THIS CONFORMING PAPER FORMAT DOCUMENT IS BEING SUBMITTED PURSUANT TO RULE
902(G) OF REGULATION S-T
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1995 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)
Registrant's telephone number, including area code: (903) 855-1000
Securities registered pursuant to Section 12 (b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock, Par Value $0.01 New York Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act: None
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
The aggregate market value of the Registrant's Common Stock, $0.01 par value,
held by non- affiliates of the Registrant as of December 19, 1995, was
$43,597,875. For purposes of the foregoing calculation only, all directors,
executive officers, and 5% beneficial owners have been deemed affiliates.
27,589,250 shares of the Registrant's common stock, $.01 par value, were
outstanding as of December 19, 1995.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's proxy statement for the annual meeting of
stockholders to be held February 7, 1996, are incorporated by reference into
Part III.
PART I
Item 1. Business
General
The Company, which was incorporated in Texas in 1968 and reincorporated in
Delaware in 1986, is the successor to a partnership founded as a retail feed
store in October, 1946 by the late Aubrey E. Pilgrim who was joined in the
partnership by his brother Lonnie "Bo" Pilgrim in April, 1947. Over the years,
the Company grew through both internal growth and various acquisitions of
chicken farming and processing operations. In addition to domestic growth, the
Company expanded into Mexico through acquisitions beginning in 1988 and
subsequent substantial capital investments.
The Company is a vertically integrated producer of chicken products,
controlling the breeding, hatching and growing of chickens and the processing,
preparation and packaging of its product lines. The Company is the fifth
largest producer of chicken in the United States, with production and
distribution facilities located in Texas, Arkansas, Oklahoma and Arizona, and
the second largest producer of chicken in Mexico, with production and
distribution facilities located in Mexico City and the states of Coahuila, San
Louis Potosi, Queretaro and Hidalgo. The Company is also a producer of table
eggs, animal feeds and ingredients. See Note H to the Consolidated Financial
Statements of the Company for information concerning revenues, operating profit
and identifiable assets attributable to the Company's U.S. and Mexican
operations.
The Company's chicken products consist primarily of (i) prepared foods,
which include portion-controlled breast fillets, tenderloins and strips, formed
nuggets and patties and bone-in chicken parts, which are sold frozen and may be
either fully cooked or raw; (ii) fresh foodservice chicken, which includes
refrigerated (non-frozen), whole or cut-up chicken sold to the foodservice
industry either pre-marinated or non-marinated; (iii) prepackaged chicken,
which includes various combinations of freshly refrigerated, whole chickens and
chicken parts in trays, bags or other consumer packs labeled and priced ready
for the retail grocer's fresh meat counter; and (iv) bulk packaged chicken
which includes parts and whole chicken, either refrigerated or frozen for U.S.
export or domestic use and is sold in eviscerated form in the U.S. and in both
eviscerated and uneviscerated forms in Mexico.
During recent years, the Company's strategy has been to identify and develop
specific, defined markets where it can achieve significant advantages over
competing suppliers. Management believes that this strategy has enabled the
Company to achieve both higher rates of growth and higher profits than
otherwise would have resulted. The Company has primarily targeted the
following markets: (1) U.S. foodservice, (2) U.S. consumer, and (3) Mexico. The
following table sets forth, for the periods since 1990, net sales attributable
to each of the Company's primary product types in these market segments. The
table is based on the Company's internal sales reports and its classification
of product types and customers.
Fiscal Year Ended
Sept 29, Sept 28, Sept 26, Oct 2, Oct 1, Sept 30,
1990 1991 1992 1993 1994 1995
(52 Weeks)(52 Weeks)(52 Weeks)(53 Weeks)(52 Weeks)(52 Weeks)
(in thousands)
U.S. Chicken Sales:
Prepared Foods:
Foodservice: $112,509 $151,661 $178,185 $183,165 $205,224 $240,456
Consumer
(Retail): 60,069 60,188 85,700 89,822 61,068 38,683
Total
Prepared
Foods 172,578 211,849 263,885 272,987 266,292 279,139
Fresh Chicken:
Foodservice: 118,158 127,303 126,472 149,197 155,294 140,201
Consumer
(Retail): 122,907 125,897 105,636 100,063 125,133 138,368
Other: 95,907 85,323 72,724 77,709 88,437 113,414
Total
Fresh
Chicken 366,972 338,523 304,832 326,969 368,864 391,983
Mexico:
Bulk-packaged
chicken 110,632 141,570 160,620 188,754 188,744 159,491
Total
Chicken
Sales 620,182 691,942 729,337 788,710 823,900 830,613
Sales of Other
Domestic Products100,373 94,709 88,024 99,133 98,709 101,193
Total Net
Sales $720,555 $786,651 $817,361 $887,843 $922,609 $31,806
United States
The following table sets forth, since fiscal 1990, the percentage of net
U.S. chicken sales attributable to each of the Company's primary products lines
and markets serviced with such products. The table and related discussion are
based on the Company's internal sales reports and its classification of product
types and customers.
Fiscal Year Ended
Sept 29, Sept 28, Sept 26, Oct 2, Oct 1, Sept 30,
1990 1991 1992 1993 1994 1995
(52 Weeks)(52 Weeks)(52 Weeks)(53 Weeks)(52 Weeks)(52 Weeks)
U.S. Chicken Sales:
Prepared Foods:
Foodservice 22.1% 27.6% 31.3% 30.5% 32.3% 35.8%
Consumer
(Retail): 11.8 10.0 15.1 15.0 9.6 5.8
Total Prepared
Foods 33.9 38.5 46.4 45.5 41.9 41.6
Fresh Chicken:
Foodservice: 23.2 23.1 22.2 24.9 24.4 20.9
Consumer
(Retail): 24.1 22.9 18.6 16.7 19.7 20.6
Other: 18.8 15.5 12.8 13.0 13.9 16.9
Total Fresh
Chicken 66.1% 60.5% 53.6% 54.5% 58.1% 58.4%
Total U.S. Chicken
Sales Mix 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Strategy
Domestic chicken sales can be segmented into two principal product types -
prepared foods and fresh chicken. The Company's U.S. business strategy is to
(i) focus most of its primary growth in prepared foods product lines, primarily
to foodservice chain restaurants and other commercial and industrial users of
prepared chicken; (ii) grow its fresh chicken business through value-added,
prepackaged consumer (retail) products; (iii) maintain a substantial presence
in the fresh foodservice market segment, and (iv) achieve significant cost and
product advantages over competing suppliers through leadership in production
technology and new product R & D. The Company believes this strategy results in
greater growth in sales and profits than would otherwise result.
Product Types
U.S. Prepared Foods Overview
During 1995, $279.1 million of the Company's net U.S. chicken sales were in
prepared foods products to foodservice and consumer (retail) customers. This is
an all time high, up from $172.6 million in 1990 and reflects the strategic
focus for growth of the Company. Management believes the market for prepared
foods chicken products will be generally characterized by higher growth rates
and more stable margins than non-prepared products. The Company will grow its
prepared foods sales to the foodservice industry at a faster rate than to the
retail industry.
The Company establishes prices for its prepared chicken products based
primarily upon perceived value to the customer, production costs and prices of
competing products. However, many of these products are priced according to
formulas which are based on an underlying commodity market, and this factor
causes some price fluctuation.
U.S. Fresh Chicken Overview
During 1995, $392.0 million of the Company's net U.S. chicken sales were in
fresh chicken products to foodservice, consumer (retail) and other customers.
This is an all time high, up from $367.0 million in 1990. The most significant
changes are reflected in the sales doller shifts since 1992 as the Company
has reemphasized its retail fresh chicken business which management believes
will continue to be a large and relatively stable base of business. The Company
anticipates that its foodservice volume will continue to gradually shift from
fresh to more of a prepared foods sales mix, however, there will always remain
a base level of fresh foodservice business. Sales growth in the "Other"
category primarily reflect approximately $32 million in 1995 exports of fresh
frozen chicken.
Most fresh chicken products are sold to established customers based upon
certain weekly or monthly market prices reported by the U.S.D.A. and other
public price reporting services, plus a markup, which is dependent upon the
customer's location, volume, product specifications and other factors. A
significant portion of the Company's fresh chicken sales is governed by
agreements with customers that provide for the pricing method and volume of
products to be purchased. The Company believes its practices with respect to
sales of its fresh chicken are generally consistent with those of its
competitors. The "Other" category of fresh chicken is the sale of the Company's
bulk-packaged, whole chicken which have historically been characterized by
lower prices and greater price volatility than the Company's more value-added
product lines. In the United States, prices of these products are negotiated
daily or weekly and are generally related to market prices quoted by the
U.S.D.A. or other public price reporting services.
Market Segments
U.S. Foodservice
The majority of the Company's U.S. chicken sales are derived from products
sold to the foodservice market which principally consists of chain restaurants,
institutions, foodservice distributors, and commercial or industrial users of
chicken located throughout the continental United States. The Company supplies
chicken products ranging from portion-controlled refrigerated chicken parts to
fully cooked and frozen, breaded or non-breaded chicken parts or formed
products.
As the second largest full-line supplier of chicken to the foodservice
industry, the Company believes it is well-positioned to be the primary or
secondary supplier to many national and international chain restaurants who
require multiple suppliers of chicken products. Additionally, it is well suited
to be the sole supplier for many regional chain restaurants that offer better
margin opportunities and a growing base of business. Due to its comparatively
large size in this market, management believes the Company has significant
competitive advantages in terms of product capability, production capacity,
research and development expertise, and distribution and marketing experience
relative to smaller and to non-vertically integrated producers. As a result of
these competitive advantages, the Company's sales to the foodservice market
from fiscal 1990 through fiscal 1995 grew at a compound annual growth rate of
approximately 11%. The Company markets both prepared and fresh chicken to the
foodservice industry.
Foodservice - Prepared Foods: Prepared foods sales to the foodservice
market were $240.5 million in fiscal 1995 and have increased at a compound
annual growth rate of approximately 16% from fiscal 1990 through fiscal 1995.
The Company's prepared foods products include portion-controlled breast
fillets, tenderloins and strips, formed nuggets and patties and bone-in chicken
parts, which are sold frozen and in various stages of preparation, including
blanched, battered, breaded and partially or fully-cooked. The Company
attributes this growth in sales of prepared foods to the foodservice market to
a number of factors:
First, there has been significant growth in the number of foodservice
operators offering chicken on their menus and the number of chicken items
offered;
Second, foodservice operators are increasingly purchasing prepared chicken
products which allow them to reduce labor cost while providing greater product
consistency, quality and variety across all restaurant locations;
Third, there is a strong need among larger foodservice companies for an
alternative or additional supplier to the Company's principle competitor in the
prepared foods market. A viable alternative supplier must be able to ensure
supply, demonstrate innovation and new product development, and provide price
competition. The Company has been successful in its attempt to become the
alternative supplier of choice, and thus the primary or secondary prepared
chicken supplier to many large foodservice companies because it (i) is
vertically integrated, giving the Company control over raw material supplies,
(ii) has the capability to produce many types of chicken items and (iii) has
established a reputation for dependable quality, highly responsive service and
excellent technical support;
Fourth, as a result of the experience and reputation developed with larger
customers, the Company has increasingly become the principal supplier to
midsized foodservice organizations; and
Fifth, the Company's in-house product development group, responding to the
changing needs of the foodservice market, has enabled the Company to provide
foodservice customers with new and improved prepared foods. Approximately $122
million of the Company's sales to foodservice customers in 1995 consisted of
products which were not sold by the Company in 1990.
Foodservice - Fresh Chicken: The Company produces and markets fresh,
refrigerated chicken for sale to domestic quick-service restaurant chains,
delicatessens and other customers. These chickens have the giblets removed,
are usually of specific weight ranges, are usually pre-cut to customer
specifications and are often marinated to enhance value and product
differentiation. By growing and processing to customers specifications, the
Company is able to assist quick service restaurant chains in controlling costs
and maintaining size consistency of chicken pieces sold to the consumer.
