PILGRIM'S PRIDE CORPORATION
110 SOUTH TEXAS STREET
PITTSBURG, TEXAS 75686
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD WEDNESDAY, JANUARY 29, 2003
The Annual Meeting of Stockholders of Pilgrim's Pride Corporation (the
"Company") will be held at the Company's headquarters building, 110 South Texas
Street, Pittsburg, Texas, on Wednesday, January 29, 2003, at 11:00 a.m., local
time, to consider the following matters:
1. The election of ten Directors for the ensuing year;
2. The appointment of Ernst & Young LLP as the Company's independent
auditors for the fiscal year ending September 27, 2003; and
3. To transact such other business as may be properly brought before the
meeting or any adjournment. No other matters are expected to be voted
on at the meeting.
The Board of Directors has fixed the close of business on December 5,
2002, as the record date for determining stockholders of record entitled to
notice of, and to vote at, the meeting.
/s/ Richard A. Cogdill
RICHARD A. COGDILL
Pittsburg, TexasExecutive Vice President, Chief Financial Officer,
January 6, 2003 Secretary and Treasurer
YOUR VOTE IS IMPORTANT!
PLEASE SIGN AND RETURN THE ACCOMPANYING PROXY.
PILGRIM'S PRIDE CORPORATION
110 SOUTH TEXAS STREET
PITTSBURG, TEXAS 75686
PROXY STATEMENT
GENERAL INFORMATION
The Board of Directors of Pilgrim's Pride Corporation (the "Company")
solicits stockholders' proxies in the accompanying form for use at the Annual
Meeting of Stockholders to be held on Wednesday, January 29, 2003, at 11:00
a.m., local time, at the Company's headquarters at 110 South Texas Street,
Pittsburg, Texas and at any adjournments thereof (the "Meeting"). This Proxy
Statement, the accompanying proxy card and the Company's 2002 Annual Report to
Stockholders are being mailed, beginning on or about January 6, 2003, to all
stockholders entitled to receive notice of, and to vote at, the Meeting.
The principal executive offices of the Company are located at 110 South
Texas Street, Pittsburg, Texas 75686. Any writing required to be sent to the
Company should be mailed to this address.
OUTSTANDING VOTING SECURITIES
Each stockholder of record at the close of business on December 5, 2002
(the "Record Date"), will be entitled to one vote for each share of the
Company's Class A common stock, $.01 par value per share, and twenty votes for
each share of the Company's Class B common stock, $.01 par value per share,
held on the Record Date. The accompanying proxy card indicates the number of
shares to be voted. On December 5, 2002, there were 13,523,429 shares of the
Company's Class A common stock issued and outstanding and there were 27,589,250
shares of the Company's Class B common stock issued and outstanding. For all
proposals at the Meeting, the votes of holders of Class A common stock and
Class B common stock will be counted together as a single class.
VOTING OF PROXIES
Because many of the Company's stockholders are unable to attend the
Meeting, the Board of Directors solicits proxies by mail to give each
stockholder an opportunity to vote on all items of business scheduled to come
before the Meeting. Each stockholder is urged to:
(1) read carefully the material in this Proxy Statement;
(2) specify his or her voting instructions on each item by marking the
appropriate boxes on the accompanying proxy card; and
(3) sign, date and return the proxy card in the enclosed, postage
prepaid envelope.
The accompanying proxy card provides a space, with respect to the
election of Directors, for a stockholder to withhold voting for any or all
nominees for the Board of Directors, but does not permit a stockholder to vote
for any nominee not named on the proxy card. The card also allows a
stockholder to abstain from voting on any other item if the stockholder chooses
to do so.
When the accompanying proxy card is properly executed and returned with
voting instructions with respect to any of the items to be voted upon, the
shares represented by the proxy will be voted in accordance with the
stockholder's directions by the persons named on the proxy card as proxies of
the stockholder. If a proxy card is signed and returned, but no specific
voting instructions are given, the shares represented by the proxy card will be
voted for the election of the ten nominees for Directors named on the
accompanying proxy card and for the appointment of Ernst & Young LLP as the
Company's independent auditors.
Unless otherwise indicated by the stockholder, returned proxy cards also
confer upon the persons named on the card, as proxies for the stockholder,
discretionary authority to vote all shares of stock represented by the proxy
card on any item of business that is properly presented for action at the
Meeting, even if not described in this Proxy Statement. If any of the nominees
for Director named below should be unable or unwilling to accept nomination,
the proxies will be voted for the election of such other person as may be
recommended by the Board of Directors. The Board of Directors, however, has no
reason to believe that any item of business not set forth in this Proxy
Statement will come before the Meeting or that any of the nominees for Director
will be unavailable for election.
The proxy does not affect a stockholder's right to vote in person at the
Meeting. If a stockholder executes a proxy, he or she may revoke it at any
time before it is voted by submitting a new proxy card, or by communicating his
or her revocation in writing to the Secretary of the Company, or by voting by
ballot at the Meeting.
VOTES REQUIRED
The holders of at least a majority of the combined voting power of the
Company's Class A common stock and Class B common stock outstanding on the
Record Date must be present in person or by proxy at the Meeting for the
Meeting to be held. Abstentions and broker non-votes are counted in
determining whether at least a majority of the voting power of the Company's
Class A common stock and Class B common stock outstanding on the Record Date
are present at the Meeting.
