Pilgrim's Pride Corporation 1st Qtr FY 05
UNITED STATES
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 January 1, 2005
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 1-9273
PILGRIMS 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 |
(Registrants telephone number, including area code) |
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 period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
Number of shares outstanding of the issuers common stock, as of January 27, 2005, was 66,555,733.
INDEX PILGRIMS PRIDE CORPORATION AND SUBSIDIARIES |
|
PART I. FINANCIAL INFORMATION |
|
Item 1. |
Financial Statements (Unaudited) |
|
|
January 1, 2005 and October 2, 2004 |
|
|
Three months ended January 1, 2005 and January 3, 2004 |
|
|
Three months ended January 1, 2005 and January 3, 2004 |
|
|
|
|
Item 2. |
|
|
Item 3. |
|
|
Item 4. |
|
|
|
|
PART II. OTHER INFORMATION |
|
Item 1. |
|
|
Item 6. |
|
|
|
|
|
|
|
PART I. FINANCIAL INFORMATION |
|
Item 1. Financial Statements |
|
Pilgrim's Pride Corporation |
|
Consolidated Balance Sheets |
|
(Unaudited) |
|
|
|
January 1, 2005 |
|
October 2, 2004 |
|
|
|
(In thousands, except share and per share data) |
|
Assets |
|
|
|
|
|
Current Assets: |
|
|
|
|
|
Cash and cash equivalents |
|
$171,098 |
|
$38,165 |
|
Trade accounts and other receivables, less
allowance for doubtful accounts |
|
|
276,043 |
|
|
324,187 |
|
Inventories |
|
|
558,049 |
|
|
609,997 |
|
Current deferred income taxes |
|
|
6,577 |
|
|
6,577 |
|
Other current assets |
|
|
47,789 |
|
|
38,302 |
|
Total Current Assets |
|
|
1,059,556 |
|
|
1,017,228 |
|
|
|
|
|
|
|
|
|
Other Assets |
|
|
50,323 |
|
|
50,086 |
|
Property, Plant and Equipment: |
|
|
|
|
|
|
|
Land |
|
|
52,385 |
|
|
52,980 |
|
Buildings, machinery and equipment |
|
|
1,578,560 |
|
|
1,558,536 |
|
Autos and trucks |
|
|
55,611 |
|
|
55,693 |
|
Construction-in-progress |
|
|
49,682 |
|
|
29,086 |
|
|
|
|
1,736,238 |
|
|
1,696,295 |
|
Less accumulated depreciation |
|
|
(566,281 |
) |
|
(517,620 |
) |
|
|
|
1,169,957 |
|
|
1,178,675 |
|
|
|
$ |
2,279,836 |
|
$ |
2,245,989 |
|
Liabilities and Stockholders Equity |
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
Accounts payable |
|
$ |
255,954 |
|
$ |
314,565 |
|
Accrued expenses |
|
|
318,616 |
|
|
256,064 |
|
Income taxes payable |
|
|
46,198 |
|
|
54,445 |
|
Current maturities of long-term debt |
|
|
8,454 |
|
|
8,428 |
|
Total Current Liabilities |
|
|
629,222 |
|
|
633,502 |
|
|
|
|
|
|
|
|
|
Long-Term Debt, Less Current Maturities |
|
|
525,602 |
|
|
535,866 |
|
Deferred Income Taxes |
|
|
153,286 |
|
|
152,455 |
|
Minority Interest in Subsidiary |
|
|
1,304 |
|
|
1,210 |
|
Commitments and Contingencies |
|
|
-- |
|
|
-- |
|
|
|
|
|
|
|
|
|
Stockholders Equity: |
|
|
|
|
|
|
|
Preferred stock, $.01 par value, 5,000,000 authorized shares; none issued |
|
|
-- |
|
|
-- |
|
Common stock - $.01 par value, 160,000,000 authorized shares; 66,826,833 issued |
|
|
668 |
|
|
668 |
|
Additional paid-in capital |
|
|
431,662 |
|
|
431,662 |
|
Retained earnings |
|
|
540,052 |
|
|
492,542 |
|
Accumulated other comprehensive loss |
|
|
(392 |
) |
|
(348 |
) |
Less treasury stock, 271,100 shares |
|
|
(1,568 |
) |
|
(1,568 |
) |
Total Stockholders Equity |
|
|
970,422 |
|
|
922,956 |
|
|
|
$ |
2,279,836 |
|
$ |
2,245,989 |
|
See notes to consolidated financial statements |
Pilgrims Pride Corporation and Subsidiaries
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
January 1, 2005
(13 Weeks) |
|
January 3, 2004
(14 Weeks) |
|
|
|
(in thousands, except share and per share data) |
|
Net Sales |
|
$ |
1,368,247 |
|
$ |
1,044,367 |
|
Costs and Expenses: |
|
|
|
|
|
|
|
Cost of sales |
|
|
1,212,836 |
|
|
967,327 |
|
Selling, general and administrative |
|
|
64,396 |
|
|
46,232 |
|
|
|
|
1,277,232 |
|
|
1,013,559 |
|
|
|
|
|
|
|
|
|
Operating income |
|
|
91,015 |
|
|
30,808 |
|
|
|
|
|
|
|
|
|
Other Expense (Income): |
|
|
|
|
|
|
|
Interest expense, net |
|
|
12,224 |
|
|
12,444 |
|
Foreign exchange (gain) loss |
|
|
(103 |
) |
|
78 |
|
Miscellaneous, net |
|
|
(1,015 |
) |
|
(321 |
) |
|
|
|
11,106 |
|
|
12,201 |
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
79,909 |
|
|
18,607 |
|
Income tax expense |
|
|
31,400 |
|
|
8,321 |
|
Net income |
|
$ |
48,509 |
|
$ |
10,286 |
|
|
|
|
|
|
|
|
|
Net income per common share
- basic and diluted |
|
$ |
0.73 |
|
$ |
0.20 |
|
Dividends per common share |
|
$ |
0.015 |
|
$ |
0.015 |
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
66,555,733 |
|
|
51,757,222 |
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements. |
Pilgrims Pride Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited) |
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
January 1, 2005
(13 Weeks) |
|
January 3, 2004
(14 Weeks) |
|
|
|
(in thousands) |
|
Cash Flows From Operating Activities: |
|
|
|
|
|
|
|
Net income |
|
|
|
|
$ |
48,509 |
|
$ |
10,286 |
|
Adjustments to reconcile net income to cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
30,065 |
|
|
25,911 |
|
Loss on property disposals |
|
|
|
|
|
1,875 |
|
|
9 |
|
Deferred income taxes |
|
|
|
|
|
831 |
|
|
9,143 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
Accounts and other receivables |
|
|
|
|
|
48,144 |
|
|
(21,455 |
) |
Inventories |
|
|
|
|
|
51,948 |
|
|
2,032 |
|
Other current assets |
|
|
|
|
|
(9,487 |
) |
|
2,243 |
|
Accounts payable and accrued expenses |
|
|
|
|
|
(4,305 |
) |
|
90,628 |
|
Other |
|
|
|
|
|
(143 |
) |
|
-- |
|
Cash provided by operating activities |
|
|
|
|
|
167,437 |
|
|
118,797 |
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities: |
|
|
|
|
|
|
|
|
|
|
Acquisitions of property, plant and equipment |
|
|
|
|
|
(24,160 |
) |
|
(20,552 |
) |
Business acquisition, net of equity consideration |
|
|
|
|
|
-- |
|
|
(302,712 |
) |
Proceeds from property disposals |
|
|
|
|
|
781 |
|
|
619 |
|
Other, net |
|
|
|
|
|
92 |
|
|
213 |
|
Cash used in investing activities |
|
|
|
|
|
(23,287 |
) |
|
(322,432 |
) |
|
|
|
|
|
|
|
|
|
|
|
Financing Activities: |
|
|
|
|
|
|
|
|
|
|