U.S. Consumer
The U.S. consumer market consists primarily of grocery store chains, retail
distributors and wholesale clubs. The Company concentrates its efforts in this
market on sales of branded, prepackaged cut-up and whole chicken to grocery
chains and retail distributors in the midwestern, southwestern and western
portions of the United States. This regional marketing focus enables the
Company to develop consumer brand franchises and capitalize on proximity to the
trade customer, in terms of lower transportation costs; more timely, responsive
service; and enhanced product freshness. For a number of years the Company has
invested in both trade and consumer marketing designed to establish high levels
of brand name awareness and consumer preferences within these markets.
The Company utilizes numerous marketing techniques, including advertising, to
develop and strengthen trade and consumer awareness and increase brand loyalty
for consumer products marketed under the Pilgrim's Pride brand. The Company's
founder, Lonnie "Bo" Pilgrim, is the featured spokesman in the Company's
television, radio and print advertising, and a trademark cameo of a person in a
Pilgrim's hat serves as the logo on all of the Company's primary branded
products. As a result of this marketing strategy, the Company has established
a well-known brand name in certain southwestern markets, including the
Dallas/Fort Worth area where, according to a market research company, the
Company's brand name was recognized by 96% of grocery shoppers in an aided
brand recall study conducted in 1994. Management believes its efforts to
achieve and maintain brand awareness and loyalty help to provide more secure
distribution for its products and generate greater price premiums that would
otherwise be the case in certain southwestern markets. The Company also
maintains an active program to identify consumer preferences primarily by
testing new product ideas, packaging designs and methods through taste panels
and focus groups located in key geographic markets.
Consumer - Prepared Foods: The Company sells consumer oriented prepared
foods primarily to grocery store chains located in the midwestern, southwestern
and western portions of the U.S. where it also markets prepackaged fresh
chicken. Being a major, national competitor in retail, branded frozen foods is
not a part of the Company's current business strategy. The Company previously
was a national supplier of retail prepared chicken to Pace Membership Warehouse
until Pace was acquired by Sam's Club in January 1994. The wholesale club
industry is dominated by two large national operators, Sam's Club and Price-
Costco. Due to the highly concentrated nature of the club store business the
Company has redirected this prepared foods capacity to a more diversified
customer base with better overall gross margins.
Consumer -Fresh Chicken: The Company's prepackaged retail products include
various combinations of freshly refrigerated whole chickens and chicken parts
in trays, bags or other consumer packs, labeled and priced ready for the
grocer's fresh meat counter. Management believes the retail, prepackaged fresh
chicken business will continue to be a large and relatively stable market,
providing opportunities for product differentiation and regional brand loyalty.
The Company concentrates its sales and marketing efforts for the above product
types to grocery chains and retail distributors in the midwestern, southwestern
and western portions of the United States. This regional marketing focus
enables the Company to develop consumer brand franchises and capitalize on
proximity to the trade customer, in terms of lower transportation costs; more
timely, responsive service; and enhanced product freshness.
Other Chicken: The Company sells bulk whole chickens and cut-up parts
primarily to retail grocers and food distributors in the United States. In
recent years, the Company has de-
emphasized its marketing of bulk-packaged chicken in the United States in favor
of more value-added products and export opportunities. In the United States,
prices of these products are negotiated daily or weekly and are generally
related to market prices quoted by the U.S.D.A.or other public price reporting
services. The majority of the growth in sales of "other" products between 1993
and 1995 were in exports to the Far East, Middle East and Eastern Europe.
Management believes exports of both prepared and fresh chicken will grow at a
rate faster than the general industry as a whole.
Mexico
Strategy
In Mexico, the Company has made capital investments in advanced production
technology, transferred experienced management personnel and utilized proven
domestic production techniques in order to be a low cost producer of chicken.
At the same time, the Company has directed its marketing efforts toward more
value added chicken products. Management believes that this strategy has
resulted in increased market share and higher profit margins relative to other
Mexican chicken producers and has positioned the Company to participate in any
growth in chicken demand which may occur in the future. Recent demand growth
in Mexico is evidenced by the increase in per capita consumption of chicken in
Mexico, from approximately 24 pounds in 1982 to approximately 38 pounds in
1994, according to an industry source. Recent per capita consumption of
chicken is estimated to be down 13% to approximately 33 pounds. The Company
considers this decline in consumption to be a temporary reaction resulting from
the economic impact of the Mexican peso's devaluation occurring in 1995.
Background: The Mexican market is one of the Company's fastest growing
markets and represented approximately 17% of the Company's net sales in fiscal
1995. The Company entered the Mexican market in 1981 when it began selling
eggs on a limited basis. Recognizing favorable long-term demographic trends
and improving economic conditions in Mexico, the Company began exploring
opportunities to produce and market chicken in Mexico. In fiscal 1988, the
Company acquired four vertically integrated poultry production operations in
Mexico for approximately $15.1 million. Since such acquisitions and through
fiscal 1995, the Company has made capital expenditures in Mexico totaling $145
million to expand and improve such operations. Included in this amount is
fiscal 1995 investments of approximately $39.2 million for property, plant and
equipment in Mexico, of which $30.0 million was incurred in the acquisition of
Union de Queretaro, et al, a group of five chicken companies located near
Queretaro, Mexico. (See Note I to the Consolidated Financial Statements). The
Company believes its facilities are among the most technologically advanced in
Mexico. As a result of these expenditures, the Company has increased weekly
production in its Mexico operations by over 415% since its original investment
in 1988. The Company believes that it is one of the lowest cost producers of
chicken in Mexico.
Products: During the last three years, the Company's Mexico operation has
dramatically increased its value added sales of chicken products, which should
provide higher, more stable margins. Although changing now, the market for
chicken products in Mexico is less developed than in the United States with
sales attributed to fewer, more basic products.
Markets: The Company sells its Mexican chicken products primarily to large
wholesalers and, to a lesser extent, to retailers through its own distribution
network, which includes several warehouse facilities located throughout Central
Mexico. The Company's customer base in Mexico covers a broad geographic area
from Mexico City, the capital of Mexico with a population estimated to be over
20 million, to Saltillo, the capital of the State of Coahuila, about 500 miles
north of Mexico City, and from Tampico on the Gulf of Mexico to Acapulco on the
Pacific, which region includes the cities of San Luis Potosi and Queretaro,
capitals of the states of the same name.
Competition
The chicken industry is highly competitive and certain of the Company's
competitors have greater financial and marketing resources than the Company.
In the United States and Mexico, the Company competes principally with other
vertically integrated chicken companies. In general, the competitive factors
in the domestic chicken industry include price, product quality, brand
identification, breadth of product line and customer service. Competitive
factors vary by major market. In the foodservice market, competition is based
on consistent quality, product development, service and price. In the domestic
consumer market, management believes that product quality, brand awareness and
customer service are the primary bases of competition. There is some
competition with non vertically integrated further processors in the U.S.
prepared food business. The Company believes it has significant, long term
cost and quality advantages over non-vertically integrated further processors.
In Mexico, where product differentiation is limited, price and product quality
are the most critical competitive factors.
Other Activities
The Company markets fresh eggs under the Pilgrim's Pride brand name as well
as private labels in various sizes of cartons and flats to domestic retail
grocery and institutional foodservice customers located primarily in Texas.
The Company has a housing capacity for approximately 2.3 million commercial egg
laying hens which can produce approximately 41 million dozen eggs annually.
Domestic egg prices are determined weekly based upon reported market prices.
The domestic egg industry has been consolidating over the last few years with
the 20 largest producers accounting for more than 65% of the total number of
egg laying hens in service during 1995 The Company competes with other
domestic egg producers, primarily on the basis of product quality, reliability,
price and customer service. According to an industry publication, the Company
is the
twenty-fifth largest producer of eggs in the United States.
In fiscal 1995, exports of the Company's U.S. produced chicken accounted for
approximately 5% of dollar sales. Exports were primarily to Asian, Middle
Eastern and Eastern European countries. While current activity in these markets
contributes only a small percentage of sales, the Company believes export
demand will grow at an even faster rate than U.S. demand in the future. As
export conditions become more favorable, management believes the Company is
well-positioned to increase sales of both raw and cooked chicken to foreign
countries.
The Company has regional distribution centers located in Arlington, El Paso,
Mt. Pleasant and San Antonio, Texas; Phoenix and Tucson, Arizona; and Oklahoma
City, Oklahoma that distribute the Company's own poultry products along with
certain poultry and non-poultry products purchased from third parties. The
Company's non-poultry distribution business is conducted as an accommodation to
their customers and to achieve greater economies of scale in distribution
logistics. They serve independent grocers and quick service restaurants. The
store-door delivery capabilities for the Company's own poultry products provide
a strategic service advantage in selling to quick service, national chain
restaurants.
The Company also converts chicken by-products into protein products
primarily for sale to manufacturers of pet foods. In addition, the Company
produces and sells livestock feeds at its feed mill and farm supply store in
Pittsburg, Texas, to dairy farmers and livestock producers in northeastern
Texas.
Regulation
The chicken industry is subject to government regulation, particularly in
the health and environmental areas. The Company's domestic chicken processing
facilities are subject to on-site examination, inspection and regulation by the
U.S.D.A. The F.D.A. inspects the production of the Company's domestic feed
mills. The Company's Mexican food processing facilities and feed mills are
subject to on-site examination, inspection and regulation by a Mexican
governmental agency which performs functions similar to those performed by the
U.S.D.A. and F.D.A. Since commencement of operations by the Company's
predecessor in 1946, compliance with applicable regulations has not had a
material adverse effect upon the Company's earnings or competitive position and
such compliance is not anticipated to have a materially adverse effect in the
future. Management believes that the Company is in substantial compliance with
all applicable laws and regulations relating to the operations of its
facilities.
The Company anticipates increased regulation by the U.S.D.A. concerning food
safety, as well as by the F.D.A. concerning the use of medications in feed.
Although the Company does not anticipate any such regulation having a material
adverse effect upon the Company, no assurances can be given to that effect.
Employees and Labor Relations
As of December 15, 1995 the Company employed approximately 8,000 persons in
the U.S. and 3,750 persons in Mexico. Approximately 700 employees at the
Company's Lufkin, Texas facility are members of a collective bargaining unit
represented by Local 540 of the United Food and Commercial Workers Union (the
"UFCW"). None of the Company's other domestic employees have union
representation. The Company has operated the Lufkin facility since its
purchase in 1986 without a collective bargaining agreement. From February to
June 22, 1993, the Company engaged in negotiations with the UFCW to reach a
collective bargaining agreement. On May 24 and 25, 1993, the Company
experienced a UFCW-initiated work stoppage involving approximately 200
employees at the Lufkin facility. By May 26, 1993, substantially all of the
employees had returned to work. On June 22, 1993, management declared that
negotiations had reached an impasse and implemented the terms of their latest
contract offer. On September 29, 1995 a federal judge appointed by the fifth
circuit, found that the Company had not met its burden of proof in declaring
that negotiations had in fact reached an impasse and that it was in error in
implementing their last contract offer. The Company has filed an appeal to
this decision, however, has yet to give oral arguments to the court.
Additionally, the Company will resume negotiations with the union in efforts to
reach a collective bargaining agreement. Unless and until a collective
bargaining agreement is reached, there may be further work disruptions at this
facility. However, because of the adequate labor supply in the Lufkin area and
the Company's ability to shift portions of its production to other facilities,
the Company does not believe that additional work disruptions, if any, will
have a material adverse effect on the Company's operations or financial
condition. In Mexico, most of the Company's hourly employees are covered by
collective bargaining agreements as most employees are in Mexico. Except as
described above, the Company has not experienced any work stoppages, and
management believes that relations with the Company's employees are
satisfactory.
Executive Officers of the Registrant
As of December 15, 1994, the following were the Executive Officers of the
Company. Officers are elected annually by the Board of Directors to serve at
the pleasure of the Board of Directors.