Directors will be elected by a plurality of the votes cast at the
Meeting. The affirmative vote of a majority of the voting power of the
Company's Class A common stock and Class B common stock represented and
entitled to vote at the Meeting is required for the appointment of the
Company's independent auditors and approval of any other item of business to be
voted upon at the Meeting. Abstentions from voting on any matter will be
included in the voting tally. Abstentions will have no effect on the election
of Directors. Abstentions will have the same effect as votes against the
proposal to appoint the Company's independent auditors. Broker non-votes are
shares held by a broker or nominee which are represented at the Meeting, but
with respect to which such broker or nominee is not empowered to vote on a
particular proposal. Broker non-votes will have no effect on the election of
Directors or the proposal to appoint the Company's independent auditors.
Lonnie "Bo" Pilgrim owned or controlled 8,349,170 shares (61.7%) of the
Company's Class A common stock and 16,773,908 shares (60.8%) of the Company's
Class B common stock on the Record Date, or 60.8% of the combined voting power
of both classes of stock, and thus will be able to elect all of the nominees
for Directors and approve Ernst & Young LLP as independent auditors for the
Company.
STOCKHOLDER PROPOSALS FOR 2004 ANNUAL MEETING
The Company's Amended and Restated Corporate Bylaws state that a
stockholder must give the Secretary of the Company written notice, at the
Company's principal executive offices, of its intent to
present a proposal at the Company's 2004 Annual Meeting of Stockholders
by October 1, 2003, but not before May 5, 2003. Additionally, in order for
stockholder proposals which are submitted pursuant to Rule 14a-8 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), to be
considered by the Company for inclusion in the Company's proxy materials for
the 2004 Annual Meeting of Stockholders, they must be received by the Secretary
of the Company at the Company's executive offices no later than the close of
business on September 8, 2003.
COST OF PROXY SOLICITATION
The Company will bear the cost of the Meeting and the cost of soliciting
proxies in the accompanying form, including the cost of mailing the proxy
material. In addition to solicitation by mail, Directors, officers and other
employees of the Company may solicit proxies by telephone or otherwise. They
will not be specifically compensated for such services. The Company will
request brokers and other custodians, nominees and fiduciaries to forward
proxies and proxy soliciting material to the beneficial owners of the Company's
Class A common stock and Class B common stock and to secure their voting
instructions, if necessary. The Company will reimburse them for the expenses
in so doing.
BOARD OF DIRECTORS
The Board of Directors has the responsibility for establishing broad
corporate policies and for the overall performance of the Company. However, it
is not involved in day-to-day operating details. Members of the Board are kept
informed of the Company's business through discussions with the Chairman and
other officers and by reviewing analyses and reports sent to them each month,
as well as by participating in Board and committee meetings.
BOARD COMMITTEES
To assist in carrying out its duties, the Board of Directors has
delegated certain authority to the Audit and Compensation Committees. The
Board of Directors does not maintain a Nominating Committee. The members of
the Audit Committee are Charles L. Black, S. Key Coker, Vance C. Miller, Sr.,
James G. Vetter, Jr. and Donald L. Wass, Ph.D. The members of the Compensation
Committee are Lonnie "Bo" Pilgrim, Vance C. Miller, Sr., Lonnie Ken Pilgrim,
James G. Vetter, Jr., and Charles L. Black. The Compensation Committee also
has a subcommittee made up of Charles L. Black and Vance C. Miller, Sr. Each
Committee meets to examine various facets of the Company's operations and take
appropriate action or make recommendations to the Board of Directors.
The Audit Committee's responsibilities include making recommendations to
the Board of Directors regarding the selection of independent public
accountants, reviewing the plan and results of the audit performed by the
public accountants of the Company and the adequacy of the Company's systems of
internal accounting controls, and monitoring compliance with the Company's
conflicts of interest and business ethics policies. The Compensation Committee
reviews the Company's remuneration policies and practices and establishes the
salaries of the Company's officers. The Compensation Committees' subcommittee
is responsible for administering certain aspects of the Senior Executive
Performance Bonus Plan dealing with compensation for designated Section 162(m)
participants, currently Mr. Lonnie "Bo" Pilgrim and Mr. David Van Hoose.
MEETINGS
During the Company's fiscal year ended September 28, 2002, there were six
meetings of the Board of Directors, three meetings of the Audit Committee, one
meeting of the Compensation Committee and one meeting of the Compensation
Subcommittee. During fiscal 2002, each member of the Board of Directors
attended at least 75% of the aggregate number of meetings of the Board and
Board Committees on which the Director served.
ELECTION OF DIRECTORS
At the Meeting, ten Directors are to be elected, each to hold office for
one year or until his successor is duly elected and qualified. With the
exception of O.B. Goolsby, Jr., all Director nominees are currently Directors
of the Company. Unless otherwise specified on the proxy card, the shares
represented by the enclosed proxy will be voted for the election of the ten
nominees named below. The Board of Directors has no reason to believe that any
nominee will be unable to serve if elected. In the event any nominee shall
become unavailable for election, it is intended that such shares will be voted
for the election of a substitute nominee selected by the Board of Directors.
NOMINEES FOR DIRECTOR
LONNIE "BO" PILGRIM, 74, has served as Chairman of the Board since the
organization of the Company in July 1968. He was previously Chief Executive
Officer from July 1968 to June 1998. Prior to the incorporation of the
Company, Mr. Pilgrim was a partner in the Company's predecessor partnership
business founded in 1946. On November 11, 2002, the Company announced the
retirement of David Van Hoose as Chief Executive Officer of the Company
effective March 29, 2003. During the transition and until a replacement Chief
Executive Officer is appointed, certain of Mr. Van Hoose's duties have been
assumed by Mr. Pilgrim.