Borrowing for acquisition |
|
|
|
|
|
-- |
|
|
300,767 |
|
Proceeds from notes payable to banks |
|
|
|
|
|
-- |
|
|
7,500 |
|
Repayments of notes payable to banks |
|
|
|
|
|
-- |
|
|
(7,500 |
) |
Proceeds from long-term debt |
|
|
|
|
|
-- |
|
|
124,589 |
|
Payments on long-term debt |
|
|
|
|
|
(10,239 |
) |
|
(133,993 |
) |
Equity and debt issue cost |
|
|
|
|
|
-- |
|
|
(5,185 |
) |
Cash dividends paid |
|
|
|
|
|
(998 |
) |
|
(998 |
) |
Cash provided by (used for) financing activities |
|
|
|
|
|
(11,237 |
) |
|
285,180 |
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
|
|
|
20 |
|
|
(53 |
) |
Increase in cash and cash equivalents |
|
|
|
|
|
132,933 |
|
|
81,492 |
|
Cash and cash equivalents at beginning of year |
|
|
|
|
|
38,165 |
|
|
16,606 |
|
Cash and Cash Equivalents at End of Period |
|
|
|
|
$ |
171,098 |
|
$ |
98,098 |
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Non-cash Disclosure Information: |
|
|
|
|
|
|
|
|
|
|
Business acquisition, equity consideration (before cost of issuance) |
|
|
|
|
$ |
-- |
|
|
357,475 |
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements. |
The accompanying unaudited consolidated financial statements of Pilgrims Pride Corporation (referred to herein as Pilgrims, the Company, we, us, our or similar terms) have been prepared in accordance with accounting principles generally accepted in the United States (U.S.) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the U.S. Securities and Exchange Commission. 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 and recurring adjustments unless otherwise disclosed) considered necessary for a fair
presentation have been included. Operating results for the period ended January 1, 2005 are not necessarily indicative of the results that may be expected for the year ending October 1, 2005. For further information, refer to the consolidated financial statements and footnotes thereto included in Pilgrims Annual Report on Form 10-K for the fiscal year ended October 2, 2004.
The consolidated financial statements include the accounts of Pilgrims 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 any 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.
Total comprehensive income was $48.5 million and $10.5 million for the three months ended January 1, 2005 and January 3, 2004, respectively.
Certain reclassifications have been made to prior periods to conform to current presentations.
NOTE BBUSINESS ACQUISITION
On November 23, 2003, we completed the purchase of all the outstanding stock of the corporations represented as the ConAgra Foods, Inc. (ConAgra) chicken division (ConAgra chicken division). The acquired business has been included in our results of operations since the date of the acquisition. The purchase price was $632.5 million and was paid with a combination of cash, the assumption of $16 million of debt and issuing to ConAgra 25,443,054 shares of our common stock valued at $14.05 per share.
The following unaudited pro forma financial information has been presented as if the acquisition of the ConAgra chicken division had occurred as of the beginning of fiscal 2004.
Pro Forma Financial Information:
Three Months Ended |
|
(In thousands except for share data) |
|
January 3, 2004
(14 Weeks) |
|
Net sales |
|
$ |
1,505,159 |
|
Depreciation and amortization |
|
$ |
32,956 |
|
Operating income |
|
$ |
56,322 |
|
Interest expense, net |
|
$ |
16,815 |
|
Income (loss) before taxes |
|
$ |
41,925 |
|
Net income (loss) |
|
$ |
24,744 |
|
Net income (loss) per common share |
|
$ |
0.37 |
|
Weighted average shares outstanding |
|
|
66,555,733 |
|
NOTE CINVENTORIES
Inventories consist of the following: |
|
|
|
January 1, 2005 |
|
October 2, 2004 |
|
|
|
(in thousands) |
|
Chicken: |
|
|
|
|
|
|
|
Live chicken and hens |
|
|
|
|
$ |
176,245 |
|
$ |
207,129 |
|
Feed, eggs and other |
|
|
|
|
|
126,354 |
|
|
118,939 |
|
Finished chicken products |
|
|
|
|
|
214,557 |
|
|
218,563 |
|
|
|
|
|
|
$ |
517,156 |
|
$ |
544,631 |
|
Turkey: |
|
|
|
|
|
|
|
|
|
|
Live turkey and hens |
|
|
|
|
$ |
6,621 |
|
$ |
8,306 |
|
Feed, eggs and other |
|
|
|
|
|
6,705 |
|
|
6,017 |
|
Finished turkey products |
|
|
|
|
|
27,567 |
|
|
51,043 |
|
|
|
|
|
|
|
40,893 |
|
|
65,366 |
|
Total Inventories |
|
|
|
|
$ |
558,049 |
|
$ |
609,997 |
|
NOTE D NOTES PAYABLE AND LONG-TERM DEBT
As of January 1, 2005, we had $168.0 million in revolving credit facilities, after the expiration of our Mexico revolving credit facility in December 2004, and $500.0 million in a secured revolving/term borrowing facility. There were no borrowings under the $500.0 million revolving/term borrowing facility at January 1, 2005 and $500.0 million was available under this facility. Under the $168.0 million revolving credit facilities, $135.6 was available for borrowing at January 1, 2005.
NOTE EINCOME TAXES
Under the new tax legislation, the American Jobs Creation Act of 2004, corporations are allowed to distribute some or all of the permanently reinvested earnings in foreign subsidiaries as cash dividends and elect to receive a dividends received deduction for U.S. income tax purposes equal to 85% of such dividend, with certain restrictions. The dividends received deduction effectively taxes these dividends at 5.25% for U.S. income tax purposes. The new tax legislation can be applied by the Company in either Fiscal 2005 or Fiscal 2006, but such deduction may be received in only one of those years. The Company has not provided any deferred income taxes on the undistributed earnings of its Mexico subsidiaries based upon its determination that such earnings will be indefinitely reinvested. As o
f October 2, 2004, the cumulative undistributed earnings of these subsidiaries were approximately $230.0 million. The Company has not completed its evaluation of what actions, if any, will be taken as a result of the American Job Creation Act of 2004. In addition, the distribution of earnings from Mexico to the U.S. could result in additional taxes being paid under Mexican law. It expects to complete its evaluation during 2005.
