SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-18222
RICA FOODS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Nevada 87-0432572
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
240 Crandon Boulevard, Suite 115
Key Biscayne, Florida 33149
(Address of Registrant's Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (305) 365-8665
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 [_]
As of February 19, 2002, the number of shares outstanding of the
Company's common stock, par value $0.001 per share was 12,811,469.
RICA FOODS, INC. AND SUBSIDIARIES
INDEX
Page
----
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets as of December 31, 2001 (Unaudited) and
September 30, 2001......................................................... 3
Consolidated Statements of Operations for the three month period ended
December 31, 2001 and 2000 (Unaudited)..................................... 4
Consolidated Statements of Cash Flows for the three month period ended
December 31, 2001 and 2000 (Unaudited) .................................... 5
Notes to Unaudited Consolidated Financial Statements ......................... 7
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................. 10
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk.................... 14
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings............................................................. 14
ITEM 6. Exhibits and Reports.......................................................... 15
RICA FOODS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2001 September 30,
----------------- -------------
(Unaudited) 2001
--------- ----
Assets
------
Current assets:
Cash and cash equivalents $ 7,974,535 $ 4,920,870
Short-term investments 169,466 851,905
Notes and accounts receivable 13,680,491 12,277,131
Due from related parties 1,421,812 1,421,812
Inventories 12,881,424 12,833,325
Deferred income taxes 422,490 412,854
Prepaid expenses 597,953 852,185
------------- ------------
Total current assets 37,148,171 33,570,082
Property, plant and equipment 46,353,029 45,827,917
Long-term receivables-trade 538,003 595,596
Long-term investments 4,383,100 4,312,411
Other assets 4,349,792 4,606,546
Cost in excess of net assets of acquired business 2,186,090 2,186,090
------------- ------------
Total assets $ 94,958,185 $ 91,098,642
============= ============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 17,699,079 $ 14,444,895
Accrued expenses 3,670,888 3,917,787
Notes payable 16,087,618 18,194,649
Current portion of long-term debt 7,589,837 7,281,460
Due to stockholders 74,634 74,634
------------- ------------
Total current liabilities 45,122,056 43,913,425
Long-term debt, net of current portion 22,539,796 21,054,044
Due to stockholders 15,037 15,368
Deferred income tax liability 2,139,794 2,162,090
------------- ------------
Total liabilities 69,816,683 67,144,927
Minority interest 1,336,445 1,336,445
Stockholders' equity:
Common stock 12,865 12,865
Preferred stock 2,216,072 2,216,072
Additional paid-in capital 25,800,940 25,800,940
Accumulated other comprehensive loss (10,235,522) (9,625,035)
Retained earnings 12,550,185 10,736,911
------------- ------------
30,344,540 29,141,753
Less:
Due from stockholders (6,256,089) (6,256,089)
Treasury stock, at cost (283,394) (268,394)
------------- ------------
Total stockholders' equity 23,805,057 22,617,270
------------- ------------
Total liabilities and stockholders' equity $ 94,958,185 $ 91,098,642
============= ============
The accompanying notes to the unaudited financial statements are an integral
part of these balance sheets.
RICA FOODS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the three months ended December 31, 2001 and 2000
(Unaudited)
2001 2000
---- ----
Sales $ 34,782,652 $ 33,278,588
Cost of sales 22,357,774 21,310,666
------------ ------------
Gross profit 12,424,878 11,967,922
------------ ------------
Operating expenses:
Selling 5,059,589 4,780,146
General and administrative 3,392,612 3,769,099
Amortization of cost in excess of net assets of
acquired business - 266,147
------------ ------------
Total operating expenses 8,452,201 8,815,392
------------ ------------
Income from operations 3,972,677 3,152,530
Other expenses (income):
Interest expense 1,306,400 1,100,016
Interest income (369,099) (270,188)
Foreign exchange loss, net 821,414 581,449
Miscellaneous, net (95,501) (30,717)
------------ ------------
Other expenses, net 1,663,214 1,380,560
------------ ------------
Income before income taxes and minority interest 2,309,463 1,771,970
Provision for income taxes 441,433 281,756
------------ ------------
Income before minority interest 1,868,030 1,490,214
Minority interest 19,048 20,467
------------ ------------
Net income 1,848,982 1,469,747
Preferred stock dividends 35,705 42,550
------------ ------------
Net income applicable to common stockholders $ 1,813,277 $ 1,427,197
============ ============
Earnings per share $ 0.14 $ 0.11
============ ============
Weighted average number of common shares outstanding 12,811,469 12,854,321
============ ============
The accompanying notes to the unaudited financial statements are an integral
part of these statements.