Executive Officers of the Company Age Positions
Lonnie "Bo" Pilgrim 67 Chief Executive Officer
Lindy M. "Buddy" Pilgrim 41 President and Chief Operating
Officer
Clifford E. Butler 53 Chief Financial Officer,
Secretary and Treasurer
David Van Hoose 53 President, Mexican Operations
Robert L. Hendrix 59 Executive Vice President
Operations
Terry Berkenbile 45 Senior Vice President
Sales & Marketing, Retail and
Fresh Products
Richard A. Cogdill 35 Senior Vice President
Corporate Controller
Ray Gameson 47 Senior Vice President
Human Resources
O.B. Goolsby, Jr. 48 Senior Vice President
Prepared Foods
Michael D. Martin 41 Senior Vice President
DeQueen, Arkansas Complex
James J. Miner, Ph.D. 67 Senior Vice President
Technical Services
Michael J. Murray 37 Senior Vice President
Sales & Marketing, Prepared Foods
Robert N. Palm 51 Senior Vice President,
Lufkin, Texas Complex
Mr. L. A. Pilgrim has served as Chairman of the Board and Chief Executive
Officer since the organization of the Company in 1968. Prior to the
incorporation of the Company, Mr. Pilgrim was a partner in the Company's
predecessor partnership business founded in 1945.
Mr. L. M. Pilgrim serves as President and Chief Operating Officer of the
Company. He was elected as Director on March 8,1993 and began employment in
April 1993 under the title of President of U.S. Operations and Sales &
Marketing. From April 1993 to March 1994, the President and Chief Operating
Officer reported to him. After that time, the Chief Operating Officer title
and responsibilities were incorporated into his own. Up to October 1990, Mr.
Pilgrim was employed by the Company for 12 years in marketing and 9 years in
operations. From October 1990 to April 1993, he was President of Integrity
Management Services, Inc., a consulting firm to the food industry. He is a
nephew of Lonnie "Bo" Pilgrim.
Mr. Butler has been employed by the Company since 1969. He has been a Director
of the Company since 1969, was named Senior Vice President of Finance in 1973,
and became Chief Financial Officer and Vice Chairman of the Board in July 1983.
Mr. Van Hoose has been President of Mexican Operations since April 1993. He
was previously Senior Vice President, Director General, Mexican Operations
since August 1990. Mr. Van Hoose was employed by Pilgrim's Pride in September
1988 as Senior Vice President, Texas Processing. Prior to that, Mr. Van Hoose
was employed by Cargill, Inc., as General Manager of one of its chicken
operations.
Mr. Hendrix has been Executive Vice President, Operations, of the Company since
March 1994. Prior to that he served as Senior Vice President, NETEX Processing
from August 1992 to March 1994 and as President and Chief of Complex Operations
from September 1988 to March 1992. He was on leave from the Company from
March 1992 to August 1992. He was President and Chief Operating Office of
the Company from July 1983 to September 1988. He began as Senior Vice
President in September 1981 when Pilgrim's Pride acquired Mountaire
Corporation of DeQueen, Arkansas, and, prior thereto, he was Vice President of
Mountaire Corporation.
Mr. Berkenbile was named Senior Vice President, Sales & Marketing, for Retail
and Fresh Products in July 1994. Prior to that he was Vice President, Sales &
Marketing, for Retail and Fresh Products since May 1993. From February 1991 to
April 1993 Mr. Berkenbile was Director Retail Sales & Marketing at Hudson
Foods. From February 1988 to February 1991, Mr. Berkenbile was Director Plant
Sales at Pilgrim's Pride, prior thereto, he worked in the processed red meat
industry.
Mr. Cogdill has been Senior Vice President, Corporate Controller, since August
1992. He was previously Vice President, Corporate Controller since October
1991. Prior to that he was a Senior Manager with Ernst & Young LLP. He is a
Certified Public Accountant.
Mr. Gameson has been Senior Vice President of Human Resources since October
1994. He previously served as Vice President of Human Resources since August,
1993. From December 1991 to July 1993, he was employed by Townsends, Inc. and
served as Complex Human Resource, Manager. Prior to that he was employed by
the Company as Complex Human Resource, Manager, at its Mt. Pleasant, Texas
location.
Mr. Martin has been Senior Vice President, DeQueen, Arkansas Complex Manager,
of the Company since April 1993. He previously served as Plant Manager at the
Company's Lufkin, Texas operations and Vice President, Processing, at the
Company's Mt. Pleasant, Texas, operations up to April 1993. He has served in
various other operating management positions in the Arkansas Complex since
September 1981. Prior to that he was employed by Mountaire
Corporation of DeQueen, Arkansas, until it was acquired by the Company in
September 1981.
Dr. Miner, Ph.D., has been Senior Vice President, Technical Services, since
April 1994. He has been employed by the Company and its predecessor
partnership since 1966 and previously served as Senior Vice President
responsible for live production and feed nutrition. He has been a Director
since the incorporation of the Company in 1968.
Mr. Murray has been Senior Vice President, Sales & Marketing, for Prepared Foods
since October 1994. He previously served as Vice President of Sales and
Marketing, Food Service since August 1993. From 1990 to July 1993, he was
employed by Cargill, Inc. Prior to that, from March 1987 to 1990 he was
employed by Pilgrim's Pride as a Vice President for sales and marketing
and prior prior thereto, he was employed by Tyson Foods, Inc.
Mr. Palm has been Senior Vice President, Lufkin, Texas, Complex Manager of the
Company, since June 1985 and was previously employed in various operating
management positions by Plus-Tex Poultry, Inc., a Lufkin, Texas based company
acquired by Pilgrim's Pride in June 1985.
Item 2. Properties
Production and Facilities
Breeding and Hatching
The Company supplies all of its domestic chicks by producing its own
hatching eggs from domestic breeder flocks owned by the Company, approximately
38% of which are maintained on 38 Company-operated breeder farms. The Company
currently owns or contracts for approximately 6.8 million square feet of
breeder housing on approximately 198 breeder farms. In Mexico, all of the
Company's breeder flocks are maintained on Company-owned farms.
The Company owns six hatcheries in the United States, located in Nacogdoches
and Pittsburg, Texas, and DeQueen and Nashville, Arkansas, where eggs are
incubated and hatched in a process requiring 21 days. Once hatched, the day-
old chicks are inspected and vaccinated against common poultry diseases and
transported by Company vehicles to grow-out farms. The Company's six domestic
hatcheries have an aggregate production capacity of approximately 6.7 million
chicks per week. In Mexico, the Company owns seven hatcheries, which have an
aggregate production capacity of approximately 3.9 million chicks per week.
Grow-out
The Company places its domestically grown chicks on approximately 887 grow-out
farms located in Texas and Arkansas. These farms provide the Company with
approximately 43 million square feet of growing facilities. The Company
operates 32 grow-out farms which account for approximately 10% of its total
annual domestic chicken capacity. The Company also places chicks with farms
owned by affiliates of the Company under grow-out contracts. The remaining
chicks are placed with independent farms under grow-out contracts. Under such
grow-out contracts, the farmers provide the facilities, utilities and labor.
The Company supplies the chicks, the feed and all veterinary and technical
services. Contract grow-out farmers are paid based on live weight under an
incentive arrangement. In Mexico, the Company owns approximately 38% of its
grow-out farms and contracts with independent farmers for the balance of its
production. Arrangements with independent farmers in Mexico are similar to the
Company's arrangements with contractors in the United States.
Feed Mills
An important factor in the production of chicken is the rate at which feed
is converted into body weight. The Company purchases feed ingredients on the
open market. The primary feed ingredients include corn, milo and soybean meal,
which historically have been the largest component of the Company's total
production cost. The quality and composition of the feed is critical to the
conversion rate, and accordingly, the Company formulates and produces its own
feed. Domestically, the Company operates five feed mills located in
Nacogdoches and Pittsburg, Texas and Nashville and Hope, Arkansas. The Company
currently has annual domestic feed requirements of approximately 1.7 million
tons and the capacity to produce approximately 2.1 million tons. The Company
owns four feed mills in Mexico which produce all of the requirements of its
Mexican operations. Mexican feed requirements are approximately .5 million
tons with a capacity to produce approximately 1.1 million tons. In fiscal
1995, approximately 55% of the grain used was imported from the United States.
However, this percentage fluctuates based on the availability and cost of local
grain supplies.
Feed grains are commodities subject to volatile price changes caused by
weather, size of harvest, transportation and storage costs and the agricultural
policies of the United States and foreign governments. Although the Company
can and sometimes does purchase grain in forward markets, it cannot eliminate
the potential adverse effect of grain price increases.
Processing
Once the chickens reach processing weight, they are transported in the
Company's trucks to the Company's processing plants. These plants utilize
modern, highly automated equipment to process and package the chickens. The
Company periodically reviews possible application of new processing
technologies in order to enhance productivity and reduce costs. The Company's
five domestic processing plants, two of which are located in Mt. Pleasant,
Texas, and the remainder of which are located in Dallas and Lufkin, Texas, and
DeQueen, Arkansas, have the capacity, under present U.S.D.A. inspection
procedures, to produce approximately 1 billion pounds of dressed chicken
annually. The Company's three processing plants located in Mexico, which
perform fewer processing functions than the Company's U.S. facilities, have the
capacity to process approximately 650 million pounds of dressed chicken
annually.
Prepared Foods Plant
The Company's prepared foods plant in Mt. Pleasant, Texas, was constructed
in 1986 and expanded in 1987. This facility has deboning lines, marination
systems, batter/breading systems, fryers, ovens, both mechanical and cryogenic
freezers, a variety of packaging systems and cold storage. This plant is
currently operating at the equivalent of two shifts a day for six days a week.
If necessary, the Company could add additional shifts during the remaining days
of the week.
Egg Production
The Company produces eggs at three farms near Pittsburg, Texas. One farm is
owned by the Company, while two farms are operated under contract by an entity
owned by a major stockholder of the Company. The eggs are cleaned, sized,
graded and packaged for shipment at processing facilities located on the egg
farms. The farms have a housing capacity for approximately 2.3 million
producing hens and are currently housing approximately 2.0 million hens.
Other Facilities and Information
The Company operates a rendering plant located in Mt. Pleasant, Texas, that
currently processes by-products from approximately 2.0 million chickens daily
into protein products, which are used in the manufacture of chicken and
livestock feed and pet foods. The Company operates a feed supply store in
Pittsburg, Texas, from which it sells various bulk and sacked livestock feed
products. The Company owns an office building in Pittsburg, Texas, which
houses its executive offices, and an office building in Mexico City, which
houses the Company's Mexican marketing offices. The Company also owns
approximately 16,000 acres of farmland previously used in the Company's non-
poultry farming operations. The Company is currently in the process of
disposing of such land and related assets.
Substantially all of the Company's property, plant and equipment is pledged
as collateral on its secured debt.
Item 3. Legal Proceedings
From time to time the Company is named as a defendant or co-defendant in
lawsuits arising in the course of its business. The Company does not believe
that such pending lawsuits will have a material adverse impact on the Company.
Item 4. Submission of Matters to a Vote of Security Holders
NOT APPLICABLE
Part II
Item 5. Market for the Registrant's Common Stock and Related Security Holder
Matters
Quarterly Stock Prices and Dividends
High and low sales prices and dividends were:
Prices Prices
1995 1994 Dividends
Quarter High Low High Low 1995 1994
First $10 3/8 $9 3/8 $8 1/4 $6 5/8 $.015 $.015
Second 9 3/4 7 3/4 9 1/4 6 5/8 .015 .015
Third 8 3/8 7 1/2 9 6 3/8 .015 .015
Fourth 8 3/4 7 5/8 9 5/8 7 1/4 .015 .015
The Company's stock is traded on the New York Stock Exchange (ticker symbol
CHX). The Company estimates there were approximately 12,500 holders (including
individual participants in security position listings) of the Company's common
stock as of December 19, 1995.
