UNITED STATES
SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended March 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 No. 0-18222
RICA FOODS, INC.
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(Exact name of Company as specified in its charter)
Nevada 87-0432572
------ -----------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
240 Crandon Blvd. Suite 115 Key Biscayne, FL 33149
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(Address of principal executive offices) (Zip Code)
(305) 365-9694 or (305) 365-8665
---------------------------------------------
(Company's telephone number including area code)
Indicate by check mark whether the Company (1) had 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 Company was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
The number of shares outstanding of Company's common stock, par value $0.001 per
share, as of May 21, 2001 was 12,854,321 shares.
RICA FOODS, INC. AND SUBSIDIARIES
INDEX
Page
----
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements Consolidated Balance Sheets as of
March 31, 2001 (Unaudited) and September 30, 2000............... 3
Consolidated Statements of Income (Loss) for the three and
six months ended March 31, 2001 and 2000 (Unaudited)............ 4
Consolidated Statements of Cash Flows for the six months
ended March 31, 2001 and 2000 (Unaudited) ...................... 5
Notes to Financial Statements..................................... 7
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................... 11
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk........ 18
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings................................................. 18
ITEM 6. Exhibits.......................................................... 19
-2-
RICA FOODS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, September 30,
Assets 2001 2000
------ ----------- -------------
(Unaudited)
-----------
Current assets:
Cash and cash equivalents $ 3,414,125 $ 4,256,636
Short-term investments 182,451 86,557
Notes and accounts receivable 11,161,527 11,187,031
Due from related parties 43,958 39,618
Inventories 14,008,089 14,307,768
Prepaid expenses 902,867 557,519
------------ ------------
Total current assets 29,713,017 30,435,129
Property, plant and equipment 47,996,003 45,425,881
Long-term receivables-trade 760,982 640,222
Long-term investments 4,781,066 3,965,385
Other assets 4,699,540 4,010,364
Cost in excess of net assets of acquired business 2,579,857 3,705,392
------------ ------------
Total assets $ 90,530,465 $ 88,182,373
============ ============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 16,882,157 $ 16,161,076
Accrued expenses 3,454,264 3,862,659
Notes payable 18,137,438 12,878,147
Current portion of long-term debt 6,179,568 5,680,190
Due to stockholders 74,434 76,657
------------ ------------
Total current liabilities 44,727,861 38,658,729
Long-term debt, net of current portion 20,012,421 21,820,905
Due to stockholders 15,897 16,409
Deferred income tax liability 2,154,872 2,899,511
------------ ------------
Total liabilities 66,911,051 63,395,554
Minority interest 1,336,445 1,336,445
Stockholders' equity:
Common stock 12,855 12,855
Preferred stock 2,216,072 2,216,072
Additional paid-in capital 25,760,950 25,760,950
Accumulated other comprehensive loss (8,931,638) (8,758,737)
Retained earnings 10,419,633 9,388,127
------------ ------------
29,477,872 28,619,267
Less:
Due from stockholders (6,926,509) (4,900,499)
Treasury stock, at cost (268,394) (268,394)
------------ ------------
Total stockholders' equity 22,282,969 23,450,374
------------ ------------
Total liabilities and stockholders' equity $ 90,530,465 $ 88,182,373
============ ============
The accompanying notes to unaudited consolidated financial statements are an
integral part of these balance sheets.