CLIFFORD E. BUTLER, 60, serves as Vice Chairman of the Board. He joined
the Company as Controller and Director in 1969, was named Senior Vice President
of Finance in 1973, became Chief Financial Officer and Vice Chairman of the
Board in July 1983, became Executive President in January 1997 and served in
such capacity through July 1998.
O.B. GOOLSBY, JR., 55, serves as President and Chief Operating Officer of
the Company. Prior to being named as President and Chief Operating Officer in
November 2002, Mr. Goolsby served as Executive Vice President, Prepared Foods
Complexes from June 1998 to November 2002. He was previously Senior Vice
President, Prepared Foods Operations from August 1992 to June 1998 and Vice
President, Prepared Foods Operations from April 1986 to August 1992 and was
previously employed by the Company from November 1969 to January 1981.
RICHARD A. COGDILL, 42, has served as Executive Vice President, Chief
Financial Officer, Secretary and Treasurer (the Company's Principal Financial
and Accounting Officer) since January 1997. He became a Director in September
1998. Previously, he served as Senior Vice President, Corporate Controller,
from August 1992 through December 1996 and as Vice President, Corporate
Controller, from October 1991 through August 1992. Prior to October 1991, he
was a Senior Manager with Ernst & Young LLP. He is a Certified Public
Accountant.
LONNIE KEN PILGRIM, 44, has been employed by the Company since 1977 and
has been Senior Vice President, Transportation since August 1997. Prior to
that he served the Company as its Vice President, Director of Transportation.
He has been a member of the Board of Directors since March 1985. He is a son
of Lonnie "Bo" Pilgrim.
CHARLES L. BLACK, 73, was Senior Vice President, Branch President of
NationsBank, Mt. Pleasant, Texas, from December 1981 to his retirement in
February 1995. He previously was a Director of the Company from 1968 to August
1992 and has served as a Director since his re-election in February 1995.
S. KEY COKER, 45, has served as Executive Vice President of Compass Bank
since October 2000, a $20 billion dollar bank with offices throughout the
southern United States. Previously, he served as Senior Vice President of
Compass Bank from June 1995 through September 2000 and had been employed by
Compass Bank since 1992. He is a career banker with 21 years of experience in
banking. He was appointed a Director in September 2000, following the
resignation of Robert Hilgenfeld on August 2, 2000.
VANCE C. MILLER, SR., 68, was elected a Director in September 1986. Mr.
Miller has been Chairman of Vance C. Miller Interests, a real estate
development company formed in 1977, and has served as the Chairman of the Board
and Chief Executive Officer of Henry S. Miller Cos., a Dallas, Texas, real
estate services firm, since 1991. Mr. Miller also serves as a director of
Resurgence Properties, Inc.
JAMES G. VETTER, JR., 68, has practiced law in Dallas, Texas, since 1966.
He is a shareholder of the Dallas law firm of Godwin Gruber, P.C. (formerly
Godwin White Gruber, P.C.), and has served as general counsel and a Director
since 1981. Mr. Vetter is a Board Certified-Tax Law Specialist and serves as a
lecturer and author in tax matters.
DONALD L. WASS, PH.D., 70, was elected a Director of the Company in May
1987. He has been President of the William Oncken Company of Texas, a time
management consulting company, since 1970.
REPORT OF THE AUDIT COMMITTEE
Pursuant to the Audit Charter attached to the Company's proxy statement
within the last three years, the Audit Committee oversees the Company's
financial reporting process on behalf of the Board of Directors. Management
has the primary responsibility for the financial statements and the reporting
process, including the systems of internal controls. In fulfilling its
oversight responsibilities, the committee reviewed and discussed the audited
financial statements in the Annual Report with management, including a
discussion of the quality, not just the acceptability, of the accounting
principles, the reasonableness of significant judgments and the clarity of
disclosures in the financial statements.
The committee reviewed with the independent auditors who are responsible
for expressing an opinion on the conformity of those audited financial
statements with generally accepted accounting principles, their judgments as to
the quality, not just the acceptability, of the Company's accounting principles
and such other matters as are required to be discussed with the committee under
generally accepted auditing standards. In addition, the committee has
discussed with the independent auditors the auditor's independence from
management and the Company, and has received from the independent auditors the
written disclosures required by the Independence Standards Board.
The committee discussed with the Company's internal and independent
auditors the overall scope and plans for their respective audits. The
committee meets with the internal and independent auditors, with and without
management present, to discuss the results of their examinations, their
evaluations of the Company's internal controls and the overall quality of the
Company's financial reporting. In reliance on the reviews and discussions
referred to above, the committee recommended to the Board of Directors (and the
Board has approved) that the audited financial statements be included in the
Company's Annual Report on Form 10-K for the fiscal year ended September 28,
2002 for filing with the Securities and Exchange Commission. The committee and
the Board have also recommended, subject to stockholder approval, the selection
of the Company's independent auditors.
The members of the Audit committee are independent as defined in Sections
303.01(B)(2)(a) and (3) of the New York Stock Exchange's listing standards.
Audit Committee
James G. Vetter, Jr.
Charles L. Black
Vance C. Miller, Sr.