RICA FOODS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the three months ended December 31, 2001 and 2000
(Unaudited)
2001 2000
---- ----
Cash flows from operating activities:
Net income $ 1,848,982 $ 1,469,747
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,195,573 1,157,617
Production poultry 864,769 686,254
Allowance for inventory obsolescence 5,913 6,333
Amortization of cost in excess of net assets of
acquired business - 266,147
Gain on sale of productive assets (80,915) (34,912)
Deferred income taxes (30,359) (92,781)
Provision for doubtful receivables 135,574 58,409
Minority interest 19,048 20,467
Changes in operating assets and liabilities:
Notes and accounts receivable (1,550,085) (2,325,589)
Inventories (916,924) (689,045)
Prepaid expenses 254,232 (283,376)
Accounts payable 3,254,184 1,311,708
Accrued expenses (246,899) 170,303
Long-term receivables-trade 45,260 200,720
----------- -----------
Net cash provided by operating activities 4,798,353 1,922,002
----------- -----------
Cash flows from investing activities:
Short-term investments 682,439 (407,428)
Long-term investments (18,420) (513,262)
Additions to property, plant and equipment (2,382,691) (3,956,246)
Proceeds from sales of productive assets 122,501 76,255
Increase in other assets (2,494) (418,815)
----------- -----------
Net cash used in investing activities (1,598,665) (5,219,496)
----------- -----------
Cash flows from financing activities:
Short-term financing:
New loans 6,548,172 5,470,449
Payments (8,328,509) (2,145,890)
Preferred stock cash dividends (54,753) (63,017)
(Continued on next page)
RICA FOODS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the three months ended December 30, 2001 and 2000
(Unaudited)
(Continued)
2001 2000
----------- -----------
Purchase of common sock (15,000) -
Long-term financing:
New loans 2,868,986 2,574,513
Payments (1,392,227) (537,464)
Due from stockholders and related party - (108,262)
----------- -----------
Net cash provided by (used in) financing activities (373,331) 5,190,329
----------- -----------
Effect of exchange rate changes on cash and cash
equivalents 227,308 706,545
----------- -----------
Increase in cash and cash equivalents 3,053,665 2,599,380
Cash and cash equivalents at beginning of period 4,920,870 4,256,636
----------- -----------
Cash and cash equivalents at end of period $ 7,974,535 $ 6,856,016
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during year for:
Interest $ 945,774 $ 717,909
=========== ===========
Income taxes $ 25,664 $ -
=========== ===========
The accompanying notes to the unaudited financial statements are an integral
part of these statements.
Rica Foods, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
NOTE 1 - GENERAL
Management is responsible for the preparation of the financial statements and
related information of Rica Foods, Inc. and its subsidiaries: Corporacion
Pipasa, S.A. and Subsidiaries ("Pipasa") and Corporacion As de Oros, S.A. and
Subsidiaries ("As de Oros") (collectively the "Company") that appear in this
Quarterly Report on Form 10-Q. Rica Foods, Inc. owns 100% of the outstanding
common stock of Pipasa and As de Oros. Management believes that the financial
statements fairly reflect the form and substance of transactions and reasonably
present the Company's financial condition and results of operations in
conformity with accounting principles generally accepted in the United States of
America ("U.S. GAAP"). The accompanying unaudited consolidated interim financial
statements have been prepared in accordance with the instructions to the
Quarterly Report on Form 10-Q and, therefore, omit or condense certain footnotes
and other information normally included in the financial statements prepared in
conformity with U.S. GAAP. The accounting policies followed for interim
financial reporting are the same as those disclosed in Note 1 of the Notes to
Consolidated Financial Statements included in the Company's audited consolidated
financial statements for the fiscal year ended September 30, 2001, which are
included in the Company's Annual Report on Form 10-K. Management has included in
the Company's financial statements figures that are based on estimates and
judgments, which management believes are reasonable under the circumstances. In
the opinion of management, all adjustments necessary for the fair presentation
of the financial information for the interim periods reported have been made.