-3-
RICA FOODS, INC. AND SUBSIDIARIES
Consolidated Statements of Income (Loss)
Three months ended Six months ended
------------------- ----------------
March 31, March 31,
--------- ---------
2001 2000 2001 2000
---- ---- ---- ----
Sales $31,342,800 $30,309,985 $64,621,388 $63,426,497
Cost of sales 21,622,910 20,427,549 42,933,576 41,554,015
----------- ----------- ----------- -----------
Gross profit 9,719,890 9,882,436 21,687,812 21,872,482
Operating expenses:
Selling 4,834,839 4,678,825 9,614,985 9,295,025
General and administrative 3,633,777 3,412,417 7,402,876 6,592,003
Amortization of cost in excess of net
assets of acquired business 127,621 266,147 393,768 421,533
----------- ----------- ----------- -----------
8,596,237 8,357,389 17,411,629 16,308,561
Income from operations 1,123,653 1,525,047 4,276,183 5,563,921
Other expenses (income):
Interest expense 1,302,023 963,674 2,402,039 1,897,339
Interest income (276,585) (168,038) (546,773) (346,499)
Foreign exchange losses, net 628,056 322,516 1,209,505 695,075
Miscellaneous, net (14,341) (195,065) (45,058) (401,282)
----------- ----------- ----------- -----------
1,639,153 923,087 3,019,713 1,844,633
----------- ----------- ----------- -----------
Income (loss) before provision for income
taxes and minority interest (515,500) 601,960 1,256,470 3,719,288
Provision for income taxes (173,826) 12,771 107,929 406,168
----------- ----------- ----------- -----------
Income (loss) before minority interest (341,674) 589,189 1,148,541 3,313,120
Minority interest 17,153 22,066 37,620 529,433
----------- ----------- ----------- -----------
Net income (loss) (358,827) 567,123 1,110,921 2,783,687
Preferred stock dividends 36,866 34,719 79,416 94,744
----------- ----------- ----------- -----------
Net income (loss) applicable to common
stockholders $ (395,693) $ 532,404 $ 1,031,505 $ 2,688,943
=========== ============ =========== ===========
Earnings (loss) per share:
Basic $ (0.03) $ 0.04 $ 0.08 $ 0.25
=========== ============ =========== ===========
Diluted $ (0.03) $ 0.04 $ 0.08 $ 0.25
=========== ============ =========== ===========
Weighted average number of common
shares outstanding:
Basic 12,854,321 12,800,297 12,854,321 10,966,660
=========== ============ =========== ===========
Diluted 12,854,321 12,804,993 12,854,321 10,970,738
=========== ============ =========== ===========
The accompanying notes to unaudited consolidated financial statements are an
integral part of these statements
-4-
RICA FOODS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Six Months ended March 31, 2001 and 2000
(Unaudited)
2001 2000
---- ----
Cash flows from operating activities:
Net income $ 1,110,921 $ 2,783,687
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,157,599 1,803,890
Production poultry 1,369,954 1,087,390
Allowance for inventory obsolescence 12,564 13,419
Amortization of cost in excess of net assets
of acquired business 323,881 421,533
Stock options and grants issued to employees - 125,336
Gain on sale of productive assets (78,644) (33,054)
Deferred income tax benefit (12,118) (126,064)
Provision for doubtful receivables 100,197 188,073
Minority interest 37,620 529,433
Changes in operating assets and liabilities:
Notes and accounts receivable (530,197) (852,605)
Inventories (1,043,520) (1,275,132)
Prepaid expenses (345,348) (453,544)
Accounts payable 721,079 355,649
Accrued expenses (408,395) (459,946)
Long-term receivables-trade (142,984) 15,750
------------ ------------
Net cash provided by operating activities 3,272,609 4,123,815
------------ ------------
Cash flows from investing activities:
Short-term investments (95,894) (1,704)
Investments in subsidiaries - (23,198)
Long-term investments (540,878)
Additions to property, plant and equipment (6,221,579) (8,989,941)
Proceeds from sale of productive assets and
long-term investments 152,472 223,639
Other assets (421,191) 195,843
------------ ------------
Net cash used in investing activities (7,127,070) (8,595,361)
------------ ------------
Cash flows from financing activities:
Short-term financing:
New loans 11,629,944 10,513,130
Payments (6,332,894) (7,272,322)
Preferred stock cash dividends (117,036) (139,949)
(Continued on next page)
-5-
RICA FOODS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Six Months ended March 31, 2001 and 2000
(Unaudited)
(Continued)
2001 2000
---- ----
Long-term financing:
New loans 3,779,888 2,928,433
Payments (5,096,426) (458,222)
Due from stockholders and related party (2,032,986) (1,846,588)
------------ ------------
Net cash provided by financing activities 1,830,490 3,724,482
------------ ------------
Effect of exchange rate changes on cash and
cash equivalents 1,181,460 (374,622)
Decrease in cash and cash equivalents (842,511) (1,121,686)
Cash and cash equivalents at beginning of period 4,256,636 3,913,168
------------ ------------
Cash and cash equivalents at end of period $ 3,414,125 $ 2,791,482
============ ============
Supplemental disclosures of cash flow information:
Cash paid during year for
Interest $ 2,903,556 $ 2,121,259
============ ============
Income taxes $ 181,719 $ 224,921
============ ============
Supplemental schedule of non-cash investing activities:
Common stock dividends paid as preferred shares:
From Pipasa $ - $ 2,143,626
============ ============
From As de Oros $ - $ 1,983,327
============ ============
Pipasa's preferred stock repurchased in exchange for
outstanding receivables $ - $ 2,143,626
============ ============
As de Oros' preferred stock repurchased in exchange
for outstanding receivables $ - $ 1,983,327
============ ============
Acquisition of business:
Fair value of assets acquired $ - $ 4,600,000
============ ============
Common stock issued $ - $ 7,880,000
============ ============
The accompanying notes to unaudited consolidated financial statements are an
integral part of these statements.