Donald L. Wass, Ph.D.
S. Key Coker
AUDIT FEES
AUDIT FEES, FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES AND
ALL OTHER FEES
AUDIT FEES. Aggregate fees billed to the Company for the last annual
audit were $573,586.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES. In fiscal
2002, there were no financial information systems design and implementation
fees.
ALL OTHER FEES. All other fees billed to the Company by its auditors
were $957,283, including audit related services of $738,626 and nonaudit
services of $218,657. Audit related services generally include fees for
statutory audits, information systems audits, internal audit services, business
acquisitions and accounting consultations. Nonaudit services generally include
fees for tax compliance, federal and international tax consulting, state and
local tax consulting and services related to the Company's operations in
Mexico. The Audit Committee has determined that the provision of services
related to the other fees were compatible with maintaining the outside
auditor's independence.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 2002, the members of the Company's Compensation Committee
were Lonnie "Bo" Pilgrim, Chairman of the Board of the Company, Vance C.
Miller, Sr., Lonnie Ken Pilgrim, Senior Vice President, Transportation of the
Company, James G. Vetter, Jr., and Charles L. Black.
The Company has been and continues to be a party to certain transactions
with Lonnie "Bo" Pilgrim and a law firm affiliated with James G. Vetter, Jr.
These transactions, along with all other transactions between the Company and
affiliated persons, require the prior approval of the Audit Committee of the
Board of Directors.
At certain times during the year, Lonnie "Bo" Pilgrim purchases from the
Company live chickens and hens, feed inventory and veterinary and technical
services during the grow-out process and then contracts with the Company to
resell the birds at maturity. Chicks, feed and services are purchased from the
Company for their fair market value, and the Company purchases the mature
chickens from Mr. Pilgrim at a market-based formula price subject to a ceiling
price calculated at Mr. Pilgrim's cost plus two percent. Additionally, the
Company processes the payroll for certain employees of Mr. Pilgrim and Pilgrim
Poultry G.P. ("PPGP"). Prior to the termination of this arrangement in
response to the enactment of the Sarbanes-Oxley Act of 2002, the Company
invoiced Mr. Pilgrim for the costs of these payroll services on a weekly basis
and Mr. Pilgrim reimbursed the Company. During fiscal year 2002, the Company
paid Mr. Pilgrim, doing business as PPGP, $44,429,000 for chickens produced in
his grow-out operations, and PPGP paid the Company $44,857,000 for chicks, feed
and services, including the payroll services described above. Lonnie "Bo"
Pilgrim is the sole proprietor of PPGP.
PPGP also rents facilities to the Company for the production of eggs. On
December 29, 2000, the Company entered into an agreement with PPGP to rent its
egg production facilities for a monthly amount of $62,500. During fiscal year
2002, the Company paid rental on the facilities of $750,000 to PPGP. Prior to
December 29, 2000, the Company had contracted with PPGP to use the egg
production facilities to house and care for Company flocks and paid egg grower
fees based on actual production. Management of the Company believes that the
terms of this agreement with PPGP are substantially similar to, and contain
terms not less favorable to the Company than, agreements obtainable from
unaffiliated parties.
The Company also maintains depository accounts with a financial
institution of which Lonnie "Bo" Pilgrim is a major stockholder. Fees paid to
this bank in fiscal 2002 are insignificant, and as of September 28, 2002, the
Company had bank balances at this financial institution of approximately $3.5
million.
Since 1985, the Company has leased an airplane from Lonnie "Bo" Pilgrim
under a lease agreement which provides for monthly lease payments of $33,000
plus operating expenses, which terms management of the Company believes to be
substantially similar to those obtainable from unaffiliated parties. During
fiscal 2002 the Company had lease expenses of $396,000 and operating expenses
of $212,500 associated with the use of this airplane.
Historically, much of the Company's debt has been guaranteed by the major
stockholders of the Company. In consideration of such guarantees, the Company
has paid such stockholders a quarterly fee equal to .25% of the average
aggregate outstanding balance of such guaranteed debt. During fiscal 2002, the
Company accrued $2,615,000 for such guarantees and paid $2,968,000 to Pilgrim
Interests, Ltd.
During fiscal 2002, certain members of the family of Lonnie "Bo" Pilgrim
were employed by the Company, including his son, Lonnie Ken Pilgrim, a Director
and the Senior Vice President, Transportation of the Company, his son, Pat
Pilgrim, Vice President Special Projects of the Company, and his son-in-law,
Chester Owens, Vice President Supply Chain of the Company, who received total
compensation in fiscal 2002 of $254,749, $240,528 and $261,952, respectively.
In January 2002, Lonnie Ken Pilgrim, Pat Pilgrim and Chester Owens received
salary advances of $35,569, $35,723 and $34,828, respectively, which were to be
repaid in 51 equal weekly installments and bear interest at 2.69% per annum.
As of January 6, 2002, all of the salary advances had been repaid.
Godwin Gruber, P.C., represents the Company in connection with a variety
of legal matters. James G. Vetter, Jr., is a Director of the Company and is a
shareholder of Godwin Gruber, P.C. During fiscal year 2002, the Company paid
Godwin Gruber, P.C., legal fees of $111,900 in connection with such matters.
EXECUTIVE COMPENSATION
The following table sets forth a summary of compensation paid to the
Company's Chief Executive Officer and its four other most highly compensated
executive officers. See "Nominees for Director - Compensation Committee
Interlocks and Insider Participation" above and "Certain Transactions" below
for a discussion of transactions with the Company's Directors and executive
officers.