NOTE FRELATED PARTY TRANSACTIONS
Lonnie Bo Pilgrim, the Chairman and, through certain related entities, the major stockholder of the Company (collectively, the major stockholder), owns an egg laying and a chicken growing operation. In addition, at certain times during the year, the major stockholder purchases from the Company live chickens and hens and certain feed inventories during the grow-out process and then contracts with the Company to resell the birds at maturity using a market-based formula, with price subject to a ceiling price calculated at his cost plus two percent. Purchases made by the Company under this agreement resulted in an operating margin to the major stockholder of $525,729 and $643,130 during the quarters ended January 1, 2005 and January 3, 2004, respectively, on gross amounts paid by the Company
to the major stockholder as described below in Live chicken purchases from major stockholder. Included in accrued expenses are amounts due our major stockholder of $37.0 million, which represent goods sold in advance of delivery and amounts owed for purchases made by the Company from such major stockholder, related to the sales of chickens and feed as described above, at the end of the first quarter of fiscal 2005.
Transactions with related parties are summarized as follows:
|
|
Three Months Ended |
|
|
|
January 1, 2005 |
|
January 3, 2004 |
|
|
|
(in thousands) |
|
Lease payments on commercial egg property |
|
$ |
188 |
|
$ |
188 |
|
Chick, feed and other sales to major stockholder, including advances |
|
$ |
51,873 |
|
$ |
48,034 |
|
Live chicken purchases from major stockholder |
|
$ |
32,958 |
|
$ |
28,326 |
|
Loan guaranty fees |
|
$ |
446 |
|
$ |
602 |
|
Lease payments on airplane |
|
$ |
99 |
|
$ |
99 |
|
NOTE GCOMMITMENTS and CONTINGENCIES
At January 1, 2005, the Company had $32.4 million in letters of credit outstanding relating to normal business transactions.
In October 2002, a limited number of USDA environmental samples from our Franconia, Pennsylvania plant tested positive for Listeria. As a result, we voluntarily recalled all cooked deli products produced at the plant from May 1, 2002 through October 11, 2002. No illnesses associated with the Listeria strain in a Northeastern outbreak have been linked to any of our products and none of our products have tested positive for the outbreak strain. However, in connection with this recall, we have been named as a defendant in twelve lawsuits brought by individuals generally alleging injuries resulting from contracting Listeria monocytogenes. We believe that we have meritorious defenses to these claims and intend to assert vigorous defenses to the litigation. After considering our available insurance coverage, we do not
expect these cases to have a material impact on our financial position, operations or liquidity.
We are subject to various other legal proceedings and claims which arise in the ordinary course of its business. In the opinion of management, the amount of ultimate liability with respect to these actions will not materially affect the financial position or results of operations of the Company.
NOTE HBUSINESS SEGMENTS
We operate in two reportable business segments as a producer of chicken and other products and a producer of turkey products.
Our chicken and other products segment primarily includes sales of chicken products and by-products we produce and purchase for resale in the United States, including Puerto Rico, and in Mexico. This segment also includes the sale of table eggs, feed and other items. Our chicken and other products segment conducts separate operations in the U.S. and Puerto Rico and in Mexico and is reported as two separate geographical areas. Substantially all of the assets and operations of the ConAgra chicken division have been included in our U.S. chicken and other products segment since the date of acquisition.
Our turkey segment includes sales of turkey products produced in our turkey operations, which operates exclusively in the U.S.
Inter-area sales and inter-segment sales, which are not material, are accounted for at prices comparable to normal trade customer sales. Certain expenses are allocated to Mexico based upon various apportionment methods for specific expenditures incurred related thereto with the remaining amounts allocated to the U.S. portions of the segments based on number of employees.
The following table presents certain information regarding our segments (in thousands):
|
|
Three Months Ended |
|
|
|
|
|
January 1, 2005 |
|
January 3, 2004(a) |
|
|
|
|
|
(13 Weeks) |
|
(14 Weeks) |
|
Net Sales to Customers: |
|
|
|
|
|
|
|
Chicken and Other Products: |
|
|
|
|
|
|
|
United States (b) |
|
|
|
|
$ |
1,189,885 |
|
$ |
857,431 |
|
Mexico |
|
|
|
|
|
98,588 |
|
|
93,612 |
|
Sub-total |
|
|
|
|
|
1,288,473 |
|
|
951,043 |
|
Turkey |
|
|
|
|
|
79,774 |
|
|
93,324 |
|
Total |
|
|
|
|
$ |
1,368,247 |
|
$ |
1,044,367 |
|
Operating Income: |
|
|
|
|
|
|
|
|
|
|
Chicken and Other Products: |
|
|
|
|
|
|
|
|
|
|
United States (b) |
|
|
|
|
$ |
90,156 |
|
$ |
52,006 |
|
Mexico |
|
|
|
|
|
5,624 |
|
|
(5,446 |
) |
Sub-total |
|
|
|
|
|
95,780 |
|
|
46,560 |
|
Turkey |
|
|
|
|
|
(4,765 |
) |
|
(15,760 |
) |
Total |
|
|
|
|
$ |
91,015 |
|
$ |
30,800 |
|
Depreciation and Amortization(c) |
|
|
|
|
|
|
|
|
|
|
Chicken and Other Products: |
|
|
|
|
|
|
|
|
|
|
United States (b) |
|
|
|
|
$ |
26,165 |
|
$ |
20,617 |
|
Mexico |
|
|
|
|
|
3,133 |
|
|
3,218 |
|
Sub-total |
|
|
|
|
|
29,298 |
|
|
23,835 |
|
Turkey |
|
|
|
|
|
767 |
|
|
2,076 |
|
Total |
|
|
|
|
$ |
30,065 |
|
$ |
25,911 |
|
(a) |
The acquisition of the ConAgra chicken division has been accounted for as a purchase, and the results of operations for this acquisition have been included in our consolidated results of operations since November 23, 2003, the acquisition date. |
|
|
(b) |
Includes our Puerto Rico operations. |
|
|
(c) |
Includes amortization of capitalized financing costs of approximately $0.6 million and $0.5 million for the three month period ending January 1, 2005 and January 3, 2004, respectively. |
General
Profitability in the poultry industry is materially affected by the commodity prices of feed ingredients, chicken and turkey, which are determined by supply and demand factors. As a result, the chicken and turkey industries are subject to cyclical earnings fluctuations. Cyclical earnings fluctuations can be mitigated somewhat by:
- Business strategy;
- Product mix;
- Sales and marketing plans; and
- Operating efficiencies.
In an effort to reduce price volatility and to generate higher, more consistent profit margins, we have concentrated on the production and marketing of prepared foods products. Prepared foods products generally have higher profit margins than our other products. Feed ingredient purchases are the single largest component of our cost of goods sold, representing approximately 24% of our cost of goods sold in the first three months of fiscal year 2005. The production of feed ingredients is positively or negatively affected primarily by weather patterns throughout the world, the global level of supply inventories, demand for feed ingredients and the agricultural policies of the United States and foreign governments. As further processing is performed, feed ingredient costs become a decreasing percentage of a product
6;s total production costs. Products sold in this form enable us to charge a premium, reduce the impact of feed ingredient costs on our profitability and improve and stabilize our profit margins.