-6-
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 100% owned 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. 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") ("United States" or "U.S."). 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 accordance 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, 2000, which are included in the Company's Annual Report on
Form 10-K. Management has included in the Company's financial statements amounts
that are based on estimates and judgments, which it 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 six months ended March 31, 2001 are not
necessarily indicative of the results to be expected for the entire fiscal year
ending September 30, 2001. 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, 2000.
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.
-7-
Rica Foods, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Inventories consist of the following:
March 31, September 30,
2001 2000
---- ----
Finished products $ 3,814,117 $ 4,049,669
Poultry 3,806,346 3,655,554
Production poultry 2,740,063 3,191,343
Materials and supplies 2,185,929 1,939,597
Raw materials 2,001,184 2,180,936
In-transit 838,963 391,105
------------ ----------
15,386,602 15,408,204
Less:
Production poultry (1,293,795) (1,025,754)
Allowance for obsolescence (84,718) (74,682)
------------ -----------
Inventories, net $ 14,008,089 $ 14,307,768
============ ============
NOTE 4 - COMPREHENSIVE INCOME (LOSS)
The components of the Company's comprehensive income (loss) are as follows:
Three Months ended Six Months ended
March 31, March 31,
------------------ ----------------
2001 2000 2001 2000
---- ---- ---- ----
Net income (loss) $ (358,827) $ 567,123 $1,110,921 $ 2,783,687
Foreign currency translation adjustment (209,449) (289,947) (172,901) (1,042,499)
---------- --------- ---------- -----------
Total comprehensive income (loss) $ (568,276) $ 277,176 $ 937,390 $ 1,741,188
========== ========= ========== ===========
NOTE 5 - EARNINGS (LOSS) PER SHARE
Following is a reconciliation of the weighted average number of shares currently
outstanding with the number of shares used in the computations of fully diluted
earnings per share:
-8-
Rica Foods, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Three Months ended Six Months ended
March 31, March 31,
--------- ---------
2001 2000 2001 2000
---- ---- ---- ----
Numerator:
Net income (loss) applicable to common
stockholders $ (395,693) $ 532,404 $ 1,031,505 $ 2,688,943
============ =========== ============ ============
Denominator:
Denominator for basic income per share 12,854,321 12,800,297 12,854,321 10,966,660
Effect of dilutive securities:
Options to purchase common stock -- 4,696 -- 4,078
------------ ---------- ------------ ------------
Denominator for diluted earnings per share 12,854,321 12,804,993 12,854,321 10,970,738
============ =========== ============ ============
Earnings (loss) per share:
Basic $ (0.03) $ 0.04 $ 0.08 $ 0.25
============ =========== ============ ============
Diluted $ (0.03) $ 0.04 $ 0.08 $ 0.25
============ =========== ============ ============
NOTE 6 - SEGMENT INFORMATION (In millions):
Three Months ended March 31, Six Months ended March 31,
---------------------------- --------------------------
2001 2000 2001 2000
---- ---- ---- ----
Broiler $ 17.41 $ 18.25 $ 36.36 $ 38.33
Animal feed 6.05 5.46 12.07 10.85
By-products 3.33 3.01 6.75 5.96
Exports 1.31 0.93 2.60 2.15
Quick services 1.48 1.90 3.64 4.67
Other 1.76 0.76 3.20 1.47
--------- --------- --------- ---------
Total net sales $ 31.34 $ 30.31 $ 64.62 $ 63.43
--------- --------- --------- ---------
Broiler $ 3.50 $ 3.89 $ 8.76 $ 8.74
Animal feed 0.68 0.44 1.42 1.36
By-products 0.34 0.83 1.06 1.88
Exports 0.07 0.01 0.09 0.08
Quick services -- (0.05) 0.25 0.31
Other 0.30 0.08 0.50 0.20
--------- --------- --------- ---------
Total gross profit less selling
expenses $ 4.89 $ 5.20 $ 12.08 $ 12.57
--------- --------- --------- ---------
Other operating expenses 3.76 3.68 7.80 7.01
Other expenses, net 1.64 0.92 3.02 1.84
--------- --------- --------- ---------
Income (loss) before provision for income
taxes and minority interest $ (0.51) $ 0.60 $ 1.26 $ 3.72