SUMMARY COMPENSATION TABLE
Annual Compensation
Other All
Fiscal Annual Other
Name and Principal Position Year Salary Bonus Compensation Compensation(1)
Lonnie "Bo" Pilgrim..........2002 $1,071,200 $476,841 $119,913 $70,126
Chairman of the Board 2001 1,071,200 566,942 24,081 12,066
2000 1,070,600 532,921 30,057 10,096
David Van Hoose..............2002 551,359 -- 27,843 16,114
Chief Executive Officer(2) 2001 535,300 465,796 13,381 11,500
2000 517,923 404,231 12,947 7,659
Clifford E. Butler...........2002 388,868 111,133 12,661 2,763
Vice Chairman of the Board 2001 388,868 111,133 9,720 2,061
2000 388,870 120,492 10,015 2,053
Richard A. Cogdill...........2002 318,092 300,000 9,027 1,669
Executive Vice President, 2001 308,828 300,000 7,720 1,357
Chief Financial Officer, 2000 285,441 248,673 7,496 1,262
Secretary and Treasurer
O. B. Goolsby, Jr............2002 222,664 115,062 6,286 4,128
President and Chief 2001 216,179 135,610 5,404 2,239
Operating Officer(3) 2000 209,530 100,000 5,238 1,856
(1) Includes the following items of compensation:
a. Company's contributions to the named individual under its 401(k) Salary
Deferral Plan in the following amounts: Lonnie "Bo" Pilgrim, $52 (2002,
2001 & 2000); David Van Hoose, $312 (2002), $312 (2001), $312 (2000);
Clifford E. Butler, $312 (2002), $312 (2001), $312 (2000); Richard A.
Cogdill, $312 (2002), $312 (2001), $312 (2000); and O.B. Goolsby, Jr.,
$312 (2002), $312 (2001), $312 (2000).
b. Section 79 income to the named individual due to group term life
insurance in excess of $50,000 in the following amounts: Lonnie "Bo"
Pilgrim, $70,074 (2002), $12,014 (2001), $10,044 (2000); David Van Hoose,
$15,802 (2002), $11,187 (2001), $7,347 (2000); Clifford E. Butler, $2,451
(2002), $1,749 (2001), $1,741 (2000); Richard A. Cogdill, $1,357 (2002),
$1,045 (2001), $950 (2000); and O.B. Goolsby, Jr., $3,816 (2002), $1,927
(2001), $1,544 (2000).
(2) On November 11, 2002, the Company announced that Mr. Van Hoose would
retire as Chief Executive Officer of the Company effective March 29, 2003. In
connection with his retirement, Mr. Van Hoose entered into a Retirement
Agreement with the Company. Under the terms of the Retirement Agreement, Mr.
Van Hoose will continue to receive his current salary and benefits until March
29, 2003 and received a lump sum payment of $1,300,000; however, he will not
receive any further bonus or incentive compensation. If Mr. Van Hoose timely
requests, the Company must purchase his residence and/or farm for $625,000 and
$1,200,000, respectively.
(3) O.B. Goolsby, Jr., was appointed President and Chief Operating Officer in
November 2002.
DIRECTORS' FEES
The Company pays its Directors who are not employees of the Company
$5,000 per meeting attended in person, plus expenses, and Directors who are not
employees of the Company also receive $2,500 and $1,250 per telephonic meeting
that they participate in that lasts at least 45 minutes or less than 45
minutes, respectively.
REPORT OF COMPENSATION COMMITTEE
The Compensation Committee establishes executive compensation and
oversees the administration of the bonus plan for key members of management and
the Company's employee benefit plans.
The following is a report submitted by the Compensation Committee members
in their capacity as the Board's Compensation Committee, addressing the
Company's compensation policy as it related to the named executive officers for
fiscal 2002.
PERFORMANCE MEASURES
The Compensation Committee's establishment of annual executive
compensation is a subjective process in which the Committee considers many
factors, including the Company's performance as measured by earnings for the
year, each executive's specific responsibilities, the contribution to the
Company's profitability by each executive's specific areas of responsibility,
the level of compensation believed necessary to motivate and retain qualified
executives and the executive's length of time with the Company.
FISCAL COMPENSATION
For fiscal 2002, the Company's executive compensation program consisted
of (a) base salary, (b) a discretionary bonus based upon the factors described
above, (c) the bonus plan described below, (d) Company contributions to the
Company's 401(k) salary deferral plan which are made up of mandatory
contributions of one dollar per week and matching contributions of up to five
dollars per week and additional matching contributions of up to four percent of
an executive's compensation subject to an overall Company contribution limit of
five percent of domestic income before taxes and (e) Company contributions to
the Employee Stock Investment Plan in an amount equal to 33 1/3% of the
officers' payroll deduction for purchases of the Company's common stock under
the plan, which deductions are limited to 7 1/2% of the officer's base salary,
overtime pay and bonuses.
In establishing the fiscal 2002 compensation for Lonnie "Bo" Pilgrim, the
Company's Chairman of the Board, the Compensation Committee did not adjust Mr.
Pilgrim's annual base salary from $1,071,200. Mr. Pilgrim's bonus for fiscal
2002 consisted of a discretionary bonus of $476,841. This discretionary bonus
was made in response to the Compensation Committee's subjective assessment of
Mr. Pilgrim's contribution to the Company's performance in fiscal 2002.