As a significant portion of U.S. poultry production is exported, the commodity prices of chicken and turkey can be, and in recent periods have been, adversely affected by disruptions in poultry export markets. These disruptions are often caused by restrictions on imports of U.S.-produced poultry products imposed by foreign governments for a variety of reasons, including the protection of their domestic poultry producers and allegations of consumer health issues. For example, Russia, China, Japan and Mexico have restricted the importation of U.S.-produced poultry for these reasons in recent periods. Because these disruptions in poultry export markets are often political, no assurances can be given as to when the existing disruptions will be alleviated or that new ones will not arise. In July 2003, the United States
and Mexico entered into a safeguard agreement with regard to imports into Mexico of chicken leg quarters from the United States. Under this agreement, an initial tariff rate for chicken leg quarters of 98.8% on the sales prices was established. This tariff rate was reduced on January 1, 2005 to 59.3% and is to be reduced in each of the following three years in equal increments so that the final tariff rate at January 1, 2008 will be zero. The tariff was imposed due to concerns that the duty-free importation of such products, as provided by the North American Free Trade Agreement, would injure Mexicos poultry industry. As such tariffs are reduced, we expect greater amounts of chicken to be imported into Mexico from the United States, which could negatively affect the profitability of Mexico chicken producers and positively affect the profitability of U.S. exporters of chicken to Mexico. Although this could have a negative impact on our Mexico chicken operations, we believe that this will be mitigat
ed somewhat by the close proximity of our U.S. operations to the Mexico border and our extensive distribution network in Mexico. We believe we have one of the largest U.S. production and distribution capacities near the Mexico border, which gives us a strategic advantage to capitalize on exports of U.S. chicken to Mexico.
The following table presents certain information regarding our segments (in thousands):
|
|
Three Months Ended |
|
|
|
|
|
January 1, 2005 |
|
January 3, 2004(a) |
|
|
|
|
|
(13 Weeks) |
|
(14 Weeks) |
|
Net Sales to Customers: |
|
|
|
|
|
|
|
Chicken and Other Products: |
|
|
|
|
|
|
|
United States (b) |
|
|
|
|
$ |
1,189,885 |
|
$ |
857,431 |
|
Mexico |
|
|
|
|
|
98,588 |
|
|
93,612 |
|
Sub-total |
|
|
|
|
|
1,288,473 |
|
|
951,043 |
|
Turkey |
|
|
|
|
|
79,774 |
|
|
93,324 |
|
Total |
|
|
|
|
$ |
1,368,247 |
|
$ |
1,044,367 |
|
Operating Income: |
|
|
|
|
|
|
|
|
|
|
Chicken and Other Products: |
|
|
|
|
|
|
|
|
|
|
United States (b) |
|
|
|
|
$ |
90,156 |
|
$ |
52,006 |
|
Mexico |
|
|
|
|
|
5,624 |
|
|
(5,446 |
) |
Sub-total |
|
|
|
|
|
95,780 |
|
|
46,560 |
|
Turkey |
|
|
|
|
|
(4,765 |
) |
|
(15,760 |
) |
Total |
|
|
|
|
$ |
91,015 |
|
$ |
30,800 |
|
Depreciation and Amortization(c) |
|
|
|
|
|
|
|
|
|
|
Chicken and Other Products: |
|
|
|
|
|
|
|
|
|
|
United States (b) |
|
|
|
|
$ |
26,165 |
|
$ |
20,617 |
|
Mexico |
|
|
|
|
|
3,133 |
|
|
3,218 |
|
Sub-total |
|
|
|
|
|
29,298 |
|
|
23,835 |
|
Turkey |
|
|
|
|
|
767 |
|
|
2,076 |
|
Total |
|
|
|
|
$ |
30,065 |
|
$ |
25,911 |
|
(a) |
The acquisition of the ConAgra chicken division has been accounted for as a purchase, and the results of operations for this acquisition have been included in our consolidated results of operations since November 23, 2003, the acquisition date. |
|
|
(b) |
Includes our Puerto Rico operations. |
|
|
(c) |
Includes amortization of capitalized financing costs of approximately $0.6 million and $0.5 million for the three month period ending January 1, 2005 and January 3, 2004, respectively. |
The following table presents certain items as a percentage of net sales for the periods indicated:
|
|
Percentage of Net Sales |
|
|
|
Three Months Ended |
|
|
|
January 1, 2005
(13 Weeks) |
|
January 3, 2004
(14 Weeks) |
|
Net Sales |
|
|
100.0 |
% |
|
100.0 |
% |
Costs and Expenses: |
|
|
|
|
|
|
|
Cost of sales |
|
|
88.6 |
% |
|
92.6 |
% |
Gross profit |
|
|
11.4 |
% |
|
7.4 |
% |
Selling, general and administrative |
|
|
4.7 |
% |
|
4.4 |
% |
Operating Income |
|
|
6.7 |
% |
|
3.0 |
% |
Interest Expense |
|
|
0.9 |
% |
|
1.2 |
% |
|
|
|
|
|
|
|
|
Income before Income Taxes |
|
|
5.8 |
% |
|
1.8 |
% |
Net Income |
|
|
3.5 |
% |
|
1.0 |
% |
Results of Operations
The change in our results of operations for the first fiscal quarter of 2005 as compared to the same period in fiscal 2004 is impacted by the effect of the November 23, 2003, purchase of all the outstanding stock of the corporations represented as ConAgra Foods, Inc. (ConAgra) chicken division (ConAgra chicken division). We sometimes refer to this acquisition as the fiscal 2004 acquisition. The acquired business has been included in our results of operations for only 6 of the 14 weeks in the first quarter of fiscal 2004.
Our first quarter of fiscal 2005 included 13 weeks versus the first quarter of fiscal 2004, which included 14 weeks, resulting in a decrease in each of the categories discussed in our results of operations by approximately 7.1%, as compared to the corresponding period in the preceding year. As this change impacted all the Income Statement categories in a reasonably consistent manner, no separate discussion of this factor is included in our results of operations discussion, unless the impact of the applicable category varied from the increase described above.
