SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended JUNE 29, 1996
Commission file number 1-9273
PILGRIM'S PRIDE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 75-1285071
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
110 SOUTH TEXAS, PITTSBURG, TX 75686-0093
(Address of principal executive offices) (Zip code)
(903) 855-1000
(Telephone number of principle executive offices)
NOT APPLICABLE
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter periods that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date.
COMMON STOCK $.01 PAR VALUE 27,589,250 SHARES AS OF AUGUST 12, 1996
INDEX
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements (Unaudited):
Condensed consolidated balance sheets:
June 29, 1996 and September 30, 1995
Consolidated statements of income:
Three months and nine months ended June 29, 1996 and July 1,
1995
Consolidated statements of cash flows:
Nine months ended June 29, 1996 and July 1, 1995
Notes to condensed consolidated financial statements--June 29, 1996
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
PART I. FINANCIAL INFORMATION
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
ITEM 1: FINANCIAL STATEMENTS (UNAUDITED):
June 29, 1996 September 30, 1995
(in thousands)
ASSET
Current Assets:
Cash and cash equivalents $ 7,809 $ 11,892
Trade accounts and other receivables,
less allowance for doubtful accounts 63,704 60,031
Inventories 140,403 110,404
Deferred income taxes 10,359 9,564
Prepaid expenses 1,369 526
Other current assets 725 953
Total Current assets 224,369 193,370
19,150 20,918
466,680 442,781
Less accumulated depreciation 177,941 159,465
288,739 283,316
$ 532,258 $ 497,604
Notes payable to banks $ 27,000 $ 13,000
Accounts payable 60,071 55,658
Accrued expenses 35,790 31,130
Current maturities of long-term debt 7,872 5,187
Total Current Liabilities 130,733 104,975
199,817 182,988
53,067 56,725
842 842
Common stock; $.01 par value 276 276
Additional paid-in capital 79,763 79,763
Retained earnings 67,760 72,035
Total Stockholders' Equity 147,799 152,074
$ 532,258 $ 497,604
See notes to condensed consolidated financial
statements.
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Unaudited)
Three Months Ended Nine Months Ended
June 29, July 1, June 29, July 1,
1996 1995 1996 1995
(in thousands, except share and
per share data)
Net sales $ 294,339 $ 230,297 $ 833,818 $ 674,127
Costs and expenses:
Cost of sales 276,955 206,471 779,415 621,959
Selling, general and administrative 11,930 11,983 36,440 36,245
288,885 218,454 815,855 658,204
Operating income 5,454 11,843 17,963 15,923
Other expense (income):
Interest expense, net 5,526 4,359 15,857 12,714
Foreign exchange (gain) loss (59) (177) 1,163 5,438
Miscellaneous, net (600) (761) (1,177) 128
4,867 3,421 15,843 18,280
Income (loss) before income taxes
and extraordinary charge 587 8,422 2,120 (2,357)
Income tax (benefit) expense (420) 2,279 2,372 7,248
Net loss before extraordinary charge 1,007 6,143 (252) (9,605)
Extraordinary charge-early repayment of
debt,net of tax - - (2,780) -
Net income (loss) $ 1,007 $ 6,143 $ (3,032) $ (9,605)
Net income (loss) per common share
before extraordinary charge $ 0.04 $ 0.22 $ (0.01) $ (0.35)
Extraordinary charge per common share - - (0.10) -
Net income (loss) per common share $ 0.04 $ 0.22 $ (0.11) $ (0.35)
Dividends per common share $ 0.015 $ 0.015 $ 0.045 $ 0.045
Weighted average shares outstanding
shares outstanding 27,589,250 27,589,250 27,589,250 27,589,250
See notes to condensed consolidated
financial statements.