========= ========= ========= =========
-9-
Rica Foods, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
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 El
Salvador and 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 manner 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 7 - ACQUISITIONS AND DISPOSALS OF ASSETS
In July 2000, the Company announced its intent to acquire an interest in
Poultryfirst.com, a virtual business-to-business poultry market place that
provides leading business tools and market data, using formats of auctions for
fresh products and catalogs for value-added products for the sale and
commercialization of poultry and poultry by-products on the Internet.
Poultryfirst.com is owned by Jose Pablo Chaves, the son of Calixto Chaves, a
major stockholder, Chief Executive Officer, President and Chairman of the
Company. In March 2001, the Company decided to terminate its letter of intent to
acquire any participation in Poultryfirst.com in order to concentrate on its
core business.
In October 2000, the Company entered into a stock purchase agreement (the
"Indavinsa Acquisition") with Industrias Avicolas Nicaraguenses, S.A.
("Indavinsa"), a Nicaraguan company engaged in the production and distribution
of poultry and animal feed concentrate products. Pursuant to the terms and
conditions of the Indavinsa Acquisition agreement, the Company will acquire an
80% ownership interest of Indavinsa in exchange for 100,000 shares of common
stock of the Company and $300,000 in cash payable at the closing of the
transaction. The Company expects to close this transaction by the end of fiscal
year 2001.
In October 2000, the Company announced it had reached an agreement with Stock
Management International, a British Virgin Islands corporation, to sell an 81%
controlling interest in the subsidiaries of As de Oros, Planeta Dorado, S.A. and
Corasa Estudiantes, S.A. (collectively, the "Restaurants"), in exchange for a
note receivable. Pursuant to the terms and conditions of the agreement, the
Company will receive $4.05 million over a five year period, with an annual
interest rate of 10.06%, payable every six months. Stock Management
International will have a grace period of one year and will subsequently make
four annual payments to the Company in the amount of $1,012,500 each. As a
condition of the agreement, As de Oros will continue to supply poultry products
to the Restaurants for a period of 12 years. The Company is in the process of
closing this transaction.
In December 2000, the Company announced its intent to acquire a majority stake
of the outstanding common stock of Core Etuba, LTDA., a Brazilian company
engaged in the production and distribution of poultry products. The final terms
and conditions of this acquisition are under negotiations.
-10-
Rica Foods, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
NOTE 8 - LITIGATION
Pipasa is a defendant in a lawsuit brought in Costa Rica. As a result of this
lawsuit (in which the plaintiff seeks $3.6 million), Pipasa was served with
prejudgment liens amounting to $1.5 million. These monetary liens were
subsequently substituted for land owned by Pipasa with the approval of the court
in Costa Rica (Juzgado 6to Civil). Such substitution of collateral was
subsequently ratified by the Superior Court on November 11, 1999. The
prejudgment liens on assets and on cash have since been released and Pipasa has
received all of the funds originally attached by the Court. For the same reasons
and by the same plaintiff, Pipasa was sued in the United States of America, in
the State of California and the State of Florida, respectively. The California
lawsuit has been dismissed without prejudice. The Florida lawsuit is still
active and Pipasa's defense is based on a lack of personal jurisdiction in the
State of Florida. Interrogatories, Request to Produce Documents and Request of
Admissions have been answered by Pipasa. The Company cannot ascertain the basis
of the claim or the relief sought by the plaintiff, but intends to assert a
vigorous defense. At the present time, neither the Company nor Pipasa can
evaluate the potential impact of this lawsuit or assess the likelihood of an
unfavorable outcome.
