO $152.2 MILLION AT THE END OF
THE FIRST QUARTER OF FISCAL 2002 FROM $153.5 MILLION AT THE END OF FISCAL
2001.
INVENTORIES WERE $260.1 MILLION AT DECEMBER 29, 2001, COMPARED TO $314.4
MILLION AT SEPTEMBER 29, 2001. THE $54.3 MILLION, OR 17.3%, DECREASE IN
INVENTORIES WAS PRIMARILY DUE TO NORMAL SEASONAL SALES OF OUR TURKEY
DIVISION WHICH LOWERS TURKEY FINISHED PRODUCT INVENTORIES AND TO LOWER
LIVE CHICKEN AND HEN INVENTORIES RESULTING FROM SEASONAL VARIATIONS IN
SALES OF CHICKEN AND FEED PRODUCTS TO THE COMPANY'S PRINCIPAL STOCKHOLDER.
ACCOUNTS PAYABLE AND ACCRUED EXPENSES REMAINED RELATIVELY STABLE AT $232.2
MILLION AT DECEMBER 29, 2001, COMPARED TO $234.8 MILLION AT SEPTEMBER 29,
2001.
CAPITAL EXPENDITURES OF $17.3 MILLION AND $32.6 MILLION, FOR THE THREE
MONTHS ENDED DECEMBER 29, 2001 AND DECEMBER 30, 2000, RESPECTIVELY, WERE
INCURRED PRIMARILY TO ACQUIRE AND EXPAND CERTAIN FACILITIES, IMPROVE
EFFICIENCIES, REDUCE COSTS AND FOR THE ROUTINE REPLACEMENT OF EQUIPMENT. WE
ANTICIPATE SPENDING APPROXIMATELY $65.0 MILLION IN FISCAL 2002 TO IMPROVE
EFFICIENCIES AND FOR THE ROUTINE REPLACEMENT OF EQUIPMENT. WE EXPECT TO
FINANCE SUCH EXPENDITURES WITH AVAILABLE OPERATING CASH FLOWS AND EXISTING
CREDIT FACILITIES.
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES WERE $81.8 MILLION AND $16.0
MILLION FOR THE THREE MONTHS ENDED DECEMBER 29, 2001 AND DECEMBER 30, 2000,
RESPECTIVELY. THE INCREASE IN CASH FLOWS PROVIDED BY OPERATING ACTIVITIES
IN THE FIRST QUARTER OF FISCAL 2002 COMPARED TO THE FIRST QUARTER OF FISCAL
2001, WAS PRIMARILY DUE TO A DECREASE IN INVENTORIES FROM SEASONAL SALES OF
OUR TURKEY DIVISION AND SEASONAL VARIATIONS IN SALES OF CHICKEN AND FEED
PRODUCTS TO THE COMPANY'S PRINCIPAL STOCKHOLDER.
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES WERE ($70.8) MILLION
AND $0.4 MILLION FOR THE THREE MONTH PERIODS ENDED DECEMBER 29, 2001 AND
DECEMBER 30, 2000, RESPECTIVELY. THE CASH USED IN FINANCING ACTIVITIES
PRIMARILY REFLECTS THE NET PROCEEDS (PAYMENTS) ON NOTES PAYABLE AND LONG-
TERM FINANCING AND DEBT RETIREMENT.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes from the provided in Item 7a of the
Company's Annual Report on Form 10-K for the year ended September 29, 2001,
except interest rate risk. With the significant reduction in debt, a 25
basis point increase rate would increase interest expense by $66,500 for
the first quarter of fiscal 2002.
NEW ACCOUNTING PRONOUNCEMENTS
In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144 "ACCOUNTING FOR THE IMPAIRMENT
OR DISPOSAL OF LONG LIVED ASSETS" (SFAS NO. 144). SFAS No. 144 is
effective for fiscal years beginning after December 15, 2001 and provides
new rules for classifying assets held for sale. The adoption of this
standard is not expected to have a material effect on the Company.
Forward Looking Statements
Statements of our intentions, beliefs, expectations or predictions for the
future, denoted by the words "anticipate", "believe", "estimate", "expect",
"project", "imply", "intend", "foresee" and similar expressions, are
forward-looking statements that reflect our current views about future
events and are subject to risks, uncertainties and assumptions. Such
risks, uncertainties and assumptions include the following:
* Matters affecting the poultry industry generally, including fluctuations
in the commodity prices of feed ingredients, chicken and turkey;
* Management of our cash resources, particularly in light of our
substantial leverage;
* Restrictions imposed by, and as a result of, our substantial leverage;
* Currency exchange rate fluctuations, trade barriers, exchange controls,
expropriation and other risks associated with foreign operations;
* Changes in laws or regulations affecting our operations, as well as
competitive factors and pricing pressures;
* Inability to effectively integrate WLR Foods or realize the associated
cost savings and operating synergies currently anticipated; and
* The impact of uncertainties of litigation as well as other risks
described in our filings with the Securities and Exchange Commission.
Actual results could differ materially from those projected in these
forward-looking statements as a result of these factors, among others, many
of which are beyond our control.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In January of 1998, seventeen of our current and/or former employees 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 Pilgrim's Pride violated requirements of the Fair Labor
Standards Act. The suit alleged Pilgrim's Pride failed to pay employees
for all hours worked. The suit generally alleged that (1) 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 (2) 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. The plaintiff's brief was submitted to the court on
November 5, 2001. Pilgrim's Pride's response to the plaintiff's brief to
the Fifth Circuit Court of Appeals was submitted on December 5, 2001.
Appellants filed a short reply brief. The National Chicken Council has
filed an Amicus Curiae brief in support of our position on this appeal,
which was accepted by the court. 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 our
financial position, operations or liquidity. Substantially similar suits
have been filed against four other integrated poultry companies, including
WLR Foods, one of which resulted in a federal judge dismissing most of the
plaintiffs' claims in that action with facts similar to our case.
In August of 2000, four of our current and/or former employees filed the
case of "Betty Kennell, et al. v. Wampler Foods, Inc." in the United
States District Court for the Northern District of West Virginia, claiming
we violated requirements of the Fair Labor Standards Act. The suit
generally makes the same allegations as Anderson v. Pilgrim's Pride
discussed above. Plaintiffs seek to recover unpaid wages plus liquidated
damages and legal fees. Approximately 150 consents to join as plaintiffs
were filed with the court by current and/or former employees. No trial
date has been set. To date, only limited discovery has been performed.
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. We do not expect this matter, individually or collectively, to have
a material impact on our 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 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Number
None
(b) Reports on Form 8-K
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 1/22/2002 Richard A. Cogdill
Executive Vice President,
Chief Financial Officer,
Secretary and Treasurer
in his respective capacity as such