SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For quarter ended December 30, 2000 Commission file number 1-9273 PILGRIM'S PRIDE CORORATION (Exact name of registrant as specified in its charter) DELAWARE 75-1285071 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 110 SOUTH TEXAS, PITTSBURG, TX 75686-0093 (Address of principal executive offices) (Zip code) (903) 855-1000 (Telephone number of principal executive offices) Not Applicable Former name, former address and former fiscal year, if changed since last report. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 27,589,250 shares of the Registrant's Class B Common Stock, $.01 par value, were outstanding as of January 18, 2001. 13,523,429 shares of the Registrant's Class A Common Stock, $.01 par value, were outstanding as of January 18, 2001.
<TABLE> <CAPTION> INDEX PILGRIM'S PRIDE CORORATION AND SUBSIDIARIES PART I. FINANCIAL INFORMATION <S> <C> Item 1. Financial Statements (Unaudited) Condensed consolidated balance sheets December 30, 2000 and September 30, 2000 Consolidated statements of income Three months ended December 30, 2000 and January 1, 2000 Consolidated statements of cash flows Three months ended December 30, 2000 and January 1, 2000 Notes to condensed consolidated financial statements December 30, 2000 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures about Market Risk PART II. OTHER INFORMATION Item 1. Legal Proceedings Item 6. Exhibits and Reports on Form 8-K SIGNATURES </TABLE>
<TABLE> <CAPTION> PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) December 30, 2000 September 30, 2000 ASSETS (in thousands) <S> <C> <C> Current Assets: Cash and cash equivalents $ 11,277 $ 28,060 Trade accounts and other receivables, Less allowance for doubtful accounts 64,286 50,286 Inventories 167,212 181,237 Deferred income taxes 6,338 6,256 Prepaid expenses and other current assets 4,056 3,131 Total Current Assets 253,169 268,970 Other Assets 19,007 18,576 Property, Plant and Equipment 740,443 708,101 Less accumulated depreciation 298,279 290,227 442,164 417,874 $714,340 $705,420 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Notes payable to banks $ 9,500 $ -- Accounts payable 96,480 105,078 Accrued expenses 34,939 34,704 Current maturities of long-term debt 4,742 4,657 Total Current Liabilities 145,661 144,439 Long-Term Debt, less current maturities 156,546 165,037 Deferred Income Taxes 56,568 52,496 Minority Interest in Subsidiary 889 889 Stockholders' Equity: Preferred stock, $.01 par value, authorized 5,000,000 shares; none issued -- -- Common stock - Class A, $.01 par value, authorized 100,000,000 shares; 13,523,429 issued and outstanding at December 30, 2000 and September 30, 2000 138 138 Common stock - Class B, $.01 par value, authorized 60,000,000 shares; 27,589,250 issued and outstanding at December 30, 2000 and September 30, 2000 276 276 Additional paid-in capital 79,625 79,625 Retained earnings 276,205 264,088 Less treasury stock (1,568) (1,568) Total Stockholders' Equity 354,676 342,559 $714,340 $705,420 See notes to condensed consolidated financial statements. </TABLE>
<TABLE> <CAPTION> PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) Three Months Ended December 30, 2000 January 1, 2000 (in thousands, except share and per share data) <S> <C> <C> Net Sales $386,032 $354,825 Costs and Expenses: Cost of sales 338,866 309,348 Selling, general and administrative 23,955 20,255 362,821 329,603 Operating income 23,211 25,222 Other Expense (Income): Interest expense, net 4,140 3,903 Foreign exchange loss 121 10 Miscellaneous, net (gain) (122) (198) 4,139 3,715 Income before income taxes 19,072 21,507 Income tax expense 6,335 6,649 Net income $ 12,737 $ 14,858 Net income per common share - basic and diluted $ 0.31 $ 0.36 Dividends declared per common share $ 0.015 $ 0.015 Weighted average shares outstanding 41,112,679 41,383,779 See notes to condensed consolidated financial statements. </TABLE>
<TABLE> <CAPTION> PILGRIM'S PRIDE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Three Months Ended December 30, 2000 January 1, 2000 (in thousands) <S> <C> <C> Cash Flows From Operating Activities: Net income $ 12,737 $ 14,858 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 8,668 8,586 (Gain) on property disposals (8) (7) Provision for doubtful accounts 173 33 Deferred income taxes 3,991 5,990 Changes in operating assets and liabilities: Accounts and other receivables (14,174) (8,068) Inventories 14,025 14,286 Prepaid expenses (925) (1,670) Accounts payable and accrued expenses (8,363) (1,947) Other (124) (238) Cash Provided By Operating Activities 16,000 31,820 Investing Activities: Acquisitions of property, plant and equipment (32,607) (14,412) Proceeds from property disposals 56 44 Other, net (620) 1,005 Net Cash Used In Investing Activities (33,171) (13,363) Financing