PILGRIM'S PRIDE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
June 29, 1996 July 1, 1995
(in thousands)
Cash Flows From Operating Activities:
Net loss $ (3,032) $ (9,605)
Adjustments to reconcile net income to cash
Provided by operating activities:
Depreciation and amortization 21,993 19,160
Gain on property disposals (262) (191)
Provision for losses on accounts receivable 669 -
Deferred income tax liability (4,453) 3,446
Extraordinary charge 4,587 -
Changes in operating assets and liabilities:
Accounts and other receivable (4,342) 3,435
Inventories (28,368) (2,711)
Prepaid expenses and other current assets (1,033) 222
Accounts payable and accrued expenses 9,073 12,025
Other (171) 11
Net Cash Flows (Used In) Provided By Operating (5,339) 25,792
Activities
Investing Activities:
Acquisitions of property, plant and equipment (28,655) (25,011)
Business acquisitions - (918)
Proceeds from property disposals 1,378 304
Other, net 294 (481)
Net Cash Used In Investing Activities (26,983) (26,106)
Financing Activities:
Proceeds from notes payable to banks 70,500 -
Repayments on notes payable to banks (56,500) -
Proceeds from long-term debt 50,029 15,030
Payments on long-term debt (30,600) (15,216)
Extraordinary charge, cash items (3,920) -
Cash dividends paid (1,241) (1,242)
Cash Provided By (Used In) Financing Activities 28,268 (1,428)
Effect of exchange rate changes on cash and cash (29) (189)
equivalents
Decrease in cash and cash equivalents (4,083) (1,931)
Cash and cash equivalents at beginning of year 11,892 11,244
Cash and cash equivalents at end of period $ 7,809 $ 9,313
Supplemental disclosure information:
Cash paid during the period for
Interest (net of amount capitalized) $ 12,229 $ 9,755
Income Taxes $ 4,844 $ 3,683
See notes to condensed consolidated financial
statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
______________________________________________________________________________
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. The
balance sheet at September 30, 1995, has been derived from the audited
financial statements at that date. Operating results for the period ended
June 29, 1996 are not necessarily indicative of that results that may be
expected for the year ended September 28, 1996. For further information,
refer to the consolidated financial statements and footnotes thereto
included in Pilgrim's annual report on Form 10-K for the year ended
September 30, 1995.
The consolidated financial statements include the accounts of Pilgrim's and
its wholly and majority owned subsidiaries. Significant intercompany
accounts and transactions have been eliminated.
The assets and liabilities of the foreign subsidiaries are translated at
end-of-period exchange rates, except for and non-monetary assets which are
translated at equivalent dollar costs at dates of acquisition using
historical rates. Operations of foreign subsidiaries are translated at
average exchange rates in effect during the period.
NOTE B--NET INCOME PER COMMON SHARE
Earnings per share for the periods ended June 29, 1996 and July 1, 1995 are
based on the weighted average shares outstanding for the periods.
NOTE C--INVENTORIES
Inventories consist of the following:
JUNE 29, 1996 SEPTEMBER 30, 1995
(in thousands)
Live broilers and hens $ 68,491 $ 55,353
Feed, eggs and other 47,377 32,087
Finished poultry products 24,535 22,964
$ 140,403 $ 110,404
NOTE D--IMPACT OF MEXICAN PESO DEVALUATION
Included in results of operations for the three and nine months ended June
29, 1996 are foreign exchange (gains) losses of $(.1) million and $1.2
million, respectively, compared with $(.2) million and $5.4 million for
three and nine months ended July 1, 1995, respectively. These (gains)
losses result from the (appreciation) devaluation of the Mexican peso
against the U.S. dollar. Also, for the period ended July 1, 1995, the
carrying value of inventories was adjusted to end-of-period exchange rates
as was necessary to record inventories at the lower of cost or market. See
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Impact of Mexican Peso Devaluation.
NOTE E--EARLY REPAYMENT OF DEBT AND REVOLVING CREDIT EXTENSION AND
MODIFICATION
On February 16, 1996 the Company completed a refinancing of two issues of
Senior Secured debt of $22.0 million and $3.4 million with interest rates
of 10.49% and 9.55%, respectively, payable to an insurance company maturing
on September 21, 2002 and October 1, 1998, respectively, by borrowing $50
million pursuant to a new 10-year term loan bearing interest at 7.21%
payable in 120 fixed monthly installments of $455,305 beginning on April 1,
1996 and a final balloon payment of $22.9 million due on February 28, 2006.