Results for the three months ended December 31, 2001 are not necessarily
indicative of the results to be expected for the entire fiscal year ending
September 30, 2002. The Company maintains a system of internal accounting
policies, procedures and controls intended to provide reasonable assurance, at
an appropriate cost, that transactions are executed in accordance with
management's authorization and are properly recorded and reported in the
financial statements, and that assets are adequately safeguarded.
Although management believes that the disclosures are adequate to make the
information presented not misleading, these unaudited consolidated interim
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the fiscal year ended September 30, 2001.
NOTE 2 - RECLASSIFICATIONS
Certain prior period balances have been reclassified to conform to the current
period presentation.
NOTE 3 - INVENTORIES AND PRODUCTION POULTRY
Inventories are stated at the lower of cost or market. Cost is determined using
the weighted-average method, except for inventories in transit, which are valued
at specific cost. Costs pertaining to the growth period of reproductive hens are
capitalized and are subsequently amortized over the expected reproductive lives
of the hens. Production poultry or amortization of the hens is determined based
on the estimated poultry reproductive period.
Rica Foods, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Inventories consist of the following:
December 31, September 30,
------------ -------------
2001 2001
---- ----
(unaudited)
Finished products $ 2,800,843 $ 2,523,036
Poultry 4,247,671 4,257,973
Production poultry 2,725,942 3,169,012
Materials and supplies 2,049,818 1,951,687
Raw materials 2,214,215 2,140,563
In transit 298,974 274,279
------------ -----------
14,337,463 14,316,550
Less:
Production poultry (1,372,068) (1,396,406)
Allowance for obsolescence (83,971) (86,819)
------------ -----------
$ 12,881,424 $12,833,325
============ ===========
NOTE 4 - COMPREHENSIVE INCOME
The components of the Company's comprehensive income are as follows (unaudited):
Three months ended
------------------
December 31,
------------
2001 2000
---- ----
Net income 1,848,982 1,469,747
Foreign currency translation adjustment (610,487) 36,548
---------- -----------
Total comprehensive income $1,238,495 $ 1,506,295
========== ===========
Rica Foods, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
NOTE 5 - SEGMENT INFORMATION (In millions) (unaudited):
Three months ended
------------------
December 31,
------------
2001 2000
---- ----
Net sales:
Broiler $18.88 $18.95
Animal feed 6.47 6.02
By-products 3.88 3.42
Exports 2.22 1.29
Quick service 1.78 2.16
Other 1.55 1.44
------ ------
34.78 33.28
------ ------
Segment profit:
Broiler 5.14 5.26
Animal feed 1.01 0.74
By-products 0.65 0.72
Exports 0.26 0.02
Quick service 0.18 0.25
Other 0.13 0.20
------ ------
Total gross profit less selling expenses 7.37 7.19
------ ------
Other operating expenses 3.39 4.04
Other expenses, net 1.66 1.38
------ ------
Income before provision for income taxes and
minority interest $ 2.32 $ 1.77
====== ======
The Company measures segment profit as gross profit less selling expenses. The
Company operates in the production and marketing of poultry products, animal
feed and quick service chicken restaurants ("quick service"). The Company's
subsidiaries distribute these products primarily throughout Costa Rica and in
Honduras, through subsidiaries whose activities are included in the "Exports"
segment. The Company also exports to other countries in Central America and the
Caribbean. The basis for determining the Company's operating segments is the
means in which management uses financial information in its operations.
Management operates and organizes the financial information according to the
types of products offered to its customers.