In establishing the fiscal 2002 compensation for David Van Hoose, the
Company's Chief Executive Officer, the Compensation Committee adjusted Mr. Van
Hoose's annual base salary from $535,300 to $551,359 to reflect changes in the
cost of living. Mr. Van Hoose did not receive a bonus with respect to fiscal
2002, although, in connection with his retirement effective March 29, 2003, Mr.
Van Hoose entered into a Retirement Agreement with the Company which provides
for certain payments to be made to him as disclosed in the Summary Compensation
Table above.
The Company's objective is to obtain financial performance that achieves
increased return on equity, sales volume, earnings per share and net income.
The Compensation Committee believes that linking executive compensation to
corporate performance results in a better alignment of compensation with
corporate goals and stockholder interests.
The Company's Senior Executive Performance Bonus Plan (the "Plan")
provides for five percent of the Company's U.S. income before income taxes to
be allocated among certain key members of management. Such amount is allocated
among all plan participants based upon the ratio of each participant's eligible
salary to the aggregate salaries of all participants and the number of months
of the fiscal year the participant was approved for participation. The Plan
also provides for a Subcommittee to administer the plan provisions dealing with
certain designated Section 162(m) participants, currently Mr. Lonnie "Bo"
Pilgrim and Mr. David Van Hoose. The Compensation Committee retains the right,
in its sole discretion, to reduce, increase or eliminate, prior to payment
thereof, the amount of any bonus that would otherwise be due under the Plan to
non-Section 162(m) participants, and the Compensation Subcommittee retains
these same rights, except for the right to increase bonus amounts, for
designated Section 162(m) participants. Participants may generally be added or
removed from the plan at the discretion of the Compensation Committee.
Participants must continue to be employed by the Company on January 1 following
the end of a fiscal year in order to be paid a bonus with respect to that year.
Bonuses are typically paid during the January following the fiscal year with
respect to which the bonus has been granted.
Due a great extent to the March 2002 avian influenza outbreak in the
Company's Eastern Division, no bonuses were payable under the Plan with respect
to fiscal 2002. However, because bonuses under the Plan have traditionally
been such a large component of total compensation and the Compensation
Committee's belief that many of the factors resulting in no bonuses being
payable under the Plan were outside of the control of Plan participants, the
Compensation Committee believed it was appropriate to pay discretionary bonuses
to its executive officers. In establishing these discretionary bonuses, the
Compensation Committee generally looked to the bonuses that would have been
payable under the Plan if the results of the Company's Eastern Division were
excluded. The bonuses will be paid in January 2003.
Compensation Committee
Lonnie "Bo" Pilgrim
Charles L. Black
Vance C. Miller, Sr.
Lonnie Ken Pilgrim
James G. Vetter, Jr.
Compensation Subcommittee
Charles L. Black
Vance C. Miller, Sr.
COMPANY PERFORMANCE
The following graph shows a five-year comparison of cumulative total
returns for the Company, the Russell 2000 composite index and a peer group
selected by the Company.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG THE COMPANY, THE RUSSELL 2000 INDEX AND A PEER GROUP
Cumulative Total Return*
--------------------------------------------------
9/27/97 9/26/98 10/02/99 9/30/00 9/29/01 9/28/02
PILGRIM'S PRIDE CORPORATION-
CLASS A(1) - 100 38 36 67 50
PILGRIM'S PRIDE CORPORATION-
CLASS B(1) 100 125 56 45 92 62
PEER GROUP 100 112 65 47 92 76
RUSSELL 2000 100 91 106 133 104 95
- -----------------------------------
* $100 invested on 9/27/97 in stock or index including reinvestment of
dividends.
(1) On July 30, 1999, the Company issued a stock dividend of one share of
Class A common stock for every two shares of Class B common stock held to
stockholders of record on June 30, 1999. This was the first issuance of the
Company's Class A common stock. The above results for the Company's Class B
common stock were adjusted for the Class A common stock dividend. The
Company's Class A common stock was not outstanding at the beginning of fiscal
1999 and is presented on a separate line of the graph.
The total cumulative return on investment (change in the year-end stock
price plus reinvested dividends) for each of the periods for the Company, the
Russell 2000 composite index and the peer group is based on the stock price or
composite index at the end of fiscal 1997.
The above graph compares the performance of the Company with that of the
Russell 2000 composite index and a group of peer companies with the investment
weighted on market capitalization. Companies in the peer group are Sanderson
Farms, Inc., Cagle's, Inc., and the Company. These companies were selected
because of their similar operations and market capitalizations relative to the
Company and were approved by the Compensation Committee.
CERTAIN TRANSACTIONS
The Company has entered into chicken grower contracts involving farms
owned by certain of its officers, providing the placement of Company-owned
flocks on their farms during the grow-out phase of production. These contracts
are on terms substantially the same as contracts entered into by the Company
with unaffiliated parties and can be terminated by either party upon completion
of the grow-out of each flock. The aggregate amounts paid by the Company to
its officers and Directors under these grower contracts during fiscal 2002 were
as follows: David Van Hoose, $499,000, Clifford E. Butler, $335,911 and O.B.
Goolsby, Jr., $199,497.