The additional proceeds from this refinancing was used primarily to finance
expansions of the Company's domestic production facilities.
The extraordinary charge of $2.8 million, net of $1.8 million tax benefit,
is the result of the early repayment of the above mentioned debt
obligations.
On June 6, 1996 the Company completed an extension and amendment of its
credit facility with various banks. The amendment increased the facility
from $75 million to $100 million at interest rates of approximately one and
three quarter percent above LIBOR and extended the facility's term to May
31, 1999. Inventories and trade accounts receivable of the Company are
pledged as collateral on this facility.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following table presents certain items as a percentage of net sales for
the periods indicated.
Percentage of Net Sales Percentage of Net Sales
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 29, 1996 JULY 1, 1995 JUNE 29, 1996 JULY 1, 1995
Net sales 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of sales 94.1% 89.7% 93.5% 92.3%
Gross profit 5.9% 10.3% 6.5% 7.7%
Selling, general and
administrative 4.1% 5.2% 4.4% 5.4%
Operating income (loss) 1.9% 5.1% 2.2% 2.4%
Interest expense 1.9% 1.9% 1.9% 1.9%
Income (loss) before
income taxes and
extraordinary charge .2% 3.7% .3% (.4)%
Net Income (loss) .3% 2.7% (.4%) (1.4)%
THIRD QUARTER 1996, COMPARED TO
THIRD QUARTER 1995
Consolidated net sales were $294.3 million for the third quarter of fiscal
1996, an increase of $64.0 million, or 27.8%, over the third quarter of
fiscal 1995. The increase in consolidated net sales resulted from a $27.4
million increase in domestic chicken sales to $198.8 million, a $26.9
million increase in Mexican chicken sales to $61.4 million and a $9.7
million increase in sales of other domestic products to $34.1 million. The
increase in domestic chicken sales was primarily due to a 12.5% increase in
total revenue per dressed pound produced and 3.1% increase in dressed
pounds produced. The increase in Mexican chicken sales was primarily due
to 39.3% increase in dressed pounds produced and by a 28.0% increase in
total revenue per dressed pound produced. The increase in dressed pounds
produced resulted primarily from the July 5, 1995 acquisition of five
chicken companies located near Queretaro, Mexico. The increase in sales to
other domestic products was primarily the result of increased sales of the
Company's poultry by-products group and higher sales prices for table eggs.
Increased revenues per dressed pound produced both domestically and in
Mexico were primarily the result of higher sales prices caused primarily
by the chicken markets adjusting to the higher feed ingredient
cost.
Consolidated cost of sales was $277.0 million in the third quarter of
fiscal 1996, an increase of $70.5 million, or 34.1%, over the third quarter
of fiscal 1995. The increase primarily resulted from a $43.3 million
increase in cost of sales of domestic operations, and a $27.2 million
increase in the cost of sales in Mexican operations.
The cost of sales increase in domestic operations of $43.3 million was due
to a 53.5% increase in feed ingredient costs, a 3.1% increase in dressed
pounds produced and increased production of higher cost and margin products
in prepared foods. Since year end, feed ingredient costs increased
substantially due to lower crop yields in the 1995 harvest season. In July
1996, feed ingredient prices have stabilized and dropped slightly due to
favorable crop harvest reports and growing conditions in the Midwest,
however, the Company anticipates that feed ingredient prices will remain
above 1995 levels at least through the fourth fiscal quarter.
The $27.2 million cost of sales increase in Mexican operations was
primarily due to a 38.8% increase in average costs of sales per pound and a
39.3% increase in dressed pounds produced. The increase in average costs
of sales per pound was primarily the result of a 50.2% increase in feed
ingredient costs resulting from the above discussed reasons.
Gross profit as a percentage of sales decreased to 5.9% in the third
quarter of fiscal 1996 from 10.3% in the third quarter of 1995. The
decreased gross profit resulted mainly from increased costs of sales due to
higher feed ingredient prices experienced in fiscal 1996 third quarter
partially offset from improved results from the Company's Mexican
operations.