NOTE 6 - LITIGATION
Pipasa is a defendant in a lawsuit brought in Costa Rica, pursuant to which the
plaintiff in such action is seeking damages in an amount equal to US$3.6
million. Pipasa was served with prejudgment liens for US$1.5 million and, with
the approval of the Juzgado Sexto Civil, the court with jurisdiction over the
lawsuit, certain parcels of real estate owned by Pipasa have been substituted
for such liens. This approval was ratified by the Superior Court on November 11,
1999, and all funds initially attached have been released and returned to
Pipasa. Costa Rica law requires the posting of guarantees by a plaintiff seeking
prejudgment liens and, in connection with this lawsuit, Pipasa has filed
objections to the guarantee filed by the plaintiff. A ruling on these objections
is pending. Pipasa has also filed pleadings in opposition to the underlying
lawsuit; a ruling on these pleadings also remains pending.
Rica Foods, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
In connection with this pending lawsuit, the plaintiff also brought suit against
Pipasa in the State of California and the State of Florida. The California
lawsuit has been dismissed without prejudice. The Florida lawsuit alleges that
Aero Costa Rica, a third party, breached an aircraft lease agreement and
consequently seeks recovery of remedies and damages from Pipasa, as alleged
guarantor of the aircraft lease agreement. The amount sought by the plaintiff is
$3.6 million. The Florida lawsuit is still pending and Pipasa's defense is based
on, among other things, a lack of personal jurisdiction in the State of Florida.
Interrogatories, Request to Produce Documents and Request for Admissions have
been answered by Pipasa. The Company and its Chairman, Calixto Chaves, as a non
related third party, were subject to a Request to Produce Documents to the
extent each possesses information and/or documents related to the case. The
Company believes the lawsuits are without merit and continues to assert an
appropriate defense.
On or about January 15, 2002, Richard Young, individually and on behalf of all
others similarly situated (the "Plaintiff"), filed a putative class action
lawsuit against Rica Foods, Inc., Calixto Chaves, Jose Pablo Chaves, Randall
Piedra and Monica Chaves (collectively, the "Defendants") in the United States
District Court for the Southern District of Florida (the "Young Action"). The
Plaintiff alleges in Count I of the Young Action violations of Section 10(b) and
10(b)(5) of the Securities Exchange Act of 1984 and in Count II violations of
Section 20(A) of the Securities Exchange Act of 1984. Plaintiff seeks in the
Young Action class certification, compensatory damages, pre-judgment and
post-judgment interest, attorneys' fees and costs and such other relief the
Court may deem appropriate.
The Young Action is similar to that certain putative class action lawsuit filed
on or about January 8, 2002, styled, Richard W. Baldwin, individually and on
behalf of all others, similarly situated v. Rica Foods, Inc., Calixto Chaves,
Jose Pablo Chaves, Randall Piedra and Monica Chaves, United States District
Court for the Southern District of Florida, Case No. 02-20070-CIV-Huck (the
"Baldwin Action"). The Court in the Baldwin Action has scheduled a status
hearing for February 21, 2002, wherein the Court seeks, among other things, the
consolidation of the Young Action and the Baldwin Action.
Except for the legal proceedings discussed above, no legal proceedings of a
material nature, to which the Company or the subsidiaries are a party, exist or
were pending during the three months ended December 31, 2001.Except for the
legal proceedings disclosed above, the Company knows of no other legal
proceedings of a material nature pending or threatened or judgments entered
against any director or officer of the Company in his capacity as such.
The Company is involved in various other claims and legal actions arising in the
ordinary course of business. In the opinion of the Company's management, the
ultimate disposition of these matters will not have a material adverse effect on
the Company's consolidated financial position, results of operations or
liquidity.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
- -------
The Company's operations are primarily conducted through its 100% owned
subsidiaries: Corporacion Pipasa, S.A. and Subsidiaries ("Pipasa") and
Corporacion As de Oros, S.A. and Subsidiaries ("As de Oros"). The Company,
through its subsidiaries, is the largest poultry company in Costa Rica. As de
Oros also owns and operates a chain of quick service restaurants in Costa Rica
called "Restaurantes As de Oros."