S E L E C T E D F I N A N C I A L D A T A
Pilgrim's Pride Corporation and Subsidiaries
Years Ended
1995 1994 1993(a) 1992(b) 1991 1990 1989
(in thousands, except per share data)
OPERATING RESULTS SUMMARY:
Net sales $931,806 $922,609 $887,843 $817,361 $786,651 $720,555 $661,077
Gross
margin 74,144 110,827 106,036(c) 32,802(c) 75,567 74,190 83,356
Operating
income
(loss) 24,930 59,698(d) 56,345(d) (13,475) 31,039 33,379 47,014
Income (loss)
before income
taxes and
extraordinary
charge 2,091 42,448 32,838 (33,712) 12,235 20,463 31,027
Income tax
expense
(benefit) 10,058 11,390 10,543 (4,048) (59) 4,826 10,745
Income (loss)
before
extraordinary
charge (7,967) 31,058 22,295 (29,664) 12,294 15,637 20,282
Extraordinary
charge - early
repayment of
debt, net of
tax - - (1,286) - - - -
Net income
(loss) (7,967) 31,058 21,009 (29,664) 12,294 15,637 20,282
PER COMMON SHARE DATA:
Income (loss) before
extraordinary
charge $ (0.29) $ 1.13 $ 0.81 $ (1.24) $ 0.54 $ 0.69 $ 0.90
Extraordinary
charge - early
repayment of
debt - - (0.05) - - - -
Net income
(loss) (0.29) 1.13 0.76 (1.24) 0.54 0.69 0.90
Cash
dividends 0.06 0.06 0.03 0.06 0.06 0.06 0.06
Book value(e) 5.51 5.86 4.80 4.06 4.97 4.49 3.86
BALANCE SHEET SUMMARY:
Working
capital $ 88,395 $ 99,724 $ 72,688 $ 11,227 $ 44,882 $ 54,161 $ 60,313
Total assets 497,604 438,683 422,846 434,566 428,090 379,694 291,102
Short-term
debt 18,187 4,493 25,643 86,424 44,756 30,351 9,528
Long-term debt,
less current
maturities 182,988 152,631 159,554 131,534 175,776 154,277 109,412
Total
stockholders'
equity 152,074 161,696 132,293 112,112 112,353 101,414 87,132
KEY INDICATORS (As a percent of sales):
Gross Margin 8.0 % 12.0 % 11.9 %(c) 4.0 %(c) 9.6 % 10.3 % 12.6 %
Selling,
general and
administrative
expenses 5.3 % 5.5 %(d) 5.6 %(c) 5.7 %(c) 5.7 % 5.7 % 5.5 %
(d)
Operating
income
(loss) 2.7 % 6.5 %(d) 6.3 %(d) (1.6)% 3.9 % 4.6 % 7.1 %
Net interest
expense 1.9 % 2.1 % 2.9 % 2.8 % 2.5 % 2.3 % 2.7 %
Net income
(loss) (0.9)% 3.4 % 2.4 % (3.6)% 1.6 % 2.2 % 3.1 %
(a) 1993 had 53 weeks.
(b) During 1992, the Company changed the fiscal year-end of its Mexican
subsidiaries from August to September to coincide with that of its
domestic operations. 1992 operating results included the operations of
the Mexican subsidiaries for the twelve months ended September 26, 1992.
Operating results for the Mexican subsidiaries during the month of
September, 1991 have been reflected as a direct addition to
stockholders' equity.
(c) Reflects reclassification of certain expenses from selling, general and
administrative to cost of sales of $4.2 million and $1.8 million in 1993
and 1992, respectively.
(See Note A to the Consolidated Financial Statements).
(d) Reflects reclassification of foreign exchange (gain) losses from
selling, general and administrative to a separate component of other
expenses (income). (See Note A
to the Consolidated Financial Statements).
(e) Amounts are based on end-of-period shares of common stock outstanding.
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition
GENERAL
The profitability of the chicken industry is affected by market prices of
chicken and feed grains, both of which may fluctuate significantly and exhibit
cyclical characteristics. In an effort to reduce price volatility and to
generate higher, more consistent profit margins, the Company has concentrated
on the production and marketing of prepared food products, which generally have
higher margins than the Company's other products. This concentration has
resulted in an increase in sales of prepared food products as a percentage of
total domestic net sales from 28.3% in fiscal 1990 to 36.4% in fiscal 1995.
Management believes that sales of prepared food products will become a larger
component of its total chicken sales and, accordingly, changes in market prices
for chicken and feed costs should have less impact on profitability.
RESULTS OF OPERATIONS
Fiscal 1995 Compared to Fiscal 1994:
Consolidated net sales were $931.8 million for fiscal 1995, an increase of $9.2
million, or 1.0%, over fiscal 1994. The increase in consolidated net sales
resulted from a $36.0 million increase in domestic chicken sales to $671.1
million and a $2.5 million increase in sales of other domestic products to
$101.2 million offset partially by a $29.3 million decrease in Mexican chicken
sales to $159.5 million. The increase in domestic chicken sales was due
primarily to a 3.6% increase in dressed pounds produced and a 2.0% increase in
the total revenue per dressed pound produced. The decrease in Mexican chicken
sales resulted from a 21.9% decrease in the total revenue per dressed pound
produced caused primarily by the devaluation of the Mexican peso, offset by an
8.1% increase in dressed pounds produced. See Impact of Mexican Peso
Devaluation discussed below.
Consolidated cost of sales was $857.7 million in fiscal 1995, an increase of
$45.9 million, or 5.7%, over fiscal 1994. The increase primarily resulted from
a $39.2 million increase in cost of sales of domestic operations and a $6.7
million increase in the cost of sales from Mexican operations.
The cost of sales increase in domestic operations of $39.2 million was due
primarily to a 3.6% increase in dressed pounds produced and increased
production of higher margin products in prepared foods, offset partially by a
6.1% decrease in feed ingredient cost. While average feed costs were lower in
fiscal 1995 than the previous year, subsequent to year end feed costs have
increased substantially due to lower crop yields in the 1995 harvest season.
Due to the commodity nature of feed there can be no assurance as to future feed
costs.
The $6.7 million cost of sales increase in Mexican operations was due primarily
to an 8.1% increase in dressed pounds produced offset partially by a 3.6%
decrease in average cost of sales per dressed pound resulting from the
devaluation of the Mexican peso. See Impact of Peso Devaluation discussed
below.
Gross profit as a percentage of sales decreased to 8.0% in fiscal 1995 from 12%
in fiscal 1994. The decreased gross profit resulted mainly from the Company's
Mexican operations and was primarily the result of the Mexican peso devaluation
having a greater effect on selling prices than on cost of sales, due primarily
to the dollar based characteristics of grain prices, which is a major component
of cost of goods sold.
Consolidated selling, general and administrative expenses were $49.2 million
for fiscal 1995, a decrease of $1.9 million, or 3.7%, when compared to fiscal
1994. Consolidated selling, general and administrative expenses as a
percentage of sales decreased in fiscal 1995 to 5.3% from 5.5% in fiscal 1994.
Consolidated operating income for fiscal 1995 was $24.9 million compared to
$59.7 million in fiscal 1994. The decrease was due primarily to lower margins
in Mexican chicken operations which resulted primarily from the effects of the
Mexican peso devaluation as described previously.
Consolidated net interest expense was $17.5 million in fiscal 1995, a decrease
of $1.7 million, or 8.8%, when compared to fiscal 1994. This decrease was due
to lower average amounts of outstanding debt when compared to fiscal 1994.
Consolidated income tax expense decreased to $10.1 million in fiscal 1995
compared to $11.4 million in fiscal 1994. The high effective tax rate is due
to the Company having positive taxable income in the United States offset by
losses in Mexico which result in no current tax benefit under current Mexican
tax laws.
Fiscal 1994 Compared to Fiscal 1993:
The Company's accounting cycle resulted in 52 weeks of operations in fiscal
1994 and 53 weeks in fiscal 1993.
Consolidated net sales were $922.6 million for fiscal 1994, an increase of
$34.8 million, or 3.9%, over fiscal 1993. The increase in consolidated net
sales resulted from a $35.2 million increase in domestic chicken sales to
$635.2 million, partially offset by a $.4 million decrease in sales of other
domestic products to $98.7 million. Mexican chicken sales remained constant at
$188.7 million. The increase in domestic chicken sales was primarily due to a
3.9% increase in the total revenue per dressed pound produced and a 1.9%
increase in dressed pounds produced. The constant Mexican chicken sales
resulted from a 2.4% increase in dressed pounds produced offset by a 2.3%
decrease in the total revenue per dressed pound produced.
Consolidated cost of sales was $811.8 million in fiscal 1994, an increase of
$30.0 million, or 3.8%, over fiscal 1993. The increase primarily resulted from
a $35.2 million increase in cost of
sales of domestic operations offset by a $5.2 million decrease in the cost of
sales from Mexican operations.
The cost of sales increase in domestic operations of $35.2 million was
primarily due to a 5.7% increase in feed ingredient cost and a 1.9% increase in
dressed pounds produced.
The cost of sales decrease in Mexican operations of $5.2 million was primarily
the result of a decrease in the average cost of sales per dressed pound
produced, offset by a 2.4% increase in dressed pounds produced. The decrease
in the average cost of sales per dressed pound produced when compared to the
same period in 1993 was due to lower live production costs due to increased
efficiencies.
Gross profit as a percentage of sales increased to 12.0% in fiscal 1994 from
11.9% in fiscal 1993. The improved gross profit resulted primarily from
increased gross profit in the Company's domestic chicken operations resulting
primarily from increased total revenue per dressed pound. The increase in
gross profit as a percentage of sales in Mexican chicken operations resulted
from a decrease in the average cost of sales per dressed pound produced,
resulting from reduced live production costs.
Consolidated selling, general and administrative expenses were $51.1 million
for fiscal 1994, an increase of $1.4 million, or 2.9%, when compared to fiscal
1993. Consolidated selling, general and administrative expenses as a
percentage of sales decreased in fiscal 1994 to 5.5% from 5.6% in fiscal 1993.
Consolidated operating income for fiscal 1994 was $59.7 million compared to
$56.3 million in fiscal 1993. The increase was due primarily to higher margins
in domestic and Mexican chicken operations as described previously.
Consolidated net interest expense was $19.2 million in fiscal 1994, a decrease
of $6.5 million, or 25.5%, when compared to fiscal 1993. This decrease was due
to a reduction of fees and expenses incurred for refinancing and lower amounts
of outstanding debt when compared to fiscal 1993.
Liquidity and Capital Resources:
Liquidity in fiscal 1995 remained strong despite operating losses in Mexico
resulting primarily from the Mexican peso devaluation which caused erosion in
most financial ratios. The Company's working capital at September 30, 1995
decreased to $88.4 million from $99.7 million at October 1, 1994. The current
ratio at September 30, 1995 decreased to 1.84 to 1 from 2.34 to 1 at October 1,
1994 and the Company's stockholder's equity decreased to $152.1 million at
September 30, 1995 from $161.7 million at October 1, 1994. The Company's ratio
of total debt to capitalization increased to 56.9% at September 30, 1995 from
49.3% at October 1, 1994.
The Company maintains a $75 million revolving credit facility with available
unused lines of credit of $51.7 million at December 1, 1995.
Trade accounts and notes receivable were $60.0 million at September 30, 1995, a
$6.8 million increase from October 1, 1994. This 12.7% increase was due
primarily to increased domestic sales offset partially by the effects of the
Mexican peso devaluation and faster domestic collections experienced in fiscal
1995 when compared to the year ended October 1, 1994. Allowances for doubtful
accounts, which primarily relate to receivables in Mexico, as a percentage of
trade accounts and notes receivables were 6.7% at September 30, 1995 compared
to 10.0% at October 1, 1994. This decrease is due primarily to the effects of
the devaluation of the Mexican peso.