Fiscal First Quarter 2005 Compared to Fiscal First Quarter 2004
Net Sales. Net Sales for the first quarter of fiscal 2005 increased $323.8 million, or 31.0%, over the first quarter of fiscal 2004. The following table provides additional information regarding net sales (in millions):
|
|
Fiscal Quarter Ended |
|
Change from
First Quarter Ended |
|
|
|
|
|
|
|
|
January 1, |
|
|
January 3, |
|
|
Percentage |
|
|
|
|
Source |
|
|
2005 |
|
|
2004 |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chicken and other products: |
|
|
|
|
|
|
|
|
|
|
|
|
|
United States- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Chicken |
|
$ |
1,024.5 |
|
$ |
280.5 |
|
|
37.7 |
% |
|
(a |
) |
Other products |
|
|
165.4 |
|
|
52.0 |
|
|
45.7 |
% |
|
(b |
) |
|
|
$ |
1,189.9 |
|
$ |
332.5 |
|
|
38.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mexico- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Chicken |
|
$ |
96.9 |
|
$ |
8.0 |
|
|
8.9 |
% |
|
|
|
Other products |
|
|
1.6 |
|
|
(3.1 |
) |
|
(65.2 |
)% |
|
(c |
) |
|
|
$ |
98.5 |
|
$ |
4.9 |
|
|
5.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turkey |
|
$ |
79.8 |
|
$ |
(13.6 |
) |
|
(14.5 |
)% |
|
(d |
) |
|
|
$ |
1,368.2 |
|
$ |
323.8 |
|
|
31.0 |
% |
|
|
|
(a) |
U.S. chicken sales increased primarily due to the fiscal 2004 acquisition. The fiscal quarter ended January 1, 2005 contains 13 weeks of the acquired operations, whereas the fiscal quarter ended January 3, 2004 contains only 6 weeks of these operations. |
|
|
(b) |
U.S. sales of other products increased due primarily to the fiscal 2004 acquisition which included several distribution centers which had a larger proportion of beef, pork, and other non-poultry products than did our existing distribution centers. |
|
|
(c) |
The decrease in Mexico sales of other products was primarily due to a reduction of outside feed sales. |
|
|
(d) |
The decrease in turkey sales was due to a decrease in turkey production created by the restructuring of the turkey division in fiscal 2004 as described in our Annual Report on Form 10-K for the fiscal year ended October 2, 2004, offset somewhat by a change in sales mix away from commodity products which resulted from the same restructuring. |
Gross Profit. Gross profit increased $78.3 million, or 101.6%, in the first quarter of fiscal 2005 compared to the first quarter of fiscal 2004.
The following table provides gross profit information (in millions):
|
|
Quarter |
|
Change From |
|
|
|
|
|
|
|
|
|
|
|
Ended |
|
Quarter Ended |
|
|
|
Percentage of |
|
Percentage |
|
|
|
|
|
January 1, |
|
January 3, |
|
Percentage |
|
Net Sales |
|
of Net Sales |
|
|
|
Components |
|
2005 |
|
2004 |
|
Change |
|
Fiscal 2005 |
|
Fiscal 2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
1,368.2 |
|
$ |
323.8 |
|
|
31.0 |
% |
|
100.0 |
% |
|
100.0 |
% |
|
|
|
Cost of sales |
|
|
1,212.8 |
|
|
245.5 |
|
|
25.4 |
% |
|
88.6 |
|
|
92.6 |
|
|
(a |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
$ |
155.4 |
|
$ |
78.3 |
|
|
101.6 |
% |
|
11.4 |
% |
|
7.4 |
% |
|
(b |
) |
|
(a) |
U.S. operations cost of sales increased $251.3 million primarily due to the fiscal 2004 acquisition which occurred during the quarter ended January 3, 2004. Mexico operations cost of sales decreased $5.8 million primarily due to a 9.3% decrease in dressed pounds produced which is mainly due to the current quarter having 13 weeks, which is 7.1% less than the 14 weeks contained in the same quarter last year. Additionally, the U.S. and Mexico chicken operations cost of sales for the quarter ended January 1, 2005 were positively impacted by 19.0% and 15.5%, respectively, as a result of a reduction in feed ingredient costs when compared to the quarter ended January 3, 2004. |
|
|
(b) |
U.S. gross profit increased $67.6 million due primarily to a 19.0% reduction in the cost of feed ingredient purchases and an $8.4 million improvement in the negative margin of our turkey operations. Mexico operations gross profit increased $10.7 million due primarily to a 20.1% increase in revenue per pound and a 15.5% reduction in the cost of feed ingredient prrchases, offset partially by a 9.3% reduction in production volumes. |
Operating Income. Operating income for the first quarter of fiscal 2005 increased $60.2 million when compared to the first quarter of fiscal 2004.
|
|
|
|
Change from |
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
Quarter Ended |
|
|
|
Percentage |
|
Percentage |
|
|
|
|
|
January 1, |
|
January 3, |
|
Percentage |
|
of Net Sales |
|
of Net Sales |
|
|
|
Components |
|
2005 |
|
2004 |
|
Change |
|
Fiscal 2005 |
|
Fiscal 2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
$ |
155.4 |
|
$ |
78.3 |
|
|
101.6 |
% |
|
11.4 |
% |
|
7.4 |
% |
|
|
|
Selling, general and administrative expense |
|
|
64.4 |
|
|
18.1 |
|
|
39.1 |
% |
|
4.7 |
|
|
4.4 |
|
|
(a |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
91.0 |
|
$ |
60.2 |
|
|
195.5 |
% |
|
6.7 |
% |
|
2.9 |
|
|
% (b |
) |
(a) |
Increase is primarily due to the inclusion of the fiscal 2004 acquisition for the full first quarter of fiscal 2005 and increased sales of prepared foods products. |
|
|
(b) |
Increase in operating income is due to the items discussed above under gross profit, offset by increased selling, general and administrative expenses discussed above. |
Interest Expense. Consolidated net interest expense decreased 1.6% to $12.2 million in the first quarter of fiscal 2005, when compared to $12.4 million for the first quarter of fiscal 2004, due primarily to lower average debt in the current quarter. As a percentage of sales, interest expense in the first quarter in fiscal 2005 decreased to 0.9% from 1.2% of the first quarter of fiscal 2004.
Miscellaneous, Net. Consolidated miscellaneous, net expense (income) which decreased $0.7 million to ($1.0) million, consisted mainly of certain recoveries in our Mexico operations.
Income Tax Expense. Consolidated income tax expense in the first quarter of fiscal 2005 was $31.4 million, compared to an income tax expense of $8.3 million in the first quarter of fiscal 2004. This increase in consolidated income tax expense was primarily caused by higher pretax earnings in the U.S. for the first quarter of fiscal 2005 and a change in Mexican tax law in December 2004, resulting in an approximate $1.0 million increase in the tax expense to adjust downward the value of previously recorded deferred tax assets, primarily loss carryforwards.
Liquidity and Capital Resources
The following table presents our available sources of liquidity as of January 1, 2005. See our Annual report on Form 10-K for the fiscal year ended October 2, 2004 for a detailed description of each facility discussed below.
|
|
Facility |
|
Available |
|
Amount |
|
Available |
|
Source of Liquidity |
|
Amount |
|
Borrowing |
|
Outstanding |
|
Liquidity |
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
-- |
$ |
-- |
$ |
-- |
$ |
171.1 |
|
Debt Facilities: |
|
|
|
|
|
|
|
|
|
Revolving credit facilities |
|
|
168.0 |
|
|
135.6 |
|
|
-- |
|
|
135.6 |
|
Revolving/term facility |
|
|
500.0 |
|
|
500.0 |
|
|
-- |
|
|
500.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables purchase agreement |
|
|
125.0 |
|
|
125.0 |
|
|
-- |
|
|
125.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available liquidity |
|
|
|
|
|
|
|
|
|
$ |
|
931.7 |
|
At January 1, 2005, our working capital increased to $430.3 million and our current ratio increased to 1.68 to 1, compared with working capital of $383.7 million and a current ratio of 1.61 to 1 at October 2, 2004, primarily due to the working capital changes discussed below.