The following discussion addresses the financial condition and results of
operations of the Company. This discussion should be read in conjunction with
the Company's Annual Report on Form 10-K for the fiscal year ended September 30,
2001 and with the Company's unaudited consolidated interim financial statements
as of December 31, 2001 and for the three-month periods ended December 31, 2001
and 2000 contained herein.
Results for any interim periods are not necessarily indicative of results for
any full year.
Seasonality
- -----------
The Company's subsidiaries have historically experienced and have come to expect
seasonal fluctuations in net sales and results of operations. The Company's
subsidiaries have generally experienced higher sales and operating results in
the first and second quarters of each fiscal year. This variation is primarily
due to holiday celebrations that occur during these periods in which Costa
Ricans prepare traditional meals that include dishes with chicken as the main
ingredient. The Company expects this seasonal trend to continue for the
foreseeable future.
Environmental compliance
- ------------------------
At the present time, the Company is not subject to any significant costs for
compliance with any environmental laws in any jurisdiction in which it operates.
However, in the future, the Company could become subject to significant costs to
comply with new environmental laws or environmental regulations in jurisdictions
in which it conducts business. At the present time, the Company cannot assess
the potential impact of any such potential environmental regulations.
During the three months ended December 31, 2001, the Company did not incur any
costs related to environmental compliance.
Results of operations for the three months ended December 31, 2001 compared to
- ------------------------------------------------------------------------------
the three months ended December 31, 2000.
- -----------------------------------------
The Company's operations resulted in a $0.14 earnings per share for the three
months ended December 31, 2001, compared to a $0.11 earnings per share during
the comparative period for fiscal 2001. In general during the three months ended
December 31, 2001 the Costa Rican economy experienced limited growth, which
negatively impacted the results of operations of the Company, mainly in the
broiler segment. In order to offset this effect, the Company increased sales
prices of products targeted to the higher income consumer in its broiler
segment. Also, new sales outlets have been opened and export sales have
increased.
The Company uses segment profit margin information to analyze segment
performance, which is defined as gross profit less selling expenses as a
percentage of sales.
Broiler sales decreased by 0.37% for the three months ended December, 2001, when
compared to the three months ended December 31, 2000, mainly due to a decrease
in sales volume of 2.14%, offset by price increases. During the three months
ended December 31, 2000, the Company offered temporary sales discounts of
certain products to address an adverse economic outlook experienced during that
time. These temporary sales discounts were eliminated at the end of fiscal 2001,
resulting in a decrease in sales volume for the three months ended December 31,
2001. The segment profit margin for broiler sales did not vary significantly
from 27.76% for the three months ended December 31, 2000 to 27.23% for the three
months ended December 31, 2001.
Animal feed sales increased by 7.52% for the three months ended December 31,
2001 when compared to the three months ended December 31, 2000. The increase was
mainly due to an increase in sales volume of 1.76%, mainly in pet food products,
and an increase in sales prices. Segment profit margin increased from 12.21% for
the three months ended December 31, 2000 to a 15.57% for the three months ended
December 31, 2001, mainly due to a variation in the sales mix to more expensive
and profitable product lines.
Sales of by-products increased by 13.64% for the three months ended December 31,
2001 when compared to the three months ended December 31, 2000, mainly due to an
increase in sales volume of 13.42%. The increase in sales volume is the result
of increased sales in supermarkets and an increase in the sale of Zaragoza
products. Segment profit margin decreased from 21.10% for the three months ended
December 31, 2000 to 17.53% for the three months ended December 31, 2001, mainly
due to higher selling expenses.
Export sales increased by 72% for the three months ended December 31, 2001, when
compared to the three months ended December 31, 2000. This increase is mainly
due to the Company's increased marketing effort with respect to pet foods,
tilapia feed, fertile eggs, and one day old chicks. Segment profit margin
increased from 1.56% for the three months ended December 31, 2000 to 11.50% for
the three months ended December 31, 2001, mainly due to a decrease in selling
expenses and shift in the product mix to more profitable products.
Sales for the quick service segment decreased by 17.80% for the three months
ended December 31, 2001, when compared to the three months ended December 31,
2000. This decrease is mainly due to the strong market competition of this
segment. Segment profit margin did not vary significantly.