Inventories were $110.4 million at September 30, 1995, a $9.7 million increase
from October 1, 1994. This 9.6% increase was primarily due to higher domestic
inventories resulting from increased production offset by lower Mexican
inventories caused by the Mexican peso devaluation.
Accounts payable were $55.7 million at September 30, 1995, a $17.0 million
increase from October 1, 1994, primarily due to higher production levels and
construction-in-progress from October 1, 1994.
Capital expenditures and business acquisitions for fiscal 1995 were $35.2
million and $36.2 million (of which $29.5 million was for the acquisition of
property, plant and equipment), respectively. Capital expenditures were
primarily incurred to improve efficiencies, reduce costs and for the routine
replacement of equipment. In fiscal 1995, the Company acquired certain assets
of Union de Queretaro, et al located in Queretaro, Mexico for approximately
$35.3 million. See Note I to the Consolidated Financial Statements. The
Company anticipates that it will spend approximately $45 million for capital
expenditures in fiscal year 1996 and expects to finance such expenditures with
available operating cash flow, leases and long-term financing. Subsequent to
year-end the Company secured a $50 million long-term financing arrangement, to
be collateralized by existing and new property, plant and equipment. The
Company intends to use this facility to finance the aforementioned capital
expenditures and to refinance certain existing long-term debt.
Cash flows provided by operating activities were $32.7 million, $60.7 million
and $45.0 million in fiscal 1995, 1994 and 1993, respectively. The change in
cash flows provided by operating activities between the periods resulted
primarily from changes in net income.
Cash provided by (used in) financing activities was $40.2 million, $(30.3)
million and $(40.3) million in fiscal 1995, 1994 and 1993, respectively. The
cash provided by (used in) financing
activities primarily reflects debt retirements in fiscal 1994 and 1993 and
proceeds from notes payable and long-term financings in fiscal 1995.
The Company's deferred income taxes have resulted primarily from the Company's
change from the cash method of accounting to the accrual method of accounting
for taxable periods beginning after July 2, 1988. The Company's deferred
income taxes arising from such change in method of accounting will continue to
be deferred as long as (i) at least 50% of the voting stock and at least 50% of
all other classes of stock of the Company continue to be owned by the Lonnie
"Bo" Pilgrim family and (ii) the Company's net sales from its agricultural
operation in a taxable year equal or exceed the Company's net sales from such
operations in its taxable year ending July 2, 1988. Failure of the first
requirement will cause all of the deferred taxes attributable to the change in
accounting method to be due. Failure of the second requirement will cause a
portion of such deferred taxes to be due based upon the amount of the relative
decline in net sales from the agricultural operations. The family of Lonnie
"Bo" Pilgrim currently owns approximately 65.1% of the stock of the company.
Management believes that likelihood of the (i) Pilgrim family ownership falling
below 50%, or (ii) gross receipts from agricultural activities falling below
the 1988 level, is remote.
Impact of Mexican Peso Devaluation:
In December 1994, the Mexican government changed its policy of defending the
peso against the U.S. dollar and allowed it to float freely on the currency
markets. These events resulted in the Mexican peso exchange rate declining
from 3.39 to 1 U.S. dollar at October 1, 1994 to a low of 7.91 at November 15,
1995. On December 1, 1995 the Mexican peso closed at 7.56 to 1 U.S. dollar.
No assurance can be given as to the future valuation of the Mexican peso and
its resulting impact on the Company's operation. Further movement in the
Mexican peso could affect future earnings positively or negatively.
Adjustments resulting from changes in currency exchange rates on net monetary
assets are reflected in the statements of operations. Classification of the
effects in the statement of operations is dependent upon the nature of the
underlying asset and, in general, exchange rate effects on net monetary assets
are reflected as "Other expenses (income) - Foreign exchange (gain) loss."
During fiscal 1995, the peso's devaluation resulted in foreign exchange losses
of $5.6 million on net monetary assets.
Other:
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121
establishes accounting standards for the impairment of long-lived assets to be
held and used and for long-lived assets to be disposed of. SFAS No. 121 is
scheduled to become mandatory for the Company's 1997 fiscal year. The Company
has not determined the effect of adopting SFAS No. 121. There will be no cash
flow impact from this accounting change.
Impact of Inflation:
Due to moderate inflation and the Company's rapid inventory turnover rate, the
results of operations have not been adversely affected by inflation during the
past three-year period.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements together with the report of
independent auditors, and financial statement schedules are included on pages
34 through 51 of this document. Financial statement schedules other than those
included herein have been omitted because the required information is contained
in the consolidated financial statements or related notes, or such information
is not applicable.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
NOT APPLICABLE
PART III
Item 10. Directors and Executive Officers of Registrant
Reference is made to "Election of Directors" on pages 3 through 5 of
Registrant's Proxy Statement for its 1995 Annual Meeting of Stockholders, which
section is incorporated herein by reference.
Reference is made to "Compliance with Section 16(a) of the Exchange Act" on
page 9 of Registrant's Proxy Statement for its 1995 Annual Meeting of
Stockholders, which section is incorporated herein by reference.
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
Information responsive to Items 11, 12 and 13 is incorporated by reference
from sections entitled "Security Ownership", "Election of Directors",
"Executive Compensation", and "Certain Transactions" of the Registrant's Proxy
Statement for its 1995 Annual Meeting of Stockholders.
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) The financial statements listed in the accompanying index to
financial statements and schedules are filed as part of this
report.
(2) The schedules listed in the accompanying index to financial
statements and schedules are filed as part of this report.
(3) Exhibits
2.1 Agreement and Plan of Reorganization dated September 15, 1986, by and
among Pilgrim's Pride Corporation, A Texas corporation; Pilgrim's Pride
Corporation, a Delaware corporation; and Doris Pilgrim Julian, Aubrey
Hal Pilgrim, Paulette Pilgrim Rolston, Evanne Pilgrim, Lonnie "Bo"
Pilgrim, Lonnie Ken Pilgrim, Greta Pilgrim Owens and Patrick Wayne
Pilgrim (incorporated by reference from Exhibit 2.1 to the Company's
Registration Statement on Form S-1 (No. 33-8805) effective November 14,
1986).
3.1 Certificate of Incorporation of the Company (incorporated by reference
from Exhibit 3.1 of the Company's Registration Statement on Form S-1
(No. 33-8805) effective November 14, 1986).
3.2 By-Laws of the Company (incorporated by reference from Exhibit 3.2 to
the Company's Registration Statement on Form S-1 (No. 33-8805) effective
November 14, 1986).
4.1 Certificate of Incorporation of the Company (incorporated by reference
from Exhibit 3.1 of the Company's Registration Statement on Form S-1
(No. 33-8805) effective November 14, 1986).
4.2 By-Laws of the Company (incorporated by reference from Exhibit 3.2 of
the Company's Registration Statement on Form S-1 (No. 33-8805) effective
November 14, 1986).
4.3 Indenture dated as of May 1, 1988, between the Company and Mtrust
Corporation National Association relating to the Company's 14 1/4%
Senior Notes Due 1995 (incorporated by reference from Exhibit 4.1 of the
Company's Registration Statement on Form S-1 (No. 33-21057) effective
May 2, 1988).
4.4 First Supplemental Indenture dated as of October 4, 1990, between the
Company and Ameritrust Texas, N.A. supplementing the Indenture dated as
of May 1, 1988, between the Company and Mtrust Corporation National
Association relating to the Company's 14 1/4% Senior Notes Due 1995
(incorporated by reference from Exhibit 4.4 of the Company's Form 8
filed on July 1, 1992).
4.5 Form of 14 1/4% Senior Note Due 1995 (incorporated by reference from
Exhibit 4.2 of the Company's Registration Statement on Form S-1
(No. 33-21057) effective May 2, 1988).
4.6 Specimen Certificate for shares of Common Stock, Par value $.01 per
share, of the Company (incorporated by reference from Exhibit 4.6 of the
Company's Form 8 filed on July 1, 1992).
4.7 Form of Indenture between the Company and Ameritrust Texas National
Association relating to the Company's 10 7/8% Senior Subordinated Notes
Due 2003 (incorporated by reference from Exhibit 4.6 of the Company's
Registration Statement on Form S-1 (No. 33-59626) filed on March 16,
1993).
4.8 Form of 10 7/8% Senior Subordinated Note Due 2003 (incorporated by
reference from Exhibit 4.8 of the Company's Registration Statement on
Form S-1 (No. 33-61160) filed on June 16, 1993).
10.1 Pilgrim Industries, Inc., Profit Sharing Retirement Plan, restated as of
July 1, 1987 (incorporated by reference from Exhibit 10.1 of the
Company's Form 8 filed on July 1, 1992).
10.2 Bonus Plan of the Company (incorporated by reference from Exhibit 10.2
to the Company's Registration Statement on Form S-1 (No. 33-8805)
effective November 14, 1986).
10.3 Aircraft Lease dated November 15, 1984, by and between L.A. Pilgrim
d/b/a B.P. Leasing Company and the Company (incorporated by reference
from Exhibit 10.5 to the Company's Registration Statement on Form S-1
(No. 33-8805) effective November 14, 1986).
10.4 Broiler Grower Contract dated November 11, 1985, between the Company and
Lonnie "Bo" Pilgrim (Farm #30) (incorporated by reference from Exhibit
10.9 to the Company's Registration Statement on Form S-1 (No. 33-8805)
effective November 14, 1986).
10.5 Broiler Growing Agreements dated October 28, 1985, between the Company
and Monty K. Henderson d/b/a Central Farms and Lone Oak Farms
(incorporated by reference from Exhibit 10.11 to the Company's
Registration Statement on Form S-1 (No. 33-8805) effective November 14,
1986).
10.6 Broiler Growing Agreement dated March 27, 1986, between the Company and
Clifford E. Butler (incorporated by reference from Exhibit 10.12 to the
Company's Registration Statement on Form S-1 (No. 33-8805) effective
November 14, 1986).
10.7 Broiler Grower Contract dated July 10, 1990 between the Company and
James J. Miner d/b/a/ BJM Farms (incorporated by reference from Exhibit
10.7 of the Company's Form 8 filed on July 1, 1992).
10.8 Commercial Egg Grower Contract dated July 1, 1986, between the Company
and Pilgrim Poultry, Ltd. (incorporated by reference from exhibit 10.14
to the Company's Registration Statement on Form S-1 (No. 33-8805)
effective November 14, 1986).
10.9 Agreement dated November 28, 1978, by and between the Company and
Pilgrim Poultry, Ltd. (incorporated by reference from Exhibit 10.15 to
the Company's Registration Statement on Form S-1 (No. 33-8805) effective
November 14, 1986).
10.10 Agreement between the Company and its Principal Shareholders dated
October 2, 1974, as amended July 1, 1979 (incorporated by reference from
Exhibit 10.19 to the Company's Registration Statement on Form S-1 (No.
33-8805) effective November 14, 1986).
10.11 Note Purchase Agreement dated as of October 1, 1986, by and between the
Company and Aetna Life Insurance Company with related Collateral Trust
Indenture, as amended by First Supplemental Indenture dated as of
November 1, 1986, and by letter dated September 29, 1987, Texas
Mortgage, Arkansas Mortgage, Guarantee Agreement, as amended by First
Amendment to Guarantee Agreement dated June 9, 1987, and Cash Pledge
Agreement (incorporated by reference from Exhibit 10.21 of the Company's
Registration Statement on Form S-1 (No. 33-21057) effective May 2,
1988).
10.12 Letter Agreement dated April 26, 1988, by and among Aetna Life Insurance
Company, The Aetna Casualty and Surety Company, The Connecticut Bank and
Trust Company and the Company and Letter Agreement dated April 26, 1988,
by and among Bank of America National Trust and Savings Association, The
Connecticut Bank and Trust Company and the Company amending Note
Purchase Agreement dated as of October 1, 1986 (incorporated by
reference from Exhibit 10.36 of the Company's Registration Statement on
Form S-1 (No. 33-21057) effective May 2, 1988).