Trade accounts and other receivables were $276.0 million at January 1, 2005, compared to $324.2 million at October 2, 2004. The $48.2 million, or 14.9%, decrease in trade accounts and other receivables was primarily due to reduced sales in the first quarter of fiscal 2005 compared to the fourth quarter of fiscal 2004 due to cyclicality of sales.
Inventories were $558.0 million at January 1, 2005, compared to $610.0 million at October 2, 2004. The $52.0 million, or 8.5%, decrease in inventories was primarily due to decreased feed cost going into live birds and lower live chicken and hen inventories resulting from seasonal variations in sales of chicken and feed products to our major stockholder, offset somewhat by increased prepared foods being produced.
Accounts payable and accrued liabilities increased $4.0 million to $574.6 million at January 1, 2005, compared to $570.6 million at October 2, 2004.
Capital expenditures of $24.2 million and $20.6 million for the three months ended January 1, 2005 and January 3, 2004, respectively, were primarily incurred to improve efficiencies, reduce costs and for the routine replacement of equipment. We anticipate spending approximately $175.0 million to $200.0 million in fiscal 2005 to improve efficiencies, expand capacities and for the routine replacement of equipment. We expect to finance such expenditures with current cash, available operating cash flows and existing revolving/term and revolving credit facilities.
Cash flows provided by operating activities were $167.4 million and $118.8 million for the three months ended January 1, 2005 and January 3, 2004, respectively. The increase in cash flows provided by operating activities for the first three months of fiscal 2005, when compared to the first three months of fiscal 2004, was due primarily to improvements in profitability and the fiscal 2004 acquisition, as well as the significant changes in working capital items described above. Operating cash flows for both periods include the chick, feed and other sales to, and live chicken purchase from, the Companys major stockholder as discussed in Note E-Related Party Transactions to the consolidated financial statements above.
Cash flows (used) provided by financing activities were ($11.2) million and $285.2 million for the three months ended January 1, 2005 and January 3, 2004, respectively. The decrease in cash provided by financing activities for the first three months of fiscal 2005, when compared to the first three months fiscal 2004, was due primarily to the debt issued to finance the fiscal 2004 acquisition.
We are a party to many routine contracts in which we provide general indemnities in the normal course of business to third parties for various risks. We have not recorded a liability for any of these indemnities, as the likelihood of payment in each case is considered remote.
Feed Ingredients
We purchase certain commodities, primarily corn and soybean meal. As a result, our earnings are affected by changes in the price and availability of such feed ingredients. As market conditions dictate, we will from time to time lock-in future feed ingredient prices using various hedging techniques, including forward purchase agreements with suppliers and futures contracts. We do not use such financial instruments for trading purposes and are not a party to any leveraged derivatives. Market risk is estimated as a hypothetical 10% increase in the weighted-average cost of our primary feed ingredients as of January 1, 2005. Based on our feed consumption during the three months ended January 1, 2005, such an increase would have resulted in an increase to cost of sales of approximately $28.7 million, excluding the impact of any hedging in that period.
Foreign Currency
Our earnings are affected by foreign exchange rate fluctuations related to the Mexico peso net monetary position of our Mexico subsidiaries. We manage this exposure primarily by attempting to minimize our Mexico peso net monetary position, but from time to time, we have considered executing hedges to help minimize this exposure. Such instruments, however, have historically not been economically feasible. We are also exposed to the effect of potential exchange rate fluctuations to the extent that amounts are repatriated from Mexico to the United States. However, we currently anticipate that the cash flows of our Mexico subsidiaries will continue to be reinvested in our Mexico operations. In addition, the Mexico peso exchange rate can directly and indirectly impact our results of operations and financial position in several ways, including potential economic recession in Mexico resulting from a deva
lued peso. The impact on our financial position and results of operations resulting from a hypothetical change in the exchange rate between the U.S. dollar and the Mexico peso cannot be reasonably estimated. Foreign currency exchange gains and losses, representing the change in the U.S. dollar value of the net monetary assets of our Mexico subsidiaries denominated in Mexico pesos, was a gain of $0.1 million in the first three months of fiscal 2005 compared to a loss of $0.1 million for the first three months of fiscal 2004. On January 1, 2005, the Mexico peso closed at 11.17 to 1 U.S. dollar, compared to 11.36 at October 2, 2004. No assurance can be given as to how future movements in the peso could affect our future earnings.
There have been no material changes from the information provided in Item 7A of our Annual Report on Form 10-K for the fiscal year ended October 2, 2004, other than as described above.
Forward Looking Statements
Statements of our intentions, beliefs, expectations or predictions for the future, denoted by the words "anticipate," "believe," "estimate," "expect," "project," "imply," "intend," "foresee" and similar expressions, are forward-looking statements that reflect our current views about future events and are subject to risks, uncertainties and assumptions. Such risks, uncertainties and assumptions include the following:
· |
Matters affecting the poultry industry generally, including fluctuations in the commodity prices of feed ingredients, chicken and turkey; |
· |
Additional outbreaks of avian influenza or other diseases affecting the production performance and/or marketability of the Company's poultry products; |
· |
Contamination of our products, which has recently and can in the future lead to product liability claims and product recalls; |
· |
Exposure to risks related to product liability, product recalls, property damage and injuries to persons, for which insurance coverage is expensive, limited and potentially inadequate; |
· |
Management of our cash resources, particularly in light of our leverage; |
· |
Restrictions imposed by, and as a result of, our leverage; |
· |
Currency exchange rate fluctuations, trade barriers, exchange controls, expropriation and other risks associated with foreign operations; |
· |
Changes in laws or regulations affecting our operations, as well as competitive factors and pricing pressures; |
· |
Risks associated with the acquistion of ConAgra's chicken division including possible unknown liabilities assumed in connection with the acquisition and loss of customers of the acquired business; |
· |
Inability to recognize the anticipated cost savings and anticipated benefits in connection with our recent turkey division restructuring; and |
· |
The impact of uncertainties of litigation as well as other risks described herein and under "Risk Factors" in our Annual Report on Form 10-K filed with the Securities and Exchange Commission. |
Actual results could differ materially from those projected in these forward-looking statements as a result of these factors, among others, many of which are beyond our control.
In making these statements, we are not undertaking, and specifically decline to undertake, any obligation to address or update each or any factor in future filings or communications regarding our business or results, and we are not undertaking to address how any of these factors may have caused changes to information contained in previous filings or communications. Although we have attempted to list comprehensively these important cautionary risk factors, we must caution investors and others that other factors may in the future prove to be important and affecting our business or results of operations.
An evaluation was performed under the supervision and with the participation of the Company's management, including the Chairman, Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Company's management, including the Chairman, Chief Executive Officer and Chief Financial Officer, concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time period specified in t
he SEC rules and forms.
In connection with the evaluation described above, other than the integration of the ConAgra chicken division acquisition historical account systems to the Companys systems, the Companys management, including the Chairman, Chief Executive Officer and Chief Financial Officer, identified no change in the Company's internal control over financial reporting that occurred during the Companys fiscal quarter ended January 1, 2005, and that has materially affected, or is reasonably likely to materially affect, the Companys internal controls over financial reporting.