Sales for the other segment increased by 7.92% for the three months ended
December 31, 2001, when compared to the three months ended December 31, 2000.
This increase is mainly due to an increase in sales of commercial eggs. Segment
profit margin decreased from 14.18% for the three months ended December 31, 2000
to a 6.36% for the three months ended December 31, 2001, mainly due to
variations in the sales mix to less profitable products. Sales of other products
represented 4.46% and 4.32% of total net sales for the three months ended
December 31, 2001 and 2000, respectively.
Operating expenses decreased by 4.12% for the three months ended December 31,
2001, when compared to the three months ended December 31, 2000. Selling
expenses increased by 5.85%, mainly due to increases in the payroll, resulting
from increased distribution selling routes and marketing expenses.
Administrative expenses decreased by 10%, mainly due to a decrease in
professional service expenses, administrative costs of the restaurants, and a
decrease in payroll. For the three months ended December 31, 2001, the Company
determined that goodwill was not impaired and, accordingly, did not record any
impairment. Operating expenses represented 24.38% and 26.49% of total net sales
for the three months ended December 31, 2001 and 2000, respectively.
Other expenses increased by 4.15% for the three months ended December 31, 2001,
when compared to the three months ended December 31, 2000. This increase is
mainly due to an increase in interest expense and foreign exchange rate loss as
a result of higher outstanding debt.
The provision for income taxes for the three months ended December 31, 2001
amounted to $441,433, compared to $281,756 for the three months ended December
31, 2000, resulting in effective income tax rates of 19% and 16%, respectively.
The increase is mainly due to the elimination of significant tax benefits in
Costa Rica.
Financial condition
- -------------------
Operating activities: As of December 31, 2001, the Company had $7.98 million in
cash and cash equivalents. The working capital deficit was $7.97 million and
$10.34 million as of December 31, 2001 and September 30, 2001, respectively. The
current ratios were 0.82 and 0.76 as of December 31, 2001 and September 30,
2001, respectively.
Cash provided by operating activities was $4.80 million and $1.92 million for
the three months ended December 31, 2001 and 2000, respectively. The increase
was primarily due to variations in the levels of accounts payable and notes and
accounts receivable.
Investing activities: For the three months ended December 31, 2001, the Company
used $1.60 million for investing activities, compared to $5.22 million used for
the three months ended December 31, 2000. During fiscal periods 2001 and 2000,
the Company made significant capital expenditures in productive assets, in
in order to enable the Company to expand into international markets and innovate
new products. For the rest of fiscal year 2002, the Company anticipates that it
will spend approximately $1.97 million for capital expenditures and expects to
finance these expenditures with cash flows from operations and external
financing.
Financing activities: As of December 31, 2001, the Company arranged for line of
credit agreements with banks and raw material suppliers for a maximum aggregate
amount of $26.7 million, of which $20.9 million has been used. Agreements may be
renewed annually and bear interest at annual rates ranging from 4.00% to 10.63%.
Property and other collateral secure these agreements.
During the three months ended December 31, 2001, net cash used for financing
activities totaled $373,331, compared to $5.19 million provided during the three
months ended December 31, 2000. Financing activities reflect partial
restructuring from short-term to long-term debt. The Company will continue to
analyze different alternatives to restructure its debt.
As stated in the Company's Annual Report on Form 10-K as of September 30, 2001,
on January 14, 2002, the Company obtained a waiver of certain possible breaches
of several negative covenants contained in an amended and restated note purchase
agreement with Pacific Life Insurance Company (PacLife) dated December 28, 2001.
These breaches did not involve any payment violation and in fact, the Company
made its required payments on January 2002, amounting to $4.0 million in
amortization of principal debt and $900,000 pertaining to interest payments.
This payment reduced the principal amount outstanding to PacLife to $12.0
million.
Management expects to continue to finance operations and capital expenditures
through its normal operating activities and external sources. Management also
expects that there will be sufficient resources available to meet the Company's
cash requirements through the rest of fiscal year 2002.