The Company also employs certain family members of certain of its
executive officers, including Clifford E. Butler's son, Shane Butler, Vice
President Prepared Foods, Mt. Pleasant and Dallas, Texas of the Company, who
was paid total compensation of $99,210 in fiscal 2002, and the other
individuals described under "Compensation Committee Interlocks and Insider
Participation." In January 2002, David Van Hoose, Richard Cogdill, Clifford E.
Butler and O.B. Goolsby, Jr., Directors and executive officers of the Company,
received salary advances of $140,418, $62,462, $9,441 and $41,839,
respectively, which were to be repaid in 51 equal weekly installments and bear
interest at 2.69% per annum. As of January 6, 2003, all of the salary advances
had been repaid. See "Nominees for Director -- Compensation Committee
Interlocks and Insider Participation," which is incorporated herein by
reference, for a discussion of the Company's transactions with Lonnie "Bo"
Pilgrim and James G. Vetter, Jr.
SECURITY OWNERSHIP
The following table sets forth, as of December 15, 2002 (except as
otherwise noted), certain information with respect to the beneficial ownership
of the Company's Class A common stock and Class B common stock by (a) each
stockholder beneficially owning more than 5% of the Company's outstanding Class
A common stock or Class B common stock; (b) each Director and Director nominee
of the Company who is a stockholder of the Company; (c) each of the executive
officers listed in the executive compensation table who is a stockholder of the
Company; and (d) all executive officers and Directors of the Company as a
group.
Amount and Amount and
Nature of Percent Nature of Percent
Beneficial of Beneficial of
Ownership of Class A Ownership of Class B
Class A Class B
Common Stock Common Stock Common Stock Common Stock
Name of Beneficial Owner
Pilgrim Interests, Ltd 7,200,474 53.2% 14,395,385 52.2%
110 South Texas Street
Pittsburg, Texas 75686
Lonnie "Bo" Pilgrim(a)(b) 8,349,170 61.8% 16,773,908 60.8%
110 South Texas Street
Pittsburg, Texas 75686
Lonnie Ken Pilgrim(a)(b)(c) 7,503,102 55.5% 14,951,410 54.2%
110 South Texas Street
Pittsburg, Texas 75686
Dimensional Fund
Advisors Inc.(d) 499,800 3.7% 2,095,400 7.6%
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
Clifford E. Butler (b) 68,358 (e) 36,260 (e)
O.B. Goolsby, Jr. 3,784 (e) 12,101 (e)
Richard A. Cogdill (b) 26,067 (e) 9,272 (e)
David Van Hoose (b) 36,759 (e) 27,720 (e)
James G. Vetter, Jr. 975 (e) 2,450 (e)
Charles L. Black 500 (e) -- --
Donald L. Wass, Ph.D. 150 (e) 300 (e)
All executive officers and
Directors 8,730,787 64.6% 17,297,263 62.7%
___________________
(a) Includes 7,200,474 shares of Class A common stock and 14,395,385 shares
of Class B common stock held of record by Pilgrim Interests, Ltd., a
partnership formed by Mr. Pilgrim's family of which Lonnie A. Pilgrim and
Lonnie Ken Pilgrim are managing partners. Also includes 30,193 shares of
Class A common stock and 60,387 shares of Class B common stock held of
record by Pilgrim Family Trust I, an irrevocable trust dated June 16,
1987, for the benefit of Lonnie "Bo" Pilgrim's surviving spouse and
children, of which Lonnie Ken Pilgrim and Patty R. Pilgrim, Lonnie "Bo"
Pilgrim's wife, are co-trustees, and 30,193 shares of Class A common
stock and 60,386 shares of Class B common stock held of record by Pilgrim
Family Trust II, an irrevocable trust dated December 23, 1987, for the
benefit of Lonnie "Bo" Pilgrim and his children, of which Lonnie "Bo"
Pilgrim and Lonnie Ken Pilgrim are co-trustees. Each of Lonnie A.
Pilgrim and Lonnie Ken Pilgrim disclaim beneficial ownership of the
Company's Class A common stock and Class B common stock held by Pilgrim
Interests, Ltd., except to the extent of their respective pecuniary
interest therein.
(b) Includes shares held in trust by the Company's 401(k) Salary Deferral
Plan.
(a) Includes 7,232 shares of Class A common stock and 6,465 shares of Class B
common stock held by his wife. Also includes 20,674 shares of Class A
common stock and 25,350 shares of Class B common stock held in two
irrevocable trusts dated December 15, 1994 and October 31, 1989, of which
Lonnie Ken Pilgrim is a co-trustee for the benefit of his children.
Lonnie Ken Pilgrim disclaims any beneficial interest in the foregoing
shares.
(b) Based on information provided to the Company as of December 26, 2002,
from Dimensional Fund Advisors Inc. ("Dimensional"). Dimensional, an
investment advisor registered under Section 203 of the Investment
Advisors Act of 1940, furnishes investment advice to four investment
companies registered under the Investment Company Act of 1940, and serves
as investment manager to certain other commingled group trusts and
separate accounts. These investment companies, trusts and accounts are
the "Funds." In its role as investment advisor or manager, Dimensional
possesses voting and/or investment power over the shares of the Company's
Class A common stock and Class B common stock listed above that are owned
by the Funds. All such shares are owned by the Funds. Dimensional
disclaims beneficial ownership of such shares.
(c) Less than 1%.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE. Section 16(a)
of the Exchange Act requires the Company's officers and Directors, and persons
who own more than ten percent of the Company's Class A common stock and Class B
common stock, to file reports of ownership and changes in ownership with the
Securities and Exchange Commission ("SEC") and the New York Stock Exchange.