PART II. OTHER INFORMATION
On July 1, 2002, three individuals, on behalf of themselves and a putative class of chicken growers, filed their original class action complaint against us in the United States District Court for the Eastern District of Texas, Texarkana Division, styled Cody Wheeler, et al. vs. Pilgrims Pride Corporation. The complaint alleges that we violated the Packers and Stockyards Act (7 U.S.C. Section 192) and breached fiduciary duties allegedly owed to the plaintiff growers. The plaintiffs also brought individual actions under the Packers and Stockyards Act alleging common law fraud, negligence, breach of fiduciary duties and breach of contract. The plaintiffs entered into an agreement to stay any certification of the class. On March 14, 2003, the court entered an order dismissing the plaintiffs claim of breach of fiduciary duty and negligence. The plaintiffs also dropped the
charges of fraud prior to the entering of the order by the court. We intend to defend vigorously both certification of the case as a class action should it not prevail in the trial of the three plaintiffs and questions concerning ultimate liability and damages, if any. We do not expect this matter to have a material impact on our financial position, operations or liquidity.
In October 2002, a limited number of USDA environmental samples from our Franconia, Pennsylvania plant tested positive for Listeria. As a result, we voluntarily recalled all cooked deli products produced at the plant from May 1, 2002 through October 11, 2002. No illnesses have been linked to any of our recalled products, and none of such products have tested positive for the strain of Listeria associated with an outbreak in the Northeastern U.S. that occurred during the summer of 2002. However, following this recall, a number of demands and cases have been made and filed alleging injuries purportedly arising from the consumption of products produced at this facility. These include: Lawese Drayton, Individually and as Personal Representative of the Estate of Raymond Drayton, deceased, Plaintiff, v. Pilgrim's Pride Corporation, Jack Lambersky Poultry Company, Inc. d/b/a JL Foods Co, Inc., Defe
ndants, which was filed against us in the United States District Court for the Eastern District of Pennsylvania on April 15, 2003; Laron Harvey, by his mother and natural guardian, Shakandra Hampton, and Shakandra Hampton in her own right v. Pilgrim's Pride Corporation and Jack Lambersky Poultry Company, Inc., which was filed in the Pennsylvania Court of Common Pleas on May 5, 2003, and has since been removed to the U.S. District Court of the Eastern District of Pennsylvania in Philadelphia; Ryan and Dana Patterson v. Pilgrim's Pride Corporation and Jack Lambersky Poultry Company, et al which was filed in the Superior Court of New Jersey, Law Division, Passaic County, on August 12, 2003; Jamar Clarke, an infant under the age of fourteen (14) years, by his mother and natural guardian, Wanda Multrie Clarke, and Wanda Multrie Clarke, individually v. Pilgrims Pride Corporation d/b/a Wampler Foods, Inc., H. Schrier and Co., Inc., Board of Education of the City of New York
and Public School 251 which was filed in the Supreme Court of the State of New York, County of Queens, on August 1, 2003; Peter Roselle, as Administrator and Prosequendum for the heirs-at-Law of Louis P. Roselle, deceased; and Executor of the Estate of Louis P. Roselle, deceased, and individually v. Pilgrim's Pride Corporation, Wampler Foods, Inc., Jack Lambersky Poultry Company, Inc., d.b.a. J.L. Foods Co. Inc. which was filed in the Superior Court of New Jersey, Law Division, Union County, on June 14, 2004; "Jody Levonchuk, administratrix of the Estate of Joseph Cusato v. Pilgrim's Pride Corporation and Jack Lambersky Poultry Company." which was filed in the U.S. District Court for the Eastern District of Pennsylvania, on July 28, 2004; Mary Samudovsky v. Pilgrim's Pride Corporation and Jack Lambersky Poultry Company, Inc., et al, which was filed in the Superior Court of New Jersey, Law Division: Camden County, and served on October 26, 2004; Nancy Cirigliano and Scott Fische
r v. Pilgrim's Pride Corporation and Jack Lambersky Poultry Company, et al, which was filed in the Superior Court of New Jersey, Union County, on August 10, 2004; Dennis Wysocki, as the Administrator of the Estate of Matthew Tyler Wysocki, deceased, and Dennis Wysocki and Karen Wysocki, individually v. Pilgrim's Pride Corporation and Jack Lambersky Poultry Company, et al, which was filed in the Supreme Court of the State of New York, County of New York, on July 30, 2004; Randi Carden v. Pilgrim's Pride Corporation and Jack Lambersky Poultry Company, et al, which was filed in the Superior Court of New Jersey, Camden County, on August 10, 2004; and Catherine Dillon, individually and as guardian ad litem for her infant son, Brian Dillon, and Joseph Dillon, individually v. Pilgrim's Pride Corporation and Jack Lambersky Poultry Company, et al, which was filed in the Superior Court of New Jersey, Essex County, on September 10, 2004. On August 20, 2004, the Estate of
Frank Niemtzow refiled his individual action from the previously filed and voluntarily dismissed class action suit. Neither the likelihood of an unfavorable outcome nor the amount of ultimate liability, if any, with respect to any of these cases can be determined at this time. These cases are in various stages of litigation, and we believe we have meritorious defenses to each of the claims, which we intend to vigorously defend. After considering our available insurance coverage, we do not expect any of these matters to have a material impact on our financial position, operations or liquidity.
On December 31, 2003, we were served with a purported class action complaint styled "Angela Goodwin, Gloria Willis, Johnny Gill, Greg Hamilton, Nathan Robinson, Eddie Gusby, Pat Curry, Persons Similarly Situated v. ConAgra Poultry Company and Pilgrim's Pride, Incorporated" in the United States District Court, Western District of Arkansas, El Dorado Division, alleging racial and age discrimination at one of the facilities we acquired from ConAgra. One of the named plaintiffs, Gloria Willis, was voluntarily dismissed from this action. We believe we have meritorious defenses to the class certification as well as the individual claims and we intend to vigorously oppose class certification and defend these claims. The ultimate liability with respect to these claims cannot be determined at this time, however, we do not expect this matter to have a material impact on our financial position, operations or
liquidity.
We are subject to various other legal proceedings and claims, which arise in the ordinary course of our business. In the opinion of management, the amount of ultimate liability with resect to these actions will not materially affect our financial position or results of operations.
10.1 |
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First Amendment to Fourth Amended and Restated Note Purchase Agreement dated November 18, 2003, by and among Pilgrim's Pride Corporation, John Hancock Life Insurance Company, ING Capital LLC and other parties named therein dated as October 29, 2004 (incorporated by reference from Exhibit 10.1 of the Company's current report on Form 8-K filed on November 4, 2004). |
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10.2 |
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Pilgrim's Pride Corporation 2005 Deferred Compensation Plan (incorporated by reference from Exhibit 10.1 of the Company's current report on Form 8-K filed on December 27, 2004). |
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12.1 |
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Statement regarding Computation of Ratios* |
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31.1 |
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Certification of Co-Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* |
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31.2 |
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Certification of Co-Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* |
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31.3 |
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Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* |
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32.1 |
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Certification of Co-Principal Executive Officer of Pilgrim's Pride Corporation pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* |
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32.2 |
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Certification of Co-Principal Executive Officer of Pilgrim's Pride Corporation pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* |
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32.3 |
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Certification of Chief Financial Officer of Pilgrim's Pride Corporation pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* |
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* Filed herewith |
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.