No other legal proceedings of a material nature to which the Company is a party
exist or were pending as of March 31, 2001. The Company knows of no legal
proceedings of a material nature pending or threatened nor knows of any
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 Management's opinion, 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,
2000 and with the Company's unaudited consolidated interim financial statements
as of March 31, 2001 and for the three and six month period ended March 31, 2001
and 2000 contained herein.
-11-
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 which 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 six months ended March 31, 2001, the Company invested approximately
$520,000 to remodel and expand its recycling and waste treatment facilities.
Results of operations
- ---------------------
The Company's operations resulted in a $0.03 diluted loss per share for the
three months ended March 31, 2001, compared to a $0.04 diluted earnings per
share during the comparative period for fiscal 2000. For the six months ended
March 31, 2001, the Company's operations resulted in a $0.08 diluted earnings
per share, compared to a $0.25 diluted earnings per share during the comparative
period for fiscal 2000.
Results of operations for the six months ended March 31, 2001, when compared to
the same period for fiscal 2000, were negatively impacted by adverse economic
factors that have affected Costa Rica, as well as North and Central America.
According to information issued by the Central Bank of Costa Rica ("BCCR"),
commodity exports for Costa Rica for the six months ended March 31, 2001
decreased by 23.73% when compared to the six months ended March 31, 2000. This
decrease was mainly due to the economic slow-down in the United States, which
according to information issued by the BCCR, purchased 52.5% of total exported
commodities during fiscal year 2000. Other external factors that have negatively
impacted the Costa Rican economy include increases in the international price of
oil and a 33.17% decrease in international investments during fiscal 2000, which
has continued through fiscal year 2001 according to information issued by the
Ministry of Foreign Commerce of Costa Rica.
However, the Costa Rican economy has recently experienced positive factors such
as a devaluation rate of only 3.22% for the six months ended March 31, 2001,
which has been the lowest since March 1994, according to information issued by
the BCCR, while variations in the inflation rate during the same period have
been within normal parameters.
-12-
In response to the adverse economic outlook, the Costa Rican government has
lowered interest rates beginning in the year 2001 in an effort to increase
consumption, investment and employment rates, and has implemented a plan to
promote the development of small and medium sized companies in Costa Rica.
The decrease in the Costa Rican consumer's purchasing power affects the overall
demand for goods and services in Costa Rica, including the demand for the
Company's products. In response, the Company has temporarily lowered the sale
price of certain products, increased volume discounts, and shifted its product
mix to include more lower priced products which, in the aggregate, have
contributed to lower sales than were budgeted for the Company. Because of the
present economic outlook in Costa Rica, Management expects this trend to
continue in the near future.
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.
Three months ended March 31, 2001 compared to three months ended March 31, 2000
- -------------------------------------------------------------------------------
Broiler sales decreased by 4.60% for the three months ended March 31, 2001, when
compared to the three months ended March 31, 2000. This decrease is attributed
to a decrease in sales volume of 4.07% and to temporary sales discounts of
certain products the Company offered during this period to address the adverse
economic outlook explained above. Segment profit margin decreased from a 21.33%
for the three months ended March 31, 2000, to a 20.09% for the three months
ended March 31, 2001, primarily due to a decrease in sales prices, partially
offset by operating efficiencies achieved in the processing plant as a result of
the acquisition of new equipment.
Animal feed sales increased by 10.71% for the three months ended March 31, 2001
when compared to the three months ended March 31, 2000. The increase was mainly
due to an increase in sales volume of 7.07%, consisting mainly of pet food
products and pellet feed. Segment profit margin increased from 8.03% for the
three months ended March 31, 2000 to 11.22% for the three months ended March 31,
2001, mainly due to lower selling expenses.