10.13 Note Purchase Agreement dated as of September 21, 1990, by and among the
Company, Aetna Life Insurance Company and Bank of America National Trust
and Savings Association (incorporated by reference from Exhibit 10.20 of
the Company's Form 8 filed on July 1, 1992).
10.14 Amended and Restated Collateral Trust Indenture dated as of September
21, 1990, by and between the Company and State Street Bank and Trust
Company of Connecticut, N.A. with related Notes, Modification Agreements
and First Amendment to Guaranty (incorporated by reference from Exhibit
10.21 of the Company's Form 8 filed on July 1, 1992).
10.15 Supplemental Indenture and Waiver dated as of December 9, 1991, by and
between the Company and State Street Bank and Trust Company of
Connecticut, N.A. with related Notes, Modification Agreements and First
Amendment to Guaranty, Amended and Restated Collateral Trust Indenture
dated as of September 20, 1990 (incorporated by reference from Exhibit
10.24 of the Company's Form 10-K for the year ended September 26, 1992).
10.16 Loan Agreement dated as of August 1, 1988, by and between the Company
and Angelina and Neches River Authority Industrial Development
Corporation, with related Reimbursement and Credit Agreement
(incorporated by reference from Exhibit 10.22 of the Company's Form 8
filed on July 1, 1992).
10.17 Indenture of Trust dated as of August 1, 1988, related to Loan Agreement
by and between the Company and Angelina and Neches River Authority
Industrial Development Corporation, with related Bond, Irrevocable
Letter of Credit, Deed of Trust, Security Agreement, Assignment of Rents
and Financing Statement (incorporated by reference from Exhibit 10.23 of
the Company's Form 8 filed on July 1, 1992).
10.18 Assumption Agreement by and between the Company, Lonnie "Bo" Pilgrim and
RepublicBank Lufkin, as trustee, dated June 14, 1985 (incorporated by
reference from Exhibit 10.31 to the Company's Registration Statement on
Form S-1 (No. 33-8805) effective November 14, 1986).
10.19 Stock Purchase Agreement dated September 15, 1986, among the Company,
Doris Pilgrim Julian, Aubrey Hal Pilgrim, Paulette Pilgrim Rolston and
Evanne Pilgrim (incorporated by reference from Exhibit 2.2 to the
Company's Registration Statement on Form S-1 (No. 33-8805) effective
November 14, 1986).
10.20 Amendment No. 1 to Stock Purchase Agreement, dated as of October 31,
1986, among the Company, Doris Pilgrim Julian, Aubrey Hal Pilgrim,
Paulette Pilgrim Rolston and Evanne Pilgrim (incorporated by reference
from Exhibit 2.3 to the Company's Registration Statement on Form S-1
(No. 33-8805) effective November 14, 1986).
10.21 Limited Partnership Interest Purchase Agreement dated September 15,
1986, by and between the Company and Doris Pilgrim Julian (incorporated
by reference from Exhibit 2.5 to the Company's Registration Statement on
Form S-1 (No. 33-8805) effective November 14, 1986).
10.22 Employee Stock Investment Plan of the Company (incorporated by reference
from Exhibit 10.28 of the Company's Registration Statement on Form S-1
(No. 33-21057) effective May 2, 1988).
10.23 Promissory Note dated February 1, 1988, by and between the Company and
John Hancock Mutual Life Insurance Company with related Deed of Trust,
Assignment of Rents and Security Agreement and Mortgage and Guaranty of
Note and Mortgage (incorporated by reference from Exhibit 10.29 of the
Company's Registration Statement on Form S-1 (No. 33-21057) effective
May 2, 1988).
10.24 Letter from John Hancock Mutual Life Insurance Company dated April 25,
1988, amending Deed of Trust, Assignment of Rents and Security Agreement
dated February 1, 1988 (incorporated by reference from Exhibit 10.35 of
the Company's Registration Statement on Form S-1 (No. 33-21057)
effective May 2, 1988).
10.25 Promissory Note dated April 25, 1991, by and between the Company and
John Hancock Mutual Life Insurance Company, with related Modification
Agreement and Guaranty of Note and Mortgage (incorporated by reference
from Exhibit 10.31 of the Company's Form 8 filed on July 1, 1992).
10.26 Stock Purchase Agreement dated May 12, 1992, between the Company and
Archer Daniels Midland Company (incorporated by reference from Exhibit
10.45 of the Company's Form 10-K for the year ended September 26, 1992).
10.27 Promissory Note dated September 21, 1988, by and between the Company and
Charles Schreiner Bank, with related Warranty Deed with Vendor's Lien
and Deed of Trust and Security Agreement (incorporated by reference from
Exhibit 10.40 of the Company's Form 8 filed on July 1, 1992).
10.28 Promissory Note dated November 1, 1988, by and between the Company and
The Connecticut Mutual Life Insurance Company, with related Deed of
Trust (incorporated by reference from Exhibit 10.41 of the Company's
Form 8 filed on July 1, 1992).
10.29 Promissory Note dated September 20, 1990, by and between the Company and
Hibernia National Bank of Texas (incorporated by reference from Exhibit
10.42 of the Company's Form 8 filed on July 1, 1992).
10.30 Loan Agreement dated October 16, 1990, by and among the Company, Lonnie
"Bo" Pilgrim and North Texas Production Credit Association, with related
Variable Rate Term Promissory Note and Deed of Trust (incorporated by
reference from Exhibit 10.43 of the Company's Form 8 filed on July 1,
1992).
10.31 Secured Credit Agreement dated May 27, 1993, by and among the Company
and Harris Trust and Savings Bank, and FBS AG Credit, Inc.,
Internationale Nederlanden Bank, N.V., Boatmen's First National Bank of
Kansas City, and First Interstate Bank of Texas, N.A. (incorporated by
reference from Exhibit 10.31 of the Company's Registration Statement on
Form S-1 (No. 33-61160) filed on June 16, 1993).
10.32 Loan and Security Agreement dated as of June 3, 1993, by and among the
Company, the banks party thereto and Creditanstalt-Bankverein, as agent
(incorporated by reference from Exhibit 10.32 of the Company's
Registration Statement on Form S-1 (No. 33-61160) filed on June 16,
1993).
10.33 First Amendment to Secured Credit Agreement dated June 30, 1994 to the
Secured Credit Agreement dated May 27, 1993, by and among the Company
and Harris Trust and Savings Bank, and FBS AG Credit, Inc.,
Internationale Nederlanden Bank N.V., Boatman's First National Bank of
Kansas City and First Interstate Bank of Texas, N.A.
10.34 Amended and Restated Loan and Security Agreement date July 29, 1994, by
and among the Company, the banks party thereto and Creditanstalt-
Bankverein, as agent.
10.35 Supplemental Indenture dated October 2, 1994, by and between the Company
and State Street Bank and Trust Company of Connecticut, N.A., and
Guarantee Agreement, as amended by Second Amendment to Guarantee
Agreement dated October 2, 1994.
10.36 Second Amendment to Secured Credit Agreement dated December 6, 1994 to
the Secured Credit Agreement dated May 27, 1993, by and among the
Company and Harris Trust and Savings Bank, and FBS AG Credit, Inc.,
Internationale Nederlanden Bank N.V., Boatman's First National Bank of
Kansas City and First Interstate Bank of Texas, N.A.
10.37 Third Amendment to Secured Credit Agreement dated June 30, 1995 to the
Secured Credit Agreement dated May 27, 1993, by and among the Company
and Harris Trust and Savings Bank, and FBS AG Credit, Inc.,
Internationale Nederlanden Bank N.V., Boatman's First National Bank of
Kansas City and First Interstate Bank of Texas, N.A.
10.38 Second Amended and Restated Loan and Security Agreement dated July 31,
1995, by and among the Company, the banks party thereto and
Creditanstalt-Bankverein, as agent.
10.39 Revolving Credit Loan Agreement dated March 27, 1995 by and among the
Company and Agricultural Production Credit Association.
10.40 First Supplement to Revolving Credit Loan Agreement dated July 6, 1995
by and among the Company and Agricultural Production Credit Association.
22. Subsidiaries of Registrant.*
23. Consent of Ernst & Young LLP.*
27. Financial Data Statement.
* Filed herewith
Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K promulgated by the
Securities and Exchange Commission, the Company has not filed as exhibits
certain other instruments defining the rights of holders of long-term debt of
the Company which instruments do not pertain to indebtedness in excess of 10%
of the total assets of the Company. The Company hereby agrees to furnish
copies of such instruments to the Securities and Exchange Commission upon
request.
(b) Reports on Form 8-K
NOT APPLICABLESIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the issuer has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized on the 20th day of December 1995.
PILGRIM'S PRIDE CORPORATION
By:
Clifford E. Butler
Vice Chairman of the Board and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dated indicated.
Signature Title Date
Chairman of the Board 12/20/95
Lonnie "Bo" Pilgrim of Directors and Chief
Executive Officer
(Principal Executive
Officer)
Vice Chairman of the 12/20/95
Clifford E. Butler Board of Directors,
Chief Financial Officer,
Secretary and Treasurer (Principal
Financial and Accounting Officer)
President and 12/20/95
Lindy M. "Buddy" Pilgrim Chief Operating Officer and
Director
Executive Vice President 12/20/95
Robert L. Hendrix Operations and
Director
Senior Vice President 12/20/95
James J. Miner Technical Services and
Director
Vice President and 12/20/95
Lonnie Ken Pilgrim Director
Director 12/20/95
Charles L. Black
Director 12/20/95
Robert E. Hilgenfeld
Director 12/20/95
Vance C. Miller
Director 12/20/95
James J. Vetter, Jr.
Director 12/20/95
Donald L. Wass
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
Pilgrim's Pride Corporation
We have audited the accompanying consolidated balance sheets of Pilgrim's Pride
Corporation and subsidiaries as of September 30, 1995 and October 1, 1994, and
the related consolidated statements of income (loss), stockholders' equity, and
cash flows for each of the three years in the period ended September 30, 1995.
Our audits also included the financial statement schedule listed on the Index
as item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Pilgrim's Pride
Corporation and subsidiaries at September 30, 1995 and October 1, 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended September 30, 1995 in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
2121 San Jacinto Street
Dallas, Texas
November 6, 1995
C O N S O L I D A T E D B A L A N C E S H E E T S
Pilgrim's Pride Corporation and Subsidiaries
September October
30, 1995 1, 1994
(in thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 11,892 $ 11,244
Trade accounts and other receivables,
less allowance for doubtful accounts 60,031 53,264
Inventories 110,404 100,749
Deferred income taxes 9,564 6,459
Prepaid expenses 526 1,280
Other current assets 953 1,249
TOTAL CURRENT ASSETS 193,370 174,245
OTHER ASSETS 20,918 20,891
PROPERTY, PLANT AND EQUIPMENT
Land 17,637 15,153
Buildings, machinery and equipment 383,076 332,289
Autos and trucks 32,227 27,457
Construction-in-progress 9,841 4,853
442,781 379,752
Less accumulated depreciation 159,465 136,205
283,316 243,547
$ 497,604 $ 438,683
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable to banks $ 13,000 $ -
Accounts payable 55,658 38,675
Accrued expenses 31,130 31,353
Current maturities of long-term debt 5,187 4,493
TOTAL CURRENT LIABILITIES 104,975 74,521
LONG-TERM DEBT, less current maturities 182,988 152,631
DEFERRED INCOME TAXES 56,725 49,835
MINORITY INTEREST IN SUBSIDIARY 842 -
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value,
authorized 5,000,000 shares; none issued - -
Common stock, $.01 par value,
authorized 45,000,000 shares;
27,589,250 issued and outstanding
in 1995 and 1994 276 276
Additional paid-in capital 79,763 79,763
Retained earnings 72,035 81,657
TOTAL STOCKHOLDERS' EQUITY 152,074 161,696
COMMITMENTS AND CONTINGENCIES - -
$ 497,604 $ 438,683
See Notes to Consolidated Financial Statements
C O N S O L I D A T E D S T A T E M E N T S O F I N C O M E ( L O S S )
Pilgrim's Pride Corporation and Subsidiaries
Years Ended
September October October
30, 1995 1, 1994 2, 1993
(52 weeks) (52 weeks) (53 weeks)
(in thousands, except per share data)
Net sales $ 931,806 $ 922,609 $ 887,843
Costs and expenses:
Cost of sales 857,662 811,782 781,807
Selling, general and administrative 49,214 51,129 49,691
906,876 862,911 831,498
OPERATING INCOME 24,930 59,698 56,345
Other expenses (income):
Interest expense, net 17,483 19,173 25,719
Foreign exchange (gain) loss 5,605 (257) 243
Miscellaneous, net (249) (1,666) (2,455)
22,839 17,250 23,507
Income before income taxes and
extraordinary charge 2,091 42,448 32,838
Income tax expense 10,058 11,390 10,543
Net income (loss) before
extraordinary charge (7,967) 31,058 22,295
Extraordinary charge-early repayment
of debt, net of tax - - (1,286)
NET INCOME (LOSS) $ (7,967) $ 31,058 $ 21,009
Net income (loss) per common share
before extraordinary charge $ (0.29) $ 1.13 $ 0.81
Extraordinary charge per common share - - (0.05)
Net income (loss) per common share $ (0.29) $ 1.13 $ 0.76
See Notes to Consolidated Financial Statements.