CAUTIONARY STATEMENTS RELEVANT TO FORWARD-LOOKING INFORMATION FOR THE PURPOSE OF
SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Company and its representatives may, from time to time, make written or oral
forward-looking statements with respect to their current views and estimates of
future economic circumstances, industry conditions, company performance and
financial results. These forward-looking statements are subject to a number of
factors and uncertainties which could cause the Company's actual results and
experiences to differ materially from the anticipated results and expectations
expressed in such forward-looking statements. The Company cautions readers not
to place undue reliance on any forward-looking statements, which speak only as
of the date made. Among the factors that may affect the operating results of the
Company are the following: (i) fluctuations in the cost and availability of raw
materials, such as feed grain costs in relation to historical levels; (ii)
market conditions for finished products, including the supply and pricing of
alternative proteins which may impact the Company's pricing power; (iii) risks
associated with leverage, including cost increases attributable to rising
interest rates; (iv) changes in regulations and laws, including changes in
accounting standards, environmental laws, occupational and labor laws, health
and safety regulations, and currency fluctuations; and (v) the effect of, or
changes in, general economic conditions.
This management discussion and analysis of the financial condition and results
of operations of the Company may include certain forward-looking statements,
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, including
(without limitations) statements with respect to anticipated future operations
and financial performance, growth and acquisition opportunity and other similar
forecasts and statements of expectation. Words such as expects, anticipates,
intends, plans, believes, seeks, estimates, should and variations of those words
and similar expressions are intended to identify these forward-looking
statements. Forward-looking statements made by the Company and its management
are based on estimates, projections, beliefs and assumptions of management at
the time of such statements and are not guarantees of
future performance. The Company disclaims any obligations to update or review
any forward-looking statements based on occurrence of future events, the receipt
of new information or otherwise.
Actual future performance outcomes and results may differ materially from those
expressed in forward-looking statements made by the Company and its Management
as a result of a number of risks, uncertainties and assumptions. Representative
examples of these factors include (without limitation) general industrial and
economic conditions; cost of capital and capital requirement; shifts in customer
demands; changes in the continued availability of financial amounts and at the
terms necessary to support the Company's future business.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Exchange Rate Risk
The subsidiaries of the Company operate in Costa Rica and are exposed to market
risk from changes in U.S. currency rates. To mitigate its exposure to variations
in devaluations, the Company systematically increases its sales prices by a rate
that is consistent with the devaluation rate. For the three months ended
December 31, 2001, the Company increased sales prices of some products,
resulting in an average sales price increase of 3.12%. The colon, the national
currency of Costa Rica, was devalued 2.20% during the same period. The Company
expects to increase its sales prices during the rest of the fiscal year 2002.
The potential foreign exchange loss resulting from a hypothetical 10% decline in
the colon/U.S. dollar exchange would be approximately $101,000, which would not
result in a significant impact on the results of operations or the financial
position of the Company. While such a potential foreign exchange loss is not
anticipated, there can be no assurance that a loss which could have a material
impact on the Company would not occur.
Interest rate risk
As of December 31, 2001, the Company had outstanding debt of $46 million, of
which $30 million had variable interest rates. A hypothetical increase of 10% in
the interest rates would result in an increase in the interest expense of
approximately $82,000, which would not result in a significant impact on the
results of operations or the financial position of the Company. While such
interest rate fluctuation is not anticipated, there can be no assurances that
interest rates will not increase less than 10% in any relevant quarter or yearly
period..
Commodity Risk
The Company imports all of its corn and soybean meal, the primary ingredients in
chicken feed, from the United States. Fluctuations in the prices of corn may
significantly affect the Company's profit margin. For the three months ended
December 31, 2001, sales prices for corn and soybean meal were 2.26% and 4.91%
below budget prices, respectively. A hypothetical increase of 6% in the purchase
price of corn and soybean meal, would result in an increase in the cost of sales
of approximately $361,000, which would not result in a significant impact on the
results of operations of the Company.
