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 MARCH 28, 1998
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 MAY 11, 1998
INDEX
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements (Unaudited):
Condensed consolidated balance sheets:
March 28, 1998 and September 27, 1997
Consolidated statements of income (loss):
Three months and six months ended March 28, 1998 and March 29, 1997
Consolidated statements of cash flows:
Six months ended March 28, 1998 and March 29, 1997
Notes to condensed consolidated financial statements-March 28, 1998
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
ITEM 1: FINANCIAL STATEMENTS :
March 28, September 27,
1998 1997
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 7,256 $ 20,338
Trade accounts and other receivables,
less allowance for doubtful accounts 73,894 77,967
Inventories 150,365 146,180
Deferred income taxes 3,279 3,998
Prepaid expenses 2,114 2,353
Other current assets 311 311
Total Current Assets 237,219 251,147
Other Assets 17,703 18,094
Property, Plant and Equipment 535,440 510,661
Less accumulated depreciation 215,557 200,778
319,883 309,883
$ 574,805 $ 579,124
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable to banks $ - $ -
Accounts payable 61,057 71,225
Accrued expenses 32,055 34,784
Current maturities of long-term debt 11,589 11,596
Total Current Liabilities 104,701 117,605
Long-Term Debt, less current maturities 219,394 224,743
Deferred Income Taxes 50,295 53,418
Minority Interest in Subsidiary 842 842
Stockholders' Equity:
Common stock; $.01 par value 276 276
Additional paid-in capital 79,763 79,763
Retained earnings 119,534 102,477
Total Stockholders' Equity 199,573 182,516
$ 574,805 $ 579,124
See notes to condensed consolidated financial statements.
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES
March 28 1998
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 28, MARCH 29, MARCH 28, MARCH 29,
1998 1997 1998 1997
(in thousands, except share and per share data)
Net Sales $324,446 $303,401 $662,333 $601,207
Costs and Expenses:
Cost of sales 297,585 280,316 606,092 547,855
Selling, general
and administrative 15,463 13,425 29,472 27,378
313,048 293,741 635,564 575,233
Operating income 11,398 9,660 26,769 25,974
Other Expense (Income):
Interest expense, net 5,093 5,284 10,129 10,733
Foreign exchange loss 574 99 1,102 536
Miscellaneous, net (488) (397) (951) (2,906)
5,179 4,986 10,280 8,363
Income before income taxes 6,219 4,674 16,489 17,611
Income tax (benefit) expense (549) (280) (1,396) 2,552
Net income $ 6,768 $ 4,954 $ 17,885 $ 15,059
Net income per common share $ .25 $ .18 $ .65 $ .55
Dividends per common share $ .015 $ .015 $ .03 $ .03
Weighted average
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 AND SUBSIDIARIES
March 28 1998
PILGRIM'S PRIDE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
MARCH 28, 1998 MARCH 29, 1997
Cash Flows From Operating Activities:
Net income $17,885 $15,059
Adjustments to reconcile net income to cash
Provided by operating activities:
Depreciation and amortization 16,066 14,229
(Gain) loss on property disposals (37) 46
Provision for doubtful accounts 921 (779)
Deferred income taxes (2,404) 1,689
Changes in operating assets and liabilities:
Accounts and other receivable 3,151 (5,783)
Inventories (4,185) (1,061)
Prepaid expenses 234 703
Accounts payable and accrued expenses (12,897) (14,269)
Other 11 (162)
Cash Flows Provided by Operating Activities 18,745 9,672
Investing Activities:
Acquisitions of property, plant and equipment (25,801) (12,162)
Proceeds from property disposals 512 330
Other, net (98) (258)
Net Cash Used In Investing Activities (25,387) (12,090)
Financing Activities:
Proceeds from notes payable to bank 21,000 31,500
Re-payment of notes payable to banks (21,000) (34,500)
Proceeds from long-term debt 21,126 -
Payments on long-term debt (26,556) (4,068)
Cash dividends paid (828) (828)
Cash Used In Financing Activities (6,258) (7,896)
Effect of exchange rate changes on cash and
cash equivalents (183) (9)
Decrease in cash and cash equivalents (13,083) (10,323)
Cash and cash equivalents at beginning of year 20,339 18,040
Cash and cash equivalents at end of period $7,256 $7,717
Supplemental disclosure information:
Cash paid during the period for
Interest (net of amount capitalized) $10,547 $10,961
Income Taxes $480 $1,807
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. Operating results for the period ended March 28,
1998 are not necessarily indicative of the results that may
be expected for the year ended September 26, 1998. 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 27, 1997.
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 March 28, 1998 and
March 29, 1997 are based on the weighted average shares
outstanding for the periods.