Consolidated selling, general and administrative expenses remained
basically flat at $11.9 million for both the third quarter of fiscal 1996
and fiscal 1995. Consolidated selling, general and administrative expenses
as a percentage of sales decreased in the third quarter of fiscal 1996 to
4.1% compared to 5.2% in the third quarter of fiscal 1995 due to higher
sales volume with consolidated selling, general and administrative expenses
remaining relatively stable.
Consolidated operating income was $5.5 million for the third quarter of
fiscal 1996 a decrease of $6.4 million, when compared to the third quarter
of fiscal 1995 resulting primarily from higher feed ingredient prices.
Consolidated net interest expense was $5.5 million in the third quarter of
fiscal 1996 an increase of $1.2 million, or 26.8%, when compared to the
third quarter of fiscal 1995. This increase was due to higher outstanding
debt levels resulting primarily from the prior year acquisitions in Mexico,
offset slightly by lower interest rates when compared to the third quarter
of fiscal 1995.
NINE MONTHS ENDED JUNE 29, 1996, COMPARED TO
NINE MONTHS ENDED JULY 1, 1995
Consolidated net sales were $833.8 million for the first nine months of
fiscal 1996, an increase of $159.7 million, or 23.7%, over the first nine
months of fiscal 1995. The increase in consolidated net sales resulted
from a $69.4 million increase in domestic chicken sales to $561.0 million,
a $61.0 million increase in Mexican chicken sales to $169.9 million and a
$29.3 million increase in sales of other domestic products to $102.9
million. The increase in domestic chicken sales was primarily due to an
8.6% increase in total revenue per dressed pound produced and 5.1% increase
in dressed pounds produced. The increase in Mexican chicken sales was
primarily due to 36.5% increase in dressed pounds produced and by a 14.3%
increase in total revenue per dressed pound. The increase in dressed pounds
produced resulted primarily from the July 5, 1995 acquisition of five
chicken companies located near Queretaro, Mexico. The increase in sales of
other domestic products was primarily the result of increased sales of the
Company's poultry by-products group and higher sales prices for table
eggs. Increased revenues per dressed pound produced both domestically and
in Mexico were primarily the result of higher sales prices caused by the
chicken markets adjusting to higher feed ingredient cost.
Consolidated cost of sales was $779.4 million in the first nine months of
fiscal 1996, an increase of $157.5 million, or 25.3%, over the first nine
months of fiscal 1995. The increase primarily resulted from a $108.6
million increase in cost of sales of domestic operations, and a $48.9
million increase in the cost of sales in Mexican operations.
The cost of sales increase in domestic operations of $108.6 million was due
to a 42.4% increase in feed ingredient costs, a 5.1% increase in dressed
pounds produced and increased production of higher margin products in
prepared foods. Since year end, feed ingredient costs increased
substantially due to lower crop yields in the 1995 harvest season. In July
1996 feed ingredient prices have stabilized and dropped slightly due to
favorable crop harvest reports and growing conditions in the Midwest,
however, the Company anticipates that feed ingredient prices will remain
above 1995 levels at least through the fourth quarter.
The $48.9 million cost of sales increase in Mexican operations was
primarily due to a 36.5% increase in dressed pounds produced and a 4.8%
increase in average costs of sales per pound. The increase in average
costs of sales per pound was primarily the result of a 28.1% increase in
feed ingredient costs resulting from the above discussed reasons.
Gross profit as a percentage of sales decreased to 6.5% in the first nine
months of fiscal 1996 from 7.7% in the first nine months of 1995. The
decreased gross profit resulted mainly from increased costs of sales due to
higher feed ingredient prices experienced in fiscal 1996 first nine months
partially offset from improved results from the Company's Mexican
operations.
Consolidated selling, general and administrative expenses were $36.4
million for the first nine months of fiscal 1996, an increase of $.2
million when compared to the first nine months of fiscal 1995.
Consolidated selling, general and administrative expenses as a percentage
of sales decreased in the first nine months of fiscal 1996 to 4.4% compared
to 5.4% in the first nine months of fiscal 1995 due to higher sales volume
with consolidated selling, general and administrative expenses remaining
relatively stable.