Sales of by-products increased by 10.59% for the three months ended March 31,
2001, when compared to the three months ended March 31, 2000, mainly due to an
increase in sales volume of 35.32%, offset by lower sales prices achieved due to
high discount rates offered by the Company during this period. Sales for the
three months ended March 31, 2001 include the Zaragoza line of products, a brand
name that was acquired during fiscal year 2001. Segment profit margin decreased
from 27.68% for the three months ended March 31, 2000 to a 10.35% for the three
months ended March 31, 2001, primarily due to an increase in sales price
discounts, higher costs of raw materials, and variations in sales mix of higher
cost production products.
Exports sales increased by 41.84% for the three months ended March 31, 2001,
when compared to the three months ended March 31, 2000. This increase is mainly
due to higher sales of broilers to Honduras. Segment profit margin increased
from 1.38% for the three months ended March 31, 2000 to 5.50% for the three
months ended March 31, 2001, mainly due to increases in the sales mix of higher
profit products.
Sales for the quick service segment, which consists of restaurant operations,
decreased by 21.83% for the three months ended March 31, 2001, when compared to
the three months ended March 31, 2000. This decrease is mainly due to strong
market competition of this segment. Segment profit margin did not vary
significantly.
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As of the date of filing of this report on form 10-Q, the Company is in the
process of completing the sale of 81% of the common stock of the Restaurants to
Stock Management Corporation, Inc. The Company expects to close this transaction
by the end of fiscal year 2001.
Sales for the other segment increased by 129.61% for the three months ended
March 31, 2001, when compared to the three months ended March 31 2000. This
increase is mainly due to the increase in the sale of commercial eggs which is
expected to continue through the end of fiscal year 2001. Segment profit margin
increased from 10.27% for the three months ended March 31, 2000 to 16.80% for
the three months ended March 31, 2001, due to operating efficiencies in the
distribution of commercial eggs. Sales of other products represented 5.62% and
2.53% of total net sales for the three months ended March 31, 2001 and 2000,
respectively.
Operating expenses increased by 2.86% for the three months ended March 31, 2001,
when compared to the three months ended March 31, 2000. Operating expenses
represented 27.43% and 27.57% of total net sales for the three months ended
March 31, 2001 and 2000, respectively. The increase is primarily attributable to
a general increase in employee payroll, in accordance with the Company's policy,
and an increase in vehicle leasing expenses.
Other expenses increased by 77.57% for the three months ended March 31, 2001,
when compared to the three months ended March 31, 2000. This increase is mainly
due to increase in interest expenses and foreign exchange rate loss, as a result
of an increase in debt.
The provision for income taxes for the three months ended March 31, 2001
amounted to ($173,826), compared to $12,771 for the three months ended March 31,
2000. The tax benefit in 2001 is the result of the pretax loss for the quarter
following pretax income during the first quarter of the year. Additionally, the
projected effective rate for the year has been revised downward from the first
quarter.
Six months ended March 31, 2001 compared to Six months ended March 31, 2000
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Broiler sales decreased by 5.13% for the six months ended March 31, 2001, when
compared to the six months ended March 31 2000. The decrease is attributable to
a reduction in sales volume of 5.97%, in addition to temporary discounts of
certain products offered by the Company during this period. Segment profit
margin increased from 22.81% for the six months ended March 31, 2000 to 24.09%
for the six months ended March 31, 2001, mainly due to operating efficiencies
achieved in the production process as a result of the acquisition of new
equipment.
Animal feed sales increased by 11.19% for the six months ended March 31, 2001,
when compared to the six months ended March 31, 2000. The increase is
attributable to an increase in sales volume of 8.42% primarily in the sales of
pet food and pellet lines of product. Segment profit margin decreased from
12.56% for the six months ended March 31, 2000 to an 11.71% for the six months
ended March 31, 2001, mainly due to an increase in costs of raw material and
production costs.
Sales of by-products increased by 13.21% for the six months ended March 31,
2001, when compared to the six months ended March 31, 2000.
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This increase was primarily due to a sales volume increase of 33.69%, offset by
an increase in sales discounts offered by the Comany. Sales for six months ended
March 31, 2001, include sales of the new Zaragoza brand name. The increase in
sales discounts offered, variations in the sales mix to include more lower
profit products and an increase in the costs of raw materials resulted in a
decrease in the segment profit margin from 31.54% for the six months ended March
31, 2000 to 15.79% for the six months ended March 31, 2001.