Activities: Proceeds from notes payable to banks 70,000 1,000 Repayments of notes payable to banks (60,500) (1,000) Proceeds from long-term debt 10,701 20,000 Payments on long-term debt (19,144) (40,809) Cash dividends paid (621) (621) Cash Used In Financing Activities 436 (21,430) Effect of exchange rate changes on cash and cash equivalents (48) 73 Decrease in cash and cash equivalents (16,783) (2,900) Cash and cash equivalents at beginning of year 28,060 15,703 Cash and cash equivalents at end of period $11,277 $12,803 Supplemental disclosure information: Cash paid during the period for: Interest (net of amount capitalized) $ 1,661 $ 1,344 Income taxes 517 106 See notes to condensed consolidated financial statements. </TABLE> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE A-BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements of Pilgrim's Pride Corporation ("Pilgrim's" or "the Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The Condensed Consolidated Balance Sheet as of September 30, 2000 has been derived from the audited financial statements as of that date. Operating results for the period ended December 30, 2000 are not necessarily indicative of the results that may be expected for the year ended September 29, 2001. For further information, refer to the consolidated financial statements and footnotes thereto included in Pilgrim's annual report on Form 10-K for the year ended September 30, 2000. The consolidated financial statements include the accounts of Pilgrim's and its wholly and majority owned subsidiaries. Significant intercompany accounts and transactions have been eliminated. The assets and liabilities of the foreign subsidiaries are translated at end-of-period exchange rates, except for 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. On September 27, 2000, the Company announced that it had signed a definitive agreement to acquire all the outstanding stock of WLR Foods, Inc. in a cash merger valued at approximately $300 million, which includes the assumption and/or refinancing of approximately $60 million of WLR Foods' debt and other obligations (the "WLR Acquisition"). Pursuant to the agreement, the Company will pay $14.25 for each outstanding share of WLR Foods common stock. The merger is subject to customary closing conditions and the approval of WLR Foods' shareholders. The date of the WLR Foods' shareholder vote is currently anticipated to occur on January 26, 2001, with the closing of the transaction to proceed shortly thereafter. The transaction has received the unanimous approval of both companies' Board of Directors. The WLR Acquisition will be accounted for as a purchase and will be financed through arranged lines of credit discussed in Note D. NOTE B-ACCOUNTS RECEIVABLE On June 26, 1998 the Company entered into an asset sale agreement (the "Agreement") to sell up to $60 million of accounts receivable. In connection with the Agreement, the Company sells, on a revolving basis, certain of its trade receivables (the "Pooled Receivables") to a special purpose corporation wholly owned by the Company, which in turn sells a percentage ownership interest to third parties. At December 30, 2000, an interest in these Pooled Receivables of $36.0 million had been sold to third parties and is reflected as a reduction to accounts receivable. These transactions have been recorded as sales in accordance with FASB Statement No. 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. The gross proceeds resulting from the sale are included in cash flows from operating activities in the Consolidated Statements of Cash Flows. Losses on these sales were immaterial. NOTE C-INVENTORIES <TABLE> <CAPTION> Inventories consist of the following: December 30, 2000 September 30, 2000 (in thousands) <S> <C> <C> Live chickens and hens $ 45,079 $ 72,438 Feed, eggs and other 55,528 54,627 Finished chicken products 66,605 54,172 $167,212 $181,237 </TABLE> NOTE D-LONG TERM DEBT On November 16, 2000 the Company entered into amended and restated revolving credit facilities and secured term borrowing facilities, increasing the total amount available to $120.0 million and $400.0 million, respectively, from $70.0 million and $200.0 million, respectively. The credit facilities provide for interest at rates ranging from LIBOR plus five-eighths percent to LIBOR plus two and three-quarters percent, depending upon the Company's total debt to capitalization ratio. Interest rates on debt outstanding under these facilities at December 30, 2000 bore interest rates at LIBOR plus five-eighths percent. These facilities are secured by inventory and fixed assets or are unsecured. These increases were made to provide the funding necessary to consummate the WLR Acquisition discussed in Note A. The increases in the revolving credit facilities are available as of November 16, 