Stock Market
The stock market in general and the market for shares in companies that do
business in Central America have recently experienced extreme price
fluctuations, which have often been unrelated to the operating performance of
the affected companies. The Company's common stock may experience significant
fluctuations which may be adverse and unrelated to the Company's operating
performance.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Pipasa is a defendant in a lawsuit brought in Costa Rica, pursuant to which the
plaintiff in such action is seeking damages in an amount equal to US$3.6
million. Pipasa was served with prejudgment liens for US$1.5 million and, with
the approval of the Juzgado Sexto Civil, the court with jurisdiction over the
lawsuit, certain parcels of real estate owned by Pipasa have been substituted
for such liens. This approval was ratified by the Superior Court on November 11,
1999, and all funds initially attached have been released and returned to
Pipasa. Costa Rica law requires the posting of guarantees by a plaintiff seeking
prejudgment liens and, in connection with this lawsuit, Pipasa has filed
objections to the guarantee filed by the plaintiff. A ruling on these objections
is pending. Pipasa has also filed pleadings in opposition to the underlying
lawsuit; a ruling on these pleadings also remains pending.
In connection with this pending lawsuit, the plaintiff also brought suit against
Pipasa in the State of California and the State of Florida. The California
lawsuit has been dismissed without prejudice. The Florida lawsuit alleges that
Aero Costa Rica, a third party, breached an aircraft lease agreement and
consequently seeks recovery of remedies and damages form Pipasa, as alleged
guarantor of the aircraft lease agreement. The amount sought by the plaintiff is
$3.6 million. The Florida lawsuit is still pending and Pipasa's defense is based
on, among other things, a lack of personal jurisdiction in the State of Florida.
Interrogatories, Request to Produce Documents and Request for Admissions have
been answered by Pipasa. The Company and its Chairman, Calixto Chaves, as a non
related third party, were subject to a Request to Produce Documents to the
extent each possesses information and/or documents related to the case. The
Company believes the lawsuits are without merit and continues to assert an
appropriate defense.
On or about January 15, 2002, Richard Young, individually and on behalf of all
others similarly situated (the "Plaintiff"), filed a putative class action
lawsuit against Rica Foods, Inc., Calixto Chaves, Jose Pablo Chaves, Randall
Piedra and Monica Chaves (collectively, the "Defendants") in the United States
District Court for the Southern District of Florida (the "Young Action"). The
Plaintiff alleges in Count I of the Young Action violations of Section 10(b) and
10(b)(5) of the Securities Exchange Act of 1984 and in Count II violations of
Section 20(A) of the Securities Exchange Act of 1984. Plaintiff seeks in the
Young Action class certification, compensatory damages, pre-judgment and
post-judgment interest, attorneys' fees and costs and such other relief the
Court may deem appropriate.
The Young Action is similar to that certain putative class action lawsuit filed
on or about January 8, 2002, styled, Richard W. Baldwin, individually and on
behalf of all others similarly situated v. Rica Foods, Inc., Calixto Chaves,
Jose Pablo Chaves, Randall Piedra and Monica Chaves, United States District
Court for the Southern District of Florida, Case No. 02-20070-CIV-Huck (the
"Baldwin Action"). The Court in the Baldwin Action has scheduled a status
hearing for February 21, 2002, wherein the Court seeks, among other things, the
consolidation of the Young Action and the Baldwin Action.
Except for the legal proceedings discussed above, no legal proceedings of a
material nature, to which the Company or the subsidiaries are a party, exist or
were pending during the three months ended December 31, 2001. Except for the
legal proceedings disclosed above, the Company knows of no other legal
proceedings of a material nature pending or threatened or judgments entered
against any director or officer of the Company in his capacity as such.
The Company is involved in various other claims and legal actions arising in the
ordinary course of business. In the opinion of the Company's management, the
ultimate disposition of these matters will not have a material adverse effect on
the Company's consolidated financial position, results of operations or
liquidity.
ITEM 6. EXHIBITS AND REPORTS
(a) Exhibits: The following exhibits are filed with this report:
None.
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Company that duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
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 Company and in
the capacities and on the dates indicated.
RICA FOODS, INC. AND SUBSIDIARIES
Dated: February 19, 2002 By: /s/ CALIXTO CHAVES
-----------------------------
Calixto Chaves
Chief Executive Officer
Dated: February 19, 2002 By: /s/ NESTOR SOLIS
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Nestor Solis
Chief Financial Officer