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PILGRIMS PRIDE CORPORATION |
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/s/ Richard A. Cogdill |
Date: |
January 28, 2005 |
Richard A. Cogdill |
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Executive Vice President, |
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Chief Financial Officer, |
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Secretary and Treasurer |
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(Principal Financial Officer, |
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Chief Accounting Officer and |
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Authorized Signatory) |
10.1 |
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First Amendment to Fourth Amended and Restated Note Purchase Agreement dated November 18, 2003, by and among Pilgrim's Pride Corporation, John Hancock Life Insurance Company, ING Capital LLC and other parties named therein dated as October 29, 2004 (incorporated by reference from Exhibit 10.1 of the Companys current report on Form 8-K filed on November 4, 2004). |
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10.2 |
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Pilgrim's Pride Corporation 2005 Deferred Compensation Plan (incorporated by reference from Exhibit 10.1 of the Companys current report on Form 8-K filed on December 27, 2004). |
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12.1 |
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31.1 |
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31.2 |
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31.3 |
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32.1 |
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32.2 |
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32.3 |
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* Filed herewith |
Computation of Ratio of Earnings to Fixed Charges
EXHIBIT 12.1
PILGRIM'S PRIDE CORPORATION |
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COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES |
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THREE MONTHS ENDED |
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January 1, 2005 |
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January 3, 2004 |
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EARNINGS: |
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Income before income taxes |
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$ |
79,909 |
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$ |
18,607 |
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Add: Total fixed charges |
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16,541 |
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15,476 |
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|
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Less: Interest Capitalized |
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360 |
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413 |
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Total Earnings |
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$ |
96,090 |
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$ |
33,670 |
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FIXED CHARGES: |
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Interest |
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|
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$ |
13,528 |
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$ |
12,857 |
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Portion of rental expense representative of the interest factor |
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|
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3,013 |
|
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2,619 |
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|
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Total fixed charges |
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$ |
16,541 |
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$ |
15,476 |
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Ratio of earnings to fixed charges |
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5.81 |
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2.18 |
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CERTIFICATION BY CO-PRINCIPAL EXECUTIVE OFFICER
EXHIBIT 31.1
CERTIFICATION BY CO-PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Lonnie Bo Pilgrim, Chairman of Pilgrim's Pride Corporation, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q for the fiscal quarter ended January 1, 2005, of Pilgrim's Pride Corporation; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statement made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: |
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a.) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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b.) |
Intentionally omitted;* |
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c.) |
Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based upon such evaluation; and |
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d.) |
Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
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5. |
The registrants other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions): |
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a.) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
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b.) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
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* A statement is not required under this paragraph until we file our first Form 10-K for our first fiscal year ending on or after November 15, 2004. |
Date: January 28, 2005 |
/s/ Lonnie Bo Pilgrim |
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Lonnie Bo Pilgrim |
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Co-Principal Executive Officer |
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CERTIFICATION BY CO-PRINCIPAL EXECUTIVE OFFICER
EXHIBIT 31.2
CERTIFICATION BY CO-PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, O.B. Goolsby, Chief Executive Officer of Pride Corporation, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q for the fiscal quarter ended January 1, 2005, of Pilgrim's Pride Corporation; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statement made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: |
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a.) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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b.) |
Intentionally omitted;* |
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c.) |
Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based upon such evaluation; and |
|
d.) |
Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
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5. |
The registrants other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions): |
|
a.) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
|
b.) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
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* A statement is not required under this paragraph until we file our first Form 10-K for our first fiscal year ending on or after November 15, 2004. |
Date: January 28, 2005 |
/s/ O.B. Goolsby |
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O.B. Goolsby |
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Co-Principal Executive Officer |
CERTIFICATION BY CHIEF FINANCIAL OFFICER
EXHIBIT 31.3
CERTIFICATION BY CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Richard A. Cogdill, Chief Financial Officer of Pilgrim's Pride Corporation, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q for the fiscal quarter ended January 1, 2005, of Pilgrim's Pride Corporation; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statement made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: |
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a.) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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b.) |
Intentionally omitted;* |
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c.) |
Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based upon such evaluation; and |
|
d.) |
Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
|
5. |
The registrants other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions): |
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a.) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
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b.) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
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* A statement is not required under this paragraph until we file our first Form 10-K for our first fiscal year ending on or after November 15, 2004. |
Date: January 28, 2005 |
/s/ Richard A. Cogdill |
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Richard A. Cogdill |
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Chief Financial Officer |
CERTIFICATION OF CO-PRINCIPAL EXECUTIVE OFFICER
EXHIBIT 32.1
CERTIFICATION OF CO-PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. § 1350 ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), the undersigned officer of Pilgrims Pride Corporation, (the Company), does hereby certify, to such officers knowledge, that:
The Quarterly Report on Form 10-Q for the quarter ended January 1, 2005 (the Form 10-Q) of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, and information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: January 28, 2005 |
/s/ Lonnie Bo Pilgrim |
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Lonnie Bo Pilgrim |
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Co-Principal Executive Officer |
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|
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form with the electronic version of this written statement required by Section 906, has been provided to Pilgrims Pride Corporation and will be retained by Pilgrims Pride Corporation and furnished to the Securities and Exchange Commission or its staff upon request.
CERTIFICATION OF CO-PRINCIPAL EXECUTIVE OFFICER
EXHIBIT 32.2
CERTIFICATION OF CO-PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. § 1350 ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), the undersigned officer of Pilgrims Pride Corporation, (the Company), does hereby certify, to such officers knowledge, that:
The Quarterly Report on Form 10-Q for the quarter ended January 1, 2005 (the Form 10-Q) of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, and information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: January 28, 2005 |
/s/ O.B. Goolsby |
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O.B. Goolsby |
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Co-Principal Executive Officer |
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|
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form with the electronic version of this written statement required by Section 906, has been provided to Pilgrims Pride Corporation and will be retained by Pilgrims Pride Corporation and furnished to the Securities and Exchange Commission or its staff upon request.
CERTIFICATION OF CHIEF FINANCIAL OFFICER
EXHIBIT 32.3
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. § 1350 ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), the undersigned officer of Pilgrims Pride Corporation, (the Company), does hereby certify, to such officers knowledge, that:
The Quarterly Report on Form 10-Q for the quarter ended January 1, 2005 (the Form 10-Q) of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, and information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: January 28, 2005 |
/s/ Richard A. Cogdill |
|
Richard A. Cogdill |
|
Chief Financial Officer |
|
|
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form with the electronic version of this written statement required by Section 906, has been provided to Pilgrims Pride Corporation and will be retained by Pilgrims Pride Corporation and furnished to the Securities and Exchange Commission or its staff upon request.