Consolidated operating income was $18.0 million for the first nine months
of fiscal 1996, an increase of $2.0 million, when compared to the first
nine months of fiscal 1995 resulting primarily from improved results from
the Company's Mexico operation.
Consolidated net interest expense was $15.9 million in the first nine
months of fiscal 1996 an increase of $3.1 million, or 24.7%, when compared
to the first nine months of fiscal 1995. This increase was due to higher
outstanding debt levels resulting primarily from the prior year
acquisitions in Mexico, offset slightly by lower interest rates when
compared to the first nine months of fiscal 1995.
Consolidated income tax expense in the first nine months of fiscal 1996 was
$2.4 million compared to a expense of $7.2 million in the first nine months
of fiscal 1995.
The extraordinary charge-early repayment of debt in the amount of $2.8
million, net of tax, was incurred while refinancing certain debt at a lower
interest rate, which should result in long-term interest expense
reductions. See Note E to the Condensed Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity in first nine months of fiscal 1996 remained strong, however,
operating losses in Mexico resulting primarily from the Mexican peso
devaluation and higher feed ingredient costs affected most financial ratios
negatively. The Company's working capital at June 29, 1996 increased to
$93.6 million from $88.4 million at September 30, 1995, though the current
ratio at June 29, 1996 decreased to 1.72 to 1 from 1.84 to 1 at September
30, 1995 and the Company's stockholders' equity decreased to $147.8 million
at June 29, 1996 from $152.1 million at September 30, 1995. Total debt to
capitalization increased to 61.4% at June 29, 1996 from 56.9% at September
30, 1995. The Company maintains $110 million in revolving credit
facilities with available unused lines of credit of $67.3 million at August
13, 1996.
Trade accounts and other receivables were $63.7 million at June 29, 1996, a
$3.7 million increase from September 30, 1995. The 6.1% increase was due
primarily to increased consolidated sales. Allowances for doubtful
accounts, as a percentage of trade accounts and notes receivable were 6.5%
at June 29, 1996 compared to 6.7% at September 30, 1995.
Inventories were $140.4 million at June 29, 1996, an increase of $30.0
million from September 30, 1995. This 27.2% increase was due primarily to
the higher feed ingredient costs affecting the carrying value of feed on
hand and feed cost in the live birds and finished products.
Accounts payable were $60.1 million at June 29, 1996, a 7.9% increase from
September 30, 1995, due primarily to higher production levels and feed
ingredient cost.
Capital expenditures for the first nine months of fiscal 1996 were $28.7
million and were primarily incurred to expand production capacities
domestically, improve efficiencies, reduce costs and for the routine
replacement of equipment. The Company anticipates that it will spend
approximately $35 million for capital expenditures in fiscal year 1996 and
expects to finance such expenditures with available operating cash flows,
leases and long-term financing.
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 August 12, 1996 the Mexican peso closed at 7.49 to 1
U.S. dollar. No assurance can be given as to the future valuation of the
Mexican peso and 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 Consolidated Statements of Income
(Loss). Classification of the effects in the Consolidated Statements of
Income (Loss) 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."
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.
The statements contained in this filing which are not historical facts,
such as future feed costs, sales prices, capital expenditures, and
movements in the exchange rate between the U.S. dollar and the Mexican peso
are forward-looking statements that are subject to risks and uncertainties
that could cause actual results to differ materially from those set forth
in the forward-looking statements. Among the factors that could cause
actual results to differ materially are competitive pressures, crop yields,
the strength of the U.S. and Mexican economies, and the demand for
Pilgrim's Pride products in the marketplace.
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
10.43 Fourth Amendment to Secured Credit Agreement dated June 6, 1996 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 Wells Fargo Bank Texas, N.A., successor to First
Interstate Bank of Texas, N.A.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PILGRIM'S PRIDE CORPORATION
Date 8/13/96
Clifford E. Butler
Vice Chairman of the Board,
Chief Financial Officer and
Secretary and Treasurer
in his respective capacity
as such