Export sales increased by 21.07% for the six months ended March 31, 2001, when
compared to the six months ended March 31, 2000, mainly due to increased sales
of broiler to Honduras. Segment profit margin did not vary significantly.
Sales for the quick service segment continue to be negatively affected by
greater competition and market saturation. Sales for the six months ended March
31, 2001 decreased by 21.57% when compared to the six months ended March 31,
2000. Segment profit margin did not vary significantly.
Sales for the other segment increased by 116.07% for the six months ended March
31, 2001, when compared to the six months ended March 31, 2000. This increase is
attributable to the increase in the sale of commercial eggs. Segment profit
margin increased from 13.58% for the six months ended March 31, 2000 to 15.62%
for the six months ended March 31, 2001, primarily due to operating efficiencies
achieved in the distribution of commercial eggs. Sales of other products
represented a 4.95% and a 2.33% of total net sales for the six months ended
March 31, 2001 and 2000, respectively.
Operating expenses increased by 6.76% for the six months ended March 31, 2001,
when compared to the six months ended March 31, 2000. Operating expenses
represent 26.94% and 25.71% of net sales for the six months ended March 31, 2001
and 2000, respectively. The increase is primarily due to general increases in
employee payroll, according to Company's policies, and an increase in vehicle
leasing expenses as a result of new distribution routes and the substitution of
old vehicles.
Other expenses increased by 63.70% for the six months ended March 31, 2001, when
compared to the six months ended March 31, 2000. The increase is mainly due to
an increase in interest and foreign exchange rate loss, as a result of an
increase in debt.
The provision for income taxes for the six months ended March 31, 2001 amounted
to $107,929, compared to $406,168 for the six months ended March 31, 2000,
representing effective rates of 8.6% and 10.9%, respectively. The decrease in
the projected effective rate is primarily due to a lower projected taxable
income for the Company for the six months ended March 31, 2001 as compared to
the prior year's projection at the end of the second quarter.
Financial condition
- -------------------
Operating activities: As of March 31, 2001, the Company had $3.41 million in
cash and cash equivalents. The working capital deficit was $15.01 million and
$8.22 million as of March 31, 2001 and September 30, 2000, respectively. The
current ratios were 0.66 and 0.79 as of March 31, 2001 and September 30, 2000,
respectively.
Cash provided by operating activities was $3.27 million and $4.12 million for
the six months ended March 31, 2001 and 2000, respectively. The decrease is the
result of a decrease in net income, offset by positive variations in operating
assets and liabilities. Accounts receivables and payables include increases in
operating cash flow due to non-recurring transactions related to the acquisition
of the Zaragoza brand name during this fiscal period.
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Investment activities: Funds used for investing activities for the six months
ended March 31, 2001, totaled $7.13 million, compared to $8.59 million for the
six months ended March 31, 2000. Cash flows from investing activities reflect
capital expenditures, which are primarily related to the production area and
have been primarily allocated to the construction of the second phase of the
extruded and rendering plant. In addition, the Company has acquired the Zaragoza
brand name and has acquired new vehicles through leasing agreements. The Company
has agreed with the lessor to create a self-insurance trust, which is included
in the short and long-term investment accounts. The Company anticipates that it
will spend approximately $2.59 million for capital expenditures during the rest
of fiscal year 2001 and expects to finance such expenditures with external
financing, internal cash flow, and/or funds received by the placement of As de
Oros' preferred shares.
Financing activities: As of March 31, 2001, the Company arranged for line of
credit agreements with banks and raw material suppliers for a maximum aggregate
amount of $28.27 million, of which $ 27.45 million have been used. Agreements
may be renewed annually and bear interest at annual rates ranging from 7.06% and
11.75%. Property and other collateral secure these agreements.