2000; however, the additional $200.0 million in secured term borrowing facilities will only be available upon consummation of the WLR Acquisition and the satisfaction of certain other customary conditions on or before February 28, 2001. At December 30, 2000, $66.3 million was available under the revolving credit facilities and $200.0 million was available under the term borrowing facilities. NOTE E-RELATED PARTY TRANSACTIONS <TABLE> <CAPTION> Transactions with related parties are summarized as follows: Three Months Ended December 30, 2000 January 1, 2000 (in thousands) <S> <C> <C> Contract egg grower fees to major stockholder $ 1,248 $ 1,345 Chick, feed and other sales to major stockholder 30,770 26,555 Live chicken purchases from major stockholder 13,446 9,360 </TABLE> On December 29, 2000 the Company entered into an agreement to lease a commercial egg property and assume all of the ongoing costs of the operation from the Company's major stockholder. The Company had previously purchased the eggs produced from this operation pursuant to a contract grower arrangement. The lease term runs for ten years with a yearly lease payment of $750,000. The Company has an option to extend the lease for an additional five years, with an option at the end of the lease to purchase the property at fair market value as determined by an independent appraisal. NOTE F-CONTINGENCIES Since March 23, 1999, the Company has been a plaintiff in two antitrust lawsuits in U.S. District Court in Washington, D.C. alleging a world-wide conspiracy to control production capacity and raise prices of common vitamins such as A, B-4, C and E. On November 3, 1999, a settlement, which was entered into as part of a class action lawsuit to which the Company was a member, was agreed to among the defendants and the class, which would provide for a recovery of between 18-20% of vitamins purchased from the defendants from 1990 through 1998. On March 28, 2000, the judge presiding over the case accepted the negotiated settlement between the parties; however, appeals from various sources are in process. The Company has filed documentation showing that vitamin purchases made during the recovery period totaled approximately $14.9 million. During the first fiscal quarter of 2001, the Company received $2.2 million in partial settlement of its claim and anticipates the remaining amounts will be received before the end of fiscal 2001. In January of 1998, seventeen current and/or former employees of the Company filed the case of "Octavius Anderson, et al. v. Pilgrim's Pride Corporation" in the United States District Court for the Eastern District of Texas, Lufkin Division claiming the Company violated requirements of the Fair Labor Standards Act. The suit alleges the Company failed to pay employees for all hours worked. The suit generally alleges that (i) employees should be paid for time spent to put on, take off, and clean certain personal gear at the beginning and end of their shifts and breaks and (ii) the use of a master time card or production "line" time fails to pay employees for all time actually worked. Plaintiffs seek to recover unpaid wages plus liquidated damages and legal fees. Approximately 1,700 consents to join as plaintiffs have been filed with the court by current and/or former employees. It is anticipated that a trial date will be set in February of 2001. The Company believes it has substantial defenses to the claims made and intends to vigorously defend the case. However, neither the likelihood of an unfavorable outcome nor the amount of ultimate liability, if any, with respect to this case can be determined at this time. The Company does not expect this matter, individually or collectively, to have a material impact on its financial position or liquidity. Substantially similar suits have been filed against four other integrated chicken companies, including WLR Foods, Inc. On February 9, 2000, the U.S. Department of Labor ("DOL") began a nationwide audit of wage and hour practices in the chicken industry. The DOL has audited 51 chicken plants, three of which are owned by the Company. The DOL audit examined pay practices relating to both processing plant and catching crew employees and includes practices which are the subject of Anderson v. Pilgrim's Pride discussed above. The Company expects to have a closing conference with the DOL before April of 2001.