Officers, Directors and greater than ten-percent stockholders are required by
SEC regulations to furnish the Company with copies of all Section 16(a) forms
they file. Based on its review of the copies of such forms received by it, the
Company believes that all filing requirements applicable to its officers,
Directors and greater than ten-percent stockholders for fiscal 2002 were
complied with.
ITEM 2. APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors recommends the appointment of Ernst & Young LLP as
the Company's independent auditors for the 2003 fiscal year. This firm of
certified public accountants has served as independent auditors of the Company
pursuant to annual appointment by the Board of Directors since 1969 except for
1982 and 1983.
Representatives of Ernst & Young are expected to be present at the
Meeting and to be available to respond to appropriate questions. They will be
given the opportunity to make a statement if they wish to do so.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPOINTMENT OF ERNST &
YOUNG LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR FISCAL YEAR 2003.
FINANCIAL STATEMENTS AVAILABLE
FINANCIAL STATEMENTS FOR THE COMPANY ARE INCLUDED IN THE ANNUAL REPORT TO
STOCKHOLDERS FOR THE FISCAL YEAR 2002. ADDITIONAL COPIES OF THESE STATEMENTS,
AS WELL AS FINANCIAL STATEMENTS FOR PRIOR YEARS AND THE ANNUAL REPORT TO THE
SECURITIES AND EXCHANGE COMMISSION ON FORM 10-K, MAY BE OBTAINED UPON WRITTEN
REQUEST WITHOUT CHARGE FROM THE SECRETARY OF THE COMPANY, 110 SOUTH TEXAS
STREET, PITTSBURG, TEXAS 75686. FINANCIAL STATEMENTS ARE ALSO ON FILE WITH THE
SECURITIES AND EXCHANGE COMMISSION, WASHINGTON, D.C. 20549, AND THE NEW YORK
STOCK EXCHANGE.
OTHER BUSINESS
The Board of Directors is not aware of, and it is not anticipated that
there will be presented to the Meeting, any business other than the election of
the Directors and the proposal to appoint Ernst & Young independent auditors
described above. If other matters properly come before the Meeting, the
persons named on the accompanying proxy card will vote the returned proxies as
the Board of Directors recommends.
Please date, sign and return the proxy at your earliest convenience. A
prompt return of your proxy will be appreciated as it will save the expense of
further mailings.
By order of the Board of Directors,
/s/ Richard A. Cogdill
RICHARD A. COGDILL
Pittsburg, TexasExecutive Vice President, Chief Financial Officer,
January 6, 2003 Secretary and Treasurer
ANNUAL MEETING PROXY CARD
The Board of Directors Recommends a Vote "FOR"
the listed nominees.Use a black pen. Mark with an X
inside the grey areas as
shown in this example.
A. ELECTION OF DIRECTORS A
01 - Lonnie "Bo" Pilgrim02 - Clifford E. Butler
03 - O. B. Goolsby, Jr.04 - Richard A. Cogdill
05 - Lonnie Ken Pilgrim06 - James G. Vetter, Jr.
07 - S. Key Coker 08 - Vance C. Miller, Sr.
09 - Donald L. Wass, Ph.D.10 - Charles L. Black
*(Except nominee(s) written above)
(INSTRUCTION: To withhold authority to vote
for any individual nominees(s), mark the
"For All Except" box and write the name(s)
on the space provided above.)
B ISSUES B
The Board of Directors Recommends a Vote "FOR" the following proposals.
FOR AGAINST ABSTAIN
2. The appointment of Ernst & Young LLP as
independent auditors for the Company for the
fiscal year ending September 27, 2003.
3. In their discretion such other business as may
properly come before the Annual Meeting.
C AUTHORIZED SIGNATURES - SIGN HERE - THIS SECTION MUST BE COMPLETED FOR YOUR
INSTRUCTIONS TO BE EXECUTED. C
UNLESS OTHERWISE SPECIFIED ON THIS PROXY, THE SHARES REPRESENTED BY THIS PROXY
WILL BE VOTED "FOR" THE ELECTION OF ALL OF MANAGEMENT'S NOMINEES FOR DIRECTORS
AND "FOR" PROPOSAL B ABOVE. DISCRETION WILL BE USED WITH RESPECT TO SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF.
Please date this proxy and sign your name exactly as it appears hereon. Persons
signing in a representative capacity should indicate their capacity. A proxy
for shares held in joint ownership should be signed by each owner.
Signature 1 - Please keep signature within the box. Signature 2 - Please keep
signature within the box. Date (mm/dd/yyyy)
PROXY - PILGRIM'S PRIDE CORPORATION
110 SOUTH TEXAS STREET
PITTSBURG, TEXAS 75686
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints Lonnie "Bo" Pilgrim and Clifford E. Butler, and
each of them, as proxies, each with the power to appoint his substitute, and
hereby authorizes them, and each of them, to represent and to vote, as
designated below, all the shares of Class A common stock and Class B common
stock of Pilgrim's Pride Corporation
held of record by the undersigned on December 5, 2002, at the Annual Meeting of
Stockholders to be held on Wednesday, January 29, 2003, or any adjournment
thereof.
PLEASE EXECUTE THIS PROXY AND RETURN PROMPTLY IN THE ENCLOSED SELF-ADDRESSED
STAMPED ENVELOPE.
(Continued and to be signed on reverse side.)