NOTE C--INVENTORIES
The following table presents certain information regarding
the Company's U.S. and Mexican operations.
Inventories consist of the following:MARCH 28, 1998 SEPTEMBER
27, 1997
(in thousands)
Live chickens and hens $ 65,669 $ 68,034
Feed, eggs and other 46,429 43,878
Finished chicken products 38,267 34,268
$ 150,365 $ 146,180
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES
March 28 1998
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Profitability in the chicken industry can be materially
affected by the commodity prices of feed grains and the
commodity prices of chicken and chicken parts, each of which
are determined largely by supply and demand. As a result,
the chicken industry as a whole has been characterized by
cyclical earnings. Cyclical fluctuations in earnings of
individual chicken companies can be mitigated somewhat by:
(i) business strategy, (ii) product mix, (iii) sales and
marketing plans, and (iv) operating efficiencies. 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. Additionally, the production and sale in the U.S.
of prepared foods products reduces the impact of feed grain
costs on the Company's profitability. As further processing
is performed, feed grain costs become a decreasing percentage
of a product's total production costs.
The following table presents certain information regarding
the Company's U.S and Mexican operations.
Net Sales Net Sales
Three Months Ended Six Months Ended
March 28, March 29, March 28, March 29,
1998 1997 1998 1997
(In Thousands)
Sales to unaffiliated
customers:
United States $254,342 $242,223 $513,918 $473,761
Mexico 70,104 61,178 148,415 127,446
Operating Income:
United States $ 3,104 $ 4,031 $ 5,577 $14,400
Mexico 8,294 5,629 21,192 11,574
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 Six Months Ended
March 28, March 29, March 28, March 29,
1998 1997 1998 1997
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Sales 91.7% 92.4% 91.5% 91.1%
Gross Profit 8.3% 7.6% 8.5% 8.9%
Selling, General
and Administravite 4.8% 4.4% 4.5% 4.6%
Operating Income 3.5% 3.2% 4.0% 4.3%
Interest Expense 1.6% 1.7% 1.5% 1.8%
Income before
Income Taxes 1.9% 1.5% 2.5% 2.9%
Net Income (Loss) 2.1% 1.6% 2.7% 2.5%
SECOND QUARTER 1998, COMPARED TO SECOND QUARTER
1997
NET SALES. Consolidated net sales were $324.4
million for the second quarter of fiscal 1998, an
increase of $21.0 million, or 6.9%, over the second
quarter of fiscal 1997. The increase in
consolidated net sales resulted from a $14.1
million increase in U.S. chicken sales to $218.2
million, a $8.9 million increase in Mexican chicken
sales to $70.1 million, offset by a $2.0 million
decrease of sales of other U.S. products to $36.1
million. The increase in U.S. chicken sales was
primarily due to a 9.8% increase in dressed pounds
produced resulting primarily from the Company's
expansion of existing facilities and the purchase
of poultry producing assets capable of producing
650,000 chickens per week from Green Acre Foods,
Inc. on April 15, 1997, offset partially by a 2.6
% decrease in total revenue per dressed pound
produced. The increase in Mexican chicken sales was
primarily due to a 16.2% increase in total revenue
per dressed pound offset partially by a 1.4 %
decrease in dressed pound produced. The decrease
in sales of other U.S. products was primarily the
result of decreased sales of the Company's poultry
by-products group. Increased revenues per dressed
pound produced in Mexico were primarily the result
of higher sales prices as well as generally
improved economic conditions in Mexico compared to
the prior year.
COST OF SALES. Consolidated cost of sales was
$297.6 million in the second quarter of fiscal
1998, an increase of $17.3 million, or 6.2%, over
the second quarter of fiscal 1997. The increase
primarily resulted from a $12.5 million increase in
cost of sales of U.S. operations, and a $4.8
million increase in the cost of sales in Mexican
operations. The cost of sales increase in U.S.
operations of $12.5 million was due to a 9.8%
increase in dressed pounds produced and increased
production of higher cost and margin products in
prepared foods partially offset by a 9.5% decrease
in feed ingredient cost per pound when compared to
second quarter 1997. The $4.8 million cost of sales
increase in the Mexican operations was due
primarily to a 10.6% increase in average costs of
sales per pound offset partially by a 1.4% decrease
in dressed pounds produced.
GROSS PROFIT. Gross profit as a percentage of sales
increased to 8.3% in the second quarter of fiscal
1998 from 7.6% in the second quarter of fiscal
1997. The increased gross profit resulted from
significantly higher margins in Mexico.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.
Consolidated selling, general and administrative
expenses were $15.5 million in the second quarter
of fiscal 1998, and $13.4 million in second quarter
of fiscal 1997. Consolidated selling, general and
administrative expenses as a percentage of sales
increased in the second quarter of fiscal 1998 to
4.8% compared to 4.4% in the second quarter of
fiscal 1997. The dollar increases were due to
higher selling, general and administration expenses
associated with higher sales volumes experienced in
both U.S. and Mexican operations.