C O N S O L I D A T E D S T A T E M E N T S O F S T O C K H O L D E R S '
E Q U I T Y
Pilgrim's Pride Corporation and Subsidiaries
Number Additional
of Common Paid-in Retained
Shares Stock Capital Earnings Total
(dollars in thousands, except per share data)
Balance at September 26, 1992 27,589,250 $276 $79,763 $32,073 $112,112
Net income for year 21,009 21,009
Cash dividends declared ($0.03 per share) (828) (828)
Balance at October 2, 1993 27,589,250 276 79,763 52,254 132,293
Net income for year 31,058 31,058
Cash dividends declared ($0.06 per share) (1,655) (1,655)
Balance at October 1, 1994 27,589,250 276 79,763 81,657 161,696
Net loss for year (7,967) (7,967)
Cash dividends declared ($.06 per share) (1,655) (1,655)
Balance at September 30, 1995 27,589,250 $276 $79,763 $72,035 $152,074
See Notes to Consolidated Financial Statements.
C O N S O L I D A T E D S T A T E M E N T S O F C A S H F L O W S
Pilgrim's Pride Corporation and Subsidiaries
Years Ended
September October October
30, 1995 1, 1994 2, 1993
(52 weeks) (52 weeks) (53 weeks)
(in thousands)
Cash Flows From Operating Activities:
Net income (loss) $ (7,967) $ 31,058 $ 21,009
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Depreciation and amortization 26,127 25,177 26,034
Gain on property disposals (263) (608) (2,187)
Provision for doubtful accounts 1,133 2,666 2,124
Deferred income taxes 3,785 6,720 5,028
Extraordinary charge - - 1,904
Changes in operating assets and liabilities:
Accounts and other receivables (3,370) 3,412 (6,555)
Inventories (4,336) (8,955) (2,366)
Prepaid expenses 1,066 (459) 4,175
Accounts payable and accrued expenses 15,249 1,742 (4,168)
Other 1,288 (89) (28)
Net Cash Flows Provided by
Operating Activities 32,712 60,664 44,970
Investing Activities:
Acquisitions of property, plant
and equipment (35,194) (25,547) (15,201)
Business acquisitions - property,
plant and equipment (29,519) - -
- other net
assets (6,659) - -
Proceeds from property disposal 541 2,103 2,977
Other, net (758) (128) 713
Net Cash Used in Investing Activities (71,589) (23,572) (11,511)
Financing Activities:
Proceeds from notes payable to banks 15,000 7,000 28,419
Repayments on notes payable to banks (2,000) (19,000) (81,398)
Proceeds from long-term debt 45,030 31 126,468
Payments on long-term debt (16,202) (16,253) (106,302)
Cost of refinancing debt - - (5,510)
Extraordinary charge, cash items - - (1,188)
Cash dividends paid (1,655) (2,069) (828)
Cash Provided by (Used in) Financing
Activities 40,173 (30,291) (40,339)
Effect of exchange rate changes on
cash and cash equivalents (648) (83) (144)
Increase (decrease) in cash and cash
equivalents 648 6,718 (7,024)
Cash and cash equivalents at beginning
of year 11,244 4,526 11,550
Cash and cash equivalents at end
of year $ 11,892 $ 11,244 $ 4,526
Supplemental disclosure information:
Cash paid during the year for:
Interest (net of amount
capitalized) $ 16,764 $ 19,572 $ 23,015
Income taxes $ 5,128 $ 7,108 $ 3,688
See Notes to Consolidated Financial Statements.
N O T E S T O C O N S O L I D A T E D F I N A N C I A L
S T A T E M E N T S
Pilgrim's Pride Corporation and Subsidiaries
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include the
accounts of Pilgrim's Pride Corporation and its wholly owned subsidiaries (the
"Company"). Significant intercompany accounts and transactions have been
eliminated.
The financial statements of the Company's Mexican subsidiaries are remeasured
as if the U.S. dollar were the functional currency. Accordingly, assets and
liabilities of the Mexican subsidiaries are translated at end-of-period
exchange rates, except for non-monetary assets which are translated at
equivalent dollar costs at dates of acquisition using historical rates.
Operations are translated at average exchange rates in effect during the
period. Foreign exchange (gains) losses are separately stated as components of
"Other expenses (income)" in the Consolidated Statement of Income (Loss). The
amounts for 1994 and 1993 were previously classified as components of "Costs
and expenses - Selling, general and administrative" in the Consolidated
Statement of Income (Loss), but have been reclassified to conform with the 1995
classification.
During the fourth quarter of fiscal 1994 the Company reclassified certain
expenses of its Mexican subsidiaries to conform to the classification in the
United States. The effect of this change was to decrease selling, general and
administrative expense and increase cost of sales by $4.2 million in 1993.
Cash Equivalents: The Company considers highly liquid investments with a matu-
rity of three months or less when purchased to be cash equivalents.
Accounts Receivable: The Company does not believe it has significant
concentrations of credit risk in its accounts receivable, which are generally
unsecured. Credit evaluations are performed on all significant customers and
updated as circumstances dictate. Allowances for doubtful accounts were $4.3
million and $5.9 million in 1995 and 1994, respectively.
Inventories: Live chicken inventories are stated at the lower of cost or
market and hens at the lower of cost, less accumulated amortization, or market.
The costs associated with hens are accumulated up to the production stage and
amortized over the productive lives using the straight-line method. Finished
chicken products, feed, eggs and other inventories are stated at the lower of
cost (first-in, first-out method) or market. Occasionally, the Company hedges
a portion of its purchases of major feed ingredients using futures contracts to
minimize the risk of adverse price fluctuations. Gains and losses on the hedge
transactions are deferred and recognized as a component of cost of sales when
products are sold.
Property, Plant and Equipment: Property, plant and equipment is stated at
cost. For financial reporting purposes, depreciation is computed using the
straight-line method over the estimated useful lives of these assets.
Depreciation expense was $24.8 million, $23.7 million and $23.4 million in
1995, 1994 and 1993, respectively.
Net Income (Loss) per Common Share: Net income (loss) per share is based on
the weighted average shares of common stock outstanding during the year. The
weighted average number of shares outstanding was 27,589,250 in all periods.
NOTE B - INVENTORIES
Inventories consist of the following:
September 30, October 1,
1995 1994
(in thousands)
Live chickens and hens $ 55,353 $ 47,743
Feed, eggs and other 32,087 22,529
Finished chicken products 22,964 30,477
$ 110,404 $ 100,749
NOTE C - NOTES PAYABLE AND LONG-TERM DEBT
The Company maintains a $75 million credit facility with various banks
providing short-term lines of credit at interest rates of approximately one and
one-eighth percent above LIBOR and, at September 30, 1995, availability under
these lines totaled $49.5 million. Inventories and trade accounts receivable
of the Company are pledged as collateral on this facility. The fair value of
the Company's long-term debt was estimated using quoted market prices, where
available. For long-term debt not actively traded, fair values were estimated
using discounted cash flow analysis using current market rates for similar
types of borrowings. For certain debt instruments recently issued or
modified, including the credit facility, the Company believes that their
carrying amounts approximate fair value at September 30, 1995 and October 1,
1994.
The table below sets forth maturities on long-term debt during the next five
years.
Year Amount
(in thousands)
1996 7,187
1997 10,913
1998 11,656
1999 11,704
2000 25,512
During 1993, the Company retired certain debt prior to their scheduled
maturities. These repayments resulted in an extraordinary charge of $1.3
million, net of $.6 million tax benefit.
The Company is required, by certain provisions of its debt agreements, to
maintain minimum levels of working capital and net worth, to limit dividends to
a maximum of $1.7 million per year, to maintain various fixed charge, leverage,
current and debt-to-equity ratios, and to limit annual capital expenditures.
Total interest during 1995, 1994 and 1993 was $19.1 million, $20.1 million and
$26.4 million, respectively. Interest related to new construction capitalized
in 1995, 1994 and 1993 was $.6 million, $.5 million and $.2 million,
respectively.
Long-term debt and the related fair values consist of the following:
September 30, 1995 October 1, 1994
Carrying Fair Carrying Fair
Amounts Value Amounts Value
(in thousands)
Senior subordinated notes due August 1, 2003,
interest at 10 % (effective rate of 11 %)
payable in semi-annual installments, less
discount of $1,181,000 and $1,330,000 in
1995 and 1994, respectively $ 98,819 $ 96,219 $ 98,670 $ 96,824
Notes payable to bank, interest at LIBOR plus
1.8% and in 1995 and 1994, respectively, with
principal payments of $867,000 and $950,500
in quarterly installments including interest
in fiscal year 1996 and thereafter, respectively,
plus one final balloon payment at maturity on
June 1, 2000 30,233 30,233 15,400 15,400
Notes payable to an agricultural lender at a rate
approximating LIBOR plus 1.65%, payable in
equal monthly installments including interest
through April 1, 2003 29,119 29,119 - -
Senior secured debt payable to an insurance
company at 10.49%, payable in equal annual
installments beginning October 5, 1996 through
September 21, 2002 22,000 23,930 22,000 23,293
Senior secured debt payable to an insurance
company, interest at 9.55%, payable in equal annual
installments through October 1, 1998 4,440 4,712 4,440 4,458
Other notes payable 3,564 3,745 16,614 17,050
188,175 187,958 157,124 157,492
Less current maturities 5,187 4,493
$182,988 $152,631
Substantially all of the Company's property, plant and equipment is pledged as
collateral on its long-term debt.
NOTE D - INCOME TAXES
Income (loss) before income taxes after allocation of certain expenses to
foreign operations for 1995, 1994 and 1993 was $29.9 million, $33.9 million and
$30.8 million, respectively, for domestic operations, and $(27.8) million, $8.6
million and $2.0 million, respectively, for foreign operations. Provisions
(benefits) for income taxes are based on pretax financial statement income.
The components of income tax expense (benefit) are set forth below:
Years Ended
September 30, October 1, October 2,
1995 1994 1993
(in thousands)
Current:
Federal $ 5,215 $ 4,573 $ 2,993
Foreign 638 423 2,775
Other 420 (326) (253)
6,273 4,670 5,515
Deferred:
Reinstatement
of deferred taxes
through utilization
of tax credits and
net operating losses 3,542 6,589 6,210
Accelerated tax
depreciation 215 1,002 1,130
Effect of U.S. tax
rate change on
temporary differences - - 1,000
Expenses deductible in a
different year for tax
and financial reporting
purposes 411 (580) (1,782)
Reversal of deferred
foreign income taxes
upon Mexican tax law
and restructuring changes - - (1,110)
Other, net (383) (291) (420)
3,785 6,720 5,028
$ 10,058 $ 11,390 $ 10,543
The following is a reconciliation between the statutory U.S. federal income tax
rate and the Company's effective income tax rate.