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Profitability in the chicken industry can be materially affected by the commodity prices of chicken, chicken parts and feed ingredients. Those commodity prices are determined largely by supply and demand. As a result, the chicken industry as a whole has been characterized by cyclical earnings. These cyclical fluctuations in earnings of individual chicken companies 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 food products. Prepared food products generally have higher profit margins than our other products. Also, the production and sale in the U.S. of prepared food products reduces the impact of the costs of feed ingredients on our profitability. Feed ingredient purchases are the single largest component of our cost of goods sold, representing approximately 26.6% of our cost of goods sold in fiscal 2000. The production of feed ingredients is positively or negatively affected primarily by weather patterns throughout the world, the global level of supply inventories 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's total production costs, thereby reducing their impact on our profitability. The following table presents certain information regarding the Company's U.S. and Mexico operations. <TABLE> <CAPTION> Three Months Ended December 30, 2000 January 1, 2000 (in thousands) <S> <C> <C> Net Sales to Unaffiliated Customers: United States $307,552 $284,379 Mexico 78,480 70,446 Operating Income: United States 20,631 21,106 Mexico 2,580 4,116 </TABLE>
The following table presents certain items as a percentage of net sales for the periods indicated. <TABLE> <CAPTION> Three Months Ended Percentage of Net Sales December 30, 2000 January 1, 2000 (in thousands) <S> <C> <C> Net Sales 100.0 % 100.0 % Costs and Expenses: Cost of sales 87.8 87.2 Gross profit 12.2 12.8 Selling, general and administrative 6.2 5.7 Operating Income 6.0 7.1 Interest Expense 1.1 1.1 Income Before Income Taxes 4.9 6.1 Net Income 3.3 4.2 </TABLE> Results of Operations FISCAL FIRST QUARTER 2001 COMPARED TO FISCAL FIRST QUARTER 2000 CONSOLIDATED NET SALES. Consolidated net sales were $386.0 million for the first quarter of fiscal 2001, an increase of $31.2 million, or 8.8%, from the first quarter of fiscal 2000. The increase in consolidated net sales resulted from a $15.6 million increase in U.S. chicken sales to $265.8 million, an $8.1 million increase in Mexico chicken sales to $78.5 million and a $7.5 million increase of sales of other U.S. products to $41.7 million. The increase in U.S. chicken sales was primarily due to a 5.1% increase in dressed pounds produced and by a 1.1% increase in total revenue per dressed pound produced. The increase in Mexico chicken sales was partially due to a 10.5% increase in dressed pounds produced and by a 0.9% increase in revenue per dressed pound. The $7.5 million increase in sales of other U.S. products was primarily due to higher selling prices in the Company's Commercial Egg division. COST OF SALES. Consolidated cost of sales was $338.9 million in the first quarter of fiscal 2001, an increase of $29.5 million, or 9.5%, compared to the first quarter of fiscal 2000. The increase resulted primarily from a $21.0 million increase in the cost of sales of our U.S. operations offset in part by a $2.2 million recovery from the vitamin litigations discussed in "Note F of the Condensed Consolidated Financial Statements" and by an $8.5 million increase in the cost of sales in our Mexico operations. The cost of sales increase in our U.S. operations of $21.0 million was due primarily to a 5.1% increase in dressed pounds produced, a 10.2% increase in feed ingredient costs and by increased production of higher cost prepared food products. The $8.5 million cost of sales increase in our Mexico operations was primarily due to a 10.5% increase in dressed pounds produced and by a 3.0% increase in average costs of sales per dressed pound produced caused primarily by the continued shift of production to a higher- valued product mix. GROSS PROFIT. Gross profit was $47.2 million for the first quarter of fiscal 2001, an increase of $1.7 million, or 3.7%, over the same period last year. Gross profit as a percentage of sales decreased to 12.2% in the first quarter of fiscal 2001 from 12.8% in the first quarter of fiscal 2000 due to lower net margins in Mexico and in our US operations primarily due to higher ingredient costs. The higher gross profit resulted in part from a $2.2 million recovery from the vitamin litigation discussed in "Note F of the Condensed Consolidated Financial Statements". Beginning in the fourth quarter of fiscal 1999, commodity chicken margins in the U.S. have been under pressure due, in part, to increased levels of chicken production in the U.S. To the extent that these trends continue, subsequent period's gross margins could be negatively affected to the extent not offset by other factors such as those discussed under "-General" above. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Consolidated selling, general and administrative expenses were $24.0 million in the first quarter of fiscal 2001 and $20.3 million in the first quarter of fiscal 2000. Consolidated selling, general and administrative expenses as a percentage of sales increased in the first quarter of fiscal 2001 to 6.2%, compared to 5.7% in the first quarter of fiscal 2000, due primarily to increases in selling and administrative expenses resulting from higher sales volume. OPERATING INCOME. Consolidated operating income was $23.2 million for the first quarter of fiscal 2001, a decrease of $2.0 million, or 8.0%, when compared to the first quarter of fiscal 2000, resulting primarily from lower net margins in Mexico and in our U.S. operations due to higher feed ingredient costs, offset in part by a $2.2 million recovery from the vitamin litigations discussed in "Note F of the Condensed Consolidated Financial Statements". INTEREST EXPENSE. Consolidated net interest expense increased 6.1% to $4.1 million in the first quarter of fiscal 2001, when compared to $3.9 million for the first quarter of fiscal 2000 due to higher interest rates experienced in the first quarter of fiscal 2001. INCOME TAX EXPENSE. Consolidated income tax expense in the first quarter of fiscal 2001 decreased to $6.3 million compared to an expense of $6.6 million in the first quarter of fiscal 2000. This decrease resulted from lower U.S. earnings in the first quarter of fiscal 2001 than in the first quarter of fiscal 2000. LIQUIDITY AND CAPITAL RESOURCES On November 16, 2000 the Company entered into amended and restated revolving credit facilities and secured term borrowing facilities, increasing the total amount available to $120.0 million and $400.0 million, respectively, from $70.0 million and $200.0 million, respectively. The credit facilities provide for interest at rates ranging from LIBOR plus five-eighths percent to LIBOR plus two and three-quarters percent, depending upon the Company's total debt to capitalization ratio. Interest rates on debt outstanding under these facilities at December 30, 2000 bore interest rates at LIBOR plus five-eighths. These facilities are secured by inventory and fixed assets or are unsecured. These increases were made to provide the funding necessary to consummate the WLR Acquisition discussed in "Note A to the Condensed Consolidated Financial Statements". The increases in the revolving credit facilities are available as of November 16, 2000; however, the additional $200.0 million in secured term borrowing facilities will only be available upon consummation of the WLR Acquisition and the satisfaction of certain other customary conditions on or before February 28, 2001. At December 30, 2000, $66.3 million was available under the revolving credit facilities and $200.0 million was available under the term borrowing facilities. On June 26, 1998 the Company entered into an asset sale agreement (the "Agreement") to sell up to $60 million of accounts receivable. In connection with the Agreement, the Company sells, on a revolving basis, certain of its trade receivables (the "Pooled Receivables") to a special purpose corporation wholly owned by the Company, which in turn sells a percentage ownership interest to third parties. At December 30, 2000, an interest in these Pooled Receivables of $36.0 million had been sold to third parties and is reflected as accounts receivable. These transactions have been recorded as sales in accordance with FASB Statement No. 125, ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES. The proceeds resulting from the sale are included in cash flows from operating activities in the Consolidated Statements of Cash Flows. Losses on these sales were immaterial. At December 30, 2000, the Company's working capital and current ratio was $107.5 million and 1.74 to 1, respectively, compared to $124.5 million and 1.86 to 1, respectively, at September 30, 2000. Trade accounts and other receivables were $64.3 million at December 30, 2000, compared to $50.3 million at September 30, 2000. The 27.8% increase between December 30, 2000 and September 30, 2000 was primarily due to an increase in sales of prepared food products, which normally have longer credit terms than fresh chicken sales, partially offset by the sale of receivables under the asset sale agreement discussed above. Excluding the sale of receivables, trade accounts and other receivables would have increased 17.0% to $100.3 million at December 30, 2000 from $85.7 million at September 30, 2000. This increase was due primarily to the higher level of sales activity discussed above. Accounts payable and accrued expenses were $131.4 million at December 30, 2000, compared to $139.8 million at September 30, 2000, a decrease of $8.4 million, or 6.0% and was primarily due to normal variations in accounts payable. Inventories were $167.2 million at December 30, 2000, compared to $181.2 million at September 30, 2000. The $14.0 million, or 7.7%, decrease in inventories between December 30, 2000 and September 30, 2000 was primarily due to lower live chicken and hen inventories resulting from