During the six months ended March 31, 2001, net cash provided by financing
activities was $1.83 million, compared to $3.72 million provided during the six
months ended March 31, 2000. Financing activities reflect the payment of the
first $4 million annual amortization of the private placement of debt with
Pacific Life, which was temporarily financed by short and long-term debt. Since
the end of last fiscal year, the Company has been analyzing different
alternatives to restructure its debt from short-term to long-term. One of these
alternatives is the possible issuance by As de Oros of an aggregate of $20
million preferred shares at a 9% rate. Such issuance was authorized by the
Superintendencia General de Valores (General Superintendence of Securities) on
November 29, 2000. The Company expects to issue a total of $10 million in As de
Oros' preferred shares during fiscal year 2001. Funds raised by this placement
will primarily be used to finance capital expenditures in the production area
and cancel Company short-term debt. However, due to a recent Costa Rican
government issuance of more than $250 million in bonds which decreased the
liquidity in the Costa Rican securities market, the Company has postponed the
issuance of these preferred shares in As de Oros until market conditions are
more favorable. As another alternative, during the second quarter of fiscal
2001, the Company signed an engagement letter with the investment banking firm
of Ladenburg Thalmann & Co. Inc. This firm has been engaged to assist the
Company in structuring its overall corporate and expansion plans, including the
possibility of issuing debt or equity securities, debt restructuring and any
project financing.
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 2001.
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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.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Exchange Rate Risk:
The Company makes U.S. dollar payments for its bank facilities and imported raw
materials such as corn, soybean meal and reproduction birds. Given its exposure
to the volatility of the U.S. dollar, the Company actively manages its exchange
rate risk. The Company uses a financial model to determine the best strategy to
mitigate risks against the devaluation of the currency of Costa Rica, the colon,
against the U.S. dollar. The Company systematically increases its annual sales
prices by a rate that is consistent with the colon devaluation against the U.S.
dollar. During the six months ended March 31, 2001, the Company increased its
sales prices an average of 1.70%. However, the National devaluation rate in
Costa Rica for that same period was 3.21%. Due to adverse economic climate, the
Company has temporarily decided not to make any significant increases to its
sales prices as a marketing strategy in order to best maintain sales and its
market share. The Company plans to make additional sales price increases during
the rest of fiscal year 2001 in areas where the market will bear such increases.
Commodity Risk Management:
The Company imports all of its corn and soybean meal, the primary ingredients in
chicken feed, from the United States of America. The Company has been actively
hedging its exposure to corn since 1991 and its strategy is to hedge against
price increases in corn and soybean meal. The Company is not involved in
speculative trading. The average prices paid by the Company for corn and soybean
meal were approximately 0.73% below and 9.89% above its budgeted prices,
respectively, for the six months ended March 31, 2001. In average, prices paid
for both corn and soybean meal were 3.94% for the six months ended March 31,
2001.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS:
Pipasa is a defendant in a lawsuit brought in Costa Rica. As a result of this
lawsuit (in which the plaintiff seeks $3.6 million), Pipasa was served with
prejudgment liens amounting to $1.5 million. These monetary liens were
subsequently substituted for land owned by Pipasa with the approval of the court
in Costa Rica (Juzgado 6to Civil). Such substitution of collateral was
subsequently ratified by the Superior Court on November 11, 1999. The
prejudgment liens on assets and on cash have since been released and Pipasa has
received all of the funds originally attached by the Court. For the same reasons
and by the same plaintiff, Pipasa was sued in the United States of America, in
the State of California and the State of Florida, respectively. The California
lawsuit has been dismissed without prejudice. The Florida lawsuit is still
active and Pipasa's defense is based on a lack of personal jurisdiction in the
State of Florida. Interrogatories, Request to Produce Documents and Request of
Admissions have been answered by Pipasa. The Company cannot ascertain the basis
of the claim or the relief sought by the plaintiff, but intends to assert a
vigorous defense. At the present time, neither the Company nor Pipasa can
evaluate the
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potential impact of this lawsuit or assess the likelihood of an unfavorable
outcome.
No other legal proceedings of a material nature to which the Company is a party
exist, or were pending as of March 31, 2001. The Company knows of no legal
proceedings of a material nature pending or threatened nor knows of any
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 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.
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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: May 21, 2001 /s/ Calixto Chaves
----------------------------------
Calixto Chaves
Chief Executive Officer
Dated: May 21, 2001 /s/ Randall Piedra
----------------------------------
Randall Piedra
Chief Financial Officer
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