OPERATING INCOME. Consolidated operating income was
$11.4 million for the second quarter of fiscal
1998, an increase of $1.7, or 17.5%, million when
compared to the second quarter of fiscal 1997,
resulting primarily from higher margins experienced
in the Mexican operations.
INTEREST EXPENSE. Consolidated net interest expense
decreased to $5.1 million, or 3.6%, in the second
quarter of fiscal 1998, when compared to $5.3
million in the second quarter of fiscal 1997, due
to lower outstanding debt level. As a percentage of
sales, interest expense decreased to 1.6% in the
second quarter of fiscal 1998 compared to 1.7% in
the second quarter of fiscal 1997.
INCOME TAXES. The increase in consolidated income
tax benefit from $.3 million in the second quarter
of fiscal 1997 to $.6 million in the second quarter
of fiscal 1998 is due to an increase in earnings of
the Company's Mexican operations as a percentage of
consolidated earnings. Mexican earnings are not
currently subject to income taxes.
FISCAL FIRST SIX MONTHS 1998 COMPARED TO
FISCAL FIRST SIX MONTHS 1997
NET SALES. Consolidated net sales were $662.3
million for the first six months fiscal 1998, an
increase of $61.1 million, or 10.2%, over the first
six months fiscal 1997. The increase in
consolidated net sales resulted from a $39.7
million increase in U.S. chicken sales to $436.9
million, a $21.0 million increase in Mexican
chicken sales to $148.4 million and by a $.4
million increase of sales of other U.S. products to
$77.0 million. The increase in U.S. chicken sales
was primarily due to a 14.3% increase in dressed
pounds produced resulting primarily from the
Company's expansion of existing facilities and the
purchase of poultry producing assets capable of
producing 650,000 chickens per week from Green Acre
Foods, Inc. on April 15, 1997, offset partially by
a 3.7% decrease in total revenue per dressed pound
produced. The increase in Mexican chicken sales was
primarily due to a 9.7% increase in total revenue
per dressed pound and by a 6.2% increase in
dressed pound produced. Increased revenues per
dressed pound produced in Mexico were primarily the
result of higher sales prices as well as generally
improved economic conditions in Mexico compared to
the prior year. The increase in sales of other U.S.
products was primarily the result of increased
sales of the Company's wholesale feed operations
and poultry by-products group.
COST OF SALES. Consolidated cost of sales was
$606.1 million in the first six months fiscal 1998,
an increase of $58.2 million, or 10.6%, over the
first six months fiscal 1997. The increase
primarily resulted from a $49.2 million increase in
cost of sales of U.S. operations, and a $9.0
million increase in the cost of sales in Mexican
operations. The cost of sales increase in U.S.
operations of $49.2 million was due to a 14.3%
increase in dressed pounds produced and increased
production of higher cost and margin products in
prepared foods partially offset by a 6.7% decrease
in feed ingredient cost per pound when compared to
second quarter 1997. The $9.0 million cost of sales
increase in the Mexican operations was due
primarily to a 6.2% increase in dressed pounds
produced and by a 1.9% increase in average costs of
sales per pound.
GROSS PROFIT. Gross profit as a percentage of sales
decreased to 8.5% in the first six months fiscal
1998 from 8.9% in the first six months fiscal 1997.
The decreased gross profit resulted mainly from
lower margins in U.S. operations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.
Consolidated selling, general and administrative
expenses were $29.5 million in the first six months
fiscal 1998 and $27.4 million in first six months
fiscal 1997. Consolidated selling, general and
administrative expenses as a percentage of sales
decreased slightly in the first six months fiscal
1998 to 4.5% compared to 4.6% in the first six
months fiscal 1997. The 7.6% increase in dollar
amounts when compared to the same period in 1997
was due to due to higher selling, general and
administration expenses associated with higher
sales volumes experienced in both U.S. and Mexican
operations.
OPERATING INCOME. Consolidated operating income was
$26.8 million for the first six months fiscal 1998,
an increase of $.8 million, or 3.1%, when compared
to the first six months fiscal 1997, resulting
primarily from higher margins experienced in the
Mexican operations.
INTEREST EXPENSE. Consolidated net interest expense
decreased to $10.1 million, or 5.6%, in the first
six months fiscal 1998, when compared to $10.7
million in the first six months fiscal 1997, due to
lower outstanding debt levels when compared to the
first six months fiscal 1997. As a percentage of
sales interest expense decreased to 1.5% in the
first six months fiscal 1998 compared to 1.8% in
the first six months fiscal 1997.