seasonal variations in sales of chicken and feed products to the Company's principal stockholder, offset in part by higher finished goods inventory, required to support the increase in net sales. Capital expenditures of $32.6 million and $14.4 million for the three month periods ended December 30, 2000 and January 1, 2000, respectively, were primarily incurred to expand certain facilities, improve efficiencies, reduce costs and routine equipment replacement. The Company has budgeted approximately $100.0 million for capital expenditures in each of its next three fiscal years, primarily to increase capacity through either building or acquiring new facilities, to improve efficiencies and for the routine replacement of equipment. However, actual levels of capital expenditures in any fiscal year may be greater or lesser than those budgeted. The company expects to finance such expenditures with available operating cash flows and long-term financing. Cash flows provided by operating activities were $16.0 million and $31.8 million for the three month periods ended December 30, 2000 and January 1, 2000, respectively. The decrease in cash flows provided by operating activities for the three months ended December 30, 2000, when compared to the three months ended January 1, 2000, was due primarily to an increase in accounts receivables and a decrease in accounts payables. Cash flows provided by (used in) financing activities were $0.4 million and ($21.4) million for the three month periods ended December 30, 2000 and January 1, 2000, respectively. The cash used in financing activities primarily reflects the net proceeds (payments) from notes payable and long- term financing and debt retirement. RECENT DEVELOPMENTS On September 27, 2000, the Company announced that it had signed a definitive agreement to acquire all the outstanding stock of WLR Foods, Inc. in a cash merger valued at approximately $300.0 million, which includes the assumption and/or refinancing of approximately $60.0 million of WLR Foods' debt and other obligations (the "WLR Acquisition"). Pursuant to the agreement, the Company will pay $14.25 for each outstanding share of WLR Foods common stock. The merger is subject to customary closing conditions and the approval of WLR Foods' shareholders. The date of the WLR Foods' shareholder vote is currently anticipated to occur on January 26, 2001, with the closing of the transaction to proceed shortly thereafter. WLR Foods is currently the twelfth largest chicken company and the fourth largest turkey company in the United States, with operations in Virginia, North Carolina, West Virginia and Pennsylvania. The Company intends to finance the transaction with existing cash and borrowings under the financing facility described above, which will result in the Company incurring substantially greater interest expense in the future. The transaction has received the unanimous approval of both companies' Board of Directors. IMPACT OF INFLATION Due to moderate inflation in the U.S. and the Company's rapid inventory turnover rate, the results of operations have not been significantly affected by inflation during the past three-year period. FORWARD LOOKING STATEMENTS The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by (or on behalf of) the Company. Except for historical information contained herein, Management's Discussion and Analysis of Results of Operations and Financial Condition and other discussions elsewhere in this Form 10-Q contain forward-looking statements that are dependent upon a number of risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statement. These risks and uncertainties include changes in commodity prices of feed ingredients and chicken, the Company's indebtedness, risks associated with the Company's foreign operations, including currency exchange rate fluctuations, trade barriers, exchange controls, expropriation and changes in laws and practices, the impact of current and future laws and regulations, risks associated with the Company's integration of WLR Foods, Inc. into the Company, the impact of uncertainties of litigation as well as other risks described in the Company's Securities and Exchange Commission (SEC) filings. The Company does not intend to provided updated information about the matters referred to in these forward looking statements, other than in the context of Management's Discussion and Analysis of Results of Operations and Financial Condition contained herein and other disclosures in the Company's SEC filings. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes from the information provided in Item 7a of the Company's Annual Report on Form 10-K for the year ended September 30, 2000. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Since March 23, 1999, the Company has been a plaintiff in two antitrust lawsuits in U.S. District Court in Washington, D.C. alleging a world-wide conspiracy to control production capacity and raise prices of common vitamins such as A, B-4, C and E. The suit alleged that, Roche Holding, Ltd. Affiliates Hoffmann-LaRoche Inc., Roche Vitamins Inc. and F. Hoffman- LaRoche, Ltd.; Rhone-Poulenc SA; BASF AG and the German chemical company's U.S. unit, BASF Corp.; Eisai Co.; Takeda Chemical Industries Ltd.; and Merck KgaA conspired to control production of vitamins A, C and E. In a separate suit, the Company contended that Chinook Group Ltd., DuCoa LP, DCV Inc. and various individuals tried to monopolize the vitamin B-4 market. On November 3, 1999, a settlement, which was entered into as part of a class action lawsuit to which the Company was a member, was agreed to among the defendants and the class, which would provide for a recovery of between 18-20% of vitamins purchased from the defendants from 1990 through 1998. On March 28, 2000, the judge presiding over the case accepted the negotiated settlement between the parties; however, appeals from various sources are in process. The Company has filed documentation showing that vitamin purchases made during the recovery period totaled approximately $14.9 million. During the first fiscal quarter of 2001, the Company received $2.2 million in partial settlement of its claim and anticipates the remaining amounts will be received before the end of fiscal 2001. In January of 1998, seventeen current and/or former employees of the Company filed the case of "Octavius Anderson, et al. v. Pilgrim's Pride Corporation" in the United States District Court for the Eastern District of Texas, Lufkin Division claiming the Company violated requirements of the Fair Labor Standards Act. The suit alleges the Company failed to pay employees for all hours worked. The suit generally alleges that (i) employees should be paid for time spent to put on, take off, and clean certain personal gear at the beginning and end of their shifts and breaks and (ii) the use of a master time card or production "line" time fails to pay employees for all time actually worked. Plaintiffs seek to recover unpaid wages plus liquidated damages and legal fees. Approximately 1,700 consents to join as plaintiffs have been filed with the court by current and/or former employees. It is anticipated that a trial date will be set in February of 2001. The Company believes it has substantial defenses to the claims made and intends to vigorously defend the case. However, neither the likelihood of an unfavorable outcome nor the amount of ultimate liability, if any, with respect to this case can be determined at this time. The Company does not expect this matter, individually or collectively, to have a material impact on its financial position or liquidity. Substantially similar suits have been filed against four other integrated chicken companies, including WLR Foods, Inc. On February 9, 2000, the U.S. Department of Labor ("DOL") began a nationwide audit of wage and hour practices in the chicken industry. The DOL has audited 51 chicken plants, three of which are owned by the Company. The DOL audit examined pay practices relating to both processing plant and catching crew employees and includes practices which are the subject of Anderson v. Pilgrim's Pride discussed above. The Company expects to have a closing conference with the DOL before April of 2001. The Company is 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, results of operations or cash flows of the Company. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K EXHIBIT NUMBER 10.27 First Amendment to the Second Amended and Restated Secured Credit Agreement between Pilgrim's Pride Corporation and Harris Trust and Savings Bank, individually and as agent and the lenders from time to time parties hereto as lenders, dated November 5, 1999.* 10.28 Second Amendment to the Second Amended and Restated Secured Credit Agreement between Pilgrim's Pride Corporation and Harris Trust and Savings Bank, individually and as agent and the lenders from time to time parties hereto as lenders, dated November 5, 1999.* 10.29 Second Amended and Restated Credit Agreement between Pilgrim's Pride Corporation and CoBank, ACB, individually and as agent and the lenders from time to time parties hereto as lenders, dated November 16, 2000.* 10.30 Commercial Property Lease dated December 29, 2000 between Pilgrim's Pride Corporation and Pilgrim Poultry G.P.* * Filed herewith The Company has not filed any reports on Form 8-K that have not been disclosed on Form 10-K for the year ended September 30, 2000. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PILGRIM'S PRIDE CORPORATION /S/ Richard A. Cogdill Date 1/18/2001 Richard A. Cogdill Executive Vice President and Chief Financial Officer and Secretary and Treasurer in his respective capacity as such