Years Ended
September 30, October 1, October 2,
1995 1994 1993
Federal income
tax rate 35.0% 35.0% 34.8%
State tax rate, net 40.1 2.3 2.2
Effect of Mexican loss
being non-deductible
in U.S. 411.1 - -
Difference in U.S.
statutory tax rate and
Mexican effective
tax rate - (10.7) (2.5)
Reversal of deferred
foreign income taxes
upon Mexican law and
restructuring changes - - (3.4)
Effect of U.S. tax rate
change on temporary
differences - - 3.0
Benefit of (prior) current
year losses not
recognized - - (5.3)
Other, net (5.2) 0.2 3.3
481.0% 26.8% 32.1%
Effective October 3, 1993, the Company adopted the provisions of FAS Statement
No. 109, "Accounting for Income Taxes." As permitted under the new rules,
prior years' financial statements have not been restated. The cumulative
effect of adopting FAS Statement No. 109 as of October 3, 1993 and the impact
of the adoption on the reported net income amounts for 1994 was not material.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets are as follows:
Years Ended
September October
30, 1995 1, 1994
(in thousands)
Deferred tax liabilities:
Tax over book depreciation $ 24,221 $ 24,006
Prior use of cash accounting 33,572 33,290
Other 965 516
Total deferred tax liabilities 58,758 57,812
Deferred tax assets:
AMT credit carryforward 2,972 6,629
General business credit carryforward 1,459 1,344
Expenses deductible in different years 7,166 6,463
Total deferred tax asset 11,597 14,436
Net deferred tax liabilities $ 47,161 $ 43,376
Pursuant to a restructuring of activities completed by the Company's Mexican
subsidiaries on January 1, 1993, approximately $1.1 million of deferred taxes
previously provided on earnings of the Company's nonagricultural Mexican
subsidiaries was reversed as a credit to income tax expense in fiscal 1993.
This restructuring, along with further restructuring of activities completed on
January 1, 1994, allowed previously nonagricultural Mexican operations to be
combined with existing agricultural operations and, as such, qualify for
taxability as agricultural operations, which are currently not subject to taxes
in Mexico. The current provision for foreign income taxes in 1995 is the
result of an asset based minimum tax. The Company has not provided any U.S.
deferred federal income taxes on the undistributed earnings of its Mexican
subsidiaries based upon its determination that such earnings will be
indefinitely reinvested. As of September 30, 1995, the cumulative
undistributed earnings of these subsidiaries were approximately $27.9 million.
If such earnings were not considered indefinitely reinvested, deferred federal
and foreign income taxes would have been provided, after consideration of
estimated foreign tax credits. (Included in this amount would be foreign taxes
resulting from earnings of the Mexican agricultural subsidiaries which would be
due upon distribution of such earnings to the U.S.) However, determination of
the amount of deferred federal and foreign income taxes is not practicable.
As of September 30, 1995, approximately $3.0 million of alternative minimum tax
credits and $1.5 million of targeted jobs credits were available to offset
future taxable income. The targeted jobs credits expire in years ending in
2001 through 2010. All credits have been reflected in the financial statements
as a reduction of deferred taxes. As these credits are utilized for tax
purposes, deferred taxes will be reinstated.
NOTE E - SAVINGS PLAN
The Company maintains a Section 401(k) Salary Deferral Plan (the "Plan").
Under the Plan, eligible domestic employees may voluntarily contribute a
percentage of their compensation. The Plan provides for a contribution of up
to four percent of compensation subject to an overall Company contribution
limit of five percent of income before taxes.
Under the plan outlined above, the Company's expenses were $1.9 million, $2.6
million and $1.1 million in 1995, 1994 and 1993, respectively.
NOTE F - RELATED PARTY TRANSACTIONS
The major stockholder of the Company owns an egg laying and a chicken growing
operation. Transactions with related entities are summarized as follows:
Years Ended
September 30, October 1, October 2,
1995 1994 1993
(in thousands)
Contract egg grower fees
to major stockholder $ 4,760 $ 5,137 $ 4,739
Chick, feed and other
sales to major stockholder 12,478 9,373 8,298
Live chicken purchases
from major stockholder 12,721 9,346 8,275
Purchases of feed
ingredients from
Archer Daniels Midland
Company 44,250 56,499 37,757
The Company leases an airplane from its major stockholder under an operating
lease agreement. The terms of the lease agreement require monthly payments of
$33,000 plus operating expenses. Lease expense was $396,000 for each of the
years 1995, 1994 and 1993. Operating expenses were $149,000 , $213,000 and
$108,000 in 1995, 1994 and 1993, respectively.
Expenses incurred for the guarantee of certain debt by stockholders were
$623,000, $526,000 and $1,192,000 in 1995, 1994 and 1993, respectively.
NOTE G - COMMITMENTS AND CONTINGENCIES
The Consolidated Statements of Income (Loss) included rental expense for
operating leases of approximately $9.8 million, $10.1 million and $9.3 million
in 1995, 1994 and 1993, respectively. The Company's future minimum lease
commitments under noncancelable operating leases are as follows:
Year Amount
(in thousands)
1996 7,924
1997 6,022
1998 5,446
1999 4,559
2000 3,767
Thereafter 6,834
At September 30, 1995, the Company had $12.5 million letters of credit
outstanding relating to normal business transactions.
The Company is subject to various 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 or results of operations of the Company.
NOTE H - BUSINESS SEGMENTS
The Company operates in a single business segment as a producer of agricultural
products and conducts separate operations in the United States and Mexico.
Interarea sales, which are not material, are accounted for at prices comparable
to normal trade customer sales. Identifiable assets by geographic area
are those assets which are used in the Company's operation in each area.
Information about the Company's operations in these geographic areas is as
follows:
Years Ended
September 30, October 1, October 2,
1995 1994 1993
(in thousands)
Sales to unaffiliated
customers:
United States $772,315 $733,865 $699,089
Mexico 159,491 188,744 188,754
$931,806 $922,609 $887,843
Operating income (loss):
United States $ 41,923 $ 46,421 $ 46,471
Mexico (16,993) 13,277 9,874
$ 24,930 $ 59,698 $ 56,345
Identifiable assets:
United States $328,489 $302,911 $288,761
Mexico 169,115 135,772 134,085
$497,604 $438,683 $422,846
NOTE I -ACQUISITIONS AND INVESTMENTS
On July 5, 1995, the Company acquired certain assets of Union de Queretaro, et
al, a group of five chicken companies located near Queretaro, Mexico for
approximately $35.3 million. These assets were integrated with the Company's
existing Mexican operation, headquartered in Queretaro, Mexico, which is the
second largest chicken operation in Mexico. The acquisition has been accounted
for as a purchase, and the results of operations for this acquisition have been
included in the Company's consolidated results of operations since the
acquisition date. Pro forma operating results are not presented as they would
not differ materially from actual results reported in 1995 and 1994.NOTE J -
QUARTERLY RESULTS - (Unaudited)
Year Ended September 30, 1995
First Second Third Fourth Fiscal
Quarter Quarter Quarter Quarter Year
(in thousands, except per share data)
Net sales $227,000 $216,830 $230,297 $257,679 $931,806
Gross profit 20,765 7,577 23,826 21,976 74,144
Operating income (loss) 8,742 (4,662) 11,843 9,007 24,930
Net income (loss) 556 (16,304) 6,143 1,638 (7,967)
Per share:
Net income (loss) 0.02 (0.59) 0.22 0.06 (0.29)
Cash dividends 0.015 0.015 0.015 0.015 0.06
Market price:
High 10 3/8 9 3/4 8 3/8 8 3/4 10 3/8
Low 9 3/8 7 3/4 7 1/2 7 5/8 7 1/2
Year Ended October 1, 1994
First Second Third Fourth Fiscal
Quarter Quarter Quarter Quarter Year
(in thousands, except per share data)
Net sales $221,851 $223,167 $238,302 $239,289 $922,609
Gross profit (a) 29,354 24,684 28,675 28,114 110,827
Operating income (b) 16,402 12,614 15,095 15,587 59,698
Net income 8,421 7,920 7,196 7,521 31,058
Per share:
Net income 0.31 0.29 0.26 0.27 1.13
Cash dividends 0.015 0.015 0.015 0.015 0.060
Market price:
High 8 1/4 9 1/4 9 9 5/8 9 5/8
Low 6 5/8 6 5/8 6 3/8 7 1/4 6 3/8
(a) In the fourth quarter of fiscal 1994, the Company reclassified certain
expenses previously reflected in selling, general and administrative
expenses as cost of sales. Conforming changes have been made and
reflected in the first three quarters of fiscal 1994 presented above.
(See Note A)
(b) In fiscal year 1995, foreign exchange (gain) losses, previously
reflected as components of selling, general and administrative expenses,
have been separately stated in other expenses (income). Conforming
changes have been made and reflected in the four quarters of fiscal 1994
presented above. (See Note A)
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Col. A Col. B Col. C Col. D Col. E
ADDITIONS
DESCRIPTION Balance at Charges to Changes to Other Deductions- Balance at End
Beginning Costs and Accounts-Described of Period
Year ended September 30, 1995:
Reserves and allowances deducted
from asset accounts:
Allowance for
doubtful accounts $5,906,000 $1,333,000 $-- $2,759,000(1) $4,280,000
Year ended October 1, 1994:
Reserves and allowances deducted
from asset accounts:
Allowance for
doubtful accounts $3,238,000 $2,666,000 $-- $ (2,000)(2) $5,906,000
Year ended October 2, 1993:
Reserves and allowances deducted
from asset accounts:
Allowance for
doubtful accounts $1,146,000 $2,124,000(2) $-- $ 32,000 (2) $3,238,000
(1) The decrease in the 1995 reserve account is primarily due to the
devaluation of the peso.
(2) Uncollectible accounts written off, net of receivables.
EXHIBIT 22-SUBSIDIARIES OF REGISTRANT
1. AVICOLA PILGRIM'S PRIDE DE MEXICO, S.A. DE C.V.
2. ALIMENTOS BLANCEADOS PILGRIM'S PRIDE S.A. DE C.V.
3. AVICOLA PILGRIM'S PRIDE, S.A. DE C.V.
4. AVICOLA SAN MIGUEL, S.A. DE C.V.
5. AVICOLA Y GANADERA COLIAH, S.A. DE C.V.
6. AVICOLA Y GRANADERA DEL BAJIO, S.A. DE C.V.
7. AVINDUSTRIA E INVESTIGACION, S.A. DE C.V.
8. AVIPECUARIA IXTA, S.A. DE C.V.
9. AVIPECURIA VALVACO, S.A. DE C.V.
10. AVIPRODUCTORA, S.A. DE C.V.
11. COMPANIA INCUBADORA AVICOLA PILGRIM'S PRIDE, S.A. DE C.V.
12. CIA. INCUBADORA HIDALGO, S.A. DE C.V.
13. INMOBILIARIA AVICOLA PILGRIM'S PRIDE, S. DE R.L. DE C.V.
14. PILGRIM'S PRIDE, S.A. DE C.V.
15. PRODUCTORA Y DISTRIBUIDORA DE ALIMENTOS, S.A. DE. C.V.
16. AVICOLA Y GANADERA DEL CENTRO
17. GALLINA PESADA S.A. DE C.V.
EXHIBIT 23 - CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 3-12043) of Pilgrim's Pride Corporation of our report dated
November 6, 1995, with respect to the consolidated financial statements and
schedules of Pilgrim's Pride Corporation included in this Annual Report (Form
10-K) for the year ended September 30, 1995.
Ernst & Young LLP
2121 San Jacinto
Dallas, Texas 75201
December 20, 1995