MISCELLANEOUS EXPENSE. Consolidated miscellaneous,
net, a component of "Other Expense (Income)", for
the first six months of fiscal 1997 includes a $2.2
million final settlement of claims resulting from
the January 8, 1992 fire at the Company's prepared
foods plant in Mt. Pleasant, Texas.
INCOME TAXES. The change in consolidated income tax
from an expense of $2.6 million in the first six
months of fiscal 1997 to a $1.4 million benefit in
the first six months of fiscal 1998 is due to an
increase in earnings of the Company's Mexican
operations as a percentage of consolidated
earnings. Mexican earnings are not currently
subject to income taxes.
LIQUIDITY AND CAPITAL RESOURCES
At March 28, 1998, the Company's working capital
was at $132.5 million and its current ratio
increased to 2.27 to 1 compared with working
capital of $133.5 million and a current ratio of
2.14 to 1 at September 27, 1997. Strong profits
improved financial ratios in the fiscal first six
months of 1998.
Trade accounts and other receivables were $73.9
million at March 28, 1998, a $4.1 million decrease
from September 27, 1997. The 5.2% decrease was due
primarily to generally faster collections of
receivables in the Company's Mexican operations
during the period.
Inventories were $150.4 million at March 28,
1998,compared to $146.2 million at September 27,
1997. The $4.2 million increase between September
27, 1997 and March 28, 1998 was due primarily to
higher finished poultry products inventories.
Accounts payable were $61.1 million at March 28,
1998, a 14.2% decrease from September 27, 1997, due
primarily to lower feed ingredient costs
experienced during the period.
Accrued expenses were $32.1 million at March 28,
1998, a $2.7 million decrease from September 27,
1997. The 7.8 % decrease was primarily due to
normal seasonal variations in expense accruals.
Capital expenditures for the six months ended March
28, 1998 were $25.8 million and were incurred
primarily to acquire or expand production
capacities in the U.S., improve efficiencies,
reduce costs and for the routine replacement of
equipment. The Company anticipates that it will
spend approximately $55 million for capital
expenditures in fiscal year 1998 and expects to
finance such expenditures with available operating
cash flows and long-term financing.
At March 28, 1998, the company's stockholder's
equity increased to $199.6 million from $182.5
million at September 27, 1997. Total debt to
capitalization decreased to 53.6% at March 28, 1998
compared to 56.4% at September 27, 1997. On March
2, 1998, the Company secured $20 million in
unsecured revolving borrowing capacity for its
Mexican operation from a new lender at interest
rates of 1.5% and 1.75% over LIBOR. The Company
maintains $120 million in revolving credit
facilities and $45 million in secured term
borrowing facilities. The credit facilities provide
for interest at rates ranging from LIBOR plus one
and three-eighths percent to LIBOR plus two percent
and are secured by inventory, trade accounts
receivable and fixed assets or are unsecured. As of
May 11, 1998, $97.4 million was available under the
revolving credit facilities and $15 million was
available under the term borrowing facilities.
IMPACT OF MEXICO PESO EXCHANGE RATE. 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 3, 1994 to a low of 8.68 to 1 U.S. dollar
at March 11, 1998. The decline in the Mexican peso
exchange rate affected the Company's operations
directly and indirectly as a result of the related
economic recession in Mexico in fiscal 1995.
Similarly, the Company's results of operations were
adversely affected by: (i) the continuation of the
economic recession in Mexico in fiscal 1996, as
well as, (ii) significantly higher feed grain costs
in fiscal 1996 (which included record high corn
prices).In fiscal 1997 and the first six months of
fiscal 1998, however, the Company benefited
substantially from: (i) a rebounding economy in
Mexico when compared to fiscal 1996 and 1995, and,
(ii) the adjustment in the supply of poultry
products in Mexico to the levels of demand existing
after the economic recession. On May 8, 1998 the
Mexican peso closed at 8.48 to 1 U.S. dollar. No
assurance can be given as to the future valuation
of the Mexican peso and how further movement in the
Mexican peso could affect future earnings
positively or negatively.
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
10.32 Revolving Credit Agreement dated March 2,
1998 by and between Pilgrim's Pride de
Mexico, S.A. de C.V., (the borrower); Avicola
Pilgrim's Pride de Mexico, S.A. de C.V. (the
Mexican Guarantor), Pilgrim's Pride
Corporation (the U.S. Guarantor), and
COAMERICA Bank (the bank).
The Company did not file any reports on Form 8-K
during the three months ended March 28, 1998.
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
PILGRIM'S PRIDE
CORPORATION
/s/ Richard A. Cogdill
Date 5/11/98 Richard A. Cogdill
Executive Vice President and
Chief Financial Officer and
Secretary and Treasurer
in his respective
capacity as such